Sessions – 15 and 16

Organizational Design:
contingency variables
Contingency variables
Organizational design rests on two theories;
(i) universal approach, and (ii) contingency
approach.
Universal approach is prescriptive and it
works in any situation.
Contingency approach, on the other hand,
suggests that organizational efficiency can
be achieved pacing with environment,
nature of workforce, and technology.
Contingency Approach to Organizational Design

•A management approach in which the design of an organization’s structure is

tailored to the sources of uncertainty facing an organization
•Organization should design its structure to fit its environment
Fit Between the Organization and Its Environment
Open Systems approach in organization

In today’s changing world, open system approach to organization is considered more relevant.

• Open systems approach attributes are; energy, throughput, output, cycles of events,
negative entropy, information input, steady or dynamic homeostasis, differentiation,
integration and co-ordination, and equifinality
• Cycle of Events is a process in open systems organization, by which it receives inputs from
the environment and then transforms them and generate output.
• Negative Entropy represents ability of the organization to autonomously repair itself and
then survive and grow by importing resources from its environment and transforming them
to outputs.
• Organizations through steady or dynamic homeostasis maintain equilibrium over a period of
time.
• Through differentiation, organizations develop structures and develop specialized functions.
• Equifinality principle of the open systems organization achieves their objectives through
several different courses of action.
Viable Systems Model, Organizational Cybernetics and Organizational
Design

• Viable System Model (VSM) postulated by S. Beer (1979) VSM is an important instrument in
the operationalization of the organizational cybernetics approach.
• According to Beer cybernetics is ‘the science of effective organization’. A system is said to
be viable when it is able to adapt effectively to environmental changes, even though such
changes are unforeseen.
• VSM thus consists of operation (O) with embedded management (M) and environment (E).
It is used in organization to diagnose different elements, in designing information systems,
designing management structure, etc. Even in designing organizational vision, mission and
structure it is used. Therefore, VSM also helps in systematic thinking in organizations.
• Thus VSM as an organizational framework of various functions and relationships, creates the
conditions, making use of which, organisations can diagnose the major dysfunctions, and
develop necessary intervention strategies.
• Based on his study of organic systems, Beer observed organizational systems can sustain
independent existence despite the operations of Law of Requisite Variety.
• The law describes how complexity could operate to overpower a system of management. In
cybernetics, the word variety denotes complexity, which is infinite. Management instead of
dealing with the environmental complexity should create the appropriate operating process,
which can interact with the environment, and sustain its independent existence.
Operations of the Law of Requisite Variety, according to Beer exhibit
following properties:

• Maintenance of identity (every organization must have a purpose and accordingly should
organise its means to achieve the same).
• Ability to self repair (organisation should be capable enough to self-repair to sustain
existence).
• Self awareness (organization must aware of themselves on what they comprise).
• Self organising (organizational structure should be environment and context specific).
• Self balancing (homeostasis).
• Open systems (adaptive to extract information from their environment)
 5

Total Environment
Identity Meta
System

The 4
Future? Intelligence 3
Control

Audit
Coordination
3* 2

Env
1
A
Op A Operating
System
Env 1
B Op B

Viable System
Emergent Organizational Structure

Organizational Structure and Design look beyond physical workspaces. It

optimizes resources and in the process creates value.

No given structure of organization is sacrosanct. It varies with the business

context. We are familiar with functional, divisional, and matrix structure. But
complexity of business today necessitates looking toward emergent
organizational structures.

Two such emergent organizational structures are Sociocracy and Holacracy.

Sociocracy or companion to govern, puts people first, and considers all

employees are equal.

Sociocracy organizations ensure consensual decision making involving all

groups of people. Such an organization is designed by developing an operating
system of decision making through the process of collaboration through a set
of hierarchical circles, each indicating department of an organization.
 In Sociocracy structure policy decisions are taken by all members of the circle,
while regular decisions are taken within the ambit of policies by the operations
leaders through circle meetings. A typical Sociocracy structure is illustrated
below:
Holacracy structure focuses on roles.

This structure also leverages circle-based decision making model connecting two
roles, i.e., `lead link’ and `rep link.’

Rep or Secretary link is an elected role who are engaged to protect the interest of
sub-circles.

Circles are accountable for alignment with the broader organization’s mission and
strategy. If there is a potential conflict between circles, the `lead link’ gathers
input and feeds this into existing roles. The roles are empowered to do
everything possible (within legal and ethical limits) to achieve the goals defined
for them.

In Sociocracy structure everyone in the organization feels included, and their

voices are represented in decision making. This structure also builds trust among
the employees and a strong sense of working toward a common purpose.
Sociocracy structure has been adopted quite successfully in nonprofit,
religious, and in organization that follow cohousing communities, etc.

These organizations thrive on empathy and common understanding among

constituents.

Success of Sociocracy organizations depend on information sharing and

appropriate corporate culture for top down decision-making.
Holacracy structure also shares similar benefits like Sociocracy.

But in this structure high emphasis is on personal accountability and actions.

In Holacracy, there is increased focus on defined roles and their ability to

make decisions, and there is less focus on group consent.

By emphasizing on self-organization, an organization leveraging Holacracy

should be more adaptable to change and more apt for a world where
environments are fluctuating widely.
A typical Holacracy structure looks like:

Based on Robertson (2016)

Both the Sociocracy and Holacracy
structures are genuine innovations in
Organizational Design.

Although it’s difficult to implement,

there are examples of smaller
organizations that have been able to
adapt this way of operating with
success.
Agile Organization Structure

Agile Organizational Design is dynamic, flexible, and ultimately optimizes for

customer value (present and future) rather than resources or leadership
control.

An agile organization structure helps in optimizing organizations for value.

Two prominent organizations went for agile organization structure are; HERE
and ING.

HERE went for agile structure implementing Scrums (teams).

Scrum generates value breaking down projects into short, repeatable phases
called Sprints.

Thus Scrum embraces adaptive solutions for complex problems, framing

rules, roles, events, and artifacts for implementing agile projects.

Over the course of several months, the Agile Working Group (AWG) and the
coaching staff trained teams, empowered Scrum Masters, and gave Product
Owners the authority to own their respective Backlogs to prioritize work.
Agile Organizational Structure Genesis
We can also trace the genesis of agile organization structure to GBU model followed
by MNCs. MNCs to integrate their global subsidiaries with corporate headquarter
innovate different forms of GBUs.

Matrix Structure (GBU) of an International Company

Agile Organizational Structure Genesis (contd)

The Dow Chemical Company (now DowDuPont) moved to a Global Business Unit model,
from their business divisional structure.

GBUs of DowDuPont have business presidents. The business presidents are accountable for
generating increased earnings, and accelerated advancement and execution of the Company's
strategy.

The business presidents report to a newly formed Executive Committee of the Company. The
Executive Committee set the overall direction and strategy for DowDuPont, monitor and deliver
results, and optimize resource deployment across the businesses.

Another example is P&G.

P&G proclaims their organizational structure is an important part of their capability to

grow. P&G combines the global scale benefits of $69.37 billion global company with a local
focus (180 countries) to win with consumers and retail customers in each country where
P&G products are sold.
P&G’s structure has removed many of the traditional overlaps and inefficiencies that
exist in many large companies.

•Global Business Units (GBUs) focus solely on consumers, brands and competitors
around the world. They are responsible for the innovation pipeline, profitability and
shareholder returns from their businesses.

•Market Development Organizations (MDOs) are charged with knowing consumers and
retailers in each market where P&G competes and integrating the innovations flowing
from the GBUs into business plans that work in each country.

•Global Business Services (GBS) utilizes P&G talent and expert partners to provide
best-in-class business support services at the lowest possible costs to leverage P&G’s
scale for a winning advantage.

•Lean Corporate Functions ensure ongoing functional innovation and capability

improvement.

•This is a good example of designing organization based on customers’ experience and

we call it design thinking. Also this contributes to organizational agility.
Organization structure of Apple

Apple’s organization structure is distinctly different from other peer companies.

Employees of Apple successfully align with such structure to innovate products which can bring
exceptional business results for the company.

Theoretically Apple follows unitary organizational form, which is also known as U organization,
which corresponds to functional organization.

U-form organization is developed in line with expertise, rather than products.

For example, a single product of Apple is under multiple groups, like; design, marketing,
operations, software and hardware engineering, and technologies. Hence every Apple’s product
cut across different areas of organizational expertise, which obviously calls for coordination
among various teams.

This is unitary, which denotes integrated. This is why Apple professes they come out with
Integrated products to deliver superior user experience. Opposed to U form, we have
M form or multi-divisional form of organization.
Apple organizational structure
Why Apple go for this structure?

Rapidly decreasing life cycle of technology products and declining sales of iPhones,
iPads and Mac products, Apple embraced elements of matrix organizational structure
and divisional organizational structure to increase the efficiency of new product
development practices. Such structure is agile and contributes to company’s
successful innovation.

Significant characteristics of Apple’s organizational structure are:

1. Spoke-and-wheel hierarchy – ensures more collaboration

2. Function-based grouping – at the upper tier
3. Product-based grouping – at the lower tier
ING’s Agile Structure
How agile structure in ING function?

Rather than organizing around functional departments, ING today organized into 350 squads
and 13 tribes.

Squads are multi-disciplinary teams of nine people each and they work with autonomy. Squads
are focused on specific client related objective and are responsible for end-to-end responsibility.

A Product Owner (P) is responsible for co-coordinating the activities of the squad and managing
the backlog and priorities but they are a squad member rather than leader. As the mission evolves,
the team and the functions that are represented evolve with it. As the mission is completed, the
team is dissolved.

Squads that have interconnected missions are grouped together into Tribes, and these tend not
to exceed 150 people. A Tribe lead helps co-ordinate priorities, budgets and is the interface with
other Tribes to ensure alignment and knowledge sharing. Each Tribe also has an agile coach to
support high performance.

Functional expertise and learning is supported through cross-squad Chapters, and a Chapter lead
effectively represents hierarchy for the Chapter, particularly in terms of performance management,
staffing and personal development.

This approach has not only improved time-to-market, but increased productivity, employee
engagement, and higher rate of transition.
What is Worship Speed

At the highest-performing companies, speed is the objective function,

the operating model, and the cultural bias. And more: speed is an
imperative.

Walk the halls of leading organizations, and you’ll repeatedly hear

catchphrases such as “energy,” “metabolic rate,” “bias for action,” and
“clock speed.”

Jeff Bezos, in his April 2017 letter to Amazon shareholders, highlights

making not just “high-quality” decisions but “high-velocity” decisions.
They go hand in hand. “Most decisions,” writes Bezos, “should probably
be made with somewhere around 70 percent of the information you
wish you had. If you wait for 90 percent, in most cases you’re probably
being slow.”

Choosing not to fail fast comes at a price. “If you’re good at course
correcting,” Bezos continues, “being wrong may be less costly than you
think, whereas being slow is going to be expensive for sure.”
Helix organization structure

Business environment is more complex and interconnected. Matrix structure or even

complex matrix structure alone cannot work now. Helix structure is now considered as
the alternative.

Many agile organizations are embracing the helix structure to balance centralization
and decentralization.

Helix structure disaggregates traditional management hierarchy into two separate

parallel lines of accountability. Both the managers in two lines enjoy equal power and
authority, even though such power and authority are fundamentally different.

In an double helix structure while one of the two lines are engaged in building
capabilities of people to drive functional excellence; the other line focuses on building
capabilities of business for better value creation.

There is no hierarchy; two lines are given two separate leadership responsibilities,
which ultimately lead to business growth and sustainability.

This makes Helix structure different from matrix structure. In agile organizations, helix
model can be more actionable.
APEX CORPORATION – PROBLEMS IN THEIR STRUCTURE

Starting from 1988, the company underwent series of innovative structural

changes, to pace with the business needs.

First change from entrepreneurial form was circular representation of the

company’s structure.

Second one was a traditional hierarchical functional structure in 1989.

In November 1989 structural change in organization was again initiated
creating business teams with responsibilities for families of products and
serve as integrating and conflict-resolving mechanism across products.
However, such change could increase bureaucracy and diluted
accountability.

In August 1990 another structural change was made creating divisional

structure to increase accountability and responsiveness.

Subsequently, because of its acquisitions, Apex had to address the

problems of its divisional structure, adjusting to the new structural reality
of being one of the many divisions of the acquirer company EDS.