People or Strategy: When Designing a New Organization, Which is the Best Place to Start?
When designing an organization structure, you can focus on the people you already have and then figure out how to organize them; or you can design the organization around your business strategy.
There are two fundamental approaches to choose from when designing a new organization structure. You can focus on the people you already have and then figure out how to organize them. Or you can design the organization around your business strategy and the capabilities and competencies required to execute on your business strategy considering current and future state scenarios. Both approaches have their supporters and detractors.
Here’s the debate:
Start with people.
“We should design our organization around our people and then fill any skill gaps as needed.”
|People are the foundation of our business. The best way to design an organization is to start from that foundation and build up from there.||Although people are critically important, our strategy is actually the foundation of our business. And in some cases, our existing people may not align with our strategic business requirements in the current and future state.|
|Focusing on people is the fastest and easiest way to design a new organization. A structured approach that starts with strategy and works its way down sounds complicated and time-consuming.||Having the right org structure is critical to our success, so it’s worth investing a little extra time and effort to do it right. Also, org design is not a one-time event. It evolves over time as macro and micro economic forces influence business strategies. Additionally, a structured approach gets faster and easier every time we do it.|
|My employees have served me well for years and it’s my duty to make sure they are taken care of.||Personal loyalty is admirable. But if taken too far it can lead to petty politics and org decisions that don’t make sense for the business.|
Start with strategy.
“We should design our organization around our business strategy and operating requirements and then figure out how individuals fit in.”
|A structured approach that starts with strategy produces superior org designs that more effectively address our short- and long-term business requirements.||That might be true from a purely objective viewpoint. However, subjective factors such as personal relationships and loyalty are important too. Our people are not just cogs in a machine.|
|Applying a consistent organization design and sections process based on current and future state capability requirements is fair, equitable and transparent.||To be perfectly honest, I’m a little concerned about losing control of the decision-making process. With a relationship and people-based approach, I can design an organization that works for me.|
|Basing our org design on our long-term strategic needs will enable us to build the required capabilities and competencies in logical, deliberate steps. This will not only support our business strategy, but it will also facilitate our succession management efforts.||Although a change in strategy might require new skills and competencies, we should do our best to fill those gaps with existing staff whenever we can. Our focus should be on developing our existing pipeline of talent.|
Kevin Knowles, Principal, Deloitte Consulting LLP
In our experience, most executives naturally gravitate toward the people-first approach to org design. But all too often the result is an organization structure that does not align well with the true needs of the business. To compensate for this natural bias, companies should force themselves to follow a strategy-driven approach that is structured and consistently applied across the enterprise.
The first step is to take a close look at your business strategy and future operating model requirements. In the months and years ahead, how will you differentiate yourself from the competition? How will you design, sell, deliver and support your products? What capabilities and competencies will you need and where are the critical gaps? A strategy-driven approach helps you develop an organization design that can bring you steadily closer toward your desired end-state.
A strategy-driven approach also helps you determine if you are allocating your organization and workforce investments wisely. For example, are you investing enough to expand your capabilities and competencies in critical areas? Conversely, in areas where you need to scale back, are you cutting too deeply, or not deeply enough? A granular view of cost is especially valuable in a merger, where you need to draw a clear line between your organizational plans and the cost synergies you promised.
Transition planning is another critical issue. Mishandled leadership transitions can send harmful shock waves throughout the organization. They can also be very expensive, prompting disgruntled executives to exercise bailout clauses in their contracts that could cost the company millions. Additionally, a gap in leadership could become a hindrance to strategy execution and could influence Wall Street confidence in the company.
Last but not least, a structured, strategy-driven approach to org design encourages broad involvement from key stakeholders throughout the enterprise and gives them skin in the game. This sense of personal ownership can pay big dividends when it comes time to roll out the new org design.
A view from the Technology sector
Eileen Fernandes, Principal, Deloitte Consulting LLP
An org design that starts with strategy can easily accommodate the unique requirements of various industries. For example, in the technology sector product development is especially important. So is sales & marketing. To be effective, the org structure for a tech company must reflect those priorities.
In addition, org design in the technology sector must also be able handle rapid change. In the last decade alone, digital convergence has caused a fundamental market shift that blurred the lines between technology, media and telecommunications. For example, Google started out as a pure Internet company, but is fast becoming a major player in other areas such as telecommunications and software. If not handled correctly, this kind of dramatic shift could cause chaos within an organization. A structured, strategy-driven approach to org design helps tech companies balance short-term requirements against long-term needs and enables the organization to evolve in a smooth and logical way.
A view from the Oil & Gas sector
Michelle Seale, Principal, Human Capital, Deloitte Consulting LLP
The oil and gas sector is greatly affected by external forces such as commodity prices, government regulations, natural and man-made disasters and rising demand in emerging markets such as China and India.
Designing an organization to handle this extreme volatility is no easy task. The design must be flexible and scalable enough to align with the volatility of commodity markets that often influence the way in which strategies are developed and executed in the oil and gas sector. As with many industry sectors, there is also a need to balance the natural friction between corporate oversight and business unit autonomy. In the oil and gas sector, there is typically a desire to have business unit autonomy to facilitate quick decision making and accountability. However, this model could compromise corporate standards related to policies, procedures and compliance. This is particularly true for large, global companies operating many different lines of businesses in multiple geographies.
The oil and gas sector requires different competencies from an industry such as high-tech. The concept of operational excellence, regulatory/governmental influence and environmental stewardship are core tenets of success. By following a structured, strategy-driven approach, energy companies can design organization structures that reflect their unique needs based on current and future state business requirements. This methodical approach not only aligns the right skills and capabilities with the dynamic nature of an operating model that is influenced by external forces, but can also provide a solid foundation for global growth.
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