Organization design can be defined as the process of shaping an organization's structure, roles, and responsibilities. Organizational design is more than just an exercise in creating an organization chart as it integrates the human capital resources and the operational processes of an organization and aligns them with its vision, mission, and goals. In this regard, good organizational design is a prerequisite to effective strategy execution. An organization's particular stage in their overall business life cycle (i.e., start-up, growth stage, mature, or declining) coupled with it's target markets, plays a critical role in considering the appropriate design.
In general organizational design includes the following elements:
- an impact assessment of the contextual dimensions or externalities surrounding an organization (i.e., macro-economic conditions, geographic location, work culture, organization size, dependence on and implementation of technology)
- an outline of the key structural dimensions of the organization (e.g., a hierarchical structure with formal peer-to-peer relationships)
- a determination of the personnel subsystems (i.e., committees, departments, teams, programs) and task groupings (i.e., functional, divisional, matrix, or networked).
Organization design planning takes into account organizational behaviors related to communication and the channels of communication, roles and responsibilities, performance expectations, and standard operating procedures that are most appropriate within each operational subsystem.
The actual process of building a successful organization design starts with the organization's long-term strategic plan. In this first phase, the business case is developed that includes a clear description of organization's strategy and its design objectives. This phase of the process requires a thorough market analysis that assesses viable business opportunities, key market and economic trends, competitive positioning, and knowledge of the customer needs and motivators.
The business case phase is typically followed by an exploration of "strategic grouping" options that will define the fundamental architecture of the organization. This step in the process entails deciding the operational structure of an organization. The classic options for strategic groupings are to organize by:
- Product or category
- Customer or market
Each of the above options for the strategic grouping of an organization brings with them a set of inherent benefits and potential drawbacks that entail making trade offs between the differing operational options.
The subsequent phases of organization design include process definition, role definition, measures and reward system definition, followed by staffing and other implementation tasks. Staffing or human capital management has become increasingly important as it now represents a potential competitive advantage in the global economy. Good human capital management includes programs that best align individuals with organizational processes and expectations. This includes having a continuity planning program that ensures that internal fluctuations in talent availability do not affect the delivery of high-quality programs and services in market.
From the human capital perspective, good organizational design should clearly outline how to group people together to perform their tasks, ensure that all interested parties understand the logic behind the organizational design, and define how the individual's performance contributes to delivering high-quality programs and services to the marketplace.