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Organizational Transformation
Design Your Organization
to Match Your Strategy
by Ron Carucci and Jarrod Shappell
June 06, 2022
Illustration: Lucy Jones
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Summary. An organization is nothing more than a living embodiment of a strategy. That
means its “organizational hardware” (i.e., structures, processes, technologies, and
governance) and its “organizational software” (i.e., values, norms, culture,... more
Strategy execution is commonly fraught with failure. Having worked
with hundreds of organizations, we’ve observed one consistent
misstep when leaders attempt to translate strategy into results: the
failure to align strategy with the organization’s design.
Research suggests that only 10% of organizations are successful at
aligning their strategy with their organization design. Some of the
problem is a gross misunderstanding of what the word “alignment”
actually means in this context. Most leaders naively assume that it
means rigid processes that cascade goals from top to bottom,
launching intense communication campaigns that promote top
priorities, and shaping budgets to support those priorities. For
example, one large manufacturing company we’ve observed invests
countless hours every January having employees input goals that
correspond to their boss’s goals into their HR system. But employees
noted, “It’s all cosmetic. We write goals we have no idea if we can
achieve, but as long as they appear linked to our boss’s goals, they
get approved.”
The problem is that such processes leave alignment to individuals
and ignore the systemic organizational factors needed to make
strategy work.
An organization is nothing more than a living embodiment of a
strategy. That means its “organizational hardware” (i.e., structures,
processes, technologies, and governance) and its “organizational
software” (i.e., values, norms, culture, leadership, and employee
skills and aspirations) must be designed exclusively in the service of
a specific strategy.
We recently saw this misstep play out with one of our clients — let’s Insight Center Collection
call him Ivan — a division president of a technology company. Ivan Setting Your Corporate
was presenting his division strategy to the CEO, which included a Strategy
plan to redesign his organization to align with their new strategy. Beyond a return to “normal.”
The CEO curtly asked, “Why do you need to reorg?” Ivan had
recently taken over the division and his predecessor had attempted a
botched reorganization, so the CEO was understandably concerned
about more churn. Ivan responded with: “Well, we have a new set of
strategic pillars, including launching a new hardware product
bundled with our software. We need an organization design that can
deliver.” The CEO’s response was telling. He said, “You mean every
time we change the strategy, we need to change the organization?
Why can’t you just force alignment by tying everyone’s goals to the
same outcomes?”
Unfortunately, it’s not that simple. When it comes to executing
strategy, alignment means configuring all of the organization’s
assets in the service of your stated strategy and making sure there is
no confusion about what each part of the organization does to bring
it to life.
If you’re embarking on executing your company’s strategy, here are
six ways to make sure your organization is designed to do it
successfully.
Translate differentiation into capabilities.
A clear strategy ultimately differentiates you from your competitors.
But to ensure that what sets you apart is more than a mere
aspiration, you have to build the organizational capabilities needed
to actually surpass your competitors.
Know what your current organization is and isn’t capable of and
what capabilities you need to achieve the newly articulated strategy.
Unlike competencies, which belong to individuals, capabilities are
organizational. For example, innovation as an organization
capability may result from integrating R&D, consumer analytics,
marketing, and product development.
In Ivan’s case, he needed to build new capabilities that didn’t exist in
his division, like product engineering, managing outsourced
manufacturing, and new ways of going to market. The existing
organization was largely designed to deliver software as a service,
and had Ivan attempted to execute his strategy through that design,
the new hardware product would have been marginalized.
Every strategy will demand unique competitive capabilities that
clearly enable your success. This work that forms these capabilities is
work you must be better at than competitors.
Separate competitive capabilities from “everyday work.”
Not all work is equal. True competitive work will get you $5 for every
$1 you invest in it. However, “everyday work” — tasks that can be
done on par with anyone else or in compliance with regulatory
requirements, or even work that adds no value to the final product —
must be resourced according to its strategic importance. Problems
occur when your competitive and necessary work get too close or
intermixed. In other words, the immediacy of everyday tasks takes
away from the focus on competitive work.
This is especially challenging when the definitions of “everyday
work” and “competitive work” change. In Ivan’s case, the role of
product engineering had previously been focused solely on ensuring
the division’s software could operate on various devices, and the
team was buried two levels down within the engineering group.
Because the division added its own hardware product, that everyday
work became competitive work. To make sure it was competitively
resourced, it needed to be elevated to the top of the division,
separated from but closely linked to the software products, and
staffed with top talent.
Distribute resources and decision rights to the right
leaders.
In the organizations we work with, governance design — which
defines who gets to make decisions and allocate resources — is often
too complicated or unclear to be effective. For a strategy to be
successful, those closest to the most relevant information, budgets,
and problems are the best equipped to make decisions. When leaders
have proximity to an issue but no authority, authority without the
needed resources, or control of the budget but not the people, the
decisions tend to follow hierarchical lines. These decisions made at
the top may be strategically sound but impossible to implement
given how far away they’re made from those who must actually
execute them.
Ivan recognized that for the division’s software and hardware
offerings to remain equal in importance and integrated when
necessary, he needed a cross-functional team expressly focused on
just that. He knew that if everything escalated to his executive team,
they would be regularly embroiled in the natural tensions arising
from the new organization design.
So, he created a customer success council that included leaders from
both product organizations, sales, customer analytics, and those
managing the outsourced manufacturing. He empowered them to
manage the strategic priorities, trade-offs, and potential conflicts
across the organization. This ensured that critical decisions and
resources were located with the cross-functional leaders best
equipped to make them. This became especially important as sales
people were quickly and successfully selling bundled offerings. Had
this team not served as the air-traffic control of the deal flows and
prioritization of client resources, it could have been a customer
service disaster.
Shut down irrelevant processes and governance.
The new governance is often no match for the legacy behaviors and
processes that remain. Like layers of wallpaper in an old house,
sometimes you need to strip down to the sheetrock to make way for
new décor. Leaders must not only design new governance, they must
also strip away previous processes and governance that are no longer
contributing to the strategy’s success.
In Ivan’s case, his predecessor had set up several councils that had
begun gaining momentum in the service of their old strategy. Those
needed to be purged to ensure his new governance design could
succeed without confusion or undue conflicts.
Understand where the current culture will get in the way.
We’ve all heard the cliché “culture eats strategy for breakfast,” but
culture is just one ingredient that enables your strategy’s success.
Understand the way your thoughts, feelings, and behaviors motivate
other leaders to think, feel, and behave in similar ways. And whether
you realize it or not, existing values may be rooted in a previous
strategy. Consider an organization whose strategy is moving toward
increased innovation and has a corporate value of precision. A value
like precision could lead to over analyzing and a low tolerance for
risk — the very things needed to encourage a more innovative
culture.
Ivan’s company emphasized results orientation as a key tenet of its
culture, but it often reinforced highly individualistic action at the
expense of collaborative work. His new divisional design’s success
was predicated on a substantial degree of cross-functional
collaboration, so his executive team had a spirited debate about how
to temper the individualistic interpretation of results orientation to
ensure it didn’t undermine people’s ability to work in teams.
If you want your values to really matter, you must root them in all
organizational decisions. For a company’s values to feel integral to
the lifeblood of the organization, they must be visibly central to how
the organization competes.
Build nimble structures that allow you to pivot.
Too frequently, leaders assume that a few nips and tucks to the org
chart are the equivalent of good design. But those are the
Frankenstein “designs” that make people in different parts of the
organization feel like they work in different companies. They quickly
grow stagnant and are more fit for the PowerPoint slides on which
they’re loosely drawn than for a dynamic business. For your
structure to enable your strategy, it must be agile enough to face the
shifts, challenges, and opportunities from its marketplace,
stakeholders, and employees.
Nine months into his new design, several of Ivan’s strategic partners
located in Ukraine were no longer able to provide the technical
services they’d long delivered. Drawing on the expertise of leaders
from across the division, the customer success team was able to
quickly test and learn where they could make up for that loss of
expertise. They identified multiple potential suppliers across the
globe and made the decision to better distribute risk by contracting
with four of them. Nimble structures allow for readily addressing
these unforeseen challenges by making sure that coordination across
the organization is easily achieved.
...
If you want to raise the odds of successfully executing your
company’s strategy, invest the time in aligning your organization’s
design to embody the strategy. Instead of relying exclusively on the
alignment of goals and metrics, broaden your understanding of
alignment to include all the components of your organization. Make
sure they fit together congruently into a cohesive organization.
Read more on Organizational
You’ll signal to your people that you’re serious about the strategy
transformation or related topics
and avoid the cynical eye-rolling that often accompanies the Strategy execution and
announcement of strategies that everyone knows can’t be executed. Competitive strategy
Ron Carucci is co-founder and managing
partner at Navalent, working with CEOs and
executives pursuing transformational change.
He is the bestselling author of eight books,
including To Be Honest and Rising to
Power. Connect with him on Linked In
at RonCarucci, and download his free “How
Honest is My Team?” assessment.
Jarrod Shappell is a partner at Navalent who
specializes in helping leaders effectively
manage themselves by cultivate deeper
leadership and relationship skills. He has over
15 years of experience coaching leaders in start-
up, non-profit, and Fortune 500 organizations.
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