Organizational development: A complete guide
From benefits to processes, here is everything your business needs to know about organizational development.
Why You Should Care
Maximize the company's resources. Align to the company goals. Apply HR tools.
Just three parts of the essential process of business change.
Get all the info you need in our essential business guide to organizational development.
The world that we live in is one of constant evolution, as practices and processes make great leaps forward day-by-day and year-by-year. This is felt even more keenly by businesses, as stagnation and even redundancy become a constant threat. Organizational development (OD) is a useful mechanism for ensuring this evolution, adaptation, and ultimately, business longevity.
OD improves a business’ overall effectiveness through managing the behaviors of the people working within it. It’s likely that your organization is already unwittingly completing some aspects of OD without even knowing it, by creating an environment in which your teams can thrive, and evolving processes where it becomes apparent they need to adapt.
This complete guide to organizational development will outline organizational development processes, benefits, how OD interacts with your internal HR, and the future of OD.
What is organizational development?
Organizational development is the study of systems, practices, and techniques that affect organizational change. The fundamental goal of OD is to improve business performance or alter an organization’s culture. It considers such broad elements of an organization as its culture, its capabilities, its values, and its relationships. OD then takes a holistic approach to understanding these elements, and to considering how they impact business behavior and performance.
The OD process is not ‘trial and error’. Far from it. Organizational development processes are rooted in an evidence-based, structured process. It’s about using data on which to build a controlled and structured process in which assumptions are tested and can be clearly assessed. Finally, it’s about working out whether the outcomes are reflective of the business goal that was initially set when going into the process.
The reality of OD will mean different things to different businesses, as it relies upon a company’s goals. For example, an accountancy firm might aim to improve client contact and improve efficiency, whereas a social aid company might wish to improve the safety and quality of the care it provides for its user group.
Aiming at organizational effectiveness, OD will usually have a number of outcomes. These will often include customer/client/user satisfaction, financial performance, staff engagement, and an increased capability to adapt or evolve. The order of these outcomes will depend on the type of organization and its priorities. The main stakeholders are both inside and outside the organization; both managers and employees are stakeholders – internal ones – and external stakeholders include investors, customers, suppliers, communities, and governments.
Ultimately though, OD is a critical process. It is based on facts and statistics, and these help organizations to develop a robust capacity to change. This will help the organization to achieve greater effectiveness by developing, adapting, improving, and reinforcing its strategies, structures, and processes.
What is the role of organizational development in your business?
Organizational development is there to keep you competitive. It cuts out the vague or nebulous ‘what ifs’ to narrow down a systemic approach to change. This can then be approached with clarity, and its outcomes can be assessed statistically to work out how successful, or not, they have been in delivering the end goal.
One way to use OD is passively. This means taking organizational metrics and people analytics, considering the practices currently being used, and working out how these combine to fulfill the organization’s goals.
An example of this might be that an annual staff survey identifies engagement issues. These might be impacting performance levels, and also creating a culture of absenteeism. On the back of this information, you might choose to initiate an OD initiative to reconsider the practices involved, to try to improve these connected areas of performance.
More active OD is the formulation of a plan with an endpoint in mind – rather than acting responsively to data, it goes out to find data to help provide statistics to shape a journey to a business goal.
The characteristics of organizational development
OD aims to make changes to strategy, structure, or processes across either the whole organization or a department, role, or job within it.
It allows for planned change to be initiated, and also allows for further change as and when new information arises.
Organizational development instills an ongoing organizational understanding that change reinforces change, and it also improves the effectiveness of an organization.
The organizational development process has various stages. These include:
- An organizational review. This equates to undertaking a ‘needs analysis’ (to work out what the organization needs). This will use a variety of tools and approaches, such as quantitative performance targets, a Target Operating Model, future state analysis, SWOT, and PESTLE, alongside a strategic review, to work out what a business needs in order to move towards its goal.
- Analyzing whether the organization’s needs are being met. In short, this is doing a gap analysis to diagnose the extent to which an organization’s needs and goals are being met, by assessing the difference between the company’s current position and the desired future state. This process will often use a range of frameworks for analysis (such as ISO, TQM, or Force Field Analysis).
- Identifying the required intervention. What intervention will best fit the gap that the analysis has identified? Once identified, the organization then has to work out whether to design the intervention themselves or bring in expertise to help. Interventions include human process interventions (such as training, coaching, or mentoring), techno-structural interventions (such as Lean/ Six Sigma, outsourcing, or business process re-engineering (BPR)), HR interventions (such as employee surveys, psychometric testing, and performance management) and Strategic Interventions (such as business planning, cultural change, and transformational programs).
- Implementing the intervention. Finally, it’s a case of implementing the identified initiative. It’s important to use change management practices to carry forth the adaptation, focussing on communication, stakeholder involvement, and evaluation metrics, to help navigate the route towards the endpoint in the most efficient manner possible.
What is the organizational development process?
What the organizational development process is can depend somewhat on the organization, as the focus will naturally lie in different areas depending on the nature of the business in question.
However, some fundamentals include:
- Maximizing the organization’s resources. Making the most of the value gained from an organization’s resources is key. This might mean focussing on people’s capabilities or, for example in an automotive manufacturing business, it might mean focussing on improving mechanical efficiencies.
- Aligning to the company’s goals. All organizational development should be undertaken with the organization’s fundamental goals, strategy, and core purpose at the forefront of the plan. Otherwise, development can derail the business’ journey towards its intended future state.
- Applying HR tools. Applying the behavioral science knowledge and praxis used in good HR management is crucial to OD. This is because such data ensures that development is undertaken in a way that uses research-based insight into how and why people do what they do, in order to come to the endpoint effectively and with minimal friction.
- Fluidity and continuity. Good OD is continuous and will underlie continuing daily business processes. It’s planned, ongoing, and systemic, so continuous improvement ends up being institutionalized into the company culture.
Some characteristic areas of OD, such as managing change, have become fundamental for all HR and people-focused professions. Enabling and managing change is a key concern for anyone in HR as it’s such a key part of business today.
Does organizational development still feel like a nebulous concept? Especially in a small business, OD can feel abstract – but ultimately, it’s just about creating a strategic plan for your business to help you weather change and evolve into the business you want to be.
In short, consider:
- Where are you now?
- Where do you want to be? And in how long a time frame?
- How do you plan to get to this endpoint?
- How will you measure your progress?
These are the fundamentals of the organizational development process.
Why is organizational development important?
The benefits of organizational development are manifold, but the primary reasons it is so essential are to refine focus and cut unnecessary processes – a lot like most HR functions.
With OD, change is carefully planned and curated rather than ‘stumbled into’. This negates the need to ‘turn on a dime’ and dive into a new process without analyzing the pros and cons. On top of this, all change should be quantifiable in OD, so once it’s been undertaken it can be properly and pragmatically assessed, rather than judged on vague feelings and individual gut responses.
What are the main benefits of organizational development?
- It helps the organization to save money. When we identify a need to change and quickly stumble into what we perceive as the correct course of action, this can result in funneling money into countless different processes – many of which are unlikely to deliver you to your goals. OD creates a plan, and a streamlined focus, so that money is spent wisely and efficiently.
- It helps to ensure operational clarity and transparency. OD means that change is laid out and transparent, so all employees and stakeholders can get fully on board. Having all staff support a change is crucial for company culture to evolve, and to have staff support they must fully back the change, as they understand both the need for change and the journey toward the proposed solution.
- It helps you to save time in the long run. Much like the case with money, jumping into knee-jerk, reactionary change can seem necessary if you feel like the organization needs to quickly pivot in response to changing circumstances. You jump into change because you need to adapt, right now. But actually, jumping in without a thought-through route, and without having completed the necessary analysis will likely entail a much larger time investment. This is because you will likely have to go through the whole process many times to reach the required endpoint, in a ‘trial and error’-type approach.
Jumping blindly into the process means that you have no assessed start and endpoint, and no planned journey. Much like undertaking a drive to a new destination without a map, you’re thus likely to go wrong and have to double back on yourself.
Instead, it makes much more sense to preserve operational clarity, save money and also save time, by investing a little time upfront, before jumping into the change. Investing in this analysis and forward planning at the start will ultimately mean you know that you’re on the right route through your desired change, and you’ll be on the right track to reach the desired endpoint.
What are the goals of organizational development?
Organizational development goals center around both constructing the ability to assess current function and identifying the changes needed to achieve the organization’s ultimate goals.
Change processes are usually time-bound, but OD, when done well, is continuous. It’s a cultural change, where continuous adaptation to become ‘the best you can be’ becomes the company norm.
We discussed above the ways in which the goals of OD tend to vary depending on the organization. If we compare a corporate company to a charitable one, for example, we’ll likely see that corporate companies tend to prioritize profit, whereas cultural values are likely a priority in charitable organizations.
One common goal tends to thread through all organizations when it comes to the goal of OD, though – and that’s increasing the organization’s competitiveness.
What is the role of HR in organizational development?
The role of HR in organizational development can’t really be overplayed. Good HR management is crucial to OD, and its processes interweave through it. HR staff should see OD as a continuous process rather than a one-off initiative, and work with the OD goals to maintain a constant state of analysis and evolution.
HR is especially fundamental to the first part of the OD process. The HR department is best placed to collect and analyze the data needed for OD to establish the start point, as well as the point against which to measure. This is because they usually already have such data at their fingertips through their regular workload. Such data includes target monitoring, people management, and employee assessment. To be defined as OD, change needs to be cultural, likely bringing about a change in behavior and often attitude too, so these metrics can be really central to the success of the initiative.
The data that HR obtains will likely provide insight into how employees feel about the perceived change, and provide data on what staff consider would be effective or ineffective. This interaction with staff makes for a more malleable staff culture who are less likely to be resistant to future change.
HR and instilling cultural change
In terms of navigating the change, HR will be crucial. They are the department that will liaise with employees to ensure change is transparent and all employees are taken along in the process – crucial for resisting friction and any employee pushback.
HR, working together with other relevant departments, can take the time to explain the necessity for the change, the impacts it will have on employees, ask for employee feedback on the planned change and its process, explain how it will benefit the company, and explore whether there might be any incentives or rewards in recognition for employees’ hard work in learning and interacting with the proposed new system.
HR’s input doesn’t stop with the evolution of the planned project, either. Once the change has been instigated, HR will monitor it. They can then report back on how it is performing – gaining insight from staff as well as from statistical data. Performance management, appraisal, goal setting, and talent acquisition can all help with this. The system need never be ‘set’ in a final iteration, but always be open to continued tweaks and improvements.
From everything outlined above, it’s clear that the HR department has a clear and important role in the provision of OD interventions. However, where HR management focuses on people practices, organizational development is more all-encompassing, with a holistic, cross-organizational approach. It will consider tools such as organizational design, work design, and individual and group interventions, operating at all levels through the business – organizational, group, and individual.
OD is sometimes included in the HR aspect of the business, but might also be a part of corporate strategy, internal consulting, or the services department. Both OD and HR management have foundations in business strategy, concentrating on the vision of the business as well as its values.
What is the future of organizational development?
Organizational development is in continuous evolution as a field. What’s the future of organizational development? Well, that depends to a certain extent on the values it preempts, as it somewhat assumes that the values of top management and the nature of organizational leadership remain similar to how they are today.
The value of OD relies on the soundness of its processes, and also upon the capacity for people and culture to change alongside technological changes. The data gathered needs to be insightful and relevant in order to transport the organization towards its primary objective or goal.
With the current whirlwind speed of change (instigated particularly by the constant innovations of the IT sector), it looks likely that OD will become a front-and-center, active part of every business and its growth philosophy. Employees throughout the organization will likely hold OD skill sets. We’d also expect that the time investment in OD processes themselves will be minimized, as advanced technology reduces the required interventions’ duration.
Have you analyzed where you are, where you want to be, and charted the journey towards your business objective? Then it is time to develop your organizational development plan!
When it includes the activities, objectives, staffing and resource requirements, and data management required for OD, as well as a timetable for implementation, a plan can help you stick to the intended route and result in reaching your desired endpoint efficiently.
Any viable business is likely already actively engaged in organizational development, if only on a subconscious level. But if you’re not actively thinking about it – you should be. You’ll be astounded by the positive organizational shift put in place by a strategic plan.
Looking out for ways to best future-proof your organization for the years to come? Check out our On-Demand webinar which covers the five HR trends we expect to see by 2030.
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Editorial content manager
Jon has 20 years' experience in digital journalism and more than a decade in L&D and HR publishing.