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 organisation design. We believe that aligning your organisation's design with the firm’s culture and markets can significantly reduce the need for costly redesigns and organisational reshuffling.
If you missed the earlier posts on corporate headquarters and functional design, we recommend reading them first. You would normally as well not eat dessert first, would you?
Today, we will delve deeply into the overarching theme of "division of labour," a concept many companies consider strangely as a given. 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.
Enjoy!
Can the organisational design of the division of labour impact a company's purpose, strategy, and financial goals? (Part III)?
The late 18th and early 19th centuries witnessed the dawn of the first industrial revolution. Automation fueled by steam engines and other machines was at the forefront of this revolution, driving the need for a precise definition of the division of labour: who does what, when and how. The traditional approach of having one person, be it a cobbler, baker, shoemaker, or smith, handle an entire task from beginning to end was replaced by subdividing and distributing the work steps among many individuals. This new approach was not limited to product or service creation but extended to all operations aspects, including sourcing, planning, and selling.
Apart from the horizontal aspect of labour division, the vertical or hierarchical aspect of authority models was also crucial in coordinating output and speed. Who is responsible for what, who can tell whom what to do, etc. The success of this model paved the way for subsequent industrial revolutions and continues to shape modern organisational design - or at least, that is what we’re being told…
Despite being in operation for approximately two centuries, the division of labour concept has become so ingrained that many leaders wrongly assume it to be a 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 everywhere in high inefficiencies leading to missing revenue, low operating margins, and slow innovation cycles. When the division of labour and authority levels are not properly defined, it leads to ill- or unstructured organisations. This, in turn, causes the organisation 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 the owners and shareholders.
As discussed in earlier blog posts, if performance is unsatisfactory, leadership often turns to the shiniest tool in the corporate toolbox - the ever-so-popular reorganisations. This may include changing matrix set-ups from central to decentral and/or regional, building up and later slashing organisational layers, or outsourcing or divesting "non-performing" entities or functions.
A clear definition of labour and authority levels is the smart alternative to re-organizations. It should be in the interest of any supervisory and management board to prioritise the proper definition of labour and authority levels rather than relying on costly reorganisations as a quick fix.
A simple “do-it-yourself” overview on aligning everyone from CEO to shop floor worker
Suppose your firm struggles with productivity issues, political games on many levels, and customer complaints about interface issues. In that case, it may be due to a loosely implemented concept of the 200-year-old division of labour. By taking a step back, re-aligning purpose, strategy and long-term financial goal, and then implementing a clear and structured approach to labour division and authority levels, your organisation can become more efficient, responsive and customer-focused.
By aligning the definition of roles and responsibilities on each dimension of the matrix and defining the job and competency profiles, an organisation can create a blueprint for what people 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, such as ISM, CIPS, SMA, or ACCA, can ensure a high capability standard, along with certification and regular re-training.
With relentless discipline, this solution can be implemented within a year, providing a strong foundation for achieving your financial goals and leaving the competition in the dust.
Identifying the gap/opportunity
Let’s start by identifying where your company is on the spectrum of the division of labour and whether a gap reveals itself when you review the statements below. How many of the below questions can you answer with a resounding, fact-based "yes" ?
Do we have a governance document at the corporate level that clearly defines the roles and responsibilities of each part of our organisation?
Does our human resources organisation maintain an up-to-date RACI (Responsible, Accountable, Consulted, Informed) chart for each department, updated annually?
Do we operate based on the guidelines outlined in the governance document and RACI chart?
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?
Do we have clear job profiles linked to the competencies of each department and organisation?
Do we relentlessly assess personnel against the competency profiles before offering new job positions? Do we require external certifications as qualifications for hiring (e.g. in quality, accounting, supply chain, sales, legal, and leadership)?
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?
Are our job profiles linked to career models considering cross-functional and geographical criteria to foster diverse and well-rounded leadership?
If you answered „yes“ to most questions, excellent: you control the concept of division of labour. Congratulations - well done! Do not read any further. Better to focus on other topics.
Size of the prize
Having your organisational division of labour/authority under control is like having good health: If you have it, you do not think too much about it and take it as your normal way of living. If you don't have it, you often lose your footing and cling to dear life at a fraction of your capabilities. Calculating the size of the prize is, therefore, not simple since it depends on how ‘sick’ you already are.
Examples of companies with well-defined divisions of labour can be found over the last century, generally in the top 10 of the Fortune 500. Today Apple, Walmart, Google, Johnson & Johnson, and Procter & Gamble Co are often quoted as good examples. The whole topic is straightforward and common sense, but only for those that made it happen…
Blueprint development
Today, we add blueprint development to our standard blog structure. Below find one description of a path to bring full transparency from top to bottom…and maintain it. Note: this is not an “all-you-can-eat buffet” in which you can pick and choose certain aspects. To be successful, we recommend following the cadence outlined below or choosing your own path.
If you need more material to familiarise yourself with the concept, read articles in the Harvard Business Review, The Hackett Group, and on the websites of most strategic consultancies. Search for RACI, organisational design, and/or agile organisations. Alternatively, you can check us out and, if interested, talk with helmig advisory AG about further insights.
Step 1: Drafting the design
Under the guidance of HR and/or a strategic advisor/consultancy, the management board will embark on a crucial exercise to review and potentially redefine the company's overall purpose, strategy, and long-term financial goals. This essential task is often overlooked, but it is necessary to ensure the organisation remains relevant in the ever-evolving business landscape.
The offsite will also 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 critical in ensuring the organisation remains aligned with its overall purpose and goals while adapting to changing market conditions.
Step 2: Defining the current state
In the next step, every organisational area (i.e. geographical, division, corporate, function), as well as every hierarchy in each area (Head, direct reports, their direct reports, and so on), receive the task to define in a standardised format (helmig advisory AG has examples available), what their roles and responsibilities (R&R) are.
Step 3: Calibration to align and/or update the purpose, strategy, and long-term financial goals
Any overlaps between organisational entities are cleared up by having the affected organisations or layers hash it out (in layer sessions, a mediator should be engaged to enable both sides to have an open dialogue, free of repercussions). If there is no result, the Board sponsor gets involved and either decides him-/herself or brings the issue to the management board to discuss and agree.
A similar involvement of the management board is needed if any entity identifies change proposals to the management board blueprint design draft. In a grown-up and open culture, many challenges will materialise and should be celebrated. The board of directors can only calibrate current and future states by evaluating the differences in opinions with a clear focus on customers and markets.
Action 4: Publish future state design
The agreed and finalised version of the R&R of every part of the organisation will be published. With support from HR and/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 compensation graded.
Action 5: Operationalising/Implementing
Having the structure from top to bottom defined, HR must now match personnel internally and, as needed, externally with the job profiles. Corresponding competency assessments, training and certifications have to be defined.
Action 6: Control and improve
The above needs to be measured, controlled and updated annually to catch outliers and regular changes.
How to set up a project to fix the organisational design from the corporate to the employee level, including building a blueprint?
Time plan: 12 months (3 months blueprint design, 9 months implementation)
Board Sponsor: CEO / CHRO
Lead: Top HR talent reporting to Head of Human Resources (CHRO), or Chief of Staff reporting to CEO (unless this position is just a glorified secretary)
Blueprint development: see last paragraph
Project set-up: weekly task force with clear objectives, monthly reporting on board level by CHRO with clear output KPIs (e.g. % of organisation defined with RACI; % of job profiles defined; personnel certified)
Sustain success: Yearly review and approval of changes of Governance structure by board / Executive committee
Digitalization/Automation opportunity: LOW - most of the work can be done on a automation level of excel sheets.
Risk: ZERO, unless done without relentless focus for the 12 months
Cost: LOW - Cost of external training & certifications (per employee less than $ 1'000 annually in the first 3 years, later less)
Watch out for: de-prioritization of the project by parts of the organisation, missing metrics to track the compliance, when governance is established
I appreciate your interest in the third and final part of the mini-series about organisational design. We hope to have given you ideas for implementing a next-level organisational design in the interest of your customers, shareholders and employees.
Stay safe. Be bold.
Daniel
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