Co-authored with Dr. Johanna Anzengruber.
This is article 6 of 6 in the Organization Capability series. The first article, Organization capability: The missing piece connecting organization design and the operating model, introduced the series. The second article, Resolving confusion about organization design, the operating model, and organization capability, defined the three domains. The third article, The operating model and organization design strengths and weaknesses, compared those two key parts of the organizational system. The fourth article, Challenges of system design and optimization, addressed which parts of system design can be set upfront during the design phase, versus the parts that have to be addressed later during the rollout/implementation phase while the work is ongoing. The fifth article, Organizational capability definition, strengths and weaknesses, provided our view of how organizational capability should be approached.
Putting the two together: organization design and capability
A detailed comparison of what happens at the upfront organization design phase versus during the organization capability phase as the work is underway is way more than can be covered in this brief series. The following provides a high-level comparison of some of the more important elements:
Defining the space we are operating in:
Organization design blueprint: High level decisions about products, services and business processes: What are we going to produce and how should it be done?
Organization capability counterpart: Defining the parameters of process performance: Where are there issues in meeting conflicting or overly aggressive operational and strategic goals?
Decision rights and decision making:
Organization design blueprint: Decision rights, including the organization chart and matrix reporting.
Organization capability counterpart: Decision making, including conflict resolution – which ones are not addressed quickly and correctly?
Business processes:
Organization design blueprint: Process mapping all the key steps: Who plays what roles at each step, and who has responsibility for making sure things are supposed to happen the right way?
Organization capability counterpart: End-to-end process execution: Where do things go as planned, and where do they deviate from the blueprint?
KPIs:
Organization design blueprint: Goal setting + what we are supposed to hold people accountable for?
Organization capability counterpart: Where are we meeting them versus falling short?
Rewards:
Organization design blueprint: Formal rewards: how are people are going to be paid, including bonuses?
Organization capability counterpart: Informal + formal rewards: How are things playing out in practice? Where do we struggle to hold people accountable because of interdependencies in work across roles, within teams, and across units?
There is no single path every organization should take to developing robust organization capabilities and aligning them with the operating model and organization design. The most important things to keep in mind are the following:
- Faster, better, cheaper can never achieved as expected. The new capabilities almost certainly will take more time (slower), and require more resources (more expensive) to develop capabilities that can only be perfected over fairly long time horizons (lower quality, at least in the short term).
- To improve performance along all dimensions (faster, cheaper and better), the senior executive team will have to stay much more closely involved than they are used to doing, and how they would like to operate.
- Despite senior leaders having to stay closely involved, it needs to be “light touch” so that the people underneath them in the org chart have the time and space to figure out how to do the work without micromanagement from above.
- Senior leaders need to ensure that team members preserve the ability to quickly engage upper management so real-time decisions can be made about tweaks to the operating model and organization design as new information is learned about how best to do the new work.
- Senior leaders need to be aligned among themselves and follow through on dynamic budgeting and headcount allocations so any needed shifts in the operating model and organization design can be executed as quickly as possible.
Ultimately, what often makes the difference between designs that work versus those that fall short comes down to how flexible senior leaders are in their approach to ongoing learning and adjustments to the design. The usual tendency is to treat the initial design as “set in stone” (or concrete), which “just” has to be implemented before any alterations can be considered. Yet that approach leaves scant room for flexibility and learning because there is little tolerance for criticism of the initial design.
Success ultimately depends not just on which design is implemented but also the change management that is an integral part of the roll out. Successful design implementations usually are rolled out using a more collaborative process of developing and refining the design, with pilot tests and ongoing refinement as people learn about how to structure the work and iron out the kinks of the new processes.
For more details and a deeper dive into this topic, please join us for the workshop Optimizing Capability to Drive Business Performance in Chicago November 7-9, 2023.
