Organization DesignOrganization Design

Part the SecondPart the Second

AgendaAgenda

• Reconfigurable organizations

• Designing around the customer

• Virtual organizations

• Bringing it all together – a design sequence

The Reconfigurable OrganizationThe Reconfigurable Organization

• Organizations have always been created to execute business strategies

• When advantages do not last long, neither do the organizations that execute them

• If change is constant, why not design an organization to be constantly and quickly changeable?

The Reconfigurable OrganizationThe Reconfigurable Organization

• Continually searching for new: Segments, Categories, Technologies, Channels, Customers, Solutions

• …is the key to stringing together a sequence of temporary advantages

Creating a reconfigurable organizationCreating a reconfigurable organization

• Flexibility Ability to quickly restructure along any

dimension Quickly align motivation and information Bring in external partners

• Structure One stable dimension (e.g. function)

Creating a reconfigurable organizationCreating a reconfigurable organization

• Processes Need accounting, data, and planning

processes to be configurable Transfer pricing between units Common conflict resolution processes Common new product development, strategic

planning, and order fulfillment processes

Creating a reconfigurable organizationCreating a reconfigurable organization

• People Jobs will change and new skills will be learned Need people with right personality, values,

culture “A reconfigurable person” Continuous training

Creating a reconfigurable organizationCreating a reconfigurable organization

• Rewards Compensation systems can be the greatest

barriers to change and flexibility Pay plans need to be: approximate, flexible,

simple, validrather than:

Precise, complex, quantitative, nonaligned, out of date, and rigid

Creating a reconfigurable organizationCreating a reconfigurable organization

• Rewards ctd.

Nimble reward systems have:• Fewer grades• Salary for skills not job title

– the more you learn the more you earn– One time bonus, not fixed increment, skills

degrade too

• Team-based or 360° appraisal

Costs of reconfigurabilityCosts of reconfigurability

• Direct costs Cost of developing new systems

• Accounting• Information systems• Reward systems

Cost of training

Costs of reconfigurabilityCosts of reconfigurability

• Indirect costs Conflict between units for resources

• More units, more conflict

Coordination and authority issues• More meetings, who is in charge of what?

Loss of motivation? • No ladder to climb, no sense of belonging, loss of

status• No fixed address

Organizing around the customerOrganizing around the customer• Globalization

Global companies want global suppliers A ‘one stop shop’ with guaranteed service

levels

• Customer relationships Customers prefer fewer suppliers in long-term

relationships

• Solutions Customers want solutions or systems rather

than standalone products This may require extensive customization

Organizing around the customerOrganizing around the customer

• E-Commerce Web sites must be responsive to customer

rather than organizational needs

• Buyer Power Customers have more power therefore

demand more service

• All this requires in-depth knowledge of customers and their needs

CapabilitiesCapabilities• Customer centric mindset

To find as many new and existing products to sell to a customer as possible

To create and customize solutions for a customer

To appear as one company to each customer To develop a customer relationship Contrasted with a product-centric company

whose mission is to find as many uses and customers for each product as possible

CapabilitiesCapabilities

• Lateral Networking Capability Need for a customer network to cut across

product, functional, and geographical lines Could be formal or informal Could include:

• Placing people in the customer’s organization, or • Establishing a customer account coordinator

In matrix orgs, a VP or EVP is created to formally manage a customer or customer segment.

Customer-focused structuresCustomer-focused structures

• The front/back structure Front End = customers and market Back End = products and technologies

TelstraTelstra• Customer Divisions

Sales, direct marketing, sales engineers Corporate, Government, Business, Residential

• Product Management Product marketing and product engineers Basic access, DSL, prepaid cellphones

• Network Engineering Technologies, platforms, infrastructure Switching, transmission, access Broadband, wireless, microwave

IssuesIssues• Marketing should be in the front and back• Roles and responsibilities should be

clearly delineated Front/back could both be profit centers

• Conflict management processes What is the inherent conflict between front

and back profit centers?

• Front and back linkages Information must flow both ways. Why?

Evolution of a Customer FocusEvolution of a Customer Focus

• At Professional Service Firms A few customer teams More customer teams Global accounts coordinator Global accounts group Global accounts units in countries Customer profit centers

• An evolution not revolution

Creating a virtual corporationCreating a virtual corporation

• A virtual corporation contracts out all activities except for those in

which it is superior A network of independent companies Made possible by information technology

• Why?

Creating a virtual corporationCreating a virtual corporation• Why useful?

In today’s market it is necessary to be best at everything not just one thing (!)

Enables a superior offering Provides flexibility to change parts of network Can be large (pooled purchasing power) and

small (variety/flexibility) Benetton buys material for 350 small firms of

20-25 designers/manufacturers• “scale without mass”

Creating a virtual corporationCreating a virtual corporation

• Disadvantages Loss of proprietary knowledge Loss of profit and value-added to others Loss of control – more negotiation and conflict

management Risk of being dropped by the dominant

partner

Designing the virtual corporationDesigning the virtual corporation

• Partnering strategy Company role

• Will you be a specialist or an integrator?• Specialists must be best in world• Integrator formulates the strategy and coordinates

the work• The integrator has the difficulty job of continually

assessing what to do itself and what to outsource– At what point do you lose control of the network? Boeing.– At what point can you do something better? Amazon.

Designing the virtual corporationDesigning the virtual corporation

• External Relationships Processes to coordinate the activities

performed by others• Communication processes• Joint decision making processes• Commercial (legal) vehicle

– Gives certain rights and responsibilities

Types of relationsTypes of relations

Relationship Strength Coordination Dependence Value capture Required on outside firm

Ownership Strong High Low High

Equity

Alliance

Contract

Market Weak Low High Low

Designing the virtual corporation Designing the virtual corporation

• Partner Selection Understand the potential partner’s strategic

intentions and values Investigate their partnering history Undertake experiments to build trust

• Small contract -> large contract• Large contract -> Alliance• Alliance -> Equity

Designing the virtual corporationDesigning the virtual corporation• Partnership structure

Alliances and joint ventures need to be structured

• One partner operates everything day-to-day– Other partner contributes capital and know-how– Operator role may be divided or change over life of

project• one partner does engineering, one does marketing

• Management is shared somehow– High potential for conflict

• Venture becomes autonomous of parents– Decisions are made within the venture

Designing the virtual corporationDesigning the virtual corporation• Supporting policies

Selection and development of people• Who works in the joint venture and alliance?• Biggest risk is loss of proprietary information

– Training and policies are critical to prevent loss

Reward system• Should one be rewarded for helping

– one’s own company?– The joint venture project?– The partner?– If so, how?

Continuous organization designContinuous organization design

• Organization design as a continuous process rather than a single event The long range strategy provides the criteria

for choosing the future organizational type Design changes must be made to fix what is

wrong today (consistent with the organization of the future)

Where do I start?• Start with strategy and move clockwise…

Design SequenceDesign Sequence

• Strategy -> Criteria

• Structure What is the department type (key priority)

• Geography, functions, products?• Defines vertical structure

• Key lateral processes

• Key people Define roles and responsibilities

Design SequenceDesign Sequence

• Information systems Management will need information

• Performance measures and rewards How will people be motivated

• Training and development People will need skills to do their job

• Career paths Grow the talent for current and future roles

Design SequenceDesign Sequence• What if strategy is not clear?

Set up processes (teams, task forces) to learn about future business opportunities

Processes are like software• flexible and easily changed

If strategy is always in flux, the designer continuously uses processes

Departments are like homerooms as people move from team to team

Reconfigurable project teams are the essence of the flexible organization

How do I choose the right structureHow do I choose the right structure• Diversity analysis – single or multiple?

Products, geographies, markets, technologies, knowledge/expertise, functions, workflows/processes

• Diversity is grounds for differentiation• Must choose primary focus

How do I choose the right structureHow do I choose the right structure

• Economics How important are economies of scale or

expertise in a particular function?• May call for a hybrid or front-back structure, or

contracting out

• Repeat analysis Choose lateral or matrix organization for next

priority

Roles and ResponsibilitiesRoles and Responsibilities• Matrix of Decisions and Roles

Pricing New product design Capital investment

• Assign tasks to each role Responsible Approve Consult Inform No formal role

American Heart AssociationAmerican Heart Association

• Case Study Was the first restructure a sound move? What problems did it create? As an org design consultant, what changes

would you recommend to the existing structure?