How to design a mix of formal and informal factors to advance your company’s strategy.
How to design a more effective alignment between your strategy and your business structure: how to gain a consistent advantage, or a “right to win” in the marketplace, through the way you are organized. (An excerpt from an article in Strategy+Business by Ashok Divakaran, Gary L. Neilson, and Jaya Pandrangi).
To succeed consistently in the marketplace, a company must have a clear and differentiated way of creating value for its customers, supported by well-defined capabilities—things it does exceptionally well that are central to its ability to perform, and hard to replicate. All this should be reflected in its portfolio of products and services. But those elements will only lead to sustainable success if the company has the right organizational design, one that enables it to execute its strategy.
Every company’s situation is unique, and therefore the right design for one company will probably not work for others, even within the same industry. But the symptoms of ad hoc organizational design are regrettably common. They include business units and functions that protect their own domain’s priorities to the detriment of the overall business, hoarded or wasted resources, strategic goals without follow-through, and a culture that dismisses or ignores accountability. These problems are not just a matter of personal ill will, incompetence, external pressure, or cultural resistance. They exist because organizational design determines behavior. When a company’s organizational forms are inconsistent with the broader objectives of the business, that misalignment affects the day-to-day actions of individual employees. It leads perfectly competent people to chronically underperform. Conversely, companies with a strong link between their strategy and their organizational structure can, like an engine firing on thousands of cylinders instead of a few, generate energy and creativity at all levels.
Even when leaders recognize that their problems are organizational, they try to solve them in ineffective ways, by making rapid, reactive changes to the organizational structure. They shift the “lines and boxes” of the org chart, or divide up responsibilities differently. They may also force a few recalcitrant leaders to resign, sending an implicit message to current executives: “If you can’t deliver, I’ll get someone who will.” But these fixes don’t address the actual cause of underperformance: a misaligned organizational design.
Designing for Strategic Fit
How do you translate a business strategy into an organizational design? How can you connect the dots between company-wide objectives and the concrete details of reporting relationships, information flows, decision rights, and social networks? The answer is not obvious. Figuring it out requires a new way of thinking about organization: what might be called organizing for essential advantage.
The way to play is how a company engages with the market, its fundamental value proposition. For example, some companies choose to distinguish themselves as innovators, continually introducing new products and service, whereas others are value providers, offering their products or services at an attractive price point. Capabilities are cross-functional combinations of technology, processes, skills, and mind-sets that work together synergistically. Differentiating capabilities are the few (typically, three to six) capabilities that enable a company to stand out from competitors and consistently provide value for its chosen customers that no one else can match.
A successful company doesn’t gain its way to play and capabilities system by accident. The company seeking a strategy looks to build on both its strengths and its prospective market opportunities by choosing the path that encompasses both. Inevitably, this means choosing not to pursue some directions. That’s a difficult decision for many companies, particularly those in rapidly evolving sectors, where there are many opportunities and few certainties. Nonetheless, being clear and consistent about where to play and where not to play is a necessary step toward building a coherent strategy, where everything the company does fits well together.
A coherent strategy also provides the necessary starting point for the organizational design process. Without clarity about the “what” (the way the company creates value), one can’t possibly define the “how” (the way to organize to create value).
A process like this one can help any company, ensuring that its strategy, capabilities, and organization are all aligned to support each other.
That quality is often overlooked in organizational design, but it is probably the most important factor of all: a critical enabler of your company’s ability to deliver on its strategy.
For a blueprint for effective organizational design, and to read the full article, please visit
- Organizing for Advantage – Strategy & Business (petersflipboard.wordpress.com)
- IDEO on design thinking (sdsdesignmanagement.com)
- Intuit Realigns Organization to Accelerate Growth (virtual-strategy.com)
- The Difference Between Vendors and Consultants – Whiteboard Friday (seomoz.org)
- Organizational design (luckypuricherla.wordpress.com)