Choices in Organizational Design
And not a mention of Conway's Law in sight!
Last time out, we talked about culture, describing what it is and how to change it. This time around, let’s talk about organizational design.
What is an organization? Edgar Schein has us sorted again with the following description of what an organization is.
An organization is the rational coordination of the activities of a number of people for the achievement of some common explicit purpose or goal through division of labour and function and through a hierarchy of authority and responsibility (Edgar Schein)
The phrase “rational coordination” is worth expanding. Organizations don’t simply emerge organically, they are designed with explicit reasoning behind how tasks are divided, how authority is distributed and how functions relate to one another. As a leader, you’ve got a series of choices to make that reify this coordination.
In this post, we’ll look at some of the choices you can make. These choices are all on a spectrum. As with culture, your design is context dependent and is a series of trade-offs.
Tall vs. Flat
The number of reporting layers in your organizational structure determines how tall or flat the organization is.
Why might you want a tall organization?
Control and oversight - more layers can mean tighter control over operations through a clear chain of command
Specialization of supervision - more layers mean that each management layer can focus on overseeing a narrower span of activities (perhaps greater opportunity for improvement in that sphere of control?)
Greater career advancement - more layers means more promotion opportunities, potentially improving staff retention and motivation.
Buffer for senior leadership - With a greater number of managers, senior management / executives can potentially focus on more strategic matters.
Manage organizational complexity - as companies grow, and acquire other business units, a tall hierarchy can help the organization continue to grow and add new functions over time.
But there are of course many negatives associated with this approach too that are solved with a flatter structure. More layers mean more bureaucracy. It takes information longer to flow around the organization, and this results in lengthier decision-making processes. The delay in information flow is felt in two directions. It takes longer to get feedback from the top to the bottom, and just as importantly it takes longer for concerns from team members to reach the top.
So what’s right for you? It depends on where the company is! If your company has established a market dominant position and is fuelled by inorganic growth (acquisitions etc.) then perhaps a tall organization is the right approach. If the company is at an earlier stage where speed of execution and decision making wins, then you’ll almost certainly benefit from something flatter.
Narrow vs. Wide
Span of control refers to the number of people reporting to one manager. It’s obviously closely related to the number of layers in the organization (generally a wider span of control results in a flatter organizational structure).
The wider the span of control, the less instruction can be provided to staff. A wide span of control works well with experts who don’t need high levels of instruction. In contrast, a narrower span of control can be useful when the team needs more support and direction.
A wider span of control can also be achieved when there are clearly defined processes and procedures to follow. The trade-off is that management control has been replaced with rules and regulations. A narrower span of control works well with more organic processes.
What’s right for you? It depends on the tasks the group does, the experience of managers, and the processes that you are using to manage co-ordination.
Choreography vs. Orchestration
Choreography and orchestration are both ways to coordinate interactions, but they differ on the axis of control and coupling.
Choreography is about decentralized control. Each group is able to react to events and decide what to do next. It’s more flexible and scalable, but it’s harder to manage.
Orchestration is about centralized control. A central conductor tells everyone what to do where and when. Orchestration couples groups together around a single bottleneck.
In organizational design, orchestration is reminiscent of Taylorism: top-down control, predefined tasks and centralized planning. It’s well-suited for processes that are predictable, efficient and controllable.
Choreography aligns much better with complex adaptive systems. Processes in this model are better served by tools such as systems thinking and complexity theory and management styles such as servant leadership.
So, what’s right for you? It depends. The reality is there is a spectrum between choreography and orchestration. Centralized control might be the right thing for you if the deliverables are clear and suitable feedback mechanisms can be put in place (pulling it slightly closer to choreography).
As a default choice, organizations that deliver software almost certainly are closer to the choreography style.
Cost vs. Growth
Are you designing your organization around optimizing for cost saved or growth?
Optimizing for cost is really about creating shared efficiencies (financial optimization purely for costs’ sake is a different problem entirely). It often means centralizing core aspects of the business and investing in them to create economies of scale. Cost leaders will often prioritize standardizing processes and have a healthy culture of continuous improvement oriented around waste reduction. Great examples of cost leaders are Walmart (due to their highly optimized supply chain), or low-cost carriers (Ryanair, Southwest airlines) who chose exactly what to focus on in order to lower costs.
On the other hand, optimizing for growth comes with different trade-offs. It might lean further into decentralization to allow faster decision making, it might be more experimental to find new opportunities or it might mean aggressively growing the organization to take advantage of the network effect (see Uber as an example).
For you, the answer is (as always) it depends. If the company priority is one or the other, does the organizational structure you’re designing reflect the priorities? If you’re optimizing for cost, where are your leverage points? For example, maybe you’ll create a Platform team and funnel cloud usage for it to centralize cost management and create economies of scale. If you’re optimizing for growth, are the decision-making policies localized? Are dependencies removed? (and so on).
Generalists vs. Specialists
This is (again) a spectrum. The likelihood is that you’ll need a blend of both generalists and specialists.
Specialists have advantages. A depth of expertise means they can develop deep domain knowledge that can result in breakthrough innovation in a particular area. A specialist can typically perform their (more narrowly defined) tasks with a higher level of skill. And of course, an organization may value having specialists in particular domains to enhance their credibility (differentiation by expertise).
Generalists have advantages too! Teams of generalists are easier to adapt to changing needs as folks can flex between different functions and responsibilities. A generalist might be able to bridge domains better too, enabling more integrated solutions. And finally, generalist organizations are better able to weather technological or market shifts with a higher number of transferable skills.
Where should you be on this spectrum? You already know the answer. It depends. If you need to excel in a particular area, you almost certainly need specialists. If the company is pivoting in changeable conditions, then generalists. It’s almost certainly somewhere in the middle, and this is where hybrid approaches like “T-shaped” come in.
Conclusion
Organizational design is complicated. What should yours be? It depends.
Both culture and organizational design require a clear understanding of why. Without a why, you’re making decisions without context. And making decisions without context is a sure-fire way to make bad decisions!
Once you’ve got the why, you can start making deliberate choices about structuring the organization for success.