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Optimizing Organization Design Can Lead To Better Employee Satisfaction

Optimizing Organization Design can lead to better employee satisfaction. There are several reasons for this. Optimizing Organization Design can provide:

  • Better manager – direct report alignment (as well as overall better position alignment)
  • Better clarity of accountabilities and authorities
  • Better matching of people to positions
  • Better alignment of deliverables

Any one of these alone might have a positive impact on employee satisfaction. The combination of all or most of them would seem to significantly improve that probability.

Optimizing Organization Design Can Lead To Better Employee Satisfaction

The research support is related to both organization design in general and manager – direct report alignment in particular. This research begins with the significant relationships found in our survey of Top 2000 companies. As well, all seven of our pre – post studies show that, following an organization design assessment and implementation, employee satisfaction improved significantly.

Optimizing Organization Design Can Lead To Better Employee Relationship With Manager

Optimizing Organization Design can lead to better employee relationship with manager. As with employee satisfaction, the inclusion of several improvement factors would seem to increase this probability.

This relationship of organization design to employee relationship with manager is shown in our survey of Top 2000 companies. We have one additional study showing this relationship. Following an organization design assessment and implementation (Optimizing Organization Design), a measure called “relationship with supervisor” improved.

Optimizing Organization Design Can Lead To Better Customer Satisfaction

Optimizing Organization Design can lead to better customer satisfaction. Improvements in alignment of positions, accountabilities and authorities, people and deliverables can provide a better clarity and foundation to focus on customers.

The relationship between organization design and customer satisfaction is shown in our survey of Top 2000 companies. We have one additional study showing this relationship. In this study, customer satisfaction significantly improved following an organization design assessment and implementation.

Optimizing Organization Design Can Lead To Better Financial Performance

Optimizing Organization Design can lead to better financial performance.

There are three factors related to this:

Improvements in the alignment of positions, accountabilities and authorities, people and deliverables should lead to better financial performance. These are foundations for performance, and should be factors that must support better financial performance. The relationship between organization design and financial performance is shown in our survey of Top 2000 companies. In addition, there are two other studies showing this relationship. The first is a research study showing that financial performance improved compared to a benchmark after an organization design assessment and implementation (Optimizing Organization Design). The second additional supporting study was in the global pension fund industry. Organization design, as measured by 80 CEOs of pension funds was significantly related to pension fund
financial performance.
The second factor relating organization design to financial performance is that Optimizing Organization Design can produce cost savings. The Capelle Associates Benchmarking Database shows average potential annual cost savings of about $2,500 per position. The total in each case would be found by multiplying this number by the number of positions in the review (e.g. in a 1,000 employee organization, the number would be about $2,500,000).
The third factor is the related research. The work of Buckingham and Coffman shows a relationship between the manager – direct report relationship and profitability. Heskett and his colleagues have developed the service profit chain showing the relationship between employee satisfaction, customer satisfaction and financial performance (revenue growth and profitability).

Seeing this direct relationship between organization design and financial performance, we would expect that improvements in relationship with manager, employee satisfaction and customer satisfaction would further drive financial performance. This contention is further supported by the significant relationships found in our survey of Top 2000 companies.

Direct Report Alignment Can Lead To Better Employee Satisfaction

In conclusion, we have three streams of support for the relationship between organization design and financial performance:

  1. Three studies showing direct relationships
  2. One study showing cost savings
  3. The citation of related studies showing the relationship of relationship with manager, employee satisfaction and customer satisfaction with financial performance. There is considerable evidence supporting this relationship.

Better Manager – Direct Report Alignment Can Lead To Better Employee Satisfaction

The relationship between manager – direct report alignment and employee satisfaction is shown in our survey of Top 2000 companies. We have nine other studies showing this relationship. The first six are from organization design assessment and implementation projects. In each case, the manager – direct report alignment as well as employee satisfaction improved following the intervention.

In addition to these studies, we also have three more studies in which there was no organization design intervention:

  1. A study of 30 organizations from the Capelle Associates Benchmarking Database. It shows a significant relationship between manager – direct report alignment and employee satisfaction.
  2. An interesting study from one organization that looks at one role (Analyst). It shows that individuals in Analyst positions, who have requisite or optimal alignment with their managers (exactly one stratum below), experience greater satisfaction than those who are in gap or compression situations.
  3. A study that shows a significant relationship between manager – direct report alignment and employee satisfaction in three inter-related organizations.

We would conclude that this research shows a strong relationship between manager – direct report alignment and employee satisfaction.

Better Manager – Direct Report Alignment Can Lead to Better Relationship with Manager

Direct Report Alignment Can Lead To Better Relationship With ManagerBetter manager – direct report alignment can lead to a better relationship with manager. It is not the only relevant factor. However, we have shown that gaps and compression in this alignment lead to sub optimal behaviours that one would surmise would weaken the relationship with manager.

The relationship between manager – direct report alignment and relationship with manager is shown in our survey of Top 2000 companies.

There are three additional studies demonstrating this relationship:

  1. A study that is a review of 30 organizations from the Capelle Associates Benchmarking Database. It shows a significant relationship between manager – direct report alignment and relationship with manager.
  2. An organization design assessment and implementation in one organization that showed improvement in both manager – direct report alignment and relationship with supervisor.
  3. A review of the Analyst role in one organization. It shows that Analysts that were in an optimal manager – direct report alignment with their managers had a stronger relationship with manager.

We would conclude that this research shows a strong relationship between manager – direct report alignment and relationship with manager.

Better Manager – Direct Report Alignment Can Lead to Better Customer Satisfaction

The relationship between manager – direct report alignment and customer satisfaction is shown in our survey of Top 2000 companies.

There are two additional pieces of research:

  1. An organization design assessment and implementation that included improving the manager – direct report relationship. It found that customer satisfaction improved (measured three times over three years).
  2. A review of 30 organizations from the Capelle Associates Benchmarking Database. It shows a relationship between manager – direct report relationship and customer and recipient satisfaction.

We would conclude that this research demonstrates a relationship between manager – direct report alignment and customer satisfaction.

Better Manager – Direct Report Alignment Can Lead to Better Financial Performance

Better manager – direct report alignment can lead to better financial performance.

There are three factors related to this:

The absence of optimal or requisite manager – direct report alignment leads to problems such as gaps or compression: These are significant in the operation of an organization. It is not unreasonable to expect that these would have an impact on financial performance.The relationship between manager – direct report alignment and financial performance is shown in our survey of Top 2000 companies. In addition to that there are two other studies showing this relationship:

  1. A research study showing that both manager – direct report alignment and financial performance improved (the latter compared to a benchmark) after an organization design assessment and implementation.
  2. An additional supporting study in the global pension fund industry. Manager – direct report alignment and delegation were shown to be significantly related to pension fund financial performance.
Optimizing Organization Design can produce cost savings: The Capelle Associates Benchmarking Database shows average potential annual cost savings of about $2,500 per position. These are all directly related to the manager – direct report alignment. The total savings in each case would be found by multiplying $2,500 by the number of positions in the review (e.g. in a 1,000 employee organization, the number would be $2,500,000).
Related research that was previously cited: Buckingham and Coffman show a relationship between the manager – direct report relationship and profitability. Heskett and his colleagues have developed the service profit chain showing the relationship between employee satisfaction, customer satisfaction and financial performance (revenue growth and profitability).

So, not only do we show a direct relationship between manager – direct report alignment and financial performance, we would expect that relationship with manager, employee satisfaction and customer satisfaction would further drive financial performance.

Direct Relationship Between Manager

In conclusion, we have three streams of support for the relationship between manager – direct report alignment and financial performance:

  1. Three studies showing direct relationships
  2. One study showing cost savings
  3. The citation of related studies showing the relationship of relationship with manager, employee satisfaction and customer satisfaction with financial performance

We would conclude that this research shows a strong relationship between manager – direct report alignment and financial performance.

Other Research

Optimizing Organization Design: Potential Annual Cost Savings

Our research, based on 19 organization assessments that we have completed, shows that the average potential annual cost savings per position is about $2,500. This would be multiplied by number of employees. For a 1,000 person organization, this would be about $2,500,000. This provides a potential annual return on investment (ROI) of 589%.

While these numbers seem high, we believe that they are actually quite conservative (i.e. quite low). The average percentage of compressed manager – direct report relationships in these organizations was 37.1%, while the average number of redundant positions was only 2.2%. If one used more aggressive criteria, it would be possible to further elevate this number.

Manager – Direct Report Alignment: A Major Issue and Opportunity

We have shown that manager – direct report relationship is the most significant organization design factor. By itself, it leads to better employee satisfaction, relationship with manager, customer satisfaction and financial performance.

Direct Report Alignment: A Major Issue and Opportunity

There are three possibilities for this alignment. It can be:

  1. Optimal (manager exactly one layer or stratum above a direct report)
  2. Compressed (manager and direct report are actually operating at the same level)
  3. Have a gap (manager and direct report are more than one level or stratum apart)

We have shown that the latter two situations lead to weaker performance.

The Capelle Associates Benchmarking Database has over 59,000 manager – direct report relationships from 76 organizations. It shows that the manager – direct report alignment is correct only 55% of the time; it is compressed 36% of the time; and has gaps 9% of the time. This is a significant waste of human resources and a tremendous opportunity for improved performance.

Compensation: Only Correct About 60% of the Time…And It Matters

Compensation: Only Correct About 60% Of The TimeThe Capelle Associates Benchmarking Database has over 59,000 manager – direct report relationships from 76 organizations. One of the types of information in the database is compensation. We have information on individual compensation and on the complexity of work actually done.

As one moves higher in the organization, one generally receives higher compensation and is expected to do more complex work. Our analysis shows that only 63.1% of employees are paid appropriately for the actual complexity of work done. There is payment above the expected range for 21% of the employees and payment below the expected range for 15.9% of the employees.

This shows that there is not only considerable opportunity to improve compensation practices but also good reason to do so. Our research, based on 20 organizations, shows that employees that are paid within range have higher overall satisfaction and also greater satisfaction with compensation than employees who are paid either above or below the range.

Our research also shows that better manager – direct report alignment is significantly related to more appropriate compensation (i.e. being paid within range).

In conclusion, compensation is often inappropriate for the actual complexity of work done. There is good opportunity and good reason to improve. Employees who are not compensated properly are less satisfied. Improving the manager – direct report alignment is related to better compensation practices.

Delegation

The Capelle Associates Benchmarking Database has over 59,000 manager – direct report relationships from 76 organizations. It shows that delegation is clear (manager and direct report agree on what it is) only 64% of the time. Since clear delegation is fundamental to effective work, this provides a significant opportunity for improvement. One way to do this is to improve the manager – direct report relationship. Our research shows that this is related to the clarity of delegation.

Task Alignment

Our research, based on 15 reviews, shows that professionals spend about half their time doing tasks that someone in a lower level position could be paid less money to do at least as well if not better. We have seen from our research that improving this situation results in potential annual cost savings of $10,951 per professional position.

Designing Organizational Structure

This provides potential annual savings of about 15 times the investment in the project. However, there is more to gain than cost savings. A situation where professionals are spending about half of their time focused on tasks below their level of capability can lead to dissatisfaction. This can also negatively impact customer satisfaction and financial performance.

Find out more about our extensive research related to Optimizing Organization Design®. Please call 416-236-3044 or fill out our online form to request a discussion.

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