6 - What is Organization Design and Why it's a Necessary Competence
for Senior Managers?
Design examines the factors that must be considered and the processes
that are required in the design, development, and implementation
of an effective organization. It is based on the premise that
organization design goes beyond the structure of the organization--the
lines and boxes and arrangement of people and functions. It includes
such factors as information and reward systems; management and decision
making processes; mission, vision, and values; business strategy;
and people. It requires that these elements be considered and weighed
in relationship to each other, that trade-offs be made and balanced,
and that the best fit of all the elements be determined. It assumes
that the infrastructure of an organization is a source of competitive
advantage and that the failure to attend to designing and sustaining
an infrastructure that best supports the business and human needs
of the organization contributes significantly to its dysfunctionality
are several well known models that depict the elements or variables
that must be considered. Our favorite is the Star Model (Lawler,
1996). As the name implies, it has five components: Strategy, Structure,
People, Processes, and Rewards. When each of the five is connected
to all of the others, the picture is a pentagon with a star inside
of it. In the center is the word Fit. The other models draw on the
similar concepts and may have additional elements. (The 7-S Framework
by Mc Kinesy and the Forum Corporation,s model are two examples.)
an organization wants to make significant changes in its purpose,
outcomes, and/or functionality, then a major, comprehensive redesign
process is called for. If the required changes are less sweeping,
or some aspect of one of the elements changes (for example, strategic
modifications such as targeting a new market, or a reduction in
the size or mix of the workforce), then each of the other elements
should be checked for fit Each must be modified as necessary to
ensure that the organization will still "work" in light of these
new developments. That's because systems are interdependent by nature.
Changes in one part of a system create corresponding changes in
other parts. Sometimes these secondary changes go undetected until
they have caused unanticipated and often adverse consequences.
are two steps in the process of Organization Design:
first is systematically looking at the elements~separately and together~and
literally figuring out how the pieces and the whole need to be arranged
and constructed to best enable the organization to achieve its vision,
mission, and goals.
second is the implementation of the new design. Both of these
steps require knowledge, discipline, and patience. Often managers
feel pressed to move faster than this work requires. Frequently,
they mistake Structure for Design, hoping that a reorganization
will solve the problem(s) and assuming that the other variables
can or will stay unchanged. Sometimes, the analysis and design are
well done but the implementation is poorly executed, or the intended
changes are announced and employees are left on their own to determine
how to make the changes or adjustments.
large, complex, and fast-changing organizations, good ideas, the
ability to innovate, access to technology, and talented people are
the price of admission. What differentiates organizations is
their ability to hold, control, deploy, and manage the interdependencies
and trade-offs among the human, technical, and functional resources;
to align individual and organizational goals and values; and to
mobilize and utilize these resources most effectively in support
of the strategy. The organization system is the framework that holds
the resources, and Organization Design is a primary tool for defining
and creating the required alignment, differentiation and integration,
relationships, and processes within it.
THE STARTING POINT
top point on the Star is Strategy. It is the element from which
all others aspects of the organization design flow. Strategy includes
the mission (why the organization exists and what its overarching
objective is), vision (the desired future state and what will be
different as a result of the organization,s contribution), goals
and objectives, tasks, and values. It defines where "there" is for
the organization and also provides the map to the destination, including
the possible and preferred routes and the various stopping off points
along the way. It shows the relationship among four important variables
that contribute to organization effectiveness and success: the mission,
core competencies, organization capabilities, and the external environment.
well-conceived and succinct mission statement provides direction,
guidance, and feedback to the organization. It enables employees
to make informed choices and decisions about the best use of resources
relative to the target or goal. Core competencies are the basic
technologies and skills required for the organization to succeed
in its chosen business~what the organization needs to be good at.
If the core competencies are difficult for others to duplicate then
this will be a source of competitive advantage. Core competencies
are an aspect of Core capabilities. Core capabilities are that unique
combination of knowledge, wisdom, and ability that is the basis
of organization intelligence. It,s what's required to focus the
resources and coordinate the activities of the organization in ways
that are specifically and strategically targeted at the chosen target
market and allow them to be responsive to the larger environment.
than being in or the property of a particular person, this collective
capacity is embodied in higher order structures and processes,
e.g. the culture, systems, interrelationships, and design of the
organization. Such capabilities are key sources of differentiation
and competitive advantage~they are what set apart the best performers.
A thorough analysis of external factors, including the characteristics
and dynamics of the marketplace, competitors, economics, relevant
legislation, governmental jurisdictions, and stakeholders provides
important data about environmental conditions and variables. This
information is critical to shaping a viable strategy.
strategy is the context for designing all other elements of the
organization. The key question is, "What sort of structure,
processes, people, and rewards do we need in order to execute this
strategy?" More about each of these in the next two issues.
the Ground Up: Six Principles for Building the New Logic Corporation
Edward E. Lawler III (Jossey-Bass, 1996)
the Ground Up offers us a "big picture" view of how to integrate
the best of proven organization design strategies in order to create
successful organizations. While many once-revered companies stubbornly
cling to old ways and structures, others are accepting a new logic
of organization design and management~and they are advancing ahead
of the others. Lawler shows us how today's top companies are replacing
quick-fix, single-dimension techniques of reengineering, TQM, and
team building with a complete overhaul for total organizational
the Star Model (described in Section 1 of this newsletter) as a
foundation, we are introduced to the differences between the "old
logic" and the "new logic" of designing and managing organizations:
Organization is a secondary source of competitive advantage
Organization can be the ultimate competitive advantage
Bureaucracy is the most effective source of control
Involvement is the most effective source of control
Top management and technical experts should add most of the
All employees must add significant value
Hierarchical processes are the key to organizational effectiveness
Lateral processes are the key to organizational effectiveness
Organizations should be designed around functions
Organizations should be designed around products and customers
Effective managers are the key to organizational effectiveness
Effective leadership is the key to organizational effectiveness
he discusses each of these six principles separately, Lawler reminds
us that the principles represent an integrated approach. Thus, they
should not be adopted piecemeal.
Two & Three of the book are collectively entitled "Putting the
Principles to Work." They help us do just that by describing how
each of the elements of the Star Model fits within the new logic,
and what we must do in order to implement them. We are shown in
a pragmatic way how strategy, structure, people, processes, and
rewards must fit together in order to convert the new logic from
a set of principles to a concrete set of practices and structures
that organizations can use to make themselves more effective.
Four focuses on the complex and critical tasks of managing organizational
change. Because an existing organization typically must alter all
points of the star in order to adopt the new logic and become a
high-performance organization, the change process can be difficult
to manage. But when properly conceptualized, designed, and led it
can give an organization capabilities and competencies that are
difficult to copy ^ which will provide a powerful source of competitive
and Other Resources we,ve found about this topic include:
Association for the Management of Organization Design www.amod2000.org
is the website of a nonprofit organization that promotes the knowledge
and practice of organization design.
D.A., Gerstein, M.S., Shaw, R.B., & Associates. (1992). Organizational
architecture: Designs for changing organizations. San Francisco:
book presents a collection of chapters on various issues related
to organizational architecture by ten different authors.
J. (1982, Winter). Designing the innovating organization.
Organizational Dynamics, 5-24.
is a classic article that contains an early version of the Star
Model and differentiates the organization design requirements of
operating and innovating organizations.
L. (1972, July-Aug.). Evolution & Revolution as Organizations
Grow. Harvard Business Review, 64-73.
is a classic article that draws on stages of an organization,s development
as an important variable in organization design.
J.R. (1995). Designing Organizations. San Francisco: Jossey-Bass
on over ten years, research on major corporations, this book shows
how to design a state-of-the-art organization that is responsive
to customer demands.
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