Episode Transcript
Speaker 1 00:00:06 Hello everyone. It's clearly a very strange week with war in Europe and high inflation and the job market taking off. And everybody's having a hard time hiring and retaining people and recruiting. And I'm gonna give you something really new and different to think about that we've been working on for over a year and its organization design. Now organization design is an old legacy topic in HR. It goes back to the 17 hundreds. I've read lots of books on it, and people were actually working on organizational design and job architecture in the slave three days and there's books. I have a really fascinating book about how the slave owners segmented work and organized people into teams in functional areas and had succession management and replacement charts. And all the stuff that we saw in businesses has really been around a long, long time. And most of the people in HR that we talked to have, what I would call a tradit view of organizational design.
Speaker 1 00:01:04 And it has to do with spans of control, aligning people around functional areas and building a functional hierarchy and then accommodating cross-functional teams for projects and initiatives. But we really looked around at what was going on out there in the new world of work. We found that the level of charity and understanding of this is very, very low. There are some experts and some companies have org designed experts and consultants, but it's pretty rare. And when I was at Deloitte and I met with a lot of the OD people, they weren't really that sophisticated in their thinking either. And the thesis that we had when we did this research was that we know very, very well that everybody's moving to agile, highly dynamic structures. Companies, jobs are changing. Roles are becoming much more hybrid. Things are being automated. A job that you hired somebody four, six months ago just changed because you bought a new system and we don't need that job anymore.
Speaker 1 00:01:55 Or maybe it's changed. We need people to be more cross-functional. We need people to be have T-shaped careers. We have to build organizational awareness and systems thinking. So what do we do about org design, Cathy and DARS and me and some other people sat down and we worked on this and for the last year we've been studying it. And we did a massive survey, came up with 90 or so practices of org design to determine the relative level of maturity and correlated the maturity of companies in org design. By the way, we did this in partnership with a company called org view. Org view is the leader in org design, data driven org design tools, a very interesting company that you should check out. And what we found is really breathtaking. First of all, the reason org design matters right now is because it's hard to hire people.
Speaker 1 00:02:43 You're gonna hit your hiring targets. There aren't enough people in the workforce available to join your company. So you better be thinking about how these teams are organized and what these jobs are before you just run out there and try to fill the slot, because it may take you months or a lot of extra money to fill the slot. And if it's not the right job that person's not gonna stay. One of the CS I talked to this week told me that the problem they have is hiring managers are always over hiring. They always wanna hire somebody who's overqualified for the job. And when you do that, you pay extra money. It's harder to find the person it takes longer. And then when they join, they're not impressed with the work they're doing. And so you have to change the organization around the person. So if you did the org design first and you understood the org design process, you could probably avoid that problem.
Speaker 1 00:03:30 So what is org design all about? Well, what we basically structured was a bunch of research and there really seven or eight pieces to it. And it really arts with your business model. What business are you in? Do we sell product services, IP? Do we resell things? Are we an innovator? Are we a packager? Are we a low cost provider? And underneath that is what is our operating model? Who do we sell or deliver things to who are our customers? By the way, if you're an internal group, you have the same issue. How do we interact with those customers, internal or external? What part of that delivery system are we going to automate? What platforms do we use that goes into the second step, which we call the operating model. The third level is the work. What work do we have to get done? What are the tasks and projects that have to get done?
Speaker 1 00:04:18 We talk a lot with company needs about skills, and I have this never ending conversation with companies about, we need more skills here. We need more skills there. Well, I think they're actually asking the wrong question. What you should say is what work do we wanna get done? What are the outcomes we wanna create? And then what skills do we need? And that's level three, which is work design and part of work design, by the way, is deciding who's gonna be accountable for what parts of that work. We can define that somebody has to build something or Institute some service, but who's going to deliver on and who's gonna be responsible for it. The fourth level is the stuff that actually everybody thinks is org design, it's job, design and structure. So job design structure is actually the easiest part of this. And it should fall out of the business model design, the operating model design and the work design and the design of the jobs and the org.
Speaker 1 00:05:11 You look at what individual people can and will do. How do we organize work into small pieces into what we call jobs? What skills do those jobs are require and what systems and tools can reduce the need for certain jobs that we don't have. So there's a methodology to this that we discovered. That's very, very powerful. It isn't just looking at the org chart and reducing the span of control and figuring out who's responsible for what, when we interviewed CHROs in the early part of this project, one of the things we heard that I remember very, very well. I won't mention the name of the company. This is a company that's been through a lot of ups and downs over the years and is continuously trying to reinvent itself. The C H O said to me, the problem we have is we don't really know how to do this at all.
Speaker 1 00:05:56 So we always design the organization around a person. There's an executive who we decide. We like, and we're gonna give that person responsibility for this organization and let them figure it out. And so it's sort of the hero based org design. Let's, let's organize around the hero. Well, that person probably doesn't understand all this. So he or she may or may not figure out how to design these jobs and roles in an effective way. And they're not necessarily aware of the staffing issues, the training issues, the performance issues that happen in different organization structures. So lots and lots of things to learn about here. Now, one of the other things we've found in the research is that even though this is a long and historically very important topic, and I remember one of the first books I read about org design was the, the book by Jack Welch about turning around GE, where he basically blew up the corporate headquarters and distributed all out into the business units.
Speaker 1 00:06:52 Only 11% of companies really are at, we call the level four of mature. When we looked at the results of the design practices and the design expertise in companies, there were four levels. The first level, the lowest was what we called haphazard structure. By the way, this is 25% of companies. Haaz structure is every manager decides, however they want. We let the managers decide. We let the managers come up with and job titles, obviously with some structure around them, finance drives the cost control. We allocate headcount to different groups and they figure it on their own. A quarter of companies operate that way and it turns out it, when you look at the data, it underperforms, the second level is what we call traditional design. We have functional hierarchies span and layers, rigid boxes and sticks. We make decisions about the hierarchy and who's going to fit into which functional area we might have a formal approach to agile, but we may not be implementing agile.
Speaker 1 00:07:53 And we give managers freedom to operate within this traditional structure. But the structure is designed in a very traditional way. And usually that structure is oriented towards industrial scale, not innovation and growth. I think it was interesting today. I thought it was a really meaningful announcement that Ford motor announced. They were splitting the company into two companies, the electric car company and the gasoline car company. And that's a big statement about operating model and design of the company. And essentially what the CEO was saying is the gasoline company is a P and L and we're operating it for profit. The electric company is a company for growth, different business model, different operating model. Yes. They both make cars. Yes. They both have to put wheels on the cars. Yes. They both have to deal with safety. Yes, they both have to deal with navigation, but one of them is a growth business and the other one's a profit business and a sort of a mature business.
Speaker 1 00:08:50 So I think the people at Ford are pretty crafty in thinking this through third level of maturity is what we call connected culture. It turns out when you look at the findings of this study, one of the most, somewhat earth shattering findings is that the org structure itself doesn't really matter. It doesn't matter if you have a low span of control, a high span or control or rigid structure, a flexible structure. It really isn't the structure. Sure. That matters. It's the accountability and who owns what and clarity of accountability that matters. And then the culture and the connectedness of the people. And that's level three. If those of you that have ever worked in a consulting firm, or you've worked in a company that's growing really fast, you know that the organization design is almost irrelevant, work in, it's done because people know each other, they trust each other, they work together.
Speaker 1 00:09:39 They don't feel any sense of siloed motivations. They're willing to put time into projects that may not be directly in their line of sight because they know it's in the interest of the organization. That's level three, where you create a culture around cross collaboration and the rewards systems and the goal systems. And the mission are clear and people know what they need to do. Level four, by the way, that's 30% of companies. Level four is what we call agile and accountable level. Four companies are companies that flex as needed. You know, the research that we put out last week or last couple of weeks on, on the death of change management and moving from change management to change. Agility really tells the story about how business today can't be about implementing change. It's about always changing. It's about designing the company for continuous change. I'm not saying you're gonna go through upheaval and changing all your products and services all the time, but there will always be things that are changing.
Speaker 1 00:10:38 And in a level four org model, people know what they're responsible for. There's lots of reward for results. Skills are considered to be SACS, sanc, and important mobility is facilitated and encouraged, and the company knows who's responsible for what. And I think there's a term at Amazon if forget what it's called, the responsible individual or something like that. That's a good idea here. If we don't know who's responsible for this, then no organization's structure is going to fix it. And if we're afraid to assign responsibility, then we haven't really decided how we're gonna operate our company yet. So we really don't have an operating model. Anyway, lots of interesting things to see. Now, when you read the report, you're gonna see a lot about the details of job design and operating model design, work, design, and structure. We also talk a lot about implementation and tools.
Speaker 1 00:11:26 And the other thing that we're gonna do is we're gonna give you some education. We know that this is a fairly complicated topic. So what we've built is a new course. That'll be coming out later this year, that's gonna be called super class on organization design. And what this course will do is it will take you through a real world project, an actual consulting project that we did for a large organization on how to redesign part of the organization, based on this idea of moving to an agile and accountable model, agile and accountable is really the secret to success. Now, why does this all matter to you? Two reasons, first of all, for those of you who are not familiar with this topic, you'll be surprised how often this comes up. Anytime somebody talks about hiring or an underperforming business unit or a leadership issue, or a person who's, you know, necessarily aligning with the arrest of the team or a team that needs help.
Speaker 1 00:12:19 It's an org design issue in the book that I'm gonna be publishing this summer in this fall. I talk a lot about the mythical man month, which is an old book by Fred Brooks at IBM. And the story of that book is it's a very short book. It's well worth reading, but it basically, the story is this at IBM back in the days when they had lots of software engineers in San Jose, and they probably still do, they used to build these big monolithic software systems like CICS and MBS and these big mainframe systems. And they had massive teams of people and they were broken into functional areas in each functional area, responsible for a small component, and then of documentation people and project managers and schedulers and integration testing, and so forth. And it took years and years and years to get new releases out.
Speaker 1 00:13:02 And Fred Brooks, who was one of the senior executives in that organization, did a little analysis. And he found out that the more people he hired, the slower the projects got until eventually they reached a point where the projects got slower and slower and slower. And we had a negative return on investment of hiring people. He said, this is nuts. I don't know, we've gotta change this. And so he moved to what is often known as the surgery model, where you have one surgeon in a whole bunch of supporting staff. And he, the software engineering teams into small groups, each of which had a surgeon, which is a chief architect or a chief developer, and then people around that person and what we was basically doing. And this was, I think, in the 1970s or the early 1980s is he was really developing the original principles of agile, which then became the agile manifesto.
Speaker 1 00:13:51 A lot of you have probably read about, so the lesson here is that if you do this well, and if you think about it, you are going to be a consultant in your job as an HR person. If you're in recruiting, you need to ask good questions about what this job is and why it's designed at the way it is. If you're a business partner, you're gonna be looking into organizations and you're gonna be advising senior people about how teams should be up and who should be in what role and what technologies should be used to automate different jobs. If you're in analytics, you're gonna be looking at the data in the organization to find underperforming areas of the company. If you're in rewards, you're gonna be looking at pay and you're gonna be scratching your head and wondering why certain groups are paying more than others and what that means to the organization.
Speaker 1 00:14:33 So org design is really a fund, a mental discipline of HR, and we really think you all should learn it. The second reason that I think it's important for you to learn it is that it will give you insights into other aspects of your job that you haven't thought of before. Let's suppose you're in leadership development or you're in L and D or you're in coaching or you're in wellbeing. The org design issues affect employee experience. They affect retention. They affect the satisfaction and productivity of your company. In fact, I would venture to say that most of the things that managers talk about most companies have to do with the way the organization is set up. Why are we behind on this metric? Why are we outperforming in this group versus that group? All of those are questions that are asked constantly that oftentimes have to do with the way the organization is structured.
Speaker 1 00:15:29 And sure enough, most of you are going to be at asked at some point to redesign a group, come up with a reorg. We're going into a new business. We just acquired a new company. We're doing an HR transformation. We're doing a clinical transformation in the hospitals. How are we gonna organize the teams? There's many, many ways to use this information. Now, does this matter? Does this result in a return? Absolutely. What you're gonna see in this research is that the companies at level four are 27 times more likely to engage and retain great employees, 30 times more likely to adapt quickly to change. When we did our research on pandemic response two and a half, or maybe a year and a half ago in the resilient organiz research, what we found is the companies that were outperforming during the pandemic were able to reorganize quickly and to reassign responsibilities and accountability without a lot of agony and long complex change management.
Speaker 1 00:16:26 So understanding the principles organization design will make your company more productive, will make your manage and leaders more effective and deliver on the bottom line and increase your ability to grow and attract and retain people. I really want to thank Cathy Andris who led this research, the folks at org view for helping us with lots and lots of examples. And you're going to see a lot of really interesting case studies, examples and tools in org design from this research, much of these tools will be available to our research members and will put out as much of this as possible for the general community as well. And I look forward to hearing from you on your feedback on this research. Thank you.
