strategic organizational diagnosis and design 03 lecture - organizational design fads and value...
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Strategic Organizational Diagnosis and Design 03 lecture - Organizational Design Fads and Value Perspective of Organizational DesignTRANSCRIPT
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TMO1180 - Strategic Organizational
Diagnosis and Design
3rd lecture -
Organizational Design Fads and
Value Perspective of Organizational
DesignMarko Rillo
Tallinn University of Technology
Tallinn School of Economics and Business Administration
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Reminder - Key Dates
• 21.10 - deadline for course project
• 28.10 - presentations
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"New" Forms - and some "Crazy"
Names ... a) Networked organization (Drucker, 1988)
b) Learning organization (Senge, 1990)
c) Virtual corporation (Davidow & Malone, 1992)
d) Relational organization (Keene, 1991)
e) Boundaryless Organization (Ashkenas et al., 2002)
f) Crazy organization (Peters, 1992)
g) Cluster organization (Mills, 1991)
h) Human networking (Savage)
i) Democratic corporation (Ackoff, 1994)
j) Centerless Corporation (Pasternack & Viscio, 1998)
k) Intelligent enterprise (Quinn, 1992)
l) Re-engineered corporation (Hammer & Champy, 1993)
m) Customer centric organization (Galbraith, 2002)
J. Strikwerda (2005)
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Networked Organization (Drucker)
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Learning Organization (Senge)
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Virtual Corporation (Davidow & Malone,
1992)
• Customer-driven company
of the future
– Ex. looks at how Dell has
made it possible to get
instant mass customization
• Deliver instantaneous,
customized services and
products
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Relational Organization (Keene, 1991)
• The new enterprise is a
network of distributed
teams that act as clients
and servers for each other
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Boundaryless Organization
(Ashekenas)• This book grew out of work done by the
authors as consultants hired by General Electric's CEO Jack Welch, who first approached them with the concept of a "boundarylessorganization."
• Applying what they learned in the effort to transform the way GE did business and from numerous other examples, they consider the vertical, horizontal, external, and geographic boundaries that exist for organizations.
• The authors provide tools to help measure the degree to which boundaries exist, demonstrate the consequences of boundaries, and identify steps to eliminate them
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Crazy Organization (Peters)
• Well ... it is Tom Peters
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Cluster Organization (Mills)
• This is a multidimensional
concept that, in part,
harkens back to elements
of matrix organization
• But it also capitalizes on
the latest in technology
and shifts primary
accountability and initiative
away from top
management to individuals
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Human Networking (Savage)
• Hierarchies are levelled
and the imagery of
networks and spider webs
butts out yesterday's
pyramids
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Democratic corporation (Ackoff, 1994)
• Espouses the stakeholder theory of the firm, in which employees, suppliers, customers, investors, creditors, debtors and government all play a role in helping a company to grow and develop
• One of the good examples of "revolutionizing" org. design
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Centerless Corporation (Pasternack &
Viscio, 1998)
• Booz-Allen & Hamilton's
consultants:
• Decreasing bureaucracy
and increasing
communication prove a
successful alternative to
the top-down style of
central management
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Intelligent enterprise (Quinn, 1992)
• Successful companies of the 90'swill derive their competitive edge not from ephemerally superior products but from a deep understanding of a few highly developed knowledge and service based core competencies
• Roots in RBV:– technological sophistication,
– better knowledge bases,
– more creative customer responsiveness,
– unsurpassed management of human and intellectual capital that competitors cannot reproduce
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Re-engineered corporation (Hammer &
Champy, 1993)
• Management consultants wrote:
post-industrial companies must
be "reengineered," which
necessitates starting anew,
going back to the beginning to
invent a better way of
accomplishing tasks
• To reduce inventories, and
empowering employees so that
decision-making "becomes part
of the work."
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Customer Centric Organization
(Galbraith, 2002)
• A nice practice-oriented
textbook that provides a
hands-on approach on
how to create
organizations
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Back To Reality - Start with Basics
- Some Key Terms• Three Generic Organizational Structures
– Unitary form (functional) U-form
– Multidivision form - M-form (Williamson 1975)
– Holding- or conglomerate structure - H-Forms
• Hybrid Organizational Structures
– Matrix structure
– Team-based structure
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Terms -
Collaborative Communities of Firms1. Bilateral collaboration – This type of innovation occurs when a
member firm collaborates with its customers on new solutions,
perhaps using consulting advice from the node.
2. Direct collaboration – Two or more member firms work together
closely on the development of new solutions.
3. Pooled collaboration –Member firms supply ideas, information, and
experiences to a central database that is accessible by other
member firms to pursue innovation projects.
4. External collaboration – A member firm works with a non-member firm
on a „one-off‟ innovation project.
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U-FORMS
• Functional (or U-Form) structures group on the basis of
their common expertise/experience or because they use
the same resources or focus on the same activities
• Increased specialization
• Economies of scale in
monitoring
• Critical decision-making is
centralized in one “peak” person
• Cannot handle the complexity of
multiple activities well
• Subgoal pursuit problems can
become acute
• Absence of objective measures of
performance
• Operations can divert attention
from strategic/ competitive/
entrepreneurial issues
Stanley Han (California State University, Sacramento) - http://www.csus.edu/indiv/h/hany
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M-FORMS• A Multi-divisional structure is designed to manage diversification while controlling
bureaucratic costs and control-loss problems
• M-Forms decentralizes operating decision-making to the business unit/division level where all necessary competitive and operational decisions are made.
• Strategic decision-making responsibility is retained at the headquarters level. The HQ also monitors division‟s performance by using both objective market/output measures and subjective performance measures .
• Uses objective market-output
measures, bureaucratic controls, and
clan/cultural controls
• Encourages exploiting of economies
of scope across divisions
• Frees corporate to focus on strategic
concerns
• Facilitates diversification and growth
• Introduces additional levels of
hierarchy
• Opportunism and information
distortion problems
• Myopic focus
• Divisions may compete at the
expense of cooperating
• Transfer pricing battles
Stanley Han (California State University, Sacramento) - http://www.csus.edu/indiv/h/hany
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Types of M-form
Cooperative Form
• Related-Constrained -divisions co-operate in deliveryof certainservices, havecertain limits of autonomy, certainfunctions are centralized
• Examples?
Competitive Form
• Unrelated -
divisions are fully
independent in their
activities and are
frequently
encouraged to
compete with the
offerings of the
other divisions
• Examples?
SBU Form
• Related-Linked -
divisions provide
related services,
but are fully
autonomous
• Examples?
Stanley Han (California State University, Sacramento) - http://www.csus.edu/indiv/h/hany
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H-Form
• Holding or Conglomerate structures seek to exploit the
advantages of internal capital markets
• How do you get people to achieve organizational goals in
the most efficient way possible?
• Promotes entrepreneurialapproach
• Frees corporate to focus on strategic concerns
• Facilitates diversification and growth
• Lack of common strategic focus
• Opportunism
• Unrestrained self-interest
• Error and mistakes
• Ambiguity in measuring performance
• Complexity/Inability in giving unambiguous direction
Stanley Han (California State University, Sacramento) - http://www.csus.edu/indiv/h/hany
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Three Generic Forms of Organizational
Governance in H-Form Firms• Market/Output-based Incentive Schemes
– Profit goals
– Output quotas
• Bureaucratic Monitoring and Control Schemes
– Rules and procedures
– Standardization and monitoring
• Clan or Culture-based Control Schemes
– Norms, values, socialization
– Internalization of organizational goals
Stanley Han (California State University, Sacramento) - http://www.csus.edu/indiv/h/hany
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• Better control and leadership
• Cost - economies of scope and
scale
Some Statistics of MNCs in Europe -
Waves of "Centralization" of M-Form ...
CEO
HR Mkt. Finance IT Support R&D
• Reduction of double work
• Cross-sales
• Increased profitability
Business1 Business2
R&DSupportProd.
Structure Type No. of co-s %
Co-operational
division
132 51,4
Traditional division 66 25,7
Holding 30 11,7
Functional 15 5,8
Matrix 14 5,4
Total 257 100
University of St.Gallen, Top 300 German, Austrian ja Swiss company study 2004 - Sebastian Raisch
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Any Ideas about Statistics in Estonia?
• No idea!
• Potential study for master thesis?
• What organizational forms / structural contingencies
are there among Estonian ÄP Top500 firms?
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What Aspects of "Design" are there in
Business?• We start off by mapping and designing our business
model
• We design our strategy on the basis of our key
understanding of the business idea
• Thereafter we design our processes and structures
There are lots of possibilities for doing that, ex ...
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One Possibility would be to Start at
Micro and Sort out Processes ...
Bremner, Knipfer, Latreille (2006) - Better operating models for
financial institutions. McKinsey on IT. Winter 2006, p. 4
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How to Set Up a Business On-line Distribution Store?
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Potential View - Look at the Structure as a
System of Value Creation
J. Strikwerda (2005), p. 39.
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The Other Possibility would be to Think About the
Requirements that the System Needs to Satisfy ...
Economic requirements:
• Type and availability of human resources, Type of knowledge exploited, Economies of scale, Economies of scope, Economies of speed, Purchasing power, Uniqueness of resources, Modularity, standards, Communication costs, Market efficiency
Fit-to-market:
• Patterns of consumer preferences, buying behavior; Availability of alternative distribution channels; Link between products/services and distribution channels; Need for mix-match flexibility
J. Strikwerda (2005), p. 19.
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Lets Consider the Following Case ...
• In one case, dating back to 1997, a European firm produced electrical and electronic products for three types of markets: consumer markets, so called institutional markets (hospitals, schools, prisons, etc.) and professional markets (TV studio‟s, stadiums, etc.)
• These three markets by volume, growth, distributors, prices mechanism, degree of maturity, preferred technology, market share, competition, were separate markets and had to be dealt with in that way.
• This firm used two types of technologies, a conventional one, using a specific raw material for which this firm was the single largest global buyer, and a modern high tech product, for which this firm also was the single largest global buyer.
• In addition to that, considerable economies of scale and scope were to be exploited due to the volume of production and due to knowledge that was applicable to all two types of technology and all three markets. The then management was stuck in the issue whether to organize the firm (that till then functionally organized, causing undue coordination costs) in two business units based on technology or in three business units based on the three markets
• Look at the scheme on the next page for graphical description of the case ...
J. Strikwerda (2005), p. 20.
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Dilemma - what to do when You are Stuck-in-the-Middle?
Ex. - Firm where Operations and Market Fit don't Meet. Should we replace functional structure with 2-division or 3-divisional?
J. Strikwerda (2005), p. 20.
1) Consumer segment
2) Institutional market:
hospitals, schools,
prisons
3) Professional markets:
TV studios, stadiums
Conventional
technology
High-tech
technology
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RELY ON THE MOST IMPORTANT
ASPECT STRUCTURE!
The organization form should coincide
with the aspect structure that is the most
critical for the value creation of the firm,
respectively its success in the market!
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Some Examples
• Efficient manufacturing was most critical for success when manufacturing capability was scarce
• When Sloan understood that producing different cars for different consumer segments as defined by income was critical for success - he based the divisions on market segments defined by consumer income
• Walt-Disney exploits concepts, which are exploited through multiple platforms, which defines its operating model
• Professional service firms, pursue a key-account management strategy - business units are suppliers to accounts
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Aspect Structures all are Convergent with the
Business Unit as Management Control Structure
1. Legal structure
2. Product/services structures (across functional departments)
3. Delivery-structures, operational processes
4. Project structures (innovation, development, co-engineering)
5. Informal, social structures, etnical structures
6. Functional structures (accounting, HRM)
7. Knowledge structures (content)
8. Patterns of routines and competencies
9. Information structures (data)
10. Technological structures, e.g. generic technologies
11. Geographical structures
13. Account structures (account management)
14. Fiscal and financial structures (international cash management)
J. Strikwerda (2005), p. 20.
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Relations between them -
Enablers and Scarcities• Emergence of the major, vertically integrated, multi-
divisional companies at the beginning of the
twentieth century is closely connected to
innovations in techniques for management
accounting (Jensen 1998)
• Due to changing scarcities in the economy -
importance of aspect structure may change over
time and hence hence the need to adapt the
operating model of the firm
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Comment on Scarcities and Enablers!
• Interesting: "What kinds of new structures are
enabled by social networking?"
• What do you think - what scarcities we have today?
And what kinds of structures should be foster in
order to overcome them?
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Hence the Firm has to Answer:
1. What activities are core in creating value and in
which way?
2. Which activities are needed to ensure that the value
the firm creates also is captured by the firm?
3. What activities are needed to defend the core value
creating activities of the firm?
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Value ...
Fjeldstad and Andersen 2003
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Value Net (Parolini)
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Value Net Paradigm ...
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Case Study (1/2)• A division of the MNC is organized in four business units each with a distinct
technology and subsequent products. Within the division of the multinational the
business units are profit centers.
• These products are components and subsystems that are sold to a third party, who
assembles these components and subsystems, into a consumer product. These
consumer products enjoy a high brand image, are innovative by technology and
design. The innovativeness (value) of the third party results in organizing a number of
co-engineering teams for various product types.
• Each of the MNC 4 BU-s contributes to each of the co-engineering teams by providing
ideas, making available technological know how and placing engineers for
development in the teams.
• Co-engineering teams produce innovative designs for components and subsystems,
which then are mass manufactured and supplied to the third party by each of the
business units.
• The third party is willing to pay a higher price, partly because due to the innovative
components and subsystems it can ask a higher price in the market, but also because
the MNC has agreed to sell components exclusively to the third party.
J. Strikwerda (2005).
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Case Study (2/2)• At a certain moment the managers of the MNC 4 BU-s find themselves in
disagreement on the allocation of costs of the co-engineering teams - due to
the complexity of the processes such teams have an overhead in terms of
project managers, commercial & contracting support etc.
• Also a disagreement rose about inputs of the individual MNC BU-s in the co-
engineering teams and the benefits resulting for each of the business units.
• The co-engineer teams not just produced separate components and
subsystems, they produced a coherent, integrated system of components and
subsystems, of which the value for the third party was more then the sum of
the values of the separate components and sub-systems.
• Since these co-engineering teams also had engineers from the third party,
the third party is entitled to a part of the output of the co-engineering teams
as well.
• What do you think about the design of the organization and what should be
done differently?
J. Strikwerda (2005).
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Solution
• Define each separate project (that develops
integrated systems for the third party) as a profit
center.
– Engineering phase being the investment phase
– The phase of manufacturing and supplying the systems
the profit phase
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Building Blocks of Organizations
Nowadays
J. Strikwerda (2005).
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Yes, we have lots of different organizations out there
...
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J. Strikwerda (2005) The Logic of the Operating Model under Changing Scarcities and New Technologies:
An Exercise in the Foundations of Business Administration? Universiteit van Amsterdam -
Amsterdam Business School; Nolan Norton Institute, p. 12.
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"Verlag" - Medieval Europe
• Entrepreneur, through contracting suppliers, artisans likeweapon smiths, transporters, most sea captains, warehousesetc, orchestrated a manufacturing and supply chain.
• Examples are the Trip brothers in the seventeenth century inAmsterdam, the publishing industry, the apparel industry(Uzzi, 1997), etc.
• The entrepreneur in this model, called Verleger (German: "publisher"), earns rents by running a business withoutowning the production factors like factories, equipment
• Although he takes ownership of the raw materials, intermediate products and final products
J. Strikwerda (2005).
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Replication Design
(How to "McDonalds" an organization?)
• Sometimes the issue is not
so much value creation,
but exploitation
• Hence - an unit needs to
be copied across
geographical domains
Winter & Szulanski (2001)
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THANKS FOR YOUR TIME
Any questions?
The most important?
What will you remember?