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Research by PwC indicates that leading companies are in a near perpetual state of Reorganization. This upsurge in Organizational Design initiatives is owing to the accelerating pace of strategic change caused by disruption of industries, changing competitor landscape, customer behaviors, and distribution channels.
Companies opt to commence efforts to restructure their organization in the hopes of enhancing efficiency, perpetuating growth, and surviving in future. Some shift their Business Models, few alter their focus from products to customer-centric; whereas others adopt new behaviors, systems, or IT architecture. However, merely a quarter of the Organizational Design initiatives succeed in achieving their anticipated objectives.
The reason for this high failure rate is simple. Reorganization is not about changing a company’s organogram. It’s a methodical processes that necessitates transforming / streamlining the decision-making process, mindsets, talent pipeline, reward structures, reporting lines, and the way responsibilities are assigned.
There is no cookie-cutter approach to Reorganization that can work across all organizations. However, research and management best practices reveal 10 principles that are critical for developing an effective Organizational Design, applicable to any enterprise:
- Don’t get caught in past Reorganization initiatives
- Consider Organizational Design elements
- Transform Organization Chart in the end
- Don’t overlook top talent
- Converge attention towards controllable factors
- Encourage responsibility
- Use best practices with care
- Harmonize organizational hierarchy with Strategic Objectives
- Give due emphasis to intangible elements of organization
- Make efficient use of company culture and practices
Let’s dive deeper into these guiding principles.
1. Don’t Get Caught in Past Reorganization Initiatives
Leaders at most organizations tend to keep discussing and focusing on the old reorganization initiatives. This takes away much of their time and energy which should rather be spent on making the current Organizational Design a success.
Organization Design should be created on the basis of an enterprise’s sense of purpose, strategy, core competencies, products, competitive advantage, and experience offered to customers and employees. Senior leaders need to be able to see the broader perspective, set clear organizational objectives, and steer the workforce to achieve their personal as well as organizational objectives.
2. Consider Organizational Design Elements
Reorganization is a complex undertaking, but a structured approach to Organizational Design assists in identifying and prioritizing key priorities. Organizational Design has 8 fundamental elements that are important for all organizations, Business Models, sectors, or regions. These elements can be categorized into 4 pairs. Each of these 4 pairs constitute a formal (tangible) and an informal (intangible) element:
- Decisions team up with Norms (the way people act).
- Motivators (the way people are influenced to work) pair with Commitments (what affects people’s thoughts about work).
- Information (the way data is processed) pairs with Mindsets (how people process knowledge and meaning).
- Structure (reporting lines) pairs off with Networks (how people collaborate).
Leaders should select fewer, prioritized Organizational Design elements to work on that have the most impact on their organizations.
3. Transform Organization Chart in the End
Most leaders consider Organization Structure to be the most critical element to Business Transformation. In reality, there are other key organizational elements that need to be tackled first to improve effectiveness. Revisiting the organogram does not have much effect on the way business is done—or to improve it. Structure depicts reporting lines and changing it can reduce costs temporary. Changing structure alone—without transforming other organizational elements—allows the redundant reporting lines to reappear and put the organization back to its earlier state of affairs. Instead of changing the organogram, core organizational issues should be prioritized and confronted first. Structure will adjust accordingly once the issues resolve.
4. Don’t Overlook Top Talent
Top talent often go unnoticed when it comes to Reorganization. The skills and traits of the senior leadership has a profound impact on Organizational Design. Mapping of technical capabilities and leadership abilities of top leadership is an important step to Reorganization.
Interested in learning more about the guiding principles critical for Organizational Design?” “You can download an editable PowerPoint on 10 Principles of Organizational Design here on the Flevy documents marketplace.
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– Roderick Cameron, Founding Partner at SGFE Ltd
Reorganization becomes essential at some stage in the lifecycle of any organization. In order to emerge triumphant through this tumultuous challenge, it is necessary that the focus remains on the challenges impeding the organization, thorough Strategic Planning to tackle the challenges, and prioritizing strategic initiatives to deliver effective Business Transformation. Strategic Restructuring has the capability to deliver these results.
When the word “Restructuring” pops up, the foremost idea that comes to mind is achieving Cost Reduction by minimizing payroll costs—predominantly by cutting back on the headcount.
Scores of organizations have suffered because, in the melee of headcount reduction, the most competent employees quickly found opportunities elsewhere, leaving inappropriately competent employees behind, resulting in a crippled organization.
The purpose of Restructuring is to make the organization profitable, efficient, and effective. Headcount reduction should be a consequence of the Restructuring initiative and not the prime objective.
To avoid an outcome that debilitates the organization as a result of Restructuring, it is absolutely essential to keep an eye on the Critical Success Factors (CSFs) while the organization moves through the 4 phases of Strategic Restructuring. Strategic Restructuring’s 5 CSFs include:
- Strategic Focus
- Continuous Communication
- Participative Focus
- Positions before People
- Focus on Competency
Experts suggest envisioning a “Future State” for the organization, to be achieved through a robust Strategy that includes Change Management, implemented by the most competent employees who are redeployed. The rest of the employees either severe ties voluntarily or are laid off—ideally with a good severance package or a job placement, with the organization’s help, somewhere else.
Leadership has to ensure firm resolution in employing these Critical Success Factors in order to establish its role and build a constituency among employees who believe in the need for change. Let’s dig deeper into the 5 CSFs of Strategic Restructuring.
1. Continuous Communication
- Communication is a decisive factor in Strategic Restructuring. Pitfall in this factor is the “need to know” approach. Top-level leadership should be communicating with the whole organization quite frequently.
- Immediate and full disclosure of information builds trust in the management’s actions.
- Repetition is key in getting the message across. Believing that enunciating once is enough, will be erroneous on the leadership’s part.
2. Participative Focus
- Redesign of structure is a bottoms-up job because the information and expertise are dispersed throughout the organization.
- Employees in the thick of the action are in the best position to undertake this effort.
- The management develops the organizational framework and keeps apprising the employees regarding the overall strategy in order to keep the direction true.
- A participative approach to Restructuring assists in building employee morale and engagement levels.
Interested in learning more about the Restructuring’s Critical Success Factors, Transformation Phases, and a Case Study on Restructuring?” You can download an editable PowerPoint on Strategic Restructuring: Critical Success Factors on the Flevy documents marketplace.
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“If you don’t transform your company, you’re stuck.” – Ursula Burns, Chairperson and CEO of VEON; former Chairperson and CEO of Xerox
Business Transformation is the process of fundamentally changing the systems, processes, people, and technology across an entire organization, business unit, or corporate function with the intention of achieving significant improvements in Revenue Growth, Cost Reduction, and/or Customer Satisfaction.
Transformation is pervasive across industries, particularly during times of disruption, as we are witnessing now as a result of COVID-19. However, despite how common these large scale efforts are, research shows that about 75% of these initiatives fail.
Leverage our frameworks to increase your chances of a successful Transformation by following best practices and avoiding failure-causing “Transformation Traps.”
Learn about our Business Transformation Best Practice Frameworks here.
Do You Find Value in This Framework?
You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro Library. FlevyPro is trusted and utilized by 1000s of management consultants and corporate executives. Here’s what some have to say:
“My FlevyPro subscription provides me with the most popular frameworks and decks in demand in today’s market. They not only augment my existing consulting and coaching offerings and delivery, but also keep me abreast of the latest trends, inspire new products and service offerings for my practice, and educate me in a fraction of the time and money of other solutions. I strongly recommend FlevyPro to any consultant serious about success.”
– Bill Branson, Founder at Strategic Business Architects
“As a niche strategic consulting firm, Flevy and FlevyPro frameworks and documents are an on-going reference to help us structure our findings and recommendations to our clients as well as improve their clarity, strength, and visual power. For us, it is an invaluable resource to increase our impact and value.”
– David Coloma, Consulting Area Manager at Cynertia Consulting
“FlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients. In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over! The quality of the decks available allows me to punch way above my weight – it’s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.”
– Roderick Cameron, Founding Partner at SGFE Ltd
Business environment has transformed drastically from what it was a century ago. It has become immensely challenging due to competition, disruptive technologies, laws, and globalization. These challenges warrant better performance to address customer needs and to survive—and outpace—intense competition. Consequently, organizations have become complex.
The work that individuals perform in an organization has also shifted from manual labor and clerical jobs to knowledge-based experiential tasks. Traditional workforce was required to adhere to commands and stick to routines, whereas today’s workforce needs to be more empowered, innovative, able to adapt to varying circumstances, and render sound judgment.
Adapting with the constantly changing business environment is essential for organizations aspiring to succeed in today’s competitive markets. In order to stay competitive, more and more organizations across the globe are undertaking Business Transformation programs to reorganize their businesses. However, a large percentage of such programs fail to achieve the desired outcomes.
For the Organizational Design to be successful, leaders need to be mindful of the revolutionized work settings and business environment of this age. One of the major factors attributed to these failure rates is utilizing traditional approaches to reorganization, which are proving ineffective in this digital age. These traditional approaches appreciate “level of control” and power, and underestimate the significance of employee autonomy and innovation.
The Smart Design Approach to Organization Design
Today’s Knowledge Economy necessitates the employees to be more empowered to decide on their own than merely following commands. People act in ways that are best for their own interests. The new approach to reorganization—termed Smart Organizational Design—aligns the workforce’s best interests with the organizational mission rather than seeking control over the employees. The focus is on changing the environment (context) and mindsets of employees willingly and instilling team work and cooperation, thereby enhancing organizational performance considerably.
The Smart Organizational Design approach entails classifying the existing workforce behaviors, ascertaining the desired behaviors critical to improve performance, and providing environment (context) favorable to develop new behaviors. The approach encompasses 3 main steps:
- Define why reorganization is necessary (objective)
- Determine the behaviors critical to support reorganization
- How to execute the Smart Organizational Design
Let’s dig deeper into the second step.
Determine the behaviors critical to support reorganization
The next step involves the leadership to determine the “what” element of the Smart Organizational Design approach—i.e., definition of certain behaviors critical to achieve the transformation purpose. Determining the desired behaviors necessitates thinking through the following 4 critical Smart Organizational Design aspects. These 4 design aspects work in tandem to shift the environment (context) for the workforce and motivate them to embrace the new behaviors crucial for improved performance:
- The Organizational Structure aspect—pertains to management reporting lines, spans of control, and layers of hierarchy.
- The Roles and Responsibilities aspect interprets individual and shared accountabilities to cultivate teamwork and cooperation.
- The Individual Talent aspect specifies the right skill set and motivation to perform responsibilities of each role effectively.
- The Organizational Enablers aspect outlines the elements necessary for creating the right context (environment) for embracing the desired behaviors, i.e., decision processes, performance management, and talent management.
Interested in learning more about the other step of the Smart Organizational Design approach and the factors critical for its success? You can download an editable PowerPoint on Smart Organizational Design here on the Flevy documents marketplace.
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