You need to understand how the current organization works – before you can design a new one.

As professor Ron Sanchez of the Copenhagen Business School puts it: “You can’t improve something that you can’t describe” .

So we need to describe the current organization first. To do that, we need to collect some data.

But what kind of data we you need, exactly, to describe the current organization?

I have observed that there is a lot of variation here.

Very different types of data seem to be collected and analyzed in different organizations.

Now I don’t think there’s a standard set of data that is relevant in every case.

But let me suggest three key principles, which may be used as a guide.

Principle #1: We need both subjective and objective data

It seems like different people prefer different types of data.

Maybe this is due to personality differences. When trying to understand an organization and how it can improve its performance, some prefer to listen to the stories people to tell, while others would rather look at a chart with statistics showing the number of production defects.

But neither is very useful alone.

“Objective” data are obviously necessary. You can’t re-design an organization if you don’t know how many employees there are, to mention just one example.

But “subjective” data that we gather in interviews are also essential for understanding how people in the organization view their role, how they interpret the mandate of their unit, and what they think may be the underlying causes of problems.

It is basically very hard to interpret objective data without it.

But data about what?

Principle #2: We need data about “organization design variables”

In one engineering firm, a project team was set up to support the EVP of a business area in performing a strategic review, which also included a possible reorganization.

The members of the team spent most of their time collecting cost data from the business units within the business area.  The final deliverable was a thick binder with charts showing the cost of every conceivable activity and item.

The cost structure may be a constraint that you may need to take into account (not all organizational models may be feasible from a cost perspective). It can be also an effect of a new organizational model (e.g., a model with more management layers may lead to higher costs).

So it’s not irrelevant. But we can’t redesign the organization (or at least shouldn’t) based on these data alone.

It may sound obvious, but we need data about organization design variables to inform a decision about an organizational re-design.

So what would that be? Well, we may start by describing the current formal structure (e.g., the main units, locations, reporting structure, and so on).

Then one can add data about the “horizontal” dimension (the work processes and interdependencies across different units).

It’s also useful to have time utilization data (to know what types of activities people spend most of their time on).

But more importantly, we should know whether the organization is able to fulfil its mandate and reach the key goals that have been set (and, if not, what the key obstacles may be).

The organization is there for a purpose – and we need to know what it is.

Principle #3: Data should help us reduce uncertainty.

Of course, there are lots of things that are “nice to know”. But one cannot go on collecting data forever.

So, after we have gained a basic understanding of the current organization, we need to determine what to focus on.

At this point, I have found it useful to ask the question: “What’s the main thing we’re uncertain about?”

We should focus our data-gathering effort in that direction.

As an example, we may be considering combining two units that have so far been working separately. But we may also be concerned that the two units may not be fully compatible with each other.

To reduce the uncertainty, we may collect data about the activities carried out in the units, their respective role, and so on. We may also ask whether there are examples of such a combination somewhere else in the organization, or in another comparable organization.

* * *

By the way, the process of documenting the current organization is useful in itself.

It provides a chance to involve people and build a common understanding of how things work – and create a consensus about the things that need to be improved.

In many cases, it also generates a lot of ideas for possible solutions.

In one project, we interviewed 45 managers and asked them to identify improvement areas. We also asked them about possible solutions. They provided more than 200 ideas.

* * *

In my next post, I am going to go into one particular way of analyzing and visualizing organizations – using social network data.

Related posts:

Does it take longer to use a systematic approach?

How do you know whether your organization needs a re-design?

We all know that we need the support of key stakeholders in a change process.

And this is absolutely critical if we are talking about potential changes with regards to roles and reporting relationships.

A key stakeholder may ignore our proposal for change, support it, or block it – while it is still on the drawing board.

So “stakeholder management” needs to be part of every project that aims to re-design the organization.

The initial step may be to do a “stakeholder mapping” exercise (as they have done in the image above). You first identify the key stakeholders, and then evaluate their relative power and influence, and what their likely reaction is to the initiative that you are considering.

As stated in one textbook* (which is used in many business schools), this is about politics:

Once you know who they are,  you can – according to the textbook – employ “tactics to change the stance of certain stakeholders”  or try to “increase the power of certain stakeholders” that agree with you. Or you can try to prevent negative stakeholders from influencing other stakeholders who are neutral or positive toward your initiative.

During the re-design process, one can return to the mapping at various points and evaluate whether the situation is changing, and try to pick up signals from key stakeholders that may require action to maintain support for the changes you are planning to implement.

So stakeholder mapping is a useful activity.

Yet I think many of us feel slightly uneasy about using this approach.

It is “us versus them”, it’s about convincing “them” so “we” can get our project through.

I am not saying that we should ignore political issues. On the contrary, I have suggested that we always do a “political test” of a proposed new organizational model (see this blog post).

And I don’t think it is always possible to reach broad agreement among a diverse group of people in a fragmented system.

But still, I don’t feel that the political approach should be the default option. Which leads to the question: Is it possible to imagine a different, “non-political” approach to stakeholder management?

It is.

It would be based on three key assumptions, which I describe below.

There’s actually some research that suggests that it is far more effective in practice.

1. Stakeholders are not “outside” the system that we are re-designing, they are part of it.

I have written about Russell Ackoff before on this blog.

He argued that system re-design can ONLY be accomplished by stakeholder participation.

He also viewed organizations as “open systems”.

So you basically need to shift your “level of analysis”.

This means that if you are asked to re-design a department, you cannot just look at internal factors in the department, but need to consider the context – and include people outside the department in the re-design process.

If you are re-designing an entire organization, you may need to include external stakeholders (or their representatives) such as owners, customers and suppliers.

2. Don’t try to persuade people.

We often assume that we need to “sell” people on a particular solution to get them “on board”.

As it turns out, this is rarely a successful approach in situations with many different stakeholders and interest groups.

Professor Paul Nutt has studied decision making processes in hundreds of firms. He has identified successful and failed decision processes, and tried to untangle the factors that distinguish the two.

He has found that in failed decision processes, leaders often went for a solution preferred by the most powerful stakeholder, without even checking whether other stakeholders agreed, and if not, why. The leaders then started to persuade others to adopt this solution.

This is also a key weaknesses of the framework I mentioned above – it focuses on “power and influence” of different stakeholders, but seems to ignore the essence, namely what the stakeholders stand for.

What are their key concerns, goals or priorities?

Paul Nutt concluded that leaders need to uncover these concerns.

In an organization re-design process, it may result in a table like the one below, listing the most important “design criteria” for different stakeholders.

…which leads us to the third point:

3. Develop solutions that satisfy multiple stakeholders simultaneously.

Once we understand the concerns of different stakeholders, or more specifically, the design criteria they favor, we can move to the next step.

We can ask ourselves whether the criteria are complementary to each other or whether they are in conflict.

The question to ask here is: “If we maximize criterion A, what effect will this have on criterion B?” (Perhaps the stakeholders themselves should be asked to ponder this question.)

If one discovers that two criteria are in conflict, it is common to assume that one needs to either focus on one, or to find a compromise (a solution that is equally bad on two criteria).

But as R. Edward Freeman, a leading expert in this field, says:

A stakeholder approach to business is about creating as much value as possible for stakeholders, without resorting to trade-offs.

In other words, the challenge is to develop solutions that satisfy more than one criterion at the same time, or meet the expectations of more than one stakeholder.

It’s not always possible.

But at the very least, this is what we should aspire to when we re-design our organization.

Related posts

The political test of a new organizational model

How to design an organization that can be good at two things without compromising performance

Acknowledgments

I would like thank Hans Lekkerkerk, a lecturer at Radboud University in the Netherlands, for taking the time to discuss this topic with me and for providing useful suggestions.

Image credit:  Robbert Higgins http://goo.gl/HGSauK

*Johnson, Scholes, & Whittington (2014), Fundamentals of strategy.

When we are planning a reorganization, we know that the stakes are pretty high.

The changes we are planning may well be overdue. Implementing them will create a more effective organization and over time; lead to gradually improving operational and financial performance.

But the reorganization will also create uncertainty among employees. Some will question the need for change.

Some will resist moving to a new role (or be unable to). Those who are not selected for key positions may leave the firm. People may even threaten to sue you.

So when designing a new organization, there is a natural tendency not to share information too early about things that may create uncertainty: “Let’s wait until we have everything worked out before we go public with this”.

There are certainly some types of information that we should keep to ourselves.

We may not want to share every speculative idea we come up with about future options for the organization. And we should of course be careful about sensitive or confidential information. One example may be our assessment of individual candidates for positions in the new organization.

But keeping the process as such secret may undermine the purpose of the reorganization.

As I have discussed before, you need valid information about how the organization works in order to make the right decision about a future organizational model. You also need early involvement in order to start building support for the change.

I once discussed this challenge with Gil Steil. He is a leading expert on large group methods. I challenged him a bit, and asked whether it’s realistic to involve a broader group of people even when unpopular decisions need to be made. Here’s what he had to say:

The fear of discussing uncomfortable issues prevents some leaders from working with a large group.

But a part of my practice has been handling these things with representatives of all the key stakeholder groups in the room – with the clients that summon the courage to confront hard issues openly. 

The people having coffee in the cafeteria in the morning somehow know months ahead of time when a downsizing is a possibility or when benefits might be cut.

So it’s a great relief to everyone when these feared issues are actually openly discussed – and involving people with lots of different perspectives can produce better ways of proceeding than what the leaders think up on their own. 

Also, a well-designed meeting keeps the leadership in control of the discussion. When the discussion is underground (in the cafeteria) the leaders don’t even know what’s being discussed.

Think about that next time you close the door and lower the curtain to work out the new org. chart.