Organizational Design

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Organizational Design

• Basic Design Elements

2
Outline of Design Issues

• What is organizational design?
• What does a good design achieve for
  organizations?
• What are the basic building blocks of design?
• Traditional design configurations
• Contemporary design considerations
• Network designs
• Global designs

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What is organizational design?

• Process of developing an overall social and
  accountability structure for the organization
  using basic design concepts
• Source of competitive advantage may be
  difficult to copy

4
Tension Model of Organizational Design

• Balancing four sets of tension is key to
  successful organizational design
• Strategy and structure
• Accountability and adaptability
• Ladders and rings
• Self interest and mission success

Based on Robert Simon (2005) Levers of
organizational design.
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Congruence Model of Design

• Components of organization exist in a state of
  balance and consistency (fit or congruence)
• The better the fit, the more effective the
  organization
• Congruence among these elements environment,
  strategy, history, goals, technology, size, life
  cycle stage, and structural components

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Key components of organizations
Tasks and Workflow
Formal Organizational arrangements
People
Informal Organization
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What does a good design achieve for the
organization?

• First, think about symptoms of poor
  organizational design

How do you know the design is not working well?
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What does a good design achieve for the
organization?

• Clarifies relationships, information flows, and
  work flows
• Little duplication of effort efficiency
• Neither over-control nor under-control of
  activities and information
• Focuses concerted effort on most important goals
  and market domains

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What does a good design achieve for the
organization?

• Employees understand how the pieces of
  organization fit together and who is responsible
• Decisions are made at appropriate levels
• Stability and comfort with the system less
  conflict, better morale, less frustration
• Adaptable such that major re-organizations are
  not necessary every year

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What are the basic building blocks of design?

• Technology and workflow
• Differentiation of activities (departmentalization
  )
• Integration or coordination of activities
• Locus of decision making
• Control mechanisms
• Informal organization

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Two Major Archetypes

• Organic
• Joint specialization
• Communication, experience, judgment as control
• Complex coordination mechanisms
• Decentralized authority
• Less standardization
• Expertise-conscious informal organization

• Mechanistic
• Specialized jobs
• Lot of rules, policies, and procedures (RPPs)
• Simple coordination mechanisms
• Centralized authority
• Standardization
• Status-conscious informal organizations

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Technology and Workflow

• Physical objects and artifacts used in producing
  goods (tools, equipment)
• Activities and processes that convert inputs into
  outputs (chain of value creation activities)
• Knowledge needed to develop and apply tools and
  equipment in the process of converting inputs
  into outputs
• Occurs at various levels in the organization
• Core
• Unit level

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Organization as Core Technology and Unit-Level
Technology
ENVIRONMENT
Raw Materials Resources
Products
Output
Transformation
Input
Organization
Services
Production Maintenance Adaptation Management
Boundary Spanning
Boundary Spanning
Subsystems
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Models of Technology Woodwards Manufacturing
Technology

• Unit production or small batch (e.g., custom made
  yachts, art)
• Mass production or large batch (e.g.,
  automobiles, printing)
• Continuous process production (e.g., drugs,
  chemicals, nuclear power)

Technical complexity increases from unit to
continuous processing and basic structural
variables varied with technology utilized
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Models of Technology Thompson

• Technology
• Type
• Mediating
• Long linked
• Intensive

• Task
• Interdependence
• Pooled
• Sequential
• Reciprocal

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Task Interdependence
Pooled
Sequential
Reciprocal
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Models of Technology Thompson

• Pooled
• Sequential
• Reciprocal

Main Type of Coordination
Task Interdependence

• Standardization
• Planning and
• Scheduling
• Mutual adjustment

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Perrows Classification of Departmental Technology
Task Variability
Low
High
High
Routine Technology
Engineering Technology
Task Analyzability
Non-Routine Technology
Craft Technology
Low
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Perrows Classification of Departmental Technology
Task Variability
Low
High
High
Routine Mechanistic Structure
Engineering Mostly Mechanistic Structure
Task Analyzability
Non-Routine Organic Structure
Craft Mostly Organic Structure
Low
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Service Technologies

• General Characteristics
• Simultaneous production and consumption of goods
• Intangible products
• Cannot be stored in inventory
• Vary on degree of labor intensity (in relation to
  capital intensity) involved
• Vary on degree of customization and interaction
  with customers
• Examples investment banking, therapy,
  education, musical concerts, air travel, discount
  retailing

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Service Technologies
Labor Intensity (relative to capital)
Low
High
Low
Service Factories
Mass Services
Degree of Customization and Interaction with
Customers
Professional Services
Service Shops
High
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Types of Service Technologies

• Service Factories low labor intensity, low
  degree of customization and interaction with
  customers (e.g., airlines, trucking, hotels,
  cruises)
• Challenges marketing, making service warm
  given standardization, attention to physical
  surroundings

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Types of Service Technologies

• Service Shops low labor intensity and high
  degree of customization and customer interaction
  (e.g., hospitals, auto repair, some boutique
  retailers)
• Challenges capital investment decisions,
  keeping up with technological advances,
  scheduling service delivery, loyalty of personnel

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Types of Service Technologies

• Mass Service high labor intensity, low degree
  of customization and interaction with customers
  (e.g., large retailers, public schools,
  commercial banking)
• Challenges scheduling, methods of control,
  managing growth, geographical dispersion decisions

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Types of Service Technologies

• Professional Services high labor intensity and
  high degree of customization and customer
  interaction (e.g., law firms, consulting,
  architectural design, accounting firms)
• Challenges employee loyalty, human resource
  costs, managing careers, managerial and
  professional control and conflict, hiring and
  training issues
• Effect of AI and virtuality?

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Organigraphs Workflow Maps

• Maps that show how interactions among people,
  information, and products occur
• Elements sets (roles), chains (connections),
  hubs (coordination centers), webs (interconnected
  nodes with no centers)
• Imagining different ways to structure
  interdependencies and to see potential new
  competitive opportunities

From Mintzberg and Van der Heyden, 1999
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Managing Workflows
Web Managers Link and Energize
Hub Managers Coordinate
Chain Managers Control
Set Managers Allocate
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Organigraph of Distributor of Electric Components
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Organigraph of Frontec
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Organigraph of Doctors Without Borders
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Technology and Workflow Summary

• Technological Imperative Technology is the most
  important determinant of design
• Routine-ness (or non-routine-ness) of technology
  is related to uncertainty which determines design
  decisions
• Example The more variability and exceptional
  events encountered in workflow activities, the
  more organic the structure of the organization
  should be (i.e., decentralized, flexible, less
  formal)

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Technology and Workflow Summary

• Interdependence among employees in workflow makes
  uncertainty greater and thus increases
  coordination needs
• Social, cultural, and economic forces moderate
  the technological imperative technology can
  have unpredictable effects (example tele-work
  instant messaging surveillance technologies,
  radio frequency identification tagging)

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Differentiation of Activities

• Division of labor allocation of tasks/roles to
  positions
• Departmentalization allocation of positions
  into units with a common boss usually based on
  some workflow logic
• Horizontal vs. vertical differentiation
• Larger size, more market domains served, and more
  complex environments, the greater the
  differentiation needs

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Departmentalization (Unit Grouping)

• Functional group employees who perform similar
  work processes or have similar knowledge and
  skills
• Divisional group employees around what the
  organization produces customers served
  geographical locations
• Team based group employees around processes,
  information flows, material flows, etc. providing
  direct value to customers
• Mixed or hybrid two or more types of grouping
  utilized in the overall design

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Integration or Coordination of Activities

• Integration of differentiated activities
• Methods
• Hierarchy
• Rules, procedures, and schedules
• Direct contact (mutual adjustment)
• Liaison roles
• Task forces
• Cross-functional teams
• Integration roles and units

More differentiation, the greater the need for
integration
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Locus of Authority

• Centralization of decision making
• Tight control at top management levels
• Advantages? Disadvantages?
• Decentralization of decision making
• Looser control at top management levels
• Lower level managers given more responsibility
  and accountability (empowerment)
• Advantages? Disadvantages?

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Structural Control Mechanisms(Accountability)

• Mechanisms in place to obtain reliable and
  consistent behavior desired by management
• Methods
• Standardization through rules, policies, and
  procedures (RPPs)
• Reward systems (behaviors and outputs)
• Direct supervision
• Standardization through socialization and
  training
• Output control (market/financial metrics)
• Direct communication
• Reliance on judgment and experience

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Informal Organization

• System of informal relationships that arise when
  people work together
• Norms, expectations, values, politics,
  interaction patterns
• Grows out of and then further determines the
  formal structure
• Enables but also constrains interactions
• Organizational network analysis (ONA) can uncover
  the informal social system

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Organizational Network Analysis

• Tools and techniques that uncover the informal
  system
• Sociometric analysisinterview-based
• Mapping software to determine who knows who and
  who knows what
• Asks simple questions to employees and tracks
  responses (e.g., With whom do you discuss ideas,
  innovations, and better ways of getting things
  done?)

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Summary
Workflow or technology Departmentalization Coordin
ation Locus of Authority Control
Mechanisms Informal Organization People
Design Configuration
Contextual Factors