Organizational design: Principles and processes of organizational design that managers need to keep in mind

1. Definition of Organizational Design

1.1.  What is organizational design?

Organizational design is the process of building and shaping an organizational structure in accordance with the business strategy and actual environmental conditions of that organization, in order to optimize the operating apparatus to achieve the goals. Organizational structure design includes the most basic issues of the organization such as operational goals, functions and duties of departments, scope of authority, operating methods, professional standards. For each position, title…

This job requires a holistic thinking about systems, structures, people, performance metrics, processes, culture and skills.

1.2.  The importance of organizational design

According to research by Deloitte, organizational design is the top concern of 90% of senior leaders because it plays an important role in the existence and development of the business. This can be explained from two aspects:

As businesses grow, legacy processes, structures, and systems will no longer be able to accommodate their scale and operational needs. Therefore, organizational restructuring is a necessary work in order to improve and upgrade the operating apparatus and create breakthrough momentum for enterprises.

The rapid change of the market with the disruptive development of technology and new trends makes traditional business models obsolete. If businesses are not prepared to adapt in time by self-innovating, sooner or later they will be eliminated. Therefore, the design of the organizational structure has strategic significance that determines the survival of the business in the market.

2. The nature of enterprise organizational structure design

A study from McKinsey & Company has shown that: less than 25% of companies succeed in re-engineering their organization, 44% "short of breath" immediately after implementation, and a quarter fail to achieve their business goals and  improve overall performance.

The main cause of the failure of most of these companies stems from the approach.  Usually, businesses in the process of reorganization focus only on technical systems, typically restructuring hierarchies - organizational charts.

This is the correct approach, but incomplete in terms of organizational design.  In essence, the structural design of a complete organization needs to be determined based on a holistic, multi-dimensional perspective and includes two main components:

Structural components: Technical systems related to the way work is done, work processes, structure, and technology.

Human component: Social systems related to business culture, leadership, people and their skill sets.

Therefore, in order to achieve long-term success and effectiveness, businesses need to pay equal attention to both the structural and human components in the process of designing and operating the organization.

3. 5 golden rules in business organization design

3.1.  The Principle of Specialization

This principle requires clarity and clarity in defining the functional roles of the organization. Each department will stand out to take on a certain role and function in the organization's operating system such as marketing, human resources, production, etc. Ensuring specialization will allow members to focus on  field and they do the best, and at the same time ensure the organization operates at the highest efficiency due to expertly executed skills and knowledge.

3.2.  Principle of coordination

The design of the organization needs to ensure the connection between the parts.  This principle allows individuals and teams from different departments to coordinate smoothly and easily communicate and share information in a number of specific activities.

For some organizations, the way to coordinate will be determined based on some established norms. While others are flexible according to projects or based on work requirements.

3.3.  Matching principle

This principle dictates that tasks should be allocated to the person or group best suited to perform them.

This means that the CEO is not necessarily involved in every decision – especially those involving the expertise of a division. The CEO will focus on the big picture and balance complex decisions that impact the entire organization and strategy.

3.4.  Principles of control and commitment

This principle refers to the need for an organization to strike a balance between effective control and maintaining employee engagement and commitment. That is, management levels will be responsible for directing, coordinating activities and controlling the work progress of employees. On the other hand, members will be responsible for the work within their scope and ensure commitment to the results.

3.5.  Principles of innovation and adaptation

The organizational structure must be flexible enough to adapt to the changing environment. Therefore, in the process of organizational design, leaders need to determine which parts are fixed and which parts can be flexible to adapt to change.  Usually the “frame” department will be the leadership level, and cross-functional teams will have the most flexibility to change.

Often, people will be wary or intimidated by change. This can cause insecurity and uncertainty for the staff. Then, a comprehensive communication strategy is essential to get everyone involved and ensure a smooth transition.