The Right Way To Design An Organizational Structure

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By Geary Rummler and Alan Brache

Designing an organization structure is more than naming, arranging, and filling the boxes on the organization chart. While clear reporting relationships are administratively essential, getting products and services to customers requires an organization structure that focuses on the nature and flow of work.

Toward this end, first determine what work needs to be done and how it currently gets accomplished. Next, design the way it should be carried out. Only then can a useful organization chart be created. Form (structure) should follow function (processes).

Our definition of organization structure encompasses the Organization Level of Performance (where strategy is set and customer-supplier relationships are established), the Process Level (where workflows are streamlined and documented), and the Job/Performer Level (where jobs are defined and a supportive Human Performance System is installed). Critical dimensions of the structure at all three levels are performance measures and a management process through which the structure is continuously improved.

We are by no means saying that an organization structure that supports business processes is free of headaches. Managers may still have to contend with trade-offs between response time and cost, for example. However, with critical processes and process goals in the driver’s seat, they can intelligently make and communicate those trade-offs.

Somewhere along the spectrum between “maximum responsiveness at any cost” and “minimum cost and we’ll respond when we can” lies the position desired by most organizations. World-class companies are redefining the spectrum by demonstrating the ability to combine high responsiveness and low cost.

Once an organization’s top team has determined its competitive position (as part of strategy formulation), the processes (first) and the reporting relationships (second) can be designed to achieve it. To ensure that the position is attained and then maintained, managers can establish responsiveness and cost goals and can closely monitor performance against those goals.

The good news is that many of the variables that we have historically believed to be in conflict are not trade-offs at all. We have frequently found that a process designed for maximum quality is also a process designed for minimum cost.