Is your organization showing a lack of flexibility in meeting external market demands?
Is your organization experiencing a lack of internal collaboration among various teams?
Is your organization witnessing a slow informational flow and poor quality decision - making?
Despite having a well – articulated Strategy, if your organization is exhibiting one or more of above characteristics, it could be due to poor Organizational design. If not addressed swiftly, it will hamper your Strategy execution and will ruin the financial performance of the organization.
In simple words, Strategy execution refers to a state of getting things done in the desired manner, delivering maximum value and achieving competitive advantage. This requires organizations to streamline the operations, drive appropriate behaviors in people and ensure a seamless flow of communication and coordination. For instance, when Tata group bought Jaguar and Land Rover from Ford motors in 2008, Jaguar was going through a serious crisis. The vehicles were found to have outdated retro designs and inefficient engines. Between 2008 and 2012, Jaguar could sell only 50,000 units, the least number of vehicles sold in its history. When Tata took over, it articulated a three point clear strategy that is improving liquidity, controlling cost and launching new products.
However, Tata could successfully execute its strategy and could turn the company around, only after Jaguar and Land Rover were restructured into a single legal entity. In 2013, it formed the Jaguar Land Rover Automotive Limited. It was followed by several other changes in its Organizational design, including its systems and processes. Some of the significant ones include movement of one of its production unit from UK to Slovakia, upgradation of its Solihull plant to produce electric vehicles and implementation of SAP Success Factors Talent management solution to create a digital experience for its employees. In March 2018, the joint entity made a record sales of more than 9000 units in a month and emerged as a role model for its Organizational design.
So, what is Organizational design?
Organizational design is a systematic approach to integrate and align various elements like strategy, business model, systems, structures, people and procedures to meet business objectives. This encompasses more than just a restructuring. According to Mckinsey, around 70% of large transformational programs implemented by organizations, derail within the first couple of years. This is due to the failure in creating a complementary Organizational design to meet the strategy. This conclusion is further substantiated by research at the University of Austria, which shows significant and positive correlation between a processes oriented Organizational design and Strategy execution.
Also, research at Stanford University has shown how an Ambidextrous organizational design leads to better innovations both in exploiting existing capabilities and exploring newer opportunities to remain relevant.
How to approach designing an organization?
To design an organization for execution excellence, one must consider aligning the elements of three specific dimensions - Contingencies, Considerations and Configuration. Let us explore each dimension in detail:
A contingency is defined as an eventuality which is uncertain. An effective Organizational design starts with the understanding of origin of its demand generation. Further, it requires a careful study of various external agencies that are likely to alter the demand for its products or services. For instance, if the demand forecasts a change in its customer demographics or change in Federal regulations, the same will affect the Business model and the larger strategy. An effective Organization design is something which must be equipped to rapidly adapt to such eventualities and changes in strategy.
Consider the case of Jeffrey Immelt, the retired Chairman of General Electric, who shares in a famous HBR blog, how GE got repositioned as a Digital manufacturing startup from its Classic conglomerate status. The changes were made to meet the lately growing demand on manufacturing “Connected machines”. The organization got redesigned to execute its strategy such as divestment of non – Industrial units, focus on Technology lead organic growth, placement of local employees for its overseas operations and built capabilities around Digital manufacturing processes.
In Google, when Engineering teams started experiencing a lot of internal conflict on capital allocation for developing various differentiated products such as Google Search, Google Waymo, Google Glass etc., they formed a separate parent entity named the Alphabet and allowed each unit like Google Search, Waymo to run it operations independently.
These examples show how great organizations prepare to overcome various eventualities and execute their strategy positively, through effective Organizational design.
An effective Organizational design takes care of two types of considerations. The first category, also called the harder considerations, include:
- Boundaries (What needs to be developed in - house and what needs to be outsourced)
- Division and allocation of tasks based on similarities and differences
- Flow of Information and authority to take decisions
The second set of considerations are the softer ones that indirectly drive specific behaviors in people. They are
- Organizational Culture and Leadership
- Total Rewards and Compensation philosophy
- Competency development
Aligning these hard and soft considerations to the Organizational design is very critical for a seamless execution. When Employees do not see an alignment between these considerations to the larger strategy of organization, they do not see a merit in changing their own behaviors, thus collectively fail as an organization.
Knowing this, when Satya Nadella undertook a major restructuring at Microsoft, his primary focus was to create a more meaningful sense of purpose and create a culture which will sustain its mission “To empower every person and every organization on the planet to achieve more”. The company also brought changes in their performance management and rewards philosophy to reinforce the new culture.
Through various hard and soft elements of consideration, Satya Nadella redesigned Microsoft as a “Cloud first; Mobile first” Organization, to execute its long – term strategy. It is therefore not a surprise to see Microsoft having tripled its share price in just four years and became 800 Bn USD Organization.
Configuration plays another important role in ensuring that a Business Strategy truly becomes ground reality through an appropriate reporting structure. This requires an optimal configuration of the following elements:
- Degree of Span of control and formal procedures that exist in an Organization
- Degree of centralized and decentralized operating units
- Degree of specialties or centers of Expertise (COE)
During configuration, organizations need to be careful about the consequences of each design. For instance, if an organization promotes cost control and operational efficiency, it can adopt a more formal and centralized design. The retail giant Amazon, adopts more formal hierarchies and centralized functional teams to drive efficiency and cost control. The organization employs more than 500,000 people worldwide to serve more than 300 million customers.
The 140 years old Swedish Networking organization, Ericsson shares another interesting story of creating agile teams to secure faster delivery of projects. In 2011, the organization undertook a massive exercise of restructuring its 100,000 employees in to 100 agile teams. Earlier, the organization used to take approximately five years to complete a typical network project for its customers. After implementing an agile structure, Ericsson could deliver projects in much smaller 3 – 5 weeks milestones and show flexibility to make faster changes, to meet its customer requirements. It is found that the organization is twice faster in realizing its revenue targets by defining appropriate organizational structure.
Like Jim Collins who famously said “Building a visionary company requires one percent vision and 99 percent alignment”, you can build a visionary Organization, when the elements of Contingencies, Considerations and Configuration are appropriately aligned. By adopting the 3C Organization design, you can shape a lasting organization that can exemplify Strategy execution, deliver maximum value and attain competitive advantage.
*The views and thoughts expressed in the article belong solely to the author, and not necessarily to the author's employer, organization, committee or other group.