The demand for rare-earth based permanent magnets is expected to rise for various climate friendly technologies. This motivates for the search of better designed permanent magnets with optimal use of rare-earth elements without compromising the key magnetic properties. We simulate Nd$_2$Fe$_{14}$B based permanent magnets to study the effects of microstructure on coercivity ($H_{\mathrm C}$). We demonstrate a fast method to compute the magnetic microstrucutral parameters in numerical micromagnetics. These parameters include the effects of defects ($\alpha$) and demagentization fields ($N_\mathrm{eff}$). The contribution of $\alpha$ and $N_\mathrm{eff}$ to $H_{\mathrm C}$ are quantified by using Kronmüller formula: $H_\mathrm{C}$ = $\alpha$$H_\mathrm{N}$- $N_\mathrm{eff}$$M_\mathrm{s}$ , where $H_\mathrm{N}$ is the ideal nucleation field, $M_\mathrm{s}$ is the spontaneous magnetization. This study is extended to a multigrain polycrystal model. The easy-axes distribution of grains are tested for an ideal and realistic situation. We report a novel magnetic reversal process, which is primarily driven by soft magnetic grain boundary phase. By selective replacement of the ferromagnetic grain boundary phase with a non-magnetic phase near the edges of grains only, coercivity increases by almost 40{%}. A further improvement can be achieved by using the hard magnetic phase near the edges. Our systematic approach helps in pinpointing specific microstructural features pertinent for enhancement of coercivity. This work provides implications for future work to design improved defect engineered permanent magnets for green technologies. The financial support by the Austrian Federal Ministry of Labour and Economy, Toyota Motor Corporation and the Christian Doppler Research Association is gratefully acknowledged.