What Is Organizational Development? +Examples, Goals (2024)
In today’s volatile, uncertain, complex, and ambiguous world, businesses undergo regular change, creating a need for continuous organizational development (OD). The main goal of OD is to increase the efficiency and effectiveness of an organization.
An example of OD can be found at Amazon, which has gained a competitive edge by investing in organizational development. It plans to invest $700 million in OD and retrain a third of its workforce by 2025, helping its workers transition into new, advanced roles by adapting to new technologies, working conditions, business procedures, and overall digital transformation.
There’s a high chance that you are already investing in organizational development without a long-term strategy. This guide will help you understand the goals and phases of OD and how you can leverage it for your growth.
What Is Organizational Development?
Organizational development is an evidence-based scientific approach to help organizations become effective and adaptive to change by developing, improving, and reinforcing strategies, structures, and processes.
Since OD aims at organizational effectiveness, the variable outcomes include financial performance, employee engagement, customer satisfaction, and overall change management.
Organizational Development vs. Human Resource Management
A noteworthy aspect here is that although OD and HRM (human resource management) are people-centric processes and often used synonymously, they are actually different.
Organizational development is more holistic and strategic, whereas HR is operational and can be considered a subset of OD. If HR initiatives focus on people practices, OD interventions consider multiple inputs and tools that cut across the breadth and depth of the organization.
For example, implementing a performance management system can be categorized as an HR activity. But, to consider it as organizational development, it needs to align with other functions in an ordered and comprehensive way.
Here, the HR department can play a vital role in reducing an organization’s resistance to change by explaining the need for a performance management system and its benefits to employees/company, and asking for feedback and input on implementing such a system.
HR has a vital role in organizational development. But unlike HR, OD often brings about a behavior change in the organization.
7 Benefits of Organizational Development
Organizational development offers several benefits that contribute to the overall success and growth of an organization. Here are the top seven benefits of organizational development:
1. Improved organizational performance
By addressing current inefficiencies, streamlining processes, and aligning organizational goals and objectives, organizational development interventions can enhance efficiency, productivity, and profitability.
2. Enhanced communication and collaboration
Organizational development promotes open communication and collaboration between different levels and departments, breaking down silos. This leads to a more effective and cohesive working environment, resulting in better decision-making and problem-solving.
3. Effective change management
Organizational development provides a framework for managing change and addressing potential resistance, helping organizations navigate transitions like mergers, acquisitions, or digital transformation smoothly and effectively.
4. Greater agility and adaptability
Organizational development focuses on building a flexible and agile business that can respond effectively to evolving challenges and opportunities, ensuring long-term competitiveness.
5. Fostering a culture of continuous improvement and innovation
By embracing a mindset of continuous improvement, learning, and innovation, organizations can stay ahead of the competition and capitalize on new opportunities.
6. Streamlined processes and systems
Efficient processes and systems contribute to the smooth functioning of a business. Organizational development helps optimize these processes, eliminate inefficiencies, and leverage technology to improve productivity and reduce costs. One such way to accomplish this is the People, Process, Technology framework, which looks at every change or digital transformation project through the lens of the people impacted, the processes created, and the technologies implemented.
7. Better alignment of strategy and objectives
Organizational development ensures that your organization’s strategy and objectives are clearly defined, communicated, and understood by all employees, driving organizational performance and ensuring that everyone is working towards the same goals.
Key Elements of Organizational Development in the Digital Era
Here are three vital components of organizational development in the hybrid workforce era.
1. Vision and strategy
To succeed in a rapidly digital world, organizations must adapt and evolve. A clear and well-defined digital strategy, along with a strong vision, is essential for driving digital transformation and ensuring long-term success.
A digital vision provides a clear picture of the organization’s future, including its values, goals, and aspirations in the digital landscape. This vision guides the entire organization and helps employees understand the importance of embracing digital transformation and the benefits it can bring.
Setting strategic objectives for digital transformation outlines the steps and initiatives your organization will take to achieve its digital vision. This involves assessing your current digital maturity and identifying areas for improvement. A strong digital vision and strategic plan create a sense of urgency and motivation for employees to actively participate in the transformation process.
2. Digital culture
In today’s digital age, the way organizations think, act, and interact is shaped by their digital culture. It’s crucial for organizations to develop a digital culture that embraces change, innovation, and collaboration to stay competitive in the rapidly advancing technology landscape.
A digital culture encourages continuous learning, experimentation, and innovation, empowering employees to challenge the status quo and explore new ideas. This adaptability mindset is essential for organizations to stay agile and responsive to the ever-evolving digital landscape.
By fostering a culture that promotes change and innovation, you can stay ahead of the competition and continuously evolve to meet customer and industry demands.
3. Talent and skills development
Focusing on talent and skill development, especially in an increasingly competitive and digital environment, helps ensure organizations have the right people with the right skills to stay competitive and adapt to new technology.
As the digital landscape continues to change, new skills and competencies are a nonnegotiable for success. One way to address this is by conducting a skill gap analysis and providing targeted training to bridge those gaps.
By investing in employee upskilling and reskilling, organizations can stay ahead of the curve and thrive in the digital era.
What Are the Goals for Organizational Development?
Here are a few of the most important goals for organizational development:
1. Improve productivity and efficiency across the organization
85% of employees are disengaged at their workplace, costing $7 trillion in lost productivity, according to Gallup’s State of the Local Workplace. However, the organizational development process focuses on making the workforce more efficient and productive by equipping them with the required skills to succeed in constantly changing markets.
OD also improves communication within the team to align employees with the company’s vision. Once employees feel empowered, they are motivated to give their best and are willing to take more ownership of their work.
2. Create a culture that embraces change and innovation
Organizational development leverages competitive analysis, market research, and consumer behavior to create innovative products and services. It positively impacts the organizational culture by creating a continuous improvement cycle through special committees and new business processes. Strategies are implemented and assessed for results and quality, helping employees embrace change without barriers.
For instance, Google fosters a culture of ongoing learning through organizational development. New employees know they need to learn continuously to keep pace with changing business dynamics and grow professionally.
3. Higher profit margins
New development initiatives streamline organizational processes and increase employee productivity and product innovation. The operational costs further decrease due to a lower employee turnover rate, resulting in substantial profit margins.
4. Foster employee engagement and satisfaction
Engaged and satisfied employees are more likely to be committed to an organization’s goals and contribute to its success. Organizational development initiatives aim to create a positive work environment, provide opportunities for growth and development, and ensure that employees feel valued and supported.
5. Support change management and transformation
Guiding organizations through periods of change is crucial for organizational development. It helps manage change and address potential resistance, providing a framework for organizations to navigate these transitions smoothly and effectively – ultimately accelerating digital transformation.
6. Attract and retain top talent
For any company to succeed in a competitive market, it’s essential to attract and keep the best employees. Organizational development is all about building an employer brand that will attract top talent, offering chances for employees to enhance their skills, and creating a positive work culture that encourages employee retention.
7. Develop leadership and management capabilities
Effective leadership and management play a crucial role in promoting the growth and success of an organization. Organizational development aims to enhance the skills and abilities of leaders and managers, allowing them to provide better support to their teams, facilitate change, and make well-informed decisions.
The 5 Phases of the Organizational Development Process
Organizational development is a complex and systematic process. OD practitioners implement the development initiatives in five phases:
The entry stage represents the first interaction between the consultant and a client to assess the situation and identify the problem. A data-driven approach results in a more profound understanding of an organization’s improvement areas.
This phase finally results in an engagement via a contract or a project plan to lay the ground expectations about the project scope for the organizational development process
This phase deals with the problem investigation via a collaborative data-gathering process between an organization’s stakeholders and the consultant to discuss the root cause of the problem, barriers, and previously implemented solutions.
The client receives the analyzed information via the consultant at this stage. The feedback phase also includes a review of preliminary agreements on the project scope and resources resulting in an action plan that outlines the change solutions to be developed and defined success indicators based on the information and data analysis.
This stage represents the development and implementation of solutions to rectify the problems identified in the first stage. The solution can include a risk management plan, communication plan, change management plan, and a training plan.
Post the implementation phase, the change outcome is assessed to determine whether the initiative meets the goal. In case of a change failure, the organization looks for the cause and adjusts to eliminate the obstacle. An OD practitioner can also include small pilot tests in this phase before the organization-wide rollout of the development initiative.
4 Examples of Organizational Development Interventions
Given the complexity of development initiatives, they often require external interventions for successful change implementation. Organizational development interventions are structured processes that help companies meet specific objectives, enable management, and improve overall organizational functioning.
Typically, you can classify OD interventions as:
- Human Process Interventions
- Technostructural Interventions
- HRM Interventions
- Strategic Change Interventions
1. Human Process Interventions
Human process interventions are some of the earliest and most effective OD interventions related to interpersonal relations, group, and organizational dynamics.
- Individual interventions: A particular employee is provided coaching or mentoring on counterproductive interpersonal behaviors. Individual interventions are required for new employees, internal role transitions, and performance improvement.
- Group interventions: Group interventions aim at the group’s content, structure, or process. They may be necessary because one part of a company is changing, restructuring a department, and communicating new job responsibilities to the relevant employees. These interventions may take the form of professional development coaching, employee training, or change management exercises.
- Organizational interventions: Organizational interventions are essential for organization-wide changes like new strategy implementation, new software rollout, structural changes, and a stronger shared vision. You can accomplish these interventions through employee wellness programs or roping in third-party experts.
2. Technostructural Interventions
These programs are related to organizational structure and technological changes. They are highly relevant due to the changing business dynamics.
These programs are related to the organizational structure and technological changes. They are highly relevant due to the changing business dynamics.
- Organizational design: The organizational structure can include functional, divisional, matrix, process, customer-centric, and network structures. Significant activities in organizational design include engineering and downsizing. Such interventions involve evaluating current business processes, preparing the organization, and restructuring it around the new business processes.
- Total quality management (TQM): TQM aims at long-term organizational success through customer satisfaction. The organizations exercise quality control by being Six Sigma compliant. Companies like Toyota focus on increased employee involvement in continuously improving products, processes, and workplace culture to improve customer satisfaction.
- Work design: This intervention is essential to achieve optimum productivity via job enrichment, improving process efficiencies, or employee satisfaction. Exploring digital adoption platforms such as Whatfix can help work design as it helps employees learn in the flow of work via interactive walkthroughs. It further enhances productivity by offering self-serving contextual help and support.
3. HRM Interventions
These interventions are mainly related to employee engagement, experience, and performance management.
- Performance management: Gartner suggests that 96% of managers are dissatisfied with their current performance management practices,and that making performance reviews forward-looking can improve employee performance by 13%. Techniques such as goal setting, performance appraisal, and reward systems can result in improved employee performance.
- Wellness interventions: Employee wellness programs address social factors and provide a healthy work-life balance through stress management and employee assistance.
- Diversity interventions: This OD intervention technique aims to increase diversity by making employees of different ages, gender, race, sexual orientation, disabilities, and cultures feel included.
4. Strategic Change Interventions
Organizational development interventions play a crucial role in successfully implementing changes that require behavioral change in the organization.
- Transformational change: In this technique, the organization changes the core functioning of an organization. For example, Nintendo began its operations by manufacturing card games. However, it evolved continuously with the changing consumer preferences and switched to electronic toys before gaining a stronghold in the video gaming industry.
- Transorganizational change: In this process, change management broadens its scope beyond a single organization and undergoes activities like mergers, acquisitions, and strategic networking. More often than not, a hostile takeover often results in the downsizing of an organization, requiring OD intervention more than ever.
9 Challenges of Organizational Development
In the world of organizational development, change and growth are the constants that propel organizations forward. However, just as opportunities abound, so do challenges that threaten to undermine progress. Here are some common challenges of organizational development:
1. Resistance to change
One of the primary challenges of organizational development is overcoming resistance to change. Employees may be hesitant to accept new processes, technologies, or organizational structures due to fear of the unknown, a perceived loss of control, or concerns about job security. Managing this resistance and facilitating a smooth transition is key for the success of organizational development initiatives.
2. Ineffective communication
Poor communication can hinder the success of organizational development efforts. It’s essential to convey the objectives, benefits, and expected outcomes of development initiatives clearly and consistently. Ineffective communication can lead to misunderstandings, confusion, and misaligned expectations, ultimately impacting the success of the initiatives.
3. Insufficient leadership commitment and support
The commitment and support of top leadership are vital for driving organizational development initiatives. If leaders fail to demonstrate their commitment, employees may question the importance of the initiatives, leading to reduced engagement and resistance to change. Ensuring that leaders actively support and promote organizational development efforts is key to their success.
4. Limited resources and budget constraints
Organizational development initiatives often require significant investment in terms of time, money, and human resources. Limited resources and budget constraints can pose challenges in implementing these initiatives effectively and achieving the desired outcomes.
5. Lack of a clear vision and strategy
A well-defined vision and strategy are critical for guiding organizational development efforts. Without a clear direction, organizations may struggle to prioritize initiatives and allocate resources effectively, leading to non-ideal results.
6. Inadequate skill development and talent management
The rapidly changing business environment requires organizations to continuously develop the skills and competencies of their workforce. Challenges related to skill development and talent management can hinder the effectiveness of organizational development initiatives.
7. Measuring and demonstrating ROI
Demonstrating the return on investment (ROI) of organizational development initiatives can be challenging, as the benefits may not be immediately tangible or quantifiable. Establishing clear metrics and performance indicators to measure the impact of these initiatives is essential for gaining buy-in and justifying continued investment.
8. Organizational culture barriers
Organizational culture can either facilitate or hinder the success of organizational development initiatives. Organizations with a rigid, hierarchical culture may struggle to implement changes effectively, whereas those with a more open and collaborative culture may be better equipped to embrace new ways of working.
9. Maintaining momentum and commitment
Ensuring ongoing commitment and maintaining momentum throughout the organizational development process can be challenging, particularly if initiatives take time to yield tangible results. It is crucial to regularly communicate progress, celebrate successes, and reinforce the importance of development efforts to sustain momentum and keep employees engaged.
With organizational development becoming necessary for organizational effectiveness and growth, it’s imperative to leverage human resources to manage change effectively. You need to humanize change management by improving change communication and paving the way for digital innovation.
Whatfix offers an ideal solution to turbocharge your organizational development initiatives. By providing your workforce with the necessary tools, resources, and training, Whatfix accelerates digital transformation and fosters a culture of continuous learning and improvement. Elevate your organization’s performance and secure a prominent position in the digital era with Whatfix.