Organizational structures: The benchmark indicators you cannot ignore

Organizational Strucuture Definition

An
organizational structure
is the hierarchy of an organization and how the components of this hierarchy
work together to achieve the strategic objectives of the company (Ahmadya,
Mehrpourb & Nikooravesh 2016). If the structure of the organization and the
underlying design principles that construct it are not in alignment with the
core purpose of the organization and its operating environment, then it is
likely the organization will find it difficult to achieve its strategic
objectives (Arabi 2007).

The Importance of Aligning The Structure With
The Business Strategy

The key to profitable performance is the extent to which leadership,
organization, jobs, and people are aligned. An understanding of the
interdependencies of these business elements and the need for them to adapt to
change quickly and strategically are essential for success in the
high-performance organization. When these four elements are in harmony,
outstanding performance is more likely.

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

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

Organisational Structure Design & Benchmarking

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

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

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

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

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

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

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

It is important to note that benchmarking cannot be done
in isolation. For an organizational
structure review exercise to be successful, there is a need to follow
the steps outlined below/

Step By Step Guide on Organisational Structure Review

Step 1. Baseline Review of Current Structure

The
baseline review should define the critical stakeholders and assess the company’s
operations with regards to:

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

Step 2: Value Chain Analysis

A
value chain analysis should be conducted to identify the level of business
complexity. Value chain complexity will inform the optimum number of reporting
layers an organization should have. The value chain complexity can be
determined by assessing the organization against the dimensions explained
below:

Table 1: Dimensions for Value Chain
Analysis 

Step 3: Determining Role Complexity (Levels of Work)

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

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

Figure
1: Stratified Systems Theory

Source:
Weatherby (2017)

Step 4: Role Profile Analysis

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

• Accountabilities
• Authority
  Levels
• Role
  Relationships (Vertical and Horizontal Relationships)
• Knowledge/Skill
  Requirements

Step 5: Functional Alignment

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

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

Key Considerations

There
are key elements that should be considered when designing the appropriate
structure:

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

• The organization’s size -
  In developing the
  appropriate structure, you should consider the size of the organization and
  headcount for all departments. In doing so, you should watch for duplication of
  roles and job redundancy. At this point, you should consider which skills the
  client should have permanently or casually.

• The organization’s technology - Technology
  impacts the structure of the organization. Heavily mechanized organizations
  tend to be more inclined towards increased productivity. However, if management
  does not properly adjust its structure, this envisaged result may not be
  achieved (Rabbinz 2012). One of the reasons
  attributed to low productivity is the organizational structure that remains mechanistic
  and not compatible with the technology. Management should properly structure
  the organization to achieve superior performance and higher productivity
  through the use of available technologies.

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

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

Carl Tapi is a Consultant at Industrial Psychology Consultants (Pvt)
Ltd, 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
email: carl@ipcconsultants.com  or visit our website at www.ipcconsultants.com