Organisation Design

Have you ever wondered how organisations choose their designs? Typically, an organisation selects its design according to its nature, objectives, and culture. But there are still many other factors that influence organisational design selection, let's explore them!

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Table of contents

    Organization design definition

    Organisation design is the process of organising the company's structure so that it is aligned with organisational culture and objectives. Organisations are aimed to be designed in a way to support company's strategy and goals.

    The key aspect of organisational design is establishing the flow of the decision-making processes. This is known as a hierarchy.

    Hierarchy can entail two opposite organisational designs. Firstly, organisations that implement formal or rigid hierarchical structures, follow formal protocols in which each hierarchical level has clearly defined roles and responsibilities. The communication within and between hierarchical levels is usually formal.

    On the other hand, the organizations that follow an informal or flat hierarchy design do not formally establish employees' roles and responsibilities, instead, employees have flexibility regarding their duties and responsibilities. Additionally, communication between employees and managers is usually informal.

    Elements of organisational design

    There are a few important elements that organisations follow when designing or redesigning the organisational structure.

    • The span of control shows the number of employees that the manager is responsible for. There are two types: a wide span of control is when one manager is responsible for many employees, and a narrow span of control is when managers are responsible for only a few employees.

    • Chains of command describe the organisational structure in terms of how employees are reporting to one another depending on their hierarchical level. For example, in the centralized structure, the bottom hierarchy will be reporting to the one hierarchical level above them, and so on. In the decentralized structure, the reporting will flow horizontally.

    • Levels of hierarchy describe the number of management levels that organisations have. This refers to two traditional ways of designing an organizational structure that is either tall or flat. Tall organisations usually follow a formal structure that has many hierarchical levels. A flat structure usually has fewer or no levels of hierarchy and follow an informal structure.

    • Levels of authority show the level of power that managers have in an organization over their subordinates to make decisions. The higher the authority level the more power managers have. The number of authority layers is usually similar to the number of hierarchy levels in organizations with rigid hierarchy structures. While, in a flat structure, there are few or no levels of authority as every employee has a certain level of authority to make decisions.

    Organisation design principles

    Principles of organisation desgin will vary depending on company's nature and strategy, but in most cases, business should follow these principles: alignment with strategy, maximizing efficiency,scalability, flexibility, and accountability.

    Let's go through them one by one:

    1. Alignment with strategy: organisation's structure must, first of all, serve as a tool that helps to achieve company's goals.

    2. Efficiency: it has to maximize company's productivity and efficiency

    3. Scalability: it should allow the business to grow or shrink when needed

    4. Flexibility: it has to allow the company to quickly adapt to changes

    5. Accountibility: it has to define roles and responsibilities of each employee

    What are the reasons for improving organisation design?

    Organisations may consider improving and changing their organisational design because of various reasons that are:

    • Organisational growth can influence businesses to start incorporating more formal structures to avoid chaos and keep the company organized.

    • If the current organisational structure is complex and costly managers may be motivated to make the organizational design more simple and reduce its costs.

    • Employees need more motivation as the current organizational design does not engage or motivate them.

    • The quality of a company's services or goods requires improvement

    How to improve the organisational design?

    Once the key reasons to improve the organisational design are identified it is time for managers to take action and start making changes to the organisational design.

    In the next section, we will touch upon different ways of how organisational design can be improved.

    Focusing on employees to improve organisational design

    One of the methods for improving organizational design is to put the main focus on the people working in the organisation, as employees are the ones who will bring value to the organization. The goal is to develop an organisational design that will fit their needs and motivate them to work effectively.

    The workforce can be focused on in three ways:

    1. Workforce roles - This includes different roles that employees undertake in the organisation. Chief executives, managers, team leaders, supervisors, team members. The organisation must consider how these roles are designed in terms of given tasks and responsibilities.

    2. Workforce loads - The workload that employees must complete within the set period. The chief executives may have a larger workload compared to the team members. Organisations should pay attention if the workloads are too heavy for their workforce.

    3. Job allocation - This refers to the task allocations for different job roles. In the company, it must be considered whether tasks are allocated formally and follow the formal guidelines of how to complete them or employees have the freedom to discuss set tasks with managers and choose how they are going to complete them. Organisations should allocate tasks and methods to complete them in a way that suits the employees' preferences.

    By focusing on the workforce, organisations can discover what needs to be changed in the organisational design to improve the workforce motivation and overall performance in the organisation.

    Methods of improving organisation design

    • Delayering - One of the ways of improving the organisational design is to remove layers from the tall organisational structure. This can bring benefits to organizations such as lowering labour costs, increasing the speed of the decision-making process, quicker communication and increased innovations. Employees will no longer have to follow strict regulations and will have more freedom that will encourage creativity and innovation.

    • Delegation - This is the process of assigning tasks and responsibilities to another person. In this case, management can assign tasks to other managers at lower levels and reduce top-level management's workload to help them to focus on main tasks. The lower level management and team members' motivation will increase as they will get to carry out some level of responsibility.

    • Employee empowerment - Managers should make employees feel that their jobs count, which can be down by giving them more responsibility, trusting employees with various tasks and giving them feedback. By empowering employees, organisations might notice improvements in organisational performance as empowered employees are likely to perform better.

    Organisational design models

    The organisational models are developed to assist businesses in designing an effective organizational structure. The main principles that organizational design models follow are:

    • Evaluate the organisation's current design and its efficiency

    • Visualize the key points of future successful organizational design

    • When designing an organization consider its purpose, values, culture, visions and missions

    There are a few established organisational models and one of them is identified as McKinsey's 7s model.

    Mckinsey 7s model

    This organization design model aims to analyze organizational design effectiveness through the interactions of seven elements that belong to two categories of either hard or soft elements.

    The hard elements are:

    • Strategy - Defines ways of how the organization will achieve its set goals and objectives.

    • Structure - This is the way an organization has organized its hierarchical levels, which can be represented through the organizational chart.

    • Systems - Defines processes and procedures of how decision making flows.

    The soft elements are:

    • Skills - The organisation's ability to perform well in certain areas, especially concentrating on the field of expertise of the organisation.

    • Staff - The organisation should pay attention to employees' management process and its effectiveness regarding the staff's performance.

    • Style - This refers to the way senior-level managers are managing the workforce and how the decision-making process flows in the organisation.

    • Shared values - This is the core aspect of this model as this refers to shared norms and values that holds the organisation together. Therefore, all other elements in this model have to align with this specific element.

    Organisation design, Organisational design models, McKinsey 7s model, StudySmarter

    Figure 1. Mckinsey 7s model, StudySmarter

    The value to a business of changing the organisational design

    Changing organisational design can help businesses keep up with the new trends and execute new strategies. If the organization has changed its strategy it has to adapt its design to make sure that the strategy is running smoothly and goals are attained.

    If the company transitions from a start-up to a bigger company. To implement this new transition effectively the company needs to alternate its design. When the company was a start-up, a flat and informal structure worked effectively. However, once it becomes a bigger organization, with more employees, it needs to adapt its design and implement a more formal structure with more hierarchical levels to organize the workforce effectively. This change of organizational design can assist the company to organize its workforce to achieve its organisational goals.

    When the company is expanding internationally. The organization can change the design of its organizational structure in different subunits to work more effectively and efficiently internationally. For example, in the US, most organizations are designed in a way that implements direct and informal communication flow which works effectively. In Japan, organisational communication normally flows vertically and formally and follow rigid hierarchies. By adjusting organizational designs to different international norms, companies can be more effective in employing local talent and comply with cultural standards internationally.

    Overall, organizations are changing their design to achieve strategic goals and objectives and to become more effective and efficient. A successful redesign should focus on allocating resources where needed, to achieve strategic priorities, grow, reduce occurring costs and make decision making more effective.

    Organisation design - key takeaways

    • Organisational design is the process of organizing the company's structure to align it with organizational culture and objectives and maximize organizational efficiency and effectiveness.
    • There are three key elements of design organisationally Which are: 1) The span of control 2) Chain of command 3) Levels of hierarchy 4) Levels of authority.
    • Key reasons for improving organisational design are organisational growth, the current organizational structure is complex and costly, employees require more motivation, the quality of the company's goods or services requires improvement.
    • Organisational design can be improved by focusing on employees in three important ways that are: 1) Workforce roles 2) Workforce loads 3) Job allocation
    • The methods of improving organisational design are 1) Delayering 2) Delegation 3) Employee empowerment.


    SOURCES:

    1. Michael Goold and Andrew Campbell, Designing Effective Organizations: How to Create Structured Networks, 2002

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    Frequently Asked Questions about Organisation Design

    Why are large organisations using service design to improve?

    Large organisations use service design to:

    • Avoid chaos and keep the company organised as the organisation grows. 
    • Simplify the organisational structure for easier management and lower costs. 
    • Motivate and engage employees.
    • Improve the quality of goods and services.

    How can Organisational structure be improved?

    The organisational structure can be improved by focusing on employees (workforce roles, workloads, job allocation) and adopting organisational design improvement methods (delayering, delegation, employee empowerment). 

    What is organizational design?

    Organisational design is the organisation of the company's structure to match the company's culture and objectives while maximising organisational effectiveness.  

    What is the importance of Organisational design?

    Organisational design helps the business to adapt to the changing business strategy so as to function efficiently and achieve new objectives. The improvement in organisational design also allows the company to keep up with new trends in the industry. 

    Test your knowledge with multiple choice flashcards

    ___ describe the organisational structure in terms of how employees are reporting to one another depending on their hierarchical level. 

    A wide span of control is when one manager is responsible for only few employees.

    A flat organisational structure usually many levels of hierarchy and follow an informal structure.

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