Practical Organization Design: Effective organizations via a structured Management System

Author

Part I

Introduction – What this book is all about

1 Why I think this book has a value

A Management System is a structured way to control activities within a company, or any other type of organization. Often people think of international ISO standards, certifications and audits when one discuss a Management System. Too often the discussion is about the burden the Management System may be to the people in the organization, documentation needs, reporting and even bureaucracy. At the same time, the same people having problem with a Management System, often search for knowledge and practical example of how to improve performance in their own organization, how to improve business results, how to decrease costs, etc. These people, often managers but not only, read books, undertake trainings, attend seminars and conferences and ask knowledgeable consultancy firms to do analyses and propose changes. This is not seen as burden to organizations, rather as opportunities to improve performance.

What is the difference between a Management System and the different concepts like Business Model Canvas, Lean, Agile, Business Balanced Scorecard, Business Process re-engineering, etc.? How come people find values from these concepts but think of Management System as a dull burden? My believe is that the Management System indent to cover the full business, all parts of the organization, and for this reason can be too complex. The above exemplified concepts covers different aspects of the full system. If it is too complex we need to find tools and we need to simplify. But if we, by doing this, excludes perspectives of the full design, we may sub-optimize or create design solutions that does not fit together in all parts. If the aim is to implement a Management System there is a risk then to move towards compliance thinking, not performance thinking. Due to lack of understanding of the possibilities of a Management System, we settled with target to comply with one of the ISO standards for Management System. And this can be done even though we have a really bad design¹. This may frame our minds from the possibilities to embrace relevant concept and methods to build a structured system design on how to manage activities within an organization to reach objectives.

If we on the other hand understand the potential of a structured design of our Management System, it becomes hard to get good help when we want to build it. It is important to acknowledge the Management System as an open system that interact with the surrounding environment. It contains a set of elements like Targets, Organization Structures, Processes, Measurements, etc. And in order to design an efficient Management System, we cannot simply focus on some parts, do that good and hope to achieve excellence. As an example, we all understand that a good Organization Structure is important for any organization. But we also understand that this is not the full picture. There are more parts important to gain efficiency. For those who has done some type of technical design work, we understand that a system design need to optimize a number of, sometimes contra dictionary requirements, in order to achieve the performance from the system we need. To do this we need to understand all building blocks of the design and balance the design of each building block towards the performance need for the full system.

I have two reasons to write this book. Firstly, it has been a dream for me to one day write a book. To do this gives me the pleasure of writing and explaining things in which I have long experience. It is as well challenging and it develops my competence. We all know that when you have to explain things it often requires that you think once again to really understand what you tries to explain. Secondly, I have not yet found a book that cover how to do a full design of a Management System. A book that describes all of the building blocks needed to design a Management System, with the purpose to improve effectiveness and efficiency. A book that combines practical experience with theories. A book that covers how business logic impacts value creation chains, how it calls for specific logic in the design of internal processes, ways to find an optimal Organization Structure and how to monitor execution. All structured in a coherent design we call a Management System.

My hope is that you, the reader, find this book valuable if you want to understand:

What is a Management System and how does it support an organization?

How do I build a Management System?

How do I improve internal performance using a Management System?

How do I use a Management System to transform Strategies in to result?

I truly believe that most organizations has a great improvement potential and possibilities to achieve sustainable market successes via a true system approach in the design of its internal structures.

¹ This is like doing a control of the car that it fulfill governmental regulations to ensure safety. It can be a really bad car even though it is approved to use.

2 My background

Back in the mid 80’s I became interested in Quality. I remember the structure of IEEE’s² Quality Assurance Plan explained in a training course. For me this was like the truth had been given to me. The structure of this Quality Assurance Plan explained what you need to do in order to achieve Quality in product development. In those days I was a System Engineer and Project Leader for development of software solutions and products for petrol stations. I was working for a successful mid-size company. But as a consequence of the success it had growth-problems in the development department.

The structure of the IEEE Quality Assurance Plan gave me a Reference Model for product development. I took the knowledge back home and started to implement all parts of this Reference Model in hour development organization. We learnt a language, we collected our ways of working in a common structure, and we shared experience, planned and executed development projects according to the content of our Reference Model. We called it the SW Quality Assurance Plan.

Today, 30 years later, I still work with implementation of a Reference Model for organizations. But today I have the scope of a full Company. I am no longer a System Engineer for SW development project but rather a System Engineer for development of Organization Architecture or Organizations Design. Over the year I have worked with all between small (5 persons) to big (600+ persons) product development projects. I have worked with business organizations in Production Industries, Service Industries, Governmental societies, Telecommunication Industry. I have worked with local companies and companies with operations spread over the world in different time zones. The leading star for my professional carrier has been to bring order and efficiency in the ways of working.

Similar to the experience from the IEEE Quality Assurance Plan I have over the years developed a structure of Building Blocks for any type of Organization. It is obvious, thinking of it, that efficiency in an organization cannot be fully achieved only working with definition of roles and responsibilities. Furthermore efficiency cannot only be achieved by Process Management or by applying internal governance structures. To achieve improved efficiency one has to work with a full set of building blocks, covering all relevant part of an organizations design. The building blocks has each a specific purpose, yet they all together form a system containing the building blocks and their interrelationships.

With the understanding of the Building Blocks top management can design an organization that fulfill operational needs from customers and other stakeholders. Middle managers may use the building blocks to design their part of the organization, still being a part of the complete organization. By understanding the building blocks, employees in the organization may find answers to question related to ways of working. Altogether, with good knowledge of the building blocks defined for the organization, performance can be measured and efficiency improved in a structured and systematic way.

In my latest professional years I find more and more possibilities for any type of organization to improve effectiveness by aligning internal structures with the external business environment. An organization that works with strategies and business models has to also work with the design of internal structures and ways of working to enable full use of strategies. Furthermore it is generally understood that strategies are all about execution and that today’s business environment are constantly and rapidly changing. This puts strong requirements on adaptive changes of the organization in order to maintain sustainable business. This can, in my view not be achieved unless you design your organization as an open and adaptive system towards the business environment you select to add value into. For this you have to understand the design mechanism of the building blocks and how different design parameters may impact internal structures.

² IEEE = Institute of Electrical and Electronics Engineers

3 The dilemma with the term Organization

When I started to write this book I immediately struggled with the use of the term Organization. Talking about Management System it is of course impossible not to use the term Organization. But the term has different meanings, and it is important to correctly understand this and to use them wisely. It is furthermore important that you as a reader understand how I have used the word.

From the Cambridge Dictionary³ we find three different usages of the term Organization.

It is a group

Organization is a group of people who work together in a structured way for a shared purpose.

It is an arrangement

The planning of an activity or event.

It is a system

The way in which something is done or arranged.

You will later in this book read that Organization, in the meaning of a System, is one important element in the Management System. This usage would be confusing as Organization also could be used for a Group. With this later meaning we use Organization as a noun for a company, non-profit organization, administration, etc. And this Organization needs a Management System that has one element, which is an Organization. This is truly confusing. My solution has been to use the term Organization Structure when I use the term being one of the elements in a Management System. I use the term Organization for companies, non-profit organizations, administrations or different kind of Groups set up to reach a purpose.

To minimize the risk for further confusion I have not used the term Organization in the meaning of an Arrangement.

³ (Cambridge, n.d.)

4 Technocratic approach to the design of a Management System

A Management System should be designed based on a generic model on what it should contain. You may think of this as the generic building blocks of an Organization. The ISO Management System standards put explicit requirements on the content and has a generic definition of a Management System. But the ISO standards does not tell us how to do the specific design of a Management System.

If we search in the literature to find examples of such generic models we should include the term Organization Model in the search. A Management System I view as a part of the wider term Organization Model. This term is more commonly used compared to Management System, in the context of how to design internal structures of an Organization. There exists a number of different models for Organization Design. In the book Guide to Organizational Design⁴ Naomi Stanford presents an overview of seven different system models of organization design. Certainly two of the models, Mc-Kinsey 7-S model, Galbraith’s Star Model, has a big impact on the way many think of organization models. All models described by Stanford includes soft elements, e.g. people, behavior, leadership, culture, etc. In the case of the McKinsey model four elements are soft. These four are style, shared values, staff and skills. Three of the element are hard elements. These are system, strategy and structure.

In my approach to design of a Management System, I do not include any soft elements. This is because I have a technocratic approach to the design of Management Systems. I think of the Management System as the tangible building blocks one should use to build an Organization. It may be an Organization Structure, Competences, Processes, etc. These you can design, develop and implement in an organization. As such building blocks are tangible, everyone working in an organization can relate to them and use them. This means that the Management System can be made visible and explicit. And I believe that explicit building blocks has direct impact on the people’s behavior in an organization and enables control of executions. The design of explicit building blocks enables management of an Organization.

I think of the Management System as the tangible building blocks one should use to build an Organization.

This approach to organization development or design of Organization Structures is a rather technocratic approach, and I find it important to understand for any manager. But I like to make it very clear that I do not neglect the importance of soft elements of an Organization Model. People, behavior, styles, culture, leadership, etc. are of course very important for any organization in order to reach its objectives and ambitions. But I also want to make my standpoint clear; you shall not mix the two aspects of soft and hard elements in one dimension. It is like different kind of worlds and has to be handled differently. At the same time I believe that a bad design of a Management System creates uncertainties and opens up for inefficient behavior in an organization. And a well-designed Management System supports positive behavior.

⁴ (Stanford, 2007), page 22.

Part II

A design concept of the Management System

1 Introduction to Part II

One of the criticisms of a Management System is that it tends to cement ways of working too much. The included structures, procedures and templates often becomes a burden for the Organization. The content might not match today’s situation. Or the content of the Management System has grown with every new possible risk identified for the operations. Controls has been added to the system, without removing old ones. I do not think anyone wants to build such a Management System, but it is unfortunately often the result.

To overcome this we have to build a Management System in such a way that it always support the realities of every Organization. The design approach has to acknowledge that we live in a world of constant changes. An Organization which do not adapt to external changes will stiffen and lose its effectiveness. In some business environment this can happen within months, in others changes may take years. When you have accepted the need to do constant changes there are three high level and basic implications on the way to develop your Management System.

You cannot make one grand central design of the Management System which covers every detail about how things should be done. This typically takes too long time. At the time you are read, the world has changed again.

You have to measure performance, implement feedback loops and take actions to be able to correctly adapt to reality.

You need to delegate responsibilities and involve people in the design of the Management System. This increase speed of change and adaptability.

It may seem confusing and too risky for some managers to accept that you cannot do one grand design of the Management System and that you shall not control all details. The devil is in the details you may say and yes some details you really need to have profound control of. But this does not legitimize the need to control all details. All employees has to, in their respective role, be empowered to take control. Still all within the same Organization should work towards common objectives. The approach in the design of the Management System should be to have a common Reference Model, for all in an Organization to understand and work within. Supported by the reference model, each employee shall either use defined ways of working or develop local variants content or detailed variants content. Not in isolation, but as part of a common system. A Management System shall support the objectives of the full Organization as well as local needs.

Figure 1; Management System Reference Model

In this book I define a Management System Reference Model developed from practical usage. It contains two perspectives; Management System Architecture and Management System Building Blocks.

The aim with the Management System Architecture is to guide managers in the high level design of the Management System, as seen from the context and wanted behavior of the Organization. The Management System Architecture is developed to fit external environmental needs and behaviors. It shall facilitate the design of internal structures of the Organization to meet overarching objectives. The aim with the Management System Building Blocks are then to concretize what to build. The general content of the Management System Reference Model, presented in this book, will guide Management System designers of any Organization. The specific content of a Management System Reference Model, developed in an Organization, will guide employees on how to do their work.

A Management System should never be considered ready and without needs of changes. Still every one of the baselines used in the Organization has to be clear and stable. Changes to a baseline has to be introduced in a controlled way. You should never add more content in the Management System than what is needed. Improvements should be done stepwise as long as we change running business. By doing controlled, small and stepwise changes to established baseline, a new baseline will be ready before circumstances has changed again.

The Management System should be build good enough. It is often more important to monitor performance continuously and improve where needed compared to spending resources on the creation of good to have features in the Management System. And never include more controls than required to manage risks and support objectives of the Organization. Make people in the organization part of the design work.

The Organization will need some few experts on how to develop the Management System. You should also use these experts to train and guide others in the Management System. Use the centrally designed Management System Architecture to delegate the design responsibilities of Management System Building Blocks. Ensure implementation of measurements to understand performance and implement feedback loops. These are important for local improvements of the Management System Building Blocks. And they are important for central monitoring, evaluation and continuous improvement