BCG Study 1716061119
BCG Study 1716061119
BCG Study 1716061119
Peter Tollman, Andrew Toma, Fabrice Roghé, Yves Morieux, Steve Maaseide,
Eddy Tamboto, and JinK Koike
April 2016
AT A GLANCE
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 orga-
nizational frameworks that have become outmoded and ineffective in today’s busi-
ness environment. (See the sidebar “The Traditional Approaches: Hard and Soft.”)
Mayo in the 1920s and the subse- work they now generally do is not
quent human relations school of really amenable to control: in a
management. The new thinking was, knowledge economy, workers need to
very roughly, as follows: performance apply their own judgment rather than
is heavily influenced by interpersonal simply follow a set of rules.) Second,
relationships, which are largely deter- workers—being rational—act in their
mined by mind-sets, which can be perceived own best interests. So, the
changed—not by financial incentives modern approach to organization
but by improved communication and design should not be to seek control
emotional and social reassurance. but rather to create the right context for
The underlying purpose here, as with the workforce, by aligning their own
the hard approach, is control. The best interests with the mission of the
main difference is that the mecha- organization. Once that context is
nism used to achieve it is psychologi- suitably conducive, the workers will
cal rather than economic. change their behavior of their own
accord and will act together, as a team,
Both approaches underplay the impor- to carry out the organization’s mission.
tance of individual autonomy and
rationality. First, people are less likely (This account is adapted from the
to behave in the way we want if book Six Simple Rules: How to Manage
coerced or manipulated into such Complexity without Getting Complicated,
behavior than they are if the choice is by Yves Morieux and Peter Tollman,
their own. (And in any case, the kind of Harvard Business Review Press, 2014.)
A Call to Action
The business world of the early 21st century is radically different from that of the
early 20th century, in two key respects.
Second, in most companies the nature of work has changed: from algorithmic
work—that is, clerical or manual labor—to knowledge or heuristic work.1 Knowl-
edge 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 fur-
ther 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 suit-
ed to the realities of the world in which companies now operate. BCG has devel-
oped such an approach, called Smart Design for Performance—or just Smart De-
sign—drawing on the principles of Smart Simplicity. (See the sidebar “Smart
Design, Smart Simplicity.”) The approach has been battle tested and has shown
All of the various organizational levers act together to affect behavior, and that in
turn affects company performance. But the traditional approaches assume, incor-
rectly and damagingly, that the organizational levers act directly and proportionately
on company performance. (See Exhibit 1.)
The new approach to redesigning an organization, far more appropriate for the new
business environment, has behavior at its core. It involves identifying and explain-
ing 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.
Exhibit 1 | Smart Design Establishes the Crucial Behavioral Link Between Organizational
Levers and Results
Results Results
Performance of the organization Performance of the organization
Underlying assumption: Organizational levers Underlying assumption: Behaviors determine
directly determine results performance; levers influence performance
Error: Without an understanding of how levers indirectly by acting on the contexts of the
influence people’s behavior, what actually people involved
happens remains a black box, and unintended Lesson learned: To effectively manage change, you
consequences ensue need to understand behaviors and why they are
rational
Source: Yves Morieux and Peter Tollman, Six Simple Rules: How to Manage Complexity without Getting Complicated, Harvard Business Review Press,
2014.
• Determine the behaviors that will support that purpose and design the organi-
zation in such a way as to promote those behaviors, using a broad range of
design elements (the what).
Exhibit 2 | Smart Design Involves Aligning Four Design Elements to Enhance Organizational
Capabilities and Drive Target Behaviors
Context
1
Organizational Designing and staffing
Strategic priorities structure through a cascade:
“layer by layer”
• Management reporting
structure
• Spans and layers and
resources
Applying program-
4 2 matic rigor with
Organizational Roles and minimum overhead
enablers responsibilities
• Enterprise decision Behaviors • Accountabilities, decision
Competitive processes rights and KPIs for key
advantage • Performance management positions
• Talent management
Using multiple
layers of
3 communication
Individual
talent
• Talent matched with
role requirements
• Skill building
There are various ways to approach such an assessment. (For a summary of one of
them, see the sidebar “BCG’s Complicatedness Survey.”)
STRATEGY AND
PURPOSE
75
STEERING STRUCTURE
SYSTEM AND KPIs AND LAYERS
80 30
DECISION ACTIVITIES
MAKING AND ROLES
60 Simple 60
Organizational structure can affect behavior profoundly. That is because the re-
porting 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. (See the sidebar
“Power and Related Concepts.”) The overall architec-
ture of a company
The overall architecture of a company tends to reflect the company’s priorities. If tends to reflect the
the priority is functional excellence, for instance, then the company will usually be company’s priorities.
organized functionally; if the priority is customer intimacy, then the company will The problem is that
likely be structured according to customer type. almost all companies
need to address
The problem is that almost all companies need to address multiple, often conflict- multiple, often
ing, priorities in order to be competitive in today’s environment. For example, in conflicting, priorities
a functional organization, the emphasis might still be on serving customers or on in order to be com-
organizing optimally to develop new products. Structure alone is not the answer. petitive.
If a company neglects other ways of influencing behavior, and concentrates on
making multidimensional or overly sophisticated structural changes (or just con-
tinues 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.
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 un-
The second possible reason is that if the organization is poor at inspiring its work-
force 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 pro-
ductivity.
Roles and Responsibilities. Roles and responsibilities clarify who does what and
who is accountable for what. For the staff to adjust their behavior in a more cooper-
ative direction, they need to understand their own responsibilities and those of
their colleagues. They also need to know how these responsibilities are to be dis-
charged, what decision rights and key capabilities are needed, and how to measure
success. To foster performance and cooperation, the roles and responsibilities
should be sharply focused on what matters most; they should be defined more in
terms of the what than the how; and there should be sufficient overlap to ensure
that all the bases are covered but not so much overlap that work would be duplicat-
ed or rivalries would emerge.
An effective way to design roles and responsibilities is through the process of “role
chartering.” Each role is defined—on a single sheet of paper each time—in six re-
lated aspects:
The charters, if effectively designed, will help to foster cooperative behaviors and
add value accordingly.
The challenge is not just to define a person’s independent responsibilities but also
to define his or her shared responsibilities with regard to the work of others, in light
of interdependencies. So too for metrics: how is success to be measured? (If you
cannot measure it accurately, you cannot reward it appropriately, and if you cannot
reward it appropriately, you cannot easily incentivize people to engage in it. The
metrics might show that each silo is performing strongly, while the performance of
the organization as a whole might be weak.) Cooperation cannot be measured, at
least directly or quantitatively—hence the need for managerial supervision of key
interactions and for spelling out the mission-critical cooperation requirements.
Note again the important role played here by power (that is, influence over things
that are important to others). It is power that determines your capacity for gaining
cooperation from others and hence for dealing with business complexity. One way
for a company to empower you is by incorporating into your role charter a new
“stake” for others (something that matters to them). Suppose, for example, that
your role charter authorizes you to select various colleagues for a desirable task or
to submit an assessment report on them to their line manager when their promo-
tion prospects come under review: in each case, your role charter is empowering
you—these colleagues would now have an incentive to listen to you and cooperate
with you, and you would be in a position to influence their behavior. Or suppose
that your role charter gives you the decision right over a policy that some of your
colleagues wish to introduce or over budget allocations for a project of theirs: again,
that would serve as an extra source of power for you, encourage cooperation from
your colleagues, and make it easier for you to fulfill your shared accountability.
All in all, by devising role charters for key positions in the organization, a company
can accomplish several aims: clarify the individual and shared accountabilities, es-
tablish how to align roles and responsibilities horizontally and vertically with the
desired behaviors, secure from everyone involved the necessary buy-in for behav-
ioral change, and increase power and alignment in the organization, in order to en-
hance autonomy and cooperation and thereby cope better with complexity.
Individual Talent. Individual talent is needed for filling the roles and discharging
the responsibilities. To be a good match for a given role, the individual obviously
By devising role must have (or be able to acquire) the right skill set and the motivation. That way,
charters for key the role is performed effectively, the individual is engaged rather than disaffected,
posiitons, a company and the individual’s colleagues are therefore undistracted and likely to behave
can clarify account- productively and not disruptively.
abilities, align roles
with behaviors, secure To achieve the right match, proceed in a methodical way. Begin by reviewing each
buy-in, and increase key role and specifying the talent it needs; then choose the most promising candi-
power and alignment date, regardless of current seniority, salary level, or contract type (external resourc-
in the organization. ing is one of the options).
If necessary, the company will aim to “upskill” the candidate for a new role, via
mentoring, training, or other development opportunities. This upskilling is particu-
larly important around the time of a reorganization effort. Consider the example of
a senior role holder: during preparations for the reorganization, he or she might
need to learn new ways of designing a team or of managing difficult conversations.
And after the reorganization has taken place, he or she might need to acquire new
managerial skills in such areas as leading a new team, resolving conflicts across
units, and managing a broader span of control. Once equipped with the appropriate
talent or skill sets again, the role holder is in a position to fulfill his or her new re-
sponsibilities.
Among the enterprise-level decision processes are strategic planning, product and
portfolio planning, budget allocation, and major capital investments. Decision mak-
ing within organizations often becomes slow and contentious, and when a company
tries to improve the situation by imposing formal guidelines and new processes, it
often just complicates things and makes matters worse.
Once again, the right approach is to create a conducive context: the major stake-
holders can then cooperate with one another to generate effective and timely deci-
sions for the company’s benefit. As an additional resource for sharpening their de-
cision-making abilities, the stakeholders have access to a support system, including
IT platforms and data analytics. This system needs to be well designed, however,
and the analytics need to be relevant as well as practical. Failing that, the system
could actually prove counterproductive, and weaken rather than strengthen the
quality of decisions made within the organization.
By reminding people As for talent management (through appointments, promotions, or a new career
that what happens path, for example), it too can have a powerful effect on the way that people behave.
tomorrow is a conse- One technique is to carefully assign people the role—perhaps as a temporary trans-
quence of what they fer—of someone affected by their behavior. By getting them to walk in another’s
do today and making shoes in this way, you alert them to the “shadow of the future”—that is, you make
them accountable for them aware of the problems that their current behavior might create for their fu-
it, you give them an ture selves. This technique is particularly effective when the outcomes of their be-
incentive to optimize havior lie very far in the future. (In biopharma R&D, for example, the time lag be-
their current behavior. tween decision and outcome is so great that the decision maker might never be
personally affected by the outcome.) By reminding people that what happens to-
morrow is a consequence of what they do today and making them accountable for
it, you give them an incentive to optimize their current behavior.
Make It Happen
Reorganization is undertaken not for its own sake but in order to successfully exe-
cute strategy and boost performance (in each case, by modifying the behavior of
the workforce). So the implementation phase is crucial. It has two main aspects: es-
tablishing the right context throughout and enhancing the capabilities of leaders
and top talent. And it can be accomplished most efficiently through a process with
three features: cascaded design, rigorous program management with multilayered
communication, and capability building.
happening and why. The team studied boost capabilities to the point of
the key actors, identified the undesir- excellence.
able behaviors, and established why
those behaviors were rational in the To the transformation team’s surprise,
given context. The team then devel- the new organization design floun-
oped a suite of solutions that would dered. The twin goals seemed further
make a new set of behaviors ratio- away than ever.
nal—that is, more cooperative and
productive. Finally, the team devel- The broad problem was that in
oped a change program for imple- creating the CoEs, the company had
mentation. pressed the structural levers but
neglected all the other levers. Roles
The company was then able to and responsibilities remained unclear.
resume its redesign initiative, but on a The talent assigned to the CoEs was ill
proper footing this time. It redefined considered—generalists rather than
roles and revised the rewards system appropriate specialists. And the talent
in such a way as to reinforce the hubs management was poorly conducted:
and attract the right talent to the right career paths were considered “second
positions. Further effects included class,” turnover was high, and top
reduced waste, increased cooperation, performers refused to transfer from
clearer accountability, higher levels of brand teams to CoEs.
employee engagement—and overall
improved performance. In short, redesign had not been
accompanied by corresponding
Thanks to the quick course correction, changes to the context.
a reorganization effort that had been
heading for the rocks was diverted into With BCG’s support, the company set
a favorable current, and the compa- about mapping clearer career paths
ny’s prosperous voyage continues. for those assigned to the CoEs,
redefining and rechartering roles to
Fixing the Issues Affecting New make them more compelling,
CoEs clarifying decision rights, and adjust-
In a major strategic initiative, a global ing the mix of staff in order to
chemical company embarked on a generate real expertise within teams.
radical reorganization: the old Within three months of the “redesign
structure, which was based on of the redesign,” employees regis-
business units, was to be replaced by tered a hugely improved understand-
a new matrix structure, with centers ing of their roles and a general rise in
of excellence (CoEs) for key shared satisfaction.
functions such as analytics, customer
insights, marketing excellence, and Subsequent assessments have shown
sales operations. The goal was that the organization is now much
twofold: to improve efficiencies by more scalable, and performance is
building scale in these areas and to markedly higher than before.
These findings are consistent with our expectations. In Smart Design, the emphasis
is less on perfecting each element and more on creating the context in which the
elements can work most effectively together to drive the target behaviors and en-
hance performance. So, when business leaders commit to an organization redesign,
they should take a holistic approach rather than treat each factor individually. (For
a more detailed account, see Flipping the Odds for Successful Reorganization, BCG Fo-
cus, April 2012.)
2
% of initiatives rated as... Clarify roles and 6:1 success rate when a systematic
60 responsibilities process was used
Multiplier
With five or 88% overall success (versus 7% with five
more success “antithesis factors” in place)
factors in place
Source: BCG survey Organization of the Future—Designed to Win (data as of July 2011).
Note: 1,041 responses were analyzed.
1
Objective measures in other studies provide even gloomier figures.
Successful reorganization is often the most promising route for companies to regain
their former sparkle, consolidate their strengths, or gain a competitive advantage.
But taking that route requires steady nerves and bold measures. Many corporate ex-
ecutives are sufficiently bold to authorize a thoroughgoing organization redesign,
but not to break with the conventional approaches to it. The trouble is, the conven-
tional approach has produced uninspiring results in recent years, and in many cases
has actually made matters worse. It is simply inadequate in the present-day busi-
ness environment: the circumstances have changed, and the approach needs to
change as well. To drive productive behaviors, you must create broader and more
conducive contexts for them and then implant the new contexts, layer by layer,
deeply into the organization. Smart Design is a comprehensive end-to-end approach
that is specifically adapted to the new circumstances and precision-engineered for
boosting performance and engagement. It has produced outstanding results with
minimal disruption: companies applying Smart Design have seen a revival of em-
ployee motivation and engagement and a surge in company performance. If reorga-
nization initiatives often offer the best hope for troubled companies, Smart Design
offers the best hope for reorganization initiatives.
Note
1. Daniel H. Pink, Drive: The Surprising Truth About What Motivates Us, Riverhead Books, 2011.
Andrew Toma is a senior partner and managing director in the firm’s Miami office. He is a glob-
al leader of the organization design topic. You may contact him by e-mail at [email protected].
Fabrice Roghé is a senior partner and managing director in BCG’s Düsseldorf office. He is a
global leader of the organization design topic. You may contact him by e-mail at roghe.fabrice@
bcg.com.
Yves Morieux is a senior partner and managing director in the firm’s Washington, DC, office, and
leader of the BCG Institute for Organization. He is the originator of the Smart Simplicity approach
and a coauthor of Six Simple Rules: How to Manage Complexity without Getting Complicated, published
by Harvard Business Review Press. You may contact him by e-mail at [email protected].
Steve Maaseide is a partner and managing director in BCG’s Washington, DC, office. He is the
global leader of OrgBuilder, a proprietary, patent-pending software platform to support end-to-end
reorganization. You may contact him by e-mail at [email protected].
Eddy Tamboto is a senior partner and managing director in the firm’s Jakarta office. He is the
leader of the People & Organization practice in the Asia-Pacific region and a core member of the
Financial Institutions practice. You may contact him by e-mail at [email protected].
JinK Koike is a senior knowledge expert in BCG’s Boston office. He is the global manager of the
organization design topic and the digital people and organizaton topic. You may contact him by
e-mail at [email protected].
Acknowledgments
The authors express their gratitude to Michael Shanahan, Reinhard Messenböck, and Diana Dosik
for their valuable contributions to the creation of this report.
In addition, the authors thank June Limberis for her stewardship in creating this report and
Katherine Andrews, Gary Callahan, Catherine Cuddihee, Angela DiBattista, Kim Friedman, Abby
Garland, Michael Gulas, and Sara Strassenreiter for their contributions to the report’s editing,
design, and production.