Why Change Management Is Critical for Organizational Design

Transforming your company for success starts with an organizational design that aligns your company structure and processes with strategic goals. However, it takes an effective change management strategy and team to steer the transition.

When organizations attempt to implement an organizational design without a robust change management plan, significant challenges can arise—from costly delays and diminished productivity to disengaged and unhappy employees. If you are leading a major change initiative like this, you need to embrace change management practices that prioritize your people.

In this article, we delve into the critical importance of organizational design, identify common catalysts and pitfalls, and underscore why prioritizing change management is the cornerstone of successful transformations.

What Is Organizational Design and How Does It Affect Business Growth?

Organizational design is the process of “reshaping” or reconfiguring organizational structures to align with new strategic objectives. It involves redefining roles and responsibilities, updating processes, and establishing new ways of working. The aim is to enable your company to run as efficiently as possible to achieve its goals, whether launching a new product line or expanding to different markets.

It’s common for startups to have a horizontal structure—an organizational structure with few or no middle managers. This structure enables agility and fast decision-making. However, a lack of clear hierarchies can cause confusion around roles and responsibilities. While the structure can work for smaller companies, it can affect their ability to scale. An organizational design change that restructures roles can facilitate scalability.

Key aspects of organizational design include the following elements:

• Strategy – The driving force behind organizational design. Business strategy informs decisions and determines how a company will achieve its objectives. 
• Structure – Defines how roles and responsibilities will be divided and coordinated. It also includes establishing clear hierarchies and reporting to ensure accountability.
• Processes – The workflows and procedures that govern how work gets done. Improving organizational efficiency means revisiting and revising processes.
• Technology – The tools, technologies and infrastructure behind organizational design changes. The right technology can significantly impact operational efficiency.
• Organizational culture – The shared beliefs and attitudes that shape how individuals make decisions. Culture plays a crucial role in shaping organizational design.

Understanding organizational design is just the first step. The real value lies in how it influences business outcomes. From addressing capability gaps to improving efficiency, a well-designed organization can be a powerful driver of growth and competitive advantage.

Impact of organizational design on business growth

Only 5% of business leaders say their organizations have the capabilities in place to implement new technical or digital elements in their transformation strategies. The right organizational design models help organizations bridge this gap by:

• Providing clear organizational structures and eliminating role confusion
• Establishing effective communication channels and decision-making processes
• Supporting cross-functional teams and fostering collaboration
• Creating clear accountability and reporting relationships
• Improving processes with new technologies

By restructuring your organization to align with strategic initiatives, you can address capability gaps and deliver strong business outcomes. However, organizational design isn’t a “set-it-and-forget-it” job. It requires continuous refinement and adaptation to be effective, so companies must be able to pivot when necessary.

Understanding the benefits of effective organizational design invites us to ask: what drives companies to embark on these transformative journeys? Organizational changes seldom occur in isolation; they are often ignited by a mix of strategic, external or internal factors.

Common Triggers for Organizational Design

As markets experience rapid changes, many leaders recognize that adapting to change is necessary to survive. Yet, 45% of CEOs believe their companies won’t be around in 10 years if they stay on their current path.

Here are some of the driving forces behind organizational design.

Strategic changes

Strategic changes are a common trigger for organizational design. Companies often implement new initiatives to increase their competitiveness or capture new opportunities.

A prime example is Netflix. While the company launched as a DVD rental service, founders Reed Hastings and Marc Randolph recognized that the internet would change content delivery. So, they gradually built their infrastructure to support online streaming and invested heavily in original content production—a move that would pay off significantly. Today, Netflix has over 282 million subscribers around the world.

External factors

Other common triggers for organizational design include external factors such as market disruptions, technological advancements or regulatory requirements.

An example comes from BlackBerry, a company that once held a 20% market share of the global smartphone market at its peak. However, the launch of the iPhone in 2007 completely changed the smartphone industry.

BlackBerry’s executive team initially dismissed the iPhone. “It wasn’t secure. It had rapid battery drain and a lousy [digital] keyboard,” then-COO Larry Conlee said. However, Blackberry's failure to adapt led to rapidly dwindling market share as users moved to iPhone and Android devices. When the company launched a new device with similar features, it was too late. 

Internal factors

Companies may also undergo organizational design in response to internal factors. Examples include leadership changes, operational inefficiencies, or declining financial results.

When Satya Nadella became CEO of Microsoft in 2014, he focused on transforming the company from a “know-it-all” culture to a “learn-it-all” one. He also eliminated failing projects like the Windows Phone and prioritized more promising areas like cloud computing. These changes helped push the company to a market capitalization of over $3 trillion.

While adapting to change is often necessary for survival, poorly managed organizational design initiatives can lead to significant challenges. Understanding these consequences is crucial for avoiding pitfalls and ensuring successful outcomes.

Consequences of Poor Organizational Design

Organizational design is critical for businesses to thrive and remain competitive. However, overlooking or ignoring the people side of change can be costly.

Here’s what can happen if you push organizational design initiatives forward without effective change management practices.

Increased resistance to change

Implementing new changes can be an exciting endeavor, but it's important to recognize that not everyone in the organization will share the same enthusiasm. Resistance to change is a natural human reaction influenced by various factors. Prosci research indicates that a lack of awareness regarding the reasons behind the change is the most common cause of resistance.

Change begins at the individual level. You are more likely to encounter resistance if you do not proactively plan and incorporate steps that clarify the "why" behind a change and how it will impact employees' roles. By addressing these elements early on, organizations can significantly reduce the likelihood of resistance.

Failure to proactively manage resistance can lead to several challenges in organizational design efforts:

• Implementation Delays – When employees resist new initiatives, the change process can be slowed down, causing delays in implementation.
• Reduced Effectiveness – Resistance can result in partial or inconsistent adoption of new initiatives, undermining their intended benefits.
• Higher Costs – Additional resources may be required for training and addressing employee concerns, which could have been minimized through early intervention.

Proactively planning for resistance is essential to prevent disruptions during a change initiative. By integrating change management strategies from the outset, organizations can anticipate challenges and implement effective tactics to mitigate resistance, leading to smoother transitions and greater overall success.

Project delays and missed deadlines

Business leaders often focus on the technical aspects of organizational design, believing that growth will follow once the right technology is in place. However, a critical aspect of any change initiative is the impacted people—those who are expected to adopt and use new technologies. 

The lack of proper training programs can lead to confusion. Employees’ lack of understanding of the technology can cause delays and lead to missed deadlines. In fact, 71% of respondents in our research say their ERP projects ran behind schedule. This can happen when companies rush the implementation process without considering its impact on those using it. 

Higher implementation costs

Pushing organizational design changes forward without considering the people side of change can cause implementation costs to balloon. Consider again the implementation of an ERP system. Such projects are incredibly complex and involve many moving parts. 

Just 34% of respondents in Prosci’s Best Practices in Change Management research report completed ERP projects on budget. In comparison, more than 56% of all projects cited in our research stayed within their budgets.

A major reason for exceeding budgets is underestimating staffing requirements. Without skilled people to implement and manage a project, tasks can take longer. That’s not all. Overworked or inexperienced staff are likely to make mistakes, which can lead to costly rework. This highlights the importance of managing changes effectively. 

Strategic misalignment

During organizational transformations, 80% of employees experience “cultural tensions”—when impacted individuals struggle between conflicting priorities. An example is employees not being sure whether to prioritize speed or quality. This misalignment can cause separate departments to pursue conflicting objectives and waste resources through counterproductive efforts.

When organizations prioritize strategic alignment, they can successfully navigate these cultural tensions and push toward their objectives under a unified vision. As Michelle Haggerty, Chief Operating Officer of Prosci says, “The beauty of strategic alignment lies in its simplicity. By ensuring every change initiative ladders up to an organizational goal, you create a cohesive cascade to manage change.”

Damage to company reputation

A highly engaged workforce is incredibly valuable to any organization. Teams that scored in the top quartile of employee engagement see the following benefits compared to bottom-quartile teams:

• 10% higher customer loyalty
• 23% higher profitability
• 18% lower turnover

Supporting employees throughout the change process is crucial for engagement, as mishandling the transition can have broader consequences. For example, disengaged employees aren’t likely to go above and beyond for customers. As a result, consumers may feel neglected or ignored, which can affect your company’s reputation.

The challenges highlighted above underscore the importance of a structured approach to managing organizational change. Change management plays a pivotal role in minimizing risks and maximizing the benefits of organizational design.

How Change Management Facilitates Organizational Design

When you apply a structured change management approach framework to organizational design, your initiatives are more likely to succeed and deliver the desired outcomes. Prosci research shows that change initiatives with excellent change management practices are seven times more likely to meet their objectives than those with poor change management. 

Correlation of Change Management Effectiveness With Meeting Project Objectives

Here’s how successful change management can minimize the risks of poor organizational design by putting people at the center of organizational change.

Prevents resistance to change

As mentioned earlier, resistance is a natural reaction. Some people may prefer to maintain the status quo because it’s familiar, whereas change can be risky and uncomfortable. 

The Prosci ADKAR® Model—a powerful model for facilitating individual change—prevents resistance to change by:

• Building Awareness – Employees are more likely to support new initiatives when they understand the “why” behind a change and the risks of not changing.
• Anticipating and planning for points of resistance – Identifying potential obstacles allows you to develop strategies to address them. For example, if employees are concerned about how new software will affect their workflows, you can invest in additional training. 
• Engaging and involving impacted people – Employees don’t want to be blindsided with new changes. Instead, you’ll want to involve those most affected by the change to drive adoption of new initiatives.

Increases employee engagement

Prosci research reveals that employee engagement is one of the top three contributors to change success. Successful change management increases engagement through:

• Transparent communication – Communication is key to supporting employees during transitions. A good place to start is to create communications plans for organizational design changes.
• Employee involvement – Twenty-three percent of employees say that exclusion from change-related decisions makes them more likely to resist change. Involving people early can increase employee morale and engagement, building support for the new organizational design.
• Leadership engagement – Change starts at the top. When employees see leaders actively participating in change, they’re likely to follow suit. Applying the Prosci Methodology can help prepare sponsors for this role.

By increasing employee engagement, you can create an environment where impacted individuals are supported throughout the change process.

Helps employees adapt to change

Change management strategies include developing training programs to upskill employees and help them adapt to new changes. This can foster a sense of belonging and loyalty. Seven in ten people say that learning improves their sense of connection and purpose to their organization. Models like ADKAR help impacted individuals adapt to change and maintain productivity as they transition to future states.

Reinforces and sustains change

Habits are difficult to break because our brains create strong neural connections when we frequently repeat certain actions. This is why reinforcing new changes is so important to keep employees from reverting to their old behaviors.

Effective change management helps reinforce and sustain change by:

• Celebrating and rewarding individuals who implement changes
• Creating channels to gather employee feedback to identify implementation challenges
• Establishing clear metrics to track and measure adoption rates

Through applying effective change management practices, organizations can navigate transformations with greater confidence. The Prosci Methodology offers a proven framework for managing the complexities of change, ensuring that people remain at the heart of organizational success.

Drive Organizational Design With Prosci

Organizational design is about more than restructuring. It’s about setting your organization up for long-term success. But real transformation doesn’t happen on paper; it happens when people embrace new ways of working. That’s why managing the people side of change is non-negotiable. Clear communication, the right support and the right tools empower employees to move forward with confidence. That’s change done right.