6 Common Mistakes in Designing Organizational Structure Changes

After some years of working with clients, I realized common mistakes that executives make (or almost make) when planning the changes to the organizational structure of their companies.

And it is very common to make more than one mistake at the same time, which makes things even worse.

Therefore, knowing them can help you a lot when going through initiatives to change your organizational structure, regardless of whether you have external support. 

Avoiding these mistakes can increase the likelihood of success of your organizational change.

Here are: six common mistakes companies make when designing changes to their organizational structure.

Mistake 1. Thinking that changing the organizational structure is enough

Some components must be in good shape for any organization to function effectively. One of them is the organizational structure. But it is not the only one.

Addressing necessary changes to the structure alone is insufficient for achieving the desired results, which typically involves having an organization that works better or does things differently than before.

And this is indeed a common pitfall in organizational change projects: to focus solely on the new structure. 

However, when individuals finally fill their new roles, they often lack clarity on their responsibilities and how to collaborate with each other within and across different areas.

In many cases, individuals end up navigating these challenges on their own. Yet, this approach tends to be highly inefficient and stressful, often resulting in lower performance levels than possible.

The importance of elements beyond the organizational structure

Communication about the organizational structure alone is insufficient to guide your team effectively. You must also clarify their roles in key activities and decisions.

This doesn’t entail detailing every aspect of each role within your organization. Instead, you should focus on areas of high impact or that require significant interaction with other departments.

By the way, we have developed a practical methodology to help with this. I’ll delve into this in a future article.

Another critical aspect involves metrics and incentives. Adjustments to these elements are often necessary during organizational changes to foster desired behaviors.

For instance, consider an organizational change involving centralizing functions previously distributed across various regions or countries. 

If the newly centralized area is now responsible for supporting different regional teams, this should be reflected in its metrics and incentives.

Otherwise, the regions may feel they no longer have the appropriate support, generating a negative buzz about the centralization effort.

So, never assume that designing a new organizational structure alone is sufficient. 

Ensure clarity on how key activities are run and decisions are made within the new design. 

Assess whether changes are needed to existing metrics and incentives. 

Don’t overlook adjustments beyond the organizational structure.\

Mistake 2. Overestimating the importance of benchmarks

Most executives are interested in benchmarks when discussing consulting projects to help them change their organizational structure.

Some hope to find a magical solution that is ready for their organizations. They want to solve their problems quickly.

Unfortunately, things are more complicated.

I am not enthusiastic about benchmarking in organizational design for two reasons. 

Reason 1. Your organizational design must be specific to your strategy

The organizational structure is one of the elements of your organizational design. And your organizational design, to be effective, must be aligned with your organization’s strategy.

Therefore, it is tricky to seek other examples of organizational structure that will be helpful for your case. 

You need to target organizations with similar strategies that have successfully designed effective organizational designs. This is not easy.

Your strategy should be unique in your playing field. Even if you find something that might apply to your case, it is not simple to check if the organizational design you are looking at is effective.

Reason 2. Benchmarking organizational design entails greater complexity and time investment than anticipated

Benchmarking organizational structure is not about going after one-pagers with organizational charts. 

It is about understanding the scope of the main organizational areas of the company you are studying and the rationale behind the design choices made.

The companies that are more likely to be helpful to study are your competitors. 

It is weird, to say the least, to ask a competitor about their organizational structure. Trying to get that information indirectly does not sound easy or appropriate either. 

Even if you can find a good opportunity to do your benchmarking, it will require some interviews with executives with the appropriate knowledge. A quick survey or call will not do the work.

When helping companies design organizational structure changes, I prefer to allocate the available resources to focus on their specific situation rather than understand what other players are doing.

When is benchmarking beneficial for organizational structures?

There are certain cases and ways where benchmarking should be considered.

Overall, it is more helpful when concentrating on a specific aspect of your organizational design rather than trying to cover a broad scope.

For instance, investigating how and why specific responsibilities are assigned in some companies can give you more confidence in the specific design solution you are considering for your organization.

In addition, it works better when discussing activities that must be done regardless of your strategy (e.g., complying with local regulations, running essential operational services such as payroll, etc.) This is often the case with corporate functions.

In those cases, approaching companies to obtain the information is easier, as you will likely find non-competitors with valuable insights.

So, be realistic about how helpful benchmarking can be when defining changes to your organizational structure. 

There are no comprehensive copy-and-paste solutions.

Your solution should be as unique as your strategy.

Mistake 3. Starting the process by drawing organizational charts

I have seen this multiple times in my interactions with clients. There is a need to rethink how the organization is structured, and the executive starts to draw org charts hoping that the right solution will just pop up.

The problem with those drawings is that it is tough to explain the scope of an area without articulating the work that needs to be done first. 

If you jump and start redesigning your structure by drawing org charts, you tend to oversee relevant aspects and, simultaneously, have difficulty communicating your proposal to others.

Begin with key activities, not organizational charts

Your strategy requires some core capabilities and your structure should be designed to turn those capabilities into reality.

Therefore, the best approach is to start identifying the key activities that your organization must perform (or processes and subprocesses, as some prefer to say). 

You have to create a map of those key activities using a terminology that is easy to understand.

Once you have identified the key activities, consider the relevant dimensions for the organization. 

It will depend on your specific context but usually includes geography, product/ service, segment, channel, value chain position, and activity type/scope.

Defining the right dimensions to organize your teams level by level

To do this properly, combining bottom-up and top-down approaches is best. 

It is crucial to analyze which dimensions are critical for each key activity and, at the same time, understand what makes more sense from a management perspective at the organizational level you are at.

If your organizational change project includes both core areas (sales, marketing, etc.) and corporate functions (HR, IT, Legal, etc.), working on your core areas before you do with the corporate functions is usually beneficial. 

The design of the core areas is an essential input to the corporate functions design.

If you do that right, you can propose a new organizational structure more groundedly, sometimes with some potential options and variations.

You must not worry about formal job titles, grades, or sizing at this point. This should be addressed in a subsequent step when detailing the structure.

On the other hand, at this stage, it is helpful to find meaningful names for the new organizational areas and key roles that you are proposing and, more importantly, indicate which key activities they are responsible for.

By doing that, you will be able to have more structured conversations about the changes you are proposing (you can show your bottom-up/ top-down analyses).

Your colleagues will better understand the scope of the organizational areas you are proposing and the rationale for your design choices.

Mistake 4. Lack of connection with the organization’s strategy

As discussed previously, your organizational structure should be designed to foster the critical capabilities necessary for delivering your strategy.

If you embark on an initiative to review your structure without considering your strategy, you risk losing focus on what truly matters.

This is why articulating your strategy should be one of the initial steps in such initiatives. It forms part of the diagnostic process, where you identify what needs to be addressed before proposing solutions.

The previous article (“How to assess the effectiveness of your organization in 4 steps“) shed some light on this matter.

The typical diagnostic phase in an organizational redesign effort involves more than just articulating your strategy. 

It also entails understanding the current organizational structure and operating model in place.

I recommend articulating the key activities that must be performed (as explained earlier) and mapping them to the current organizational structure to grasp the current model.

It will help you understand what is happening and focus on the relevant matters.

In this process, you should also highlight the chosen dimensions for organizing the areas/roles at each level (e.g., geography, function, segment, etc.). 

This will aid in rapidly understanding the scope of each organizational area and how they work with each other.

A prevalent challenge with Corporate Functions

This issue of not aligning structure design with strategy is even more common with corporate functions. 

Organizational design processes for corporate functions often prioritize efficiency gains or cost-cutting without considering the strategic choices these functions should make.

Corporate functions should have strategies too. Although they are required to perform specific tasks, they do have strategic choices to make.

For instance, consider an HR function supporting business units with a high turnover of employees. 

Suppose one of the primary causes of turnover is gaps in leadership skills across the organization. 

While the HR team must perform various activities, such as complying with local labor laws, they have specific choices regarding addressing employee turnover. 

If addressing the turnover problem is a strategic priority for the business units, the HR function should prioritize this matter. It is probably one of the few topics where the function can significantly impact the company.

This means that among the resources available for the function to make choices, part of that should be allocated to developing and implementing robust leadership training for all managers across the organization.

This might have implications for the organizational structure of the HR function (e.g., more roles working on leadership training programs and supporting managers across the organization).

Strategy involves making choices and resources are limited. 

Corporate functions should also pick their battles.

Your strategic choices will have implications for the organizational structure you require.

Ensure that your structure changes are connected to your strategy.

Mistake 5. Limiting the organizational design to the available talent pool

I’ve also seen this issue multiple times: executives starting to discuss changes to the organizational structure, defining new roles with specific names in their minds.

This is somewhat understandable, as in many companies, it’s unrealistic to expect to move current personnel or hire new employees easily.

However, imposing that constraint early in the design process is a huge mistake.

You should initiate the design of your new organizational structure from scratch, using a blank page and without specific individuals or hiring concerns in mind.

Your starting point should be your strategy and the critical capabilities needed to execute it, not a list of people you think are available from your talent pool.

Your design should be driven by your business requirements.

The optimal solution takes precedence

First, you must define the “ideal” organizational structure without considering the challenges of moving, developing or replacing people.

Without that constraint, you can find better solutions for your business. 

Some of the talent limitations that you might have might be easier to solve than you think. 

Imagine designing a subpar solution due to a problem you don’t have or can solve.

The “ideal” solution sets the right direction and will, anyway, somehow evolve as implementation starts. 

In many cases, when the changes are significant, you might implement an intermediate organizational structure first and roll out the “end-state” structure as a subsequent step.

All of this needs to be well thought out for the implementation.

Preparing for implementation: the vital role of talent discussion

Once you have a good solution aligned with your strategy, you must begin considering how to transition to it and how your organization should evolve.

In addition, you need to think about all the gaps between your current and future organizational models.

Depending on the gaps and uncertainties, this process can be longer than you think.

That’s when talent discussion is critical. At this point, you need to understand better the constraints on filling new roles and moving people across the organization and how to solve all of them.

As mentioned, you might need to make temporary arrangements until certain talents are ready through training, internal transfer, or hiring.

A single job position change can have significant cascading effects, impacting several other positions across the organization.

Other requirements than talent might also demand temporary design solutions, such as business uncertainties (e.g., confirmation of M&As) and time to develop new systems and technologies.

At the end of the day, organizations and their structures are constantly evolving. 

Finding an ideal solution to set the right direction is crucial, but adjustments are usually necessary based on real-life feedback as the new organizational design is implemented.

Mistake 6. Creating too complex solutions

Simplicity is the ultimate of sophistication, according to Leonardo Da Vinci.

However, many changes to organizational structure generate results that are far from simple.

It is common for executives to come up with something complex when proposing a new organizational structure. 

The main reason is that they often try to embed how they see the organization working and functioning in an organizational chart.

When the ideas about the new structure involve many matrices and multiple reporting dotted lines, it is a sign that you should step back and try to create something more straightforward.

The inevitability of silo effects and the imperative to address them

Structures are a fantastic way to provide focus for teams in your organization. But it will naturally, and this is intrinsically the case, foster barriers to collaboration. 

The famous silo effect is a natural consequence of defining organizational areas with a specific scope and mandate.

Focus is good and required. The silo effect is a natural side effect.

Choosing where to focus and which barriers to create is a matter of tradeoffs. 

You have to understand where is essential to foster focus in your organization to strengthen your critical capabilities.

You do not need (and should not) create something complex when trying to do that.

Organizational charts paint an incomplete picture

Then, ensure that the other elements of the organizational design, such as processes and decision rights, do the rest.

Do not think the structure will clarify how the organization works, and do not overcomplicate your new organizational structure trying to do that.

The newly designed organizational structure reflects the best way to organize your team so they can run the critical activities to deliver your strategy.

It should provide an idea of the scope of work in each organizational area, but it will not tell the whole story of your organization’s operation.

Many processes and activities are transversal, and an organizational chart will not clarify how the newly created roles and areas work in those processes.

Other issues can also trigger a complex and/or wrong solution. Compromising the design to meet personal agendas is one of them.

Anyway, always try to design something simple that meets your business needs.

A complex, confusing, and hard-to-explain organizational structure should be avoided at all costs.

Avoiding the common mistakes when redesigning organizational structures

These are the 6 common mistakes I see when discussing changes to organizational structure with companies.

6 Common Mistakes When Designing Changes to Organizational Structures

Mistake #1. Thinking that changing the organizational structure is enough

Mistake #2. Overestimating the importance of benchmarks

Mistake #3. Starting the process by drawing organizational charts

Mistake #4. Lack of connection with the organization’s strategy

Mistake #5. Limiting the organizational design to the available talent pool

Mistake #6. Creating complex solutions

By avoiding them, executives can achieve better results.

Changing organizational structures requires a structured approach. 

In future articles, I will explain our methodology for helping executives make organizational changes better. It avoids all these mistakes and includes techniques that contribute to better results. 

In case you require further assistance, here are two ways we can support you:

  1. Consulting: We can tailor our methodologies to meet your needs if you lack the bandwidth or need external expertise and support. We aim to assist you and your company enhance organizational effectiveness through customized solutions.
  2. Advisory: This approach offers expert guidance to teams engaged in organization design projects. While your internal team executes the work, our external advisory services ensure the project is well-structured and progresses in the right direction.

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Fill out our contact form or send us a message at contact@thinkorg.net.