7 Reasons Why Organization Structures Fail

The design of an organization is often a critical enabler for the achievement of a company’s strategy and goals, ongoing innovation, and streamlined operations. During our years of experience helping clients reorganize their operations, we have identified seven mistakes made by companies.

1. Not knowing what you are trying to achieve

Before moving boxes and lines on an organization chart, it is important to know why you are doing the reorganization. Is it a result of a merger, acquisition, or downsizing? Are you trying to reduce costs and improve efficiencies? Are you struggling with performance issues? Are there too many direct reports, which may be impeding both employee development and innovation? Is the reporting structure too complex? Clear guidelines that reflect what the goals of the new organization are will help companies ensure that the redesigned organization will attain those stated goals.

2. Structuring an organization for specific personnel

It is not uncommon for key people within an organization to have tremendous influence due to their tenure, expertise, or importance to certain client relationships. As a result, there is a risk that the preferences of the individual will become a priority during organization design rather than the objectives and requirements of the business. It is incredibly important to separate the organization design component from the actual selection of staff.

Strategy should drive organization design, and organization design determines the type of people who should be selected. If you design an organization based on the people, the organization will not be set up most effectively to support the overall end objectives. Skill sets may not match future needs and labor costs can be misaligned. And while placing a single individual in a position that is not well-matched may appease guilt or maintain a prior relationship, the larger organization will suffer, putting revenue and efficiency at risk. Additionally, the individual may become disengaged over time while working in a position for which he or she is not properly suited. On the whole, designing an organization based on the people results in compartmentalized processes with components owned by different people, reducing overall efficiency, and jeopardizing the organization’s support of the overall business strategy.

3. Causing more disruption than needed

ScottMadden sometimes encounters clients who view reorganization as an opportunity to “clean house.” Although it is true that the need for change usually provides a good opportunity to also address other inefficiencies or problem areas, leaders should be cautious about causing more disruption than necessary. Drastic staffing cuts or process changes can result in reduced employee morale, the loss of valuable talent, stagnated innovation, and an overall distraction from the mission of the organization.

4. Making decisions and/or having sidebar agreements outside of the agreed-upon process

A sidebar or supplemental agreement that compromises the documented, agreed-upon, communicated process threatens project success. These actions can open the door to additional exceptions to the organization design process and can result in an overall lack of trust in the organization’s leadership going forward. For example, management has set forth a process of evaluating and selecting for all reorganized positions. Two managers have a sidebar discussion in the hall that they really want “someone like Kim” in one of the positions. Both managers agree and decide to put Kim in the position and determine who will backfill her in her current position, despite already communicating that the two positions will be posted and interviews will be conducted for final selection.

While it may seem harmless at the time to make minor adjustments to the agreed-upon process, the act of doing so threatens the project by creating the justification for making larger exceptions later on in the process, as well as demonstrating to the end population that the process is not “fair.”

5. Skipping current state assessment

Many organizations desire to jump directly to the organization design stage before conducting a detailed current state assessment (CSA) that includes current costs, volumes, and service levels of the organization. It is imperative that a comprehensive CSA is completed prior to the design, as the design is dependent upon many of the metrics and standards that are established within the CSA. Gauging improvements in efficiency and/or performance from the redesign often depends on an organization’s ability to analyze and compare layers, spans, and cost-to-manage to standards. A CSA forms the basis for these and other analyses, without which decisions are not fully informed.

6. Breaking the circle of confidentiality

It is incredibly important for participants involved in the redesign to keep project information inside the circle of confidentiality. Revealing too much too soon to those outside the “Circle of Trust” can threaten an organization’s level of engagement and overall productivity. The design of a new organization structure brings with it new roles, responsibilities, and reporting relationships. These changes can encourage or discourage personnel, and therefore have the potential to threaten the effectiveness of the new structure. The performance of individuals or entire departments can be compromised if people think they will not have a job in the future organization, and this has a network effect on the rest of the organization. In addition, organizations may lose their most talented individuals who feel uncertain about their future within the new organization, while being highly sought after in the marketplace.

7. Bypassing a formal change management and communications plan

It is essential that a formal plan is developed to support the communication of the right information at the right point in the process. Details about the new organization, along with details of the selection process, should be communicated as they are finalized to all levels of the organization. This will help avoid surprise or confusion about the responsibilities and expectations during the change. If rumors conflict with formal communication during the process, the legitimacy of the organization will be jeopardized.

Reorganizations can be highly successful ventures. However, by understanding what your main drivers are on the front end, whether you are promoting growth, cutting costs, changing culture, or changing overall operations, you can ensure you achieve your goal of better performance. Avoiding ScottMadden’s seven reasons for failure will help ensure your organization redesign is “done right.”

For more information or to provide comments on this topic, please contact us.

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