4 signs organisational structure is limiting your growth
Organisational design can be the difference between your organisational structure supporting or hindering your business strategy. Jay Galbraith the godfather of organisational design theory called it the enabler of business strategy. His mantra: Strategy, Structure, Process in that order.
More than anything, business strategy tends to fail during implementation. Deliberate organisational design ensures that your business is structured to successfully fulfil your strategy. Failing to address the organisational structure of your business is to let yourself down in successfully executing that strategy.
Imagine you’re baking a cake for the very first time. First, you find a recipe and get a list of ingredients. After buying the ingredients you follow the recipe process carefully, giving the cake the best opportunity to turn out as something resembling the photo.
In this scenario, if you just left it to chance, the cake would flop and your time would be wasted. Organisational structure is the same. Without following a clear process and having all the right ingredients, you’re not giving your organisation a fair opportunity to achieve the business strategy.
This raises the question: How do you know if your organisation is being choked by poor organisational design?
Poor organisational design signals
Here are four signals that ineffective organisational design practices are impacting your business:
1) Span of control
If you or your leadership team have too many people reporting directly to you, you will not have the capacity to effectively lead and direct your people and the business. Your people, in turn, will not be able to effectively perform their duties. If they can’t deliver in their roles, then they can’t work towards the business strategy.
2) Can’t work on the business
You have no time to work on the business because you’re spending all your time fighting fires in the business. This is common for smaller businesses where the business owner is the first point of contact for almost everything.
3) Unnecessary bureaucracy
Lack of a suitable organisational structure will result in unnecessary costs, and/or missed revenue opportunities. This may be in the form of direct salary costs for unnecessary bureaucracy or unneeded organisational layers. It may also incur indirect costs such as missed opportunities or various forms of leakage through a lack of appropriate structural accountability.
4) Increased staff turnover
High performers end up leaving the business out of frustration at a lack of autonomy, progress, or success in their role. This also results in a loss of cohesion and productivity as new staff need to be trained and made to feel comfortable in their new roles.
What good looks like
An effective organisational structure will enable your business to meet its strategic objectives. It will improve clarity of vision, and enable clear communication of priorities, values, and cultural norms. It enables scalability, and reduces cost and ambiguity.
Strategic effectiveness
As we highlighted, business strategy is enabled by good organisational structure. Without a deliberate, fit-for-purpose structure, your strategy is unlikely to succeed. It will remain a great idea ‘on paper’ but will never be realised.
High-performance culture
A suitable organisational culture is essential for long-term organisational health and effectiveness. Management guru Peter Drucker is reported to have said the famous words, ‘Culture eats strategy for breakfast’. For people to perform at their best, they need to feel engaged in their work, and in the organisation. The culture of the organisation needs to be nurtured.
A strong culture and organisational structure go hand-in-hand. In contrast, poor organisational design will always inhibit business performance and growth.
When it’s time to think about organisational design?
It depends on the industry you are operating in and the stage of the business. Are you looking to grow, maintain the status quo or simply to survive? Once a business gets to a certain size, it takes on a life of its own, and stops being a personal extension of the founder. The culture starts to set, and mindsets begin to shift from purely helping the business succeed to career-driven where they seek opportunities to grow and expand their skills. They will want to know the steps for professional growth.
In order to implement a new strategy and organisational goals, you may be required to do things that your current size and structure doesn’t allow for. Are your people challenged but not stretched? Do they have both support and accountability? Do they have the authority to make the right decisions? You need to be deliberate. If you rely on things happening ‘by accident’, invariably that is what you will get - an accident.
If you are leading people who are fulfilling complex roles, 8-12 direct reports is generally considered a manageable number. When your employees are undertaking relatively mundane, repetitive tasks, this number rises to 20+. It is about capacity. A leader does not have the capacity to effectively lead more that about 8-12 people directly - and also have the capacity to meet their other strategic imperatives.
So if you begin to notice these pressures or any of the other warning signs mentioned above, it’s time to rethink your organisational structure.
Summary
A fit-for-purpose organisational structure does not happen by chance or inaction. It requires intentional planning and action. It requires you to have a clear understanding of the business strategy and its imperatives. It requires a design-thinking approach to organisational design.
However, if you’re unsure whether you need to redesign your organisation, watch out for these common warning signs:
Too many people reporting to you or the leadership team.
No time to work on the business because you’re busy fighting fires in the business.
Growth or revenue opportunities being missed because of internal bureaucracy or inflexibility. Likewise, a decreasing Rate of Return due to costs and increasing barriers to meeting strategic imperatives.
High performers leaving the organisation out of frustration at a lack of autonomy, progress, or success in their role.
In summary, if you relate to two or more of the above, the organisational design process and steps are outlined here. We also recommend downloading our free Preparing your Organisation for Growth PDF here.
At Avodah HR, we have an immense amount of experience in implementing both organisational design and change management. Get in touch below if you need assistance.