What does Organizational Design mean and how does it work? Change has become a word used inflationaly.
Organizational Design is the conscious creation of the organization´s culture. On the most deepest and most rooted level, the underlying things about the organization don´t change until you change the work situation. The contacts, the position, the responsibilities, the tasks. I had a professor once, and when somebody would say, "we need to change their attitudes", he would say: "change their work". And when someone else would say, "we need to change the culture", he would say the same: "change their work." In the creation of the work there are a lot of assumptions, a lot of beliefs about people, their values, ethics, motivation, etc. In his mind if you wanted to sustain change you needed to change something within the individuals or within their environment in order for them to actually experience change. He used to say: "If you say, we are going to change the way we do things, but I go to the same office, I work for the same person, I have the same collegues, what has changed? Nothing!" Most change that organizations go through have some aspect of change in the roles, the resonsibilities, the authority levels, and the tasks people are performing. If it doesn´t then people don´t understand the change, because it does not impact them in any way. As a result, people ask themselves what the big deal is? Same office, same coworkers, same desk.
What´s Organizational Design in your understanding?
Organization Design is changing the structures, the reporting, the breadth and depth of one´s work responsibilities. To change the structure, to some extent, means to change the work flow. It is hard to say what´s the right structure unless you really look at what is the right work. The process is about what is the right work. Form should follow function. Organization Design is primarily regarding these two things (form and function). Once you decide the process and the structure, the third piece of Organization Design is figuring out the people, their skills and new abilities required.
Isn´t that what happens all the time when you manage change?
Most of the big changes don´t get the ful benefits that they hoped for in the beginning. The reason is because most of the time the organizations only focus on one of these aspects or two of these three, but rarely focus on all three. Leaders change the structures, but not the way people work. They move today´s work to different people but don´t regain the advantage and take the opportunity of rethinking how to do something (process). Or they change process and structure and continue to do it with the old people, their old mindset and beliefs of how to be successful. This holds back the change. Finally, if we do not change the systems, which could be the HR-Systems, recognition, reward, selection process, communication or the information technology system, then further misalignment is potential. What happens is we change one or two of these things but rarely change them all to align and to increase the effect of this as a whole. Organization Design is the process of aligning these things.
So the main idea of Organization Design is not that you have to change the structure, because structure determines behavior, but it means you have to look at all the parts and put them together in a new and consistent way?
Right. There is probably a hierarchy in the sense that first you have to change your strategy. Then you need to think about your process: Do I have the right workflows? The right and efficent workflow is to make it easy for me and my organization to do these things. And once I´ve changed my process the question is: How do we organize people around this process or in this process? It is first the decision about the structure, the hierarchy, then it´s the people, and then it´s the systems. It is a step-by-step-sequence and this is the whole process of doing Organization Design. Companies do one or maybe two of these things we have been talking about, but they rarely look at the system and say: "How do my infrastructures have to change?" "How does my performance management system need to be different?" "How do we need to recognize and reward people differently?" "How do we need to make sure that the information the people need every day to do the work is there at the moment that they need it?" So we rarely think about the whole of this and this is why organizations reorganize so often and why they don´t quite accomplish everything they hoped to. If they looked at some of the other elements of design it would be much more successful.
What´s the usual way companies try to change? Finding a new strategy in a top-management-workshop, then just communicating the new strategy without thinking about structure, process, people, systems?
In one of the companies I´m working with right now they have spent at least one year looking at their strategy and thinking about what they need to do for the next 5 years. A few months ago they announced the strategy to the management system, three levels down. They then said to each manager: "Now you should look at your strategy to see what it is that you can do to support the corporate strategy." Nowhere did the leadership ask: "Do our structures need to change in order to support that? Do the processes need to change? Do we have the right people? Are Human Resources practices aligned to achieving that?" At the moment I am working with one of the senior managers. He struggles because the structure hasn´t changed to support him doing the things that have to be done. The structure is very hierarchical (vertically oriented), country by country by country. There are no structures or processes in place to insure that he can do what he needs to do to grow a paneuropean business. His product is an international brand. The company is made up for 14 countries. Every country has its own local brand, and the company said: "We need to grow the local brands but we also need something that is more paneuropean." So he is responsible for this international brand and the vertical (countries) structure does not allow him to manage the horizontal (across multiple countries).
There are two parts: one is that the companies culture is very country-centered. The countries are more valued and the local brand in each country is number one or number two. They have very good brands and the countries are very proud of that. So you have a culture, where every country says: "We are number one or number two, we know our market." The second is the reporting relationships: The country leaders all report to the CEO, and the international brand manager reports to a marketing person. He is considered a staff function, not a line function. There are no structures, no across country structures that would say, that it is as important to sell the international brand as it is to sell the lokal brand. Therefore, there are structures, processes and systems that should change and that would make it much easier to grow this brand. The executive managers say: "Just go for it, that is our strategy." They do not look at the structures; they do not look at the processes; and they do not say what has to change in order to make it easier to make this international brand work. The simplest example would be to change the reward compensation of all of the country general managers. Make a change in their bonus based on how much they grow the international brand. But they don´t do this. 100% of the bonus is still based on growing their own lokal brands. What is the incentice? Why would any country want to help or participate in solving this problem?
One of the problems is that if you have to change the structure, this will take several months, if you have to change the process, this will take more months, and then, if you have to change the recognition and reward system, that will take another three or four months - the issue is time. How quickly would you like the thing to happen? And how much time will it take to do these other components? When I say to the leaders: That is a good strategy, and now we have to look at the structure, and then we have to look at the process, and then we should look at your communication systems and your performance management and…etc, .they say: Wait a minute! We don´t have the time for all this! When you say it, it sounds like a lot of more work and that it will take a lot of time, which isn´t really true. One of the things I have done for the last 20 years is think about how to move change faster. How to get people involved, how to get people engaged, how to do more work simultaneously and talk about process and structure and people in the same moment, because it is always related. So how do you do each of these together but in a way that makes sure that they always stay connected. There are processes to move the change much faster.
But first people have to have the same picture of why they have to change all of this stuff.
And what the strategy and what the goal is they are trying to accomplish. The likelihood of everybody remaining aligned is much greater when everyone has the same common image. You can do much more work simultaneously when you have a whole system going in the same direction. This is my design approach. I did a project in Stuttgart and when we announced that we were going to do this organization restructuring the general manager panicked. He thought this is going to take too long, that is would never be done in time. He thought "if we decide to negotiate with the works council, the trade union and get it implemented with the people, we will be in big trouble." I said to him: "If there is a willingness to do it in a different way, I know you might think that it will take 12-18 months. I can get it done in one half that time! Fully implemented with everybody supporting it." He thought I was crazy. He just had no concept that you could engage the people in a different way on these issues. If we can create work that was meaningful, interesting, fun and yet profitable for the organization, how could we do this? So there are processes now for how to engage peoples thinking about the most exciting, most fun job you ever had!
What is the timeline from starting to implementation? Also if you do it simultaneously it will take its time.
It depends on how massive is the change. If it is a big change then it is going to take time. One of the problems is that you have to implement it quickly enough that it acutally allows you to reap the benefits and recoupe the investment, before you introduce the next change. There are things you can do to work on different elements of the change at the same time as opposed to in more linear ways. The first thing is you don´t need to do things linearly any more. This will actually cut 30% of the time. The second is the notion of minimum cirtical. You should only do the three or four or five things that are the most important things to do and not try to do everything. In America we do what we call fast prototyping. We get a good idea, figure out the minimum critical things for it and we take it to market. And then as the market gives us feedback, we continue to improve and redesign. In Europe you do just the opposite. You engineer and engineer and engineer and then when it is perfect you take it to market. This is a totally different mindset. The notion is: If you can do the minimum critical things right you can get something to market (happen) quicker. From the Organization Design perspective, the people will make the changes and the adaptations as they do the work. An additional point is that if you overspecify there is no room for the employee to personalize the job, to take ownership for the position to say I have created it in some way, in a way that fits my image of me and my values. So there is an advantage to fast prototyping in an organization design process because it forces leaders to not overspecify and it allows the managers and the workers to think through the rest of the decisions for themselves. This then builds ownership and commitment. It actually builds better understanding more quickly, and as a result the implementation is faster. The third consideration is having some simple tools and templates to help people think about how to do it. Organization Design is nothing more than a set of discussions about: "What will be important, what would it look like, how could we do it?" It is a series of structured dialogs. Simple tools and templates help bring structure to these dialogs, so that people understand what they need to talk about.
Let´s say, you come to a company, see they have got a strategy, but systems like a reward system, that doesn´t fit but works against it. They tell you, yeah it doesn´t fit but it´s the way headquarter wants us to do it. What can you do about it?
If, from a leadership perspective, the implemented strategy in 6 months or 12 months is not working, what they often do is change the strategy or change the people, because they say: "Well come on Peter, you should habe been able to do that. It wasn´t so hard." So they change the strategy or they change the people but they rarely change the process what would make it much easier. And they rarely change the structures so that the collaboration and the interdependence that may be required is more possible. The question is: Why isn´t it working? To the paneuropean brand manager it is very clear that they have to change the country managers reward system. He says: "If it would be more important to them they would put more energy into it." And he is right. Changing that would increase the liklihood that the country managers would say to their people: "Hey this is really imporant, we have to support this guy." He is the third guy in this position in four years. How many times you have to have the wrong guy before you figure out that you have the wrong systemic approach, not the wrong person? It is often not about the person, but about the process or the structure. So we attempt to do a diagnosis or analysis to see what is the root. Sometimes it is easier to change the strategy or the people than it is to think more deeply about the root causes of why they do these things. Most leaders have a systems model, but my experience of their systems model is that it is more about environment and stakeholders than it is of how the organization actually works.
Leaders and executives, when they plan a transition they focus on the board, key-customers, the markets, not so much on the organization. They rarely take the time to understand how the organization really works. I´m workling with a company in the US, an insurance company. The board hired a new leader, because they wanted to make the insurenace company more like a financial institution. So the new CEO came in, was given this direction from the board and he immediately began creating initiatives to become more of a financial business. He never took the time to figure out the culture of the organization and how it really worked, where the key sources of influence were and who were the influential people and what were the things that he could do and say and what were the things that he couldn´t do and say. One day, in the newspaper, it was published that he was among a group of CEOs that played golf and he had the second lowest handicap. Everybody in the organization said, that is right, because he is never here. So this man´s handicap became the symbol for the disconnect between him and his own organization and the people. For three or four years this man started one initiatve after the other, none of which went more than 30% of its way. None of them ever made it past 30 or 40%. Finally the board fired him and hired one of the senior leaders from within the company who understood the culture, had the same agenda and in two years actually had 70% of it done. As I said a moment ago, all leaders have some systems model in their head, the question is, does it help them understand the way their organization works in the moment:
My impression is, that in many companies the top-management is making a strategy, communicating it to the second level leaders and then giving them the order: Get it down to earth! And that´s it.
Yes, that is exactely what happened in one company, at the moment, that called me. Their image was: all you have to do is get a good strategy. They brought together the top 100 leaders from across the company, had a big wha-wha-session and said: "Here is the new strategy, go for it! See you next year!" The notion that it needs to be implemented in a conscientious way, a way that allows every employee down to the lowest level person to understand it, so to be personalized at their level. If they did this they could probably achieve the strategy 2015 by 2013. I firmly believe this. Strategy is only as good as the implementation process that precedes it. Everybody looks at getting the right strategy and then assumes people will just go off to make it happen. Implementation means working on: What does this strategy mean for our structures, do they support it or do we have to change them? What does this strategy mean for our processes? Do they support it or do we have to change them? What does this strategy mean for our resources und core competencies? Do they fit or not? The word that I kept using was "embedded" or "anchored.“ Strategy has to be embedded in the hearts and in the minds and it has to be anchored in the system or it will get washed away with the next big storm. This is the issue many leaders forget. Change has two sides, a new strategy, but the other side is the human system: how do we instill it and embed it in the new organization? You can embed it by changing your structures; changing your processes, or by bringing in different people you are more aligned to. You can change it by rewarding people differently for going in a news direction. That´s how you can anchor it. This is the reason why Organization Design, as a field, is much more sucessful than Organization Development or Change Management. It is much intuned to making sure that it takes root and holds; that it has the right water, sun, etc. otherwise it won´t be growing and will soon be dead.
Sometimes when you change the strategy, others resist and question. One project I worked on a number of years ago, the CEO had a way of dealing with resistance that assured progress. He offered those who disagreed with the new strategy what he called "the honorable off-ramp:" If you did not support the change you could come to him and say: "I think you are crazy and I think you are doing the wrong thing and I wish to leave." His commitment was to help you find a new job within the company or outside, if you were willing to admit that you didn´t think it was a good idea and you would take responsibility for it. The very first person who came to him was his number two guy. Together they found a new position for the number two some other place in the company. When they announced that the number two was leaving (because some people would have believed that he was forced out) the two of them got in front of the whole organization and described what had happend. The number two said: "I went to Eric and said: I don´t think that is a good idea, I support you fully but I don´t think you are going in the right direction. And Eric made phonecalls and helped me find a new position. I wish you the best and for what you did Eric, thank you." And that one thing changed so many attitudes and beliefs about the leader and about the situation that staff were much more willing to talk about it and to be much more open about it.
Another example: I knew another CEO that had gone through the process of determining what needed to change in collaboration with his management team. Together they announced the change and strategy. One of the members of the management comittee, a very respected person who has been here for 25 years, did not support the change. Publicly he smiled, but behind the CEOs back he was a major source of resistance. Those who supported this man were not willing to change because they were watching him: "If he´s not doing it I´m not doing it." It took the CEO one year and he finally fired the man. Within three months, the change was significantly moved forward. Sometimes making an example (appreciatively or critically) is the right answer for the system because the system is trying to figure out what is really important. As long as this negative voice is still there, others don´t believe in what you are saying. As long as the person resisting is able to do that it seems to be ok. How we handle the resistance and the resistors makes a huge difference to the whole system. I´m a firm believer in "you can´t convince people to the change, you have to create the opportunity for them to convince themselves, that it is the right idea." That is what wholescale change is all about. It is about bringing the situation to the people in a way that allows them to understand it on their own terms and then act on it in their own way. When you do that almost always it is successful. But when you as a leader try to convince people, give them the rational and the explanations – even if you are right and really smart - there is this natural reluctance to believe you, because "we used to be successful doing somthing else".
25 years ago, the change management model was pretty much: you take a crosssection of employees and managers and union people and you "lock" them in a room for let´s say 6 months, most of the time working behind closed doors. You spent a great deal of time educating them, taking them to visit other organizations, seeing how other people do things, and when they finally would recommend what the change should be almost everybody, even their best friends, said: "You guys are crazy. I don´t know what you did the last year but this is the most stupid thing, I´ve ever heard." And they were shocked. So they were here and the system, was there, a mile back, they were not in the same place. So you have to go back, kind of recreating the whole process that we have been gone through, in order to convince the organization to do the change, which doubled the time to make it happen.
This was when I got so frustrated that I thought: Why not take the whole system on the journey somehow instead of 20 smart people? That was when I started to change my way of doing the Organization Design stuff. Most of the time it took 2-3 times the time to overcome the resistance to a good answer than to create the good answer. Why is it that way? That was 1982. It was a good process, it just din´t involve the right people. The fascinating thing was that we did not change the process, the steps that we went through but we changed the engagement, who did it. When you work with 20 people working on something you can get into much more detail than with 200. So sometimes the depth of analysis or the thoroughness of what we did with the whole system wasn´t quite as rich as with 20 people. But ownership and commitment takes care of some of that, fixes that because people then figure out the detail.
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