Organisation Design – Why Bother?
Many people would regard the design of their organisation as rather less important than the clarity of their strategy or the positive attitude of their staff. Sadly, they could be quite wrong. Research (1) shows that poor design accounts for something like 50% of strategy failure!
Why is this so? Because organisation design – or the way you have configured the capabilities and resources of the organisation – is the ULTIMATE expression of your organisation’s strategy. It reflects the priorities and tradeoffs you have made in the strategy, even if you have done so quite unconsciously. My experience and research identifies seven key questions you should be asking when reviewing your organisation design to see if you’re maximising your chances for strategic success.
Seven Questions of Your Organ isation Design
1. Do your market segments define the real needs of customers?
Most enterprises divide their market into several segments in which they operate or compete. But how many define these segments in terms of customer needs or the solutions these customers seek? In most cases, organisations segment their market according to the demographics of the customers, i.e. how large they are, what product (2) they purchase, or where they are located.
But these segmentation criteria don’t really help you understand the way your customers use you product, the problems that they need you to solve, or the value that you are expected to add to their businesses. For example, customers in a given set of postal codes don’t share the same challenges and all medium-size enterprises don’t necessarily use your product in the same way. In most cases, these demographic segments are employed because they are easily understood and customers are quickly classified. But they don’t help you develop clear and focused value propositions for each segment in which you operate.
2. Do your customer value propositions deliver outcomes for each segment?
As mentioned above, market segments should group customers according to the outcome they seek by buying and using their product. Your value proposition outlines the value you seek to provide within the segment. The more clearly defined you define your segment, the more sharply focused your value proposition will be.
Value propositions should be defined in terms of the outcomes they produce for customers. Instead of describing the features of the product, they should be focused on:
- The problems they solve for the customer
- The positive difference (value-add) you make to the business of your customer.
Viewed in this way, the value proposition becomes the core of your business strategy within the segment. Having a sharply focused value proposition ensures you have a well focused and easily communicated business strategy.
3. Is there clear ownership of each customer segment?
Given the importance of the customer segments in shaping the business strategy, you need to ensure that each of the segments is “owned” by a senior manager. (This is not the same as having a regional manager who oversees activity within a geographic region). The segment manager is accountable for the customers within the segment. This means that they develop domain expertise for the challenges, problems and opportunities of the customers in this segment. They become, in effect, the voice of the customer within the organisation.
Since the segments are defined in terms of common needs and outcomes, the customer manager is responsible for delivering the value proposition to the customers in the segment. This means that they are responsible for customer satisfaction and value within the segment. They are also responsible for developing the business strategy and providing input into the ongoing development and refinement of the value proposition.
4. Is there clear accountability for each value proposition?
If your business has several different products and a series of value propositions, it is sensible to have clear accountability for each value proposition, usually at a senior level as well. The role of the value proposition manager is to manage the ongoing design and development of the value proposition – to ensure that it meets both the current and emerging needs of customers.
Since the customer manager is accountable for delivering the value proposition to customers and to ensure customer satisfaction, the value proposition manager is a resource and support to these customer managers. The value proposition manager’s primary role is to manage the value proposition through its life-cycle and to act as the organisation’s thought leader for that particular space. This ensures that the development of the organisation’s value proposition is ongoing and responsive to the changing needs of the market.
5. Have you defined the dominant axis around which you are organised?
By having customer managers (responsible for managing a customer segment) and value proposition managers (responsible for the development of the value propositions), you have two possible axes around which you can design your organisation (3). In other words, you could make it a customerbased organisation by organising around the major customer segments. Or, you could choose a value proposition focused design and create several value proposition (or product) divisions.
By having both customer and value proposition accountability, you create a matrix design, i.e. two axes of management and control. Matrix organisations are somewhat more complex to manage, but they are made more manageable by explicitly defining the strong and weak streams. If you organise around the customer segments (Diagram 1), you define the customer as the strong stream. In this case, the customer managers drive the business, supported by the value proposition (or product) managers.
If, on the other hand, you define the value propositions (or products) as the strong stream (Diagram 2), they will drive the business, and the sales managers will act as their agents in the market.
6. Are you trying to create a “one-culture” organisation?
I know of many leaders who seek to create a common culture in their enterprise. They are keen to have a common way of doing things across the different parts of the organisation. Unfortunately, this is not only very difficult to accomplish, it is also quite counter-productive.
Culture defines the way we do things – in essence, the pattern of behaviours and decision making. These patterns of behaviour and decision-making drive the manner in which the strategy is implemented. So, if different parts of the organisation have different value propositions being implemented for different customer groups, it stands to reason that their strategies will be different.
Accordingly, it makes sense that their cultures and styles are different as well. Unless you have a simple business with one value proposition and one customer, it is more useful to think of your organisation as a portfolio of businesses. In that way, one size does not fit all. The organisation will have a series of cultures, each focused on the task it has to perform. Culture will not be unifying “glue” that holds the organisation together – this role is best performed by organisation purpose or vision.
7. Is your organisation changing as quickly as the market?
Jack Welch, the legendary CEO of General Electric, was famous for urging his businesses to change more quickly than the market place. He knew that it is necessary to continually adjust and review the design of the organisation, the way the major customer segments are defined, and the value propositions delivered to each of these customer groups.
As I mentioned at the start of this article, organisation design is the ultimate expression of your strategy. So, if the market is changing, it makes sense to adjust the design of your organisation – in particular the way you define customer segments and your value propositions.
The Living Organisation
The organisation is your vehicle for implementing strategy in the market. It is the way you configure and allocate resources to the priorities you perceive. It responds to both changes in the market and your strategic intent. In that sense, it can be seen as a live network of relationships, communication and material flows. Ensuring the optimal design of this network is closely related to achieving strategic and operational success.
I hope that these seven questions assist in the process.
- Danny Miller, CEO Tenure and the match between organisation and environment, Management Science, vol 37, 1, 1991; J Lamar Pierce, Organisational Structure Affect Firm Strategy and Performance, UCLA, 2003; Gill Corkindale, The importance of organisational design and structure, HBR Summary, February, 2011; Norman Chorn, Strategic Alignment, Woodslane, 2010
- For purposes of this argument, I use “product” to also mean the “service” you sell and deliver.
- In reality, there are several other axes around which the organisation can be designed.