Who Does What, Where and Why: Aligning the Division of Labour with Your Organisation's Purpose, Strategy and Financial Goals (Part III)
Welcome to the third and final instalment of our mini-series on organisational design. This series explores how aligning organisational design with a firm's culture and markets can significantly reduce the need for costly redesigns and organisational reshuffling. If you have not yet explored the earlier discussions on corporate headquarters and function design, those provide essential context for understanding the framework presented here.
The Historical Foundation of Division of Labour
In the late 18th and early 19th centuries, automation fuelled by steam engines and other machines drove a seismic change in how work was organised. The traditional approach of having one person handle an entire task from beginning to end was replaced by subdividing and distributing work steps among many individuals. This transformation applies not only to product or service creation but also to all aspects of corporations.
Beyond the horizontal aspect of labour division, the vertical or hierarchical aspect of authority models became crucial in coordinating output and speed. Who is responsible for what? Who can direct whom? The success of this model paved the way for subsequent industrial revolutions and continues to shape modern organisational design. In reality, as expected in social Darwinian structures, most companies disappeared over time, whilst the few that found the right mix of automation, innovation and labour division succeeded in unparalleled prosperity in formerly agricultural settings that had prevailed for many centuries.
Despite operating for approximately two centuries, the division of labour concept has become so ingrained that many leaders wrongly assume it to be a kind of natural law in the business world. As a result, they often neglect the need for a clear and defined approach for their company, assuming that everyone naturally knows what to do. This misconception results in high inefficiencies everywhere, leading to missing revenue, low operating margins and slow innovation cycles.
The Cost of Unclear Division of Labour
When the division of labour, including authority levels, is not properly defined, it leads to ill-structured organisations. This, in turn, causes organisations to balloon in size with slow responsiveness and unnecessary feedback loops. Decisions are elevated to unnecessary levels, creating frustration among customers, employees and management. Ultimately, this can lead to a negative impact on owners and stakeholders.
If performance is unsatisfactory, leadership often turns to the ever-popular reorganisation. This may include changing matrix setups from central to decentralised or regional to global, building up and later slashing organisational layers, or outsourcing or divesting non-performing entities or functions completely. A clear definition of labour and authority levels can be a smart alternative to this approach. It should be in the interest of any supervisory management board to prioritise the proper definition of labour and authority levels rather than relying on costly reorganisations as a quick fix.
A Practical Assessment Framework
Suppose your firm struggles with productivity issues, political games on many levels and customer complaints about whom to call. If you are in a senior leadership position, here is your litmus test: Are you getting called by either suppliers or customers when there is an issue? Do not feel good about it. It actually means that you have not empowered your organisation enough and might not have selected the right people to do the job. There is a high probability that the 200-year-old division of labour concept was implemented too loosely in your organisation.
By aligning the definition of roles and responsibilities on each dimension of the matrix and defining job and competency profiles, an organisation can create a blueprint for what people really should be doing. This enables assessing personnel in line with the job profiles, and any identified gaps can be closed through training or replacements. External standardised training by authorised organisations can ensure a high capability standard, along with certification and regular retraining.
With discipline, this solution can be implemented within a year, providing a strong foundation for achieving financial goals and leaving the competition behind. The following questions serve as diagnostic tools to identify where you are in the spectrum of division of labour clarity, and whether there is a gap that reveals itself when you review your current state.
Governance Documentation
Do we have a governance document at the corporate level that clearly defines the roles and responsibilities of each part of our organisation? Any publicly traded company needs a corporate governance framework. Unfortunately, this framework is often set up by lawyers and finance as part of the incorporation process and is therefore a bland document which fulfils all the tick boxes of regulators. What we want is a living document that is accessible to most people in the company. It should be used as part of new employee initiations to explain who does what, who can decide what, and so forth. Unless these new employees come from university or secondary school, they have not had the pleasure to work in another organisation, which will have had, most probably, different roles and responsibilities and thresholds of decisions. Do not play roulette with your people, hoping that someone will tell them what they can and cannot do. Define it.
It takes about three months to put all authority roles, responsibilities for functions, corporate, regional and business branches into a database, calibrate it and get it approved by the management board. The impact when rolled out is magnificent. The noise level dissipates in a couple of months, and people actually do what they are hired to do.
RACI Charts and Authority Models
Does our human resources organisation maintain an up-to-date RACI chart for each department, updated annually? Your employees will appreciate if your authority model does not only hold the major topics on capital expenditure, expense and travel approvals, but as well more intricate definitions like who leads mergers and acquisitions (is it finance or strategy?), who owns the customer interface (is it sales corporate, sales local, region or business?), who owns the supplier interface (is it procurement, supply chain, operations or business?), and who can communicate externally (everyone, corporate communication or local communications?). These are just a few of hundreds of grinding friction areas that can slow the company down if they are not clearly defined. When this is fixed, it is an important document included in the corporate governance document and, therefore, auditable.
Leadership Versus Management
Do members of the board of directors spend less than 15 minutes each day to approve standard requests? In other words, can leaders lead whilst managers approve? Just look at the signature maps of your top leadership, if such an old-fashioned thing exists in your company. How thick are they every day? The thicker they are, the more the company leaders have decided to be managers rather than leaders. As a leader, you define swim lanes for your direct reports and the rest of the organisation within which they can act more or less autonomously. If there is a crunch in your business and suddenly you are careful to spend or select the right customers, leaders narrow the swim lanes for their people. Managers get into the water and swim themselves with their heads only a little above the water, so they cannot look out far ahead.
If you really still have signature maps, implement at least an approval workflow tool. You can get them as standalone solutions or integrated into whole workload systems. There is no reason that approvals cannot be done automatically based on predefined routines through bots, or at least if humans need to be involved due to regulatory reasons, have approval workflows that take hours rather than days or weeks. It makes you more agile and lets your people do the job you pay them to do.
Operating by Defined Guidelines
Do we operate based on the guidelines outlined in the governance document and RACI chart? Many companies have a decent governance document, but it is kept secret or stowed away somewhere not accessible to the general public in the company. If you have a governance model and an approval threshold document, it needs to be shared with the people being governed and needing to make approvals. So simple, yet so often not done in companies.
Competency Profiles and Job Descriptions
Do we have competency profiles in line with the governance and RACI established for each department and organisation, from the head of the organisation to individual contributors? Whilst the overall roles and responsibilities, tasks and objectives for each part of the organisation belong in the corporate governance document, the next level down talks about the capabilities and competencies people in the departments need to have to fulfil the objectives. This is a RACI chart that needs to be owned by human resources and tracked and maintained as one of the most important tasks HR can have. How else would you define in human resources the department that ensures that the right people with the right capabilities sit in the right jobs?
In most companies, HR was not the owner of the document. If you were lucky, the department organisation had given you some loose guidelines, and that was it. Competence and responsibility design based on the governance model is one of the most important tasks an HR department can have. If you have this under control, hiring, selecting, training, promoting and investing in employees has structure and can be understood by everyone. Just drawing career paths is child's play and, in most cases, not adhered to by anyone, since the homework of competencies required for certain jobs was not done. Therefore, everyone can be chosen based on whatever criteria.
Do we have clear job profiles linked to the competencies of each department and organisation? Writing job profiles in line with the roles and responsibilities of the department, both horizontal and vertical, is an activity that every manager should be able to do. What do you want your people to do? Who does what? Who tells whom what to do? Just using tribal knowledge is a cop-out and a lousy management style. If managers have no time or interest in defining this, they are not managers but overpaid individual contributors who do not know how to orchestrate departments, or they are part of an interesting breed of Machiavellian types who take an undefined working environment as a source to draw power from.
Assessment and Certification
Do we relentlessly assess personnel against the competency profiles before offering new job positions? Do we require external certifications as qualifications for hiring, for example, in quality, accounting, supply chain, sales, legal and leadership? If your employees can be told in the half-yearly or quarterly feedback meetings what it will take them to get to the next level or a different job based on straightforward competency definitions that are part of the job profiles, people will strive to gain the level of competency they need. This is much more preferred than lifting or shifting people into new positions and then letting them acquire the competencies afterwards. Companies are not schools, and you pay people to execute at least at 70% of competency level when they take over a job, with the remaining 30% being learned on the job.
This has a significant impact on the quality of your training processes. Just nice-to-have trainings about emotional intelligence, compliance and ESG do not cut it. People will need to be able to shadow managers or other job holders that have the competencies they would like to acquire. They need to be able to get short-term assignments in which they can learn while still being on their own job. The concept of a learning organisation is actually a must, but if you look at most training curricula of corporations, the training is done in a vacuum without too much input from businesses and functions that need to train people in the competencies they need. Both sides, HR and business, need to sit down and talk and structure what needs to be done to have a competent workforce aligned with the requirements of the business.
Integration of Acquisitions
In the case of new acquisitions, do we ensure that our roles and responsibility structure are implemented within the first 18 months of the acquisition? Acquired companies could often for up to three years keep their roles and responsibilities and approvals, circumventing the process the rest of the company had. It was a nightmare for the people who had to somehow start to integrate the new cousins, since anyone could raise a flag on their side and show that they had a get-out-of-jail card. This created pseudo-approval and information processes.
In six months or directly from the start of an acquisition, approval and responsibility structures should be put in place in line with the company that acquired the new colleagues. The benefit is that everyone in the company learns about the new business, the trials and tribulations of the new family members, and can get actively involved. There should be guardrails around the so-called goose that laid the golden eggs and that now suddenly is asked to do things differently. Absolutely, but this is part of a good governance structure and does not take more than a few days to define.
Career Development and Rotation
Are our job profiles linked to career models considering cross-functional and geographical criteria to foster diverse and well-rounded leadership? If you would like to have a company that gels well together, people on different levels need to take over short or mid-term assignments, and these assignments or jobs need to be defined in the career model cube. What it takes to become a manager in a department is different from becoming a section head, regional leader or division head. Besides the knowledge they gain from being linked into other areas of the company, if rotations across dimensions are done into different territories of the firm, it gives them as well a feel and a sense of modesty and understanding that their cultural imprint is not the only one that works. It makes them later more humble leaders when they deal with diverse markets and employees.
Calculating the Opportunity
If you answered yes to most questions, you control the concept of division of labour and should be congratulated. However, if you are still reading, you have a fantastic opportunity in front of you. Having your organisation's division of labour and authority under control is like having good health. If you have it, you do not think too much about it and take it as a normal way of living. But if you do not have it, you often lose your footing and cling to deal with life at a fraction of your capabilities.
Calculating the size of the prize is therefore not simple since it depends on how unclear your current state actually is. Examples of companies with well-defined divisions of labour can be found generally in the top tier of the Fortune 500. Today, Apple, Walmart, Google, Johnson & Johnson and Procter & Gamble are often cited as good examples. The whole topic is straightforward and common sense, but only for those who made it happen.
A Six-Step Blueprint for Implementation
There are many different ways to achieve clarity in the division of labour. The following approach has worked well in practice. This is not an all-you-can-eat buffet in which you can pick and choose certain aspects. To be successful, following the cadence outlined here or choosing your own complete path is recommended.
Step One: Drafting the Design
Under the guidance of HR or a strategic advisory consultancy, the management board has to embark on a crucial exercise to review and potentially update the company's overall purpose, strategy and long-term financial goals. This essential task is often overlooked, but is necessary to ensure that the work you do later is actually defining a setup that leadership fully subscribes to.
In an off-site session, clarify the role of each organisational entity and function, ensuring everyone is on the same page regarding expectations and responsibilities. Leadership participants can approach this exercise by starting from scratch or leveraging existing public domain division of labour resources. The result will be a draft document that can serve as a blueprint for the rest of the organisation to calibrate its current state and propose updates. This exercise is important to ensure the organisation remains aligned with its overall purpose and goals whilst adapting to changing market conditions.
Step Two: Defining the Current State
In this step, every organisational area (geographical, divisional, corporate, functional) as well as every hierarchy in each area (from the head of the organisation, then the direct reports, their direct reports and so on) receives the task to define in a standardised format what their roles and responsibilities currently are.
Step Three: Calibrating to Align or Update
Any overlaps between organisation entities are cleared up by having the affected organisations at all layers hash it out in a discussion between the boss and his or her subordinates. A mediator should be engaged and enable both sides to have an open dialogue free of repercussions. If there is no result, the board sponsor gets involved and either decides themselves or brings the issue to the management board to discuss and agree.
When you read through the department self-definitions, you will find that it often overlaps with many others. Having these departments come together and hash it out requires a mediator since both believe they are right. If the management board has done a good job in defining the overall swim lanes, solutions will be found. No foul compromises are acceptable. The goal is to get rid of friction to focus on markets, customers and hence profit.
Similar involvement of the management board is needed if any entity identifies change proposals to what has been defined before as a blueprint design draft. In a grown-up and open culture, many challenges will materialise and should be celebrated. The board of directors needs to calibrate current and future design by evaluating the differences in opinions with a clear focus on customers and markets.
Step Four: Publish Future State Design
The agreed and finalised version of the roles and responsibilities of every part of the organisation needs to be published after the dust from discussions has settled. With support from HR or external experts, every entity will refine its leadership and employee competency profiles to match the updated roles. These competencies are built into a standard job profile template and must be compensated. There are many grading mechanisms available, though none is perfect and all require some degree of calibration within your company.
Step Five: Operationalisation
With the structure defined from top to bottom, HR is now in the lead to match personnel, internally and externally, with the job profiles. Corresponding competency assessments, trainings and certifications have to be defined. This period needs to take about one year.
People who do not have the competency required for the updated or newly defined job profiles have to be time-boxed, meaning staying in the position for a while as they can either gain the needed competencies or are grandfathered by their superiors. This should be noted in the personal and position profiles so that you do not create another tribal system. If the person moves on, the replacement should fulfil the job requirements at 70 to 80% on the first attempt.
There is no perfect state in the setup. You define a competency and job profile network to have thresholds of whom you should have on the job. In reality, this is not always clear. If you have done a good job in cascading from corporate governance and department roles and responsibilities down to the individual contributor level, then you have an interest in either finding the people to match your requirements or changing the requirements.
Step Six: Control and Improve
The above needs to be measured, controlled and updated annually to catch outliers and regular changes. The construct needs to be given life and made adaptable. After the 12 months, sustaining and controlling the process is essential. The governance structure as well as the HR-maintained job catalogue and competency curriculum need yearly approval of changes to governance by the board and the executive committee.
In today's world, new competencies pop up constantly, sometimes in months or years, no longer in decades. If you do not integrate these new skills into your job and competency profiles, you will be left behind.
Implementation Timeline and Structure
The entire process takes about 12 months: three months for blueprints and nine months for implementation. Some may say that all this work cannot be defined and implemented in 12 months, claiming it is impossible. However, it can be done. Large companies have accomplished this. Besides, you have an interest in not having the organisation too long frozen in navel-gazing. This whole project is important to make a company or department more agile, but it is also internally focused, which is a distraction if your purpose is to serve your customers and markets.
The board sponsor has to be the CEO, together with the Chief Human Resources Officer. No one else can drive this. If either of them approaches this topic lukewarmly, it is better to drop it. The project leader should be either top HR talent reporting to the head of human resources, chief of staff reporting to the CEO, or a great process person with a Lean or Six Sigma background.
After the blueprint structure is clear, weekly task force meetings with clear objectives are needed, along with monthly reporting at the board level. Clear output KPIs should track the percentage of the organisation defined by RACI, the percentage of job profiles defined, personnel certified, people grandfathered and time-boxed, promotions, demotions, attritions and hiring.
Digital Enablement Opportunities
Most of the work can be done at an automation level equivalent to a spreadsheet. However, there is one important exception. If you can establish throughout the whole cascade from corporate governance to individual competencies and roles of individual contributors, how much of this is analogue versus digitally enabled, you gain significant advantages. For example, take the topic of approvals. If the CEO needs to approve corporate investments over five million pounds, should they do it on paper, by email or digitally in a workflow approval system?
Every digitally enabled task gives you the option to process mine the whole flow and constantly optimise it. You can correlate approvals with the success or failure of the projects or investments later and draw updated conclusions of what should be changed. It is simply so much quicker.
Risk, Cost and Watch-outs
From a risk perspective, the approach presents minimal risk if done with relentless focus for 12 months. It is overall housekeeping, organisational hygiene, and spring cleaning that should be repeated every year.
Overall cost is medium. There is a cost associated with external training and certification. If you get it right, on average, the cost is around one thousand pounds or dollars a year in the first three years, after that, less. There is a side effect that reduces your cost: reduced attrition because people feel valued when you invest in them.
The main watch-outs include ensuring there is no deprioritisation of the project by parts of the organisation and addressing any missing metrics for tracking compliance once governance is established.
Conclusion
By clearly defining roles and responsibilities, an organisation can mitigate friction between functions, positions and hierarchical levels, allocating resources to work collaboratively for the firm's customers and products. You will gain tens of thousands of person-days when you are able to stop reorganisations and focus on the customer and product. Having your organisation's division of labour and authority under control enables you to operate at full capability rather than at a fraction of it, providing a strong foundation for achieving your financial goals and maintaining competitive advantage.
The views expressed in this post are my personal professional opinions, based on research and publicly available information. They reflect analysis of industry trends and practices, not assertions of fact about specific companies or individuals. Nothing in this post constitutes legal, financial, or investment advice.
