Managing Interdependencies in Complex Organizations

Managing Interdependencies in Complex Organizations Nicolay Worren Organization Design Forum Conference 2006

Plan for the session Background and definition Identifying interdependencies Configuring interdependencies Creating alignment across dimensions of interdependencies Summary

We focus on interdependencies between sub-units as they carry out work processes. Department Department A B Interdependency exists when actions in one unit engaged in its process(es) affect important outcomes in another unit or process – for example, the quality of deliverables, delivery time, customer satisfaction, employee satisfaction, costs, and so on (and vice versa).

The concept of interdependency according to Thompson (1967) Department Department Department Design Engineering Production A B C Sequential interdependence Computer system Surgeon Nurse Anesthesist Reciprocal interdependence Pooled interdependence Limitations Difficult to operationalize Aggregates qualitatively different interdependencies into one construct

The concept of interdependency in business process re-engineering Department A Activity 1 Activity 3 Department B Activity 2 Limitations Only considers one dimension: Activities Simplistic ”design rules” to resolve coordination problems

We differentiate between five different interdependency dimensions. Dimension: Source of interdependency Governance Need for formal approval Policy compliance Resources Need for (financial) resources Activities Need for information (and /or physical inputs) to work processes Commitments Obligation to fulfil prior commitment Social networks Shared (or conflicting) interests or goals; reciprocity norms, etc.

The degree of interdependency with any other sub-unit relates to uncertainty and criticality. Unpredictable Unpredictable HIGH interdependencies, interdependencies but not critically that may critically affecting outcomes affect outcomes Uncertainty Predictable Predictable LOW interdependencies interdependencies affecting less that critically affect important outcomes outcomes LOW HIGH Criticality Different coordination mechanisms can be employed to deal with uncertain and critical interdependencies.

Interdependencies can be manipulated. The organization design literature has had a tendency to view interdependencies as static. However, dependencies may be added, removed, or changed (strengthened /weakened). Add A B A B Remove A B A B Change A B A B degree What is an appropriate interdependency depends on the function that a unit is supposed to perform.

In order to manage interdependencies, one must be able to identify them. We have proposed a set of ”diagnostic questions” covering the five dimensions. These can be used to uncover existing interdependencies. Dimension: Diagnostic question: Governance Who makes decisions that may affect the sub-unit? Resources Who provides (financial) resources to the sub-unit? Activities Which other sub-units provide inputs to the activities performed in this sub-unit? To which other sub-units does the sub-unit provide outputs? Commitments To which other sub-units has the sub-unit formed commitments? Social networks To which other sub-units do there exist informal ties that affect work processes in this sub-unit?

To improve interdependencies, one must first understand the function of the sub-unit. The existing interdependencies may not be the appropriate ones given the sub-unit’s function (purpose) or the organizational-level strategies and goals. ”Acquire and ”Provide reliable IT ”Deliver projects on manage FUNCTION services” time and cost” customers” ? ? DESIGN PARAMETER IT Engineering Sales From a normative point of view, i.e., from a design perspective, one can ask what Interdependencies should exist – or be strengthened or reduced - to improve the unit’s ability to fulfill its function.

We propose a set of ”design rules” to configure interdependencies. Design rules are action-oriented ”hypotheses about the future” of the form: - “In situation S, to achieve objective O, do action A”. Design rules can be tested by implementing changes and observing the effects. We have identified 17 generic design rules based on best practice and academic research. Based on: Romme, A. G. L (2003). Making a difference: Organization as design. Organization Science, 14, 5, 558-573.

Example case: The Engineering department of ProTech Dependency dimension: Activities Products sold at fixed price yet customized to customer requirements. Governance Social network Resources Commitments Management team Cost estimates and sales order Sales Contract and Customer Finished product specifications Engineering

Examples of design rules (see appendix for full table) Dimension: Situation – interface problem Example Design Rule Governance Lack of clarity with regard to Clarify roles and responsibilities to responsibility for prioritizing customer reduce ambiguity around accountability segments Resources Activities Misunderstandings during “hand-off” Define transfer-points from Sales to Engineering Commitments Final costs surpasses estimates made Clarify downstream dependencies by Sales; delays before commiting to the customer Social networks

Example case: The Engineering department of ProTech Dependency dimension: Activities Products sold at fixed price yet customized to customer requirements. Governance Social network Resources Commitments Management team Sales and marketing strategy Commitment re. delivery date Cost estimates and sales order Sales Contract and Customer Confirmation Finished product specifications of capacity Engineering

Alignment may be operationalized as correspondence across interdependency dimensions. HIGH DEGREE OF ALIGNMENT: Governance Social network Unit 1 2 3 Unit 1 2 3 IT council 1 IT council 1 IT department CFO 2 3 = IT department 2 CFO 3 The governance model for IT defines the IT council …and the IT department enjoys strong and reliable as the main decision making body informal ties to the members of this council LOW DEGREE OF ALIGNMENT: Governance Social network Unit 1 2 3 Unit 1 2 3 IT council 1 IT council 1 IT department CFO 2 3 ≠ IT department CFO 2 3 The governance model for IT defines the IT council …but the IT department is more strongly tied to the as the main decision making body CFO, who is strongly influencing decisions.

In modern organizations, there is rising complexity, and, we would argue, an increased risk of misalignment. Before: My department Who governs my work Who resources my work Whose tasks I do Who I commit to Who I socialize with Now: My department The steering group The CFO My project My internal client My network Who governs my work Who resources my work Whose tasks I do Who I commit to Who I socialize with The more dynamic and distributed manner of working has lead to increasing flexibility and speed. But it has also led to a sharp rise in the number of interfaces that any one person must handle, and the risk of serious misalignment / lack of coherency. For example, organizations may be centralized on one dimension and decentralized on another.

Summary – key messages Organizational functioning is dependent upon effective sub-unit interdependencies Managing interdependencies, however, is becoming an increasingly complex task There are multiple types of interdependencies, and they should all be identified during organization design processes Generic ”design rules” may help in configuring and improving interdependencies

Key messages Organizational functioning is dependent upon effective sub-unit interdependencies Managing interdependencies, however, is becoming an increasingly complex task There are multiple types of interdependencies, and they should all be identified during organization design processes Generic ”design rules” may help in configuring and improving interdependencies

Managing Interdependencies in Complex Organizations

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