Detailed Contents
Preface
Acknowledgments
About the Author
Chapter 1 Introduction to Organization Design
Organization Design Defined
Organization Design Is a Set of Deliberate Decisions
Organization Design Is a Process
Organization Design Assumes a Systems Approach to Organization
Organization Design Is Based on the Organization’s Strategy
Organization Design Encompasses Multiple Levels of Analysis
Organization Design Is More Than Organizational Structure
Organization Design Is an Interdisciplinary Field of Research and Practice
History of Organization Design
1850s to Early 20th Century
1910s to World War II
Post–World War II to 1960s
1970s and 1980s
1990s and 2000s
The Case for Organization Design Today
Design Affects Performance
Design Is a Leadership Competency
Today’s Organizations Experience Significant Design
Challenges
Changing Nature of Work
Globalization
Technology
Organization Designs Today
Today’s Focus on Agility Is a Design Issue
Summary
Questions for Discussion For Further Reading
Chapter 2 Key Concepts and the Organization Design Process
Key Concepts of Organization Design
The STAR Model of Organization Design
Alignment, Congruence, and Fit
Contingency Theory and Complementarity
Trade-offs and Competing Choices
Reasons to Begin a Design Project
Performance Is Suffering Because of Misalignment
The Strategy Changes
There Is a Shift in Environment or External Context
There Are Internal Changes to Structures, Functions, or Jobs
The Organization Has Made One or More Acquisitions
The Organization Expands Globally
There Are Cost Pressures
There Is a Leadership Change
Leaders Want to Communicate a Shift in Priorities
The Design Process
Scope, Approach, and Involvement
Top Down
Bottom Up
Deciding Who Is Involved
Benefits of a More Participative Approach
Choosing the Right Participants
Design Assessments and Environmental Scanning
Design Assessments: Gathering Data
Interviews
Focus Groups
Surveys and Questionnaires
Observations and Unobtrusive Measures
Using the STAR Model as a Diagnostic Framework
Environmental Scanning: STEEP and SWOT
Evaluating the Current Design
Evaluating Alignment in the Design
Evaluating Strategy/Task Performance and Social/Cultural
Factors in the Design
Goold and Campbell’s Nine Design Tests
Design Criteria and Organizational Capabilities
Benefits of Design Criteria
How to Develop and Use Design Criteria in the Design Process
Summary
Questions for Discussion
For Further Reading
Exercise
Case Study 1: The Supply Chain Division of Superior Module
Electronics, Inc.
Chapter 3 Strategy
Why Strategy Is an Important Concept for Organization Design
What Is Strategy?
Sustainable Competitive Advantage
Activity Systems and Strategic Trade-offs
Strategy Rests on Unique Activities
Strategy Requires Trade-offs
Types of Strategy
Porter’s Generic Strategies
Cost Leadership
Differentiation
Focus
Treacy and Wiersema’s Value Disciplines
Operational Excellence
Product Leadership
Customer Intimacy
Miles and Snow’s Strategy Typology
Defenders
Prospectors
Analyzers
Reactors
Stuck in the Middle
Key Concepts
Porter’s Five Forces Model
Threat of New Entrants
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of Substitute Products or Services
Rivalry Among Existing Competitors
Core Competencies
Blue Ocean Strategies and the Strategy Canvas
New Trends in Thinking About Strategy
Summary
Questions for Discussion For Further Reading
Exercises
Chapter 4 Structure
Connecting Strategy and Structure
How Strategy Influences Structure
How Structure Influences Strategy
Dimensions of Organization Structure
Departmentalization or Groupings
The Purpose of Department Groupings
Structure Options
Functional Structure
Product Structure
Customer/Market Structure
Geographic Structure
Process Structure
Network Structure
Front–Back Structure
Matrix Structure
Advantages and Disadvantages of Structure Types
Choosing a Structure and Evaluating the Options
1. To what extent does the option maximize the utilization of resources?
2. How does grouping affect specialization and economies of scale?
3. How does the grouping form affect measurement and control issues?
4. How does the grouping form affect the development of individuals and the organization’s capacity to use its human resources?109
5. How does the grouping form affect the final output of the organization?
6. How responsive is each organization form to important competitive demands?110
Principles of Structure
Shape/Configuration: Span of Control and Layers
Distribution of Power: Centralization/Decentralization
Division of Labor and Specialization
Connecting Strategy and Structure: Revisited
Summary
Questions for Discussion
For Further Reading
Exercises
Chapter 5 Processes and Lateral Capability
Lateral Capability: The Horizontal Organization
Why Developing Lateral Capability Is So Difficult
Benefits and Costs of Lateral Capability
Forms of Lateral Capability
Networks
Cultivating Networks
Shared Goals, Processes, and Systems
Teams
Cross-Functional Teams
Integrator Roles
Matrix Organizations
Making the Matrix Work
Getting the Level of Lateral Capability Right
How to Decide Which Form to Use
Governance Models and Decision Authority
Governance and Planning Processes
Decision-Making Practices
Enablers for Successful Lateral Capability
Summary
Questions for Discussion
For Further Reading
Exercise
Case Study 2: Collaboration at OnDemand Business Courses, Inc.
Chapter 6 People
Case 1: Coca-Cola
Case 2: AT&T
Case 3: Lafarge
Traditional Approaches to People Practices
A Strategic Approach to People Practices
Key Positions and the Differentiated Workforce
“A” Positions and Pivot Roles
“A” Positions: Strategic
“B” Positions: Support
“C” Positions: Surplus
Talent Identification and Planning
Talent Identification: Focus on Potential
Talent Planning, Pipelines, and Talent Pools
Career Development
The Classic View: Stages of the Career
The Contemporary View: Boundaryless Careers
Career Lattice Versus Career Ladder
Talent Development and Learning Programs
New Forms of Learning Versus Formal Training
Development Through Experiences
Performance Management
Strategic Analysis and Designing the People Point
Global Considerations
Summary
Questions for Discussion
For Further Reading
Exercise
Chapter 7 Rewards
Approaches to Rewards
Misaligned Rewards: When Rewards Fail
Unethical Behavior
Counterproductive Behavior
Conflict and Competition
Slower Change and Resistance
Why Designing Rewards Is So Challenging
Motivation
Expectancy Theory, Goal Setting, and Equity
Intrinsic and Extrinsic Motivation
Motivation-Hygiene Theory
Intrinsic Motivation and Extrinsic Rewards
Motivational Impact of Job Design
Metrics and the Balanced Scorecard
Rewards Strategy and Systems
Basis for Rewards
Types of Rewards
Designing a Rewards System That Works
Rewards, Strategy, and Other STAR Points
Summary
Questions for Discussion
For Further Reading
Exercises
Case Study 3: A Talent and Rewards Strategy at EZP Consulting
Chapter 8 Reorganizing, Managing Change, and Transitions
Change and Resistance
Personal Transitions
A Change and Transition Planning Framework
Resistance
Reorganizing and Transition Planning
Structure, Reporting Relationships, and Staffing
Pace and Timing
Scope and Sequencing
Communication
Feedback and Learning
Organizational Culture and Design
What Is Culture?
Understanding Culture: Competing Values Framework
Leadership and Organization Design
Leadership’s Role During the Design Process
Leadership’s Role During Change
Design and Leadership Development
Leading New Teams
Summary
Questions for Discussion
For Further Reading
Exercise
Case Study 4: Reorganizing the Finance Department: Managing
Change and Transitions245
Chapter 9 Agility
Why Agility Is Important Today
Continuous Design and Reconfigurable Organizations
What Agility Means
“Change-Friendly” Identity
Sensing Change
Agile Strategy
Zara and Transient Advantages
Rapid Prototyping and Experimentation
Agile Structure
Structure and the “Dual Operating System”
Holacracy
Agile Processes and Lateral Capability
Agile Teams
Global Collaboration
Partnerships and Collaborative Networks
Agile People
Learning Agility
Leadership Agility
Agile Rewards
Agility and Stability
Summary
Questions for Discussion
For Further Reading
Chapter 10 Future Directions of Organization Design
Emerging Beliefs About Organizations and Design
Work Trends Create Design Challenges
Design Challenges Shape Design Process
Future Trends in Organization Design Theory and Practice
Big Data
Digital Technologies, Platforms, and Business Models
Sustainability and the Triple Bottom Line
Changes in Organization Design Practice: A Case Study of Royal Dutch Shell
The Organization Design Practitioner Role and Skills
Summary
Questions for Discussion For Further Reading
Appendix
Organization Design Simulation Activity
Part I: Strategy
Your Profile
Your Mission: Create an Organization and Explain Its Strategy
Part II: Structure and Processes and Lateral Capability
Structure
Processes and Lateral Capability
Part III: People and Rewards
People Practices
Reward Practices
Part IV: Reorganizing References
Index
Sara Miller McCune founded SAGE Publishing in 1965 to support the dissemination of usable knowledge and educate a global community. SAGE publishes more than 1000 journals and over 800 new books each year, spanning a wide range of subject areas. Our growing selection of library products includes archives, data, case studies and video. SAGE remains majority owned by our founder and after her lifetime will become owned by a charitable trust that secures the company’s continued independence.
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Preface
Observers of contemporary organizations continue to enumerate the enormous challenges facing leaders today. Leaders are required to operate with global teams to serve global customers; to cope with increased competitive pressures from rivals large, small, new, and unexpected; to innovate in agile ways to secure even a short-term competitive advantage; and to do all of this with fewer resources than ever before. Organizations are developing increasingly complex designs to account for the collaboration required in today’s rapidly changing, global, dynamic environment. In many ways, organization design is a core leadership competency to address these challenges. Yet while dozens of publications introduce students and business leaders to the foundations of strategy or talent management, there are few introductory publications in the field of organization design.
Organization design is a complex subject that can be intimidating to newcomers. Students who come to the field of organization design through strategy find themselves quickly mired in complex discussions of four-sided matrix designs or virtual organizations. These frameworks seem to forget that people design organizations and execute on their strategies. Other students who come to design from the people side or human resources discipline tend to become lost in discussions of strategy and complex global operating models. Practicing organization design requires an understanding of industry trends and strategic positioning as well as an understanding of organizational behavior, organizational change, and even psychology.
Organization design is an interdisciplinary field of theory and practice. Students and managers who apply design concepts need to not only understand design theory, but how to translate that theory into practice. These topics can be difficult to understand, much less to apply in an ever changing contemporary environment and adapt to the unique needs of any given organization.
The purpose of this book is to expose you to not only classic and traditional but also contemporary and innovative organization design concepts, and to do
so in a way that is accessible to a novice. Design practitioners come in many forms: You might be a leader looking to enhance your knowledge of organization design so that you can create a department or team that is aligned with the organization’s strategy and removes barriers to performance. You might be a human resources (HR) professional or organization development consultant whose role is to work with leaders in your organization on their organization design challenges and to facilitate them through a design process. In any case, the concepts, theories, and approaches in this book are intended to provide an introduction to the field of organization design and the choices that must be weighed. You will find the term organization designer throughout the book to emphasize these different roles, from leader to consultant to HR practitioner.
Consistent with the view that there is no one right organization design, you will not find any particular design advocated or an attempt to push the latest fad designs. Instead, it is important that as managers, students, and practitioners we have an appreciation for the thought process involved in organization design. It is more helpful to develop an understanding of the choice points, trade-offs, considerations, and consequences of any design alternative than to adopt a design just because it is popular. By learning more about organization design in this way, you will be a better observer of organization design challenges and a better critic of proposed designs and their consequences. You will also be in a position to recommend alternatives that are more likely to result in the objectives you are trying to reach.
Learning Objectives
In this chapter you will learn What organization design is and how it is defined. The history and development of the field of organization design. Why organization design is relevant as a subject of study and practice today.
On July 22, 2014, a full-page ad appeared in the New York Times (Figure 1.1).
Figure 1.1
Source: Annenberg Public Policy Center of the University of Pennsylvania. (2014, July 22). Instead, we have this. The New York Times.
The ad featured a dizzying array of organizational boxes and lines depicting the complex interfaces required to manage the U.S. Department of Homeland Security (DHS). Just over one year after the attacks of September 11, 2001, Congress established the DHS as a new department formed from all or some of 22 different government agencies. The intent was to bring together disparate practices and groups to remedy “the current confusing patchwork of government activities into a single department whose primary mission is to protect our homeland” (Proposal to Create the Department of Homeland Security, 2002, p. 1). The initial proposal promised a “clear and efficient organizational structure” (p. 2). This was no small achievement, as the U.S. federal government is a very large and complex organization comprising more than 2.7 million workers in addition to almost 1.5 million military personnel, according to the U.S. Office of Personnel Management. More than 240,000 of these employees work in the DHS.
A report that was subsequently produced more than 10 years after the establishment of the new department lamented the complexity of this new model. It noted that the DHS was required to report to almost 100 different congressional committees and subcommittees. Whereas a government agency such as the Department of State might report predominantly to the Foreign Affairs committees in the House and Senate, DHS was faced with oversight from dozens of committees that had overlapping and perhaps even competing authority and jurisdictions. On the one hand, one could argue that this complexity created too many interactions that resulted in duplicative, wasted effort. Are employees spending time producing similar presentations and reports and sitting in meetings that may not be the best use of their time? On the other hand, this might be exactly the model required to manage the complex threats in areas as diverse as cybersecurity and bioterrorism. Perhaps these multiple connections create opportunities for collaboration and information sharing that otherwise would not exist? Whether this is the right model or not for this organization, the ad brought issues of organization design to national attention in a way that most Americans had probably never
considered about the federal government. It introduced issues in a way that most people could relate to and begin to debate.
For example, consider these common questions that organizational leaders must address:
How much complexity in an organization is necessary and helpful to respond to a complex and rapidly changing environment? When a new set of activities is introduced to an organization, should a new division be established, or should the work be assigned to existing divisions?
What is the ideal number of committees and meetings that does not waste time but encourages the right coordination and information sharing?
Despite the number of organizations we interact with on a regular basis, including schools, churches, hospitals, and businesses large and small, most of us rarely consider their designs consciously until something is not working effectively. You might be a frustrated customer at the mercy of a poor organization design when you had a problem with a company and heard from every employee that your problem was not the responsibility of that department. You might wonder why the same insurance company you have for auto insurance and life insurance cannot seem to share information between the different divisions or why two doctors in the same office do not have similar billing practices. In addition, consider your place of employment. You may have noticed inefficiencies in how your department operates, or you might have seen what happens when work falls through the cracks because it was no one’s responsibility. You may have been part of a merger with or acquisition by another company, or you might have experienced the confusion that resulted from your own department being divided or integrated with another internally.
All of this is to say that you have certainly experienced organization design even if you have never before considered the issues and decision points in an organization’s design. The purpose of this book is to introduce you to the field of organization design, an area of academic research and professional practice devoted to the conscious design of organizations of all forms, from nonprofit organizations to for-profit companies and local, state, and national
governments.
Organization Design Defined
Over the decades of its history, organization design has been defined in different ways. Let’s look at three widely respected definitions of organization design:
“Organization design is conceived to be a decision process to bring about a coherence between the goals or purposes for which the organization exists, the patterns of division of labor and interunit coordination and the people who will do the work” (Galbraith, 1977, p. 5).
“Organization design is the making of decisions about the formal organizational arrangements, including the formal structures and the formal processes that make up an organization” (Nadler & Tushman, 1988, p. 40).
“Organization design is the deliberate process of configuring structures, processes, reward systems, and people practices and policies to create an effective organization capable of achieving the business strategy” (Galbraith, Downey, & Kates, 2002, p. 2).
You may have noticed a number of consistent themes included in each of these definitions.
Organization Design Is a Set of Deliberate Decisions
All organizations are designed (or have a design), even if they were not designed that way intentionally. In addition, all organizations evolve and change, and as they do, the design usually changes as well. Sometimes these changes are thoughtfully considered. An executive leaves the company and two existing units with complementary capabilities get combined. The company decides to enter into a new market and establishes a separate division to manage the product development, marketing, and sales of the new products for that market. At other times, the organization may be changing without conscious attention. Customer demands may grow to the point that the existing customer service organization cannot effectively manage the
