Smart Design for Performance

A New Approach to Organization Design

The Boston Consulting Group (BCG) is a global
management consulting firm and the world’s
leading advisor on business strategy. We partner
with clients from the private, public, and not-for-
profit sectors in all regions to identify their
highest-value opportunities, address their most
critical challenges, and transform their enterprises.
Our customized approach combines deep insight
into the dynamics of companies and markets with
close collaboration at all levels of the client
organization. This ensures that our clients achieve
sustainable competitive advantage, build more
capable organizations, and secure lasting results.
Founded in 1963, BCG is a private company with
85 offices in 48 countries. For more information,
please visit bcg.com.
Smart Design for
Performance
A New Approach to Organization Design

Peter Tollman, Andrew Toma, Fabrice Roghé, Yves Morieux, Steve Maaseide,
Eddy Tamboto, and JinK Koike

April 2016
AT A GLANCE

Reorganization is a powerful tool for changing the trajectory of a business and

enhancing its performance. However, reorganization efforts all too often disappoint.

What ReaLLY Matters

Company performance is determined above all by people’s behaviors—their
actions, interactions, and decision making—so organization redesign should aim
directly at shaping those behaviors.

Redesigning Organization Redesign

A particularly effective approach is Smart Design for Performance. It focuses on the
behaviors required for success and—using a wide variety of organizational levers in
combination—creates a conducive and engaging context for them so that it is in
employees’ own individual interests to adopt them. Absent this context, failure is
all but inevitable.

2 Smart Design for Performance

I
n 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
orga- nizational frameworks that have become outmoded and ineffective in today’s
busi- ness environment. (See the sidebar “The Traditional Approaches: Hard and
Soft.”)

THE TRADITIONAL APPROACHES

Hard and Soft

In grappling with organization design, structures, processes, and systems and

company executives tend to draw on by offering financial incentives based
two venerable approaches, which can on performance metrics.
be characterized as the “hard”
approach and the “soft” approach.
Because performance levels often
seemed curiously resistant to the
The hard approach can be traced back
hard approach and the level of control
more than a century to the
achieved was limited, organizational
Frederick
pioneering W. Taylor on the
work of
theorists began supplementing it with
subject of scientific management. The
the soft approach. This approach
approach rests on two broad assump-
involves encouraging positive atti-
tions: first, that performance is affected
tudes and interactions among the
directly and crucially by structures,
workforce by means of team-building
processes, systems, and financial
activities, workshops emphasizing
rewards; second, that people’s behavior “people initiatives.”
values, and other
is something to be controlled—through It can be traced to the work of Elton

The Boston ConsuLting 3

 THE TRADITIONAL APPROACHES
Hard and Soft (continued)

Mayo in the 1920s and the

work they now generally do is not
subse- quent human relations
really amenable to control: in a
The new thinking was,
school of management.
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
The underlying purpose here, as with for 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
tance of individual autonomy and mission.
rationality. First, people are less likely
to behave in the way we want if (This account is adapted from the
coerced or manipulated into such book Six Simple Rules: How to Manage
behavior than they are if the choice is Complexity without Getting Complicated,
their own. (And in any case, the kind of by Yves Morieux and Peter Tollman,
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.

one of globalization, hypercompetition, revolutionary technologies, and elaborate

First, organizations
regulation. now have
Such complexity to operate
implies in a vastly
an increased moreofcomplex
number environment
performance require-
ments 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 compli-
cated 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.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.

4 Smart Design for Performance

All of that requires judgment. Judgment in turn involves creativity and full
engagement on the part of the workforce. For algorithmic work (and in the hard
approach to organization design), variation is discouraged and minimized—
people need to follow the rules. Knowledge work and creative engagement,
however, actually embrace variation and flourish in proportion. What’s more,
heuristic workers on the front line, in order to make the most reliable and cre-
ative judgments possible, must master and monitor local conditions. So, in this
respect, they are now the experts: they know more about this aspect of the trade-
offs than their superiors do and, accordingly, need greater autonomy and empow-
erment.

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

SMART DESIGN, SMART SIMPLICITY

Smart Design is based on BCG’s The new context must encourage
Smart Simplicity model of how to cooperation.
Company performance
design organizations for perfor-
improves strongly when organizations
mance.1Two of the framework’s key
raise the level of cooperation among
tenets are as follows:
the individual actors and align individ-
ual goals more closely with company
A company’s performance is a direct goals. Cooperation, in this sense,
consequence of its people’s occurs when one individual takes
behavior, which in turn is a response action to improve the performance of
to the contexts in which these people another; it brings synergy, such that
find themselves. The performance of everyone’s efforts combine in the
any organization is driven by the most effective way and benefit the
behaviors of the individuals in that whole group. Cooperation is therefore
organization: the decisions they make, the essence of teamwork; the whole is
the activities they undertake, and their greater than the sum of the parts.
interactions. These behaviors are
rational—a ratio- nal reaction to a
particular situation; they are not Notes
“hyperrational,” as the behaviors of a 1. The framework is explained in detail in Yves
Morieux and Peter Tollman, Six Simple Rules:
computer algorithm might be. Rather, How to Manage Complexity without Getting
they represent the individuals’ Complicated, Harvard Business Review Press,
perceived bestTo strategy
changein the
these behav- 2014.
2. See Herbert Simon, “A Behavioral Model of
situation. 2
iors, and hence raise the organiza- Rational Choice,” in Models of Man, Social and
tion’s performance level, you have to Rational: Mathematical Essays on Rational
make a new set of behaviors rational; Human Behavior in a Social Setting, Wiley, 1957.
to do that, you have to change the
situation, or context.

The Boston ConsuLting 5

 great success in raising company performance, mastering complexity, and enhanc-
ing employee engagement.

The Basis of a New Approach

A holistic view of organization design would encompass numerous components:
structural elements, roles and responsibilities, individual talent, and enabling mech-
anisms such as core enterprise decision-making processes, performance manage-
ment, and talent management. These are the key levers for organizational change,
and they are obviously crucial—but their relevance is indirect. To change a compa-
ny’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, process-
es, 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.

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. (S ee 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

Organizational levers Organizational levers

Structures – Processes – Metrics COMMON APPROACHES Structures – Processes – Metrics
SMART SIMPLICITY
– Incentives – Information systems – Incentives – Information systems
– Training – Communication … – Training – Communication …

Why people behave the way they do

People Behaviors

Results Results
Performance of the organization Performance of the organization
tional levers directly determine results Underlying assumption: Behaviors determine performance; levers influence performance indirectly by acting on the c
how levers influence people’s behavior, what actually
Lessonhappens
learned:
remains
To effectively
a black box,
manage
and unintended
change, you
consequences
need to understand
ensue 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.

6 Smart Design for Performance

What’s So Smart About Smart Design?
BCG’s Smart Design approach involves three main steps—the why, what, and how
(see Exhibit 2):

• Define the purpose of the reorganization (the

• 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).
Define the Purpose of the Reorganization
• redesigning
By the organization,
Make it happen (the 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 be-
tween the company’s current performance and its target performance) and hence

ExhiBit 2 | Smart Design Involves Aligning Four Design Elements to Enhance Organizational Capabilities and D

PURPOSE: WHY? DESIGN ELEMENTS: WHAT? MAKING IT HAPPEN : HOW?

Context
1
Organizational structure Designing and staffing through a cascade: “layer by layer”
Strategic priorities Management reporting structure
Spans and layers and resources

Applying program- matic rigor with minimum overhead

4 2
Organizational enablers Roles and responsibilities
Enterprise decision processes Accountabilities, decision rights and KPIs for key positions
Performance management Behaviors
Competitive advantage
Talent management

Using multiple layers of communication

3
Individual talent
Talent matched with role requirements
Skill building

Enabling leaders and top talent

Organizational pain points

Source: BCG analysis.

The Boston ConsuLting 7

the precise aims of the reorganization effort—with regard to competitive advan-
tage, strategic priorities, or organizational pain points.

There are various ways to approach such an assessment. (For a summary of one of
them, see the sidebar “BCG’s Complicatedness Survey.”)

BCG’S COMPLICATEDNESS SURVEY

Organizations today operate in an environment
ment’sofagility
unprecedented
and reducing
complexity,
the work- owing to factors su
and customer empowerment. force’s engagement.

BCG has developed a complicated- ness survey for clien

But that does not mean that the organizations themselves have to be characterized by complicat
organization by restricting manage-

Illustrative Example of Survey Material

STRATEGY AND PURPOSE

75
STEERINGSTRUCTURE
SYSTEM AND KPIsAND LAYERS
8030

DECISION MAKING ACTIVITIES AND ROLES

60 60
Simple

PROCESSES AND SYSTEMS/IT PEOPLE AND INTERACTIONS

50 Complicated 70

Source: BCG analysis.

8 Smart Design for Performance

Determine the Target Behaviors and Design the Organization Ac-
cordingly
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 de-
sired behaviors.These elements are organizational structure, roles and responsibili-
ties, individual talent, and organizational enablers. Note that they affect one anoth-
er 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. Organizational structure refers to the hierarchy of man-

agement 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 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.

Another way that organizational structure affects behavior is through geometry:

the more layers the structure accommodates, the longer the chain of command be-
comes, and that can have counterproductive consequences—slower decision mak-
ing, 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 un-

The Boston ConsuLting 9

 POWER AND RELATED CONCEPTS
In any team or company, the work
then the cost is incurred elsewhere—
done by one person affects the ability
by others in the team or organization
of others to do what they have to do.
(in the form of underperformance,
That creates interdependencies. And
perhaps), or by the team or organiza-
interdependencies create a need for
tion as a whole (in the form of lower
cooperation.
productivity), or by people external to
the organization—such as customers
Cooperation is the essence of team- (through defects, delays, or higher
work: it involves more than just prices) or shareholders (through lower
collaboration and coordination; it returns).
consists of behavior by individuals
that increases the effectiveness of a
An important way to secure coopera-
group in pursuit of a shared goal.
tion within a group is for the group
When you as an individual cooperate,
leader to exercise leadership (that
you take into account—in your
means getting people to do things
decisions and your actions—the
that they wouldn’t do spontaneously)
needs and situations of your col-
and for that purpose, he or she needs
leagues, rather than simply pursuing
appropriate power (power rather than
your own preferences.
just status).

Cooperation is not as easy as it

Power can be defined as influence
sounds, nor as common. Don’t
over things that are important to
assume that it happens automatically
others: it is not necessarily correlated
in your organization. Individuals are,
to one’s position in the hierarchy. A
by nature, self-interested and value
line manager coordinating a large
their autonomy, so they often resist
project, for example, will have power
cooperation, because it requires a
over direct reports (via influence over
personal sacrifice, or adjustment cost,
their salaries or promotion prospects)
from them. This adjustment cost
but not necessarily over nondirect
might be professional, emotional,
reports, and so might be unable to
reputational, or, of course, financial.
secure cooperation among them—a
sure sign of a dysfunctional organiza-
If an individual avoids cooperating by tion and the need for an organization
refusing to make the adjustment cost, redesign or at least an adjustment.

derstandably 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 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.

10 Smart Design for Performance

In contrast, a smart and effective organization is lighter and flatter in structure, al-
lowing 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 creativity in finding solutions.

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:

• Individual and shared accountabilities—that is, responsibilities for the

completion of tasks.
To foster performance
• Decision rights needed for carrying out the accountabilities. and cooperation, roles
and responsibilities
• KPIs for measuring the performance of these accountabilities. should be sharply
focused on what
• Mission-critical cooperation requirements—what each person can do to matters most.
make others more effective at accomplishing their accountabilities, and what
others can do in return.

• Desired leadership markers 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 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.

The Boston ConsuLting 1

 The key is to align the charters of those people who especially need to cooperate with
one another. If your own role charter, thanks to a systematic alignment process, chimes
well with those of your supervisors and your peers, that should both clarify individual
and shared accountabilities and facilitate productive and cooperative behavior.

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.

12 Smart Design for Performance

However, that might still not be enough. The individual also needs the motivation
to apply these skills, specifically in a cooperative way. When companies are
struggling to execute a strategy, they often lay the blame on skill gaps when the
real culprit is rather different: a shortage of cooperation. The solution is to make
adjustments to the context, in such a way that a committed fulfillment of the re-
sponsibility becomes a rational and personally beneficial behavior for the role
holder.
Any new organization
Any new organization design should not only deploy and leverage existing talent to design should not
the full but also aim to attract, retain, and develop future talent. One strategy in only deploy and
this regard is to create and foster roles that offer great learning experiences or en- leverage existing
hanced career paths. Once again, make sure to create a conducive context for such talent to the full but
roles—one that gives an ambitious and talented individual the right amount of ex- also aim to attract,
posure, for example, and provides him or her with the right opportunities to move retain, and develop
on after a while. future talent.

Organizational Enablers. Finally, organizational enablers provide further help in

creating the coherent organizational context that encourages the desirable behav-
iors. The main enablers are enterprise-level decision processes and their support
systems, performance management, and talent management.

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.

Performance management is conducted through staff evaluations. The evaluations

would ideally involve a combination of KPIs and judgment-based assessments. The
company should ensure that those conducting the performance management are
properly equipped to do so. They need to acquire the requisite skills, by means of
training, if necessary—how to recognize cooperative and uncooperative behaviors,
for instance, or how to provide feedback candidly but constructively.

If executed well, performance management can help to enhance workplace behav-

ior—but it is liable to misuse. All too often, companies deploy performance assess-
ment criteria to link operational failures to specific roles or individuals. The clearer
the link, the more strongly the company believes it has the right assessment sys-
tem—only to find that these direct attributions have the effect of making matters
even worse and prompting suboptimal or even counterproductive behavior. A

The Boston ConsuLting 1

 smart organization understands that performance requirements can be highly com-
plex and often conflicting and accepts that problems of execution arise for many
reasons. It also understands that frequently the best way to solve these problems is
to increase cooperation, and that means reducing the payoff for those people or
units engaging in uncooperative behavior, even if the problem does not take place
directly in their own domain, and to increase the payoff for everyone when every-
one cooperates in a beneficial way.

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 tween decision and outcome is so great that the decision maker might never be
behavior. 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.

Both performance management and talent management need careful designing to

create the right context for behavior. It is all too easy to misalign them with target
behaviors and thereby actually encourage the counterproductive behaviors that
you are setting out to eradicate.

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.

Cascaded design, or “layer-by-layer, team-by-team design,” involves role chartering

by each employee successively down the organization, in consultation with his or
her colleagues and line manager. This cascading process helps to refine and publi-
cize each role—clarifying the interdependencies and the way they affect one anoth-
er—as well as speeding up decision making and reinforcing strategic goals through-
out the organization.

Rigorous program management involves creating, tracking, and course correcting a

portfolio of change initiatives. If conducted properly, it maximizes the visibility of
the change program and ensures that members of the workforce understand and feel
the consequences of their actions. Through feedback loops, it indicates, encourages,
and reinforces the desired behaviors. One of its major components is multilayered
communication—at all levels of the hierarchy, senior managers hold one-on-one con-
versations with their subordinates and conduct pulse checks or surveys to monitor

14 Smart Design for Performance

how their subordinates are progressing and how they feel. In that way, they can gain
insights into the effects of the new context and make adjustments to it as needed.

Capability building, or enablement, drives performance and hence value. Organiza-

tion design provides a unique opportunity for companies to boost capabilities in
this way, provided that the company’s leaders and top talent learn the necessary
skills: first, how to execute the organization redesign smoothly, then how to lead
within the new organizational context and help their subordinates to adapt, and
then how to drive business objectives and value in their new roles. To ensure
sustainable outcomes in each of these requisites, companies often benefit from a
tailor-made leadership- and talent-development program.

Validation from Experience and Research

When it comes to applying Smart Design to actual situations, the details obviously
differ from case to case, according to the purpose of reorganization, its scope and
scale, and the company’s current organizational capabilities. Some reorganization
initiatives clearly need all three components of the enhanced organization-design
program; for others, just one or two of the components might be enough. (For two
instructive case studies, see the sidebar “Smart Design in Action.”)

As mentioned earlier, BCG conducted a survey on reorganization, polling corporate

executives in a wide range of industries. The survey identified six factors as the
strongest contributors to the success of reorganization efforts: aligning design with
strategy, clarifying roles and responsibilities, deploying the right leaders and the
right capabilities, designing layer by layer (not just from the top down), executing
optimally by minimizing risk factors, and reorganizing during a period of strength

SMART DESIGN IN ACTION

Two case studies provide insight into • Decision making became slower
the power of the Smart Design approach. and more contentious.

• Cross-functional efforts proved

Making a New LoB-and-Hub Matrix Work increasingly disappointing.
A multibillion-dollar financial institu- tion in the US was underperforming, and a serious reorganization was indicated. A rede
(LoB) structure to a matrix of LoBs and hub • centers.
The brandThe upshot
LoBs was collabo-
avoided exacerbation
ratingofwith
the the
drivers of citing
hubs, under-various concerns in
performance: capabilities and processes.

• Talent development continued to

deteriorate.

When BCG was invited to help resolve these issues, our Smart Design team
began by analyzing exactly what was

The Boston ConsuLting 1

 SMART DESIGN IN ACTION
(continued)

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.

16 Smart Design for Performance

rather than crisis. The findings of the survey were illuminating, to say the least:
companies that embraced all six success factors within their reorganization effort
enjoyed vastly greater success than companies that did not. With each additional
factor, the success gained further impetus. (See Exhibit 3.) Subsequent case experi-
ence has confirmed the importance of these factors.

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.)

S
mart Design is premised on the recognition that company performance is a
function of employee behavior. So to improve performance, the trick is to modi-
fy behaviors appropriately. And to do that, you must first study the existing behav-
iors—the good, the bad, and the absent—and then comply with the other success

ExhiBit 3 | Six Crucial Factors Boost the Prospects for Reorganization

FEWER THAN HALF OF REORGANIZATIONS ...BUTSUCCEED ...1 CAN EMPLOY SIX ...TO
COMPANIES GREATLY FACTORS...
KEY SUCCESS IMPROVE THE ODDS OF SUCCESS FOR
Overall, how successful was your company in1its reorganization efforts?
Align design with strategy
5:1 success rate when this factor was the top design priority

2
% of initiatives rated as... 6:1 success rate when a systematic process was used
Clarify roles and responsibilities
60

3 74% total reorganization success if leaders are viewed as high

40 Deploy the right leaders and capabilities

48 Successful
20
4
Design layer by layer to 4:1
set success rate
the right (versus 1:1 with a CEO-only design approach
context
0

–20 5 79% total reorganization success when the effort is well execu
Unsuccessful or mixed
52 Execute optimally by minimizing riskwhen
(versus 11% factors
not)

–40
6
Don’t wait for a crisis 21:1 success rate if the reorganization takes place during a tim
–60

Multiplier
88%
With five or more success overall
factors insuccess
place (versus 7% with five “antithesis factors”

Source: BCG survey Organization of the Future—Designed to Win (data as of July 2011).
Note: 1,041 responses were analyzed.
1Objective measures in other studies provide even gloomier figures.

The Boston ConsuLting 1

factors listed in the middle column of Exhibit 3. As the final column shows, a consci-
entious approach to reorganization can make a striking difference to its chances of
success.

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.

18 Smart Design for Performance

About the Authors
Peter Tollman is a senior partner and managing director and BCG Fellow in the Boston office of
The Boston Consulting Group. He was formerly the Americas’ leader of the People & Organization
practice and global leader of the biopharmaceutical sector. He coauthored Six Simple Rules: How to
Manage Complexity without Getting Complicated, published by Harvard Business Review Press. You
may contact him by e-mail at tollman.peter@bcg.com.

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 toma.andrew@bcg.com.

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 morieux.yves@bcg.com.

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 maaseide.steve@bcg.com.

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 tamboto.eddy@bcg.com.

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 koike.jink@bcg.com.

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.

For Further Contact

If you would like to discuss this report, please contact one of the authors.

The Boston ConsuLting 1

To find the latest BCG content and register to receive e-alerts on this topic or others, please visit bcgperspectives.com.

Follow bcg.perspectives on Facebook and Twitter.

© The Boston Consulting Group, Inc. 2016. All rights reserved.

04/16
Abu Dhabi
Chicago Kiev Munich Shanghai
Amsterdam
Cologne Kuala Lumpur Nagoya Singapore
Athens
Copenhagen Lagos New Delhi Stockholm
Atlanta
Dallas Lima New Jersey Stuttgart
Auckland
Denver Lisbon New York Sydney
Bangkok
Detroit London Oslo Taipei
Barcelona
Dubai Los Angeles Paris Tel Aviv
Beijing
Düsseldorf Luanda Perth Tokyo
Berlin
Frankfurt Madrid Philadelphia Toronto
Bogotá
Geneva Melbourne Prague Vienna
Boston
Hamburg Mexico City Rio de Warsaw
Brussels
Helsinki Miami Janeiro Washington
Budapest
Ho Chi Minh City Milan Riyadh Zurich
Buenos Aires
Hong Kong Minneapolis Rome
Calgary
Houston Monterrey San Francisco
Canberra
Istanbul Montréal Santiago
Casablanca
Jakarta Moscow São Paulo
Chennai
Johannesburg Mumbai Seattle bcg.com
Seoul