Let’s assume that you are planning a re-organization.
How do you proceed?
- Do you make the decision based on the information you already have, or do you analyze the current organization first?
- Do you consider only one alternative, or do you develop multiple options before you decide?
- Do you make the decision yourself, or do you involve other stakeholders?
We know from extensive research that the quality of the decision that one makes is highly correlated with the process that one follows.
And the more complex the issue is, the more important the process becomes.
But it may be difficult for a single individual to change the way decisions are made. It seems like the decision making style is embedded in the culture of the organization.
Hence the level of sophistication varies from one organization to the next.
So there might exist “maturity levels” with regards to decision making.
I have not done systematic research on this, but I have participated in a lot of organization design projects over the years, and interviewed hundreds of managers about these issues.
Based on my own observations, there seems to be four maturity levels, as illustrated above.
Let me explain each one of them.
Maturity level 1: Autocratic
In organizations that are at this maturity level, the boss decides, with no involvement of others.
I once interviewed a senior executive of a large, international company. I asked him how decisions about re-organizations were made in his company.
He told me this anectode:
A few years ago, before Christmas, we thought that the CEO was working too much and was looking tired. So we suggested to him that he take the Christmas off.
To our surprise, he agreed and spent the entire week between Christmas and New Year’s eve in his mountain cabin.
But then, when he showed up the first day in January, we realized that he had not been idle during the break…he was carrying a large print-out of the org chart, with multiple changes indicates with a red pen.
At the first management meeting in January, he announced how the new organization would look, and allocated the people around the table to their new roles. That’s how the new organization was introduced.
After that, we joked that we would never again ask the CEO to take a Christmas break…
People in the same company told me that they often spent two or three years implementing a new organizational model.
This is probably not a coincidence: Organization design is simply too complex an issue to be handled by one person working in a mountain cabin, no matter how bright that person is.
When you make a decision without understanding the underlying complexity of the issues, you will get a prolonged implementation period.
One reason is that it will take time to “sell” the new model and explain how it is supposed to work.
Another reason is that it will require a lot of local changes and adaptations to the (usually poorly conceived) model to make it work (e.g., see this study).
Maturity level 2: Involvement
In some organizations, one realizes that involvement is key. These organizations are at level 2 of the model.
Involvement increases the degree of acceptance. When people feel that they are heard, they are more likely to support an initiative to introduce a change.
On the other hand, involving people does not guarantee an effective decision process. It may produce a consensus, which is good, but the technical quality of the decision may not always be optimal.
I have observed many companies that arrange a lot of meetings with discussions about these topics. But they don’t seem to follow a structured process. People exchange viewpoints about possible solutions, rather than confronting data about the problem.
They usually don’t have any decision criteria, and usually fail to consider alternative options.
When you go back later and ask why a new organizational model was chosen, they usually can’t explain exactly when they made a decision, or even why.
Maturity level 3: Sequenced
Some organizations reach a higher level of sophistication, which I call “Sequenced”.
Managers in these organizations divide the decision making process into phases.
In particular, they make a clear distinction between “As-is” and “To-be”.
In the “As-is” phase, they seek to understand and document the current organization. If successful, this creates a common understanding among stakeholders of how the current organization works, and about its strenghts and limitations.
By spending time and money on documenting the current organization, one increases the chance that one identifies the most important underlying issues, and that one selects a solution that actually increases performance.
Documentation is also crucial for transparency and future learning: It makes it possible to explain to people why a decision has been made, and to go back at a future point and check whether the assumptions were correct.
In the “To-be” phase, they consider how they might address the issues identified in the “as is” phase.
But organizations at the “managed” level don’t just develop one alternative. They develop multiple alternatives, and have some criteria that can be used to evalute the alternatives against each other.
Developing multiple alternatives has consistently been shown to increase the chances of making a successful decision (e.g., see this study of actual decisions in a German firm).
Maturity level 4: Analytical
When firms introduce a new product, they rarely rely on intuition alone – they do (among many other things) market research and conduct systematic product testing before the product is launched. To do this, they collect data and analyse the data using statistical techniques.
But strangely, when managers in some of the same firms make organization design decisions – with consequences for hundreds or even thousands of employees – they may rely on little more than an organization chart scribbled down on paper napkin (I actually once observed a scenario like this.)
But thankfully, this is changing.
Leaders are becoming aware that organization re-design may be a necessary, but complex, undertaking.
They realize that they should be armed with the best tools available to increase the chances of success.
So the most sophisticated firms – those at maturity level 4 – use analytical tools (of course, in addition to involvement and sequencing of the process).
Analytical tools may, among other things, be used to…:
- Increase the clarity of unit mandates and to minimize goal conflicts in the organization (see my book and this article that I published recently).
- Reduce coordination cost by grouping roles using a clustering algorithm (see my previous blog post about the Reconfig software tool that I have developed with two colleagues).
- Ensure that managers at different levels have the right span of control (I use a simple Excel tool for this, I might post it later to this blog)
- Estimate the required size of units based on capacity considerations (I use a time usage survey for this purpose).
Moving to a new level
So how do you increase the quality of organization design processes in your organization?
Based on what we know from other areas, it is hard to jump across maturity levels.
So you probably need to institutionalize processes at level 2, before you can move to level 3, and you need to be at level 3 before you can move to level 4.
But the important thing is to start. Hopefully, this framework can be a guide on the way.