How to simplify a
complex
organization
Nicolay Worren, PhD
www.organizationdesign.net
Organizations today are multidimensional

                    1960                                                    2012


                    CEO                                                       CEO
                                                                              CEO


                                              Shared Services   Product A   Product B    Region A    Region B


                                              HR
      Engineering




                                                                                        Country A1
                     Production



                                  Marketing




                                              IT
                                                                                        Product B
                                              Accounting
                                                                                        Product A




                                                                                        Country A2




organizationdesign.net                                                                                          2
Gettings things done requires intensive collaboration –
but one sometimes forgets cost and capacity limits
                         110
                                                                                   ∆ = 20
                         100

                         90

                         80

                         70
     Number of
     potential           60
     bilateral
     interdependencies   50

                         40

                         30

                         20

                         10
                                                                                   ∆=4
                           0
                               0   1   2   3   4   5   6   7     8   9   10   11

                                           Number of employees
organizationdesign.net                                                                      3
Collaboration is particularly challenging across the
interfaces in a matrix structure
                                                                        Example


                     Product A          Product B        Product C




                                                                     Region A

                                 Whose goals do we prioritize?
                                 Who resources what?
                                                                     Region B
                                 Who makes what decisions?
                                 Who’s accountable for what?
                                                                     Region C




organizationdesign.net                                                          4
Employees experience the consequences of increasing
complexity on an every day basis

            Information                        Unclear                  More time in
              overload                      accountability               meetings


                                           ”We know who is
         Corporate e-mail traffic       responsible for solving
     (billions of messages per year)
                                       key business problems in
     35
                                               our unit”
     30

     25
                                          40%       30%       30%          1960
     20

     15

     10                                   NO                  YES
      5

      0                                 Typical result in employee
          2003   2004    2005   2006
                                        surveys in large corporations



                                                                           1982


organizationdesign.net                                                                 5
Surveys confirm that organizational leaders now view
complexity as a major challenge
                         “What is the level of complexity in your organization today compared
                                                      to three years ago?”

                                                                     The same

   Source:
   Global PwC CEO                                              17%        Somewhat lower

   survey 2007                                                   6%          Much lower
                                    Higher                           2%
                                                      50%

   N= 1400                                                     27%

                                                                          Much higher




                                “Are you experiencing a high level of complexity?”

                                  Currently
   Source:
   Global IBM CEO                                  60%                          40%
   study 2010
                                  Over the next five years

    N= 1500                                              79%                          21%


organizationdesign.net                                                                          6
There is also a growing recognition that the
organizational structure may contribute to complexity
                         “Our organizational structure is contributing to an
                              increase in the complexity in our firm”


   Source:
   Economist
   Intelligence Unit
                         Disagree                                 Agree
   Survey 2011                            43%       57%


    N= 300




organizationdesign.net                                                         7
The first step in a simplification process should be to
evaluate the current situation and set improvement targets
                                                                                Example
                                                          = Today    = Where we should be

                                                                                  To a great
   Our decision processes enable us to          Not at all                          extent
   respond quickly to changes in the external
   market


                                                                                  To a great
   Feedback from our employees suggest that     Not at all                          extent
   there is clarity with regard to roles and
   responsibilities in our organisation


                                                                                  To a great
   The goals pursued by different functions     Not at all                          extent
   and units in our organization are
   complementary


                                                                                  To a great
   Our productivity measured per                Not at all                          extent
   employee is as good or better than the
   average for similar companies

organizationdesign.net                                                                     8
One should examine unit mandates and ensure that each
unit has a clear purpose and a distinct role
                                                           Example

                                       - Units -

Unit mandate             Mngtm team   Corporate staff Shared Services


 Create strategy             X



 Develop policies                            X             ?



 Provide support to                                        X
 business units                              ?




organizationdesign.net                                           9
An internal customer-supplier model is an alternative to
the matrix that simplifies reporting relationships


 Units/roles that deliver           Units/roles that develop    Units/roles that market
 internal support services          and deliver products or     and sell products or
 or resources to product            services to end             services
 units                              customer


                         Requests                         Requests                        Requests




                         Delivers                          Delivers                       Sells
         Support         service                           product                        product
                                           Products                     Region                       Customer
         services




organizationdesign.net                                                                                  10
It’s also crucial to design a formal structure that is aligned
with the work processes (and vice versa)
                Out                            Before   Example
         In




    In          Out
                                               After




                                                             11
More information




      For more information:
      http://www.organizationdesign.net/who-is-this-blog-for/book

organizationdesign.net                                              12

How To Simplify A Complex Organization

  • 1.
    How to simplifya complex organization Nicolay Worren, PhD www.organizationdesign.net
  • 2.
    Organizations today aremultidimensional 1960 2012 CEO CEO CEO Shared Services Product A Product B Region A Region B HR Engineering Country A1 Production Marketing IT Product B Accounting Product A Country A2 organizationdesign.net 2
  • 3.
    Gettings things donerequires intensive collaboration – but one sometimes forgets cost and capacity limits 110 ∆ = 20 100 90 80 70 Number of potential 60 bilateral interdependencies 50 40 30 20 10 ∆=4 0 0 1 2 3 4 5 6 7 8 9 10 11 Number of employees organizationdesign.net 3
  • 4.
    Collaboration is particularlychallenging across the interfaces in a matrix structure Example Product A Product B Product C Region A Whose goals do we prioritize? Who resources what? Region B Who makes what decisions? Who’s accountable for what? Region C organizationdesign.net 4
  • 5.
    Employees experience theconsequences of increasing complexity on an every day basis Information Unclear More time in overload accountability meetings ”We know who is Corporate e-mail traffic responsible for solving (billions of messages per year) key business problems in 35 our unit” 30 25 40% 30% 30% 1960 20 15 10 NO YES 5 0 Typical result in employee 2003 2004 2005 2006 surveys in large corporations 1982 organizationdesign.net 5
  • 6.
    Surveys confirm thatorganizational leaders now view complexity as a major challenge “What is the level of complexity in your organization today compared to three years ago?” The same Source: Global PwC CEO 17% Somewhat lower survey 2007 6% Much lower Higher 2% 50% N= 1400 27% Much higher “Are you experiencing a high level of complexity?” Currently Source: Global IBM CEO 60% 40% study 2010 Over the next five years N= 1500 79% 21% organizationdesign.net 6
  • 7.
    There is alsoa growing recognition that the organizational structure may contribute to complexity “Our organizational structure is contributing to an increase in the complexity in our firm” Source: Economist Intelligence Unit Disagree Agree Survey 2011 43% 57% N= 300 organizationdesign.net 7
  • 8.
    The first stepin a simplification process should be to evaluate the current situation and set improvement targets Example  = Today  = Where we should be To a great Our decision processes enable us to Not at all extent respond quickly to changes in the external market To a great Feedback from our employees suggest that Not at all extent there is clarity with regard to roles and responsibilities in our organisation To a great The goals pursued by different functions Not at all extent and units in our organization are complementary To a great Our productivity measured per Not at all extent employee is as good or better than the average for similar companies organizationdesign.net 8
  • 9.
    One should examineunit mandates and ensure that each unit has a clear purpose and a distinct role Example - Units - Unit mandate Mngtm team Corporate staff Shared Services Create strategy X Develop policies X ? Provide support to X business units ? organizationdesign.net 9
  • 10.
    An internal customer-suppliermodel is an alternative to the matrix that simplifies reporting relationships Units/roles that deliver Units/roles that develop Units/roles that market internal support services and deliver products or and sell products or or resources to product services to end services units customer Requests Requests Requests Delivers Delivers Sells Support service product product Products Region Customer services organizationdesign.net 10
  • 11.
    It’s also crucialto design a formal structure that is aligned with the work processes (and vice versa) Out Before Example In In Out After 11
  • 12.
    More information For more information: http://www.organizationdesign.net/who-is-this-blog-for/book organizationdesign.net 12