ORGANISATION DESIGN. CRF Event February 14, Michael Goold Ashridge Strategic Management Centre

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1 ORGANISATION DESIGN CRF Event February 14, 2006 Michael Goold This content is explored in Ashridges Advanced Organisation Design course. Ashridge Business School

2 Organisation Design Challenges 2

3 Organisation design issues Usually, driven by personalities, politics and crises rather than commercial logic Lack of accepted framework and processes for developing and choosing between design options Redesigns often prove unsatisfactory and are (rapidly) changed 3

4 Simple structures Corporate Self-contained SBUs 4

5 Complex structures (matrices) Corporate Staff units Operating units 5

6 The rise of matrix structures Simple, SBU-based structures have many advantages, but cannot handle multiple dimensions of focus Hence, the rise of complex, interdependent structures But interdependent, matrix structures are hard to manage Structured networks as the best way to achieve success 6

7 Structured networks As far as possible, self-managed decisions and relationships decentralising to front-line units creating interdependence through networking avoiding bureaucratic rules, processes, policies avoiding hierarchy that adds no value But with sufficient structure and hierarchy to work well creating clarity on intended responsibilities, relationships and accountabilities creating more value than pure market relationships avoiding ambiguity, conflict and confusion 7

8 Designing structured networks To assist in designing structured networks, we have developed a taxonomy (language) of unit roles for clarifying design concepts a framework of design principles and tests a process for making design decisions, using the tests to refine the design concepts 8

9 Making Matrix Structures Work: Defining Roles and Responsibilities 9

10 Matrix structures: clarity A major potential drawback of matrix structures is lack of clarity overlapping responsibilities shared responsibilities unclear relative power and authority in relationships complicated accountabilities for unit performance and for wider performance 10

11 Clarity and detail It is neither feasible nor desirable to achieve clarity by designing an organisation in great detail from the top down can t anticipate all required decisions excessive detail not used or useful many detailed design decisions should be left to lower levels of management flexibility to evolve with people and circumstances is needed Yet clarity about the way the organisation is intended to work is vital 11

12 Unit roles We have developed the concept of unit roles as a means of clarifying responsibilities without specifying all the details broad responsibility definition type of reporting relationships type of lateral relationships main accountabilities Clarity about unit roles provides a context within which unit managers can work out most of the details for themselves 12

13 Taxonomy of units (1) parent units: upper level units that carry out obligatory corporate tasks, and influence and add value to other units business units: market-focussed, profit-responsible units with relatively high decision-making autonomy functions: operating functions, such as manufacturing or sales, that report to a unit general manager sub-businesses: market-focussed units that serve segments defined at a more disaggregated level than the business units 13

14 Simple structures Parent Business units Sub businesses Business functions 14

15 Taxonomy of units (2) overlay units: market-focused units that serve segments defined along dimensions that cut across the business units core resource units: units that develop and nurture resources, such as R&D, that are key to competitive advantage for several business units shared service units: units that provide services that are needed by several other units in the company project units: units that carry out tasks or projects that cut across other units, normally for a finite time period. 15

16 Complex structures Shared Service Units Parent Core Resource Units Overlays Project Units Business Units Sub-Businesses Business Functions 16

17 Reporting relationships and lateral relationships What sort of relationships with upper level units? units that report to a parent have more autonomy units that report to a general manager have less autonomy What sort of relationships with sister units? mutual self-interest pressure group/principal service provider/client resource owner/user team 17

18 Units and roles Type of Unit Type of Responsibility Relationships Reporting Lateral Main Accountabilities Parent Core resource unit Obligatory and added-value parenting Board/parent Mutual self-interest Corporate bottom line focused Parent/unit owner/user development and utilisation Shared service unit Service focused Parent/unit Service provider/client Service cost effectiveness Project unit Project focused Parent/unit Pressure group/principal Project delivery Overlay unit Market focused (cut-across) Parent/unit Pressure group/principal Effectiveness in serving target segments Business unit Market focused Parent/unit Mutual self-interest Bottom line (strong) Subbusiness Market focused (disaggregated) General manager/unit Quasi-team Bottom line Business function Functional General manager/ function Team Functional effectiveness and contribution 18

19 Clarity and unit roles Laying out the roles of all units in the design forces clarity about basic issues of responsibility, relationships, autonomy and accountability a necessary condition for any structure to function effectively Using the roles taxonomy is a means of avoiding the ambiguities that often prevent matrix structures from working well. 19