Organization Design 101 Part 2: The CEO’s Critical Role

Dwight Mihalicz,

180484790In part one of this series, we examined the science behind the founding principles of effective organizational design. The first main challenge leaders must overcome when establishing and implementing the best design for their organization is to determine the correct number of levels (strata) and where to place position (and thereby employees) within those strata for ultimate effectiveness. In this article, we explore the CEO’s role in ensuring that organizational systems are in place that take into account the complexity of the work, as well as the capabilities of the staff.

The CEO’s Role in Organization Design

The CEO plays a significant role in the success or failure of the organization. As a key component of satisfying The 6 Key Functions of the CEO, the CEO needs to implement frameworks to empower managers to focus on their value-added work. The organization design is foundational to this: by implementing an organization design with the appropriate number of layers and functions, the CEO lays the foundation for managerial success, and the success of the company.

Using a Scientific Methodology to Determine the Appropriate Design

Why is a scientific approach to organization design – rather than organic growth – critical for effectiveness? Within each layer of the organization, the nature and the complexity of the work is different. As a result the capability required by incumbents for success in each role is different. It is imperative from an organizational design perspective to use a scientific methodology like the one developed by Elliott Jacques to understand how many layers the organization needs to operate smoothly, and how to identify the capabilities for success.

Typically, the organization design evolves over time as business requirements change and grow, with the unintentional consequence that eventually, some units of the organization will have too many layers, while others too few. This creates a variety of potential problems:

  • Extra Cost: extra layers increase the likelihood that work will overlap and staff will get in one another’s way, resulting in redundant work.
  • Poor Quality: missing layers of management result in important steps, oversight and context setting not happening.
  • Confusion: too many or too few layers can result in miscommunication, duplication of work, work that does not get done, projects over budget, or missed deadlines, all of which hinder strategy execution.

Take it a Step Further

You’re reading the article and recognize there’s room for improvement, now what? It’s time to talk to Dwight. In one phone call you can learn how Organization Design can benefit your organization.

The Science and the CEO Together

As the highest point of accountability within an organization, the CEO has a responsibility to ensure the organization design enables effective work and the best use of resources. Furthermore, it is the CEO who knows what needs to be accomplished (i.e. the long term goals and the growth strategy of the business) and therefore identifies objectives based on complexity of work. This uniquely positions him or her to determine how many layers the organization actually needs to do that work.

Without this disciplined approach, added layers tend to naturally arise, creating inefficient work practices and a slew of other problems. Likewise, when a company must tighten the metaphorical purse strings, problems with too few strata tend to appear. The CEO’s accountability is to rein in these issues, and create a design that will lead to an effective, streamlined workplace whereby each strata is occupied by highly capable people for that strata. This ensures the right number of layers; sometimes removing a layer in one part of the organization while removing a layer in another part.

The bottom line: the CEO must first understand the principles of organizational design and be committed to implementing them. It is the CEO’s accountability to determine the optimal number of layers for the organization, knowing that too many or too few can create serious problems for employees and for the business as a whole. It is also the CEOs accountability to ensure that there is a talent management system in place to place the right people in the right positions (although of course the Head of HR is accountable for most of this work). The key? The CEO must understand that the right organizational design can truly improve the performance of the organization overall, and that he or she is the only person with the authority to establish and implement it. If the CEO does this work, she or he can ensure that the design is in place that can support – and not hinder – the success of the organization.

Dwight Mihalicz

Dwight Mihalicz has over 40 years’ experience helping local, national, and international organizations achieve greater productivity, efficiency, and performance.
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