Designing Your Organization ebook

Table of Contents

Title Page

Copyright Page

Decision Tools Included on the CD-ROM

Introduction

Acknowledgments

The Authors

Chapter 1 - Fundamentals of Organization Design

The Star Model™: A Framework for Decision Making

Design Principles

Chapter 2 - Designing Around the Customer

Customer-Centric Strategies

Customer-Centric Organizations

Chapter 3 - Organizing Across Borders

Levels of International Strategy

Design Considerations: Geographic

Design Considerations: Multidimensional Network

Design Considerations: Transnational

Chapter 4 - Making a Matrix Work

What Is a Matrix?

Matrix Design

Chapter 5 - Solving the Centralization—Decentralization Dilemma

Corporate Center Strategy

Centralization and Decentralization

Getting the Best of Both: A Balancing Act

Chapter 6 - Organizing for Innovation

Innovation Strategies

Innovation Capabilities

Designing for Breakthrough Innovation

Chapter 7 - Conclusion

Appendix - Decision Tools

Bibliography

Index

How to Use the CD-ROM

Copyright © 2007 by Amy Kates and Jay R. Galbraith. All rights reserved.

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Designing Your Organization. Copyright © 2007 by Amy Kates and Jay R. Galbraith. Reproduced by permission of Jossey-Bass Publishers, an Imprint of Wiley. www.josseybass.com

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Library of Congress Cataloging-in-Publication Data

Kates, Amy.

p. cm.

Includes bibliographical references and index.

ISBN-13: 978-0-7879-9494-5

1. Organizational change. 2. Organizational effectiveness. I. Galbraith, Jay R. II. Title.

HD58.8.K3774 2007

658.4’02—dc22

2007026558

PB Printing

The Jossey-Bass Business & Management Series

Decision Tools Included on the CD-ROM

StrategyCustomer-Centric Strategy209Strategy Locator211International Strategy213Business Portfolio Strategy215Capabilities AssessmentDeveloping Design Criteria216Customer-Centric Capabilities219Assessing Your Innovation Capabilities221Are You Ready for a Matrix?223Design OptionsStructural Options225Selecting Lateral Connections226Country Autonomy227Region Configuration228Centralization—Decentralization229Multidimensional Structure233How Separate Does the New Venture Need to Be?235ImplementationResponsibility Charting236Relationship Map239Relationship Health Check242Spreadsheet Planning244

Introduction

IN THEIR CLASSIC 1972 work on the structure of multinational corporations, Stopford and Wells noted, “Management has rarely gone through the steps of stating its strategy explicitly and of weighting the contributions and costs associated with alternative organizational structures.... Our analysis has imposed an elaborate rational framework on what is largely an intuitive decision process of the businessman” (p. 171). In the intervening thirty-five years, business leaders have become much more aware of the need for a structured, rather than intuitive, approach to making decisions about organization design. Our previous book together, Designing Dynamic Organizations, written with Amy Kates’s late business partner, Diane Downey, sought to provide that structured, step-by-step process. In that book, which has enjoyed a positive reaction from the business community, we laid out the concepts and process of organization design in the form of a how-to guide in order to provide a clear and explicit framework for decision making and practical application (Galbraith, Downey, and Kates, 2002).

Over the past few years, however, we have noticed five specific organization design challenges that seem to confront a majority of the organizations that we work with, read about, and observe. Our clients have asked us to provide them guidance in dealing with these more complex issues using the same clear step-wise approach. That has been the impetus for this book. Following the first chapter, “Fundamentals of Organization Design,” which reviews key concepts and design principles, the remainder of the book is organized around the following five challenges:

• Designing around the customer. The growing number of global customers, the increased buying power and access to information that all customers have, and the difficulty in keeping up in the race to create products that stand out in a crowded marketplace are all factors driving many companies to search for ways to deliver integrated interfaces, customized products, and high-value solutions. Such firms are finding that this is impossible without completely rethinking the way in which the components of their organizations work together internally. Chapter Two defines customer-centric strategies and provides guidance on designing three levels of customer-centric organizations.

• Organizing across borders. Increasing levels of foreign direct investment, the liberalization of trade within and between countries, and growing markets in emerging economies are motivating more companies to seek nondomestic opportunities and build global organizations. Chapter Three addresses different types of global strategies, focusing on building geographically based organizations and multinational product and customer networks.

• Making a matrix work. In response to strategies that require increased collaboration across customer, geographic, function, and product dimensions, many companies are using a matrix to formally connect the disparate elements of their organizations. Despite advances in communication technology, formidable challenges of coordinating work across organizational boundaries remain. Chapter Four presents what we have learned about overcoming these challenges to make the matrix an effective coordinating mechanism.

• Solving the centralization—decentralization dilemma. As an organization grows, it has the opportunity to leverage its size and scale. But consolidating decisions can result in a loss of speed and responsiveness. Many companies oscillate between the extremes of centralization and decentralization, never finding a happy medium. Chapter Five explains how an understanding of the business portfolio determines the design of the corporate center and offers an analysis of which decisions are best centralized and which are best left at the business unit level and how to get the benefits of both centralization and decentralization without having to choose between the two.

• Organizing for innovation. The final challenge we address is how to design the organization to support organic growth, particularly the breakthrough innovations and new business launches that require a delicate balance between separating from the core business while taking advantage of the parent company’s assets. Chapter Six discusses the range of innovation strategies and the design considerations to support them.

This book does not aim to present new research or theory. It draws from Jay Galbraith’s writing, particularly his two most recent books, Designing the Customer-Centric Organization (2005) and Designing the Global Corporation (2000), as well as many other authors’ contributions to organization design theory. We expect this book to be helpful to leaders and managers who make choices about their organizations’ structures as well as to human resource and organization design and development practitioners who guide and influence those decisions. Our goal is to give readers the same frameworks and tools that we use in our consulting and teaching work to help leaders make sound decisions about their organizations. Each of the referenced tools is included in the Appendix and in electronic form on the accompanying CD-ROM. We encourage you to make use of these tools in your own work. Tools that are included on the CD-ROM are indicated by marginal icons.

We do not want to minimize the complexity inherent in any of the organizational forms examined, although we try to be clear and present the various steps of organization design decisions as distinctly as possible. The rate of change in the business environment continues to increase, and new competitors are constantly entering industries as economies grow around the world and become more interconnected. Today’s corporation is more complex than ever before. For example, in 1970, the world’s fifty largest companies averaged $29 billion in revenue in 2003 dollars. By 2005, the average was $100 billion. During the same period, the number of consumer products introduced each year increased sixteen-fold. In order to compete successfully, these same companies have to be able to react faster to changes in the business environment. Strategies that depend on developing multiple and fast-changing products, serving demanding customers, and coordinating across organizational unit boundaries complicated by time and cultural distance cannot be achieved with simple organizations. Nor can these strategies be achieved with managers and employees who do not understand why and how their organization is configured as it is and who have not been given the processes, tools, and skills to operate successfully within it. We believe it is worth repeating Harvard Business School professor Chris Bartlett’s observation that companies often pursue third-generation strategies using second-generation organizations staffed with first-generation human resources. When first-generation managers attempt to institute third-generation multidimensional organizations, they often fail, and then attribute the failure to the organizational form rather than to their lack of capability (Galbraith, 2000). Our goal with this book is to help you build organizations to successfully execute your third-generation strategies.

Acknowledgments

We thank our many clients who have prompted our thinking on these topics, with particular appreciation to Joe Wong of MeadWestvaco Specialty Chemicals and German Carmona Alvarez of Cemex, who both read sections of the manuscript and contributed valuable feedback. We also thank our colleagues on the board of the Organization Design Forum (ODF), who have furthered the field and our own thinking through the conferences and programs offered by ODF each year. In addition, Paul Erickson and Julie Spriggs provided invaluable research and editing support during the writing process.

Finally, we both thank our families, Sasha Galbraith, and Muhamed, Malik, and Elias Saric, who tolerate all of the travel that makes our work possible.

The Authors

Amy Kates is principal partner with Downey Kates Associates (DKA), an organization design and development consulting firm located in New York City. Amy works globally with leaders and their teams to assess organizational issues, reshape structures and processes, and build depth of management capability. In her work as a diagnostician and designer, she helps her clients to understand organizational options and their implications and to make good decisions.

In addition to her consulting work, she teaches Organization Design in the Executive M.B.A. program at the Center for Technology, Economics, and Management in Denmark and co-teaches, with Jay Galbraith, a seminar on the Design of Customer-Centric Organizations at the University of Southern California. She is also on the board of directors of the Organization Design Forum.

Amy Kates is coauthor, with Jay Galbraith and Diane Downey, of Designing Dynamic Organizations: A Hands-On Guide for Leaders at All Levels (2002). She has published numerous articles and book chapters on the topics of organization design and talent management, including “The Challenges of General Manager Transitions” in Filling the Management Pipeline (Robert Kaiser, ed.). Her article, “(Re)Designing the HR Organization,” was featured in the Summer 2006 issue of the Human Resource Planning Society Journal and was awarded the HRPS Walker Prize.

Amy Kates holds a master′s degree in City and Regional Planning from Cornell University. Prior to joining DKA, Ms. Kates was a planner and urban designer and was selected to serve as an Urban Fellow by the New York City mayor’s office. Amy can be contacted at Downey Kates Associates, 139 Fulton Street, Suite 210, New York, N.Y., 10038, by phone at (212) 349- 3522 or by email at [email protected]

Jay R. Galbraith, a senior research scientist at the Center for Effective Organizations at the University of Southern California and professor emeritus at the International Institute for Management Development in Lausanne, Switzerland, is an internationally recognized expert on organization design. He is the president and founder of Galbraith Management Consultants, an international consulting firm that specializes in solving strategy and organizational design challenges in companies of all sizes—from small manufacturing companies to large global firms. His theories on gaining a significant competitive advantage through customer-centricity have been heard and implemented by top-level executives throughout the world.

Dr. Galbraith, creator of the widely used Star Model™ , has written numerous publications including Designing the Global Corporation, Designing Dynamic Organizations, and Designing Organizations: An Executive Guide to Strategy, Structure and Process. His latest book, Designing the Customer-Centric Organization, introduces the Strategy Locator™, an innovative tool that helps companies determine the degree of customer-centricity their organizations need in order to offer the types of solutions that their customers demand.

In addition, Dr. Galbraith is regularly sought after for his expert opinion by the media, including BusinessWeek, The Wall Street Journal, Fortune, and The Financial Times. For more information, please visit www.jaygalbraith.com.

Chapter 1

Fundamentals of Organization Design

THIS BOOK is about five of the most common organization design challenges that business leaders face today. This first chapter reviews some fundamental organization design concepts in order to provide readers a firm foundation for understanding the complex organizational forms we discuss. It also defines key terms, highlighted in italics, that we use throughout the rest of the book. (For an in-depth discussion of organization design concepts and processes, refer to Galbraith, 2002, or Galbraith, Downey, and Kates, 2002.)

The first two questions to address are: What is an organization? and What is organization design? For our purposes, the term organization is used broadly to refer to an entire firm, as well as to just one part of it. It can be made up of many thousands of people or only a handful. For a corporate leader, the organization encompasses the entire company, and from the vantage point of a unit manager, the organization may be simply that unit. Most of what we discuss in this book is applicable to the whole organization, as well as to the smaller organizations nested within the larger firm. Although we frequently refer to companies and firms, the concepts apply equally to nonprofit and government entities.

Organization design is the deliberate process of configuring structures, processes, reward systems, and people practices to create an effective organization capable of achieving the business strategy. The organization is not an end in itself; it is simply a vehicle for accomplishing the strategic tasks of the business. It is an invisible construct used to harness and direct the energy of the people who do the work. We believe that the vast majority of people go to their jobs each day wanting to contribute to the mission of the organization they work for. Too often, however, the organization is a barrier to, not an enabler of, individual efforts. We have observed that when left to their own devices, smart people figure out how to work around the barriers they encounter, but they waste time and energy that they could direct instead to improving products and services, creating innovations, or serving customers. One of the main purposes of organizational design is to align individual motivations with the interests of the organization and make it easy for individual employees to make the right decisions every day. Furthermore, a well-designed organization makes the collective work of accomplishing complex tasks easier.