The business world of the early 21st century is radically different from that of the early 20th century, in two key respects.
First, organizations now have to operate in a vastly more complex environment—one of globalization, hypercompetition, revolutionary technologies, and elaborate regulation. Such complexity implies an increased number of performance requirements for companies (for instance, to satisfy customer needs, address competitive pressures, or comply with the ever-increasing labyrinth of regulation). If you then assign to each requirement its own structural solution (which is the essence of the “hard approach,” described in the sidebar) you end up with an extremely complicated and unwieldy organization.
Second, in most companies the nature of work has changed: from algorithmic work—that is, clerical or manual labor—to knowledge or heuristic work.Knowledge workers differ from clerical or manual workers in that their role is not merely to follow rules and perform specific tasks but also to use their own initiative to further the organization’s mission. They have to interpret the rules, adjust to the changing realities, and make trade-offs among conflicting requirements in order to arrive at the optimal solution.
If reorganization efforts continue to overlook these two major changes in the world of work, they will continue to fail. A new approach is needed, one that is better suited to the realities of the world in which companies now operate. BCG has developed such an approach, called Smart Design for Performance—or just Smart Design—drawing on the principles of Smart Simplicity. (See “Smart Design, Smart Simplicity.”) The approach has been battle tested and has shown great success in raising company performance, mastering complexity, and enhancing employee engagement.
The basis of new approach
A holistic view of organization design would encompass numerous components: structural elements, roles and responsibilities, individual talent, and enabling mechanisms such as core enterprise decision-making processes, performance management, and talent management. These are the key levers for organizational change, and they are obviously crucial—but their relevance is indirect. To change a company’s performance is to change what happens in the company. And what happens in a company is not directly a matter of organizational levers (such as structures, processes, and systems) but one of behavior—that is, what people do: how they act, interact, and make decisions. Workforce behavior is what determines company performance.
The new approach to redesigning an organization, far more appropriate for the new business environment, has behavior at its core. It involves identifying and explaining the current behaviors of the workforce, defining the desired behaviors—those that would improve company performance—and generating the new behaviors by creating contexts that are conducive to them.
What’s so smart about smart design?
Smart design approach involves three main steps- the why, what and how.
- Define the purpose of the recoganizition (the why)
- Determine the behaviours that will support that purpose and design the organisation in such a way as to promote those behaviours, using a broad range of design elements (the what)
- Make it happen (the how)
An effective way to design role and responsibilities is through the process of role chartering. Each role is defined –
- Individual and shared accountabilities : that is , responsibility for the completion of tasks.
- Decision rights needed for carrying out the accountabilities.
- KPIs for measuring the performance of these accountabilities
- Mission critical corporation requirements : what each person can do make others more effective at accomplishing their accountabilities , and what others can do in return.
- Desired leadership makers for the role : the values, characteristics and style best suited to the role, such as a bias toward action , a sense of urgency , or candor and openness.
- key capabilities required for fulfilling the purpose of the role .
The transformation model
The Transformation Model is the framework we use to help leaders understand their organizations and also guide a successful redesign. The model reduces the complexity of an organization to eight key variables that must be understood and aligned for a business to be successful. Alignment implies a holistic or systems point of view that finds the best “fit” between all organizational elements. Paying attention to and understanding these variables will result in major improvements in customer service, quality, efficiency, cycle time, profitability and satisfaction of employees.
These eight variables form the “big picture” or context of an organization and ultimately determine its success. When we talk about organization design we are talking about the relationship and balance between each of these variables. The role of leaders could be defined as understanding and managing these variables.