How individuals are grouped and their tasks structured within the organ- ization. Designing organizations is a complex exercise. According to Harvard Business School professor Robert Simons*, organization design must take into account the company‘s strategy, its competitive environ- ment, stage of the lifecycle and various other factors. In short, it is a fine balancing act.
Organizational design receives little attention in the early days of a firm. But over time, problems emerge as the charisma of the founders becomes insufficient to manage a larger enterprise. Systems and pro- cesses become important. This is when a functional structure is typically chosen. When the functional structure becomes inadequate to respond to needs of the market place because of centralized decision making, a di- visional structure becomes necessary. But with time, a divisional struc- ture leads to fiefdoms. Coordination becomes difficult, resources are wasted, knowledge sharing does not happen effectively and profitability declines. Often at such a juncture, headquarters may take control. But this leads to red tape, decision making slows down and pressure builds for simplifying the organization, divesting non-core businesses and re- moving red tape. In short, organizational design is a dynamic concept. The design should change in line with the company‘s circumstances.
Designing organizations that can adapt over time effectively means learning to reconcile the tensions between:
Strategy and structure;
Accountability and adaptability;
Ladders and rings; and
Self-interest and mission success.
Managers must design organizations to implement the current strate- gy and also allow new ideas to flow that will feed into tomorrow‘s strat- egies. Structure determines how information from the market is pro- cessed and acted upon. Thus structure determines strategy and strategy determines structure in an interdependent fashion. Accountability is at the heart of organization design. While people must be answerable for performance on some measured dimension, they should not be discour- aged from experimenting and working on new ideas. An effective organ-
*
Simons, Robert, ―How Risky is Your Company?‖, Harvard Business Review, May-June 1999, pp. 85-94.
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ization structure must not only take into account the ladders (vertical hierarchy) but also the rings (horizontal networks). Human behavior is a critical design variable. Organization design must promote the kind of behavior that strikes the right balance between aspirations of employees and organizational needs.
The basic building blocks of any organization structure are market facing units and core operating units. Market facing units gather market data about customers, competitors, opportunities and threats. Respon- siveness must drive the design of market facing units. This responsive- ness must be balanced by efficiency elsewhere. It is the job of the back office functions to do just that. Managers of these functions are respon- sible for standardizing work processes, applying best practices to the firm‘s internal operations and ensuring efficiency through economies of scale and scope. Scarce resources must be distributed optimally between the market facing and operating core units.
Till recently, organization design essentially amounted to a trade-off between responsiveness and efficiency. Information technology (IT) is facilitating higher efficiency with an acceptable level of responsiveness as IT can forge very close links with customers. Dell is a good example of this.
(See also: ORGANIZATIONAL STRUCTURE)
Organizational Development (OD)
The field of organizational development (OD) is concerned with the per- formance, development, and effectiveness of human organizations. Ac- cording to Warren Bennis, OD aims at changing the beliefs, attitudes, values, and structure of organizations so that they can better adapt to new technologies, markets, and challenges. OD involves organizational reflection, system improvement, planning, and self-analysis. OD helps an organization to develop its internal capacity to be the most effective with respect to its chosen line of business and to sustain itself over the long term.
(See also: ORGANIZATIONAL BEHAVIOR)
Organizational Inertia
Inability to change and adapt to the external business environment is called organizational inertia. Many organizations struggle to cope with
O r g aniz at io n al M A P P I N G 1 6 3
the pace of change. They do not recognize that competition has in- creased, or that the company‘s products are no longer as distinctive or superior or as much in demand as in the past. Inertia is dangerous under the following circumstances.
Competing or substitute products have come onto the market. Technology is changing rapidly.
Customer preferences are undergoing a major change.
Substitute products are driving down prices and threatening to take current and potential customers.
Products are maturing, resulting in reduced prices, market saturation
and risk to brand reputation.
Social upheavals are taking place.
Political developments are leading to regulatory changes, lowering
the barriers to entry.
A significant new competitor has arrived.
Rising exit barriers have resulted in intensifying competition, in the face of falling sales.
The company is no longer strong either in product differentiation or
cost leadership.
(See also: CHANGE MANAGEMENT)
Organizational Learning
Continuous modification of behavior by an organization in line with changes in its environment. Learning begins with observation, reflecting on the observation and assessing the underlying factors that drive behav- ior. Learning is a continuous process. Reflection and action combine to produce learning. A learning organization is good at creating and acquir- ing knowledge, and at modifying its behavior to reflect new knowledge and insights. Learning organizations make conscious attempts to im- prove productivity, effectiveness and performance on an ongoing basis. The greater the uncertainties in the external environment, the greater the need for learning.