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]
The 9 Principles of Organizational Design: When Re-designing Becomes a Strategic Priority
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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Recent McKinsey research results showed that many companies today are in a nearly permanent state of organizational influx. Within the past 2 years, almost 60% of the companies interviewed experienced a redesign while an additional 25% 3 or more years ago.
This Organizational Design flurry is due to the accelerating pace of strategic change driven by the disruption of industries. As a result, companies alter the organization every time it switches direction to deliver the hope for results.
Frustratingly, only less than a quarter of the Organizational Designs are successful. Actually, companies can do better – much much better.
The 9 Principles of Organizational Design
Organizational Redesign goes beyond traditional tinkering with lines and boxes. It comprises the processes that people follow, the management of individual performance, the recruitment of talent, and the development of employees’ skills.
Following the 9 Principles of Organizational Design in a structured approach can increase the percentage of success and generate a greater impact on the company.
- Focus foremost on long-term strategic goals. Coming up with more specific goals can provide greater results.
- Assess the current state of the organization. A new organizational reality can radically change the scope and numbers targeted in the redesign effort.
- Take a methodical approach, instead of relying on intuition. When this is undertaken, a flexible operating model is established with a unique mix of strategy, people, and other assets within the company.
- Extend beyond the organizational reporting structure. This will allow CEOs to see which part of the company is embracing change and which is doing business as usual.
- Focus on roles first, then on people. When this happens, companies get to expand the number of people involved in placing talent, accelerate the pace, and increase the level of rigor and discipline.
- Identify the requisite shifts in mindset. Momentum is sustained when mindsets are shifted towards creating greater value.
- Establish KPIs for short- and long-term success. Key Performance Indicators measures the long-term impact of changes made. When these are established, companies can better track performance, new innovations, and effective allocation of resources.
- Management should adopt direct and personal communication. Establishing a two-way communication opens opportunities for employees to be informed of changes the company will undertake.
- Develop a plan to manage transitional risks. Clear Leadership accountability for developing and executing risk mitigation plans is so important. In fact, it should be built-in in the regular appraisals of managers.
The rate of success in effecting Organizational Change is greater as more principles are applied. Companies with an in-depth understanding of the 9 principles are more likely to apply more than 6 principles. These are the companies that are more likely to declare victory in gaining greater results in Organizational Design.
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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.
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About Joseph RobinsonJoseph Robinson is the Vice President of Strategy at Flevy. Flevy is the marketplace for best practices in business management. Learn how the Fortune 100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice methodologies and templates. The documents at Flevy (https://flevy.com) are of the same caliber as those produced by top-tier management consulting firms, like McKinsey, BCG, Bain, and Accenture. Most were developed by seasoned executives and consultants with 20+ years of experience. Flevy covers 200+ management topics, ranging from Digital Transformation to Growth Strategy to Lean Management. You can peruse a full list of management topics available on Flevy here. Prior to Flevy, Joseph worked as an Associate at BCG and holds an MBA from the Sloan School of Management at MIT. You can connect with Joseph on LinkedIn here.
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