Innovation effectiveness is closely linked to organization design. In the past, most organization design objectives were driven by a need to improve efficiency, resource sharing and improving focus. It is not common to see innovation as the core driver or organization design to improve speed, creativity and agility. Many organizations struggle to 1/designing the organization and available options 2/understand the implications of different design option 3/making the decision among different organization design models. So what are the factors that should guide the choice (and criticality) of organization design?
There are many rules of thumb about things such as spans of control / empowerment and cross functional/business units reporting relationships and revenue and cost allocation. There are many theories on organization design but not very useful in guiding organization design decisions. Even if you’ll have 2 or 3 different options on the table, you still need to figure a way to make the big decision? What I advise companies is use the following test when prototyping organizational design. It is both a logical exercise as well as a creative exercise and requires serious prototyping, not moving boxes in a power point.
The People/Culture Test: Does the design adequately reflect the motivations, strengths and weaknesses of the available managers and staff and the organization purpose?
The Competitive Advantage Test: Does the org design allocate sufficient management emphasis to the strategic priorities in any specific product/market spaces or chosen boundaries?
The Corporate Parenting Advantage Test: This one applies when there are multiple business units and each unit is being looked at individually before holistically. Does the design allocate enough attention to the intended sources of added value and strategic initiatives of the parent or holding company?
The Power Test: Does the org design provide the desired allocated power to groups/individuals that is linked to the strategic value of the unit or functions? Or does it leverage the strength of groups/departments that can positively drive performance beyond its direct influence.
The Agility Test: This addresses whether the org design provide the adaptability and increase speed to respond and allow having the agility to adapt quickly to future changes?
The Market Perception Test: This address how the investment communities perceive the motive and benefit of the redesign. It is important (for public company) that investors and analysts buy into the needs as well as the outcomes.
Organization design is not a pure rational exercise. What is a good organization design? You won’t know when you finish designing; the prototyping of organization design is tightly linked to employee engagement, strategic futures and organization purpose. It takes some experimentation before getting it right. At the end, its goals are to improve all of the above. The tests provide a good starting point to look at organization design requirements. That’s where Design Thinking comes into play.