Conference Proceedings

15th Toulon-Verona Conference "Excellence in Services"

College of Management Academic Studies, Rishon
Lezion, Israel, 3-4 September 2014
pp. 309-318 - ISBN: 9788890432729

ALIGNING ORGANIZATIONAL STRUCTURE WITH STRATEGY,

THROUGH BUSINESS PROCESSES ANALYSIS
Abstract: this paper describes the methodology used to align the organizational structure of
a two medium size construction companies and a small office furniture manufacturer, with
its medium term strategy. The first step was mapping out the processes in their current
situation by identifying the key elements in each one, such as exits, entrances, main
activities and accountabilities. Subsequently, it was received as an input the strategy
defined by the organization. From the process and strategy information a proposal for
organizational structure was made, considering all functional positions, the process
requirements and the strategy needs. We Identified as advantages of this approach: a) a
more comprehensive analysis of job accountabilities related with functional responsibilities
and process roles; b) job position roles were identified for the organizational system and not
just in a functional area framework; c) action and judgment perspectives were expanded
and clarified,for job position occupants considering the organizational system panorama; d)
it helped to improve organizational communication because interactions with other areas
were defined, and also process roles are natural work now; e) gray areas in terms of
responsibility were minimized, because process definitions established accountabilities in
each process where job posts participate.
Authors: Rafael Espinosa and Jorge Parada;
PPIM Consultant Group; Email: re@ppim.com.mx

I. - Introduction.

Organization Design: accordingwith Kates and Galbraith (2007) organization design is the
deliberate process of configuring structures, processes, reward systems, and people
practices to create an effective organization capable of achieving the business strategy.
According with this point of view the organization is not an end in itself; it is a vehicle for
accomplishing the strategic tasks of the business. It is an invisible construct used to harness
and direct the energy of the people who do the work. We consider that the vast majority of
people go to their jobs each day wanting to contribute to the mission of the organization
they work for. Too often, the organization is a barrier to, not an enabler of, individual
efforts. We have observed that when left to their own devices, smart people figure out how
to work around the barriers they encounter, but they waste time and energy that they could
direct instead to improving product and services, creating innovations or serving customers.
One of the main purposes of organizational design is to align individual motivations with
the interests of the organization and make it easy for individual employees to make the
right decisions every day. Furthermore, a well-designed organization makes the collective
work of accomplishing complex tasks easier.
Organization design is a decision-making process with numerous steps and many choices to
make. A decision made early in the process will constraints choices made later, foreclose
avenues of explorations, and eliminate alternatives, resulting in far reaching impacts on the
ultimate shape of the organizations. Making sound decisions at these early, critical
junctures requires a theoretical frame workthat gives credence to one choice over another.
Yet many leaders and their teams still make organization design decisions based largely on
their own individual experience and observation. A common framework for decision-
making has a number of benefits. It:

Provides common language for debating options and articulating why one choice is
better than another in objective, impersonal terms.
Force design decisions to be based on longer-term business strategy rather than the
more immediate demands of people and politics.
Provides a clear rational for the choices considered and an explanation of the
implications of those choices as the basis for communication and successful change
management.
Allows decision makers to be able to evaluate outcomes, understand root causes,
and make the right adjustments during implementation.

The Star Model: we consider the Star Model developed byGalbraithas our frameworkfor
organization design.It has five main elements: Strategy, Structure, Processes, Rewards and
People Practices. Its basic premise is: different strategies require different organizations to
execute them.

A strategy implies a set of capabilities at which an organization must excel in order to

achieve the strategic goals. The leader has the responsibility to design and influence the
structure, processes, rewards and people practices of the organization in order to build these
needed capabilities.

Although culture is an essential part of an organization, it is not an explicit part of the

model because the leader cannot design the culture directly. An organizations culture
consists of the common values, mindsets and norms of behavior that have emerged over
time and that most employees share. It is an outcome of the cumulative design decisions
that have been made in the past and of the leadership and management behaviors that result
from those decisions.

The idea of alignment is fundamental to the Star Model. Each component of the
organization, represented by a point on the model, should work to support the strategy. The
more that the structure, processes, rewards, and people practices reinforces the desired
actions and behaviors the better able the organization should be to achieve its goals. Just as
important as initial alignment is having the ability to realign as circumstances changes. The
configuration of resources, the processes used, and the mental models that contribute to
todays success will influence the plans made for the future. In a time of stability, this
creates efficiency. In a time of change, such static alignment can become a constraint. The
organization must have alignment, but it also needs the flexibility to recognize and respond
to opportunities and threats.

It is always easier to change a business strategy than to change an organization just as it is

easier to change a course beforehand than it is to turn a large ship that is already under way.
The more rapidly the organization can be realigned the faster the leaders can turn the ship
and execute new strategies and opportunities as they arise. This is especially important for
large companies that must compete against smaller, nimbler organizations. Therefore,
alignment is best thought of as ongoing process rather than a one-time event.

The Star Model has five main elements, we will comment about them.

Strategy: is a companys formula for success. It sets the organizations direction and
encompasses the companys vision and mission, as well as its short and long-term goals.
The strategy derives from the leaderships understanding of the external factors
(competitors, suppliers, customers, and emerging technologies) that bear on the firm,
combined with their understanding of the strengths of the organization in relationship to
those factors. The organizations strategy is the cornerstone of the organization design
process. Without knowledge of the goal no one can make rational choices along the way. In
other words, if you dont know where you are going any road will get you there.

The purpose of a strategy is to gain competitive advantage: the ability to offer a customer
better value through either lower prices or greater benefits and services than competitors
can. These advantages can be gained through external factors such as location or favorable
government regulation. They can also be secured through superior internal organizational
capabilities.

Organizational capabilities are defined as the unique combination of skills, processes,

technologies, and human abilities that differentiate a company. They are created internally
and are those difficult to others to replicate. Creating superior organizational capabilities in
order to gain competitive advantage is the goal of organization design.

Organization design is a series of choices and decisions. In any decision making process,
clear criteria serve the purpose of allowing alternatives to be evaluated against agreedon
standards. The criteria used for organization design decisions are the organizational
capabilities that will differentiate the organization and help it execute its strategy. The
organizational capabilities are the link between the strategy and organizational
requirements that strategy demands.

Structure:an organizations structure determines where formal power and authority are
located. Typically, units are formed around functions, products, geographies, or customers,
and then configured to a hierarchy for management and decision making. The structure is
what is shown in a typical organization chart.

Organization design is not limited to structural considerations, and many variations of a

structure can be made to work. But if the structure is not approximately right, then it will be
harder to align the other design elements with the strategy. The structure sets out the
reporting relationships, power distribution, and communications channels. It determines
who comes in contact with whom. The structure projects a message about what work is
most important. If the structure does not at least normally support the strategy, then
everyone in the organization will find themselves working around a formidable obstacle.

Processes:leaders frequently lament the organizational silos that prevent people from
working together. Silo evokes an image of an invisible but windowless tower surrounding
vertically stacked groups not just from interacting with one another but from even being
able to see another groups perspective. Breaking down the silos is a common theme in
discussions of organizational change.

All structures create silos. Whenever people are grouped according to one logic, boundaries
are created that make it difficult for them to interact with groups formed according to a
different logic. This is not a problem if the strategy does not require a high level of
interaction or collaboration across these boundaries. But if the strategy does require
collaboration, then the organizations structure- no matter how well thought out- will create
some barriers to collaboration. The organizational challenge becomes how to bridge these
internal boundaries and integrate activities. Processes and lateral connections provide the
required mechanisms of integration.

We use the term process to mean a series of connected activities that move information up
and down and across the organization. This includes work processes, such as developing a
new product, closing a deal, or filling an order. It also includes management processes,
such as planning and forecasting sales, business portfolio management, price setting,
standards development, capacity management, and conflict resolution. Processes that cross
organizational boundaries force organizational units to work together vertically or laterally.
Clear articulation of roles and responsibilities at the boundary interfaces is essential for the
design of good processes.

Rewards:Metrics and rewards align individual behaviors and performance with the
organizations goals. For employees, a companys score card and reward system
communicate what the company values more clearly than written statement can. Metrics
are the measures used to evaluate individual and collective performance. The reward
system motivates employees and reinforces the behaviors that add value to the organization
through salary, bonuses, stock, recognition, and benefits.
People Practices:By people practices, we mean the human resource policies for selection,
staffing, training, and, development that are established to help from the capabilities and
mind-sets necessary to carry out the organizations strategy. Complex organizations require
employees at all levels to have a fundamental set of competencies to interact across
organizational boundaries, participate on teams, and make decisions that take multiple
perspectives into account.

Why are we interested in the process management role inside the Star Model
Framework?

Positioning ourselves in theStar Model context, and having worked with management
process systems for severalyears, comes out our interest in analyze the method for
organizational processes and management system alignment with the strategy, and how
tolink this information with theorganization structure alignment. We identify a potential
favorable impact in structure validation or redefinition process agility, and formalizing
organization lateral connections in job descriptions.

II. Objective

Analyze a methodologydeveloped and applied in the context of the Star Model for
organization design in two medium size and a small companies, to align organizational
structure with strategy through business processes analysis.

III. -Context

During our career experience, we have participated in several projectswith various

organizations, where main purpose has been to review organizational structure for various
reasons, such as: cost reductions, restructuring of functional areas, the birth of a new
function, define functional responsibilities, etc..; but rarely, we have observed that the
purpose had been aligning organizational structure with strategy. Mainly due to the
paradigm, that is very difficult to adapt the structure without major organization upheavals.
We have observed that organizations prefer to carry outstrategy implementation
overcoming obstacles posed by a poorly alignedstructure.

Additionally, when conducting an organizational structure and job descriptions review,

most of the times, they arecarried out with a functional point of view,and just with day to
dayactivities information of stall occupants,and their immediate superiors; without
considering critical issues related with strategy deployment, specifically key organizational
capabilities that should be strengthened or developed from their areas of responsibility.
Normally, they address these issues with a task force or project configuration that implies
temporary efforts and most of the times are not finally systematized.

Also, when reviewing organization structure and job descriptionsjust from the functional
perspective, its common to avoid taking into consideration some business
processactivities, such as interactions with other departments or process roles, which
sometimes causesthe omissionof certain activities required for proper
processperformance,in job descriptions, that causes organizational silos reinforcing and
hinder communication between functional areas. From our point of view,there is one main
factor influencing this behavior, poor business processes visibility, because processes are
in operation, but frequently there is not a clear definitionabout their internal or external
products or services, result indicators, entrances, boundaries, critical activities, control
variables and accountabilities.

The three companies considered for this analysis had thenecessity of improve their
organization design, to assure strategy implementation and improve performance. We
decide to use the Star Model framework for this purpose. Process visibility was also an
issue to address in all of them.Considering these facts the stepsequence for organizational
structure alignment with the strategy was established in this way: a) mapping out the
organizational processes in their current situation; b) analyze the strategy defined for a
medium term period (2 to 3 years), identifying value proposal, competitive advantages and
main capabilities required for successful strategy implementation; c) define business
process to be status aligned with main capabilities reinforcing or development d) review
organization structure and job descriptions according with process information obtained in
step c.The projects have been implemented during 2011 and 2012.

III. - Implementation phases.

Mapping business processes in their current situation:we began this stage with a focused
training to familiarize the project team with the basics of process management and the
methodology for process mapping implementation. The main purpose was to have a
common knowledge basic reference for business process owners and management team.

The methodology for process mapping begins with the organizational processoverview. We
call it Level zero map.

Then we take each process and develop the detail for everyone. The characterization of
each process is defined by the following elements: outputs or deliverables; result indicators
aimed to assessprocess performance; outside inputs; main activities for process execution;
critical activities, those that have the greatest impact on process performance;variables or
process control indicators, used to monitor critical activities and finally the definition of
responsibilities for each activity execution. We obtain a map with all this information. A
map with this level of detail,its called Level one Map. In this step, we are looking to
have process activity descriptions detailed enough to analyze in depth the process behavior,
but taking care of not to break them down to unpractical extremes.

We carriedout previous described work facilitating a meeting, where we interacteddirectly

with natural process ownersand people who had a role in the process, even if they belonged
to a different functional area. This method allowed us to move forward in an expeditious
manner to get the map in this level, while at the end of the exercise information wasalready
validated. Another important point during this step wasthe opportunity to start showing to
project team the interfuncional characterof processes in the organization.

Once all level one maps have been developed a meeting with process ownersand
management teamwas done, for validatingboundaries, points of contact and interaction
between them. It was common to identify activity duplication or areas for improvement due
to functional focus that could be eliminated improving departmentcoordination. This is a
hermeneutic course that helps us to enhance the visibility and understanding of business
process, starting with the panoramic view level zero, and then positioning ourselves in
each process level one for a detailed analysis, returning to the big picture level zero,but
with more elements to clarify and increase the understanding of the initial view.

Strategy analysis and its implications for a short and medium term period (1 to 3 years):in
this stage,we focus onvalue proposition analysis for actual and potential customers,
identifying competitive advantages to be developed or reinforced, for provide better value
through lower prices and/or increased benefits, compared with those delivered by
competitors. Once the value proposition has been established, key capabilities required are
addressed.

For example the office furniture manufacturing company considered to implement over a
two years period, a comprehensive solution to its customers (distributors) taking into
account issues such as: flexibility (reduction of delivery times), increase product variety for
different market segments (development of clearly differentiatedproduct lines), competitive
prices in each market segment, friendly modular product design for installation in different
types of spaces and provide advice to furnish office space.To implement this solution
identified as a desired competitive advantage, they need to strengthen key capabilities as: a)
production flexibility, productivity and qualityand b) design and development of new
products.

In this stage is critical to have a clear definition of competitive advantages and key
capabilities to enable them.

Organizational capabilities are defined as a unique combination of skills, processes,

technologies and human skills that differentiate an organization (Galbraith), other authors,
state them in a broadersense, as a combination of tangible and intangible assets that are part
of theOrganization Resource Base (Grant), which are combined to develop or strength
them. In this paper we consider the Organizational Resource Base typology identified by
Bernard Marr's approach (The dynamics of value creation: mapping your intellectual
performance drivers, 2004) that ponders the following tangible and intangible assets:
human, intellectual property, financial, cultural, relational, physical and practices and
routines.

To have consistency in organizational capabilities performance to offer regularly value to

customers its necessary that they have a systematic operation. This point leads us to
consider the possibility of associate, align or design organizational processes around key
capabilities, on the premise thatprocess definition is arbitrary according to the nature of
the organization, and process primary definition is set as a sequence of interrelated
activities to provide a product or service", where the product or service could be associated
with the competitive advantages included in the value proposition. Also we considerthat the
Organization Resource Base is manageable by a process scheme.

Grounded on the above premises, we view feasible to align and/or design organizational
processes that have a direct impact on the planned competitive advantages and help to
systematize key capabilities.

Define business process to be status aligned with main capabilities:starting with

organizational processescurrentstatusand taking into account desired organizational
capabilities, management team and natural processowners identifiedmain gaps in them, or
if there wasnecessary to develop a new process for harmonizing activities already carried
out, orintroducing a completely new one.

Derived from this analysis we found the following aspects: a) excessive process
fragmentation, due to a functional approach to define them; b) partial characterization,
because there werenot identified all the elements mentioned inthe current situation
mappingphase; and c) there were missing processes to carry out the desired capabilities.

The first two situations hinder the alignment with key capacities. Management team and
naturalprocess owners worked in redesigning, strengthening or aligningthem. To carry out
this task requires a hermeneutic method, where the initial reference is the organizational
capability to develop, and then assemble the "jigsaw puzzle" of thedesired organizational
process or processes, traveling constantly from panoramic to specific views, taking in
consideration theorganizational capability targeted.

When the third situation was identified, it was established a project task force to carry out
the process design. This point could be an issue to consider in a medium term according
with its complexity and scope, because most of the times additional resources are needed
and should be considered in budget planning.

At the end of this stage, we had robust processes that supported competitive advantages and
key capabilities, characterized in a manner that its possible to manage them carefully and
control their deliverables. We obtained good process representation as maps, with all the
information required for characterization.
Review organization structure and job descriptions: we have observed most of the times,
organizational structure and job descriptionsanalyses, supported just in a functional
perspective for identifyingpersonnel responsibilities and tasks.

As mentioned before, we started with current status process analysisin the three companies,
and then where strategy was already developed, we consideredit as an input and continued
with business process alignment. Where strategy was not established we implemented the
corresponding course.

Once level one process mapsfrom last step were in place, we worked with them to
analyze in detail every activity performed for every position that appeared in the map. With
this information organizational structure was validated or enhanced taking in consideration
process and functional objectives, accountabilities, control sections and activityaffinities.
Then,all activities carried out for every job positionin each level one process were
summarized. Finally job position descriptions were documented in terms of purpose, main
accountabilities and interrelations. The job position description format didnt change but
content includes aspects related to functional and business process accountabilities aligned
with the strategy as main difference.

We observed that aligning organizational structure considering strategy and process

informationpermitted:

Amore comprehensive analysis of job accountabilities related with functional

responsibilities and process roles.
Job position roleswere identified for the organizational system and not just in a
functional area framework. This aspect contributed to clarify roles of participation
and involvement of a job position in different organizational processes.
Action and judgment perspectives were expanded and clarified, for job position
occupants considering the organizational system panorama
To improve organizational communication because interactions with other areas
weredefined and also process roles are natural work now.
Gray areas in terms of responsibility are minimized, because process definitions
establish accountabilities in each process where job posts participate.
Group performance evaluation around a process framework was facilitated, because
there were clearly defined roles and accountabilities for each job position and
process deliverableswere established, as a result of process group performance.

IV. Conclusions

Aligning organizational structure with strategy, through business processes

analysisenrichedstructure definition with a combined view of functional and process
accountabilities.
To accomplish the above point, there were identified two key aspects: a) strategy definition
in terms of value proposition to customers and prospects, considering competitive
advantages andkey organizational capabilities and b) definition and characterization of
organizational processes to facilitate their management (process visibility).

On the other hand, it was important the team workingmethod, which involved natural
process owners inmapping current and desired situationstages, as it helped to break
downfunctional inertia that we have found in these casesand in other interventions.

We also noted that a scheme of this nature facilitated business objectives deployment, as
processes and structurewere aligned, it was done naturally from organization to personal
objectives. Also it was possible to identify indicators of process closely linked with the
organization goals and objectives.

We noted that this approach is compatible and complementary with an outline of Balance
Score Card, as it facilitates the causal relationships between main objectives and processes.

Finally, the purpose of this article is to share our experiences in these organization design
implementationcases. We consider thatbusiness processes management could have a major
role onorganizational capabilitiessystematization; we got some guidelines, questions and
ideas for further work on this topic.

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