THE ORGANIZATIONAL

SYSTEMS MODEL
A tool for developing high performance

STAKEHOLDER
RESULTS
NEEDS
UNDERLYING VALUES
& BELIEFS

STRUCTURE

STRATEGY &
PROCESSES PEOPLE CULTURE
CAPABILITIES

REWARDS

THANK YOU

© 2013 The RBL Group & Dave Hanna

All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means,
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 This is how a manager once described his
“For years managing our business dilemma. Does this sound familiar to you?
Have the Information Age, the global market
was like playing chess. You place, fluctuating economic cycles, and
could be slow, deliberate, and evolving stakeholder needs combined to
methodical. But things have raise the standards of excellence for your
organization?
changed. We’ve got to cut
In this paper I would like to share a tool with
cycle times. Our quality has you that has helped many managers improve
to improve dramatically. Our their organizations—and help chess players
see themselves as hockey players—in many
associates have more demanding cultures around the world. It can help you
work expectations. And the shape what is called a High Performance

competition is much tougher than Organization (HPO)—an organization that

surpasses the most important expectations of
it used to be. Now it’s more like its key stakeholders.
playing ice hockey than chess.
We’re getting pushed and shoved
while we’re trying to keep our
balance and work as a team. The
problem is, all of our people still
think they are chess players. And
they think all the pushing and
shoving is unfair.”

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THE ORGANIZATIONAL SYSTEMS MODEL

A common error in organizational improvement work is perfectly designed to get the results they get.” Think
to address certain design elements in isolation. Because about this statement for a minute. What this means is
of this flaw in approach, setting a strategy, adjusting the every organization has ways of balancing out the many
executive compensation system, revising hiring criteria, demands for its time, attention, resources and energy.
downsizing, outsourcing, and similar activities too Depending on the balance struck, the organization
often do not deliver the desired outcomes. The missing performs and delivers results. Think of this balancing act
piece is a framework that enables leaders to see the as “design.” Design is not just structure. It is not always
organization as a whole system. The holistic picture of formal or conscious. This balancing of resources isn’t
your organization will help you identify the few things always fixed—you may not do things the same way
you can do to have an enormous impact on your bottom every time and your results may vary (even drastically!)
line—and eventual survival. from month to month. However, you can’t really argue
The Organizational Systems Model (OSM) is a framework with this statement—the fact that certain results occur
for keeping in perspective the big picture of key variables (and not others) verifies that some design has been
that impact organizational performance. perfectly executed.

Indeed, the organization is a system that can appear The key point this process model illustrates is that
to be complex and puzzling to those who manage it. organizational performance can be influenced by the
Arthur Jones, a former colleague of mine at Procter & degree to which critical elements harmonize. So what
Gamble, first coined this phrase: “All organizations are are these elements?

STAKEHOLDER
RESULTS
NEEDS
UNDERLYING VALUES
& BELIEFS

STRUCTURE

STRATEGY &
PROCESSES PEOPLE CULTURE
CAPABILITIES

REWARDS

TheRBLGroup™ ©2013 3
1 Stakeholders Needs These tools provide structure to work tasks and reinforce
patterns of behavior. They are the “glue” holding the
First, the Stakeholder Needs the organization must
culture in place. A key to consistent results is to ensure
fulfill, such as:
that all of these systems are aligned with one another.
•  Shareholder expectations.
•  Customer expectations of product quality and
service.
•  Supplier expectations around product, cost, timing, STRUCTURE
flexibility and trust.
•  Employee expectations of income, challenging work,
PROCESSES PEOPLE
job security and personal growth.
•  Community expectations concerning corporate
citizenship, environmental responsibility, and social REWARDS
standards.
Identifying and meeting the most essential of
these needs and expectations are the very keys of
4 Culture
organizational survival.
Fourth, the Culture of the organization, or the work
2 Strategy & Capabilities habits and norms that explain how the organization
The second element is the Strategy & Capabilities. really operates. The way the system really operates is
The strategy sets the direction for what’s important in what produces results—whether they are good or bad.
the system. It may be expressed as a mission, vision,
5 Results
and/or strategy. It may also include more operational
elements like operating principles, values, and goals. Fifth, the actual Results being delivered currently.
These define what things will be done and what things These results either fulfill or fall short of the stakeholder
won’t be done. They determine what the critical tasks needs listed earlier.
of the organization will be. Organizational Capabilities 6 Underlying Values & Beliefs
are those intangibles that are required to fulfill the
Sixth, the Underlying Values & Beliefs of people in the
strategy. They include such things as efficiency,
organization. This includes the often-invisible elements
collaboration, leadership, strategic clarity, shared
such as individual values, beliefs and assumptions.
mindset, innovation, accountability, and customer
These influence how all the other elements are viewed
connectivity. An accounting firm competing on a
and designed. These beliefs also tell the system when
strategic platform of matchless customer service might
changes are needed or that the status quo is okay.
require customer connectivity, shared mindset, and
efficiency to be successful. The Strategy & Capabilities These are the key elements that affect an
serve as design specifications to shape the specific organization’s results. Now let’s see what an
organizational systems. organization diagnosis process looks like in this
framework.
3 Organizational Systems
The third element is Organizational Systems. These
are the organizational tools used to implement the
Strategy and deliver the organizational capabilities.
These systems include Processes (meaning work
processes), Structure (how work is divided up and
connected), Rewards (the incentives and consequences
for either delivering or not delivering what the strategy
and capabilities require), and People (including talent
management systems and leadership competencies).

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The Diagnosis Process

Diagnosis is a critical component of an organization

design process because the end prescription is only as “Most ailing organizations
good as the diagnosis that precedes it. Knowing what the
organization must do to survive and understanding what
have developed a functional
is hindering it from doing so are both vital to prescribing blindness to their own defects.
the appropriate organization design that will truly make a
They are not suffering because
difference in results.
All too often, managers and the consultants they employ
they cannot resolve their
believe they already know how the organization needs problems but because they
to be reconfigured to improve their results. They attack
the problem by immediately making design changes.
cannot see their problems.”
For example, some common reactions to poor results are – John Gardner
to set new goals, or to modify the bonus system, or to
restructure or to replace the manager. As managers and
consultants have suggested such things in the past, I
next pair of glasses or contact lenses. Well-intentioned
have asked them, “Have you ever tried this before?”
but faulty prescriptions perpetuate what John Gardner
“Yes,” is their frequent answer.
referred to as “a functional blindness” to an organization’s
“Has this always produced better results?” is my next defects. Diagnosis is key to seeing what the real
question. problems are.
“Well . . . no,” is usually the embarrassed reply. We use the Organizational Systems Model for diagnosis
Prescribing without first diagnosing doesn’t work any by beginning with the top two boxes—Stakeholder Needs
better for organizations than it does for purchasing your and Results–and proceed clockwise around the map.

1
(Compare)

STAKEHOLDER
RESULTS
NEEDS
UNDERLYING VALUES
& BELIEFS
6 (Compare) (Why?) 2
5 (Why?)

(Why?) STRUCTURE (Why?)

STRATEGY & 4 PROCESSES PEOPLE 3 CULTURE

CAPABILITIES

REWARDS

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1 Step One. We compare the requirements of the the question “Why?” For instance, why is profit
Stakeholder Needs with the Results actually delivered satisfactory? Why is product quality below the
at present. Given this comparison and extrapolating acceptable level? Why is turnover rising in the
today’s performance vs. evolving stakeholder needs, last quarter? To answer each of these questions,
we can determine what needs to change and what we identify the observable daily behaviors that
needs to remain the same. logically explain the results. In the above example of
2 Step Two. Next we move down to Culture from unacceptable product quality, we might identify the
Results. There are many definitions of culture in the following behaviors:
literature today due to its particularly complex nature. •  Associates don’t perform the quality checks using
Culture is much like air; it is everywhere we look and the standard process.
touches everything that goes on in organizations. It is •  The Quality department frequently changes the
both a cause and an effect of organizational behavior. standard process.
The more we learn about organizations, the more •  If production falls behind its commitments, everyone
elements of culture we discover. There are behaviors, focuses on getting products shipped, not quality.
values, assumptions, rites, rituals, folklore, heroes, In the above example, do these behaviors give a logical
creeds, physical artifacts, climate, etc. Unfortunately, explanation for the poor result? Will the result improve
the definitions of culture that are the most inclusive are if these behaviors stay the same? This is the kind of
also the most esoteric and unwieldy to the manager. connection we are looking for in Step Two.
They cause many managers to shrug at the prospect of 3 Step Three. Having identified the cultural elements
ever understanding—or managing—culture. (behaviors) influencing results, we now move into
I propose a more limited but pragmatic definition of the Organization Systems. The culture is largely
culture to be used in the context of the OSM. When determined by the quality of, and fit between, the
focusing on the culture box in the model, I prefer to processes, structure, rewards, and people systems.
think of culture as the observable work habits and This diagnostic step takes each element of culture
practices that explain how the organization really previously identified and asks why these cultural
operates. When viewed this way, culture is not some behaviors exist. The answers are then traced into each
mystical phenomenon that has no relevance to of the four organizational systems categories. Again,
effectiveness. On the contrary, it is a critical factor of we can ask ourselves which of these design features
organizational performance—and something every we want to keep and which we want to change.
manager needs to understand. There is a “hidden” For example, let’s say we are tracing the causes of an
side of culture (underlying values and beliefs) that is organizational culture in which people do whatever
included in the heart of the model because values, it takes to finish a project on time. Looking at the
beliefs and assumptions are causal forces that shape systems, we might find:
many of the other system’s dynamics. •  People are organized into specific project teams.
These two elements, 1) the behaviors and work (Structure)
patterns one can observe and 2) the underlying values •  Each project team has a weekly project review with
and beliefs, are generally regarded by most theorists as top management to assure everyone that the project
being core components of culture. Focusing on them is on track. (Process)
simplifies things considerably. We can’t fully understand •  Those who don’t meet deadlines don’t move ahead
everything about culture, but we can understand the career-wise in the company. (Rewards)
essential behaviors and values, and these two areas have •  The company has a reputation for hiring high achiev-
the most critical influence on results. ers, usually in the top 10 percent of their graduating
A cultural diagnosis is done by examining each class. (People)
result (good or bad) currently produced and asking

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 In this example, the four systems are perfectly designed What underlying value or belief would explain the
to have people finish projects on time. The cause and whole dynamic? It might be something like, “The boss
effect connections look like this: knows best.” These beliefs do not always correspond
to the published or agreed-upon strategy, just as
Systems Culture
the organization’s culture doesn’t always match the
They are grouped into project teams
formal organization chart. However, uncovering these
People do underlying values is crucial, because any improvement
Weekly project review to top management whatever it
you attempt to make will likely fail if these underlying
takes to finish
a project
elements are not addressed.
Don’t meet deadlines, don’t move ahead
on time 6 Step Six. We compare the Strategy/Capabilities and
We hire high achievers Underlying Values and Beliefs with the Stakeholder
Needs and note areas of alignment or misalignment.
4 Step Four. We ask ourselves why the particular It is at this point that many leaders understand they
organizational systems have been chosen and/or have become their own worst enemy. They recognize
perpetuated. This step looks at the formal Strategy & their beliefs have supported ineffective design choices
Capabilities for the cause of the cultural behaviors. that have sustained a culture that delivers today’s poor
Is there something in the mission, vision, strategy, results. (In the above example, the belief that “the boss
values, or goals/objectives that explains the systems knows best” is actually a driving force for unacceptable
design choices? Is our strategy of “low cost producer” cycle time.) The good news is, I have seen some
reflected in our organizational systems? Has the drive leaders willingly change their values and beliefs once
to establish the capabilities of engineering excellence they recognized these were self-defeating.
and innovation shaped information systems around This completes the diagnosis process. We should
technical standards to the omission of employee now have a better understanding of why our results
opinions? There may be many or few connections are exceptional or in need of improvement, and we
between strategy and capabilities and systems. Make should be clear about the elements that are helping or
a note of whatever is evident or missing between the hindering our results.
two, then move on to Step Five.
5 Step Five. This is where the deeper level of culture
comes in. Frequently, organizational systems are chosen
based on Underlying Values and Beliefs of people. To
“If you see in any given
find out what these values, beliefs and assumptions
are, we deduce them from the pattern of organizational situation only what everybody
systems, cultural behaviors, and results from the else can see, you can be said
previous steps. For instance,
•  If the result is an unacceptable cycle time, and to be so much a representative
•  The culture is one of people waiting for the boss to of your culture that you are a
give orders and to always ask permission before acting,
•  And, the organizational systems show this victim of it.”
behavior is rewarded and initiative without prior ap-
– S. I. Hayakawa
proval is punished.

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 The Design Process

Now let’s examine the process of designing the organization to get the results you want.

STAKEHOLDER
RESULTS
NEEDS
UNDERLYING VALUES
& BELIEFS
1 (Define)
(Predict) 5

(Design) STRUCTURE (Implement)

STRATEGY & 2 PROCESSES PEOPLE 4 CULTURE

CAPABILITIES

REWARDS

DETECT VIRUSES

1 Step One. We start by defining the elements of Strategy/ An important note to this last point on core values:
Capabilities that align with the Stakeholder Needs. this is a good opportunity to address some of the
This step considers the basic strategy of the dysfunctional underlying values and beliefs uncovered
organization (in the context of key stakeholder needs) in the diagnosis process. An underlying value is
by asking such questions as: technically a part of the strategy that people are
•  What is our reason for being? following to get today’s results. If this direction is
•  What business are we in? actually moving people away from delivering the
•  How do we choose to compete in our businesses? needed results, the underlying belief must be uprooted
•  What are our core technologies? and removed from the system. For example, if the
diagnosis reveals that many associates in the system
Many organizations also take time to get a clear sense
believe “the boss knows best,” and this is causing
of mission. Mission supplements the Strategy by
cycle times to be too long, then this belief must be
identifying:
countered. As part of the new strategy, one might
•  The organization’s distinctive competencies.
define a value or operating principle such as, “whoever
•  The organization’s unique contribution.
sees a problem is responsible to solve it.” The new
•  How our life’s desires can be expressed in our work.
value promotes what associates should have in their
•  Our core values (or operating principles).
mind rather than the current self-defeating belief.

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 Once the strategy has been defined with as many (or as or behavior that is a barrier to the progress you seek.
few) elements as desired, the organization then can set You may uncover such viruses during the diagnosis
measurable short-term objectives and goals that will process. However, there may be some viruses that
lead to the strategy’s fulfillment. will specifically attack the organization design you
The second half of this step is to define a few are proposing. Many design plans that are completely
organizational capabilities that will be required logical and could have been considered best practices
to deliver the strategy. Must we have speed, have flopped in implementation because they were
accountability and strategic clarity to deliver the attacked by such viruses.
strategy? Or are the requirements for customer For example, one client told us their culture was one
connectivity, innovation, and collaboration the in which everyone was always inventing something
critical few? The combination of the Strategy & new. A new product would be conceptualized, initial
Organizational Capabilities give you the design testing and prototyping would be completed, and
specs for the rest of the organizational elements. then everyone’s attention would leap forward to find
2 Step Two. Design the Organizational Systems to the next big idea. Someone else was supposed to
successfully deliver the Strategy. In organization finalize the product and introduce it into the market
design, as in architecture, form follows function. place. This virus (often a strength becomes a virus if
Therefore, the organizational systems should be taken to extremes) of “find the new idea” was hurting
derived from the strategy/capabilities, not the other them because very few of their big ideas became
way around. This is a complicated step, one that requires commercially viable. If this virus were left untreated,
more explanation than can be given here. In the coming what do you suppose the organization’s response
chapters I will review some approaches and design would be to a new system requiring the inventor to
tools that have helped many organizations dramatically continue with the project through final market release?
improve their results. The basic sequence, however, is Some inventors might leave, in hopes of finding another
quite simple. Design the Processes first, and then align inventor’s paradise somewhere else. Some might
Structure and Rewards and finally the People systems. quickly go through the motions to deliver the product
even if it might lead to surprises in the market place
3 Step Three. This step calls for the organization
and bring disappointing results.
designers to take a step back from the new strategy
and organizational systems they have put together and This practical step invites you to check for some
consider if the present culture has any “organizational unseen forces that might defeat a well-constructed
viruses” that might defeat the chosen design. An organization design and plan to eradicate them during
organizational virus is a deeply-rooted underlying belief the design implementation phase.

Once the strategy has been defined with

as many (or as few) elements as desired,
the organization then can set measurable
short-term objectives and goals that will
lead to the strategy’s fulfillment.

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4 Step Four. Design falls short unless it is able to 5 Step Five. This is the final sanity check for the design
accomplish a lasting change in the daily behaviors process: to predict what effect the new culture (after
so that the desired results are produced. I have been successful implementation of the design) will have on
disappointed at the number of organization designs that results. Will you in fact be better, faster, cheaper (or
have never truly delivered what they were capable of whatever your intended targets are) than competition?
delivering because the implementation phase was done Will the associates actually perform at the needed
hastily or ignored altogether. Remember the immortal levels? Is the logic between the new behaviors in
words of Peter Drucker, “Plans are only good intentions culture and the desired results clear and compelling? If
unless they immediately degenerate into hard work.” all answers are affirmative, then the project is ready to
Effectively implementing an organization design is be launched!
hard work that requires several things:
1. An action plan for rolling out the new design. Who
needs to do what by when, with whom to transition
from the current design to the better design?
2. A commitment plan that anticipates how the
different stakeholders might react to the changes
and also plans to earn their commitment to the new
order of things. Who needs to make it happen, help
it happen, let it happen or stay out of the process?
A well-conceived commitment plan is one way of
eradicating organizational viruses.
3. A communication plan that tells everyone affected
by the new design why things will be different in
the future and why. This plan needs to incorporate
elements from the previous two planning steps.
4. A monitoring plan to track progress on items 1–3,
defining the metrics to be used and communication
methods to be employed.
5. A contingency plan that addresses any
developments in implementation that do not match
expectations for the new design. What happens if
the new structure does not improve collaboration
between functions? What if the leadership training
does not change underlying beliefs? Who should
come together to decide what needs to be done?
Thought should be given to such questions in the
planning phase rather during the rollout phase when
emotions can run high and distort the big picture.
Feel free to use any other tools you have found to be
successful. Just check to make sure these five elements
are included (in whatever form) as you move forward.

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Design Choices

One thing to remember about organization designing: Ecological Order: Strategize to fulfill the most important
you will never find one design that solves all of your needs and expectations of your key stakeholders.
problems. When you design an organization, you are only 1. Purpose: Develop a compelling purpose and strategy
choosing the kinds of problems you are willing to live so that each member instinctively acts to fulfill it.
with. There are many ways to organize, depending on 2. Steady State: Design work processes that consistently
your choices and preferences. Let’s examine a couple of deliver high quality outputs.
examples that demonstrate organizational design choices 3. Mobilization: Solve problems at their source.
and their impact on the work culture. 4. Complexity: Empower more self-sufficient, flexible,
Certainly each of you has experienced various forms of multi-skilled people and work units.
bureaucracy. If we were making design choices based 5. Synergy: Develop true partnerships with all
solely on bureaucratic policies, here are six steps we stakeholders to always enjoy a competitive
would follow: advantage.
1. Tasks would be specialized and reduced to the 6. Adaptation: Re-strategize and redeploy resources in the
smallest possible work cycle. midst of external changes to stay at the top of your game.
2. Work would be performed the same way every time. Now, what would you expect the culture of such an
3. Decision-making would be exclusive to those in organization to look like?
authority. •  You have a constant connection with key stakehold-
4. Uniform policies would be approved to provide ers and balance your strategic choices with their most
consistency. important needs.
5. There would be no duplication of functions. Tasks •  Everyone acts like an owner and is personally commit-
would be handled exclusively by those assigned. ted to the company’s success.
6. Reward physical activity. Hired hands would be •  Work processes are constantly improving—no one gets
given incentives to work hard and produce the complacent with today’s success.
targeted outputs. •  The right individuals are assembled to solve problems.
For centuries these principles have been some of •  There are no artificial barriers. People don’t say, “That’s
management’s core assumptions about how to run not my job.”
a large organization. They have definitely added •  Innovative ideas are welcome, used, and not criticized.
predictability and consistency to many work tasks. •  People do whatever it takes to get the job done.
However, this theory also has consistently produced the •  Teamwork and partnerships are a way of life.
following: •  Strong leaders are found at all levels of the organization.
•  “Pushing back” on top management is a norm. One’s
1. Alienation from work, poor quality, even sabotage
ability to contribute to a problem or opportunity is more
2. Uneven performance
important than one’s rank or status in the organization.
3. Delays in action, distrust, “I just work here,” “Ask the
boss.” The bottom line of all this is the organization is able
4. Poor customer service, “That’s what the book says,” to align, survive, and even thrive despite intense
“The Company doesn’t care about me.” competition and changes in the market place.
5. “That’s not my job,” special crafts and technologies
valued over results.
Now let’s contrast the policies of bureaucracy with the
organizational attributes of what I call The Organizational
Survival Code. What are this code’s design specifications?

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Conclusion

In conclusion, let me offer a few final thoughts. executive orders, run training seminars, revise policy
First, the competitive advantage in the organizational manuals, and mediate boss-subordinate conflicts.
arena is the ability to produce true performance Without fitting under the umbrella of a true systems
improvements that are enduring. This requires two strategy, however, each of these will probably be of little
things: lasting value.

1. Changing values, beliefs and assumptions—

the core culture—when they are out of sync with “Competent (people), doing their best on
stakeholder needs. their jobs, know all that there is to know
2. Structurally reinforcing work behaviors about their work, except how to improve
through the design of the organization to be it.”
congruent with the desired culture.
—W. Edwards Deming
This is an enormous challenge. But then, if it were easy, it
would be common to most organizations and would not
represent a competitive advantage.
Remember:
All organizations are perfectly designed to
Second, the processes of diagnosis and design can make
get the results they get.
a difference in creating and sustaining high performance.
These processes not only provide the rational analysis for Using the Organizational Systems Model as a template
structural integrity, but also develop commitment (even for the processes of diagnosis and design can help you
passion) in the necessary critical mass. It goes without reshape your organization to deliver more of what your
saying that these processes are iterative. Improving stakeholders require.
performance isn’t something that you launch and then
revisit in 10 years.
Third, many organizations attempt to diagnose their
effectiveness. The real art is to be able to distinguish
critical issues from extraneous ones and focus on true
systems “nerve centers” rather than “quick fix” solutions.
Finally, many organizations understand the need for
missions, work teams, pay for contribution, etc. But few
are able to build real understanding and commitment in
a critical mass so that assumptions and behaviors are
changed. That is why the number of high performers is
still relatively small.
All of this presents a big challenge to those working
to improve an organization’s results. Creating high
performance is one of the most difficult undertakings
we can think of. It would certainly be easier to issue

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