Organization Theory: Organization Theory: Strategy Implementation Strategy Implementation

ProcessProcessDesigning OrganizationsDesigning Organizations

Steven E. PhelanSteven E. Phelan

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• Galbraith, Designing Organizations

• Two cases – AHA and USA Today

• GOAL To gain valuable insights into organizational

design by contrasting Galbraith’s ideas with our own experiences and applying those ideas to actual cases

Six Organization ShapersSix Organization Shapers• Buyer Power

Buyers are gaining power and learning how to use it

• Variety and solutions Customers do not want bundle of products

and services They want them integrated into a solution

• The Internet The web site becomes a single face to the

customer forcing functions to integrate

Six Organization ShapersSix Organization Shapers

• Multiple dimensions (of organizations) Functions, products, geographies (old) Segments, solutions, channels, processes (new)

• Change Rapid change requires management to re-learn

and re-decide To make more decisions more frequently It requires more decentralized management and

networks of decision makers

Six Organization ShapersSix Organization Shapers

• More variety, more comprehensive solutions – FASTER!

• Shorter lead times, shorter cycle times

• Speed is a force for decentralization

• Share an example of one of these six forces in your own organization

Competitive AdvantageCompetitive Advantage• An organization design that facilitates

Variety, Change, Speed, and Integration

is a source of competitive advantage

It is difficult to execute but also difficult to copy

TradeoffsTradeoffs• Hype

There has been an overselling of credible ideas• Teamwork, reengineering, virtual

organizations etc. Any organizational design requires tradeoffs

and will have positives and negatives

The Star ModelThe Star Model

People

Rewards Processes

Structure

Strategy

Focus of text

The Star ModelThe Star Model• Strategy

Is the company’s formula for winning! Goals, mission, objectives, values Delineates products, markets, value

proposition, competitive advantage First part of the model to be addressed Establishes criteria for choosing among

different organizational forms Drives resource allocation

StructureStructure• Specialization

Type and number of job specialties

• Shape Span of control – flat vs. tall structures

• Distribution of power Centralization vs. decentralization

• Departmentalization Function, product, process, market or geography

ProcessesProcesses• Vertical processes

Business planning, budgeting, resource allocation decisions

• Horizontal (or lateral) processes Designed around the work flow Cross functional Value chain emphasis

RewardsRewards• Purpose

To align the goals of the employees with the goals of the organization

• Some Issues Individual vs. Team Function vs. Cross function (‘citizenship’) Monetary vs. Non-monetary rewards

• Rewards must be congruent with other parts of organization design

PeoplePeople• Human resources

Recruiting, selection, rotation, training, development

Creating the skills and mind-sets needed to implement the strategy

• Must also develop organizational capabilities Flexibility, ability to work with others Knowledge management

ImplicationsImplications• Structure is only one facet of design

Structure usually overemphasized• status and power issues

Processes, rewards, and people are becoming more important

• Congruence Different strategies lead to different

organizations! All policies must be aligned and in harmony

Matching strategy and structureMatching strategy and structure

• Specialization Trend toward less specialization and more job

rotation in low skill tasks• better speed, motivation, coordination. Why?

More specialization in high skill tasks• It is difficult to read academic papers even in the

same field or sub-field

Matching strategy and structureMatching strategy and structure

• Shape Trend towards wider spans and flatter

structures• Faster decisions, lower overheads

Conference board study• Found span of control from 0-127• Modes at 7 (traditional), 17 (sales), and 75 (self-

managing teams)• Function of: experience, work similarity,

independence of workers, ease of measurement

Matching strategy and structureMatching strategy and structure

• Distribution of Power Centralization vs. decentralization But, also includes horizontal distribution of

power among departments Power shifting from accountants and

production to sales, marketing, purchasing(!?) When 80% of parts are outsourced,

purchasing becomes important

Matching strategy and structureMatching strategy and structure• Departmentalization

Suggest departments arise when org size>24 Consider:

• Functional• Product• Market• Geographical• Process• Hybrid

What are the (dis)advantages of each?

ProcessesProcesses• Most of the activity in an organization does not

follow the vertical hierarchical structure Structure only address primary focus (e.g. segments)

• Rationale All the dimensions not handled by the structure

require coordination through lateral management processes (i.e. across departments)

• Need to coordinate responses to: Governments, regulators, customers, functions,

vendors, products, strategic partners, unions, regulators, technologies, solutions

Observations about ProcessObservations about Process• Lateral processes

‘general management equivalents’

• Variety & Change -> more decentralization No functional management can handle multiple

products in multiple markets

• Interdependence & Speed -> more cross-department coordination Internet and need for CRM increases this force

Costs and Benefits of LateralityCosts and Benefits of Laterality

• Benefits Make more decisions Make different kinds of decisions Make better and faster decisions

• Costs Loss of top management control Time involved in cross-functional work Increased conflict

Five Types of Lateral ProcessesFive Types of Lateral Processes• Voluntary (or informal)• E-coordination• Formal group• Full-time integrators

Project managers, brand managers, process managers etc.

• Matrix organization Level of coordination grows but so does cost

and difficulty of implementation

Fostering Voluntary ProcessesFostering Voluntary Processes

• Interdepartmental rotation

• Interdepartmental events

• Co-location

• Mirror image departments

• Consistent reward and measurement systems

E-CoordinationE-Coordination• Intranets

ISS uses a web site to coordinate the behavior of various crews at multiple sites throughout the day

• Customer requests, crew assignments, performance evaluations etc.

• CRM People at customer interface record all contacts with

customer and have access to previous history Customers are managed in a consistent and

knowledgeable way Rules can be set to prompt selling opportunities at

each point of contact

Formal GroupsFormal Groups

• Basis Same as structure: function, product, market,

geography, work flow Strategy sets priorities.

• Charter Scope, mission, authority Issues, resources, timeframe

Formal GroupsFormal Groups• Staffing

Have an informed representative from each affected department with authority to commit

• Conflict Train in conflict mgt skills Determine procedure for resolving conflicts Be prepared for conflict!

• Disagreement over means and ends = GOOD• Ad hominem attacks = BAD

Formal GroupsFormal Groups• Rewards

Team performance should count as much as line performance in evaluations (!)

• Leader Role Teams may not need a formal leader (!) Most groups designate a leader

• Usually from most affected (interested) department• But, leader role may change to those most capable

of handling a particular issue• Leader role may also rotate

Formal GroupsFormal Groups

• Can be simple Film crew put together for one project Team to design a single integrated circuit

• Characteristics Often rewards tightly linked to results Project manager given lots of control (and

accountability)

Formal GroupsFormal Groups

• Can be complex Platform teams in automobile industry

• Minivans, sedans, trucks• Each platform has sub-teams

– Chassis, power train, engine, interior, exterior etc.

Formal GroupsFormal Groups

• Special challenges Coordination

• Keep information flows open to reduce duplication of effort

• E-coordination is handy

Conflict management• Important to determine overall strategic priorities

and who has burden of proof for shifting priorities• E.g. PC product managers have to make case for

deviating from lowest cost components

Integrator RolesIntegrator Roles• Key Decisions

Determine structural basis• Product, brand, segment, project, process, geography

Determine who • good networker, good interpersonal skills• “influence without authority”

Provide status• Appropriate rewards, budget authority, big office,

support staff, etc.• Last resort – matrix structure, dual authority

Provide support• Information systems, planning processes

Case 1: USA TodayCase 1: USA Today• Identify the problem(s)• Recommend:

A strategy A structure A set of key lateral processes A reward system, and An HR strategy

• That will solve (or at least address) the problem(s) at USA Today