Organization Design: How Founders Can Get it Right

With most of the knowledge industry adopting remote work due to COVID-19, the topic of effective organization design is becoming more important than ever. Organization design is significant for knowledge workers and the information flows they require to succeed in their jobs. Hence, founders and leaders of new-age organizations must understand its importance.

Providing timely and relevant information to knowledge workers keeps them engaged, lets them innovate to achieve their goals, and helps them be aware of their purpose within the organization. This enables organizations to evolve much faster. Early-stage founders shouldn’t mistake organization design as a concept relevant and useful only for large organizations. They should adopt it at quite an early stage.

Before getting into organization design, let’s look at how it is different from the more commonly understood concept of organization structure. An organization structure is built for command and control. It is focused on creating a chain of command and distributing power around the leaders.

In the new-age organizations, information is power. And organization design must be at the forefront of how we distribute this power. It does this by addressing three key questions:

1. How do we distribute and decentralize information across the organization?
2. How do we departmentalize information flow?
3. How do we manage the information various employees own to ensure that the product, the people, as well as the organization, is benefited from it?

It is focused on enabling smooth information flows that allow the last mile employee to perform better, in turn, ensuring that the organization achieves the best results possible.

An organization structure is primarily seen as comprising of a few set components at different hierarchy levels, with one component linking with the other. In organizational design, what I usually prefer to look for are five essential elements.

1. Leadership: The set of people responsible for clearly defining the vision and priorities of a company. A cohesive leadership team and their capabilities are imperative for effective organization design.
2. Decision making and structure: This element is about defining clear roles, responsibilities, and decision making in an organization to achieve the leadership vision and company priorities. This is where an organization structure that supports the objectives of the leadership and the founders needs to be implemented.
3. People: People are the cornerstone of organizational design. We need to ensure there exists individual talent to fulfill various roles in the organization. Good performance measures and incentives aligned to company objectives also need to be put in place.
4. Work process & systems: Efficient work processes and systems play a large role in enabling superior execution. They are crucial to enable information flow among team members from different functions.
5. Culture: We need to have the right kind of behaviors and values built in a company’s DNA. As an organization evolves from early-stage to validation (product-market fit, series A & B) and then move into the growth phase, we need to have the capacity to change built in the company culture. Without it, founders will inevitably face difficulties in scaling.

For a successful organization design, all these five key elements need to work in sync. The question now is how to use these to create an effective organization design? The answer lies in the following three simple principles.

#Principle 1

Think about how to incorporate these five elements in organization design, what relationship does each element hold with another, and what impact does a change in each element has on all the others. Focus on creating a mutualistic relationship among these elements and not a symbiotic one.

#Principle 2

One size doesn’t fit all when it comes to organization design. Every organization and every founder is different. So are the work processes, people at an organization, their maturity, and their ability to make decisions. We might take clues for good organization design from another organization but we shouldn’t try to make the same design fit us. We need to develop our unique design built on the five parameters.

#Principle 3

Align organization strategy and organization design by understanding what are the strengths, weaknesses, and influences of the feasible growth strategies and how the organization should evolve in any new strategic direction.

Common symptoms of ineffective organization design

• If we see a lack of coordination among people, delays in delivery time, isolated teams, and team members stepping on each other’s shoes, it becomes clear that the leadership, decision making, and work process & systems are dysfunctional.
• If there are excessive conflict and friction among teams, we may need to make changes in the leadership and decision making structures. Unclear or changing roles, that are quite common in evolving startups, are mostly caused by problems in decision making and structure too.
• Two problems seen quite often in growing startups are unskilled and under-utilized people. The reasons can be traced back to problems with leadership, people, and work processes & systems.
• Problems such as poor workload, multiple people performing the same role, and five-six people being accountable for the same task arise due to poor work processes and systems.
• Reduced or low responsiveness can mostly be attributed to leadership, decision making, and culture. When we don’t build a high-performance culture, responsiveness will be mediocre.
• Low staff morale, lack of confidence and drive among people, and poor support among team members is mostly due to problems with the leadership and culture.

Grouping & Linking: Important structural elements of organization design

In high performing organizations, every team member is responsible for their goals. These goals are driven down to each employee through OKRs or organizational KRAs.

Through grouping, we focus on how individual people, functions, and activities are integrated to form working groups. We need to optimize the information flow within the group, that has people from different functions, to ensure there are no barriers to achieving the group’s goals. If the product and marketing executives can work together to achieve their goals without any need for intervention by the leaders, it is a win-win situation.

In linking, we need to understand what mechanisms (guidelines, people, or processes) of integration are used to coordinate and exchange information within and among groups. A key enabling factor for successful linking is the leader providing direction and guidance on these integration mechanisms across the organization.

There are many models of grouping and linking teams — functional, geo-location specific, product-centric, market-centric, or customer segment-centric model. For different kinds of organizations at different stages, one model may work better than others. Most early-stage startups adopt a functional model with engineering, product, marketing, operations, etc as different functions run by different leaders.

As the vision for a startup evolves through the course of the startup journey, so does the organization design. Every 8–12 months, it is important to look at the effectiveness of our current organization design and make the necessary changes to meet the need of the hour.

Organization design thinking empowers founders to articulate their vision and values, brings in a little structure to the team, builds consistency in communication with internal & external stakeholders, and helps with change management. Adopting organization design thinking from day one is a powerful strategy for founders to fuel their company growth.

Related Articles:

1. Founder to Leader: Building People-Centric Organisations