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2019 NDMA Inc.
Excerpt from WWW.NDMA.COM, © 2019 N. Dean Meyer and Associates Inc.

PRINCIPLE-BASED ORGANIZATIONAL STRUCTURE
EXECUTIVE SUMMARY

Book: Principle-based Organizational Structure

Here are the key concepts that executives should know about designing and implementing high-performing organizational structures:

Two Parts of Organizational Structure

Organizational structure includes two things:

  • The organization chart: the hierarchy of jobs (boxes). This defines the reporting structure and the mission and specialty of each group.

  • Cross-boundary workflows: how groups across the organization form teams to deliver projects and services. You can't change the organization chart without affecting workflows; and you can't define a structure that optimizes specialization without effective workflows.

Any effective treatment of structure addresses both of these in an integrated change process.

Structure is a Critical Success Factor of Leadership (More So than Many Realize)

Few executives succeed because of their individual efforts alone. And few fail because of their personal limitations.

As an executive, you're driving a "machine" -- the organization under you. That machine can either get you to your vision, or it's the albatross that frustrates your ambitions.

"I've applied these principles to my entire company,
and it has been an engine for our growth."
Sergio Paiz
CEO, PDC

So one of the most important things you can do as a leader is build a machine that's capable of taking you where you want to go.

Great people aren't enough. In a bad structure, even the best will fail, or at least not perform to their potential.

Why great people alone aren't enough.... Why Great People Aren't Enough

And well-engineered processes aren't enough either. Great people working within great processes can't perform well unless the structure they live in is well designed.

Why well-engineered processes aren't enough.... Why Business Process Engineering Isn't Enough

Organizational structure is a powerful driver of performance -- efficiency, effectiveness, agility, quality, creativity, innovation, customer satisfaction, and competitiveness.

It's also a key element of staff's competence, job satisfaction, motivation, commitment, happiness, and loyalty.

Building a healthy structure is one of the most important responsibilities of leadership.

Symptoms: How to Know if Structure is a Problem

It's easy to know if structure is getting in the way of your people's performance. A poorly designed organizational structure can pit people against one another, send people many directions at once, expect the unreasonable, undermine teamwork, destroy customer focus, and reduce professional competence.

Don't blame people if the problem is your organizational structure. Recognize the symptoms and treat the root causes.

Symptoms of structural problems....

Common Symptoms of Organizational Structure Problems

Common Approaches Often Fail

Remember, common practices are not necessarily best practices. Many popular approaches to structure are, in fact, misguided.

There's no need to repeat the mistakes of the past! Here are some common structures which are designed to fail:
[Hover over any to see the reasons why.]

  • Roles and responsibilities

    Staff need clear job descriptions; but traditional "roles and responsibilities" can confuse accountabilities and seriously hamper performance. More....

    BETTER SOLUTION: Define jobs by the internal lines of business they run.

  • Process owners

    Process owners have the authority to tell others how to do their jobs, but may not be accountable for results. This disempowers others, violating Principle 1, the Golden Rule of organizational design.

    BETTER SOLUTION: Entrepreneurship. Everybody is a "process owner" for their own products and services, and arranges any help they need (subcontracts) from other groups.

  • Customer-centric / decentralization / matrix

    Each profession is scattered among the customer-dedicated groups. Small groups of generalists reduces specialization, and hence performance.
    Furthermore, both professional and enterprise synergies are lost.

    BETTER SOLUTION: Sales (relationship managers) is a distinct function and profession, and should be dedicated to customers. Then the rest of the organization can focus on their professional specialties, and be available to any customer.

  • "As a CIO, I've led organizations that ranged from hundreds of employees regionally to thousands globally. And in each case, I've implemented these principles of structure.

    Frankly, after studying and applying these principles repeatedly, I can't imagine why other executives would depend on their intuitions, or repeat the mistakes others have made under the guise of 'best practices.'"
    Preston T. Simons
    CIO, Aurora Health Care
    and former CIO, Abbott Laboratories

  • Client business processes

    Since many processes require the same competencies, professions are scattered among the groups. This reduces specialization, and hence performance. Furthermore, some less-prominant processes, and executives who aren't involved in routine processes, aren't served well.

    BETTER SOLUTION: Sales (relationship managers) specialize in understanding clients' business processes, and applying the organization's products/services. Once they've identified needs, projects can draw from specialists throughout the organization.

  • Organizational (internal) processes

    Since many processes require the same competencies, professions are scattered among the groups. This reduces specialization, and hence performance. Furthermore, some less-prominant processes aren't served well. And processes become rigid; they can't flexibly draw on the right competencies for each job.

    BETTER SOLUTION: Teamwork. Everybody is accountable for delivering their projects/services, and for arranging any needed help from other groups. With this teamwork, internal processes form dynamically, and teams include the right specialists as needed.

  • Innovation + Operations

    Staff responsible for keeping things running smoothly not only don't have time for innovation; they resist changes that disrupt operational stability. When innovation and operations are combined, innovation slows.

    BETTER SOLUTION: Engineers are responsible for proposing innovative solutions; Service Providers are responsible for stable, reliable operations, and they buy solutions from Engineers when they need more capacity or are ready to offer new services. The right balance emerges from the dialog between these groups, not conflicts of interests within a single group.

  • Managers as client liaisons

    Managers are busy supervising people and projects, and don't have enough time to spend getting to know clients and their strategies, and studying methods of opportunity identification, benefits measurement, etc. As a result, the organization's relationships with clients, and its contribution to clients' strategies, are diminished.

    BETTER SOLUTION: Sales (relationship managers) is a distinct profession with its own competencies and methods; and it's not a part-time job. It's far better to establish a small group dedicated to Sales than to scatter the function as a part-time job for many managers.

  • Plan - Build - Run

    A small group of Planners can't keep up with every specialty, so they become a bottleneck for innovation.
    Meanwhile, the Builders careers are damaged by the lack of opportunity to plan the future (study innovations); and they're demotivated by the perception of "two classes of citizenship."

    BETTER SOLUTION: If time for innovation is the concern, the answer is found in the internal economy (resource-governance processes), not structure. Every group needs to reserve time for exploring new technologies, methods, products, and services with its domain.

  • New - Old

    New and old solutions need the same kinds of specialists; so specialization is reduced as each profession is divided between them, reducing performance.
    Furthermore, there's little incentive for first-time quality in the New Solutions group since they don't have to maintain the solutions they built.
    Also, the Old Solutions group is demotivated by the perception of "two classes of citizenship."

    BETTER SOLUTION: Allocating time and resources among projects should be done within the internal economy -- the resource-governance processess -- not structure. The job of structure is to provide the right specialists to each project, whether they're assigned to maintenance tasks or entirely new solutions.

  • Quick - Slow (bi-modal)

    Both the Quick (and dirty) and the Slow (and quality) groups need the same kinds of specialists; so specialization is reduced as each profession is divided between them, reducing performance. Internal competition may not lead to choosing the right methods for each solution. Also, the Slow group is demotivated by the perception of "two classes of citizenship."

    BETTER SOLUTION: Engineers should specialize in branches of engineering, and be prepared to apply the right methods to each unique project.

  • Programmer pool

    Pools of generalists are slower, lower in quality, and induce greater risks than would specialists. There's little incentive for first-time quality since programmers don't feel any sense of ownership of the solutions they build. And Programmers are demotivated by the perception of "two classes of citizenship."

    BETTER SOLUTION: Everybody at every level should have a "home" that encourages professional specialization. Resource load-balancing should be accomplished by temporarily loaning people from one group to another.

  • "Boundaryless organization"

    People may dabble in many professions, and the loss of specialization reduces performance. There's no guarantee that the organization contains all the needed specialists. Groups taking on multiple lines of business may experience conflicts of interests. With professions scattered throughout the organization, nobody feels "ownership" of internal lines of business, so entrepreneurship suffers.

    BETTER SOLUTION: Teamwork mechanisms can fluidly combine the right specialists on each team, across organizational boundaries. But the organization chart has to provide homes for those specialists, not let staff dabble in whatever they please.

  • Holacracy and Sociocracy

    People may dabble in many professions, and reduced specialization undermines performance. There's no guarantee that the organization contains all the needed specialists. People taking on multiple lines of business may experience conflicts of interests. With professions scattered throughout the organization, nobody feels "ownership" of internal lines of business, so entrepreneurship suffers. And supervisors are disempowered, undermining performance management. More....

    BETTER SOLUTION: Certainly everybody should be empowered. Nonetheless, the structure should provide everybody with a "home" that encourages professional specialization. Teamwork mechanisms can fluidly combine the right specialists on each team, across organizational boundaries.

These misguided approaches, and more, are disected in detail in the book, Principle-based Organizational Structure.

"Structure is a science? Structure is more fundamental than processes? Than strategies? Than even people? Shared-services is not chargebacks? Every manager is an entrepreneur? Dotted lines/matrix/federated models -- all wrong? Wow, [Meyer] blew away the fads and 'common wisdom' (which turns out to be unwise), and opened my eyes to a completely new, refreshing, powerful, and pragmatic understanding of organizations."
Chris S. Romano
CIO, Legal Industry

Structure is an Engineering Science

Contrary to many people's beliefs, organizational structure is an engineering science comprising proven principles and precise definitions. And while there's no one right structure for every organization, there absolutely is a pragmatic way to engineer the best organizational structure for you.

The science of structure contains both Principles and frameworks (the "Building Blocks" of structure).

There are seven Principles that provide the foundation for the science of structure. These may seem like common sense, but few organizations comply with all seven.

Overview of the seven Principles of structure....

Organizational Structure: 7 Fundamental Principles of Structure

There are five "Building Blocks" -- the lines of business that exist within every organization. These are used to precisely define the boxes on an organization chart.

Overview of the five Building Blocks of structure....

Organizational Structure: The Building Blocks of Organization Charts

This science of structure can be used to analyze the problems in your current structure, evaluate a proposed new organization chart, plan small changes in keeping with a consistent long-term vision, or design a completely new structure.

The Benefits are Far-reaching

Whether you lead a company or a department within a company, here are a few of the things that a principle-based organizational structure will do for you (and for the enterprise):

  • Performance: Every group, and every individual, performs better.

  • Teamwork: Teams form spontaneously, and work well together in flexible, but well-defined, processes that are tailored to the needs of specific projects and services.

  • Accountability: Individual accountabilities for results are clear.

  • Execution: The organization delivers its commitments reliably, more quickly, and with lower risk.

  • Cost: Redundancies are eliminated, and internal entrepreneurs are accountable for offering best value.

  • Quality: Product quality goes up; and the product line is better integrated.

  • Innovation: The pace of innovation in every discipline improves.

"One of our first rewards was the positive feedback we received from our clients and senior management...."
Lee Wettlaufer
Director, Information Systems Branch
British Columbia Ministry of Social Services

  • Customer focus: Staff are customer focused, and relationships with customers improve.

  • Alignment: The organization is well aligned with customers' needs and strategies, and is a catalyst for synergies across clients' businesses.

  • Employee satisfaction: The organization is a great place to work because staff are empowered, conflicts of interests are eliminated, and jobs are well focused.

  • Stability: The structure is lasting because it's not designed around personalities; it defines accountabilities for all domains, current and future; and it dynamically evolves as strategies and technologies change.

An investment in structure delivers these powerful benefits in every corner of your organization, year after year.

Insights from CEOs (and their advisors) on the value of a principle-based organizational structure.... Principle-based Organizational Structure: What CEOs Have Said

Insights from CIOs on the value of a principle-based organizational structure.... Principle-based Organizational Structure: What CIOs Have Said

Case Studies Prove the Effectiveness of the Science

The science of structure (Principles and Building Blocks) has been applied to entire companies, and to departments within companies (such as IT, HR, and Public Affairs).

"This powerful, yet pragmatic, approach consistently leads to improved role clarity; better teamwork; customer focus; entrepreneurship; improved performance; and commitment."
Preston T. Simons
CIO, Aurora Health Care
and former CIO, Abbott Laboratories

It's been applied in corporations, not-for-profits, higher education, and government.

Over the years, in case after case, it's proven to be highly effective.

Case studies....

How to Diagnose Your Organization Chart: The Rainbow Analysis

"We've been struggling with organizational issues for years. Our discussions were often confused, occasionally emotional, and rarely decisive. [Principle-based Organizational Structure] brought everything into focus. It's not a rigid answer.... It's a well-structured process with a clear language that helped our leadership team come to consensus on a whole range of tough issues."
Bill Wilkins
CIO, John Alden Financial Services Corp.

To analyze an organization chart (current or proposed), we first color-code the chart indicating the lines of business under each box.

Then, with four questions, you can see precisely where structure is getting in the way of your staff's success.

How to diagnose the problems in any organization chart....

Organizational Structure: How to Diagnose an Organization Chart

How to Build High-performance Teamwork

Mechanisms of cross-boundary teamwork (workflows) are an essential part of structure for two reasons:

  • Changes in the organization chart inevitably induce changes in workflows. In a restructuring, those processes must be deliberately reconstructed.

  • Also, a great organization chart won't work if staff don't team well across boundaries. If people cannot depend on one another, they must become self-sufficient. Then, no matter what the organization chart says, groups will naturally evolve into "silos" of self-sufficient generalists, and the synergies of being one organization vaporize.

"The... process forced us to specify our products and services, [and] our customers and suppliers for each operating and support organization within our [department]. This brought to light many of the inefficiencies that we had been struggling with and allowed us to deal with them."
William T. Houghton
President, Chevron Information Technology Company

Other than on assembly lines, the answer is not fixed, "reengineered" processes. Each project and service is unique, and requires a unique mix of talents and work-products.

Thus, high-performance teamwork depends on a process for forming teams and defining the accountabilities of each team member.

It's a "meta-process" for flexibly defining clear processes in the context of each specific project or service.

How to induce high-performance cross-boundary teamwork....

Organizational Structure Requires Teamwork

How to Implement a Restructuring

It's not enough for an executive to simply draw some boxes, assign names, and announce a new structure.

Careful thought has to go into the design of the organization chart, applying the science of structure to your unique challenges.

Furthermore, the process must install effective cross-boundary teamwork, or else the organization will revert into independent silos, regardless of what the organization chart says.

Beyond that, a restructuring process should engage leaders, and build a deep understanding of the new organization (and the new entrepreneurial paradigm). Leaders should understand how things will work in the new structure before it's deployed (to avoid muddling around in public). And their involvement in the process should capture hearts and minds, and deal with the challenges of change.

"NDMA presents a process by which an organization redesigns itself. The effort is participatory but controlled, and is calculated to yield a technically good solution that has very strong internal support."
Dr. Mark Luker
CIO, University of Wisconsin at Madison

A well-proven and extremely well-documented implementation process has evolved through the experiences of dozens of diverse organizations over more than three decades.

It applies and adapts the science of structure to your unique needs, and delivers an organization chart. It also implements the teamwork meta-process. And it incorporates all the elements of effective change management.

Steps in an effective restructuring process....


Special Situation: Merger/Acquisition Integration, Organizational Consolidations

There are savings and synergies to be gained when organizations merge. That includes both corporate mergers and acquisitions, business unit consolidations, and the consolidation of decentralized groups into a shared-services organization.

However, those benefits are far from guaranteed.

The way you go about the process determines whether the merger/acquisition or organizational consolidation achieves its objectives.

There are two distinct steps at which a well-planned strategy is crucial:

At both steps, the vision of a business-within-a-business organization and the principles of structure can provide the basis for a highly effective consolidation.

Provocative article: Decentralization: why do business leaders choose to pay more for less?....

Provocative article: Shared Services: establishing a competitive business within a business....


Frequently Asked Questions (FAQs) on organizational structure....

Organizational Structure: Frequently Asked Questions (FAQs)


Up to other executive summaries.... NDMA services re structure.... Publications on structure.... Free library on structure.... Contact us....