The Fatal Flaw of Organizational Design

1024 576 David DeWolf

One of the unique challenges that the CEO of a growth business faces is the need to continually design, and redesign, the organization. As a business scales, so too must the operations of the business. The way you design your company will have an outsized impact on your organization’s performance as it grows. Taking the time to truly contemplate your organizational design, especially if you’re in the early stages of building a business, can save you lots of pain in the long haul. I know from experience that the more attention you pay to organizational design now, the easier it will be to make any necessary tweaks down the line.

Over the years I’ve made plenty of mistakes of my own in designing, and redesigning, organizations. I’ve also served as a sounding board for a number of other CEOs who’ve experienced the same growing pains. More often than not, org design mistakes stem from a single fatal flaw that many overlook and nearly every leader must grapple with: people are not the axis around which organizational design should spin.

Good Organizational Design Begins with Strategy

Good organizational design begins with strategy. Strategy describes an overarching approach to how you intend to compete, win, and achieve your vision. A good competitive strategy describes how you are different from your competition. It involves making trade-offs that help you to differentially compete rather than compete based on price, which is nearly always a race to the bottom. 

Once you’ve given careful consideration to strategy, you can turn to establishing the structure of the organization. Well-designed organizations enable team members to execute on strategy because the right structure is in place. These organizations are built around what’s important and what’s difficult. The structure should reinforce and be a primary enabler of strategy.

Too Often, Leaders Organize Around People

Undoubtedly, people are important. Your team brings life to your structure and executes on strategy. But too often, leaders begin with people. They design roles, responsibilities, and organizations around their team’s skills, experience, and preferences. Starting with people is a recipe for disaster.

The right time to add people to the organizational design equation is after you have designed the ideal structure that supports your strategy. Once each role is defined, step back and ask yourself the question — who is the best person for this role?

At times, you’ll need to tweak your design due to pragmatic realities, but at least you will know why you made that change and how it diverges from the ideal.

Getting the right people on the bus is important, but even more important is getting the right people in the right seat on the bus. People should fill the roles defined by the structure; the structure should only be altered to fit the people in extreme cases.

Remember Strategy, Structure, and then People

When designing your organization, remember to always begin with strategy. If you can’t articulate your unique approach to competing and winning, then you’ll likely struggle to come up with a coherent structure that propels your organization forward.

Once defined, design your organization based upon this strategy. Organize around what’s important and what’s hard. Then, and only then, step back and start to find the right people for each one of these roles. 

I’ll lay out a handful of principles about exactly how to take strategy to structure in my next post. But, if you remember only one thing in organizational design, it is to begin with strategy, then move on to structure. Only after you’ve defined your ideal structure should you consider people.