Organization Design
– underlying theory
17.Sept.2010
Tallinn Technical University
MBA
Introduction
   Education:
       BA business administration (TTÜ)
       MSc International Management (University of S...
Content
Goal is to get the basic assumptions of the framwork clear
  and go through the main body of the Burton, Desanctis...
Recap
   Main assumptions of authors
       Organizations as open systems – organizations are dependent
        on envir...
Information processing view as the
starting point (Tushman&Nadler 1978)
Information processing view as the
starting point (Tushman&Nadler 1978)
Information processing view as the
starting point (Tushman&Nadler 1978)
Information processing view as the
starting point (Tushman&Nadler 1978)
Burton & Obel 1998
Strategy
   Strategic management seeks to answere the question
    what course of actions to commit - to perform better t...
Strategy
   Exploration – learning strategy (cognitive search) of risk
    taking, variation, global search
   Exploitat...
Exploration vs Exploitation
   It is usually either or choice (spiral?)
   The more you exploit (explore), the more you
...
Strategy
     Exploitation




                    Exploration
Strategy
   Examples
     Reactor – Eesti Energia
     Defender – Säästumarket
     Prospector – Webmedia
     Analyz...
Strategy
   Questions
     Exploration
          Product innovation (frequency/nr) high?
          Brutomargin (P-MC/M...
Environment
   Complexity – nr and interdependence of factors
   Uncertainty – statistical variation (predictability)
  ...
Environment
Environment
   Note that information processing means also interpretation
    (especially when one is experiencing calm e...
Configuration
            Functional
            specialisation




                             External orientation
    ...
Configuration
   Matrix
     Dual  (3,4 etc dimensions) of subordination
     Efficiency of functional and effectivenes...
Configuration

 Costs                             Maatriks

                      Divisional

         Functional


    Si...
Task design
Task design
   Task design determines the coordination
    requirement of the work process
   Tasks need to be designed ...
Task design
   Orderly – highly divisible/high repetive (Corporate/Private loans in a
    bank)
             Can also ma...
Management style
Management style
   Manager – X theory
   Leader – Y theory
   Maestro – entrepreneur, crisis management
   Producer –...
Coordination / Control
Coordination / control
   Should be taken as general principles or
    continous variable (not discrete)
   How much dec...
Information systems
            Quantity
            of info




                       Tacitness
                       o...
Information systems
   Are the means to move information to desicion
    makers – these should be designed as a
    funct...
Information systems
   Event driven – information meetings, directives
    etc
   Data driven – databases
   People dri...
Incentive systems
   Incentives support the infrastructure of the organization
   Incentives can be different depending ...
Incentive systems
             Group
             based




  Behavior           Results
Implementation
   Top down analysis
     Organization
     Relevant level of analysis
     Analyse Enviroment
     An...
Implementation
   First intra step reconciliation
        1) Strategy-Environment
        2) Structure (configuration-c...
Tänan!
References
   Marko Rillo 1.loengu materjalid 
   Burton R.M. & Obel B. (1998) Strategic organizational
    diagnosis a...
Strategic Organizational Diagnosis and Design 02 lecture - Body of Theory
Strategic Organizational Diagnosis and Design 02 lecture - Body of Theory
Strategic Organizational Diagnosis and Design 02 lecture - Body of Theory
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Strategic Organizational Diagnosis and Design 02 lecture - Body of Theory

  1. 1. Organization Design – underlying theory 17.Sept.2010 Tallinn Technical University MBA
  2. 2. Introduction  Education:  BA business administration (TTÜ)  MSc International Management (University of Southern Denmark)  + year in Helsinki School of Economics and Business Administration  Work: from 2005 Swedbank Estonia; Corporate banking, for last 2 years dealing with impaired loan restructuring and recovery  Interests: sports, modern dance, teaching (2006-2009 read management course for undergraduates in TUT), traveling, reading  contact: + 372 55 626 620; hannesveskimae@gmail.com
  3. 3. Content Goal is to get the basic assumptions of the framwork clear and go through the main body of the Burton, Desanctis & Obel 2005  Strategy  Environment  Organizational design  Structure (configuration/knowledge exchange)  Process (task, people, management style/organisation climate)  Coordination and control / incentives
  4. 4. Recap  Main assumptions of authors  Organizations as open systems – organizations are dependent on environmental streams of resources/information.  Volunatrism – organizations can be changed by the management  Bounded rationality i.e. information processing is costly, thus needs to be fited to the demands for information processing  Contingency view (evolutionary view) – main goal of organizations is to survive by adapting to environment. The better the fit (both external towards effectiveness and interal toward efficiency), the higher the performance (and chances of survival).  The effect on performance (survival) is more significant the more hostile the environment.  There is no single optimum design – long term survival depends on adaptation which is difficult (risky i.e. Oticon case) as organizations are inertic  New forms of organization (network firm, virtual firms, hybrids etc) can be accomodated by the old theory
  5. 5. Information processing view as the starting point (Tushman&Nadler 1978)
  6. 6. Information processing view as the starting point (Tushman&Nadler 1978)
  7. 7. Information processing view as the starting point (Tushman&Nadler 1978)
  8. 8. Information processing view as the starting point (Tushman&Nadler 1978)
  9. 9. Burton & Obel 1998
  10. 10. Strategy  Strategic management seeks to answere the question what course of actions to commit - to perform better than competitors i.e. achieve Sustainable Competive Advantage (SCA).  Michael Porter – by positioning in the industry the firm achieves SCA. (static view)  A more recent views on strategy concern on dynamics i.e. how firms systematically search for new competitive advantages (innovate/learn) and maintain these advantages.  The approach taken by Burton, Desanctis&Obel is dynamic i.e. They consider the main parameter of organizational strategy it’s innovation strategy (March 1991)  Exploration  Exploitation
  11. 11. Strategy  Exploration – learning strategy (cognitive search) of risk taking, variation, global search  Exploitation – learning strategy (experiential search) of refinement, efficiency, selection and implementation  A hint towards evolutionary theory (variation, selection, retention).  Routines act as genes (retain patterns of behavior)  Learning as source of variation,  Market (managerial choise) as selection.
  12. 12. Exploration vs Exploitation  It is usually either or choice (spiral?)  The more you exploit (explore), the more you exploit (explore).  Extensive exploitation leads to myopia of learning i.e. competency traps and distinction if environment changes.  Extensive exploration leads to bankruptcy  Amobidextruos organizations are able to do both well.
  13. 13. Strategy Exploitation Exploration
  14. 14. Strategy  Examples  Reactor – Eesti Energia  Defender – Säästumarket  Prospector – Webmedia  Analyzer without innovation – Zara  Analyzer with innovation - ???
  15. 15. Strategy  Questions  Exploration  Product innovation (frequency/nr) high?  Brutomargin (P-MC/MC) high?  How fast competitors imitate?  Exploitation  Process innovation high?  Brutomargin low?  Standardization of products high?  Nr of products high?  Barriers to entry high?
  16. 16. Environment  Complexity – nr and interdependence of factors  Uncertainty – statistical variation (predictability) of factors (can basically prognose)  Quantitative aspect – equivocality (do not know what are the important factors i.e. Can not prognose) demands various interpretations
  17. 17. Environment
  18. 18. Environment  Note that information processing means also interpretation (especially when one is experiencing calm environment, things might be overlooked in environment)  As interpretation depends of cognitive schemata (i.e. We tend to notice things already known to us), then important question becomes the variation of cognition by the members who have decision rights  In other words the landscape changes but one still tries to navigate with an old map.  Incumbents usually miss changes in the environment (market, technology etc) as they are unable to interpret information from a new angle.  Examples – IBM – PC is an old and studied case, Polaroid – digital cameras an other etc
  19. 19. Configuration Functional specialisation External orientation (customer/market/ product/service)
  20. 20. Configuration  Matrix  Dual (3,4 etc dimensions) of subordination  Efficiency of functional and effectiveness of divisional structure  High costs of management and high demand on management
  21. 21. Configuration Costs Maatriks Divisional Functional Simple Info processing capacity
  22. 22. Task design
  23. 23. Task design  Task design determines the coordination requirement of the work process  Tasks need to be designed (broken down) depending on the strategy and structure and goal of efficiency/effectiveness  Function  Client type  Market  Etc
  24. 24. Task design  Orderly – highly divisible/high repetive (Corporate/Private loans in a bank)  Can also make divisible by managerial decision (make buffers i.e. No coordination needed)  Complicated – not divisible/highly repetitive (Assembly line, fast food rest)  Precise coordination needed, fast, efficient  Fragmented – highly divisible/low repetetive (sofware development)  If there are demands on coordination (by customers, technology etc), then knotty design is better  Knotty – low divisible/low repetitive (New product development in high tech industry, fast moving consumer goods)
  25. 25. Management style
  26. 26. Management style  Manager – X theory  Leader – Y theory  Maestro – entrepreneur, crisis management  Producer – a farely new category as people who have high uncertainty avoidance (do not want to take risks) tend not to delegate much and want to control people.
  27. 27. Coordination / Control
  28. 28. Coordination / control  Should be taken as general principles or continous variable (not discrete)  How much decision rights to distribute (where is sufficient knowledge to make decisions)?  How much to formalise?  Formal rules/procedures and feedback systems  Informal rules  Strenght of socialisation  Formalisation is also a question of variability (potential to innovate) kept in the organization
  29. 29. Information systems Quantity of info Tacitness of info
  30. 30. Information systems  Are the means to move information to desicion makers – these should be designed as a function of information  Tacitness  Quantity To transfer tacit information, you need interaction i.e. Face to face communication To transfer codifiable info, IT systems can do this.
  31. 31. Information systems  Event driven – information meetings, directives etc  Data driven – databases  People driven – Face to face communication. Customized consultation firms, research laboratories are example of people driven model  Relationship driven – use both data driven (quantity) and face to face communication
  32. 32. Incentive systems  Incentives support the infrastructure of the organization  Incentives can be different depending on what motivates people recruited and socialised to the organisation  Incentives affect behavior through rewards (positive sanction)  Control perspective  Can not observe behavior – reward results  Do not know what behavior is proper – reward results  Agency theory  Share risk – reward results to align behavior  Do not share risk – reward behavior  Skill level  People have the knowledge to make decision, the more decision rights they should have, more risk can be shared (thus also rewards) – a relationship between delegation – incentive system.
  33. 33. Incentive systems Group based Behavior Results
  34. 34. Implementation  Top down analysis  Organization  Relevant level of analysis  Analyse Enviroment  Analyse Strategy  Analyse Structure (Structure follows strategy)  Analyse Process and People (task, people, management style, org climate)  Analyse Coordination/Control menchanisms and Incentives
  35. 35. Implementation  First intra step reconciliation  1) Strategy-Environment  2) Structure (configuration-complexity-geography-knowledge sharing)  3) Process and People (task-people-leadership style-climate)  4) Coordination/Control - Incentives  Second inter step reconciliation  Usually changing one parameter creates further misfits, so gradually many dimensions need changing (think of the change in environment and organizational effort to change the quadrant!)  The approach needs to be more holistic the more tougher is the selection environment as small misfits affect survival chances more intensely.  Sources of misfits can be either external (environment) or internal (new product innovation, new management hired, mergers/acquisitions, change in strategy, major expansion)
  36. 36. Tänan!
  37. 37. References  Marko Rillo 1.loengu materjalid   Burton R.M. & Obel B. (1998) Strategic organizational diagnosis and design. Kluwer Publisher.  Burton R.M., Desanctis G., Obel B. (2005) Orgnizational Design Canbridge University Press  Tushman and Nadler (1978) Information processing as an integrating concept in organizational design, The Academy of Management Review, Vol 3., No 3., 613-624
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