Organization design is a field of work and research that focuses on the way organizations function and seeks to improve these systems. In Part 1 of this series, we examine the scientific theories behind today’s most effective approach to organizational design and some of the common challenges executives and CEOs must overcome in order to implement a successful organizational design.
Determining Organizational Complexity
Organization design is, unfortunately, often an organic – not strategic – process that responds to gradual growth as a business matures. Organizations may begin with one entrepreneur who conceives of a new way to develop a product or deliver a service and who starts a business. As the output of this organization increases, so too do the number of employees. Over time, Managers are hired to manage front-line employees, directors are hired to manage Managers, Vice Presidents are hired to manage Directors; centralized support functions such as HR and Finance are put in place, and so on. This is almost never done in a planned way – the positions and functions are created as needs arise and organizational output warrants.
Successful organizational design requires establishing the right number of layers in the organization to assure high performance. The larger the organization and the greater its complexity, the more layers are required. Global multi-national organizations might require as many as eight layers (the maximum number for the world’s most complex organizations); but a small local company might only need two or three. This raises two important questions:
1. How do you determine how many layers an organization needs for high performance?
2. How do you recognize when you have too many (or too few) layers that are detracting from high performance?
There is a proven scientific method that determines the appropriate number of layers (or “strata”) for an organization, and the correct layer for each position. It was first developed in the 1950s by Canadian organizational psychologist Elliott Jaques and his team by working with real organizations. Though Jaques has passed away, research inspired by his findings continues to this today. Jaques’ methodology provides tools to identify the complexity of work, and thereby the number of layers necessary for success in the organization. Jacques has identified eight possible layers (strata) of work, each of which is unique and measurable.
Take it a Step Further
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To illustrate, compare a frontline worker whose has short-term, day-to-day accountability, (such as working on an assembly line, or processing bookkeeping entries), with a Vice President who may be required to expand the organization’s product line on another continent within three years. The complexity of the long-term project far outweighs that of the one-day deliverables. Similar analyses can be made at all levels of management and for all roles.
By juxtaposing this information about the current organization with other factors that drive complexity, such as the organization’s strategy, the volume of output, the number of products and services, the number of employees, and so on, it is possible to scientifically determine the appropriate number of layers for the organization.
The Human Factor
Another aspect of Jacques’ theory addresses how individuals process information and make decisions as they mature through life. This capability determines the level of complexity of work a person can successfully complete. Individuals mature at different rates: for some, entry-level (or “stratum one”) work isn’t complex enough to be fulfilling, and they quickly move into higher-level jobs with more complex work. Thinking back to our example, the capability required for success is different for the person doing the front line work than for the Vice President that is expanding the product line.
Thus, successful organization design focuses not only on determining the appropriate number of layers or strata for the organization; it must also appoint employees to positions in the layer where they have the capability for success. The person with the capability to work on the assembly line is not likely to be successful if assigned the Vice President’s there-year job to expand the product line. The Vice President, on the other hand, is not likely to fulfilled by doing the assembly line work and would be under-used.
Organization design is therefore centered on two key principles:
1. Using science-based tools to determine the appropriate number of levels (strata) for the business, and
2. Ensuring business systems are in place to appropriately assign employees with the capability for success in their level.
If a CEO and the team of leaders use a less rigorous approach, the design of the company may be flawed, and this will lead to inefficiency and ineffectiveness.
The second part of this series will concentrate on the crucial role the CEO plays in establishing and monitoring the appropriate organizational frameworks.