Intelligent Organizational Design
No organizational structure is perfect, but many of them across business today could be a lot better. The challenge is that many structures out there breed unintentional conflict. Does yours? Perhaps it’s time to rethink your organizational structure.
Creating unintentional conflict was not the intent of organizational designers. They were not taught in Business School, nor as part of their Organizational Development curriculum, the concept of unintentional conflict. And they were not taught how to avoid it when designing an organizational structure. In this article, I will give you an approach for managing conflict by preventing it with intelligent organizational design.
I recently introduced a phenomenon at work in our businesses today that I have labeled “Unintentional Conflict.” Unintentional conflict in business occurs when opposing forces are inadvertently activated against one another, causing unfortunate circumstances that interfere with a business interaction, operation, or outcome. I gave an example of how this manifests from organizational structure, and promised to provide a solution in this article.
So while I’m making good on that promise, please remember one thing about organizational structures. The key is to design a structure that will help create an environment of “shared space” and organizational alignment. Conversely, you don’t want to inadvertently create destructive, dysfunctional, and inefficient conflict. I’ll restate the problem below and then discuss the solution.
The Story of an Organizational Structure that Promotes Unintentional Conflict
A healthcare IT company, Excellent Healthcare Systems (EHS), has dozens of long-term projects to customize and implement its software at client hospitals. The resulting systems provide medical record tracking and automation across major service areas in hospitals (e.g., radiology, pharmacy, ambulatory, etc.) Therefore, the project implementation teams must include an array of people with all of the needed knowledge and skillsets.
The EHS organizational structure is a traditional functional structure divided into ten functional departments. These departments mirror the major service areas in hospitals. They hire the people with the skills needed by the projects. However, these people generally take direction from, and get paid out of, the departments.
Coping With the Problem
Project managers assigned to lead new implementation projects must ask the departments to assign resources to their projects. Sometimes they get the talent they need when they need it, but often they don’t. All of the Project Managers are fighting over the same limited resources.
The EHS Department Managers are doing the best they can to satisfy the needs of all the projects. Their best people are in high demand. The Department Managers assign them to more projects than they can handle effectively. Consequently, project teams are far from satisfied. They suffer when departments move staff in and out of projects without consulting them or providing sufficient lead time. Without adequate team resources, Project Managers unsuccessfully fight to prevent schedule slips. They find themselves trying to explain these problems to angry clients while powerless to resolve the real issues. So much for organizational teamwork.
To make matters worse, the EHS Project Managers have little control over the people on their teams, who “belong to” and take their direction from their departments, even, at times, on matters related to the projects. Conflict is everywhere.
As a result of the organizational architecture and its poor alignment to a project environment, project performance is poor. Some clients move to other competitors, and EHS is losing revenue and profit.
Rethink Your Organizational Structure to Create Shared Space
While the challenges with EHS are formidable, they most certainly can be addressed. In my experience working with companies in similar situations, I learned a very important lesson. Drawing an org chart is only the beginning of designing an organizational structure.
I have outlined five major steps for addressing the significant challenges described above and designing an organizational structure that promotes shared space and an effective and harmonious working environment. You must complete the first two steps to draw an org chart. To finish the job, complete the remaining steps to make the structure operational.
1) START WITH YOUR MISSION
It is amazing how often structures run counter to the organization’s mission. For example, the EHS mission is to serve hospitals, and ultimately patients, by providing customized systems and solutions that assist medical care operations in providing excellent healthcare.
To accomplish that, EHS would need its biggest client touch point, the implementation projects, to execute very well. Clearly the structure is not supporting the mission. In this case, the single largest goal of the structure should be to provide the implementation projects what they need to successfully execute. These teams are at the head of the company’s value chain – on the ground providing the EHS products and services.
If your structure is not doing a good job of supporting your mission, it will drive employee attention inward toward the organization and its fragmentation, instead of on things that ultimately bring value to customers. Create shared space by ensuring that the mission is the primary driver.
2) FORMULATE STRUCTURE AND ALLOCATE MAJOR RESPONSIBILITIES
I will focus here on the Professional Services part of the organization for brevity. We know from step 1 that we need a well-oiled professional services group to staff and run implementation programs. That means we need the ability to plan and run projects, as well as ongoing access to qualified professionals from a number of medical specialty areas to staff the projects. That means you have a matrix organization.
Build on Your Organizing Principle
Once you recognize the matrix structure, you can allocate major responsibilities to each side of the matrix. Within Professional Services there are almost always two major responsibility areas: Project Execution [the implementation projects], and Capability and Capacity Development [functional processes and tools, functional training (for capability) and staffing (for proper capacity)]. The assignment is natural: the Project side gets project implementation, and the Functional Departments get functional capability and capacity.
Notice in our EHS story that many of the problems with implementation projects originated with insufficient capability and capacity (e.g., not enough qualified staff when needed). This now becomes an issue for the Functional Departments to solve, so that the Project side can be fully accountable for Project Execution. This clarity is possible when the lines of responsibility are clear.
Unintentional conflict runs rampant when people disagree on how things should be done or who is in charge of, and responsible for, what work. Clearly define what each element of your organization controls and is accountable for.
3) DEFINE EXTERNAL AND INTERNAL RELATIONSHIPS
Many companies stop here (with an org chart) and expect their people to work out relationships with others. Big mistake! While we can help people learn how to develop and define their business relationships, which is a good thing, the basic parameters of these relationships need to be defined consistently across the organization.
There are essentially two kinds of relationships that we need to focus on here – direct reporting relationships, and client relationships (internal and external). You must clearly define both types of relationships and ensure that staff understand them.
In our example, the organization must now recognize that most people will have more than one direct reporting relationship – the nature of a matrix organization. It must also recognize that they report to different people for different things. For example, a Pharmacy professional reports to the project manager of his assigned team. He also reports to his department manager for activities associated with general administration and capability and capacity development (e.g., functional training).
At EHS, functional experts assigned to projects did not “report” to their Project Managers while working on the projects. This is one of the biggest mistakes I see “out there.” These should be direct reporting relationships, no less important than the direct reporting relationship to the Functional Department Manager. We need Project Managers, who are responsible for projects, to have direct control over the resources that make up their project teams.
Recognize Internal Client Relationships
External client relationships are relatively obvious, but most client relationships are internal. They exist within the parts of the value chain generally not seen by clients. Where activities are visible to the ultimate clients, we tend to have external client relationships. For the entire value chain to work it is imperative that both types of client relationships be recognized, rewarded, and enforced. Few things create more unintentional conflict than poorly defined and unrecognized relationships. It seems nobody is happy. Create shared space by defining relationships that link individual activities to the organizational mission and the ultimate clients.
4) DEFINE THE FLOW OF MONEY
At EHS the Project Managers only owned a small portion of their project budgets. That is because functional staff assigned to the projects drew their salaries from their functional departments regardless of the projects they served. The problem with this is that many functional staff don’t take their reporting relationship to the Project Manager seriously. After all, they know where their bread is buttered! This reinforces dysfunctional behavior and generates unintentional conflict.
To create shared space, define the flow of money to support and reinforce responsibility. For example, Project Managers should control the total project budgets, and should “buy” staffing resources from the functional departments. In this way, the departments are recognizing that the Project Managers are their internal clients – which they are! Avoid unintentional conflict and create shared space by defining the flow of money to be consistent with defined responsibilities and relationships.
5) DEFINE APPLICABLE RULES OF ENGAGEMENT
In the EHS story I mentioned that one of the problems was that the Functional Department Managers sometimes move their people from one project to another with little or no prior notice to the Project Managers. This is quite disruptive to project operations. Key people, who are up to speed on the project and clients, are suddenly not available. Even if another qualified resource is assigned, she will have a learning curve on the project before she reaches full productivity. This fuels unintentional conflict between Project and Department Managers, and is a good example of why we need to define rules of engagement.
In this example, the rule should be that project staffing decisions are made jointly between Project and Department Managers. That is, they should be an agreement and, essentially, a contract between the two parties. For example, Project ABC has contracted for Joe, a Pharmacy specialist, for six months starting tomorrow, at full time. If either the PM or Department Manager desire to modify that agreement along the way, they must contact the other to discuss, negotiate if necessary, and reach an agreement. If they can’t reach an agreement, they invoke escalation protocols included in the rules of engagement.
Create shared space by defining rules of engagement that systematize key activities and decision making, while recognizing the realities of the business environment, so that people have a way to get to agreement and avoid conflict.
This article is by no means a textbook or cookbook for how to organize a company. However, it does offer a different perspective on how to approach the job. Consider how much unintentional conflict is being created every day by businesses with organizational structures designed without consideration for how they may create ongoing conflict. Also consider the real examples in this article for how we can, company by company, create an environment of shared space where work is much more productive, harmonious, and financially successful.
If you have thoughts, opinions, or experiences you would like to share on this topic or other conflict resolution techniques, we welcome your response and participation in the conversation.
Skills Corner: Tips for Working Smart
Design Your Company’s Spans of Control
Managers with very large spans of control (the number of people directly reporting to them) are usually swamped and can’t pay enough attention to any of their direct reports. Spans of control that are too small essentially amount to unnecessary and wasteful hierarchy in the organization. Here are some tips for getting it right.
SET GENERAL SPAN OF CONTROL PARAMETERS
The rule of thumb for span of control is a ratio of 1:7. That is one manager with seven direct reports reporting to her full time. While this can vary, and certainly does, this remains a good goal that has withstood the test of time.
ADJUST SPAN OF CONTROL PARAMETERS FOR “PARTIAL REPORTS’
In some cases direct reports report to managers only a portion of their time. They may have a dotted line report to someone else, or they may work in a matrix organization like EHS. In general, a partial report does not take as much management time as a full-time report. To handle this, use Full Time Equivalents (FTEs) in your calculations. Seven FTE’s is still an appropriate target.
CALCULATE AND REVIEW CURRENT STATE
Form a small team and provide it with the company org chart, or at least the relevant parts of it. Use available time tracking data to document, for each manager, the percent of time each direct report reports to him. Then calculate the total number of FTE direct reports for each manager. This can be an enlightening experience. For example, companies like EHS that are formalizing their matrices often find that the span of control in the functional departments is quite low. That’s because most of their staff are actively working on projects (reporting to Project Managers) about 80% of the time. This leaves them with only 20% of their time in the functional department. So, in this example, a functional manager that has seven direct reports only has 1.4 FTE direct reports!
IDENTIFY FUTURE STATE
Work with the managers of the involved groups to “right size” the spans of control. Target seven FTE direct reports for each manager. There are clearly many considerations when making these decisions, and other managers who may be affected by them. Plan for this to be an iterative process that takes a bit of time.
COMMUNICATE AND EXECUTE
Work with HR and senior managers to carefully plan a top-down tiered communication strategy. Use this strategy to inform staff of their new assignments and reporting structures. Be sure to let people know why this is being done and how it was systematically approached. Managers and HR should be available to discuss issues, reactions, and questions with staff.