Leading Organizational Design and Transformation

3. “Part of the reason why design is a neglected dimension of leadership: little credit goes to the designer. The functions of design are rarely visible; they take place behind the scenes. The consequences that appear today are the result of design work done long in the past, and work today will show benefits far in the future. Those who aspire to lead out of a desire to control, or gain fame, or simply to be “at the centre of action” will find little to attract them in the quiet design work of leadership.” – Peter Senge SEMANTIC FOUNDRY ATELIERMADE WITH LOVE

4. OUTLINE What we’ll cover today… 1. Assumptions 2. Defining Organization Design 3. Four Questions 4. The Problems Organizations Face 5. Process of Organization Design 6. Organizational Culture 7. Principles of Organization Design 8. Organization Design Models 9. Six Design Vectors 10. Designing Governance 11. Leading Organizational Change 12. Final Thoughts on Good Design

5. ASSUMPTIONS We all exist and work within complex social systems. We are all responsible for the design, development, and maintenance of purposeful systems. To build a great team, you must have an organization design that enables teams to design great customer experiences. Before you can design an amazing customer experience, you must design a team to create the customer experience. The most accute constraint organizations current face is that their organizational design is incongruent with their strategy; places to many policies, procedures, reporting lines, and queues between the teams delivering great experiences for their customers. “Rational discussion is useful only when there is a significant base of shared assumptions.” – Noam Chomsky

6. “Design is a plan for arranging elements in such a way as best to accomplish a particular purpose.” – Charles Eames SEMANTIC FOUNDRY ATELIERMADE WITH LOVE

7. WHAT IS Organization Design? “Organization design is conceived to be a decision process to bring about a coherence between the goals or purposes for which the organization exists, the patterns of division of labor and inter-unit coordination and the people who will do the work.” ― Jay Galbraith, Organizational Design There is no one best way to organize.

8. WHAT IS Organization Design? “Organization design is the deliberate process of configuring structures, processes, reward systems, and people practices to create an effective organization capable of achieving the business strategy. The organization is not an end in itself; it is simply a vehicle for accomplishing the strategic tasks of the business. ” ― Amy Kates & Jay Galbraith, Designing Your Organization

9. “Design is a plan for arrangin elements in such a way as best accomplish a particular purpo – Charles Eames “Org charts are to organization design what wireframes are to user experience design.” – Will Evans

10. ORG DESIGN Is Systems Thinking Organization design requires a systems thinking approach, taking into consideration all the interactions between various subsystems and agents. Fundementals of Systems Thinking: • A system is a coherent network of agents • Systems have clearly defined boundaries • Systems behavior is highly emergent • Feedback loops govern the system’s behavior • Systems are sensative to small perturbations • The structure of the system influences the behavior of the system • You must change the system’s WHY before changing the system’s WHAT & HOW. “To manage a system effectively, you must focus on the interactions of the parts, rather than optimizing for the behavior of the parts.” – Russell Ackoff

11. WHY CHANGE? THE 4 QUESTIONS 01 WHY CHANGE? What are the fundemental reasons for change? What are the biggest challenges being faced? 02 WHAT TO CHANGE? What obstacles or problems must be solved, removed, or mitigated against so that the organization can realize its purpose? 03 WHAT TO CHANGE TO? What new structures, systems, capabilities must be created, aligned to the strategy, to achieve the organizations purpose? 04 HOW TO CAUSE THE CHANGE? Where to start? What is the first step on the jouney? WHAT TO CHANGE? WHAT TO CHANGE TO? HOW TO CAUSE THE CHANGE?

12. 7 MODERN PROBLEMS “Having no problems, is the biggest problem of all.” –Taichi Ohno 1. Customer Centricity 2. Asymmetric Competition 3. Global vs. Regional 4. Matrix Structure 5. Centralization/Decentralization 6. Innovation 7. Agility

13. 7 MODERN PROBLEMS “Never start with the solution. Start with the problem. The surest way to fuck-up organizational design and transformation is to walk in with a playbook.” –Will Evans 1. Customer Centricity 2. Asymmetric Competition 3. Global vs. Regional 4. Matrix Structure 5. Centralization/Decentralization 6. Innovation 7. Agility

14. UNPACKING Organizational Agility There are generally three types of agility spoken about in the context of challenges enterprises face. Those three types of (A)gility are: 1. Portfolio Agility is the capability to shift resources away from steady-state or declining operating companies, business units, or functions into products, markets, or business units that are likely to grow. 2. Operational Agility is the capability to quickly identify revenue- enhancing or waste-removing opportunities to deliver faster flow of value to customers and the business. 3. Agile Software is a mindset and set of principles focused on the continuous delivery of quality software to end-users or customers. These principles include collaborative teams, time- boxed sprints, small batch sizes, quality baked-in, and continuously learning through feedback loops. SEMANTIC FOUNDRY ATELIERMADE WITH LOVE

15. BOTTOM-UP or TOP-DOWN? Organization design is both top-down and bottom-up! The top-down task starts with identifying the strategic requirements of the business and selecting a basic organizational structure to support the strategy. The bottom-up view is focused on the work, tasks, and interactions and seeks to layout business processes, value-chains, value-streams, customer journeys, and supply chains in the most effective manner that is aligned to the strategy, and delivers value effectively to customers.

16. Establish Sense of Urgency1 Why Change? What Sucks? What is the business case for change? Create Guiding Coalition2 Craft Vision and Strategy3 Communicate the Change Vision4 Define Boundaries, Design System Model, Empower Action5 Create and Market Short-term Wins6 Transform to New Operating Models, Develop Talent7 Anchor Practices, Behaviors in the Culture8 Who will lead the change? How will they function as a team? What is Our Purpose? Creating the vision and design the strategy aligned to the purpose. Create the Communications Strategy Communicate the Vision and Strategy. What to change? Remove obstacles, structures, policies What to change to? Structures, Systems, Processes, Rewards. PROCESS OF ORG DESIGN* *Kotter, John P. (2012) Leading Change, Harvard Business Review Press How to cause the change? Create a Kaizen Culture Problem Solving, Short-term wins Transform to new Operating Models Develop new talent to implement Change. Reinforce Practices, Behaviors, and Values; reward and promote based on change vision.

17. WHY CHANGE? Building the business case The first step to effective organization design is to build the business case for change. The business case is made up of the key elements of strategy, an analysis of the current state of the organization including customer research (qualitative/quantitative), and a clearly defined set of design drivers, principles, and measures.. Steps for creating the business case include: 1. Clarify strategic priorities (what to do/what not to do) 2. Define the case for change which includes: 1. What capabilities must we build or buy to compete? 2. What is our current state analysis? What sucks? 3. UX Research including: Context, Ethnography, NPS, VOC, Market, Partners, Vendors, 3. Identify the biggest problem/contraints on achieving the strategy 4. Measurement Criteria (How will we know we’re getting better?) 5. Comms Strategy (Where, when, and how often you will communicate the change?)

18. “Design is a plan for arrangin elements in such a way as best accomplish a particular purpo – Charles Eames “Org Charts are to organization design what wireframes are to user experience design.” – Will Evans “Culture eats strategy for breakfast.” – Peter Drucker SEMANTIC FOUNDRY ATELIERMADE WITH LOVE

19. Culture is a pattern of shared basic assumptions and norms learned by a group as it solves its problems of external adaptation and internal integration. “Culture matters. It matters because decisions made without awareness of the operative cultural forces may have unanticipated and undesirable consequences.” – Edgar Schein CULTURE

20. ESPOUSED VALUES TACIT ASSUMPTIONS ARTIFACTS & BEHAVIORS Schein, E. H., Coming to a New Awareness of Organizational Culture. Sloan Management Review. SCHEIN’S CULTURE MODEL This is what a company says it stands for and claims to value. These are often times completely incongruent with actual behaviors. These are the norms, assumptions, tacit knowledge that govern the organization and have the biggest impact on decision-making. These are the things most people ignore. This is the easiest part of organizational culture to see and touch. It includes posted values, office layout, plans, policies and observable behaviors.

21. PRINCIPLES OF Organizational Design These are some high level principles of good organizational design. A key to choosing or designing an organization model is identifying which are important given your context. “Principles and rules are intended to provide a thinking man with a frame of reference.” – Carl von Clausewitz 1. Active & Present Leadership 2. Requisite Complexity 3. Coherence, Not Uniformity 4. Complementary Sets of Options 5. Structural Reconfigurability (loose vs tight coupling) 6. Evolve, Do Not Install 7. Clarity of Interfaces & Interactions 8. Emphasize Kaizen Over Kaikaku

22. • An image or framework that presents a template for guidance; or • A representation of a set of components of a process, system, subsystem, or subject area, generally developed for understanding, analysis, improvement, and/or replacement of the process; or • A representation of information, activities, relationships, interactions, and constraints between components. A model is simply: SYSTEMS MODELS Defining the Damn Thing “Remember that all models are wrong; the practical question is how wrong do they have to be to not be useful.” – George Box

23. SYSTEM MODEL What is the point? • Help structure approaches to problems, improvements, or events; • Provide a framework for communication of changes and transitions; • Give the design process a common language and vocabulary; • Illuminate and help resolve design challenges or problems; • Illuminate interations, interdependencies, and alignments • Help create a “new story” of the organization The value of a model lies in its ability to:

24. It is an axiom in organization design that structure follows strategy, a play on Louis Sullivan’s modernist architectural command that form follows function. In general, organizational structure follows strategy.

25. ORGANIZATION DESIGN MODELS Galbraith‘s Star Model McKinsey‘s 7-S Model Weisbord‘s Six Box Model Burke-Litwin Causal Model Nadler‘s Updated Congruence Model Holonic Enterprise Model

26. The Star Model is one useful framework for understanding design and governance choices and policies across five categories: 1. Strategy: determines the future direction of the organization and where it will compete 2. Structure: determines the location, clustering, and reporting of decision-making and distribution of power. 3. Processes: determines the flow of information, raw materials, stage gates, and approvals to get shit done. 4. Rewards & Policies: influence the motivation of people to perform and address goals while overcoming challenges. 5. People: includes culture, norms, mindsets, and skills of the people needed to generate value and allow the organization to achieve it‘s strategy. GALBRAITH’S STAR MODEL

27. SIX DESIGN VECTORS

28. Operating governance is how managers delegate decision-making vertically into the organization through hierarchy and policy, and establish decision rights horizontally across functions and business units. Operating governance is a process by which power is intentionally allocated across the organization. When power dynamics are not designed well, the result is prolonged decision-making, endless meetings, mindless email chains, misunderstood communications , friction, failure, and death. DESIGN FOR Operating Governance SEMANTIC FOUNDRY ATELIERMADE WITH LOVE

29. The Four Levers of Control model (derived from Robert Simon‘s work) serves as a way for leaders to consciously make governance part of the organizational design process. The four levers are defined as: 1. Belief Systems, used to inspire and direct the search for new opportunities 2. Interactive Networks, used to stimulate organizational learning and the emergence of new ideas and strategies 3. Boundary Systems, used to set limits on opportunity seeking behavior 4. Measurements, used to monitor and reward achievement of specific goals. DESIGN OF GOVERNANCE Robert Simon‘s Four Levers of Control

30. LEADING Organizational Change A leader can directly impact three leavers of performance in an organization, which means changing: 1. The Strategy 2. The Executive Team 3. The Shape of the Organization “We cannot change what we are not aware of, and once we are aware, we cannot help but change.” – Sheryl Sandberg Leading means understanding how to deploy and manage power to achieve results… there are six sources of power that need discussing.

31. 6 SOURCES OF Power in Org Design • Legitimate Power which is formal authority in a hierarchy. • Expert Power is derived from possessing knowledge or expertise in a particular area. • Referent Power is based on the use and exercise of interpersonal relationships a person cultivates and social capital a person accumulates. • Coercive Power is derived from a person’s ability and willingness to influence others through threats, violence, or sanctions. • Reward Power arises from a person’s ability to influence the allocation of incentives within an organization including pay, appraisals and promotions • Informational Power relates to a person’s ability to control the flow of information and disinformation within a social group. “There is no power relation without a correlative constitution of a field of knowledge, nor any knowledge that does not presuppose at the same time power relations.” – Michel FoucaultFrench, John R. and Raven, Bertram (1959) The Bases of Social Power. Studies in Social Power

32. “These patterns emerge in complex, responsive processes of interaction between people taking the form of conversations, power relations, choices, and intentions. What happens is the result of the interplay between the intentions and strategies of all involved and no one can control this interplay.” – Ralph Stacey SEMANTIC FOUNDRY ATELIERMADE WITH LOVE

33. • Maintaining & improving the organization • Coaching and mentoring people • Problem solving • Planning and budgeting • Monitoring and controlling Management MANAGEMENT VS LEADERSHIP Management is a set of processes that keep a complex system of people, assets, and technology working together to deliver a steady flow of value and service to customers at a reasonable cost to the organization and society. Management tends to focus on the following: Leadership Leadership is a set of processes that creates organizations in the first place or adapts them to significatly changing circumstances. Leadership defines what the future should look like, aligns people with that vision, and inspires then to make it happen despite the obstacles. Leadership tends to focus on the following: • Defining the future reality • Aligning people to the vision • Motivating, inspiring, and energizing people to work towards the vision

34. A leader is best when people barely know that he exists, not so good when people obey and acclaim him, worst when they despise him. But of a good leader, who talks little, when his work is done, his aim fullfilled, his people will say, “We did this ourselves.” – Lao Tzu SEMANTIC FOUNDRY ATELIERMADE WITH LOVE

35. Hersey & Blanchard‘s Situational Leadership Model MODELING LEADERSHIP Organization Design is a Leadership Competency whose success depends on the complex interactions of four key groups: internal formal leaders, internal informal leaders, external formal leaders, and external informal leaders. Leading Organization Design requires: 1. A clear grasp of the purpose, mission, and strategy of the organization; 2. Establishing the boundaries of the change and the roles required to transform the organization; 3. Develop an appropriate leadership style; 4. Mobilizing formal and informal leaders to collaborate together; 5. Creating a sense of urgency by communicating the business case while recognizing and respecting people‘s fears.

36. Establish Sense of Urgency1 Why Change? What is the business case for change? Create Guiding Coalition2 Craft Vision and Strategy3 Communicate the Change Vision4 Define Boundaries, Design System Model, Empower Action5 Create and Market Short-term Wins6 Transform to New Operating Models, Develop Talent7 Anchor Practices, Behaviors in the Culture8 Who will lead the change? How will they function as a team? What is Our Purpose? Creating the vision and design the strategy aligned to the purpose. Create the Communications Strategy Communicate the Vision and Strategy. What to change? Remove obstacles, structures, policies What to change to? Structures, Systems, Processes, Rewards. REVISITING PROCESS* *Kotter, John P. (2012) Leading Change, Harvard Business Review Press How to cause the change? Create a Kaizen Culture Problem Solving, Short-term wins Transform to new Operating Models Develop new talent to implement Change. Reinforce Practices, Behaviors, and Values; reward and promote based on change vision.

37. FINAL THOUGHTS On Good Organization Design • Good organization design starts with a clear and shared understanding of your customer, context, and problem(s) to be solved. • Good organization design requires whole systems thinking, including all subsystems, interfaces, interactions, constraints, boundaries, partners, vendors, community, and society. • The process of good organization design requires requisite diversity of ideas and people. • Good organization design develops future leaders to constantly manage continuous course correction through the change. • Good organization design tackles power and decision-rights explicitly, placing authority and responsibility where it can achieve the best throughput. • Good organization design is iterative and requires developing an experimental mindset. “You cannot understand good design if you don’t understand people; design is made for people.” – Dieter Rams

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