Strategic Human Resources, Organizational Design

In order to be successful organizations need their competitive and managerial strategies to be in alignment.  This article will provide a basic model and process for determining how to structure your organization.  There will be two more articles in this series which will cover the two halves of the model in more depth.

WHAT IS ORGANIZATIONAL DESIGN?
Lets first state what organizational design is not.  It is not just changing reporting relationships.  This is just one part of an overall examination of all structural parts of the organization.  Organizational design allows us to match our internal structures and policies to meet the demands of the external environment and competitive strategy.

WHY IS ORGANIZATIONAL DESIGN IMPORTANT?
Well designed organizations have a number of benefits from more engaged employees, to increased profitability.  According to Capelle Associates Inc. organizational design leads to increased employee and customer satisfaction, improved financial performance and offer organizations a competitive advantage.  Some organizations who recently used large scale organizational design are Johnsonville Foods, Hewlett-Packard and IBM who needed a change after an outmoded culture and processes stifled innovation in a rapidly changing market.

Thomas Powell observed organizational alignments that produced supernormal profits independent of  regular profits produced by traditional industry and strategy.   Alignment correlated with about 30% of the variance experienced.

HOW DO WE IMPROVE AN ORGANIZATION’S ALIGNMENT?
The first step is to select an organizational design model/process that you are comfortable with for guidance.  The model I prefer is below.  This model outlines the inputs (Contextual Variables), selecting the Managerial Strategy, and lastly how to align the Structural Variables within an organization based on the Managerial Strategy.  This is how we ensure alignment between all areas of our organization.

OVERVIEW OF THE MODEL

This model takes into account two main inputs when determining your managerial strategy.

• The External Environment
• Internal Environment [Technology, Competitive Strategy, Organizational Size, Nature of the Workforce]

Basing our managerial strategy on these inputs ensures our organization will be properly aligned.  The important part to note here is that not all corporations need to be the “high involvement” managerial strategy.  In many cases this sounds good, but in reality it does not suit your organizations situation.  We will discuss the archetypes later.

Once an appropriate managerial strategy is selected, we can then work towards aligning our organization’s structural variables.  In depth tools for all steps of this process (contextual variables, choosing managerial strategy, and structural variables) will be covered in articles 2 and 3.  This first article is just a quick summary and introduction to the model I will be referring to often.

INPUTS (CONTEXTUAL VARIABLES)
External Environment: There are a number of tools for analyzing the external environment, and we will cover them more in depth in article 2, but they will examine:  environmental complexity, customers, competitors, suppliers, labour, and the regulatory environment.

Technology: This is not specific a technologys, but rather process your business uses to manufacture products/services.  We will look at four methods of determining your technology type:  Woodward’s, Thompson’s, Perrow’s and briefly “Product Transformed”.

Competitive Strategy: Various strategies/processes commonly used by businesses to achieve and maintain competitive advantage.  The majority of our focus will be on Porter’s with a brief look at Miles and Snow.

Organizational Size: This is a very brief section with the common business sizes in North America.  Small business is considered 100 employees and less, mid-sized business 100-500, and big business being any organization with greater than 500 employees.  It is not exact as some organizations can be up to 1500 employees and still be considered small business.

Nature of Workforce: We will cover a variety of variables that influence your workforce, with key areas being the standard education of your workforce and the external job market.  In future we may look even more in depth by examining some methods of personality profiling such as Myers-Briggs or DiSC analysis to profile specific key positions within an organization.

MANAGERIAL STRATEGY
This model uses three styles of managerial strategy:

• Classical:  Rational/Economic needs are met (according to Maslow).  This style can use scientific management (Taylorism), Bureaucracy (Max Webster), and Administrative Theorists (Henri Fayol).  Money is the driver for employee performance (Piece rate or hourly wages etc.)
• Human Relations:  Social needs are predominant and met (Maslow’s Pyramid).  This type of organization meets rational/economic needs and adds a social component.  This is good for stable industries and large organizations.  Rewards are designed to create loyal long serving employees.
• High Involvement:  According to Maslow these organizations can help employees in being self-actualized.  They have broad job design, rewards related to personal/team performance.

These will be covered extensively in article 2 when we need to choose the appropriate managerial strategy.

STRUCTURAL VARIABLES
Job Design: The structure of formal positions within an organization.  The span of control from Narrow to Broad.  Narrow jobs separate thinking from doing, and broad jobs tend to be more meaningful and can include joint planning and goal setting.

Coordination and Departmentalization: There are many ways to structure and coordinate an organization.  Classical organizations tend to be a traditional formalized pyramid while high involvement will be flatter with many work teams.

Control:  The method of control within various managerial strategies can vary, from external control by management with rules/punishments, to external social control and finally internal self-control.  The final requires the proper environment and selective recruitment methods.

Communication:  Organizational communications is complex and broad we can only hope to touch on it.  We will be looking specifically at the direction for flow as well as the formality.

Decision Making and Leadership:  Who decides, and how they decide.  We will look at using different types of decision making/leadership on a situation basis as well.  We will also take a quick look at various leadership styles/theories and how they fit specific organizations.

Reward System:  Lastly is the reward system, although it will have a significant effect on every aspect of your organization.  We will examine Formal/informal recognition and rewards systems, types of pay-systems (job points, pay for knowledge), and the pros/cons of various bonus systems and how they can all relate to organizational alignment.

CONCLUSION
By using this model organizations can ensure their competitive and managerial strategies are in which will improve nearly all aspects of their business (including profitability).  Our next two articles will cover portions of the model in more detail than this introduction could.

• Part Two: A Model for Organizational Design – Contextual Variables and Strategy:  This will provide specific tools and processes for evaluating our contextual variables and choosing the appropriate managerial strategy.
• Part Three: A Model for Organizational Design – Structural Variables:  This article will provide a more detailed examination of our six structural variables and how they must be aligned in various managerial strategies.