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Principles of Organization Design Cheat Sheet by

Principles of Organization Design
design     principles     organization

Introd­uction

Although every company is different, and there is no set formula for determ­ining the approp­riate design for your organi­zation, we have identified 10 guiding principles that apply to every company. These have been developed through years of research and practice at PwC and Strategy, using changes in organi­zation design to improve perfor­mance in more than 400 companies across industries and geogra­phies. These fundam­ental principles point the way for leaders whose strategies require a different kind of organi­zation than the one they have today

1. Declare amnesty for the past.

Organi­zation design should start with corporate self-r­efl­ection: What is your sense of purpose? How will you make a difference for your clients, employees, and investors? What will set you apart from others, now and in the future? What differ­ent­iating capabi­lities will allow you to deliver your value propos­ition over the next two to five years?

2. Design with “DNA.”

Organi­zation design can seem unnece­ssarily complex; the right framework, however, can help you decode and prioritize the necessary elements. We have identified eight universal building blocks that are relevant to any company, regardless of industry, geography, or business model. These building blocks will be the elements you put together for your design

3. Fix the structure last, not first.

Company leaders know that their current org chart doesn’t necess­arily capture the way things get done — it’s at best a vague approx­ima­tion. Yet they still may fall into a common trap: thinking that changing their organi­zat­ion’s structure will address their business’s problems.

4. Make the most of top talent.

Talent is a critical but often overlooked factor when it comes to org design. You might assume that the person­alities and capabi­lities of existing executive team members won’t affect the design much. But in reality, you need to design positions to make the most of the strengths of the people who will occupy them. In other words, consider the technical skills and managerial acumen of key people, and make sure those leaders are equipped to foster the collab­oration and empowe­rment needed from people below them.

5. Focus on what you can control.

Make a list of the things that hold your organi­zation back: the scarcities (things you consis­tently find in short supply) and constr­aints (things that consis­tently slow you down). Taking stock of real-world limita­tions helps ensure that you can execute and sustain the new organi­zation design.
 

10 Principles

6. Promote accoun­tab­ility.

Design your organi­zation so that it’s easy for people to be accoun­table for their part of the work without being microm­anaged. Make sure that decision rights are clear and that inform­ation flows rapidly and clearly from the executive committee to business units, functions, and depart­ments. Our research unders­cores the importance of this factor: We analyzed dozens of companies with strong execution and found that among the formal building blocks, inform­ation and decision rights had the strongest effect on improving the execution of strategy. They are about twice as powerful as an organi­zat­ion’s structure or its motivators

7. Benchmark sparingly, if at all.

One common misstep is looking for best practices. In theory, it can be helpful to track what compet­itors are doing, if only to help you optimize your own design or uncover issues requiring attention. But in practice, this approach has a couple of problems.

8. Let the “lines & boxes” fit company purpose

For every company, there is an optimal pattern of hierar­chical relati­onship — a golden mean. It isn’t the same for every company; it should reflect the strategy you have chosen, and it should support the critical capabi­lities that distin­guish your company. That means that the right structure for one company will not be the same as the right structure for another, even if they’re in the same industry.

9. Accentuate the informal.

Formal elements like structure and inform­ation are attractive to companies because they’re tangible. They can be easily defined and measured. But they’re only half the story. Many companies reassign decision rights, rework the org chart, or set up knowle­dge­-sh­aring systems — yet don’t see the results they expect.

10. Build on your strengths.

Overha­uling the organi­zation is one of the hardest things for a chief executive or division leader to do. But there are always strengths to build on in existing practices and in the culture.

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