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Organizational design is the process of creating a system in which people can work together to achieve common goals.
Organizational design is the administration and execution of an organization’s strategic plan. This means that the organization’s strategy determines the optimal organizational design.
Organizational design is creating the best structure for:
- strategy execution in relation to the external environment, and
- the organization’s unique internal strengths, weaknesses, competence, and leadership style.
Organizational architecture is the creation of roles, processes, and formal reporting relationships in an organization.
Organizational design is the process and outcome of shaping an organisational structure to align it with the business purpose and context in which it exists.
Organizational development is the planned and systematic enabling of sustained performance in an organization through the involvement of its people.
There are two primary ways to look at an organization:
- As a collection of people fulfilling different organizational responsibilities based on their strengths and weaknesses.
- As a structure of the teams and roles the organization needs filled in order to work most effectively towards its purpose, mission, vision and strategy.
If our default mode is mode number one, we may forget to think about what the ideal design of the organization is, and how we can best move towards this ideal picture by means of developing existing employees, hiring new ones, or letting people go which are a poor match for the ideal organizational design.
Organizations with highly mature organizational design are:
- 30x more likely to adapt well to change
- 5.3x more likely to be a great place to work
- 2.3x more likely to exceed financial targets
Source: AIHR
A 2015 McKinsey study showed that 60% of organizations had redesigned themselves within the past two years. Another 25% had done so three or more years ago.
Organizational debt is the result of all the decisions and actions that should have been done to ensure an organization is operating at peak health and efficiency – but weren’t.
A useful metaphor is arthritis. As an organization grows and matures, the equivalent of arthritis builds up in its joints. This makes the organization less nimble and less able to deal with competitive challenges.
When leaders don't make the changes they should have, organizational debt accumulates.
Steve Blank, who first coined the concept of organizational debt, explains it like this:
Startups focus on speed since they are burning cash every day as they search for product/market fit. But over time code/hardware written/built to validate hypotheses and find early customers can become unwieldy, difficult to maintain and incapable of scaling. These shortcuts add up and become what is called technical debt. And the size of the problem increases with the success of the company.
You fix technical debt by refactoring, going into the existing code and “cleaning it up” by restructuring it. This work adds no features visible to a user but makes the code stable and understandable.
While technical debt is an understood problem, it turns out startups also accrue another kind of debt – one that can kill the company even quicker – organizational debt. Organizational debt is all the people/culture compromises made to “just get it done” in the early stages of a startup.
Just when things should be going great, organizational debt can turn a growing company into a chaotic nightmare.
Growing companies need to understand how to recognize and “refactor” organizational debt.
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When artists learn to draw or sculpt people, they first have to learn about the human anatomy. This helps them ensure that what they create is actually aligned with how the human body looks and operates.
Similarly, leaders looking to design an organization or one of its teams require an intimate understanding of organizational and team anatomy, meaning the structural components that make up organizations and teams.
Organizational perspectives are the different ways in which we can examine the organization. Which perspective makes sense to use at any given time depends on what you're trying to uncover or explain.
People responsible for ensuring a healthy and resilient organization should take care to regulary cycle through the different perspectives in order to ensure that they are properly adhered to.
Read more about specific types of Organizational perspectives.
Read about the concept of insight types.
Explore organizational insight types.
Conway’s Law is the theory that organizations will design systems that copy their communication structure.