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Hitting the sweet spot between integration and separation in organization design

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Presentation that discusses the relationship between the formal structure of a firm and its work processes.

See my blog for more information: http://www.organizationdesign.net

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Hitting the sweet spot between integration and separation in organization design

  1. 1. Hitting the "sweet spots"between integration and separation in organization design<br />Nicolay Worren<br />www.nicolayworren.com<br />
  2. 2. Discussions about organization design often center on whether one should divide or combine units<br />CEO<br />Sales & Marketing<br />Customer <br />Support<br />Engineering<br />Operations<br />Partition?<br />Integrate?<br />
  3. 3. However, one often spends little time considering «the white spaces on the organization chart» <br />CEO<br />Sales & Marketing<br />Customer <br />Support<br />Operations<br />Engineering<br />Potential interface<br />after split<br />Current interface<br />
  4. 4. The result is that ineffective designs are selected – sometimes causing serious performance problems<br />Separated<br />”Siloes”<br />Formal structure<br />Effective design<br />Integrated<br /> Too much/<br />unecessary<br />collaboration<br />Low<br />High <br />Degree of interdependency<br />in work processes<br />
  5. 5. Examples from two international oil services firms headguartered in Norway <br />
  6. 6. The first firm centralized the responsibility for technical sales around 2004<br />Technical sales, engineering and production in HQ<br />Illustration: Sales process in the 2004-2010 time period<br />”Their [the local subsidiaries’] estimates<br />were way off…”<br />1. RFQ<br />2. Proposal<br />3. Product delivery<br />
  7. 7. However, it is right now in the process of decentralizing the same process<br />Illustration:Sales process in 2011<br /> Hvordan vi er organisert i dag<br /> Endringer vi har gjennomført de siste tre år<br />”Everything that can be done in the Region should be done in the Region”<br /> Trender og eksterne krav<br /> Viktige veivalg vi vil stå ovenfor de neste tre år<br />Proposals are developed locally (or in regional Shared Services centers);<br />Production is also done locally in many cases<br />
  8. 8. The second firm initially outsourced production, but then decided to insource <br />Illustration: Change that was implemented in one engineering/oil services company<br /> Hvordan vi er organisert i dag<br /> Endringer vi har gjennomført de siste tre år<br />Service<br />/Aftermarket<br />Sales<br />Procurement<br />Engineering<br />Internally<br />Fabrication<br />Externally<br /> Trender og eksterne krav<br /> Viktige veivalg vi vil stå ovenfor de neste tre år<br />”We outsourced too much of the production process…it’s hard to manage this interface…this is one of the reasons we almost went bankrupt”<br />
  9. 9. The two examples can be analyzed in terms of the (mis)alignment between structure and processes<br />Situation in engineering firm after initial outsourcing of Fabrication <br />Separated<br />Formal structure<br />Standardization and modularization of processes allow decopling<br />Integrated<br />Technical sales and engineering in the same unit<br />Low<br />High<br />Situation after insourcing of Fabrication<br />Degree of interdependency<br />in work processes<br />
  10. 10. Three main implications follow if we accept the logic of the framework proposed here<br />2) One can increase alignment either by altering the formal structure or by formalizing/standardizing work processes<br />S<br />Formal structure<br />I<br />H<br />L<br />Process interdependency<br />Effective design<br />1) To make effective organization design decisions we must know something about the work processes and the interfaces (ideally, we should know the degree of interdependency)<br />3) Too much integration is potentially as damaging as too little integration <br />
  11. 11. I will add more information about this and other organization design topics to my blog<br />www.nicolayworren.com<br />Subscribe by pressing this button!<br />www.organizationdesign.net<br />New domain in<br />June 2011:<br />

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