11 Typical Mistakes When Structuring an Organization

Dr. Adizes, management guru and author of countless books on management has been known to say, “You can’t get a submarine to fly by appointing a pilot to look through the periscope.” 

A submarine is a submarine because it was designed to go underwater. An airplane is an airplane because it is designed to fly. Along that same line, more than anything else, what determines the performance of your organization, whether it will sink or fly, depends more on how your organization is structured (or designed) and less so on who the CEO is or what their strategy is. 

In the following paragraphs, we will look at 11 typical mistakes made when structuring an organization.

Typical mistake #1 - Not evolving the structure as the organizations evolves. As managers we are very busy fighting fires and sometimes, we forget to pay attention to the internal infrastructure of the organization. If we do not continuously evaluate and adjust our organization's structure, which is part of that infrastructure, it can result in an organization that has outgrown its structure and this results in some predictable problems.

Let’s take a simple example. Typically, infant organizations use the hub and spoke model for their structure. In the hub and spoke model the Founder is the hub and everyone else is the spoke as they all report to the Founder. This is normal and desirable for an infant organization. We want the founder to maintain control of their baby and as the organization is still small there is little need for multiple layers of management. But, as the organization grows, as it hires more and more people, if this hub and spoke model is maintained, where everyone reports to the founder, then the founder can become a bottleneck.  The founder, who used to have eight direct reports, now has thirty direct reports. They become inaccessible. People cannot get the approvals they need to do their job, so they take on less and less initiative. The founder interprets this to mean that their people are no good. They then get frustrated feeling that they have to do everything themselves. 

This is just one example of what happens if you do not evolve your structure as your organization evolves but at every stage in an organization's lifecycle (Adizes, I. Managing Corporate Lifecycles, 2004) there are predictable changes that should be made to the organizational structure. If the organization ignores this aspect, does not continuously evaluate its structure to right-size it for its stage of development, then predictable problems will result.

Typical mistake # 2 -  Structuring around people rather than around tasks. Returning to the infant organization using the hub and the spokes model presented in the above paragraphs. In these types of structures, people are given responsibilities based on their relationship with the founder. Often times you will find very complex and convoluted job descriptions. “I am in charge of sales, accounting and supply chain and my title is Executive Assistant.” While there is nothing wrong with wearing multiple hats the problem with this approach is that as the structure is designed around people and the founder’s relationship with those people, it creates an environment where only the founder can run the company. Who else has the same relationship with all of these people? The founder becomes trapped by their own creation. It is like a custom-made suit. No one else can put it on. An alternative to this is to design the organization by task and not by people. When we do this, we separate out all of the different roles and structure them without taking into account who will do what job. Once we have structured according to task, you may find that one person wears multiple hats across the organization. That is fine. What this allows us to do is to clarify who each person reports to on which task and it also allows the organization to grow. All we need to do is shed hats to new hires as they come onboard. When we do this rather than have a custom made suit that only the founder can fit in, it becomes a generic sized suit that anyone can fit into, and this is one of the critical steps needed to free the founder from the trap of structuring around people.

Typical mistake #3- Not clarifying who does what.  Another saying that applies to structure is “good fences make good neighbors.” This makes sense because if we do not have good fences then I do not know where my backyard ends and yours begins. This is also true when it comes to structure. If we do not clarify everyone’s responsibilities people end up doing the same task and wasting resources. This can result in frustration, animosity and a “Stay in your lane,”  culture. When taken to an extreme this can kill any motivation among the employees to do anything beyond what they are specifically instructed to do. This is one-way motivated employees become demotivated.

Typical mistake #4 - Not aligning authority, responsibility and rewards.  Not only do we need to clarify who is responsible for what, but we also need to make sure that each individual's authority and rewards are aligned with that responsibility. Obviously, we are not suggesting that you decentralize authority immediately as this can lead to chaos and a total lack of control. There is a sequence to decentralizing authority and if not done correctly it can have very negative side effects. However, if I am responsible for selling one million dollars in product this month, but I have no authority nor can I access the authority to sign any agreements, negotiate payment terms or discounts and I get paid, or am rewarded on a fixed salary, how long will it take me to realize that I can’t do my job, but I am getting paid anyway. I might as well not even try. While I still show up to work, when I am there, I will spend my time checking my Facebook feed, reading the newspaper and collect my salary. I won’t do my job because I can’t. Not only that but my colleagues will see that I am no longer producing yet still getting paid and they will wonder why they are working so hard. Eventually, everyone just shows up to work to collect a paycheck. No one is committed anymore. To avoid this, organizations should strive to continuously align responsibility, authority and rewards (in the right sequence).

Typical mistake #5 – Managerial information system is not aligned with the structure of the organization. In the example above the reason why this individual was able to still keep their job even though they were no longer producing is because the organization lacked clear and transparent management information systems. If they had clear and transparent management information systems, it would have become very clear very fast that this person was underperforming, and they would have been dealt with one way or another. But if the organization lacks a system to collect and share this information or if that system is not aligned with the organization's structure then management is left totally unaware of who is performing at what level. This is known as the black box phenomenon. In a “black box organization” all we know is the input and the output. If there is a problem with the output, good luck identifying where the problem is. In “black box organizations” the only person who loses sleep every night worrying about profits is the CEO/Founder as they are responsible for the ultimate output. This is obviously undesirable. When a clear and transparent management information system is created, which is aligned with the structure of the organization, then we can identify every manager's contribution to profitability. With such transparency suddenly every manager starts losing sleep thinking about how they can increase revenues and decrease expenses. This is much healthier for the organization.

Typical mistake # 6 - Not aligning structure with mission.  Organizations are like power boats. You can stand on the bridge and say left all you want, but until you reduce the engine on the left and increase the engine on the right, the boat will continue to go in the same direction. We find this same phenomenon play out in many organizations. The CEO has a new mission or strategy. They want to penetrate a new market. But all of the political power, all of the important people report to the person developing the old market. Will this organization turn? No. Regardless of how many speeches the CEO makes about the importance of penetrating the new market if all the power is with the person developing the old market nothing will change. The lesson here is that every time you change the mission or strategy you have to examine the repercussions on your organizational structure. 

Typical mistake #7 – Ignoring the market.  In industries that have a captive market or where most of the added value is created in highly sophisticated, capital intensive factories, we often find that the organization is structured around these factories, ignoring the market. In structures like these managers spend most of their time looking at how they can reduce costs and increase output. The market becomes an afterthought. While there is nothing wrong with cutting costs and increasing output the problem with these factory focused structures is that the organization has turned its back to the market. Remember that the driving force is not the factory or the means of production, it is the market. If you ignore the market because you structured around the factories when the market changes you will still be producing the same goods, perhaps even in greater quantities. However, when you are structured around the market, and that becomes the focus of management, and the market changes, the organization is able to identify this change and adapt much faster. 

Typical mistake #8 – Burying conflict, losing control.  When structuring an organization, it is important to make sure the right person is in control of the short term vs. long term orientation of the organization. Many organizations abdicate this control by the way they structure their organization. Let me explain. I am sure you have seen CEO’s who felt like they had little control over their organization. Sometimes, in the more extreme scenarios, it appears as if the organization is in control of CEO rather than vice versa. This is often due to this typical mistake in structuring an organization. Let’s take an example to illustrate how this can happen. You have probably heard the title, VP of Sales and Marketing. It is a very common title. The problem with putting sales and marketing under the same VP is that sales has a very short-term time horizon. We measure sales by what was sold this month.  Marketing on the other hand has a longer-term time horizon. Marketing should be monitoring the changing needs of the market and finding ways to position the organization to meet those changing needs in the long term. When you put the short term and the long term under the same VP, what will they focus on? The short term, right? In fact, in organizations that mix sales and marketing under the same VP we often find that marketing is not doing marketing, they are doing sales support. Marketing does not exist. The same can be said of the title, VP of Operations and Research and Development. Operations has a short-term orientation while Research and Development has a long-term orientation. When you mix them, operations dominate, and Research and Development ends up doing facility and machine maintenance. These are just two classic examples. The bottom line however is that when short term goals are mixed with long term goals the short term tends to win. Thus, an organization that is not structured correctly can end up with a de-facto short term orientation in spite of the desires of the CEO. A good structure needs to allow conflict to escalate to the right person so that they can make a decision regarding the direction of the organization, rather than burry the conflict under a single VP so that now the structure, de-facto determines the direction of the organization. 

Typical mistake # 9 – Designing the structure without input from the people who will implement the new structure. Sure, designing a structure with only a few key executives, in a private meeting, is much faster and easier than designing a structure with a big group of people who all have conflicting opinions, interests, and understandings. However, what we find is that when a structure is created without input from the people who will implement the new structure, while the design can be made quickly when it comes time to implement the new structure there is tremendous resistance. The structure is not understood, people challenge the change and it has to be forced on them. Thus, the implementation of the structure ends up taking much longer than had the workers been included in the first place. So, while the design of the creation of the design goes faster, implementation takes much longer. Additionally, when “the workers” are included in the design process in a constructive way we find that they can bring a lot of added value. “The workers” have a tremendous amount of organizational memory and a much more in-depth understanding of how things really work. (WARNING, the moment you bring in the workers and ask them for their opinions you run the risk of undermining the authority of management. How to allow for their participation while still maintaining the authority of management is not easy but that is one of the core competencies of the Adizes methodology.  So, you may want to make sure you understand how to do this correctly before trying this at home.) 

Typical mistake #10 - Not defining who “the boss” is. In most value systems we need to know who the boss is. We need to know who has the final word. When there is no boss people start to position themselves to be the next boss, competing with one another, and teamwork goes out the window. We also find that when there is a conflict for which there is no right or wrong solution but rather a judgment call is required, if there is no boss then no one is able to make that call. If this happens, either the organization gets stuck or some kind of compromise is reached, that does not please anyone. Further, when this compromise does not result in the desired effect, no one can be held accountable because no one is responsible. 

In the paragraphs above I outlined just a few of the typical mistakes made when structuring an organization. There are many more. As you can see structuring an organization is not easy. There are many possible failure points and thus the biggest mistake you can make when structuring your organization is doing it without help and that is the eleventh typical mistake when structuring an organization. Obviously, I would love for you to call the Adizes Institute as we have been successfully structuring organizations for over 40 years, but you do not necessarily need our help. Please do find someone you trust and respect to help you through this important process. After all, your structure, more than anything else, will determine if your organization will sink like a submarine or fly like an airplane.

*While this article was written by Senior Adizes Associate, Shoham Adizes it is based entirely, and often taken word for word, from the many books, lectures and manuals by Dr. Adizes on this subject. For more information visit adizes.com