Pause IV : Organizational Architecture

1. Pause IV :Organizational Architecture

2. Overview The components of organizational architecture A model 1 perspective: Functional vs divisional forms Limits of the network organization A model 2 perspective: Designing culture? Organizational architecture as core competence Manipulating architecture Structure and strategy Structure as rhetoric

3. Components of organizational architecture Formal structure: Roles and responsibilities “boxes and lines” Incentives and resources Skills and staff The “informal” organization: culture, values and personal networks Processes

4. The Functional organization I’ll draw directly on this slide to highlight how complex the decisions here may actually be -- should sales and marketing be in the same function? What about finance? Law? R&D?I’ll draw directly on this slide to highlight how complex the decisions here may actually be -- should sales and marketing be in the same function? What about finance? Law? R&D?

5. Examples Ikea Intel Crown Cork & Seal Benneton De Beers Body Shop Crown Equipment Birds Eye

6. Exploring the functional form Strengths Centralized expertise: Economies of scale and scope in the function Clear career paths building on individual expertise Clearly defined responsibilities and tasks Weaknesses Possible development of functional “silos” -- specialization but not integration Cross functional decisions only possible at the highest levels Possibly weakened incentives: profit & loss remote

7. The Divisional organization Again, I’ll draw on this to highlight the issues involved: firstly, you revisit the functional issues again -- they never really go away, just emerge on a smaller scale. Secondly, which functions should be centralized? Research? Corporate marketing? Should there be no staff at the center at all?Again, I’ll draw on this to highlight the issues involved: firstly, you revisit the functional issues again -- they never really go away, just emerge on a smaller scale. Secondly, which functions should be centralized? Research? Corporate marketing? Should there be no staff at the center at all?

8. Examples NEC Honda Beatrice J&J Suchard

9. Exploring the Divisional Form Strengths Much more highly integrated: functions united in the common task of serving a single product line/geographic area Key integrative decisions pushed much further down in the organization Managers much closer to profit and loss Weaknesses Duplication of expertise Failure to share key insights across the company Gradual erosion of functional skills

10. The Matrix Organization

11. Or more colorfully....

12. Exploring the Matrix Form Strengths Explicit recognition of the need to balance functional and product/geographic goals Weaknesses Confusion of roles and responsibilities Often a high conflict form

13. A Fundamental Tradeoff? One way of understanding this issue is that it reflects a fundamental tension that springs from the fact that organizational attention is inherently limited: firms cannot be located in the upper right hand quadrant. Going back to the Miles and Snow article, this is clear when one looks at the reasons they give for the failure of the three forms: Functional: “Product or service diversification that overloads central planning mechanisms” -- i.e.... too many specialized applications for the centralized functions to handle Divisional: “Corporate interventions to force coordination or obtain efficiencies across divisions” -- i.e.... moving towards a functional form in order to obtain its benefitsOne way of understanding this issue is that it reflects a fundamental tension that springs from the fact that organizational attention is inherently limited: firms cannot be located in the upper right hand quadrant. Going back to the Miles and Snow article, this is clear when one looks at the reasons they give for the failure of the three forms: Functional: “Product or service diversification that overloads central planning mechanisms” -- i.e.... too many specialized applications for the centralized functions to handle Divisional: “Corporate interventions to force coordination or obtain efficiencies across divisions” -- i.e.... moving towards a functional form in order to obtain its benefits

14. A Fundamental Tradeoff? This is one of the oldest ideas in management: that there is a tradeoff between “specialization” and “integration” -- an organization cannot have in depth functional knowledge at the same time that it has in depth product knowledge -- (I think of the above as mapping the focus of attention of the firm) -- The “easy” solution is to put in place either teams or the matrix organization. But notice that nothing is for free. Teams will increase coordination, the matrix form will surface conflicts, but choosing to be in an intermediate position will shift the organizations attention. In the worst case, knowledge about one dimension will degrade as key individuals spend all their time on teams. (This seems to have happened to Chrysler, which moved aggressively to adopt a team structure, initially got huge benefits because it was exploiting a strong functional base but which is now experience serious quality problems as functional skills degrade.)This is one of the oldest ideas in management: that there is a tradeoff between “specialization” and “integration” -- an organization cannot have in depth functional knowledge at the same time that it has in depth product knowledge -- (I think of the above as mapping the focus of attention of the firm) -- The “easy” solution is to put in place either teams or the matrix organization. But notice that nothing is for free. Teams will increase coordination, the matrix form will surface conflicts, but choosing to be in an intermediate position will shift the organizations attention. In the worst case, knowledge about one dimension will degrade as key individuals spend all their time on teams. (This seems to have happened to Chrysler, which moved aggressively to adopt a team structure, initially got huge benefits because it was exploiting a strong functional base but which is now experience serious quality problems as functional skills degrade.)

15. Balancing functional vs divisional orientations Structural solutions Teams Rapid prototyping Matrix organization Strategic solutions Match projects to organizational form Dynamic solutions Rapid change -- periodic oscillation? Organizational flexibility as core competence? Cultural solutions Attempt to internalize and balance the fundamental tradeoffs within the confines of the culture -- “we all work for NEC here” Strategic solutions: Rotate people through different positions in the tradeoff, matching projects to organizational form Dynamic solutions: Plan for change and keep moving the organization to match the environment Cultural solutions: Cultivate a strong culture that stresses devotion to the group rather than to the function/product -- one of the reasons that organizations tend to “degrade” to one axis or the other is that individuals build local loyalties to e.g.... functions or divisions.Strategic solutions: Rotate people through different positions in the tradeoff, matching projects to organizational form Dynamic solutions: Plan for change and keep moving the organization to match the environment Cultural solutions: Cultivate a strong culture that stresses devotion to the group rather than to the function/product -- one of the reasons that organizations tend to “degrade” to one axis or the other is that individuals build local loyalties to e.g.... functions or divisions.

16. Thinking about the network organization One way of understanding this issue is that it reflects a fundamental tension that springs from the fact that organizational attention is inherently limited: firms cannot be located in the upper right hand quadrant. Going back to the Miles and Snow article, this is clear when one looks at the reasons they give for the failure of the three forms: Functional: “Product or service diversification that overloads central planning mechanisms” -- i.e.... too many specialized applications for the centralized functions to handle Divisional: “Corporate interventions to force coordination or obtain efficiencies across divisions” -- i.e.... moving towards a functional form in order to obtain its benefitsOne way of understanding this issue is that it reflects a fundamental tension that springs from the fact that organizational attention is inherently limited: firms cannot be located in the upper right hand quadrant. Going back to the Miles and Snow article, this is clear when one looks at the reasons they give for the failure of the three forms: Functional: “Product or service diversification that overloads central planning mechanisms” -- i.e.... too many specialized applications for the centralized functions to handle Divisional: “Corporate interventions to force coordination or obtain efficiencies across divisions” -- i.e.... moving towards a functional form in order to obtain its benefits

17. Model 2 perspectives: Designing culture? Culture can be a powerful element of organizational architecture: Modulates conflict, enables change But is difficult to “design” from scratch And may be a barrier to change Use the J&J and Suchard examples here: Culture as a source of strength -- J&J -- CREDO may help to make HSG work, decentralized culture powerful focusing device in keeping the organization coherent But difficult to design: in nearly every case we have looked at, powerful founders “imprinted” culture on the organization -- can new leaders create new cultures? Golub at Amex? Insights from the OT course? Culture can also be an enormous source of inertia in changing form: e.g.... J&J is late to build HSG, Suchard has to move to a transitional form?Use the J&J and Suchard examples here: Culture as a source of strength -- J&J -- CREDO may help to make HSG work, decentralized culture powerful focusing device in keeping the organization coherent But difficult to design: in nearly every case we have looked at, powerful founders “imprinted” culture on the organization -- can new leaders create new cultures? Golub at Amex? Insights from the OT course? Culture can also be an enormous source of inertia in changing form: e.g.... J&J is late to build HSG, Suchard has to move to a transitional form?

18. Organizational culture as core competence Any organizational structure is a complex, interdependent system of congruent elements Many of these elements are tacit, or deeply embedded Organizational change is thus often difficult and messy But it is often this complexity and stickiness that underlies the power of organizational architecture as a critically important competence

19. Organizational architecture and the role of the CEO: A model 1 view

20. Organizational architecture and the role of the CEO: A model 2 view Structure as a rhetorical device: Signals change Focuses attention