How your
Organizational Dezign
hinders the achievement
of your Business Strategy

Many product companies realize that they face some problems hindering them from unfolding their true potential in achieving strategic business goals. In this article, you will learn about organizational design as the source of the root causes of the most common problems, although this relation is usually hard to detect.

Let me first exemplify some of the common problems. When product companies experience rapid growth, they often scale up by adding more roles, structures, and processes in an attempt to compensate for the exponentially increasing coordination overhead, lack of transparency, and misalignment. This increases the organizational complexity and finally slows down their progress towards strategic business goals as it is hit by a drastically dropping speed of value creation and benefit-cost ratio.

Another common case is when organizations try to adopt various Agile frameworks and despite high or sometimes enormous investments, it does not bring the expected benefits. Some try to customize frameworks or change them to others, or even invent their own ones. Yet, in most cases, if not fail completely, they still do not manage to come even close to their true potential. The return on investment is often unsatisfactory. Moreover, this usually leads many employees who were initially encouraged by the change to get disappointed and demotivated.

In some product companies, top management understands that a proper culture and mindset of employees are critical success factors. So, they hire expensive coaches to teach and train their people. Some managers try to lead by example. Even though people learn and see how management acts, the expected cultural and mindset shift does not really happen. It seems like it is just not useful for people to behave and think that way. As a result, their progress toward strategic business goals is still significantly constrained.
While problems might look different at first sight, the most impactful drivers of such issues are usually hidden in organizational design. There's a saying that "Culture eats Strategy for breakfast". I would say "Yes, and then Structure eats Culture for lunch" where Structure incorporates the entire organization system. I expand on this topic in one of my other articles.

Unfortunately, even while pursuing well-conceived business strategies, many companies tackle organizational problems at the places where they are observed. This way, they locally optimize only one organizational element or only one (usually the lowest) level of the organizational structure. As an example, Agile frameworks and coaches are usually landed on the team level. Without the respective re-design of the surrounding organizational system, the results of such attempts are doomed to stay far below their true potential.
The organizational design includes all the structures, roles and responsibilities, processes, standards, and policies. It also covers various people management practices and policies impacting the motivation of people - both its strength and direction. For instance, this encompasses goal-setting, performance evaluation, career development, and salary management. Another critical impact comes from people-focused practices involved in professional evaluation and development and driving towards acquiring and developing specific types of knowledge, skills, and mindsets. All these elements of the surrounding organization have a tremendous impact on the way people think and behave.
Every organization is a complex system of such elements tightly interconnected across all its parts and layers. When changes in one element are inconsistent with others, the resulting organizational behaviors drive a high risk of worsening the performance of the whole company. Yet the most devastating is the organizational system's inconsistency with its business strategy.

Despite the fact that every product company is unique, on a high level of abstraction, they deal with similar types of external challenges. For instance, they usually have critical uncertainties and a high likelihood of changes impacting their decisions related to business, products, and technology. Respectively, quite similar capabilities are needed to effectively address those challenges. The most essential high-level organizational capabilities should become the optimization goals of organizational design.
As it was brilliantly formulated by Jay Galbraith in the book "Designing Dynamic Organizations",
"Organization design is the deliberate process of configuring structures, processes, reward systems, and people practices and policies to create an effective organization capable of achieving the business strategy."

This means that the organizational design should be driven by business strategy. Therefore, companies need to align all their organizational decisions with their optimization goals. So, Optimization Goals should not be just declared but proactively promoted throughout the company as a Nord Star guiding everyone in one direction.

Designing Dynamic Organizations by Jay Gilbraith
Luckily, around the world, a lot of companies have already undertaken a lot of experiments and we can learn from their experiences. However, this learning must be very careful since every company has a unique context and the copy-pasting of approaches declared as successful in other companies is a likely waste of time and money, if not even worsening compared to the current state. While very similar optimization goals might be needed for different product companies, specific organizational solutions driving the creation of these capabilities are always context-specific.
Designing Agile Organizations
In my courses, I do not just teach but help people truly understand the organization as a system with its natural, context-agnostic laws of organizational behaviors and high-level essential capabilities necessary to deal with the most common challenges of product organizations. Using this understanding, my students can identify the inconsistencies in their own organizational design and undertake a tailor-made re-design of their organizations towards the optimization goals within their specific context.

During the last several years, I predominantly focused on providing courses within my client companies and starting this year, I am giving public courses too.
Learn more
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