How the bigger picture can obscure the small stuff
Insights by Shaun Barnes, Executive Director at 21st Century
“Having worked in this field for over 12 years now, one of the most common issues raised by clients is how to go about reviewing the organisational design of their organisation and what methodology to use of the myriad that are present in the market.
“How big to go, how deep to dive? How do we analyse the boxes and organisational charts that offer the modern representation of a company structure? Where do we start and where do we finish? How do we present our analysis and findings in a way that is quantifiably sound and not just subjective conjecture? The questions are many and often the answers are few.
“Due to the proliferation of global consultancies and large-scale projects associated with restructuring and strategy changes, many people are under the impression that organisational design is a field reserved only for large-scale projects with exorbitant budgets. This is not the case at all. In our continuous search for organisational renewal and structural improvement and the big picture that drives this, we often lose sight of the logical objectives and common human resource methodologies we have at our disposal. We simply do not use the ’small things’ we all have in every organisation enough.
“The first step is to put aside the “million ways to do it” conundrum and understand the logical flow of the organisation design process. Most organisational design projects work according to logical progressive steps that will deliver a strong product if they are followed in the correct order. You may only need to check or redo the outcomes of one or two of the steps, not all, but it still helps to understand the flow and linkages to see where your organisation might be falling short.
“The process to be followed can be visually represented by the following graphic:
This reflects a basic outline of the process to be followed in determining the Organisational Design of a business. Many practitioners make the mistake of jumping immediately from Strategy to Structure. This approach runs the risk of skipping several vital links in the chain, and as can be seen, there are other subjects to be dealt with first. The flow of the approach can be explained in more detail:
“Strategy can be defined as a general direction set for the company and its various components to achieve a desired state in the future. Strategy results from the detailed strategic planning process. The strategy we adopt will define the structure we need. If we adopt a strategy that needs a move to automation in our business, as an example, we know that our current structures will need to be trimmed over time. If, as another example, we adopt a strategy to enter into a new stream of business, we know that we will have to source staff to man the new business stream.
2. Business Model
“The business model simply states “How do we make money”. A business model expresses the business logic of an organisation in a concept. It describes the value a company offers customers and the value chain for creating, marketing, and delivering this value, to generate profitable and sustainable revenue streams. In a nutshell, it tells everyone how we make our money and sets that up in a bigger model that shows who are clients are, how we distribute our products and what our cost and revenue structures are in the quest to declare a profit.
A business model should be drafted in a way that it can be placed on a company website and explain to all shareholders and stakeholders how the company operates.
3. Value Chain
“A value chain is a model that describes the full range of activities needed to create a product or service within an organisation. This is then used to plot which part of the organisation is responsible for which area of the value chain and how the pieces integrate. This assists in designing the nest step which is an Operating Model.
“Once again it must be stressed that the Value Chain should be designed and represented in such a way that it is easily understandable to people within and outside of an organisation and not elevated to a complicated, multi-level and intricate model which only Business Process architects can understand.
4. Operating Model
“An Operating Model dictates where and how the different areas of work get done across a company and serves as the vital link between a company’s strategy and its detailed structure. Before we start looking at our structure, we need an Operating Model that sets the rules of the game. The Operating Model tells us how we should organize ourselves and describes the architecture of the organisation that reflects the elements of the business model in systems and structures that enables it to implement and execute the strategy and the value chain.
“An Operating Model should be captured and designed in such a way that it can be openly shared and understood by all shareholders and stakeholders. Companies too often do not resist the urge to get overly complicated and ‘cute’ in their drive to present an impressive Operating Model.
5. The Macro Structure
“The Macro Structure of an organisation is the executive management level of a business that is responsible for the execution of strategy. The Macro Structure needs to be modelled to link to the Operating Model and Value Chain to be able to deliver on the planned strategy.
The Macro Structure sees the Operating Model being translated into functional areas. This is often referred to as the “N” and “N-1” levels (with ‘N’ denoting the CEO/MD position).
6. The Micro Structure
“The Micro Structure of an organisation refers to all levels and structures below the executive management level. This is often the part of the process that represents the biggest challenge to practitioners, as this is where the structures and boxes now need to be designed and tests applied as to measure the effectiveness of the current structure versus the new structure.
“While there are common methodologies for the mapping of the strategy, business model and operating model elements, the macro and micro structures present, as detailed above, the biggest challenge. How does one actually ‘test’ a structure and how do we make sense of the myriad positions that constitute the micro structure?
“This is where the ‘small things’ come into play – the checks and balances of our designed structure.
“Almost every medium to large-sized company has job evaluation and management levelling in place. These methodologies are often used in isolation and job evaluation is especially neglected in terms only being used to match grade to pay. Job evaluation has uses much wider than this within the context of organisational design.
“We can use job evaluation as a useful test for certain features of structural integrity:
a. Job grades can guide us as to our career paths and where gaps appear in our structures. Gaps of more than three grade levels between positions indicate that incumbents will have difficulty moving into the next level job;
b. Grade differences between managers and subordinates can tell us whether we are using too high a level of manager to supervise subordinates. Again, a three or higher grade gap between a manager or supervisor and the positions they manage could indicate we could use a lower level position for this purpose, as the higher the level the higher the cost;
c. We can use accepted Span of Control benchmarks across grade levels to check whether our teams are too big or too small. This will often give a more quantifiable picture than the oft-repeated phrase of “We think our teams are too big”; and
d. We can check the number of management and supervisory levels we have against the grades of these levels to see if we have too many levels. Once again, the more distinct management and supervisory levels we have, the greater the cost we have to bear.
“There are thus a number of tests we can apply to get a better idea of where our current structure is failing us by using the common tools at our disposal such as job grades. This will provide us with a quantifiable and logical approach rather than relying on speculation and subjective input.
“If we follow a simpler, logical process as illustrated and use what we have internally to measure what we are versus what we want to become, we can implement an organisational design project without causing mass confusion and excessive cost.”