Organizational Design

What Is It?
• Organizational Design is the creation of roles,
processes, and formal reporting relationships
in an organization (from Wikipedia).

– Used to create new organizations or departments.

– Used to modify current organizational structures
that may not be working effectively or require
change due to changing business requirements.

MARCH 2010 Developed by Agency Human Resource Services, DHRM 1

 Alignment of Organizational Strategy & Design
Why Is It Important?

It is important to match the organizational design or

structure with the organizational strategy to achieve
desired performance.
– Failure to do so may create organizational performance
challenges resulting from integration issues,
communication problems, overload or overlap of work, too
large or too small a scope, etc.
Organizational Strategy
Organizational Design
Organizational Culture
Organizational Operations
Revenue Services Organizational Results
MARCH 2010 Developed by Agency Human Resource Services, DHRM 2
 Key Steps in Organizational
Design
1 2 3
Organization Strategy Understand Customer Understand The
Purpose, Vision, Mission, Needs And How They Influences of Technology
And Objectives Must Be Influence The And Other
Defined And Clear Organization Design Environmental Issues

Develop Organizational Understand Different

Implement Organizational Designs, Understand Organizational Types
Design or Reorganization Pros/Cons, And And Challenges
Choose An Option Faced In Existing Design

6 4
5
Greenfield Approach: Sometimes, an organization will take a Greenfield Approach
to Organizational Design. This is an approach in which leadership does not try to
modify or use current designs. Rather, they start with a “blank board” and work to
create an organization design to match the organization strategy.

MARCH 2010 Developed by Agency Human Resource Services, DHRM 3

 Common Types of Organizational Structures

Functional Structure Divisional Structure

Director
Director

Eastern Western
Region Region

Human
Operations Finance Legal
Resources
Operations Finance Operations Finance

Design by Function Design by Geography, Product, Market

Benefits Benefits
Creates operational efficiencies Creates focus by customer or product needs
Creates clarity of function, specialization Speed in responding to market opportunities or needs

Potential Challenges Potential Challenges

Lack of communication/coordination Repetition of functions within each segment
Differing Interests between functions Create silos within each division
MARCH 2010 Developed by Agency Human Resource Services, DHRM 4
 Newer Types of Organizational Structures

Matrix Structure Network Structure

Engineerin
Design Finance g Outsource
Partner 3
Prod Mgr A          

     

Prod Mgr B          
Company

     
Outsource Outsource
Prod Mgr C           Partner 2 Partner 1

Design by Outsourcing What Can Be Done

Design by Function and Product Better or Less Expensively
Benefits Benefits
Knowledge sharing Flexible
Specialists focused on products/customers/etc. Can be efficient in having resources only when needed

Potential Challenges Potential Challenges

Multiple “bosses” Lack of complete control over non-core components
More conflict and organizational “politics”
MARCH 2010 Developed by Agency Human Resource Services, DHRM 5
 Other Variations on Organizational
Structures
Boundary-less – design minimizes “boundaries” between vertical,
Team – design that uses horizontal and vertical horizontal, and external/internal relationships; combines aspects of
teams on an ongoing basis (usually self network and team structures.
managed) to accomplish goals; teams may
Virtual – form of boundary-less design that functions in a virtual world
be widespread or may be focused in of network relationships through significant use of the internet.
particular areas and used as a component of
another organizational design.

Manufacturing

Team
2

Team 1 Team 3
Team A
Mfg Preparation Manufacturing
Logistics
Function Operations
Team B

MARCH 2010 Developed by Agency Human Resource Services, DHRM 6

 Some Key Factors to Consider in
Organizational Design

• Degree of Centralization
– Does the organizational strategy support a need for centralization or de-
centralization? Centralization supports standardization and central decision
making while de-centralization supports flexibility for actions and decision
making.
• Span of Control
– The span of control is a determination of the number of direct reports
leadership roles have in the organization design. Small spans of control mean
that leaders have few direct reports (tall organization). Large spans of control
mean that leaders have many direct reports (flat organization).
• Departmentalization
– Higher levels of departmentalization result in higher levels of specialization.
Smaller organizations often support simple structures without high levels of
departmentalization (“jack of all trades” approach). Departmentalization often
increases as organization size increases.

MARCH 2010 Developed by Agency Human Resource Services, DHRM 7

 Tips and Tools for Organizational Design
Efforts
Tips
• Do Not focus on individuals when conducting an
organizational design assessment. Individual
names along with their strengths will be used
later in understanding appropriate placement.
• Be sure the strategy is clear and understood by all
participating in the organizational design efforts.
• An organization may use different types of
organizational designs for different parts of the
organization. For example, an organization may
use components of a matrix structure for product
design & engineering and use a functional
structure for manufacturing operations.
• Be sure to focus on implementation efforts once a
design is determined. Implementation is critical
to acceptance and the success of the design.
MARCH 2010 Developed by Agency Human Resource Services, DHRM
Suggested Tools
• Current organization charts
• Evaluation of effectiveness of current design,
including an understanding of what works well
and what does not
• Organizational strategy – current, past, and
future including an evaluation of changes
• If using a Greenfield Approach, a blank board or
sheet of paper
• A neutral third party to help facilitate discussion
– Expect conflict; conflict can be healthy in
weighing all the options and a third party has no
vested interest in the outcome.
• New organization charts – There are lots of
software options for creating organization charts
from simple options like PowerPoint and Excel
to purchased software.
• Implementation Plan – project planning tools to
create and execute implementation of the new
design
8
 Measurement of success

• Once an organizational structure is implemented, it is important to regularly

evaluate it’s ability to serve and meet organizational strategies and goals.
Measurement may include but is not limited to the following – each organization
will want and need to adapt specific measurements to it’s strategic and operational
environment. Organizational ability to meet timelines and goals
– Level of intra-organizational collaboration vs. level of friction
– Organizational financial measures (e.g., revenue, payments, etc.)
– Operational service measures (e.g., response time, customer feedback, etc.)
– Employee turnover and exit feedback
– Employee survey (or other) feedback

• Note: organizations do not operate in a controlled lab type environment. Other factors will
also influence these measures. Leadership will need to fully evaluate all measures to
determine the most likely impacts on their results. It is like peeling an onion – each layer of
evaluation will reveal more information and help to determine the most significant influences.

MARCH 2010 Developed by Agency Human Resource Services, DHRM 9