A Complete Guide to Organisational Design

Key Highlights

• Organisational design refers to how an organisation structures its functions, processes, roles, decision rights, competencies, and reporting lines to achieve its goals. 

• It is the approach which determines the way in which a company functions, in terms of collaboration, decision making, and responsibility.

• The right organisational design takes care of structure, processes, competencies, culture, and changing business demands.

• Good organisational design assists companies to increase coordination, determine responsibilities, take decisions, and adapt themselves to changing circumstances.

• In this blog, you’ll explore designing organisational structure, key elements, principles, types, influencing factors, step-by-step process, real-life examples, and common mistakes in organisational design.

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What Is Organisational Design?

Organisational design is the process of aligning a company on how should it be set up, what will be the hierarchy and how people should work together to achieve its goals.

Organisational design is important because it looks at things like:

• Who work in what role

• Who reports to whom

• Who makes which decisions

• How different teams work together

• How work moves from one team to another

• What skills each team needs

In simple terms, organisational design answers questions like “Who is responsible for this?”, “Who makes the decision?”, “Which teams need to work together?” and “How should the work flow?”

Organisational Design vs Organisational Structure

Though these two terms may look similar, they have separate meanings. 

Organisational design is deciding how the whole organisation should work, whereas

organisational structure is about how people and teams are arranged within that organization.

Organisational structure describes the formal arrangement of roles, teams, reporting relationships, and authority. Organisational design is broader because it considers how that structure fits with strategy, processes, capabilities, culture, and the way work gets done.

A structure can look neat on paper. It still might not work well in practice.

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Key Elements of organisational Design

There are few basic elements which shapes how an organisation words as a structure. The elements are inetrconnected so one is dependent on the other.

Here are the key elements: 

1. Organisational structure: It defines how people and teams are organised. Teams may be arranged according to functions performed, products produced, locations, customers, or a combination of all.

2. Roles and responsibilities: This determines the tasks that should be performed by specific persons and teams. Well-defined roles help avoid confusion about ownership of a certain task.

3. Decision rights: It tells us who has the authority to make what decisions. For example, who approves a budget, sets product priorities, or handles a customer issue?

4. Reporting relationships: This is to clarify who report to whom. It helps build accountability and facilitates understanding of the information flow in the organization.

5. Processes and workflows: Specifies how information flows between individuals and teams. For example, a request of a customer will go through stages such as sales, operations, accounting, delivery, and support.

6. Capabilities: Refer to the skills and knowledge necessary to accomplish organisational objectives. The right teams need the right expertise.

7. Span of control: Refers to the number of direct reports to a manager. Too many direct reports can hinder the ability of a manager to effectively assist his/her team.

8. Organisational layers: Shows how many managerial levels are between employees and senior managers in an organization. Too many layers hamper communication and decision-making.

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7 Principles to Guide organisational Design

A working organisational design needs a few practical principles. These principles helps leaders to make choices about structure, authority, roles, and workflows without any confusion. 

Here are the 7 basic principles:

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Factors Affecting Organisational Design

There are several internal and external factors affecting organisational design. Here are those factors:

Business Strategy

Strategy is one of the major driving forces. If the company is expanding geographically, the region-based approach could be chosen. If the company deals with various product lines, the divisions could be organized according to the product lines or customer groups.

The company's structure should reflect its strategy rather than the strategies of other companies.

External Environment and Market Conditions

Regulations, competition, customer demands, economic situation, and market instability could influence the speed at which decisions have to be made.

If the business environment is very stable, the company may operate well using formal procedures. The company, which is frequently faced with changing markets, will need to shorten the process of making decisions.

Do read: Data Driven Decision Making: Guide for Better Decisions 

Technology

Automation and digital tools change how much coordination a business actually needs. Systems that were once handled by whole departments can now run through a handful of specialists supported by software. That shifts headcount and reshapes reporting lines. 

Organisational Size and Life Cycle

Small organizations tend to have less hierarchies and broader responsibilities. As they expand, specialization becomes higher, and additional management tiers become possible.

Growth could uncover problems, which were invisible before.

Organisational Culture

Culture influences the reaction to leadership, collaboration, risks, feedback, and decision-making. In case of the high degree of centralization of the structure, it could conflict with the culture that encourages employees to make decisions independently.

Workforce Capabilities

The internal competencies of the organisation matter. A new strategy could require the abilities that employees lack now. 

A new strategy might require capabilities the current workforce doesn't have, which can influence team design, hiring, training, and responsibilities.

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Customer and Operational Requirements

The requirements of customers and the complexities of the operations could affect the design of the organization. A business that requires fast customer decisions might need authority closer to frontline teams.

To understand these factors in simple words, ask these questions

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Types of Organisational Design

Organizations use different structures depending on their size, strategy, work, customers, and operating environment. Some businesses also combine elements from several models.

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Step-by-Step Process of organisational Design

Designing an organisational structure requires a step-by-step process. This starts with the business problem, examines the current state, defines what the organisation needs, and then builds a structure around those requirements.

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Real-Life Examples of Organisational Design
All organizations have a unique design which varies depending on the size of the firm, strategic goals, the nature of products or services, the target market, and the way the team should collaborate.

Here are some real-world examples of organisational design:

Amazon: Small, Independent Teams

Another company that was famous for its innovative model was Amazon. It was famous for its concept of "two-pizza team." This idea stated that teams had to be small enough to be fed by two pizzas. This helped them to communicate more effectively and take more ownership in the process.

Key takeaway Small teams can avoid communication problems and decision-making delays.

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Nike: Matrix Structure

Nike has been cited as one of the firms having the structure of a matrix where employees may work in their functional teams while at the same time working in product or geographic teams.

Key takeaway The matrix structure allows for integration of the specialist teams with different products/markets.

Apple: Functional Structure

There are specialist divisions in Apple in areas like design, software, hardware, operations, and marketing among others. Teams work with specialized areas of expertise while achieving shared business objectives.

Key takeaway  A functional design can give specialist teams clear areas of responsibility while keeping major decisions coordinated across functions. 

FMC Technologies: Changing its organisational Structure

The organisational structure of FMC Technologies kept changing from time to time based on business requirements and has experienced different structural designs.

Key takeaway organisational design is not static but flexible and can change as per business requirements.

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Spotify: Small, Cross-Functioning Teams

Spotify was famous for its squad model, in which small cross-functional teams were responsible for particular product or feature development. This model provided more ownership of a project, which would decrease the necessity of transferring tasks between various departments.

Key takeaway: Small teams that have more ownership in the process can facilitate collaboration and decision-making.

General Electric: Flat organisational Structure

General Electric under Jack Welch implemented a policy to reduce the layers of middle management in the 1980s and 1990s.

Key takeaway: Removing unnecessary management layers can make communication and decision-making faster. 

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What Are the Common Organisational Design Mistakes?

Even a carefully planned design can fail. So here are the common mistakes:

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Conclusion

Organisational Design defines how strategy is made operational within an organization. It links structure to roles, decision rights, capabilities, processes, culture, and accountability.

A good organisational design is not just the best-looking organisational chart. It is one that aligns with organisational objectives, clarifies the responsibilities of everyone involved, enables sound decisions, and is adaptable to changes in the business environment.