Smart Organizational Design Approach vs. Traditional Organization Design Approaches

Editor's Note: Take a look at our featured best practice, Organization Design Toolkit (103-slide PowerPoint presentation). Recent McKinsey research surveyed a large set of global executives and suggests that many companies, these days, are in a nearly permanent state of organizational flux. A rise in efforts in Organizational Design is attributed to the accelerating pace of structural change generated by market [read more]

Also, if you are interested in becoming an expert on Organizational Design (OD), take a look at Flevy's Organizational Design (OD) Frameworks offering here. This is a curated collection of best practice frameworks based on the thought leadership of leading consulting firms, academics, and recognized subject matter experts. By learning and applying these concepts, you can you stay ahead of the curve. Full details here.

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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:

1. Define why reorganization is necessary (objective)
2. Determine the behaviors critical to support reorganization
3. 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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Organizational Design (AKA Organizational Re-design) involves the creation of roles, processes, and structures to ensure that the organization's goals can be realized. Organizational Design span across various levels of the organization. It includes:

1. The overall organizational "architecture" (e.g. decentralized vs. centralized model).

2. The design of business areas and business units within a larger organization.

3. The design of departments and other sub-units within a business unit.

4. The design of individual roles.

In the current Digital Age, there is an accelerating pace of strategic change driven by the disruption of industries. As a result, to remain competitive, Organizational Design efforts are becoming more frequent and pervasive—with the majority of organizations having experienced redesign within the past 3 years. This has only been exacerbated by COVID-19.

Frustratingly, only less than a quarter of these Organizational Design efforts are successful. Most organizations lack the best practice know-how to guide them through these Transformations effectively.

Learn about our Organizational Design (OD) Best Practice Frameworks here.