Organization design
Encyclopedia
Organization design can be defined narrowly, as the process of reshaping organization structure
and roles, or it can more effectively be defined as the alignment of structure, process, rewards, metrics and talent with the strategy of the business. Jay Galbraith and Amy Kates have made the case persuasively (building on years of work by Galbraith) that attention to all of these organizational elements is necessary to create new capabilities to compete in a given market. This systemic view, often referred to as the "star model" approach, is more likely to lead to better performance.
Organization design may involve strategic decisions, but is properly viewed as a path to effective strategy execution. The design process nearly always entails making trade-offs of one set of structural benefits against another. Many companies fall into the trap of making repeated changes in organization structure, with little benefit to the business. This often occurs because changes in structure are relatively easy to execute while creating the impression that something substantial is happening. This often leads to cynicism and confusion within the organization. More powerful change happens when there are clear design objectives driven by a new business strategy or forces in the market that require a different approach to organizing resources.
The organization design process is often defined in phases. Phase one is the definition of a business case, including a clear picture of strategy and design objectives. This step is typically followed by "strategic grouping" decisions, which will define the fundamental architecture of the organization - essentially deciding which major roles will report at the top of the organization. The classic options for strategic grouping are to organize by:
Each of the basic building block options for strategic grouping brings a set of benefits and drawbacks. Such generic pros and cons, however, are not the basis for choosing the best strategic grouping. An analysis must be done completed relative to a specific business strategy.
Subsequent phases of organization design include operational design of processes, roles, measures and reward systems, followed by staffing and other implementation tasks.
The field is somewhat specialized in nature and many large and small consulting firms offer organization design assistance to executives. Some companies attempt to establish internal staff resources aimed at supporting organization design initiatives. There is a substantial body of literature in the field, arguably starting with the work of Peter Drucker in his examination of General Motors decades ago. Other key thinkers built on Drucker's thinking, including Galbraith (1973), Nadler, et al. (1992) and Lawrence & Lorsch (1967).
Organization design can be considered a subset of the broader field of organization effectiveness and organization development, both of which may entail more behaviorally focused solutions to effectiveness, such as leadership behaviors, team effectiveness and the like. Many organizational experts argue for an integrated approach to these disciplines, including effective talent management practices.
Structure
Structure is a fundamental, tangible or intangible notion referring to the recognition, observation, nature, and permanence of patterns and relationships of entities. This notion may itself be an object, such as a built structure, or an attribute, such as the structure of society...
and roles, or it can more effectively be defined as the alignment of structure, process, rewards, metrics and talent with the strategy of the business. Jay Galbraith and Amy Kates have made the case persuasively (building on years of work by Galbraith) that attention to all of these organizational elements is necessary to create new capabilities to compete in a given market. This systemic view, often referred to as the "star model" approach, is more likely to lead to better performance.
Organization design may involve strategic decisions, but is properly viewed as a path to effective strategy execution. The design process nearly always entails making trade-offs of one set of structural benefits against another. Many companies fall into the trap of making repeated changes in organization structure, with little benefit to the business. This often occurs because changes in structure are relatively easy to execute while creating the impression that something substantial is happening. This often leads to cynicism and confusion within the organization. More powerful change happens when there are clear design objectives driven by a new business strategy or forces in the market that require a different approach to organizing resources.
The organization design process is often defined in phases. Phase one is the definition of a business case, including a clear picture of strategy and design objectives. This step is typically followed by "strategic grouping" decisions, which will define the fundamental architecture of the organization - essentially deciding which major roles will report at the top of the organization. The classic options for strategic grouping are to organize by:
- BehaviorBehaviorBehavior or behaviour refers to the actions and mannerisms made by organisms, systems, or artificial entities in conjunction with its environment, which includes the other systems or organisms around as well as the physical environment...
- Function
- Product or category
- Customer or market
- Geography
- Matrix
Each of the basic building block options for strategic grouping brings a set of benefits and drawbacks. Such generic pros and cons, however, are not the basis for choosing the best strategic grouping. An analysis must be done completed relative to a specific business strategy.
Subsequent phases of organization design include operational design of processes, roles, measures and reward systems, followed by staffing and other implementation tasks.
The field is somewhat specialized in nature and many large and small consulting firms offer organization design assistance to executives. Some companies attempt to establish internal staff resources aimed at supporting organization design initiatives. There is a substantial body of literature in the field, arguably starting with the work of Peter Drucker in his examination of General Motors decades ago. Other key thinkers built on Drucker's thinking, including Galbraith (1973), Nadler, et al. (1992) and Lawrence & Lorsch (1967).
Organization design can be considered a subset of the broader field of organization effectiveness and organization development, both of which may entail more behaviorally focused solutions to effectiveness, such as leadership behaviors, team effectiveness and the like. Many organizational experts argue for an integrated approach to these disciplines, including effective talent management practices.
Further reading
- Gibson, Ivancevich, Donnelly, & Konopaske. (2003). Organizations: Behavior, Structure, Processes, 11th Edition. Boston: McGraw Hill.
- Kates, A., and Galbraith, J. R. (2007), Designing Your Organization: Using the Star Model to Solve Five Critical Design Challenges. San Francisco: Jossey-Bass, 2007.
- Kesler, G. and Kates, A. (2010), Leading Organization Design: How to Make Organization Design Decisions to Drive the Results You Want. San Francisco: Jossey-Bass.
- Melcher, A.J. (1976). Structure and Process of Organizations: A Systems Approach. New Jersey: Prentice-Hall.
- Mintzberg, H. (1983). "Structure in Fives: Designing Effective Organizations." Englewood Cliffs, New Jersey: Prentice-Hall, Inc.
- Romme, A.G.L. (2003), Making a difference: Organization as design. Organization Science, vol. 14: 558-573.