SumTotal Blog

Why Is Organizational Design Important?

April 11, 2022 | by SumTotal Blog | 5 min read

What is Organizational Design?

Organizational design is the process of aligning an organization’s strategic plan or goal with a specific system of administration and execution that allows the plan to be carried out effectively.

It’s the foundation that influences key decisions like managerial hierarchies, department structures, communications channels, project management, and more.

Why Is Organizational Design Important?

The way an organization is designed determines almost everything about the company — including how decisions are made, how customers are served, what skills are important, and the roles of each team and individual in day-to-day operations.

According to Chron, organizational design has a particular impact on the following areas:

  • Company culture: Organizational design impacts lines of communication between teams, frontline employees’ level of decision-making ownership, what kinds of employees get hired (contractors vs. full-time), the way ideas are communicated to leadership, and so on.
  • Company leadership: Organizational design will determine if a flat or hierarchical managerial structure is right for a company’s goals, how responsibilities are delegated, and how people will be held accountable for results.
  • Adaptability: Organizational design influences adaptability to changes in a company’s industry or competitive landscape. For instance, companies with more layers of management and bureaucracy might be competitive in relatively mature industries but fail to compete if operating with a flatter model in a faster-changing field.

It’s this last point — adaptability — that we’re going to focus on in this blog, as being adaptable can be a major competitive advantage even in seemingly stable industries.

Adaptability in Practice

Although people tend to agree that adaptability is an important quality for an organization to have, it’s not always easy to give specific examples of what this might look like.

So, what does it mean to put adaptability into practice when faced with change within and outside your organization? It’s one thing to say you’re adaptable, but quite another to actually practice what you preach. Let’s look at a few examples of industries in which organizations have had to adapt to change.

Healthcare and HIPAA: New Regulatory Frameworks

The way healthcare organizations handle patient data changed radically following the passage of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). With data privacy and security practices under much heavier regulatory scrutiny, every organization in the industry — from small family practices to major healthcare conglomerates — had to retrain their workforces to meet the new standards.

Financial Services and ‘Neobanks’: New Competitive Threats

In the financial services industry, challenger banks or “neobanks” are digitally native banks taking on legacy financial institutions via convenient mobile apps, specialized financial products, and a focus on appealing to younger consumers. In response to the competitive threats posed by challenger banks, legacy banks have had to retrain their workforces, develop new products, and update their branding and marketing approaches.

Adaptability and Digital Maturity

In response to HIPAA and the rise of neobanks, companies in the healthcare and financial industries rethought their organizational design to keep up with the pace of change and adequately meet new challenges. This involved becoming adaptable and learning to think differently about their goals, plans, and execution.

A key part of facilitating adaptability is ensuring new and existing employees are trained appropriately on updated ways of doing things, which requires ideas and processes developed at the top of the organization to be efficiently and effectively disseminated.

Organizational adaptability is a function of your company’s ability to drive learning outcomes across departments, teams, and individuals — which is where the concept of digital maturity comes into play. To measure your organization’s capacity for fostering a culture of learning that can drive your business in new directions, starts with assessing your level of digital maturity. From there, it’s about finding ways to increase the company’s maturity.

Digital Maturity Is the Path to Adaptability

Digital maturity refers to how adaptive your digital HR strategy is in responding to the needs of the rest of the business.

In other words, when your business and its constituent units need to adapt, your digital HR strategy should accommodate and support them. If skill and process changes are required to meet evolving regulatory requirements or customer service needs, your learning program — which is usually overseen by HR or People Ops — must be responsive.

A digitally immature organization will respond with siloed, fragmented learning that is more reactive to immediate needs. In contrast, a more mature organization will foster a people-centric philosophy, stronger governance around learning programs, and modern infrastructure and technology to deliver relevant learning content in a scalable way. In a more mature organization, learning and talent experiences are cohesive and built in tandem with specific business units to ensure continuous improvements in learning outcomes.

Want to learn more about the 5 Stages of Organizational Maturity? Read our eBook, “The 5 Stages of Organizational Maturity,” to learn how to build a people-centric and adaptable learning culture.

Of course, developing a digitally mature learning program requires a mindset shift from the top down, particularly around trusting employees to develop new skills and navigate challenges — and, according to a Mercer survey, that largely hasn’t happened yet.

More specifically, executive respondents to the survey said they believed just 45% of their workforce could adapt to the new world of work. In contrast, 78% of surveyed employees said they were ready to learn new skills.

If you don’t trust your employees to gain the skills they need to propel your company forward, you’re going to be left behind — particularly if you’re still delivering learning programs in an ad hoc, siloed fashion.

Recent research has found that when HR emphasizes the content and delivery of relevant training, organizations become more resilient and adaptable in the face of change. In fact, these companies are:

  • 3.9x more likely to meet or exceed financial targets
  • 4.5x more likely to outperform the competition
  • 3.9x more likely to satisfy and retain customers
  • 4.5x more likely to effectively respond to change
  • 6.7x more likely to engage and retain the workforce

If your organizational design silos HR and learning departments from the rest of the business, you’re keeping the greatest facilitator of organizational adaptability — learning — from the people who need it most. Improving your organizational design will require changing people, processes, and technology to deliver the useful, relevant training necessary to become the type of organization that can handle a fast-paced and uncertain world.

Ready to assess your organization’s level of organizational maturity? Take our comprehensive diagnostic, the SumTotal Organizational Maturity Index, to get a personalized assessment of your digital maturity and receive targeted recommendations for improvement.

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