9 Organizational Design Models You Should Know
Up until about 20 years ago, companies experienced organizational redesign every few years or even decades. Most top executives would have the experience perhaps only a few times in their careers. However, automation and competitive pressures had begun to accelerate the pace of organizational change.
By 2015, organizational change had become a way of life. In a McKinsey study, 60% of organizations had redesigned themselves within the past two years. Another 25% had done so three or more years ago.
Then the 2020 pandemic hit, pushing massive change. Most companies experienced in a few months what once would usually have happened in a decade.
We once had time to adjust to a change before the next one began, but today’s successful organizations have embraced change as a way of life. We’re not talking about moving the furniture around. The new changes are completely altering the way we work.
True, many businesses are only coping and hoping to survive, waiting for pre-COVID conditions to return. On the other hand, the most successful are adopting new organizational design models that anticipate change and embrace it, spontaneously changing how they work.
In this article, we explore traditional organizational models and how they have been used to align structure and operations to business strategies. We will show how those models can still operate as diagnostic tools to understand where various organizational factors can be out of balance.
Then, we will show how organizations have shifted from static models for diagnostics and alignment to flexible models that help organizations adapt to continuous, dynamic change.
Contents
What is organizational design?
What is the purpose of organizational design models?
Diagnostic models
Transformational models
Experimental models
The Flexible Organization Model
Choosing an organizational design model
What is organizational design?
Organizational design refers to how an organization is structured to execute its strategic plan and achieve its goals. This means that the optimal type of organizational design is determined by the organization’s strategy.
Organizational design is creating the best structure for:
- strategy execution in relation to the external environment, and
- the organization’s unique internal strengths, weaknesses, competence, and leadership style.
There are no organizational design best practices. Every organization has different needs. Following another organization’s methods and approach is not likely to lead to lasting success.
As a result, organization designers use frameworks, not prescriptions.
What is the purpose of organizational design models?
An organizational design model is a conceptual framework that an organization uses to:
- diagnose its current state,
- visualize a future state that will succeed, and
- establish an identity—purpose, value, and culture—to help the organization thrive.
Diagnostic models
Most of the well-known organization models in use today originated in the 70s and 80s. Their creators were moving organizations from the industrial age hierarchical models to flatter, more responsive structures.
Organizations have different priorities and challenges in organizational design. Understanding the traditional organizational design models can help you choose the right tools for diagnosing and changing your operating models.
McKinsey’s 7S Design Model
Probably the most well-known and used design model has been the McKinsey model.
Its purpose is to analyze organizational effectiveness through the interactions of seven key elements. You do that not by examining any one element or viewing them only in relation to strategy but as they balance and align together as a whole.
First, the “hard” elements of structure, strategy, and systems:
- Strategy defines how the company will compete in the market.
- Structure is the way it organizes business functions, reflected in the organization chart.
- Systems are the decision framework, processes, and procedures that determine how the company does business.
These elements are easier to manage than the “soft” elements of skills, staff, style, and shared values:
- Skills are the organization’s ability to perform, usually defined in a competency framework that aligns them from organization competencies to individual knowledge, skills, and abilities and the analytics to manage them.
- Staff is the shape of the workforce and how it is managed.
- Style refers to the way top-level leaders manage the organization and the symbolic value they present to stakeholders.
- Shared Values are the norms and standards that guide behavior at every level of the organization and thus are the core of the 7s model.
Advantages of the 7s Model
- The McKinsey model’s value balances the critical elements instead of focusing only on strategy and structure.
- It can be beneficial during mergers and acquisitions to bring functional elements and processes together.
- 7s also helps apply policies, regulations, and strategies formulated by business leaders
- You can use the model to develop analytics to measure the impact of changes.
Disadvantages of the 7s Model
- The McKinsey model does not include an action plan for change management. It is a static analysis of the balance of all the organizational elements.
- There is some criticism that it is focused inward and not considering external factors. However, strategy formulation by definition includes analysis of externals.
- The model doesn’t explicitly explain organizational effectiveness or performance.
The 7s model has been criticized for not being specific in identifying gaps in strategy or execution. We should bear in mind that McKinsey, like other consulting firms, developed its models as frameworks for organizational design consulting. We doubt that its original intent had anything to do with do-it-yourself organizational change.
Jay Galbraith’s Star Model™
The Star Model is a framework for influencing employee behavior through a “series of design policies” controllable by management:
- Strategy determines goals and objectives, values and missions, and the “basic direction of the company.” It establishes the “criteria for choosing among alternative organizational forms” to enable strategists to choose the relative importance of activities.
- Structure determines where power and authority lie in the organization based on analysis in four areas:
- Specialization refers to job specialties required to perform work.
- Shape describes the number of people in organization units or span of control at each level.
- Distribution of power can be vertical, determining how flat or hierarchical the organization is; it can also be lateral, referring to the movement of power to a department dealing with critical issues.
- Departmentalization is the formation of organization units on the dimensions of functions, workflow processes, markets, customers, and geography.
- Processes are the flow of information and decision processes across the organizational structure. Vertical processes allocate funds and talent, while horizontal (lateral) processes are the workflow.
- Rewards align employee goals to organizational goals. To do so, they must align with the other design components.
- People refers to aligning human resources policies and functions to develop both people and organizational capabilities.
Advantages of the Star Model
- Galbraith supports his model with an extensive collection of books and guides.
- The model supports a detailed description of elements and the interaction between them.
Disadvantages of the Star Model
- It does not address culture and purpose as motivating factors. Instead, it relies on a seemingly Pavlovian approach to human motivation.
- The model does not include inputs and outputs.
Weisbord’s Six Box Model
Marvin Weisbord’s model, presented in 1976, comes from his work on creating “a working tool which anybody can use.”
He wrote that it helped him to rapidly expand his diagnostic framework “from interpersonal and group issues to the more complicated contexts in which organizations are managed.”
By envisioning the six elements as blips on a radar screen, he shows how to manage the relationship, just as air traffic controllers work aircraft distance, altitude, and velocity.
Like other organizational design models, the Six-Box model is a diagnostic tool designed to understand relationships and balance elements.
- Purpose: What “business are we in?”
- Structure: How do we divide up the work?
- Relationships: How do we manage conflict (coordinate among people? With what technologies?
- Rewards: Is there an incentive for doing all that needs doing?
- Leadership: Is someone keeping the boxes in balance?
- Helpful Mechanisms: Have we adequate coordinating technologies?
Weisbord’s approach is similar to Galbraith’s. Either can be helpful as a diagnostic tool.
Like Galbraith, Weisbord supports the use of their models through an extensive body of writings and guides.
Advantages of the Six Box Model
- Examines information and input from both internal and external sources.
- Analyzes communication structures to process information effectively.
- Each box begins the discussion with diagnostic questions to frame the analysis.
- It starts with purpose, which has proved to be critical in later models.
Disadvantages of the Six Box Model
- The model does not appear to speak to balance, which may create a risk of focusing too much on some elements at the expense of others.
Transformational models
As the practice and methods of organizational design have matured, the focus has been on managing successful change more than diagnostics.
While change models can still be excellent diagnostic tools, they are more concerned about the journey to greater effectiveness. They are also more likely to concentrate on the human factors of organizational performance.
Transformation Model
The Center for Organizational Design created the Transformational Model in 1995. It is an organizational design framework with two purposes: to help leaders understand their organizations and guide a successful redesign.
The model comprises eight variables that form the context of an organization. The objective is to understand and manage the variables to achieve balance.
Environment. The organization is a living system that can only survive if it maintains “harmony with its external environment.” That environment includes the competition and “the legal, social, and political climates.”
Strategy is about how the organization will compete by adding value for customers. It includes performance targets and a system for growth. It’s about where the organization is going.
Core Process is the flow of work in the organization and all enabling technology and resources. It organizes all other business activities around core processes.
Structure describes how the business organizes people around business processes. It helps us understand boundaries, roles, responsibilities, and reporting relationships.
Systems are the activities and tasks that organize and coordinate work. We are probably more accustomed to calling them functions. Interestingly, the Center’s something of a side note: “the most effective systems are often the simplest.”
Culture is how the organization really operates and how well it translates strategy into practice.
Results are the measures of how well the organization functions. Well-designed metrics are the basis for understanding performance.
Leadership sets goals and monitors results, defines the vision and strategy, and designs the organization.
Advantages of the Transformation Model
- It creates a better understanding of how people respond to change.
- The Center provides a seven-phase process for organizational design.
Disadvantages of the Transformation Model
The one-way flow doesn’t emphasize the way all eight elements interact.
The Congruence Model
The Nadler-Tushman model presents a six-step plan for closing the gaps in how the elements of an organization work together. It examines communications and information flow to understand the congruence of four components.
- Work is the tasks employees carry out and whether they align with company objectives.
- People refers to skills and knowledge, experience, and education in relation to compensation and development of their potential.
- Structure creates consistency between what the organization wants and what it does.
- Culture is values and norms, behavioral patterns, and both written and unwritten rules.
Advantages of the congruence model
- The model is simple and easy to follow.
- It includes a discussion of both formal and informal organizational elements.
- It requires congruence (being in agreement) among the boxes.
Disadvantages of the Congruence Model
- Lack of detail in the model may lead to the omission of critical elements.
The Burke-Litwin Organizational Change Framework
The organizational change framework could be used as a diagnostic tool, but its primary purpose is to guide organizational change.
Burke-Litwin is a causal change model designed to show where change happens and flows through the organization.
The framework is much more complex and complete than most organizational design models. It groups twelve factors into five groups. Each group is affected by the group above and below it.
- External Factors are at the top of the groups because they create the need for change.
- Strategic Factors include strategy/mission, leadership, and organizational culture.
- Operating Factors are structure, management practices, and systems (including policy and procedures).
- Individual Factors are work unit climate, skills and tasks, motivation, and individual needs and values.
- Outputs include both individual and organizational performance measures.
Advantages of the Burke Litwin Organizational Change Model
- It includes essential elements of human motivation, work climate, management practices, and individual needs and values.
- A feedback loop shows the relationship between individual skills and actions and strategy.
- A feedback loop indicates that individual needs and values affect and are driven by organizational culture.
Disadvantages of the Burke Litwin Organizational Change Model
- Some will find it too difficult to grasp quickly. On the contrary, others may see the detail as an advantage.
Experimental models
The science of organizational design is advancing as rapidly as change itself. Here, we present two organizational design models we think deserve your consideration.
McKinsey Helix Model
When McKinsey discovered in 2020 that modern matrix and agility models made businesses too complicated, slow, and inflexible, they developed the helix organizational model.
They named the model on the concept of the double helix structure of a DNA molecule. It entails creating two distinct, parallel lines of accountability that are equal and intertwined but different.
The device people leadership into two sets of tasks:
The first is value creation (what gets done), overseeing day-to-day work, and satisfying the customer. This idea makes us wonder if Sandy Ogg’s Talent to Value concept influenced their thinking. Ogg’s vision is that the organization’s highest priority is to provide the best possible talent wherever the organization creates value.
The second is capabilities (how work gets done). Develop people and resources, set standards, and drive excellence.
As in matrix organizations, a person reports to two managers, but the managers are not in conflict with regard to that person’s time and attention. They have separate functions.
The helix is an advanced design to most organizations, and we think to a degree experimental, but there have been early successes.
McKinsey offers four recommendations to ensure success:
- Make resource planning transparent, flexible, and focused on value, requiring frequent business reviews to prioritize and allocate resources.
- Create an internal talent marketplace to align people to value based on supply and demand.
- Support leaders who are shifting their mindsets and culture. The model requires a culture of collaboration to align resources and business requirements.
- Balance performance management across the two roles with both providing feedback.
Advantages of the Helix Model
- It enables the shift of value creation to the highest return on investment.
- The structure reduces complexity and increases flexibility.
- It encourages faster decision-making.
- It also empowers employees to act.
Disadvantages of the Helix Model
- The model requires a significant change in how the organization operates in the way leaders manage.
- It cannot succeed without a relinquishing of control and “a healthy dose of humility.”
Holonic Enterprise Model
The holonic model serves global virtual organizations by allowing self-directed information and resource management linked through the internet.
The theoretical framework isn’t new: it originated in the work of Arthur Koestler in 1968, published in 1970 as Beyond Atomism and Holism—The concept of the holon 1.
Koester studied the self-organizing tendencies of social and biological systems.
He coined the word holon to describe a state where an entity is both a self-contained whole and a part of a more extensive system. Or a subsystem of a greater system.
It combines the Greek holos meaning ‘whole’ with the suffix -on ‘a particle or part.’
The holonic enterprise operates on three levels:
The Global Inter-Enterprise Collaborative Level
In the enterprise meaning of the word, companies enter a collaborative hierarchy to produce products or services.
We have traditionally regarded this as a supply chain moving from the customer to the producer.
However, when we regard the construct as a holonic enterprise, we see that each holon seeks to optimize its efficiency. It operates as an independent entity in collaboration with the extended enterprise.
A customer in the chain seeks to work with the most efficient and responsive supplier. The supplier aims to sell to the most profitable customer.
The result is an optimization of the whole collaborative inter-enterprise.
The Intra-Enterprise Level
Each enterprise in the holocracy must organize its internal resources to deliver according to the coordination requirements of the collaborative cluster.
This organization requires planning and dynamic scheduling of resources, including functional reconfiguration.
A failure such as machine downtime requires a re-clustering of enterprise resources (see Task Distribution Pattern).
The Machine (Physical Agent) Level
The third level manages the distributed control of the machines that perform the work.
The distribution is done through agile manufacturing using self-reconfiguring, intelligent distributed automation elements.
The Flexible Organization Model
We don’t include the flexible organization in our experimental organizational design models because it is not an experiment–it is a proven set of practices that innovators and lean startups use to disrupt markets.
It’s the force that accelerates the pace of organizational change. By adopting these innovative practices, your organization becomes a disrupter.
In the report Unlocking the flexible organization: Organization design for an uncertain future, Deloitte presents a model and path that traditional companies, or any other, can use to become agile and quick to market.
Traditional organizations have based their structure on organizational silos that produce repeatable results in predictable markets. They are bureaucratic, multi-layered hierarchies that resist change.
That model will no longer suffice. In today’s markets, things change quickly, and rigid models will fall behind more agile competitors.
The organization of the future is a network of self-managed teams that organize themselves around a specific outcome.
Radical interventions usually fail, but Deloitte has found a method that unleashes the agility of empowered teams without upending the organization.
In the report, they offer four steps to unlocking the flexible organization.
Advantages of the Flexible Model
- It fosters creativity, teamwork, and innovative thinking.
- The structure places decision-making at the point of need rather than a chain of command.
- It creates a culture of empowerment and commitment to the team’s mission.
- The absence of bureaucracy creates an agile, adaptive organization that thrives on change.
Disadvantages of the Flexible Model
- It cannot be done too quickly or in a manner that disrupts the core. The culture needs time to adjust to autonomous teams.
- It will take time to develop the managers needed in the new environment.
- Traditional command and control managers may need outplacement.
This description is only a quick overview. We recommend reading the whole report before you take any action.
We do not recommend trying this on your own. Find an experienced partner who has helped organizations achieve tangible results in creating autonomous teams.
Choosing an organizational design model
We have a few recommendations on how you can get the most from your efforts:
- Choose the right partner. Check references and talk with other organizations that have worked with your potential partners. Ask for specifics on how your potential partner helped their organization.
- Start with purpose and strategy. Without that solid footing, your efforts can be derailed.
- Carefully consider your organizational priorities as you review your purpose and strategy. Examine all the internal and external forces that affect your business.
- Consider both current and future organizational needs. Be constantly aware of how things might change. Resist the urge to go defensive to protect your current position. Instead, prepare to discover the opportunities that change will bring.
- Culture is critical. If it doesn’t fit your culture, it won’t work. If you need to change your culture, get the right help, and approach culture change as essential for your organizational transformation.
- Not all organizational design models will fit your situation. Consider each carefully, and don’t let a model limit what you can do. Let your analysis do the talking.
- Seek compatibility in the change tools you use. For example, your project management and organizational approaches must agree, as should your culture and change management plan.
- You don’t have to do everything today. Change, especially cultural change, takes time. Don’t get ahead of yourself in what you can accomplish.
Over to you
We hope this article has given you sufficient information to think through how you want to approach redesigning your organization and how you can use organizational design models to navigate this change process.
At AIHR, we see one thing as a certainty: the pace of organizational change will not slow down.
We urge you to develop the flexibility that will enable you to find opportunities in the change happening around you and in your organization.
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