An axiomatic design approach to analyzing

innovations in the organization of complex

firmsfirms

Presentation at Aarhus Business School, June 23, 2010

Nicolay Worren, PhD

Worren Consulting

In designing organizations, managers are often faced with

multiple and conflicting functional demands

The evicence suggests that organizations that do not

prioritize one demand will operate suboptimally

U.S. hospitals

Pro

fita

bil

ity

-0.5

0.3

Efficiency

oriented

Quality

orientedOther

/combination

0,02

Sa

les

gro

wth

1.3

0.6

Dine-in OR

delivery

Dine-in AND

delivery

Pizza restaurants

Quantity of

aluminium

90 micrometer!

However, we should also allow for the possibility of inventing

new designs that can meet multiple demands

aluminium

Strength /stiffness

Indeed, many organizational design innovations represent

the removal – or at least lessening - of a design contradiction

Functional CEO

En

gin

ee

rin

g

Pro

du

ctio

n

Ma

rke

tin

g

Coordination

Multidivisional

Product A

En

gin

ee

rin

g

Pro

du

ctio

n

Ma

rke

tin

g

Product B

En

gin

ee

rin

g

Pro

du

ctio

n

Ma

rke

tin

g

CEO

Coordination

cost

Scale

The axiomatic approach developed by Nam Suh provides an

analytical basis for supporting design processes

A key premise is the distinction between functions and

design parameters

Design Parameters

Manufacturing

plant Division A Division B

What we want to achieve

How we want to achieve it

Functional requirementsplant Division A Division B

Manufacture products X

Maximize sales revenue for product A X

Maximize sales revenue for product B X

Complexity is defined as the existence of coupling

Design Parameters

Manufacturing

plant Division A Division B

Functional requirementsplant Division A Division B

Manufacture products X

Maximize sales revenue for product A X X

Maximize sales revenue for product B X X

Two main axioms are proposed that may be translated into

design principles for organizations

Axiom 1

• Maintain independence

of functional

requirements (i.e.,

minimize coupling)

FR 1 X

FR 2 X

Axiom 2

• Ensure that the system

range fits within the

design range (or

maximize overlap)10 20 30 40 50

This framework can be used to study multidimensional

organizations, an emerging organisational form

Company X

FR1:

Achieve economies of scale

and scope in production

FR2:

Achieve customer focus

in sales and marketing

Product A Product B Product C Region 1 Region 2 Region 3

Dimension 1 Dimension 2+

Scandinavian Telecom is a firm with 7 main units

FR 1

Create value for stakeholders by

offering telecommunications services

FR 1.1

Provide cost-

effective IT systems

and applications

that meet internal

client needs

FR 1.2

Develop and

manage an

efficient network

infrastructure

FR 1.3

Maximise profits

for Fixed

telephony

servicesFun

ctio

na

lre

qu

ire

me

nts

FR 1.4

Maximise profits

for Mobile

telephony

services

FR 1.5

Maximise

revenue in the

Business

segment

FR 16

Maximise

revenue in the

Consumer

segment

FR 1.7

Perform

enabling and

control

processes

client needs

De

sig

n p

ara

me

ters

IS Operations Fixed Mobile Business Consumer Staff

Process Infrastructure/ platform Market segment

One option for organizing this firm is to adopt a matrix

structure

Director

Mobile

Director

Fixed

- Excerpt -

CEO

Scandinavian Telecom

Measured on sales

or profits of Fixed

telephony across

segments

Measured on

overall sales or

profit in Business

segment

DirectorSales manager 2

Business

DirectorDirector

Consumer

Sales manager 1Director

IT

Director

Operations

Director

segment

Measured on sales

or profits of Fixed

telephony in

Business segment

Function IS Operations Fixed Mobile Business ConsumerCorporate

staff

1Provide cost-effective IT systems applications that meet business needs

X x x

2Develop and manage an efficient network infrastructure

x X x

3Develop and launch a high number of fixed net products

x x X x x x

The matrix structure creates interdependencies that

represent coupling

4Develop and launch a high number of mobile telephone services

x x X x x x

5Maximise market share in theBusiness segment

x x x x X x x

6Maximise revenue in the Consumer segment

x x x x X x

7Perform enabling and control processes

X

Interdependencies

due to dual reporting

line and overlapping

accountabilities

Infrastructure/

operational

interdependencies

The adoption of the front-back model would separate the roles

and remove the dual reporting lines

Director

Mobile

Director

Fixed

CEO

Measured quality,

delivery time,

(cost), etc.

Measured on

overall sales,

market share,

(profit) in

Business segment

Director

Sales manager 2

Business

DirectorDirector

Consumer

Sales manager 1

Director

IT

Director

Operations

Director

The effect is to remove coupling between some of the

functional requirements

Function IS Operations Fixed Mobile Business ConsumerCorporate

staff

1Provide cost-effective IT systems applications that meet business needs

X x x

2Develop and manage an efficient network infrastructure

x X x

3Develop and launch new fixed net products

x x X x

4Develop and launch new mobile telephone services

x x X x

5Increase market share and customer satisfaction in theConsumer segment

x x X x

6Increase market share and customer satisfaction in theBusiness segment

x x X x

7Perform enabling and control processes

X

Re-definition of functions

allow units to pursue

independent goals

A modular organizational form goes one step further by

allowing external sourcing and flexible resource utilization

Director

Mobile

Director

Fixed

CEO

Profit center

Resource pool

Profit center

Director

Sales manager 2

Business

DirectorDirector

Consumer

Sales manager 1

Director

IT

Director

Operations

Director

Director

Profit center

The effect is to further remove coupling due to operational

interdependencies

Function IS Operations Fixed Mobile Business ConsumerCorporate

staff

1Maximise profits of information systems services

X x

2Maximise profits of network services

X x

3Maximise profits of fixed net products

X x

4Maximise profits of mobile telephony services

X x

5Maximise profits in Business segment

X x

6Maximise profits in Consumer segment

X x

7Perform enabling and control processes

X

Product and market units

no longer dependent on

internal suppliers

The modular design allows the creation of a ”pull” system

where processes are initiated by downstream units

Example: Fulfill demand process

Orders

solutionCustomer

Define Negotiate Perform Assess

Requests bid Accepts

1

32

Customer

Market unit

Product unit

Operations

Configures

solution

Defines

solution

capacity

Confirms Installs

infrastructure

Verifiesinstallation

Deliverssolution

Creates

bid proposalDetails product

specifications

In sum, the matrix is only one of three possible

multidimensional designs

Matrix Front-back Modular

Two or more dimensions � � �

Front end defined according to market segments � �market segments � �

Customer-supplier relationsbetween dimensions � �

Resources organised in a common pool �

Degree of complexity

A key question is how the axiomatic approach may be used

to optimize designs prior to implementation

Plan Develop Implement

New structure

FR

1X

FR

2X

10 20 30 40 50

We should also consider how to further improve and adapt

the approach to the social sciences

� What is a design parameter?

Produce stuff XReach production

X X

� ”Linguistic robustness”

The way I usually think

Axiomatic thinking

Overall

purpose

Function 1

Function 2

Function 3

Produce stuff X

Sell stuff X

Reach production

goalsX X

Reach sales goals X X

� Does it make people more /less creative?

About the presenter

Nicolay Worren has 12 years of experience as management consultant and project manager. He

established his own consulting practice in 2009 after several years with large consulting firms

(Accenture and PA Consulting Group). He was also an internal consultant with Aker Solutions for

three years.

He has led or participated in more than 12 major re-design projects for firms in various industry

sectors.

Nicolay holds a master’s degree from McGill University and received his doctorate from Oxford

University where he wrote a dissertation on flexibility and modular systems.

He has written several articles in refereed journals and presented numerous conference papers.He has written several articles in refereed journals and presented numerous conference papers.

Nicolay is working on a textbook on organization design (to be published by Pearson Education in

2011).

He writes a blog:

www.nicolayworren.com