A New Approach to Organization Design

A New Approach to Organization Design

          
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A New Approach to Organization Design

Smart Design for Performance
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  • In a time of economic turbulence, disruptive technology, globalization, and unprecedentedly fierce competition, the priority concern for many business leaders is to adapt to the changing conditions in order to boost their company’s performance. For that purpose, they frequently turn to organization design for help. By driving a thorough organizational review and redesign, company leaders can change the trajectory of their business.

    Corporate reorganization is certainly in vogue. In a survey conducted by The Boston Consulting Group, almost 80% of respondent companies reported under-going a recent reorganization exercise—in about half of those cases, a large-scale, enterprise-wide reorganization initiative.

    If only it were that easy. The results have been disappointing: survey respondents rated fewer than half of the reorganization efforts as successful. The underlying reason for such a low success rate: all too often, the companies’ leaders relied on organizational frameworks that have become outmoded and ineffective in today’s business environment. (See “The Traditional Approaches: Hard and Soft.”)

    THE TRADITIONAL APPROACHES: HARD AND SOFT

    In grappling with organization design, company executives tend to draw on two venerable approaches, which can be characterized as the “hard” approach and the “soft” approach.

    The hard approach can be traced back more than a century to the pioneering work of Frederick W. Taylor on the subject of scientific management. The approach rests on two broad assumptions: first, that performance is affected directly and crucially by structures, processes, systems, and financial rewards; second, that people’s behavior is something to be controlled—through structures, processes, and systems and by offering financial incentives based on performance metrics.

    Because performance levels often seemed curiously resistant to the hard approach and the level of control achieved was limited, organizational theorists began supplementing it with the soft approach. This approach involves encouraging positive attitudes and interactions among the workforce by means of team-building activities, workshops emphasizing values, and other “people initiatives.” It can be traced to the work of Elton Mayo in the 1920s and the subsequent human relations school of management. The new thinking was, very roughly, as follows: performance is heavily influenced by interpersonal relationships, which are largely determined by mind-sets, which can be changed—not by financial incentives but by improved communication and emotional and social reassurance. The underlying purpose here, as with the hard approach, is control. The main difference is that the mechanism used to achieve it is psychological rather than economic.

    Both approaches underplay the importance of individual autonomy and rationality. First, people are less likely to behave in the way we want if coerced or manipulated into such behavior than they are if the choice is their own. (And in any case, the kind of work they now generally do is not really amenable to control: in a knowledge economy, workers need to apply their own judgment rather than simply follow a set of rules.) Second, workers—being rational—act in their perceived own best interests. So, the modern approach to organization design should not be to seek control but rather to create the right context for the workforce, by aligning their own best interests with the mission of the organization. Once that context is suitably conducive, the workers will change their behavior of their own accord and will act together, as a team, to carry out the organization’s mission.

    (This account is adapted from the book Six Simple Rules: How to Manage Complexity without Getting Complicated, by Yves Morieux and Peter Tollman, Harvard Business Review Press, 2014.)

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