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MAJOR APPROACHES TO ORGANIZATIONAL DESIGN

INTRODUCTION

Leaders have always faced the challenge of effectively aligning their purposes, people, and processes. In fact, the first reported management consulting project involved organization design. It occurred in the Book of Exodus. The consultant was God, the client was Moses, and the organization was the Israelites moving from Egypt to the Promised Land. Even with such a powerful consultant, a forceful leader, and an obvious need, there were implementation problems. Organizational design represents both the intellectual challenge to design a "better organization and the challenge to one's character in getting the new organizational design implemented.

Throughout history, leaders have known that how their organization was designed and administered were keys to their success and survival. Empires have been lost due to inadequate organizational designs. Kingship involved rules of thumb and tradition to solve organizational design issues.

However, as the pace of change accelerates with an ever shortening product/service life cycle, companies find it increasingly risky to rely on rules of thumb and tradition to solve their organizational problems. These new conditions began attracting scholarly investigation in the 1960's. The first academic conferences on organizational design were held in the early 1970's. Since then the field has expanded and become a staple in business school curricula.

Unfortunately, all is not well: there is no common solution that fits all organizations; there is no common approach to even finding a solution; and there is no agreement on what constitutes an adequate solution. The result is a hodge podge of initiatives, a lot of dogmatic nonsense being passed on as wisdom, and a host of "consultants" who do not even know that they don't know.

THE PROBLEMS

1. Most CEOs, consultants, and practitioners do not know as much as they think they do about the processes and theories for designing organizations to become and remain more effective. This means that there are more available options than they realize. More options can lead to more creative solutions that can be tailored to meet the specific needs of a client organization. There is no good reason not to customize an organizational design. There is no longer good reason to rely on faulty constructs (90).

2. Most CEOs do not fully comprehend the enormous complexity of the organizations they lead. Thus: (1) solutions tend to be more political than they need be; (2) solutions tend to be inexpert (83) as important knowledge influencing the success of the new organizational design is not considered; and (3) the solution encounters stiff resistance and/or apathy when implemented. This makes organizational design dangerous to one's career and income.

3. Most CEOs are unable to actually specify their organizational design problems. Since, 1976 I've yet to have a client whose presented problem turned out to be the actual problem. Problem finding and problem formulation are absolutely critical in the success of an organizational design project. This makes the common practice of "soliciting proposals" at best a "hit or miss" approach. That's why we have developed the HALO technology for assessing organizations and their leadership practices (84, 85).

4. Organizational design should not be (but often is) separated from the considerations of the organization's strategic direction and its external environments. Drawing boxes on an organizational chart is inadequate. Structures represent form and the organization's tasks represent its function. Form should follow function; not the other way around. The design of an organization should be seen as a means for implementing the strategic direction, given its external environments. Furthermore, a good organizational design opens up new strategic options.

5. Organizational design is a complex, multi-stage process which is a combination of logic, economics, feelings, and politics. These problems require active involvement by the Principals and should never be delegated. But, there is rarely enough time in a day for a CEO to do this adequately. Consultants can help by providing expertise, objectivity, and most important, the necessary time and energy.
   

6. Organizational design takes place as a multi-stage process as the organization continues to operate and change. The process must take place within the dynamics of the client organization. Any static concept of an organizational design simply is inadequate to meeting the challenge.

SUMMARIES OF THE SIX MAJOR APPROACHES TO ORGANIZATIONAL DESIGN

I've put together brief summaries of the six best publications on approaches to organizational design. The authors include:

1. Richard Burton & Borge Obel (1995)
2. Richard K. Daft (2004)
3. Jay R. Galbraith (1993, 1995)
4. Ralph Kilmann (2001)
5. Kenneth D. Mackenzie (1986, 1991, 2004)
6. David Nadler & Michael Tushman (1992, 1993).

A short summary is presented for each publication in the alphabetical order of the first author.

1. Richard Burton & Borge Obel - 1995

Proposes: Strategic contingency theory results can be organized into an interactive software system which integrates research findings to make the most useful recommendation for the choice of an organizational design.

There is an extensive but problematic literature on organization research generally referred to as contingency theory. The basic idea is that the relationship between a pair of variables (e.g., organization structure and strategy) is contingent upon other considerations called contingency variables. The idea is that the better the fit between structure and strategy, the more successful the organization. In fact, organizations are seen as continually searching to regain this fit in the midst of changing conditions.

Burton and Obel deploy these structural choices based on the available contingency research:

Simple
Functional
Divisional
Matrix
Ad hoc
Bureaucracy
International

They consider organizational complexity, formalization, centralization, management style, organization size, features of the environments, the dominant technology, and the strategy.

Burton & Obel offer a software package (which comes with the book) that allows you to perform a quick diagnosis of an organization. The big problem is that the terms employed are fuzzy and the results are uncertain. Consequently, the suggested solution tends to be both vague and impractical. However, one does get an unbiased view of the possibilities, some of which may not have occurred to the user before running the software.

2. Richard K. Daft - 2004

Daft compiles and examines the pros and cons of major groupings of organizational units. His is a static analysis. However, the arguments can be used for presentations to the inexpert. What is useful is that he opens up one's range of alternative ideas about the basis for organizing a complex organization.

Daft's analysis depends on two claims:

1. Vertical organization of information linkages is preferred for efficiency.
2. Horizontal organization of information linkages is preferred for learning.

While both of these ideas depend on static notions of structure and an assessed multi-level relationship, Daft's summaries are useful for a "quick and dirty" diagnosis of one's options.

DEPARTMENTAL GROUPING OPTIONS:

Functional Grouping

Places employees together who perform similar functions or work processes or who bring similar knowledge and skills to bear.

Divisional Grouping

Means people are organized according to what the organization produces.

Multifocused Grouping

Means an organization embraces two structural grouping alternatives simultaneously.

Horizontal Grouping

Means employees are organized around core work processes, the end-to-end work, information, and material flows that provide value directly to customers.

Modular Grouping

Means that the organization is a loosely connected elements of separate departments, aka network organizations.

ORGANIZATIONAL ARCHITECTURAL TEMPLATES

Functional Structures:

Activities are grouped together by common function from bottom to top of the organization.

Divisional Structures:

Divisions are organized by individual products, services, product groups, major projects or programs, divisions, business, or profit centers.

Geographic Structures:

Grouped by the organization's users or customers.

Matrix Structures:

Both products and functions or products and geography are emphasized at the same time.

Horizontal Structures:

Organizes employees around core processes (made popular by BPR).

Modular Structures:

With a modular structure, the firm subcontracts many or most of its major processes to separate companies and coordinates their activities from a small headquarters organization.

Hybrid Structures:

Combine characteristics of various approaches tailored to specific strategic needs. Common in international business.

This textbook offers tables on the likely benefits and problems of each of these design alternatives. There is no discussion about how to actually do the analyses. Nevertheless, the tables provide a useful starting point.

3. Jay R. Galbraith - 1993, 1995

Proposes: Star Model as a framework for organizational design.

Galbraith argues that there are four main shapers of organizations. These are:

1. Buyer power (competition is shifting power to the buyers)
2. Variety (buyers, exercising this power, demand more customized products and services)
3. Change (inevitable and requires expansion of decision-making capability)
4. Speed (customers want both variety and they want it faster and faster).

Galbraith argues that Information Technology can help a company cope with these four shapers.

The basic idea fo the Star Model is that all 5 elements are co-evolving and need to be congruent. Dynamic congruency is a vital concept (97). The idea is to match corporate strategy to organizational design of the structure. In particular, the importance of units and divisions is based on their ability to add-value rather than whether or not are they related or unrelated to others.

The Star Model can be useful in making an organizational diagnosis. It is overly abstract and difficult to implement. It does, however, emphasize the importance of strategic interests in the formulation of organizational design problems. The weakness is knowing how to actually apply this model.

4. Ralph Kilmann - 2001

Ralph Kilmann recognizes the complex nature of organizations and the need for more comprehensive means of diagnoses and solutions than others propose. His extensive experience has led him to his 5-Tracks Model of organizational design. These five tracks are:

1. Culture Track

Purpose: Enhance trust, openness, and adaptiveness

How: Planned action steps to identify an outdated culture, develop a new culture that will move the organization forward, and then implement the new culture.

2. Management Skills Track

Purpose: Augment ways of coping with complex problems and hidden assumptions.

How: Planned action steps to provide managers with the new skills necessary to address dynamic complexity - skills for surfacing, examining, and then updating assumptions.

3. Team Building Track

Purpose: Help members identify and solve their most complex human problems.

How: Does three things to improve the quality of group decision making in a series of action steps:

a. Keep trouble makers in check.
b. Bring the new culture and updated assumptions into day-to-day decision making of each work group.
c. Enable cooperative decisions to take place across work-group boundaries.

4. Strategy-Structure Track

Purpose: Align organizational structure and resources with the strategic direction of the firm.

How: Step by step process to determine (or confirm) the new strategic direction of the firm including the organizational structure that will most support the accomplishment of the firm's mission.

5. Rewards Systems Track

Purpose: Align incentives with performance.

How: Action steps to design the compensation and performance appraisal system necessary to sustain the benefits from all the other tracks.

Kilmann's approach is comprehensive and appealing. It is best for large organizations who have the resources to spend on the years to implement it. It tends to be too mechanical and static to handle fast changing issues. However, it is probably the best general approach to the organizational design of bureaucracies.

5. Kenneth D. Mackenzie - 1986, 1991, 2004

Proposes the Organizational Audit and Analysis Technology for Organizational Design (Mackenzie, 1986). Proposes the Holonomic Model (Mackenzie, 1991). Discussion of the application of the theory to the assessment of organizational design problems (Mackenzie, 2004).

The 1986 book describes a working technology to organizational design and applies it to the design of a regional supermarket chain. This work differs from the rest in the field as it explains basic issues such as the nature of processes, structures, and interdependence and then describes a technology for using these ideas. In addition, there are chapters on applications to HRM using the technology. Mackenzie also discusses desiderata (desirable features) of an organizational design process.

Mackenzie proposes the need for multiple stages. These include:

Strategic assessment
Organizational Audit
Organizational Design (choice)
Implementation Planning
Monitoring the Implementation
Review of Results

One of the unique features of the 1986 book is the thorough discussion of organizational work, including the basic algebra.

In 1991, after working, with some fast-changing, high technology companies, he published a full theory of an organization capable of becoming and being simultaneously maximally productive, adaptable, and efficiently adaptable. The main idea is that since change in inevitable, it needs to be embraced and used. The object is the find the main processes of adaptation and change and deploy them to stabilize the instabilities. This is quite different from the bureaucracy which is organized to stabilize the stabilities.

This is the theory of the organizational hologram, first published in 1991 under the title The Organizational Hologram: The Effective Management of Organizational Change (Kluwer Academic Publishers).

Mackenzie's Organizational Audit and Analysis (OA&A) technology is best for medium sized and smaller organizations as it is both precise and detailed. This process is preferred by those who seek a customized and accurate analysis and design. However, the OA&A technology because of its precision and accuracy, may seem too slow for some. The Organizational Hologram is preferred for rapidly changing organizations. Most engagements by EMAC Assessments involves a combination of both approaches.

This work has been progressing since 1976 in a series of leap-frogging of academic and practitioner co-evolution of theory and methods which are listed in Publications. Assignments for performing an organizational design are selected on the basis that there was a new problem to solve. Mackenzie does not offer "commodity" solutions.

The most recent book is the Practitioner's Guide For Organizing An Organization (102). It provides an introduction to the necessary ideas to understand the theory of the organizational hologram, its application to organizational design, and the HALO technology for assessing an organization and its leadership practices. It also describes advances in the author's organizational level learning models and describes the 29 leadership practices that are the heart of the theory of the organizational hologram and the LAMPE (104, 105) theory of organizational leadership.

6. David Nadler & Michael Tushman - 1992, 1997

Nadler and Tushman are successful practitioners and academics. They argue that organizational design is a major competitive advantage. In fact, they claim that "the only real, sustainable source of competitive advantage lies … in an organization's architecture - the way in which its structures and coordinates its people and processes in order to maximize its unique capabilities over the long haul, regardless of continuous shifts in the competitive landscape" (Nadler & Tushman, 1997, p. viii).

They suggest that strategic organizational design processes looks like (1997, p. 167):

Nadler and Tushman are speaking of strategic organizational design. This is a high-level, big picture view from the top. It may or may not translate smoothly as one descends into the actual organization. Also, organizational design is continual and requires frequent updating as opportunities and threats change. Please note that their resulting organizational design does not open up new strategic opportunities as it should.

SOME REFERENCES ON ORGANIZATIONAL DESIGN
(with Annotations)

Burton, R. M., & Obel, B. (1995). Strategic Organizational Diagnosis and Design: Developing Theory for Application. Boston, MA: Kluwer Academic Publishers. This is a useful book for confirming your own sense of the issues. It is not good for prescription.

Daft, R. L. (2004). Organization Theory and Design (8th Ed.). Mason, OH: South-Western, Chapter 3. This is a standard textbook. The chapter gives a very helpful overview of different organizing assumptions which can suggest new alternatives. This is not very helpful in doing the work, however.

Galbraith, J. R. (1995). Designing Organizations: An Executive Briefing on Strategy, Structures, and Process. San Francisco, CA: Jossey-Bass. This is an excellent introduction, at a high level, to some of the strategic issues in organizational design. It is readable and helpful to diagnosing issues.

Galbraith, J. R., Lawler III, E., & Associates. (1993). Organizing for the Future: The New Logic for Managing Complex Organizations. San Francisco, CA: Jossey-Bass. This is a collection of articles from the USC's Center for Effective Organizations. Part One on new organizational forms is interesting. There are some good chapters in Part Three about HRM. This book is now a little dated.

Kilmann, R. H. (2001). Quantum Organizations: A New Paradigm for Achieving Organizational Success and Personal Meaning. Palo Alto, CA: Davies-Black Publishing. Kilmann's 5-tracks offer a comprehensive program for performing organizational designs. This is a proven method for comprehensive intervention.

Mackenzie, K. D. (1986). Organizational Design: The Organizational Audit and Analysis Technology. Norwood, NJ: Ablex Publishing. This is a detailed description of a theory and actual methods for designing organizations. It is a little dated on some of its theories and methods.

Mackenzie, K. D. (1991). The Organizational Hologram: The Effective Management of Organizational Change. Boston, MA: Kluwer Academic Publishers. This is a book on a new way of thinking about organizations. It is helpful in designing rapidly changing organizations.

Mackenzie, K. D. (2004). The Practitioner's Guide For Organizing An Organization. Lawrence, KS: Mackenzie And Company, INC. It shows how to apply the theory of the organizational hologram to organizational design issues.

Nadler, D. A., & Tushman, M. L. (1992). Designing Organizations that have a Good Fit: A Framework for Understanding New Architecture. In D. A. Nadler, M. C. Gerstein, & R. B. Shaw (Eds.), Organizational Architecture: Designs for Changing Organizations. San Francisco, CA: Jossey-Bass. This is an insightful chapter on the notion and the need for congruency in organizational design.

Nadler, D. A., & Tushman, M. L. (with M. Nadler). (1997). Competing by Design: The Power of Organizational Architecture. New York: Oxford University Press. Nadler and Tushman are very successful organizational designers and this book lays out their main ideas. This is a useful book to use.