What is organization design?
Organization design is the pattern of relationships and procedures that define how an organization functions. When thinking about organization design, there are two aspects to concentrate on: the architecture, which formally defines authority and the division of labor (often represented by an org chart); and operational processes, which define how shit gets done (often called Standard Operating Procedures or SOPs).
Formal vs. Informal Design
Formal architecture comes from a need for clarity around decision making, roles, responsibility, and authority; creating too much formality in the architecture can lead to less flexibility and a reliance on titles and positional power, as opposed to ideas and knowledge, in decision making. The need for clarity around problem solving, collaboration, and communication leads to formal operational processes which can reduce ambiguity and create more predictable results. Operational processes that are too formal, however, can erect barriers to creativity, create bureaucracy, and lead to less coordination across the organization.
A Model for Organization Design (MODes)
Crossing (formal and informal) process with (formal and informal) architecture creates a grid of four MODes of organizations I’ve named the Hive, the Forest, the Fractal, and the Sandbox. Curious where your organization fits in? Take this assessment.
Organization Design for Startups
Startups begin in the sandbox. As they grow and feel the need for more structure, they often formalize their architecture instead of clarifying their process; by creating titles and reporting structures in the hopes of clarifying how shit gets done, they move towards the forest. While their need is greater clarity with regards to decision making, role authority, and responsibilities, they create titles titles and reporting structures in the hope that architecture will clarify process. This is a mistake and leads to prematurely hierarchical organizations.
An alternative is to do what we did at SumAll. Instead of moving toward the forest, move toward the fractal: clarify processes while keeping the architecture lightweight. You can achieve this by clearly delineating individual authority, roles, and responsibilities without assigning titles or creating reporting relationships. In this way processes help structure how work gets done while the architecture remains fairly informal. Fractal designs keep organizations relatively flat and free of artificial power structures. Creating a flatter organization empowers people throughout the organization to make decisions based on their expertise, experience, and the strength of their ideas, not their hierarchical position.
Organization Design at Scale
The question is, can an organization remain a fractal at scale? That really depends on the culture and management. If the organization cannot, the best way to manage a more complex system of relationships is to move to the hive, by creating clear lines of authority. Managing complexity through greater architecture, however, means less flexibility. The trick is to layer on as little formal architecture as possible while supporting it with operational processes that make it easier to coordinate and collaborate. The danger with operational processes, of course, is the creation of bureaucratic procedures that inhibit coordination and collaboration. At each stage of growth you have to determine the minimal structural requirements necessary to manage your organization’s complexity.
Thanks to all the interest I've received after this post was featured in Fast Company and in Inc, I've decided to teach a Skillshare course on organization design. You can get 75% off "Killing Hierarchy: Org Design for Startups" with code BIGDEAL.
If you're wondering how you'd implement this in your organization, signing up for the class above is the best road, though this post will also give you something to work with.