Challenges of system design and optimization

Co-authored with Dr. Johanna Anzengruber

This is article 4 of 6 in the Organization Capability series. The first article, Organization capability: The missing piece connecting organization design and the operating model, introduced the series. The second article, Resolving confusion about organization design, the operating model, and organization capability, defined the three domains. The third article, The operating model and organization design strengths and weaknesses, compared those two key parts of the organizational system.

Challenges of system design and optimization

The limitations of the organization design are one example of the more general problem of system design and optimization. You can’t perfectly design all parts of a system at the outset: because systems are complex, dynamic and messy. It is too hard to figure out all the details up front because we can’t predict all the conditions ahead of time. So the design and optimization have to be addressed sequentially: design upfront, followed by optimization afterwards, while the work is underway. A robust optimization process should include ongoing sensing and a thoughtful approach to tweaking each component: the operating model, organization design, and organization capability.

When designing an organizational system:

• You can’t perfectly design everything all at once. Thus
• You need to start with the design criteria that are most important and get those right before moving onto the other parts of the system.
• Setting the design criteria for the superordinate goals has knock-on effects on the options for designing the other parts of the system. The knock-on effects are revealed only after the work is underway.
• Once you learn about the knock-on effects, you usually have to revisit the superordinate goals and make adjustments to the original organization design to ensure the design is achieving the intended objectives (KPIs) required by the strategy and operating model. In some cases, the original design itself may need to be substantially altered.

The role of organizational (or system) design versus what happens in practice is a lot like the first step in designing a building. The architect creates the blueprint, which is just like the organization design. Once the blueprint is created, the contractor has to build it, and an interior designer has to figure out how to make everything work within the structure.

The architect will specify a lot of details which often turn out to be off the mark. Some of the architect’s design decisions will inaccurate because conditions in the real world of construction are never as simple and clear cut as the blueprints assume they will be. There could be shortages of certain materials or their prices end up increasing beyond the originally planned budget, necessitating changes.

The architect also has to make assumptions about the conditions at the building site, which have to be verified and, if needed, adjusted by the engineer. For example, the soil conditions might require a different approach to shoring up the foundation of the building, which in turn changes some of the structure’s design elements. So it is impossible to know what all the details of the final structure will be until after it is built under real world conditions. This is why the architectural building blueprint is analogous to the organization design, including details about high-level decision rights, matrix design, and lateral integrating structures.

The other source of uncertainty is that architects cannot fully know ahead of time exactly how the people would prefer to use the space. Once the shell of the building is complete, only then can final design decisions be made. What are the limitations of each part of the building, in terms of the range of uses they can be put to? For example, the plumbing may have to be routed differently than originally designed, changing the location of bathrooms, kitchens and dining areas. Where should all the walls be located exactly? To what use will each room be put? Will there be a closet added within a room? Do some rooms require greater sound proofing in the walls, floor and ceiling? Where are reinforcements in the walls and ceiling needed to secure built-in cabinetry and heavier lighting fixtures or electronic equipment? These are all decisions that can’t be specified completely ahead of time, and which are addressed once the basic structure is built.

After the blueprint is set at the outset, the interior designer and contractor optimize the design created by the architect, once the initial structure is in place. The equivalent work in organizations is everything that follows the design of the high-level decision rights, matrix design and lateral integrating structures: getting it all to work together as seamlessly as possible in practice. Which means spending a lot of time and effort on work processes and rewards.

Next article: Organizational capability definition, strengths and weaknesses.

For more details and a deeper dive into this topic, please join us for the workshop Optimizing Capability to Drive Business Performance in Chicago November 7-9, 2023.