Design & Theory
Organization Design: Creating Strategic and Agile Organizations
Donald L. Anderson
Chapter 1
Introduction to Organization Design
Organization Design Defined
Several definitions:
Galbraith, 1977
Nadler & Tushman, 1988
Galbraith, Downey & Kates, 2002
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LO 1-1: What organization is and how it is defined
Galbraith, 1977: “Organization design is conceived to be a decision process to bring about a coherence between the goals or purposes for which the organization exists, the patterns of division of labor and interunit coordination and the people who will do the work.”
Nadler & Tushman, 1988: “Organization design is the making of decisions about the formal organizational arrangements, including the formal structures and the formal processes that make up an organization.”
Galbraith, Downey, & Kates, 2002: “Organization design is the deliberate process of configuring structures, processes, reward systems, and people practices and policies to create an effective organization capable of achieving the business strategy.”
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Organization Design Is a Set of Deliberate Decisions
All organizations have a design
The design changes as the organization evolves
Organizations might evolve haphazardly
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Organization Design Is a Set of Deliberate Decisions
Organization design approach:
Decisions are intentional
Decision science
Evaluates how and why an organization is designed
Conscious attention to design
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Organization Design Is a Process
Company changes have design implications
Entering into new markets
Discontinuing product lines
Enhancing services
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“A well designed organization is not a stable solution to achieve, but a developmental process to keep active” (Starbuck & Nystrom, 1981)
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Organization Design Is a Process
Not an activity or event
Design is continuous and fluid
Process is an ongoing activity
“A developmental process to keep active”
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Organization Design Assumes a System Approach to Organization
Organizations are a combination of intersecting parts that work together to achieve a goal:
Behavior patterns
Department configurations
Arrangements
Open vs. closed systems
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Organization Design Is Based on the Organization’s Strategy
Strategic organization design:
Design is based on the business strategy
Organization should be designed strategically
Design drives the way strategies are formed
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Organization Design Encompasses Multiple Levels of Analysis
Macro
Micro
Multiple levels of analysis
Individual group
Organization
Industry
Macrosocial movements
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LO 1-1: What organization is and how it is defined
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Organization Design Is More Than Organizational Structure
Restructure vs. Redesign
Restructuring may result in:
Unclear priorities
Slow decision making
Inadequate training for new responsibilities
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Organization Design Is More Than Organizational Structure
Redesign considers other aspects:
Processes
People
Rewards
Measures
Structure
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Organization Design Is an Interdisciplinary Field of Research and Practice
Organization design draws from :
Psychology
Economics
Logistics
Sociology
Organization Theory
Organization design is a scientific art
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LO 1-1: What organization is and how it is defined
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History of Organization Design
1850s to Early 20th Century:
Pennsylvania Railroad
New and expanded markets
Growth for mining companies and factories
Carnegie Steel
Functional structures
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LO 1-2: The history and development of the field of organization design
Functional structures: “Contributions of specialized departments coordinated and controlled by centrally determined plans, budgets, and schedules”
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1910s to World War II
Labor divided into subspecialties
Foreman concept
Companies expanding into new product areas
Challenge to functional structure
Managing multiple and diverse types of products
Divisional structure
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Functional foremanship concept: Leadership of the workforce should be broken into specialties
Each worker should have a method boss, a schedule boss, an administrative boss, and so on (8 different specialties of “foreman”)
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Post-World War II to 1960s
Burns and Stalker (1961)
Mechanistic vs. Organic
Both designs were effective
Beginning of contingency theory of organization design
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Post-World War II to 1960s
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LO 1-2: The history and development of the field of organization design
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Post-World War II to 1960s
Chandler (1962)
Decentralized structure
Pattern among companies:
Company expanded in volume
Geographic growth
National expansion into new product lines
Structure follows strategy
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LO 1-2: The history and development of the field of organization design
The four companies that Chandler studied (du Point, General Motors, Jersey Standard, and Sears) created a new division for a product line as the company expanded its capabilities.
Differentiation describes the separation of the organization into different subunits or departments, based on the needs of the environment.
Integration refers to the degree of interdependence and the need for coordination among the different units.
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Post-World War II to 1960s
Lawrence and Lorsch (1967):
Differentiation
Integration
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1970s and 1980s
Move toward multidivisional structures
Matrix organizations
Configurational approach
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LO 1-2: The history and development of the field of organization design
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1970s and 1980s
Dynamic network organization:
Vertical disaggregation
Brokers
Market mechanisms
Full-disclosure information systems
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1990s and 2000s
Global competition drove business
Service economies affected operations
Structural questions:
Centralization vs. decentralization
Organic vs. mechanistic design
Design choices were increasingly relevant to business leaders
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LO 1-2: The history and development of the field of organization design
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The Case for Organization Design Today
Design affects performance
Facilitating goals
Role confusion
Poorly defined processes
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LO 1-3: Why organization design is relevant as a subject of study and practice today.
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The Case for Organization Design Today
Design is a leadership competency
Recognizing consequences of design decisions
Some managers may implement designs
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Today’s Organizations Experience Significant Design Challenges
Changing nature of work
Part time, flexible hours, and telecommuting
Global and virtual teams
Globalization
Collaboration within and between companies
Diverse workforces
Technology
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Organization Designs Today
Passmore’s 9 “design ills”:
Overspecialization of most jobs
Overreliance on supervisor’s ability to control employee behavior
Too great an investment in maintaining the status quo
Breakdown of interdependent systems and activities
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Organizations Designs Today
Overcentralization of information and authority
Overreliance on individual monetary rewards
Undervaluing of human resources
Overreliance on technology as a solution to organizational problems
Underattention to external environment
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Today’s Focus on Agility Is a Design Issue
Episodic change: Distinct periods of change, usually infrequent and explicitly defined.
Continue change: The organization is never truly out of a state of change and change is always occurring.
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