Organizational Design

Whither Organizational Design?

 All organizations in today’s volatile world must understand the fundamentals

of organizational design and its limits.  

 The key fundamentals of organizational design cannot work effectively without

considering the significant impact culture has.

 The major focus of the diagnostic alignment of the organizational design and
strategy is to manage change.

 To ascertain the existence of fit among the various organizational design

components.

Organizational Design

Design is the diagnosis of misfits and the action to fix them. Hence good
design fits together; poor design has misfits and the organizational performance
suffers.

Every executive must diagnose, and take necessary actions.

Components of Organizational Design

In today’s volatile business environment, understanding the key aspects of

organizational design is paramount. They are;

 Goals

 Strategy

 Environment

 Structure

 Process & People

 Coordination & Control

 Incentives

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Goals

 Efficiency: Focus on inputs, use of resources, and costs.

 Effectiveness: Focus on outputs, products or services, and revenues.

The Goal Space are:

Quadrant A (Low efficiency and Low effectiveness)

Quadrant B (high efficiency and Low effectiveness) e.g. South- west Airlines

Quadrant C (Low efficiency and high effectiveness) e.g. 3M

Quadrant D (high efficiency and high effectiveness) e.g. General Electric

Strategy

Strategy is the operationalization of the firm’s goals of efficiency and/or effectiveness.

It uses structure to achieve an end.

Strategy is based on

 Exploration: This includes search, variation, risk-taking, and innovation i.e.

seeking new technologies.

 Exploitation: This includes refinement, efficiency, selection, and

implementation i.e. taking advantage of current technologies to do things in a
new way.

The Strategy space are

 Reactor (low exploration and low exploitation) e.g. DEC

 Defender (low exploration and high exploitation) e.g. Coca Cola

 Prospector ( high exploration and low exploitation) e.g. 3M

 Analyzer with or without Innovation (high exploration and high exploitation )

e.g. Apple, Google

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Environment

Environment is everything outside the boundary of the organizational unit of analysis.

It creates both limits and opportunities for a firm’s strategy and structure and it is
measured by

Complexity: The number of powerful forces affecting an organization.

Unpredictability: The degree of uncertainty about the forces that impact a firm.

The environment space are

 Calm (low complexity and low unpredictability) e.g. Start-ups

 Varied (high complexity and low unpredictability) e.g. LEGO, toy

manufacturer

 Locally stormy (low complexity and high unpredictability)

 Turbulent (high complexity and high unpredictability (e.g. Global Airlines

Structure

Structure is the choice of a firm’s configuration and the means.

It is based on both the firm’s configuration, organizational complexity and the

distributed organizational design.

a. Configuration: It is pictured as the organizational chart

The configuration space are

 Simple (low functional specialization and low product/service/customer

orientation)

 Functional (high functional specification and low product/service/customer

orientation)

 Divisional (low functional specialization and high product/service/customer

orientation)

 Matrix (high functional specialization and high product/service/customer

orientation).

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b. Organizational Complexity: It is the vertical and horizontal differentiation of task
management in the firm.

It also specifies the organizational design.

The organizational complexity space are

 Blob (low vertical differentiation and horizontal differentiation)

 Tall (high vertical differentiation and low horizontal differentiation)

 Flat (low vertical differentiation and high horizontal differentiation)

 Symmetric (high vertical differentiation and high horizontal differentiation).

Distributed Organizations: This enables firms to coordinate work across national and
other geographic boundaries and to meet the knowledge needs of our increasingly
service-oriented economy. It consists of both structures for spanning geography and
managing knowledge exchange.

c. Structures for spanning geography operates using the optimal sourcing and local
responsiveness.

The organizational design space for structures for spanning geography are

 Global (low optimal sourcing and low local responsiveness) e.g. UPS

 International (high optimal sourcing and low local responsiveness)

 Multi-domestic (low optimal sourcing and high local responsiveness)

 Transnational (high optimal sourcing and high local responsiveness).

d. Structures for managing knowledge exchange is about sharing of information

that requires intelligence based on virtualization and IT Infusion. It helps organization
to increase its information capacity.

The structures for managing knowledge exchange are

 Ad-hoc communications (low IT-infusion and low virtualization)

 Informated (high IT-infusion and low virtualization)

 Cellular (low IT-infusion and high virtualization)

 Network (high IT-infusion and high virtualization).

Task Design
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 Process entails how organization perform its tasks. i.e. the task design

Task design is categorized into two important dimensions: repetitiveness and

divisibility.

The task design space are

 Orderly (high repetitiveness and high divisibility) i.e. with little coordination

 Complicated (high repetitiveness and low divisibility)

 Fragmented (low repetitiveness and high divisibility)

 Knotty (low repetitiveness and low divisibility).

People

An enterprise is its people.

Managing people is a complex matter that are based on the number of people
and the degree of their professionalization.

The people space are

 Shop (low number of people and low professionalization)

 Factory (high number of people and low professionalization) i.e. focus on

efficiency.

 Laboratory (low number of people and high professionalization) i.e. focus on

effectiveness using motivation and incentives.e.g.3M

 Office (high number of people and high professionalization) i.e. focus on both
efficiency and effectiveness.

Leadership style and organizational climate are important factors to be

considered when you design an organization. How do people in your
organization think and act?

a. Leadership Style is the predominant mode used by the top management to

manage employees. It is based on uncertainty avoidance, the ability to take
risks and preference for delegation.

The leadership style space are

 Maestro (low uncertainty avoidance and low preference for delegation)

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 Manager (high uncertainty avoidance and low preference for delegation)

 Leader (low uncertainty avoidance and high preference for delegation)

 Producer (high uncertainty avoidance and high preference for delegation.

b. Organizational climate is the relatively enduring quality of the internal

environment of an organization that influences behaviour. It is based on the
degree of tension and the readiness to change.

The organizational climate space are

 Group (low tension and low readiness to change)

 Internal Process (high tension and low readiness to change)

 Developmental (low tension and high readiness to change)

 Rational Goal (high tension and high readiness to change).

Coordination and Control

Once you have designed your processes and people-based systems to support
your chosen organization’s structure, the next step is to design coordination,
control and information systems for organizational alignment/fit.

a. Coordination and control systems is based on formalization and

decentralization. The coordination and control space are

 Family (low formalization and low decentralization)

 Machine (high formalization and low decentralization) i.e. It lacks creativity

and flexibility e.g.Wal-Mart.

 Market (low formalization and high decentralization) e.g. Nokia

 Mosaic/Clan (high formalization and high decentralization) e.g. South-West

Airlines

b. Information Systems are methods for providing meaningful data to

decision-makers. It is based on the amount of information and the tacit nature
of information.

The information systems space are

 Event-Driven (low amount of information and low tacit nature of information)

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 Data-Driven (high amount of information and low tacit nature of information)

 People-Driven (low amount of information and high tacit nature of

information)

 Relationship-Driven (high amount of information and high tacit nature of

information)

Incentives

Incentives support the firm’s infrastructure of

Coordination, control, and information systems. They are means or instruments

designed to encourage certain actions or behaviour on the part of groups of
employees.

Incentives are based on the target of incentives and the basis for evaluation
either on an individual/group and behaviour or basis of evaluation/results.

The incentive design space are

 Personal pay (Emphasis on the individual and behaviour)

 Skill Pay (Emphasis on behaviour and the target of incentives in a group)

 Bonus-based (Emphasis on individual and the basis of evaluation/results)

 Profit-sharing (Emphasis on the basis of evaluation/results and the target of

incentives.

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 Fit & Misfit Table for the Alignment of Organizational Design

Components

Correspondin
g Quadrant in A B C D
Organizationa
l Design Space
Incentives Personal Skill Bonus- Profit-
Pay Pay Bases Sharing

Information Event- Data- People- Relationshi

Systems Driven Driven Driven p-Driven

Coordination Family Machi Market Clan/

& Control ne Mosaic

Organizational Group Interna Develop Rational

Climate l mental Goal
Proces
s

Leadership Maestro Manag Leader Producer

er

People Shop Factor Laborat Office

y ory

Task Design Orderly Compl Fragme Knotty

icated nted

Knowledge Ad-hoc Inform Cellular Network

Exchange Commu ated
nication
s
Geographic Global Interna Multi- Transnatio
Distribution tional domesti nal
c

Organizational Blob Tall Flat Symmetric

Complexity

Configuration Simple Functi Division Matrix

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 onal al

Environment Calm Varied Locally Turbulent

Stormy

Strategy Types Reactor Defend Prospect Analyzer

er or with or
without
Innovation

Dimensions of Neither Exploit Explore Exploit/

Strategy Explore

Organizational Neither Efficie Effectiv Efficiency

Goals ncy eness &

Effectivene
ss

Misfits???

 Misfits are misalignments within the organizational design components that

can lead to deterioration

in the firm’s efficiency and effectiveness.

 Misfits lead to a decrease in organizational performance, either today or in the

future.

 Misfits are the starting point for the implementation of change.

 Misfits are the engine of the organizational design process.

 Finally, Misfits occur when the organizational design components do not align
within the same quadrant, thus threatening the firm’s goals.

The Big Picture

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  Strategic Thinking: Framing, Scanning & Forecasting

 Strategic Foresight: Visioning, Planning & Acting

Horizon 1 (Short term) Business Planning 1 year view (annual

budget)

Horizon 2 (Medium term) Strategic Planning 2-5 year view (linking

operations to strategy)

Horizon 3 (Long term) Strategic Foresight 5-20 year view (linking

foresight to strategy)

References
Ackermann, F. & Eden, C. (2011). Making Strategy; Mapping out Strategic Success, 2nd
Edition, Thousand Oaks, SAGE Publications Inc.
Burton, Obel & DeSanctis (2011). Organizational Design, a step-by-step approach.
Cambridge University Press, New York. (2nd Edition).
Nadler, D. A. (1996). Managing the team at the top. Strategy & Business, 2, pp. 42- 51.

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