How to Structure the Organization Design of Your Company
Originally published: 07.01.06 by Ron Smith
When I founded my first air conditioning and heating company back in 1965 — 41 years ago — I had never heard the term “Organization Design.” However, if I had heard the term, the design would have been quite simple. I was the only person in the entire company, and it was my responsibility to sell jobs, install jobs, collect money and service jobs — along with everything else. I know some readers can relate.
I was very fortunate. Over the next two decades, the company grew from very small to small to mid-size to large to huge. Although I did not realize it for many years, the design of the organization took place by osmosis. Coworkers were hired or promoted to fulfill areas of responsibility and authority and as a result, management positions were created. The major mistake being that positions were tailored to fit the skills, or lack of skills, of individuals rather than designing positions and then finding individuals who had the skills to function in the positions. Later, in other companies that I purchased and managed; and, most certainly in my many years of consulting, I observed the same design mistake happening time after time.
Design by osmosis is not the answer to an efficiently operated and profitable company. It was not until the early 1980s, when a consultant to my contracting company and I went though the Managing Organizational Effectiveness program at Harvard Business School that I appreciated and understood the various organization design models. It was there that we determined that a basic functional design best fits most all HVACR companies and is the model I adopted in my companies and recommended to my consulting clients.
Using the functional model, we develop a design with a general manager being at the top of the chart and three leaders reporting to him or her. The three leaders representing the basic functions are sales, production (or operations) and administration.
I must make the important point that the work of the general manager and three leaders does not necessarily require the work of four separate people. Four “hats” are required, but a person or persons can wear more than one “hat.” This would be common in a small company and even at times in a mid-size company. As an example, the general manager (normally the owner) is often the sales leader. In fact, in a very small company, using this design one person wears the “hats.”
I always explain the functions as follows: The sales leader is responsible to produce the budgeted sales (or more) at the budgeted gross margin (or more); the production or operations leader is responsible to perform the work at the gross margin (or more) at which it was sold; and the administrative leader keeps score.
The sales leader gets business in the door, the production leader gets business out of the door, and the administrative leader informs us how we are doing. In a mid-size and larger company, the sales leader normally has comfort consultants (sales reps) and a sales lead coordinator reporting to him or her. The production leader normally has one or more supervisors, a service dispatcher working with the technicians, customer service representatives taking service calls, an installation coordinator, service technicians, and installers reporting to him or her. The administrative leader normally has a bookkeeper, and any other clerical and administrative co-workers reporting to him or her.
In some companies, the warehouse/material handling co-workers report to the production leader, and in other companies they report to the administrative leader. The general manager is the “orchestra leader.” Remember, any person or persons in the entire organization can wear more than one “hat,” but the design stays the same. In large companies, you still have the same three functions. It is just layered with more co-workers, departments and sub departments.
I am so passionate about training that I always insist that one of the leaders wear the training director “hat,” a separate function of its own, and it is often the general manager/owner. Large and huge companies enjoy having a full-time dedicated training director. The training director does not do all of the training. They are responsible for making certain that the company always has a structured meaningful training program in place.
In the design process, you start with a clean slate. First, identify all of the required positions under the three functions. Second, define and write the job descriptions for those positions. Third, interview those co-workers within the company who you feel may fit the positions that you designed. Fourth, interview recruited co-worker candidates who you feel will fit any open positions. Fifth and lastly, complete the process by placing only the most competent co-workers in the designed positions, regardless of whether they were already a co-worker or a new hire.
Now you have an efficiently designed company and design by osmosis is no longer a part of your company.
Articles by Ron Smith
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