A major change has occurred in your business and your peers have suggested it is time to alter the company's organizational structure. Before you grab the whiteboard marker and start drawing new org charts, it is imperative to slow down, fully understand the types of change your company will make, and how that change will be executed. Tremendous business value can be created if you understand the impacts and pull the right levers. In the predecessor, “What Triggers the Need for Organizational Change?”, we discussed potential “triggers” that could bring about the need for organizational design changes within a firm. To recap, common triggers include changes in leadership, technology/business process, and industry regulation. Business leaders should also be wary of common “misfires”, or events that seem to initiate the need for organizational design change but are likely false positives, including bad quarters and rapid growth. There are a few key questions that need to be answered before a firm begins making changes to the organizational structure: Why is this company making this change? What is really changing? Who will be affected most by this change? How urgent is it to adopt the organizational design changes? Depending on the answers to these questions, there are many “levers” a firm can pull in order to implement an effective organizational change that will work best for the firm's current situation and needs.
A “lever” is a tool or methodology used to implement changes effectively. When it comes to organizational design, levers can be quantitative as well as qualitative. Below are a few examples of levers you can pull to solve a company’s organizational challenges:
Analyze your organization’s “spans and layers” – Spans and layers is a quantitative approach to determining if a company is organized efficiently. A “span” describes, on average, how many direct reports are given to each employee at various levels. A “layer” refers to the number of reporting levels within the organization. Ideally, a company should have as many spans as it has layers, commonly referred to as the “1:1 test”. If the organization is misaligned, either managers have too many direct reports (too wide) or there is too much hierarchy (too tall), the company/division is in need of a reorganization. Once the analysis of current structure is complete, identify areas where the reporting lines are bound to change as a result of the “trigger” and restructure them to meet the ideal 1:1 ratio. For example, say a change in business processes created a new division with 37 people. The new division is run by a director that has 4 managers reporting to her. Each of those managers has 8 analysts that report to them. On the surface, this may look like a neatly designed division. However, when you complete the spans and layers analysis, you can see that the division is wider than it is tall (Average span: [4+8+8+8+8]/5 = 7.2; Layers: 3). A recommendation for this organization would be either to reduce the number of analysts that report to the managers or create another reporting layer within the division.
Create "agile", or multidisciplinary, teams - Whether technical in nature or not, there is significant value in setting up teams in an agile fashion. As commonly demonstrated in agile organizations, multidisciplinary teams own a work product from design through delivery. The teams are comprised of individuals from multiple departments whose main goal is to deliver a product or service to the marketplace as quickly as possible while focusing intently on the customer’s needs. By breaking down traditional silos, these teams eliminate unnecessary hand-offs, quickly address customer feedback, and dramatically improve speed-to-market.
Set up a “hackathon” – Taken from the realm of computer programming, a “hackathon” is an event where multiple teams come up with solutions for complex problems. In Gary Hammel and Michele Zanini’s HBR article “Top-Down Solutions like Holacracy Won’t Fix Bureaucracy”, they suggest settings up a hackathon where a company or division structures multiple teams differently and tracks their performance over time toward a desired goal. Ultimately, the company can compare results and make an organizational decision based on real data taken from their teams. This is a great approach for a company facing a longer change horizon and looking to experiment while finding the most efficient organizational structure for the long term.
No matter what triggers your organization to change or which lever you choose to improve results, there are a few guiding principles you should keep in mind to ensure your efforts result in a high-value transformation.