Is
your business design holding you back?
All organisations are looking for ways to improve
their performance. Private sector firms are striving to beat the competition by
providing more value to the customer at the lowest possible cost. Government
departments and not-for-profit organisations are under pressure to provide
increased stakeholder-satisfaction with ever-diminishing resources. These
challenges require an improvement in effectiveness - doing only those things
that the customer/stakeholder values - and efficiency - doing more with less.
The key to meeting these challenges
could lie in taking a more systematic approach to business design. In this
article, I will introduce a business design framework that, correctly implemented,
has the potential to vastly improve business performance. ‘Organisational
Architecture[i]’ is a simple, yet very
powerful framework that seeks to improve an organisation's performance by
establishing alignment between the organisation's environment, strategy,
organisation design and culture. It all sounds like common sense, but it is
amazing how many failures and near-failures can be traced back to getting this
wrong.
In this framework, core organisational
design has three elements:
·
The assignment of decision rights
within the organisation: How centralised or decentralised should decision-making
be? Are decision rights more appropriately assigned to individuals or to teams?
·
The evaluation of performance: What is
the optimum balance between objective and subjective measures? Should
performance benchmarks be absolute or relative? Is performance evaluated on an
individual or team basis?
·
The rewarding of individuals: What is
the optimum balance between straight salary and incentive-based compensation?
What incentives can be utilised when cash incentives are restricted?
While it
is clearly important to get each of these settings right, it is compatibility
and balance that are the real keys to success. Where organisations often go wrong is that
they see a particular technique that is working well in another organisation
(for example, management by objectives, zero-based budgeting, participative management,
total quality management, etc), implement that technique in isolation,
and then wonder why it didn’t succeed.
The correct (that is, ‘effective’) approach
to implementing a new organisational design is to start with the organisation’s
environment and strategy, craft an organisational design to suit, and then use
internal communication channels to establish a compatible corporate culture.
As I said, this is a powerful framework.
It can be very useful for explaining why an organisation has failed, or is not
performing as well as it should (and I’m sure we can all think of some case
studies here). But more beneficially, it
can be used to create an environment for superior performance, thus avoiding
failure in the first place. The framework is also very flexible – it can be
applied to whole organisations, or on any business unit that is seeking to
improve performance. (And that’s all of them!)
Of course the devil, as they say, is
in the detail. Some of the more important detail as I see it is:
·
Is your strategy the right one for
your business’s environment, and is it well understood by all?
·
Who in your business has the information
required to make value-enhancing decisions, and can they be given more
decision-responsibility? Are corporate policies stifling creativity?
·
How can these key individuals (or
teams) be incentivised?
·
What cultural changes are required to
support the new approach?
We’d be really interested to hear your
feedback on this framework. Can you see potential in this model for improving
your organisation, or business unit? Do you have a similar (or even a very
different) approach that you use? While this model is already well developed,
we are currently looking for ways that it can be built upon, and to that end
your input would be greatly valued.
[i] The
‘Organisational Architecture’ framework has been developed by James Brickley, Clifford
Smith and Jerold Zimmerman, and is described in their book, Managerial
Economics and Organizational Architecture, fifth edition, Irwin, McGraw-Hill.
Cary Clarke is an experienced finance executive with a strong track
record of financial leadership and business improvement. He has overseen
business improvements in the areas of planning and control frameworks,
capital structuring, organisation design, business model redesign and
technology implementation.
Post your thoughts and comments below...
Labels: Architecture, business design, Change, core design elements, Culture, decision rights, design, environment, evaluation, framework, Organisation, Performance, Strategy, system
