How do you do to design your organization structure? Do you hand out areas of responsibilities to skilled employees? Or do you group same type of tasks into functional areas? In many cases I believe you simply copy an organization structure from another company. If you think I am wrong, why is most companies organized in the same structure?

If you look into organization structures of different companies you find a fairly unified pattern. Most companies have a sales department. Sales people works with sales, so you need to have a sales department to sell. If you shall deliver goods to your customers, you need a delivery department as they do deliveries. If you need to develop some products you need a development department as they do development. This looks fairly obvious and reasonable. But is this the smartest way to design an organization structure?

Over decades, perhaps centuries, company leaders most often use “pattern design” to set up an organization structure. Organization structures are “stolen with pride”, copied and pasted, done as it always was done. If you do like this, where is your uniqueness? How do you beat you competitors? Copy them and try to run faster? And, by the way, does it not sound like a bit self-fulfilling design approach. Do you really need sales department just because you do sales? When a read numerous theories about organization structures most literature describes classical organization structure types like function centric organization, product centric organization, customer centric organization or the combination in a matrix organization. It is like scientists in organization management have a great ability to describe an organization but little knowledge in actual design of organization structures. If I want to outperform competitors how shall I think to do a smarter design of the organization structure?

In search for an answer to this question I had to re-evaluate the essentials of an organization structure. What is the purpose of having it and what does it do? Exploring different definitions of organization structures I think the widely spread definition from the ISO 9000:2005 standard is rather comprehensive. ISO writes “arrangement of responsibilities, authorities and relationships between people.” The key word in the context of this blog post is “responsibilities”. To do a design of your organization structure you need to understand what responsibilities are key to your success.

In the “pattern” examples above responsibilities are related to activities like sell, develop and deliver. Are these responsibilities the ones to focus when you design the organization structure? You have to validate this against the needs identified by your value creation chain and business model. What about company assets like knowledge, tools, raw material, customers, etc.? To what extend are they important for success, in line with your business model? Shall you use key assets as focused areas of responsibilities when you design organization structure? Maybe you set up a knowledge department, tools department, customer department, etc.

When we are this far in exploring the essentials of an organization structure design we understand that it is about responsibilities. It can be responsibilities of activities, like sales. Or it can be responsibilities of assets, like competence. Is this all what responsibilities is about or do we have another area where responsibilities can be defined? What about internal or external deliverables? Is this an important area of responsibilities? The purpose of a company it is to create value for its customers. This is done by the external deliverables. So isn’t deliverables the most important responsibilities then? Shall we design our organization structure with focus on key deliverables, in line with value creation chain and business model?
Asset-Activity-Deliverable

Maybe we shall focus more on responsibilities for deliverables when we do the design of an Organization Structure. It also goes hand in hand with a number of modern business management methods like Management by Objectives, Process Management, Balanced Scorecard, etc.

I argue that Organization Structure has to be built around responsibilities for assets, activities, deliverables or a combination thereof. When you do the design of the organization structure you have to make this based on key attributes identified in the business model and value creation chain. This means you shall do active choices in the design of your organization structure. If you only use a pattern because all other do this, your organization structure will not help you to increase effectiveness beyond a level of acceptable.

 

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