When is an Organization Design Good? 7 Indicators of an Effective Organization

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Organization Chart > Best Practices > When is an Organization Design Good? 7 Indicators of an Effective Organization

When is an Organization Design Good? 7 Indicators of an Effective Organization
Marten van der Zee, Student (University), Netherlands, Premium Member
Today, most managers believe that happy, committed, actively involved employees and a positive corporate culture are important measures of effectiveness.
Richard L. Daft in his book 'Organization Theory and Design' says there are seven indicators of an effective organization as seen from an internal process approach:
1. Strong corporate culture and a positive working climate.
2. A high team spirit, group loyalty and teamwork.
3. Confidence, trust and communication between employees and management.
4. Decision making near sources of information, regardless of where those sources are on the organizational chart.
5. Undistorted horizontal and vertical communication; sharing of relevant facts and feelings.
6. Good rewards to managers for performance, for growth and development of workers and for creating an effective work group.
7. Interaction between the organization and his parts, with conflict that occurs over projects resolved in the interest of the organization.

Seven Indicators for Good Organizational Design
Marcel Wiedenbrugge, Consultant, Netherlands, Member
I would call this the holistic approach, which is by nature interactive and collaborative. The challenge is the keep it consistent when the organisation grows.

Organization Design: 7 Indicators of Effectiveness
Ruud Trietsch, Business Consultant, Netherlands, Member
In addition to Marcel Wiedenbrugge: these indicators are not only applicable to a growing organization but perhaps even more when the organization is shrinking (due to economical circumstances).
This affects not only the working climate, but also the group loyalty towards the organization.

How can there be an Effective Organization Without Focus on the Customer?
Eric Schmitz, Consultant, Belgium, Premium Member
Indicators of an effective organization as seen from an internal process approach are already not effective. An organization should be oriented on his customers to be effective on the long term. How do you measure effectiveness if not by the level of customer satisfaction?
The indicators are indeed all internal process oriented and they give no view on the ultimate goal of the organization: satisfy the customer. Does the author give more information about the link between the internal processes and the link to the market?

More Indicators of an Effective Organizational Design
Loek Hopstaken, Consultant, Netherlands, Member
Daft mentions good points, but misses i.m.o. some crucial elements, such as:
- The organization must be able to repair / update itself (dynamic; keep up with the changing times)
- Ensure that governance & business ethics are not just words, but part of the whole company, from everyday operations to corporate strategy
I also miss references to a healthy financial situation, and a positive reputation. Daft limits himself to the people & the organizational lines (communication). These are all important, but omits the responsibilities & authorizations that should be clearly defined in any organizational design, to clarify the organization for all concerned.

How can you Measure those Internal Indicators?
ANTONIO REYERO, HR Consultant, Spain, Member
The purpose of an effective organization is responding to its business goals successfully in a sustainable manner. In my opinion, an internal process approach is not enough, as it does not consider the business and market environment, as it was very well pointed out by other comments.
Moreover, how can you measure those indicators accurately so that you can benchmark?

Thinking from an Inside-out Paradigm
Gary Wong, Consultant, Canada, Premium Member
I sense we have always looked at an organization chart with an "Outside-In" approach and thus end up creating an internal org structure. But now we know all organizations are externally connected and networked together. Richard Daft in his book recognizes that organizations must thrive amidst a rapidly changing, highly competitive, international environment.
What if we take an "Inside-Out" approach? In this paradigm I see an organization chart as an enabling tool that organizes People working in Processes to execute Strategies that deliver desired Results to Customers and Stakeholders.
The 7 Indicators are effective internal measures and can be applied to explain why great leaders are able to plan and execute to deliver great results.

I'd Prefer Things More Fact Based
sourivong, Management Consultant, Hong Kong, Member
In lean management you'll find things like these:
1. Span of control from 7 to 12
2. Effective cascading (smart) objectives (kra, KPIs, etc...)
3. Working problem escalation process
4. Consistent ceremonies (team meeting, 1:1...).

Compare Demings 14 Points for TQM
John Chamberlin
I suggest you compare / contrast those 'Seven Indicators' with W. E. Deming's (1986) '14 Points of Management'.

Fluid Organograms Via Clutter Free Communication
Arif ur Rehman, Professor, Pakistan, Member
I endorse Eric Schmitz’s and John Chamberlain’s views. Additionally, organizational effectiveness today demands fluid organograms with a pulse on volatile client/market needs and acting pre-emptively in a clutter-free communication setting.

Indicators of an Effective Organization
Prof. Alkis S. Magdalinos, Business Consultant, Greece, Member
Hi Marten, these principles are very correct. For example these discussions at 12manage are made possible with well educated persons who have open communications channels through their laptops whenever they need to communicate and wherever they are. It is based on good teamwork in an interactive communication system based on teams which work horizontaly and not vertically, and have independency within the general context of company strategy. The structure is based on a "value chain" theory.
Actually, I am authoring a management textbook based on the value chain; it is an entirely different view from the format of other management textbooks.

In Favor of Complexity ..
Ulrich Schweiker, Director, Germany, Member
.. I prefer to view an organization BOTH ways: inside-out and outside-in.
An effective and successful design implies the need to focus on both, external and internal stakeholders. The challenge is to find and establish and constantly re-adjust to an appropriate balance between those.

Indicators for Effective Organizations
Sarel Rossouw, Business Consultant, South Africa, Member
I suggest to add:
- Clearly defined, internalised and instritutionalised enterprise strategy, and
- Clearly defined business unit performance measures.

Tools / Indicators for Effectiveness of Organization
Gerhard Friedrich
A lot of helpful comments. But some members have stated desires instead of tools / indicators which a manager can use to make an organization effective.
Also I think we should make a distinction between the organizational structure (which seems to be the topic here) and all the factors concerning leadership, culture etc.
An alternate simple set of criteria for the effectiveness of an organizational structure I like to use is:
1. Congruency of responsibility (what a unit has to provide) and competencies (what a unit is allowed to influence)
2. Congruency of tasks assigned to organizational units and resources that are assigned to each unit).
3. Synergy of tasks that are assigned to each organizational units (e.g. do the different tasks "help" each other, can the same type of people manage the different tasks).
These criteria could be used to check an organizational chart during a project to redesign an organizational structure.

Relevance of the Sector in which the Organization is in
Kurt Ludikovsky, Consultant, Austria, Member
It's maybe also a question in which sector are we operating, what kind and what size of operation, as well as under which cultural circumstances do we operate.
Will this be the same for a design lab in Canada, or a plantage in South Africa or a textile manufacturing shop in Bangladesh.
I would take this list as a start, but not limit it to it. Because for someone who has only a hammer in his toolbox, the solution to any problem would be a nail.

Indicators of Good Organisational Design - An Organization is a Living Thing
david, analysts, Australia, Member
An organization is living entity, thing. To fight a battle, the troops must be with you. Look at: stories, quantity of incidents, poor change processes & problem management, how well is reporting done. This is a multifaceted topic, but there will be a core/base of truth from which each area will feed into. Remember life changes, so do people, inputs/outputs and the organisations which survive.

Additional Indicators of an Effective Organization
Raziq Hussain, Manager, Pakistan, Member
I agree an inside-out approach/look is also necessary to be taken. Further the following points must add up to the list of indicators of an effective organization:
- Pragmatic approach towards the organizational goals.
- Well defined responsibilities and authorities.
- Well defined monitoring and control system (M&C).

How to Measure if these Criteria Have been Met?
afshari, Student (MBA), Iran, Member
These 7 criteria for organizational effectiveness are not easy to measure. I agree the size of company as well as the industry it's in are important.
I am looking for applicable tools to measure if the criteria have been met. And to contrast them between two companies. Does anybody have any idea about this?

Ethical Performance and Compensation
Arif ur Rehman, Professor, Pakistan, Member
@Sarel Rossouw:
- Clearly defined measurements of ethical performance and ethical compensation, a further addition.

Indicators for Effective Organizational Design
Enrique Benjamin Franklin F., Professor, Mexico, Member
The organizational design is key for an organization to cope with competitive pressures, globalization and management of information technology, particularly how to deal with contingency and assimilate the changes over time is experiencing in its cycle life.
In my opinion, a sample of indicators of organizational design are as follows:
- Line units/total number of units
- Staff units/total number of units
- Strategic business units/ total number of units coordination mechanisms/total areas in the organization
- Environment analysis/organizational analysis conducted
- Resources proposed context management/resources management context used.

7 Indicators of an Effective Organization
Rashid Ali Baloch, Manager, Pakistan, Member
I guess the more important indicator of an effective organization is the wide acceptability of its "product" and the "processes". If the customers (internal or external) are of the calibre and class to which peoples wishes to be. Now all 7 indicators are "reasons" for making an organization effective and its the wish of every management to have all 7 indicators or attributes but how to have these in the organization? How to measure their existence? And how to prove a "successful employee" is there? This is not easy. Congruence between the expectations of customers, management, community and organizational goal is only way forward for the effectiveness of an organization.

Dealing with Complexity
Ulrich Schweiker, Director, Germany, Member
Dealing with complexity demands a different approach.
- Human capital index summarizes very different aspects into an index... And the interpretation is either "flat" or "too sophisticated and inappropriate". I fear an organization effectiveness index incorporating the seven aspects would be similar... Nonsense...
- If I read "a high team spirit" and think of organizations with some hundred employees... Is that really something measurable?... Is it even desirable? And: can it be managed? And what about an organization with 50 teams internally actively striving to realize (several goals, I guess), if 20 teams have high spirits, 20 low spirit, and 10 medium level spirits... Does that say anything about the effectiveness of such an organization: maybe the more important teams - vis-a-vis their contribution to the value-adding of the whole - are those with high spirit...
- To deal with complexity does involve a continuous shift of perspective (==> pattern recognition), change of criteria over time, etc.

Are these 7 truly 'Indicators' of an Effective Organization?
Enrique Benjamin Franklin F., Professor, Mexico, Member
I think you mentioned something important. Daft handles lines of action, great goals, valuable criteria, parameters, but these are not really indicators.

Toyota Production System (TPS) - House of TPS
Ruud Trietsch, Business Consultant, Netherlands, Member
Toyota Production System...For a "best practice" in history, I would like to refer to the model "House of TPS" depicting graphically that Toyota´s quality sets on the combination of "Just-in-Time", "Built-in- Quality" and "Highly Motivated People".
All that stands on a foundation of Operational Stability and Kaizen, bolstered by visual management and standardized work.
Toyota gave birth to several managerial methods as Lean (value stream based), Six Sigma (improving variance) and many other. (strategic) management is supposed to act open minded towards the environment the company is placed in.
The last decade companies therefore focus on value-chains as well as customer centricity. Thus: both inside-out as well as the other way around. The 7 indicators of effectives merely seem to be a "makeover" or a translation of the TPS Method Toyota has introduced about 60-70 years ago.

Developing in Circles
Ulrich Schweiker, Director, Germany, Member
@Ruud Trietsch: Yes - and no: Toyota has obviously established a very successful system. Whether the TPS describes it correctly is a different question: very often something right is overemphasized if put into a concept or theory!
I think we have to shift the perspective here as well as including into our view also those Toyota suppliers who are pressured to deliver high quality product at low prices: they may have the less motivated people with minimum living standards... Since they are not part of the Toyota family of companies...
And part of the reputation of Toyota is based on their endurance of conditions... Outsourcing of some manufacturing may also include the outsourcing of problems... And it may also mean the outsourcing of less great indicators for effectiveness...

Use the 7 Elelements for Managing Complexity Down the Organisation
Kurt Ludikovsky, Consultant, Austria, Member
@Ulrich Schweiker: now even as I agree that those seven elements for an effective organization may be a little simplistic, they may form a solid base for evolution.
The answer to complexity could be to break it down into manageable pieces while applying the same/similar principles. This can be done recursively several times until you reach a manageable size. Some companies have done this down to the line workers. In a way so that the person himself has a certain degree of freedom for his/her work environment. With the effect of high efficiency, high employee satisfaction and low employee turnover rates.

Six Sigma Did not Originate in Toyota
Vishwanath, Professor, United States, Member
@Ruud Trietsch: Sorry, Six Sigma did not originate in Toyota. Motorola was the first company to introduce Six Sigma concepts.

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