It does not exist a “mathematical way” to build the most efficient organization structure for a company. A general truth is to do it as simple as possible, as long as the organization can do what is required. I describes an approach in seven steps to do the design in a structured way, with a start in what the company need to do.
Step 1; Define responsibilities
Create a logical structure of tasks which describes work that needs to be done. Assign the responsibilities to perform each task to a first set of Organizational Entities
Step 2; Assign resources
Identify the resource need per Organizational Entity. Resources can be a production line, people and competence, tools, etc. The initial number of Organizational Entities may have to change to ensure an efficient use of resources.
Step 3; Optimize interfaces
Identify the interfaces for each Organizational Entity. Minimize the number of interfaces per Organizational Entity because this will have direct impact on speed and performance. The number of Organizational Entities may have to change in order to simplify structure of interfaces or it has to increase to decrease internal span of control.
Step 4; Assign authorities
Assign decision authorities to the Organizational Entities which will have best overview of the business logic. Dependent on where we create these power centers in the Organization Structure, different operational behavior will be amplified.
Step 5; Add common functions
Identify need for functions to support Top Management and possibilities to centralize common functions. These may be IT support, Business Control, Organization Design, Human Resources, etc. Define a set of Common Function Organizational Entities to efficiently manage included resources.
Step 6; Adjust to fit external requirements and constraints
If we follow the five steps described above we can fairly easy and straight forward create an Organization Structure. But we need to do some adjustment to fit strategic situation and to meet external requirements put on the company. This may be to minimize cost of operations, increase speed in execution, adapt to geographical location, create economy of scale, locate operations where competence is available, etc. The number of Organizational Entities may have to change.
Step 7; Document the design of the Organization Structure
The agreed Organization have to be communicated and made available via the Management System. Use the Organization Chart and the Organization Scope documents. Document outlines can be found in the preliminary PDF versions of the book I am working on. Send me a mail if you want a copy (jan.olsson “at” management system.se).