Organizational structures: The benchmark indicators you cannot ignore

Organizational Strucuture Definition

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An\norganizational structure\nis the hierarchy of an organization and how the components of this hierarchy\nwork together to achieve the strategic objectives of the company (Ahmadya,\nMehrpourb & Nikooravesh 2016). If the structure of the organization and the\nunderlying design principles that construct it are not in alignment with the\ncore purpose of the organization and its operating environment, then it is\nlikely the organization will find it difficult to achieve its strategic\nobjectives (Arabi 2007).

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The Importance of Aligning The Structure With\nThe Business Strategy

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The key to profitable performance is the extent to which leadership,\norganization, jobs, and people are aligned. An understanding of the\ninterdependencies of these business elements and the need for them to adapt to\nchange quickly and strategically are essential for success in the\nhigh-performance organization. When these four elements are in harmony,\noutstanding performance is more likely.

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1. Leadership - The individuals responsible for developing and deploying the strategy and\nmonitoring results.
2. Organization - The structure, processes, and operations by\nwhich the strategy is deployed.
3. Jobs - The necessary roles and responsibilities.
4. People - The experience, skills, and competencies needed to execute the strategy.

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The organizational design process is the pivotal connector between the\nbusiness of the organization (e.g., top-level leadership and organizational\nstrategy and goals) and forms of HR support (e.g., workflow process design,\nselection, development, and compensation). The strategy must continually drive\nstructure and must reflect and enable effective leadership.

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Organisational Structure Design & Benchmarking

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Benchmarking\nis the process of studying industry or competitive practices, functions, and\nproducts and finding ways to meet them or improve upon them. Companies from all\ndifferent industries use benchmarking to gauge their successes and pinpoint\ntheir shortcomings. The general process of benchmarking involves identifying\nproblem areas, selecting top competitors who excel where a company falls short,\nand making the necessary changes.

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There\nare several key advantages to using benchmarking in an organization. However,\nit is important to benchmark the organizational structure against universal benchmarks. The\ndownside of benchmarking your organizational structure against competitors is that you might\ninherit weaknesses inherent in their organizational structures.  When benchmarking an organizational\nstructure, pay particular attention to the following metrics;

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1. Span of Control - This refers to the total number of people\n(subordinates or employees working under an individual) whom a manager or an\nadministrator can effectively control and supervise. The average span of\ncontrol is preferred for measuring the span of control. The average span of\ncontrol is measured using a ratio of the number of managerial nodes and the\ntotal population. The ideal benchmark for this is 8-12.

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• Reporting Layers – This is the hierarchical arrangement of\nlines of authority, communications, rights, and duties of an organization.  Organizational structure determines how the roles, power, and\nresponsibilities are assigned, controlled, and coordinated, and how information\nflows between the different levels of management. It is useful to test\nmanagerial structures against an ‘ideal’ benchmark. We usually set this at a\nmaximum span of eight, with an ‘ideal’ of not more than five layers – usually\nreferred to as the ‘8 x 5 test’.

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• Manager to Non-Management ratio – This is a\nkey performance indicator that shows the ratio between the total number of\nmanagers and supervisory employees and the total number of full-time and\npart-time non–managerial (non-supervisory) employees. The ideal benchmark\nfor this is 10:1.

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• One on One Reporting - This is an effective barrier to proper\noversight, communication, and flow of information up and down the chain of\ncommand. It may block the main boss’s vision of the work being done or not\nbeing done.

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• Duplication -This\nis the repetition of the same task. Duplication of tasks results in a waste of\nhuman resources as the organization is paying employees to do the same task. To\noptimize operations of an organization’s various departments, all duplicated\ntasks should be identified and appropriate recommendations made to ensure all\nemployees are in positions where they make the greatest positive impact towards\nachieving the organization’s strategic goals.

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It is important to note that benchmarking cannot be done\nin isolation. For an organizational\nstructure review exercise to be successful, there is a need to follow\nthe steps outlined below/

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Step By Step Guide on Organisational Structure Review

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Step 1. Baseline Review of Current Structure

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The\nbaseline review should define the critical stakeholders and assess the company’s\noperations with regards to:

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1. Strategy
   1. Main services provided by the organization
   1. Main stakeholders of the company
   1. Legislation (including statutory instruments), policies,\nand regulators governing the company
   1. Trends affecting the company (revenue, costs, industry\nfactors)

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Step 2: Value Chain Analysis

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A\nvalue chain analysis should be conducted to identify the level of business\ncomplexity. Value chain complexity will inform the optimum number of reporting\nlayers an organization should have. The value chain complexity can be\ndetermined by assessing the organization against the dimensions explained\nbelow:

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Table 1: Dimensions for Value Chain\nAnalysis 

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\n Dimension \n	\n Explanation \n
\n Type of value chain\n	\n Assess\n the activities that the organization performs to deliver a valuable product\n for the market.\n
\n Geographical footprint\n	\n The\n physical presence of the organization i.e. Local, regional, national,\n international or global\n
\n Financial position\n	\n The\n total operating revenue amount   \n
\n Product\n portfolio\n	\n We\n assess the organization’s breadth of products and market position\n
\n Brand\n	\n If\n its image and reputation are key business drivers\n
\n Organizational\n design\n	\n If\n it has several functional departments, corporate services, and shared\n services\n
\n Governance\n	\n The\n level of focus on quality, safety, cost reduction, control, efficiency, and\n best practices\n
\n Strategic\n intent\n	\n The\n organization’s focus on value control, value creation, and improving\n efficiency\n

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Step 3: Determining Role Complexity (Levels of Work)

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According\nto the theory on the level of work complexity, work in organizations occurs in\ndistinctive layers of increasing complexity that can be distinguished from one\nanother. The work required in each layer, called stratum is qualitatively\ndifferent from work in another layer. The\nlevel of work in a stratum, according to Jaques is the “target completion time\nof the longest task, project or program assigned to that role”.

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Link each organizational layer to a specific\ntime-horizon and differentiate by clearly defined work-themes, discretionary\ncapabilities, and varying time-spans for review as shown in figure\n1 below. Measure the level of work according\nto the individual’s time-span of discretion, i.e. the time horizon measured in\nmonths or years. The longer this period, the greater the scope and\nresponsibility.

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Figure\n1: Stratified Systems Theory

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Source:\nWeatherby (2017)

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Step 4: Role Profile Analysis

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Assess\nthe nature of all jobs within the current organizational structure. Assess the\nnature of work and how it is divided into roles.  Each role is to be analyzed using a role\ndescription profile covering:

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• Accountabilities
• Authority\nLevels
• Role\nRelationships (Vertical and Horizontal Relationships)
• Knowledge/Skill\nRequirements

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Step 5: Functional Alignment

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Functional Alignment is one of the techniques\nfor examining the leanness of a structure. Functional Alignment enables you to\nquantify a population by its location, functions, and professional classifications.\nFor example, in some organizations, jobs in finance, HR, logistics,\nengineering, and other generic occupations can be found scattered across a wide\nrange of territorial locations or business units.

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Conventional\nbusiness reporting rarely provides any analysis from this perspective, when\nsuch data is exposed for the first time it can reveal a worrying profile of\njobs scattered randomly without process logic or functional theme. This can be\nthe key to opportunities for making the organization leaner by realigning the\nstructure so that the same or similar jobs are given more effective managerial\ncover and perhaps assembled into more robustly designed and effective\nprocesses. The ideal proportions are usually thought to be in the region of 70%\n(Core) and 30% (Support). 

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Key Considerations

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There\nare key elements that should be considered when designing the appropriate\nstructure:

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1. The organization’s strategy - Assess, what are the\nstrategic imperatives for the client? The starting\npoint for the design of the organization process is typically the\nidentification of the main outputs that the organization intends to deliver (Daft 1998). You should assist the client to subsequently structure\nthe organization in a way that reinforces the strategic imperatives of the\norganization. For the organization to achieve its strategic goals and\nobjectives, the organization's structure and strategy should be properly configured.

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• The organization’s size -\nIn developing the\nappropriate structure, you should consider the size of the organization and\nheadcount for all departments. In doing so, you should watch for duplication of\nroles and job redundancy. At this point, you should consider which skills the\nclient should have permanently or casually.

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• The organization’s technology - Technology\nimpacts the structure of the organization. Heavily mechanized organizations\ntend to be more inclined towards increased productivity. However, if management\ndoes not properly adjust its structure, this envisaged result may not be\nachieved (Rabbinz 2012). One of the reasons\nattributed to low productivity is the organizational structure that remains mechanistic\nand not compatible with the technology. Management should properly structure\nthe organization to achieve superior performance and higher productivity\nthrough the use of available technologies.

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• The organization’s operating environment - A critical consideration in structuring\nthe organization is the environment in which the company operates. The\nenvironment here refers to not only the physical environment but the political\nand economic environment as well. The environment also refers to the key\nstakeholders (shareholders, customers, community, government departments &\nagencies, etc.) that the business interacts with. The company should be\nstructured in a way that assists in effectively managing relationships with key\nstakeholders. The structure of the company should also assist in efficiently\nand effectively adjusting to the changes in the operating environment.

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• The organization’s culture - Organizational structure defines how job tasks are formally\ndivided, grouped, and coordinated. Critical to this is the type of culture that\nmanagement wants to reinforce. The culture of the organization is reflected in\nthe hierarchical relations among members of the organization and is viewed as\nfacilitating interaction and communication for coordination and control of the\norganization’s activities. Management should be clear about the culture that\nthe structure will support. Assist them in doing so.

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Carl Tapi is a Consultant at Industrial Psychology Consultants (Pvt)\nLtd, a management and human resources consulting firm. https://www.linkedin.com/in/carl-tapi-45776482/ Phone +263 (242) 481946-48/481950 or cell number +263 772 469 680 or\nemail: carl@ipcconsultants.com  or visit our website at www.ipcconsultants.com