Organisational redesign helps businesses remain competitive, efficient, and adaptable in the face of internal growth and external change.

Reasons for Organisational Redesign

Organisational design refers to how a business arranges its people and resources to achieve its goals. Redesign becomes necessary when existing structures no longer align with business needs or when change is required to improve performance. Several key triggers lead businesses to reconsider their organisational design.

Business Growth or Downsizing

Business growth often leads to increased complexity, necessitating a more formalised and structured approach to operations:

• Scaling up operations typically means hiring more staff, creating new departments, and expanding to new locations.

• A flat or informal structure that worked for a small team may no longer provide enough oversight or clarity as the business grows.

• New layers of middle management may be introduced to ensure effective supervision, while departmental divisions by product, region, or function might emerge.

• Roles and responsibilities must be clearly defined to prevent duplication and inefficiencies.

Example: A fast-growing e-commerce start-up may initially have a single team handling operations, marketing, and customer service. As it grows, it may shift to a functional structure with separate departments, and later to a regional structure when entering new international markets.

Downsizing, by contrast, often results from falling revenues, loss of market share, or shifts in consumer behaviour:

• Companies may reduce staff, consolidate roles, and flatten hierarchies to cut costs and improve agility.

• Layers of management might be removed to speed up decision-making and reduce overheads.

• A leaner organisational structure enables quicker communication and encourages employees to take on broader responsibilities.

Example: A national retailer facing declining footfall in physical stores might close underperforming branches, eliminate managerial roles, and redistribute responsibilities to streamline operations.

Innovation or Digital Transformation

The shift towards digital technologies fundamentally alters how businesses operate and serve customers. Innovation often requires redesigning organisational structures to support new ways of working:

• Digital transformation may introduce automation tools, artificial intelligence, or cloud platforms that make traditional roles redundant or require new skills.

• Businesses might shift towards agile structures, with small cross-functional teams working on specific projects or products.

• Remote and hybrid working models challenge conventional office-based hierarchies and may lead to more decentralised structures.

• Emphasis on collaboration across departments leads some companies to adopt a matrix structure, where employees report to both functional and project managers.

Example: A traditional newspaper company going digital may create digital product teams that include editorial, marketing, and IT staff working together. This change breaks down traditional department silos and encourages innovation and faster decision-making.

Mergers, Acquisitions, or Restructuring

Major corporate changes such as mergers and acquisitions (M&A) or internal restructuring demand careful organisational redesign to integrate different systems, cultures, and processes:

• M&A activities often result in duplicated roles, conflicting reporting lines, and inconsistent processes.

• Redesign aims to create a cohesive structure that aligns with the combined company's strategy.

• This may involve consolidating departments, creating new leadership roles, or adopting a unified reporting system.

• Restructuring, even without a merger, may be initiated to refocus the business, reduce inefficiencies, or reposition the company in the market.

Example: After a tech company acquires a smaller competitor, it might integrate overlapping development teams and restructure the leadership hierarchy to avoid confusion and streamline innovation efforts.

Benefits of Organisational Redesign

Redesigning the organisational structure can deliver significant strategic and operational advantages if managed effectively.

Improved Flexibility

In a fast-changing business environment, flexibility is essential:

• A more adaptable structure allows for rapid response to new opportunities, market changes, and customer demands.

• Matrix and project-based structures are particularly useful for flexibility, as they allow employees to shift between tasks and teams based on priorities.

• Removing rigid hierarchical layers shortens the decision-making process, enabling faster implementation of ideas.

Example: Consulting firms often adopt flexible project-based structures, where teams are formed based on client needs and dissolved after project completion.

Increased Motivation

Motivated employees are more productive, innovative, and committed to organisational goals:

• Redesigns that reduce micromanagement and promote autonomy can enhance job satisfaction.

• Giving employees more responsibility and involvement in decision-making boosts intrinsic motivation.

• Working in diverse, cross-functional teams promotes a sense of purpose and strengthens interpersonal relationships.

Example: A software firm introduces a flatter structure, removing unnecessary management layers. Developers now make more design decisions independently, increasing their engagement and ownership.

Better Communication

Communication is essential for coordination, problem-solving, and innovation:

• Organisational redesign can improve information flow by clarifying roles and eliminating communication bottlenecks.

• Fewer levels of hierarchy mean that messages from senior leadership reach frontline staff more quickly and accurately.

• Collaborative structures such as matrix designs encourage ongoing dialogue between teams.

Example: A healthcare provider shifts from a rigid departmental structure to a team-based model. This allows nurses, doctors, and administrators to coordinate care more effectively, improving patient outcomes.

Greater Efficiency

Efficiency results from streamlined workflows, reduced duplication of effort, and better resource use:

• A well-designed structure aligns people with tasks, ensuring the right people are in the right roles.

• Clear responsibilities eliminate confusion and allow managers to monitor performance more effectively.

• Resources, including time and labour, are better allocated when the structure supports business priorities.

Example: A logistics company redesigns its operations around geographic regions instead of functions. This improves delivery routes, reduces travel time, and cuts fuel costs.

Challenges of Changing Organisational Design

While the potential benefits are substantial, redesigning an organisation also involves risks and obstacles that must be carefully managed.

Resistance to Change

People are naturally resistant to change, especially when it threatens their routine or job security:

• Employees may fear losing their job, status, or autonomy.

• Change can generate uncertainty and anxiety, leading to decreased morale and productivity.

• Resistance may be passive (e.g. reduced cooperation) or active (e.g. protests, resignations).

Ways to manage resistance:

• Involve staff in planning and seek their input early.

• Communicate the reasons for change clearly and honestly.

• Offer support, including retraining and counselling.

Example: When a government department centralised its services, early engagement and retraining programmes helped reduce staff opposition and maintained performance.

Training and Development Needs

New roles and responsibilities often require new skills:

• Employees may need training in technical tools, leadership, or collaboration depending on their new roles.

• Without proper training, productivity may fall and employees may feel unprepared or overwhelmed.

• Training programmes add cost and time to the redesign process.

Example: A retail chain that introduces digital inventory systems must train store staff in using tablets and data-entry software. Failure to do so leads to mistakes and delays.

Implementation Costs

Organisational redesign is a resource-intensive process:

• Potential costs include:

  • Consultancy fees for design and change management experts

  • Severance packages for redundant roles

  • Recruitment of staff with new skills

  • Technology upgrades

  • Communication and rebranding expenses

• These short-term costs can be substantial, and the financial return may take time to materialise.

Example: A car manufacturer shifting to electric vehicles must invest in plant redesign, staff retraining, and new supply chains – all of which require upfront capital.

Operational Disruption

Transitioning to a new structure can disrupt normal operations:

• There may be confusion about who reports to whom or what tasks belong to which team.

• Productivity dips are common during periods of transition.

• Temporary inefficiencies must be tolerated as teams settle into new roles and processes.

Example: A university switching to a faculty-based structure initially experiences confusion about course ownership and student administration, affecting enrolment and scheduling.

Real-World Business Examples

Learning from real companies highlights how organisational redesign can impact business performance.

Amazon

• Why? To manage rapid growth and expanding service range.

• What? Amazon adopted a product-based structure, dividing into teams for AWS, Prime, Marketplace, etc.

• Result: Enabled independent teams to focus on customer needs and innovate quickly. However, some coordination issues emerged due to siloed teams.

Unilever

• Why? To manage global operations and multiple product categories.

• What? Introduced a matrix structure that combines product lines with regional management.

• Result: Greater responsiveness to local markets and better integration of marketing and production functions. But required strong leadership to manage dual-reporting complexities.

Microsoft

• Why? To focus on cloud services and enhance customer-centric innovation.

• What? Moved from product-based to functionally-aligned structure with cross-functional teams.

• Result: Increased collaboration across departments like Azure, AI, and security. Improved performance but required cultural and mindset shifts.

Tesco

• Why? To reduce operational costs and improve store-level decision-making.

• What? Flattened the hierarchy, removed regional managers, and empowered store staff.

• Result: Improved responsiveness at store level, reduced costs, but initially led to staff dissatisfaction and public criticism.

Strategic Considerations for Redesign

Successful redesign should be underpinned by long-term strategic thinking and people-focused planning.

Aligning Structure with Strategy

A structure should be built to support a company’s chosen strategic direction:

• Cost leadership strategies may favour centralised, functional structures for tight cost control.

• Differentiation or innovation strategies may benefit from decentralised or matrix structures that enable creativity and responsiveness.

• Customer intimacy may lead to regional structures that tailor products and services to local needs.

Example: Ryanair, a low-cost airline, maintains a centralised functional structure to control costs and enforce standardisation.

Balancing Efficiency and Responsiveness

• Efficiency means doing things right: minimising waste and ensuring resources are used optimally.

• Responsiveness means doing the right things: adapting quickly to changes and meeting customer needs.

• The ideal organisational structure balances both – too much focus on efficiency may hinder adaptability, while too much flexibility may lead to confusion or duplication.

Managing People Through Change

Employees are at the heart of any structural change:

• Their cooperation and adaptability often determine whether a redesign succeeds.

• Businesses must provide clarity, training, and reassurance throughout the transition.

• Strategic workforce planning, including recruitment, training, and retention, ensures long-term success.

Example: When Spotify introduced a “tribe and squad” model, it supported teams with coaching and HR resources to ensure smooth adoption of the new structure.