Rehabilitating organizational design

Poor organizational design choices result in lost time and wasted resources. How can chief executives lead successful redesigns?

Questions of organization are timeless. In the biblical Exodus story, for example, Jethro advises his son-in-law Moses to structurea his enterprise and then delegate decisions. That was then. Today, board directors and company executives are admonished about three other organizational issues: purpose, change and leadership. First, how to organize so that the company can fulfill its societal role meaningfully and sustainably? Second, how to ensure that when an organizational change is made, a critical mass of people buys into it and that decisions are implemented for real? And third, what values, skills and style characterize a successful leader of a forward-looking company? 

A clear purpose, careful change and exemplary leadership are undeniably essential to a company’s success. Today’s management literature offers abundant and often sensible advice on these topics. Nevertheless, many organization redesign exercises still go off the rails. Much time, resources and emotional energy is wasted. How come? Reflecting on the major organization redesigns we have accompanied in the past 30 years across continents and in a wide range of sectors, we find that effective CEOs and their executive teams set great store on three behaviors when doing a redesign exercise. They demand craftsmanship, safeguard nuance in the debate, and engage personally from A to Z.

Craftsmanship in organizational design

Effective CEOs rehabilitate the so-called midstream phase of organizational design, which today is often neglected in favor of the upstream and downstream phases. The former deals with defining the company’s purpose, values and vision: consider it the corporate equivalent of US President Kennedy’s 1961 statement, “I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth.” The latter deals with execution and change management: it is the corporate equivalent of the mission control center that manages the spacecraft’s flight. 

The midstream phase is about crafting a new design through an orderly process: defining the business objectives and desired benefits of the redesign; defining the criteria for assessing alternative design concepts; clarifying the limits to the design freedom; defining the design variables with which one can play (i.e. architecture, processes, culture, people and technology); developing alternative design concepts; selecting the concept that best meets the predefined criteria; detailing the selected concept; and, finally, preparing the transition toward the go-live of the new design on ‘Day One’.

Clearly, change management intensifies during that transition and it continues well into the downstream implementation phase. We do not question that smart change management is critical. However, no degree of change management can make up for essentially flawed design choices. Fundamentally, flawed design choices lead to unsuccessful outcomes: at the end of the change process, one will find that the new design does not deliver the aspired benefits, and a lot of resources, time and energy will have been wasted. In addition, flawed design choices lead to a needlessly long and painful transition process, as the flaws gradually become visible to a growing number of people, and possibly even pit people against each other. It pays, therefore, to devote a bit more time to in-depth thinking about meaningful and acceptable design choices, rather than rush into change.

Nuanced debate

Effective chief executives care for nuance in organization design discussions. They realize that there is not an indisputably best, let alone a perfect design. The eventually chosen design is the ‘least bad’: it is the outcome of the careful balancing of the advantages and drawbacks of a couple of valid alternative designs. Before deciding on the best possible design choice, effective executives ask all the right questions and address all relevant design variables in their discussions. Specifically, they steer clear of three temptations that tend to lead to doctrinal and hence emotional debates.

First, they don’t get sidetracked by vocal advocates of a momentarily hot topic such as agility or – more likely today – resilience. They realize that one flavor-of-the-year concern alone cannot drive a major organizational overhaul.

Second, they have long abandoned the illusion that one can infer from anecdotes about the spectacular performance of a sample of today’s superstar firms, a generalizable and replicable recipe for the 99% of firms like theirs that are ‘ordinary’. They know from experience that pulling off an organizational redesign requires hard work, boots in the mud.

Third, they are no longer seduced by the seeming simplicity promised by formula-based solutions, such as: “If your business strategy focuses on customer-centricity, then you must organize by customer segment.” They realize that organizational design choices are contextual and strongly driven by their company’s specific historic path.

A topic that often suffers from doctrinal debate relates to the role of the company’s corporate parent (also known as the corporate center or corporate headquarters) versus that of the business entities in the company’s portfolio. That debate may degenerate into a binary, almost ideological choice between “more parent” or “less parent.” The real question is: “How to get a better parent?” A nuanced debate would recognize, first, that the role of the corporate parent may depend on the area where it could or should influence the business entities: one would differentiate, for example, between defining standards, approving capital expenditures, providing shared services, and kick-starting new programs. Second, the role of the corporate parent may depend on the type of business in the company’s portfolio. One would differentiate, for example, between a mature legacy business, a growth business, an internal corporate venture, and a joint venture.

Personal engagement from A to Z

Effective chief executives engage personally in the organization redesign exercise. They take full ownership from start to finish. They keep their finger on the pulse of the process on an almost daily basis, for four reasons. First, they want to think for themselves about the pros and cons of alternative organization designs, as opposed to simply reviewing and approving the preferred solution developed and presented by a project team. They want to give themselves the opportunity to form their own ideas about a fit-for-purpose design.

Second, effective CEOs want to stay in control of the growing number of explicit or implicit micro-commitments that are made as the process progresses from concept design to detail design. Such micro-commitments can be about future reporting lines, roles, people, and so on. Effective leaders want to spot improper design ideas early, before they gain momentum, take on a life of their own, and eventually may require painful rectification.

Third, effective chief executives want to be able to communicate the outcomes of the design exercise credibly and convincingly, particularly in face-to-face meetings with internal audiences. They want to feel comfortable providing unscripted answers to unforeseeable questions. They can do so only if they have immersed themselves personally in the actual design work.

Last but not least, by engaging personally in the organization redesign work, effective CEOs get direct exposure to people outside the company’s top management team with whom they otherwise would not interact. They find out how people in the field think, behave and interact. They develop a better feel for the people-side of the business at large.

Yet, even when a leader gets personally involved in the action, they may still be vulnerable to personal setbacks. To anticipate and mitigate the effects of such potential setbacks, CEOs could ask themselves four introspective questions before the start of the redesign initiative, and take preventive actions where needed.

1 “Do I fully believe in this initiative?”
A chief executive may have personal doubts about the need for a redesign, but still consent to it due to nagging by another member of the executive team or even the board. Unfortunately, an exercise led by a half-hearted CEO is off to a bad start. In such a situation the CEO could demand more clarity about the aspired benefits of the redesign and the design criteria.  

2 “Will I listen to the right people without letting the process go off track?”
Involving the right people at the right time in
the design process is important. But a chief executive can go overboard in trying to appease as many people as possible, thus getting into endless iterations. At some point, they must conclude, decide and freeze the design. A CEO with a bent for appeasing others could force themselves to communicate explicitly about the limits to design freedom, the deadlines, and the strict comply-or-explain rule that will be applied during the detail design. 

3 “Am I prepared to make tough decisions where needed and stick to them?”
If you are an indecisive person, you are unlikely to rise to the corner office. Nevertheless, even a chief executive may succumb to the “over my dead body” threat by a manager who disagrees with a well thought-out decision by the executive team. This and similar forms of indecisiveness are devastating to a leader’s credibility; a CEO with an indecisive bent could force themselves to go public with the design decisions fairly fast, thus raising the hurdle for backtracking.

4 “Am I in control of all the levers I will need to pull?”
Depending on the company’s corporate governance practices, the chief executive’s lead of the redesign exercise may be hamstrung by certain members of the board of directors. For example, an executive chairperson, an owner-director or a retired CEO-founder may short-circuit the current chief executive and favor or protect their old favorites. A CEO who feels at risk of being incapacitated could make explicit upfront agreements with the directors about their potential involvement, the distribution of roles, and the communication channels.

It is all about people

Organizational design changes tend to have a more direct and immediate impact than business strategy changes on the daily work of large numbers of people. CEOs must do whatever they can to maximize the chances of success of a redesign initiative, short-term and long-term.

Herman Vantrappen is managing director of Akordeon. Frederic Wirtz leads The Little Group. They are the authors of The Organization Design Guide: A Pragmatic Framework for Thoughtful, Efficient and Successful Redesigns.