First posted at https://www.bcgperspectives.com
Define the purpose of the reorganization (the why).
Determine the behaviors that will support that purpose and design the organization in such a way as to promote those behaviors, using a broad range of design elements (the what).
Make it happen (the how).
Define the Purpose of the Reorganization
By redesigning the organization, your company can resolve many stubborn issues of strategy and execution. But before embarking on the redesign, make sure to identify clearly the company’s current performance shortfall (that is, the gap between the company’s current performance and its target performance) and hence the precise aims of the reorganization effort—with regard to competitive advantage, strategic priorities, or organizational pain points.There are various ways to approach such an assessment.
Determine the Target Behaviors and Design the Organization Accordingly
In this second step, you define the behaviors required to achieve the purpose. That will, in turn, lead to a set of design principles to be used for guidance as you shape the four key design elements, which are the building blocks for producing the desired behaviors.
These elements are organizational structure, roles and responsibilities, individual talent, and organizational enablers. Note that they affect one another in many ways, and they act in combination to alter the context for individuals and encourage behaviors that drive high performance. So, instead of dealing with each of the four elements independently, you need to consider them jointly and align them.
Organizational structure refers to the hierarchy of management reporting—who reports to whom with regard to executing the strategy. These reporting lines establish the organization’s geometry: the spans of control and the number of layers.Organizational structure can affect behavior profoundly. That is because the reporting relationship is an important basis of power: a line manager has power over his or her subordinates by virtue of being able to influence things that matter to them—notably, their assignments, remuneration, and career paths.
The overall architecture of a company tends to reflect the company’s priorities. If the priority is functional excellence, for instance, then the company will usually be organized functionally; if the priority is customer intimacy, then the company will likely be structured according to customer type.
The problem is that almost all companies need to address multiple, often conflicting, priorities in order to be competitive in today’s environment. For example, in a functional organization, the emphasis might still be on serving customers or on organizing optimally to develop new products.
Structure alone is not the answer. If a company neglects other ways of influencing behavior, and concentrates on making multidimensional or overly sophisticated structural changes (or just continues to add new structures) in order to cater to its conflicting priorities, the result is complicatedness and extra bureaucracy.
Which is where Smart Design comes to the rescue.
Another way that organizational structure affects behavior is through geometry: the more layers the structure accommodates, the longer the chain of command becomes, and that can have counterproductive consequences—slower decision making, managers hampered by an overly narrow span of control, a tendency for units to work in silos, and uncooperative or disruptive behaviors by frustrated workers.The trend in recent decades has been for organizations to reduce the number of layers within their hierarchies.
Yet overlayering persists, for two reasons.
First, the layers are often generated as a reflex response to business complexity: if a growing company opts to create a new regional structure, for instance, it would understandably be tempted to create a new layer in the organizational hierarchy to accommodate the regional heads.
The second possible reason is that if the organization is poor at inspiring its workforce to perform, it might overuse a particular incentive: the prospect of promotion. New layers might then be needed to accommodate the various employees who are being “rewarded” in this way. The new positions seldom add much value, and the roles involve little or no power. The effects of these extraneous layers and narrow spans of control include slower decision making, silo behavior, and subdued productivity.
In contrast, a smart and effective organization is lighter and flatter in structure, allowing for flexibility and agility. It specifies fewer and bulkier management roles with broad spans of control and motivates the employees in those roles to use their own initiative and to exercise their creativ