Organizational Design

ORGANIZATIONAL
STRUCTURE &
DESIGN
AN OVERVIEW
By
Bernard Liebowitz, PhD, CMC

WHAT IS IT?
Organizational Design is structuring an organization, division or
department to optimize how it produces and supplies products and
services to its clients and customers. As a firmβ
grows, it will (or,
should) re-design itself at different sales levels as well as when the
nature of customer needs changes. For those rapidly growing firms that
have experience in re-design efforts, it can be a core competency that
distinguishes them from their competitors. For those firms that are in a
commodity box, it can provide a strategic advantage over competitors.
Designing an organizational structure is dependent upon:
• The kind and quality of information it gathers from its
customers, suppliers and partners
 How the company gathers the information
 How it interacts with each of these constituents
• How this information flows through the organizational
structures
 Who has access to it and who doesn’t
 How the information is utilized in making
decisions, e.g., about production costs, new products, etc.
 How the information is stored for ease of use and
analyzed
• Whether both organizational processes and systems reflect and
mirror information flow

The focus and, consequently, the examples in this presentation will be on organizations. The same
principles with some “translation” apply to divisions and departments.
Copyright ©2005 Liebowitz & Associates, PC
2

ISN’T IT DONE THAT WAY
NOW?
In general, NO!!
Most organizations look like this:
President
VicePresident VicePresident VicePresident
Manager Manager Manager Manager Manager Manager Manager
3

SO, WHAT’S THE PROBLEM?
The typical organization structure results in many of the problems with
which we are asked to deal, such as:
• Conflict between departments (e.g., the perennial one between
Sales and Operations)
• Long lead times in developing new products and services
• Quality problems, billing inaccuracies, etc.
• Inefficiencies (which are usually blamed on individuals)
• Not being able to keep up with customer demands
• Low employee morale (often related to staff not being
empowered to make decisions)
• Departmental goals and performance measures not being
cascaded down through the entire organization; goals stop at
the top of the hierarchy without a real appreciation of how “it
all fits together”
4

WHY DOES IT HAPPEN?
The early stages of a business’s relationship to its customers often look
like this:
Information about a customer would be gathered by one department
which then would parcel it out to the other departments as it saw fit.
Frequently, either the information wasn’t disseminated and discussed
between and among the departments, it was only partially communi-
cated, or it was presented in a way that the recipients couldn’t readily
utilize.
This structure and flow of information is usually sufficient for an early
stage or smaller company or division to function. The information
needed about customers is usually limited (“Do they like it or don’t
they?”).
However, for large and rapidly growing companies that have been
accumulating competitors by the bushel-full, the picture changes
to ........
5
Custome
r
Department #1 Department #2 Department #3 Department #4

CUSTOMERS
The company or division is larger, there are many more customers and
different kinds of customers, each with a different variety of needs,
expectations, strategies, etc.
The old structure, however, persists in too many companies with the one
department (usually sales and/or marketing) remaining as the
“gatekeeper” for the dispersion of customer information.
The net result is that the information each department requires to do its
job is either lacking, late or incorrect.
No wonder, then, the problems that plague large and growing
companies!! And, we would venture to say, companies that are stagnant
also fail to consider the importance of its organization design.
THE SOLUTION? RE-DESIGN
6
Department #1 Department #4Department #3Department #2

Example #1:
The Problem: A large division of a publically traded company had been
barely profitable over the last 5 years. Their sales had been stagnant
during this period of time. The firm provides financial data to a broad
range of companies: banks, insurance companies, corporations, etc.
The firm has been oriented to providing a range of products to their
client base, products that has been seen as the standard for their
industry. The Chairman of the company had indicated that, unless the
firm grew in both sales and profit, it would either be sold or disbanded.
The scenario planning that was conducted as part of strategic planning
indicated that the customer base the firm was addressing was becoming
undifferentiated. That is to say, the firm was offering the same range of
products to their entire customer base( banks, insurance agencies,
investment firms, corporations, etc.) without due consideration for their
specific industry-related needs. In addition, as this de-differentiation
process was proceeding from the point of view of the firm, they were
losing sight of their customer needs for other new products.
Solution: The firm had grown in love with their product line which, in
fact, was to be envied. The result, however, was that a focus on the
customer was lost as well as an in-depth sense of what they needed. The
strategic planning process indicated that, in fact, the firm really had
three customer types: financial institutions, corporations and
government. The re-design, then, entailed that their “front end”, i.e.,
their “spearhead” into the market-place, be three-fold based on these
customer niches.
Results: The results are being determined now.
7

New Design
Old Design
8
Division
Vice President
Governmental
Institutions
CorporationsFinancial
Institutions
Division
President
Products Products Inside Sales ProductsITInternational

Example #2:
The Problem: A firm supplies large medical equipment to hospitals, care
centers, etc. Their problem was that the cost of inventory (of both parts
and equipment) was eroding their margins, along with a growing failure
to deliver service on time, the emergence of quality issues and similar
concerns. Their firm’s structure was traditional, with each department
being its own “silo”.
Historically, Marketing’s discovery of new markets led to Sales selling
any new product they could get a hold of (which were the most
financially rewarding for the sales people), the net result being a lack of
“family of products” and, therefore, an absence of standardized (and
fewer) parts, a need for an ever increasing number of Service personnel
as well as an ever growing need for increased training of Service
personnel.
The firm had never really determined what their customers really
needed in the way of equipment, nor had they determined who their
“best” customers were.
The Solution: Replacing the silos with cross-functional teams, i.e., with
members from each discipline, at the top. The cross-functional teams
retained the old designations (Marketing, Sales, Service and
Operations).
The Results: All four teams focused on who their customer was, is and
should be, and what could be in the best interest of these units. For
example, the Supply team (composed of representatives from each
discipline and headed by a Supply person) had as many suggestions as
to which customer niche should be targeted as the Marketing team.
9

They offered the characteristics of an ideal customer based on repair
rates, additional services required, machine capabilities, etc. Sales and
Purchasing, thus, had their marching orders; Marketing had the
necessary constraints placed on where they could go to find customer
niches; and, as a result, Supply lowered their costs. Compensation
programs for sales people were adjusted accordingly. Their IT system
was restructured so as to capture the appropriate customer information
and shuttle the information each team required.
Interestingly enough, the few customers who left to buy elsewhere
turned out to be the least profitable for the company.
New Design:
Old Design
10
Division
Vice President
Operations Team
Cross Functional
Service Team
Cross Functional
Sales Team
Cross Functional
Marketing Team
Cross Functional
Division
Vice President
Operations ServiceSalesMarketing

Example #3:
The Problem: The growth of a large accounting firm had stagnated,
accompanied by a growing restlessness among junior members who
were not attaining partnership status as rapidly as they had been
promised. An organizational audit indicated that each of the firm’s
departments (audit, tax, consulting, etc.) operated as independent
entities with little cross-selling or collaboration. In addition, the
marketing message of the firm was indistinct and the intended audience
was nondescript. Lastly, junior accountants were left to their own
devices when it came to “rain-making”-- their lack of success in this
area contributed to the low level of partnership invitations.
The Solution: The firm was re-organized into industry groups with
each function and service represented in each group. This did not mean
that accountants had to surrender clients who were not in their industry
group, nor did it mean they could not pursue clients in other industries.
It did mean, though, that the members of a group had to focus their
efforts on that industry, joining trade associations, writing articles for
trade journals, presenting at association conventions, advertising to that
industry, etc. Cross-selling and joint-selling was emphasized and
rewarded. Junior accountants assigned to a group were mentored by
the partners in that group and were taught how to “make rain”.
The Results: The firm became known as the experts in the focal
industries chosen. Their growth resumed. Most important was the fact
that the firm widened their services to any one customer’s range of
needs so that revenues from any one customer increased accordingly.
Junior accountants felt more directed in their efforts and the rate of
partnership growth increased.
11

New Design:
Tax Section etc. etc. etc.
Audit Section
Consulting Section
Old Design
12
Division
Vice President
Consulting
Department
Administration
Department
Tax
Department
Audit
Department
Managing Partner
Industry Group
#3
Industry Group
#4
Industry Group
#2
Industry Group
#1
Administration

Example #4:
The Problem: A distribution firm that provided parts for the service
and repair programs of national firms (e.g., Briggs & Stratton, Best
Buy, etc.) had a hit-and-miss record of successful contracts. Too many
of their contracts turned out to be unprofitable and a significant attack
on the firm’s bottom line. Analysis indicated that those involved in the
contracting process were different people than those in design and both
had different members than the implementation/operation group. The
operations team too often found that the contract terms prevented them
from operating profitably.
The Solution: The entire organization was re-designed to accommodate
the prevailing problem of miscommunication and misunderstanding
that characterized the process of engaging a new client and their needs.
The Contracting team consisted of people that would eventually be on
the Design and Operations teams. Permanent membership on each team
consisted of a senior manager from the other two teams. Temporary
membership on each team consisted of at least one (and usually two)
people from the other teams, the people who would follow the contract
into the other phases. For example, the Operations people who would
be the ones actually managing the contract on a day-to-day basis
progressed from the Contracting team to the Design team to their final
assignment in Operations. The team members working on that
contract’s Design team started with the Contract team, worked on the
Design team and then progressed for a brief period to the Operations
team.
The Results: Utilizing both permanent members and the actual
implementers from each team in this manner allowed crucial
information to be shared across functions, retained the experience
needed by each team, kept the initial contract rationale constant across
teams and allowed changes to be made informed by the information and
experience of all three teams. The net result was a significant decrease
13

in the number of unprofitable contracts, increased profit on new
contracts and enhanced morale among all staff.
New Design:
Old Design
14
Division
Vice President
Implementation
Team
Cross Functional
Operations Team
Cross Functional
Design Team
Cross Functional
Contracting
Team
Cross Functional
Division
Vice President
Implementation
Team
Operations
Team
Design
Team
Contracting
Team
Having both separate
Implementation and
Operations teams was
dependent on the needs of
the customer.

Example #5:
The Problem: A mid-size manufacturing firm provided cookers,
broilers and other heating products to the large fast food chains. Their
rapid growth was being plagued by increasingly lowered quality, poor
delivery and missed opportunities in the form of lost bid contracts.
Because of the pressure growth exerted, less and less time was being
spent on face-to-face planning and more time devoted to rushed emails
and phone calls. The give-and-take, the feedback, that is part of good
planning was going by the wayside.
The Solution: Cross-functional teams each dedicated to a large client
were formed and met on a regular basis. Each member of a team was
intimately involved in their client’s strategic planning and needs.
Whether the entire team or the team leader met with the customer, the
team leader’s responsibility was to ensure that all team members had all
the information conveyed by the client even if the information was not
immediately pertinent to a team member.
The Results: The firm’s responsiveness to their customers ratcheted
upward at a fast clip. Quality and on-time-delivery improved
dramatically. More bid contracts were being won. Customers liked the
idea of having an entire team dedicated to them so much that they
began to involve the team in their planning process. Several clients
gradually started to reduce their bid contracts and granted the firm
exclusivity on specific product manufacturing.
15

New Design:
Old Design
16
Division
Vice President
Fast Food Co. #3
Cross Functional
All others
Cross Functional
Fast Food Co. #2
Cross Functional
Fast Food Co. #1
Cross Functional
Division
Vice President
Marketing
& Sales
Engineer’g Operations Service Administ.

CONCLUSION
The focus in each one of these examples is on the design changes at the
interface of the firm and its customers. After all, it is the customer that
drives the business. Organizations risk failure in not considering how
they go to market, i.e., in how they address and service their customers.
They face even a greater threat when not designing their company to
expedite and facilitate this process, i.e., in delivering the products and
services their customers want when they want them and in what form
they want them.
The “front end” of the company (the interface with customers) should
be differentiated from the “back end” where operations and
administration occurs. The “back end” need not necessarily change. It
may require modification to accommodate how the firm goes to market,
but efficiencies, cost effectiveness and quality remain the key
ingredients of any “back end”.
In addition, re-designs require adjustment and re-design throughout the
firm as a whole in order to efficiently and productively support the
“front”. The process of building this support is crucial for the success
of re-design efforts.
17

THE STEPS
The following outline portrays the steps required to begin the design
process:
(1). Determining How the Company Goes to Market
• Either clarify the firm’s strategic plan or develop one, keeping
in mind potential future market-place scenarios that will affect
current operations.
• Sketch how the current organizational structure (e.g.,
departments, roles, responsibilities, information flow, decision-
making, etc.) supports how the company goes to market.
Include:
 A description of present, lost and hard-to-get customers’
needs, wants, etc., both currently and in the future
 What the current structure does well with respect to
these needs, wants, etc.
 What the current structure does not do well
 If possible, “numbers” that put a value to what is done
well and what not
• Draw an ideal organizational structure (first draft) that
reflects better how the company goes to market. This step is
crucial in establishing the value of the organizational change.
Focus on:
 How it can improve upon the current situation using
metrics
 What it can improve upon
 How it will affect the organization and its parts,
18

processes and people
19

(2). Planning
• Determine who should be involved in the planning process, in
particular “RACI”, i.e. who is Responsible, Accountable, To be
Consulted and who should be kept Informed.
• List the major players who perform or are involved in the key
processes that support the current structure.
• What would the ideal organization (processes, roles, people)
look like (first draft)? Who would fill what position? How
can/might/should the current players be utilized in this new
schema?
• What new equipment, technology, resources, people, skills or
systems would be needed in the new structure?
(3). Implementation
• Develop a schedule (dates and RACI) for the change from
the current situation to the ideal state. Create flowcharts
that capture the changeover. Be specific about:
 When and how the change from the old to the new will
occur.
 Impediments that might appear during the transition
(e.g., a huge amount of business that might distract
people’s attention). Create scenarios of what might
occur and how they can be handled.
• Create a program that would prepare employees for the
change. This very crucial step entails involving employees
in the actual planning of and for the re-design.
20

(4). Administrative Issues
• Salary adjustments?
• Assignment of roles: Sponsor, Project Manager, Oversight
Committee, Teams
• Regular communication to staff regarding the progress,
decisions, plans, etc., of the project.
• A written plan that is shared with key personnel, that is
referred to periodically, updated when necessary and referred
to continually.
• Scheduled “monitoring” meetings between the Project Team,
Sponsor, Oversight Committee.
21

Organizational Design

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