Why large companies should do regular organization design audits

Organization design audits

Posted by Nicolay Worren on March 25, 2014

Most large organizations have a “corporate calendar” that includes periodic reviews of every major business unit. There are many different types of reviews. Two examples are monthly business reviews focused on operational performance and annual succession planning sessions, where current and potential future managers are evaluated. There may also be reviews and audits in functional areas such as Health, Safety, and Environment.

So far, however, few companies include organizational design in these reviews. Sure, succession planning reviews may touch on the definition of roles, and the business reviews may include a discussion of organizational issues, particularly when there are negative surprises in the financial results that prompt a discussion about possible causes. But few companies have a regular and systematic process for evaluating the organization as such.

This is unfortunate.

Without a focus on the organization, it is possible to arrive at the wrong conclusions when challenges are encountered. For example, in a succession planning session, the focus could be on solutions at the individual level (and recommend “more coaching” as the solution when an individual is performing below expectations). But in fact, it may well be the system that is at fault, as the following example demonstrates.

An engineering firm realized that it needed to change its approach when it experienced significant cost overruns in one of its key projects. It put together a team to investigate the source of the problems.

The team concluded that a key factor was a poorly coordinated organization: The project in question delivered a complex system, and several business units had to collaborate to deliver different modules of the system. Yet the current line managers were only responsible for the performance of the module that their unit delivered.

One approach to address this issue was to change the formal structure and appoint a manager responsible for cross-unit integration. But instead of waiting until the next problem emerged, the leaders of this firm also realized that organizational issues deserved to be placed higher on the agenda, and be part of a continuous process of evaluation and improvement.

The result was an annual organization design audit, where each business unit is reviewed. The firm now forms a team that interviews people at different levels and then writes a report with its conclusions for the head of the business unit being reviewed. The purpose is twofold. First, it raises awareness of and legitimizes a discussion of organization issues. Second, because the team also includes managers from other business units, it gives them the chance to view how others in the same organization are doing things. The teams are not responsible for providing specific recommendations, but the CEO follows up to see that the business unit acts on any issues that are identified.

Doing interviews is a good way to understand how people experience the organization and the rationale behind choices that have been made. But they are also time-consuming to plan, conduct, and interpret, and it’s hard to compare the results from one year to the next.

A standard set of indicators should be developed that could help compare the organization design of different units, and measure progress over time. Just as with other types of audits and reviews, one could define a few key indicators that reflect the effectiveness of the organization (including but not limited to the formal structure).

In some cases, data already exist but may need to be reformatted and documented/interpreted anew. One example is employee surveys. Many employee surveys include items about the clarity of goals, the definition of one’s role, and the functioning of the unit that one is a part of.

I also once developed a “leadership confidence index,” where one of the items asked respondents to rate the extent to which the leadership team in the business unit had taken “specific steps to improve the way the unit was organized” (it turned out to be second most important item in predicting overall satisfaction with the leadership team).

There are many other types of data one should consider as well, such as documentation of roles and accountabilities, interfaces between units, and customer and process performance indicators. But an organization design audit should, above all, be forward-looking. Its primary purpose should be to help the leaders of the business unit assess whether the unit has the required organizational capabilities to implement the current strategies. And it should generate useful ideas for how to effectively reduce any gaps that are identified between the current and the required capability level. In this way, one may view the organization design audit as a key component of the strategy implementation process.

Is your organization designed to support your business strategies? It’s a question worth asking — and re-asking — regularly.

Nicolay Worren is a senior manager with Deloitte AS in Oslo, Norway, and author of Organisation Design: Re-defining complex systems (Pearson Education UK, 2012). He also writes a blog: www.organizationdesign.net

3 thoughts on “Why large companies should do regular organization design audits

  1. Hi Nicolay,

    I agree with your more “contextual” approach to those regularly-schedule reviews. The business outcomes being evaluated during these meetings are in large part a result of the “context” in which they occur, and part of that context is the design of the organization.

    Just as the organizational structure is part of that context, so are many other factors, such as the various Business Processes that are used throughout and across the organization to drive the business results.

    That said, do you feel it would be equally important to conduct regular audits of these other underlying contextual factors within the “system” in addition to the organizational design audits? Why stop at Organization Design audits? Why not also include HR Process Design audits?

    Thanks Nicolay,

    Jim Watson

    1. Jim,

      thanks for your reply. There can certainly be a need to consider business processes as well.

      But some firms I can think of already do that; as an example, the engineering firm I refer to in the article have for many years had a firm-wide project execution model and I believe it has also tracked the implementation of this model in different business units over time.

      One consideration here is who does what, and in what manner. My main point is that (from an HR perspective) there is a need to consider contextual variables and not only individual level variables, and also, that the corporate center could have a role to play here in facilitating the audit, creating awareness and legitimizing a discussion of the issues, ensuring comparable approaches and data across units, etc. Just like it has with regard to other types of audits as I mentioned.

      On the other hand, one needs to keep in mind the firm’s operating model and culture when choosing the approach to follow. Also, by including too much, the time and cost of conducting the audit may not justify the benefit.

  2. Periodic SWOT analysis of the organization, departments, and even work teams can unveil hidden concerns, underutilized strengths, and wonderful opportunities for growth and cross-training. Go for it.

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