And even though the organisational design is an important part of the business model, it is just that – only one part, not possible to ask as an isolated question. As always, the management team should be clear on the company’s strategy and targets to ensure that they have a shared image of the path to success.
The organisational structure can make a positive difference with respect to supporting the strategy and targets of the company, but only if the other elements in the business model, not least behaviour, are aligned with your strategy and targets. There are three questions that you, as executives, can ask yourself to ensure that your business structure reflects the company’s strategy and targets, business management model and management philosophy.
Is your strategy reflected in your organisational structure?
First of all, the organisational structure should, as mentioned, reflect what is critical to realise your strategy. It is self-evident that a company, in which the path to success lies in getting a foothold on new markets, requires a different organisational structure than a company that wants to reduce costs by utilising economies of scale. A company existing in a market in constant change and perhaps also in new markets may require a higher level of agility than a company that needs to roll out a proven solution. And a company going from a single sales channel to an omni-channel strategy should of course adapt its organisational structure accordingly.
In other words, the choice of organisational structure should be adapted to the company’s strategy, and in connection with a strategy change, it may be a good idea to also have a closer look at the design of the organisation.
So dear executive, you can begin by asking yourself if you can see your strategy reflected in your organisational structure?
Is your organisational structure aligned with your business management model?
Secondly, your organisational structure should be coordinated with your company’s business management model, i.e. what are the breakthrough targets for the organisation as a whole and which KPIs reflect the performance of each unit. If governance for example is based on result management, but the manager of a unit is unable to affect the most critical processes affecting the result, you risk creating resignation and confusion. The responsibility that the manager is evaluated on should be aligned with the manager’s mandate. This seems obvious, but unfortunately, I often see that it is easier to delegate responsibility than to give mandate.
The way the units of the company are managed will, at the end of the day, affect the outcome of the whole. If for example, the management of the production department is able to influence the production costs but not the revenues, they should be evaluated on the level of production cost and initiatives to set the right level of costs – not EBIT. We want to motivate for the desired behaviour, and we know that the way we evaluate performance can both enforce and reduce that motivation.
It may be a good idea to look more closely into whether the individual roles are actually aligned with the KPIs that the managers are evaluated on. This is where there may occur a gap between ambition, organisation and the formal business management model. To allocate responsibilities without allocating the related mandates will often mean that the new and desired behaviour is a no-show and so will the desired results be.
Does your organisational structure fit your management philosophy?
The third question you may ask yourself in order to optimise your company with respect to your strategy is whether your organisational structure reflects the prevalent management philosophy? Management philosophy (how we act as managers) and culture within the company are elements that are often overlooked when it is time to design the organisational structure.
Workshops can be an excellent way of giving the management team an opportunity to create agreement on how they can lead the way and show the behaviour that will ensure reaching your targets. Here, it is a question of having a shared image of the behaviour and mindset that are necessary to create results. Only then will the management team be able to set the direction for the rest of the company and ensure that the organisational structure reflects the management philosophy.
When a company has a structure with profit centres, the top management needs to adopt their management philosophy accordingly. No more involvement in every detail but instead letting go within the framework that has been agreed upon, otherwise there will be less commitment for the assignment. In a company where the first- and second-line managers are worried about the consequences of making mistakes, you will have less exploration of new solutions. If you want new initiatives and a more agile approach, your management philosophy needs to support that.
A company headed by an executive who prefers to rely on self-managing teams and autonomy will need an organisational structure and a formalised business management system that enable a high degree of delegation and self-governance. An executive who has more faith in control should design an organisational structure which enables both employees and the managers to achieve success with that management philosophy.
There are many views on what is the “right” management philosophy but no conclusive answers. The only thing that is for certain is that you will have a higher chance of success if your organisation structure reflects both your strategy, business management model and management philosophy. So dear leader, the answer to the question of whether or not you should change your organisational structure, the short answer is yes, but the first step should be to ensure that strategy, business management model and management philosophy are all connected.
Originally published in Børsen Ledelse.