What is Organizational Design? A Definition

To start with a technical definition: Organizational design is the administration and execution of an organization’s strategic plan. This means that the organization’s strategy determines the optimal organizational design.

As we discuss in our Organizational Development Certificate Program, organizational design is about creating the best fit between the strategic choices of the organization and the organizational setting.

This is represented in the figure below. Organizational design is determined by the strategic direction of the company, a.k.a. the vision, mission, and goals of the company. These lead to strategies that the company competes on, which are enabled through the organizational design.

For example, Company A operates in an established market and is looking to maintain its position. This company will have a low-cost leadership strategy focused on efficiency. In terms of organizational design, this company will have a strong, centralized authority, tight control, and many standard operating procedures.

Company B is an innovative and fast-growing organization that emphasizes learning. This company will have a more fluid and flexible design, a much more decentralized structure, and loose control. Employees work directly with customers and are rewarded for creativity and risk-taking.

In company A, risk-taking and failing are punished, while in company B, it is much more likely to be rewarded, evaluated, and learnings from the failed project will be used as a stepping stone for a new project.