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Organization Design: Creating Real Value in a Constantly Changing Enterprise
On October 23, 2007, Deloitte Consulting LLP (Deloitte Consulting) conducted a webcast for HR executives on ways to create enterprise value by aligning organization design with fundamental business strategies. Three knowledgeable and experienced Deloitte Consulting professionals led the discussion on this important and timely business topic—Jennifer Radin, Principal and leader of Deloitte Consulting’s Organization Strategies service line, and Roger Walters and Bhushan Sethi, both Senior Managers in the Human Capital service area who focus on organizational strategy. The essence of their message to webcast participants was that as business strategies evolve in an organization, so should the various elements of the organization that support those strategies evolve. However, the speed of change in today’s business world makes this a complex challenge, including disruptions caused by M&A activity, growth initiatives, compliance with new regulations, and cost reduction measures. What is needed, the panelists suggested, is an enterprise-wide framework for flexible and dynamic organization design—and HR leaders need to play a big role in that design. When asked what type of event represented the most recent impact on their organizations, 30% of webcast participants cited a change in executive leadership, following by M&A activity, and cost reduction programs. Jennifer Radin noted that for every type of marketplace event—from implementing a new business model to managing risk and compliance to improving productivity—there are organizational implications that need to be evaluated with an eye to their ultimate impact on organization design. “When we talk about organization design,” Radin said, “we are referring to the structural elements that drive business strategy and bring the strategy ‘to life,’ making it part of people’s behavior.” She further explained that this includes defining core business capabilities, the operating model of the company, reporting relationships, career competencies and pathways, and job design. Organization design, she emphasized, is about helping the business achieve its business objectives and deliver value—it’s not about boxes on an org chart. She said, “Ultimately, organization design is a critical lever to executing business strategy and releasing talent. Some of the ‘harder’ benefits include speedier decision making, improved metrics and measures, and increased profitability. And there are ‘soft’ benefits, too, such as value in reputation, quality, and Figure 1. What is the most recent event that has affected your customer satisfaction. This capacity to deliver on the business strategy organization? (Votes received: 114) is recent event that has affected Figure 1. What is the mostkey to competitive advantage.” your
Globalization (new market organization? entry or global resourcing) (Votes received: 114) 7.9% Merger, acquisition, Merger, acquisition, and or/divestiture and/or divestiture 22.8% 22.8% Globalization (new market changes in your organization design? evaluate and implement entry or global resourcing) (Votes 7.9% received: 121) Never Every time Merger, acquisition, 0.8% 4.1% and or/divestiture Rarely 22.8% 17.4%

Figure 2. In response to these challenges, how often do you

Change in executive leadership 29.8%

Change in Cost reduction executive program leadership 17.5% 29.8%

Often 27.3% Cost reduction program 17.5%

Change in competitor landscape 10.5%

Change in regulatory environment 12.3%

Change in competitor landscape 10.5%

Sometimes Change in regulatory 50.4% environment 12.3%

Audit . Tax . Consulting . Financial Advisory.

Despite the importance of organization design as described by Radin, 50% of webcast participants, in response to an online poll, said their companies only “sometimes” evaluate and implement changes to that design on the heels of executing a marketplace response. Presenter Bhushan Sethi said that building a value-driven organization design requires addressing a number of individual drivers of organization performance. He recommends viewing the organization as a system that comprises structure, processes and policies, technology, people, etc. He noted that, because all of these parts are interconnected and/or interrelated, a change in one will impact one or more of the others. Additionally, the system is impacted by the external environment and its “triggers,” such as industry trends, regulatory changes, convergence. The company’s response to external challenges results in “inputs” to the organization design that help drive specific design components—the mission and values of the organization, for instance. As these inputs influence the organization they also help drive certain “outputs,” such as business performance, people metrics, and shareholder value.

Figure 3. What has been HR’s role in organization design at your organization? (Votes received: 105)
HR is not involved 12.4%
HR proactively identifies the need for organization design and drives the effort 6.7%

HR is engaged to support job evaluation, compensation and staffing 38.1%

HR is brought in to support the job design, competencies, roles and responsibilities and metrics 42.9%

6 Steps to Effective Design
Sethi listed key steps to executing an effective organization design: 1. Aligning organization design with business strategy—Develop a true and deep understanding of organization objectives and capabilities. 2. Build an operating model—It must align effectively with business metrics and define future-state capabilities. 3. Build high-level org design—Create a representation of the different high level functional roles, supporting processes, and decision-making frameworks. 4. Develop detailed org design—Add detail to the high-level design around structures, reporting relationships, job descriptions, and competencies. 5. Develop impact assessment plan—Make a plan that will address further changes in people, processes, technology, customer/vendor relationships, locations, and regulations. 6. Transition and evolve the organization—Implement the plan and re-evaluate it on an ongoing basis. On the last point, Sethi noted that a major goal should be to build organizational flexibility to enable an organization to be responsive to rapidly changing circumstances, whether it’s about entering new markets, spinning off unprofitable businesses, conducting a joint venture, outsourcing work, etc. “Organization design doesn’t have to be topdriven,” he noted. “If there are improvements to be made, they can be made by employees and leaders alike. It’s about identifying and resolving organization design issues and being responsive to change in the external environment.”

In the future, Walters says he sees HR starting to play a leading and highly active role as an overall facilitator of the entire organization design process due to the importance of aligning people metrics with operating targets and driving value overall. This, too, will contribute to the need for fluidity and flexibility. “In the role as strategist, HR leaders will bring both business and organizational experience and knowledge, help mitigate organizational issues brought on by constantly changing business issues, and continue to focus on delivering strategic organizational value and performance through effective organization design, talent management, leadership, and change development,” Walters concluded.

Key Takeaways
The presenters suggested HR executives think holistically about the elements of business strategy and leadership, organization and job design, and decision rights. Ask yourself, “How is my organization structure affecting the value and results of my business? Does my organizational design allow the achievement of strategic goals and objectives? Are roles and responsibilities well defined and understood? Are common capabilities and processes grouped together to deliver an efficient execution? Are decision-making processes well defined, clearly understood, and most important, are they followed? What actions do I need to take to help facilitate the profitablity of the organization? What role must I play in enabling this to happen?”

Want More Information?
To learn more about human resources issues, visit Human Capital on Deloitte.com. You’ll find tools, articles, newsletters and research offering our latest insights, and service overviews of the Human Capital practice. Or register for an upcoming Webcast in this Human Capital series.

More Strategic Role for HR
Noting that 43% of webcast participants indicated in a poll that their HR function is brought in to support job design, competencies, roles and responsibilities, and metrics, Roger Walters joined the discussion to talk about the much more strategic role that HR is playing today in business strategy and design. “Businesses are beginning to require that HR develop a deep understanding of the organization’s aspirations, hopes, and strategies,” Walters said, “and to consequently help structure a people strategy that will achieve those objectives. HR should be seen as a strategic business partner with the business needs of the company.”
The information contained herein is based on the experiences of our Deloitte Consulting LLP professionals. This publication contains general information only and Deloitte Consulting LLP is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte Consulting LLP, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte. com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

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