When it comes to designing an operating model for any type of business, the term organizational architecture typically comes to mind. But what is organization architecture? Here, we delve into the nuance of organization architecture – keeping in mind that while it is important, it is only part of an operating model.
Formally speaking, organizational architecture refers to either 1) the physical space and environment in which a business exists or 2) the structure of the business. When I hear leaders and managers talk about organizational architecture, their use of the term is most often synonymous with structure… And, of course, the depiction of structure in any business is the handy “organization chart.” This is a huge mistake.
Structure – a misunderstood term
Organization charts are not structure. Organization charts, sometimes called wire diagrams, are maps illustrating reporting relationships between roles and placement of organization authority. Using the OTM Applied STAR Model as your guide, organization charts are considered a “management mechanism.” While wire diagrams give you a view of reporting relationships, they are not structure.
So, what is structure? Simply stated, structure is how a business “bounds its work” and how it chooses to organize its people resources around that work. Yes, structure includes things like roles and jobs. But more fundamentally, it’s about how a business chooses to departmentalize its work and people. The most common way of doing so is organizing units and departments by common areas of expertise – called a functional structure. While there are at least six fundamental ways to organize people around work, by far the most common is functional.
Leaders often choose functional structures because they default to what they know — lacking practical awareness of other options, or they are concerned about their own kingdoms.
Bound Work Across A Business Team
Businesses suffer from fragmentation, and organizational architecture proves a major part of the root cause. The greater the number of pass-offs, the greater the likelihood for error. Negative byproducts of a fragmented operating model include:
- Fragmented value streams (parts of work).
- Boundaries around single pieces of work.
- Responsible for that piece of work only.
- Over-specialization of roles. This creates redundant parts: If one part fails, another has to take over.
- Need for coordination is significantly greater.
- Control and Coordination of work happens levels above where real work gets done.
Herein lies the most significant aspect of structure. How a business chooses to bound work and departmentalize its people has fundamental advantages, disadvantages and trade-offs that manifest themselves in very significant and potentially detrimental ways that are rarely understood at their core. And the impacts and consequences on a business are severe — most often involving large amounts of money, effort and resources invested in programs and initiatives to offset the inherent disadvantages of its structure choices.
Case in point: A large European airline business called us in to help them with a project titled “project speed.” The focus of the project was to quicken responsiveness to customers and decrease cycle times across the end-2-end value stream. They had been working on it for two years without much to show for it in terms of improvements… The core of their problem was in their structure. The unit had nine teams, all functionally organized with each team working on a part of the value stream. The management team wanted improvements — but wanted to retain their own positions more.
So, while the use of organizational architecture is most often used to mean structure, it is structure itself that is poorly understood and underappreciated for the very real consequences that come with choices.
The mistake of focusing on one aspect of the OTM Applied STAR Model
When leaders fail to look at the big picture in organization design, they often opt to trifle with organizational charts. Org charts make up just one part of a management mechanism and reporting relationships — but they do not denote structure. Uninformed leaders default to this practice, assuming that is organization design. Rather, org charts play just one small part in the “organization architecture” or organization design equation — as evidenced in ON THE MARK’s Applied Star Model.
So, what is organizational architecture? In general, many leaders narrowly use the term “architecture” when referring to org charts and organizing people around work.
How OTM Shifts The Focus In Elements of Organization Design
One major differentiating feature at ON THE MARK involves drawing the attention away from people to focus on the work.
Too often, people grow overly fixated on the who rather than the what, why and how behind a company’s work.
During our workshop phase, we tell clients: “Forget about people, and forget about yourselves. Talk about the work that must be done to provide value to your customers.”
This has proven to be a difficult concept for leaders to embrace. However, it is highly important to the full-circle organization design process through ON THE MARK.
When mulling over the question “What work needs to be done?”, most people immediately translate that into “Joe, who does X,” or “Jane, who does Y.” When shifting from organizational architectural elements to the organization design mindset, OTM’s mantra is this: Focus on the work. Forget about the people who do the work, and discuss the deeper ideas behind what creates value for customers.
This practice is part of OTM’s secret sauce — and it frees leaders to carry out the design work.
Organization Design, Defined:
- The aligning of all parts of a business to win in the marketplace to deliver its strategic or competitive advantage.
- Modernization of an operating model
- It is the deliberate configuration of an operating model to fit with intended strategy and business model.
- Formal and informal
- Social and technical
- Includes strategy, customer demands, value-creation activities, structures, technologies, management mechanisms & systems, rewards/recognition, people processes, ways of working and culture.
- Ensure a business is capable of achieving its purpose… We call this “fit for purpose.”
More resources on organization design:
- Check out this insightful infographic.
ON THE MARK’s experience and passion for collaborative business transformation that’s supported by pragmatism, systems thinking, and a belief in people is unparalleled. OTM has been in business for 27 years and is a global leader in organization design consulting.
We understand that you may want more information on how OTM works with clients, our terms and further information from our extensive case-study library. Contact us about careers, more information or how we work here.