Organizational Design: The Most Underrated Leadership Task?

Organizational design: More than just working on the organizational chart

Organizational design is more than just moving boxes around on the organizational chart or simply optimizing job descriptions.

Organizational design is a systematic approach that encompasses conscious, future-oriented work on the formal and informal structures of an organization.

The goal is to design the interaction of all parts of the organization in such a way that the company as a whole:

• is efficient - as the basis for economic success,
• remains capable of learning - to continuously learn from mistakes, insights, and feedback,
• becomes adaptable - to be able to react flexibly to changes,
• capable of handling complexity - to deal constructively with complexity,
• and thus remains future-fit - i.e., is effective and competitive not only today but also in the future.

It is about consciously designing an architecture of cooperation.

Understanding organizations as social systems

Organizations are social systems that emerge when multiple individuals pursue a shared objective.

The more people involved, the more challenging coordination and collaboration become, and the more important the role of leaders becomes, whose task is to create conditions in which collaboration can succeed.

Here is a small selection of questions that repeatedly lead to intense discussions:

• Who does what? (division of labor)
• What roles are needed? (job architecture)
• Who decides what? (decision-making authority)
• Who coordinates whom? (leadership)
• Who needs what information? (communication)
• Who gets what? (compensation)
• What interfaces exist? And do they work? (collaboration)
• Which tasks and decision-making powers are located at which level?
• What decisions are made at a central level, and which ones are made at a decentralized level? (hierarchy vs. autonomy)

Try to find answers to these questions for your area of responsibility. You will see that it is anything but easy.

However, it is precisely these answers that create the conditions in which leadership and work become easier, making organizational design a strategic management tool.

The challenge lies in the fact that they require trade-offs, and the more areas involved, the more crucial is for them to be well-coordinated so that the organization functions as a whole.

Symptoms: When a redesign is advisable

“94% of problems in companies are system-related and only 6% are people-related.” W. Edwards Deming

Typical symptoms of system-related problems:

• responsibility is shifted back and forth (gray areas)
• decisions take too long
• excessive bureaucracy
• unclear roles and responsibilities
• teams work at cross purposes
• teams pursue different goals (silo mentality)
• conflicts arise at interfaces
• unclear priorities
• too many meetings without added value
• managers are overloaded with operational tasks
• unclear or overly complicated structures and processes

All these symptoms have their roots in the organization itself - and this is precisely where organizational design comes in.

Organizational design: Creating a viable architecture of cooperation

The goal of organizational design is the conscious development of a viable architecture of cooperation. 

The question of where to go – i.e., the direction and development of the company – is answered by its strategy. 

Organizational design, on the other hand, answers the question of how: How is the strategy implemented? Organizational design plays a central role in this.

Organizations – whether teams or corporations – follow a blueprint consisting of the same essential building blocks. 

The effectiveness of organizational design depends on how these building blocks are designed and interconnected.

Context-dependent organizational design: No off-the-shelf recipe for success

Organizational design always depends on the enabling conditions – the respective context – in which the organization operates. There are, therefore, no universally applicable best practices or “the best” organizational design.

Aspects that must be taken into account are:

• the corporate strategy
• the maturity level of the organization
• the business model
• the people who work in the organization
• the environment with which the organization is confronted

Holacracy, self-organization, or agile principles are not magic formulas, but only make sense if they fit the context and needs of the organization.

Organizational design as a continuous process

Organizational design is an ongoing process because organizations and their environment are constantly changing:

• new technologies,
• new strategies,
• new markets,
• new products,
• new employees,
• or new challenges.

With organizational design, the company develops a map of its organization that serves as a guide for future developments. 

In this way, the organizational design can be continuously adapted and firmly anchored in everyday practice.