Organization Theory: Strategy Implementation Process Designing Organizations Steven E. Phelan

Preview 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 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 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 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 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

Tradeoffs 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 Model People RewardsProcesses Structure Strategy Focus of text

The 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

Structure 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

Processes Vertical processes  Business planning, budgeting, resource allocation decisions Horizontal (or lateral) processes  Designed around the work flow  Cross functional  Value chain emphasis

Rewards 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

People 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

Implications 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 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 structure Shape  Trend towards wider spans and flatter structures Faster decisions, lower overheads  Conference board study Found span of control from 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 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 structure Departmentalization  Suggest departments arise when org size>24  Consider: Functional Product Market Geographical Process Hybrid  What are the (dis)advantages of each?

Functional Structure  Small size, single-product line  Undifferentiated market  Scale or expertise within the function  Long product development and life cycles  Common standards

Product Structure  Product focus  Multiple products for separate customers  Short product development and life cycle  Minimum efficient scale for functions OR outsourcing

Market Structure  Important market segments  Product or service unique to segment  Buyer strength  Customer knowledge advantage  Rapid customer service and product cycles  Minimum efficient scale for functions OR outsourcing

Geographical Structure  Low value to transport cost ratio  Service delivery on site  Closeness to customer for delivery or support  Perception of the organization as local  Geographical market segments needed

Process Structure  Best seen as alternative to functional structure  Potential for new processes and radical change to processes  Reduced working capital  Need for reducing process cycle times

Processes 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 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 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 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 Processes Interdepartmental rotation Interdepartmental events Co-location Mirror image departments Consistent reward and measurement systems

E-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 Groups Basis  Same as structure: function, product, market, geography, work flow  Strategy sets priorities. Charter  Scope, mission, authority  Issues, resources, timeframe

Formal 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 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 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 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 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 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 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