TRENDS IN ORGANISATIONAL DESIGN: S.Seeralan

MODERN ORGANIZATION DESIGNS

            Along with organization theorists, many practicing managers are becoming disenchanted with traditional ways of designing their organizations. Up until a few years ago, most managers attempted only timid modifications of classical bureaucratic structures and balked at baring experimentation and innovation. However, many of today’s managers have finally overcome this resistance to making drastic organizational changes. They realize that the simple solutions offered by the classical theories are no longer adequate in the new paradigm environment. In particular, the needs for flexibility, adaptability to change, creativity, innovation, knowledge, as well as the ability to overcome environmental uncertainty, are among the biggest challenges facing a growing number of modern organization. The response has been horizontal, network, and virtual organization designs.

            Horizontal designs replace the traditional vertical, hierarchical organization. The advanced information technology and globalization             environment, discussed in Chapter 2, suggests the use of horizontal structure to facilitate cooperation, teamwork, and a customer rather than a functional orientation. Frank Ostroff, a McKinsey & Company consultant, along with colleague Douglas Smith, is given credit for developing some of the following guiding principles that define horizontal organization design.

1. Organization revolves around the process, not the task. Instead of creating a structure around the traditional functions, the organization is built around its three to five core processes. Each process has an “owner” and specific performance goals.
2. The hierarchy is flattened. To reduce levels of supervision, fragmented tasks are combined, work that fails to add value is eliminated, and activities within each process are cut to the minimum.
3. Teams are used to manage everything. Self-managed terms are the building blocks of the organization. The terms have a common purpose and are held accountable for measuring performance goals.
4. Customers drive performance. Customer satisfaction, not profits or stock appreciation, is the primary driver and measure of performance.
5. Team performance is rewarded. The reward systems are geared toward team results not just individual performance. Employees are rewarded for multiple skill development rather than just specialized expertise.
6. Supplier and customer contact is maximized. Employees are brought into direct, regular contact with suppliers and customers. Where relevant, supplier and customer representatives may be brought in as full working members of in-house teams.
7. All employees need to be fully informed and trained. Employees should be provided all data, not just sanitized information on a “need to know: basis. However, they also need to be trained how to analyze and use the data to make effective decisions.

Today, this horizontal structure has become a reality in an increasing number of organizations. For example, AT&T units are doing budgets based not on functions but on processes, such as the maintenance of a worldwide telecommunications network. Importantly, AT&T is also rewarding its people based on customer evaluations of the terms performing these processes, and GE, Motorola, and Xerox, among other firms, have moved to the principles of the horizontal design of organization. For example, General Electric has scrapped the vertical structure that was in place in its lighting business and replaced the design with a horizontal structure that is characterized by over 100 different processes and programs. The Government Electronics group at Motorola has redesigned its supply-chain management organization so that it is now a process structure geared toward serving external customers. At Xerox new products are developed through the use of multidisciplinary terms: the vertical approach that had been used over the years is gone. These new ways of organizing are more relevant to today’s environmental needs for flexibility, speed, and cooperation. A recent book on The Horizontal Organization suggests principles such as the following:

1.      Make terms, not individuals, the cornerstone of organizational design and performance.

2.      Decrease hierarchy by eliminating non-value-added work and by giving team members the authority to make decisions directly related to their activities within the process flow.

3.      Emphasize multiple competencies and train people to handle issues and work in cross-functional area.

4.      Measure for end-of-process performance objectives, as well as customer satisfaction, employee satisfaction, and financial contribution.

5.      Build a corporate culture of openness, cooperation and collaboration, a culture that focuses on continuous performance improvement and values employee empowerment, responsibility, and well-being.

            The network designs go beyond even horizontal structures and totally abandon the classical, hierarchical, functional structure of organization. The bureaucratic model worked fine in the previous are when there was less competition, more stable market conditions, more stable market conditions, and before the now boundaryless conditions of advanced information technology and globalization. To meet these challenges of revolutionary change, organizations are moving toward network structures.

            Network organizations have been discussed in the academic literature for a number of years. For example, organization theorists Miles and Snow identified what they call the dynamic network. This involves a unique combination of strategy, structure, and management processes. They more recently have described the network organization as follows: “Delayered, highly flexible, and controlled by market mechanisms rather than administrative procedures, firms with this new structure arrayed themselves on an industry value chain according to their core competencies, obtaining complementary resources through strategic alliances and outsourcing”. There is also research showing the impact that structure and information technology can have no network behavior and outcomes.

            With the advent of teams and outsourcing (concentrating on core competencies and forming outside partnerships to perform the peripheral activities and functions of the organization), network designs are actually being used by practicing organizations. Tapscott and Caston note that such networked organizations are “based on cooperative, multidisciplinary terms and businesses networked together across the enterprise. Rather than a rigid structure, it is a modular organization architecture in which business teams operate as a network of what we call client and server functions.

Structure                        Hierarchical                        Networked

Resource focus                        Capital                        Human, information

State                        Static, stable                        Dynamic, changing

Personnel focus                        Managers                        Professionals   

Key drivers                        Reward and punishment                        Commitment

Direction                        Management commands                        Self-management

Basis of action                        Control                        Empowerment to act

Individual motivation                        Satisfy superiors                        Achieve team goals

Learning                        Specific skills                        Broader competencies

Basis for compensation                                    Positions in hierarchy                                    Accomplishment, competence level

Relationships                                     Competitive                                     Cooperative (our challenge)

Employee attitude                                    Detachment (it’s a job)                                    Identification (it’s my company)

Dominant requirements                                    Sound management                                    leadership

Compares the various dimensions and characteristics of the traditional, hierarchical organization with the network organization. Although the network design cannot readily be drawn, as can the classical hierarchical structures of the past.

            Miles and colleagues identified three types of radical redesign of today’s organizations:

1. Greenfield redesign. As the term implies, this means starting from just a piece of green field or from a clean slate, breaking completely from the classical structure and establishing a totally different design. Examples include such highly successful firms as Rubbermaid and Southwest Airlines. Rubbermaid’s top management concluded that the key to success in their consumer plastic goods industry was constant product innovation and speed to market. They had to create a brand-new structure characterized by flexibility and empowerment to facilitate innovation, quality, and rapid responsiveness across a broad range of consumer markets. The same was turn for Southwest Airlines. Under the unique leadership of Herb Kelleher, the firm made a complete breaks from the floundering airline industry. Kelleher has been described as having enormous intellectual capabilities, a love for people, a playful spirit, and a commanding personality: he once arm-wrestled an opponent in an advertising slogan dispute rater than going to court. Southwest created an organization that “flies in the face of bureaucracy: it stays lean, thinks small, keeps it simple and more.
2. Rediscovery redesign. This is a more usual type of redesign, whereby established companies such as General Electric return to a previously successful design by eliminating unproductive structural additions and modifications. For example, several of the most successful U.S. electronics firms such as Texas Instruments have reverted to some highly formalized, bureaucratic procedures in their product development process.
3. Network design. Firms such as Ford and Harley-Davidson are not just redesigning in the “Greenfield” sense or rediscovering and extending their past. Instead, they are undergoing efforts to disaggregate and partner. In the network approach, the firm concentrates on where it can add the greatest value in the supply chain, and it out sources to upstream and /or downstream partners who can do a better job. This network of the firm and its upstream and downstream partners can be optimally effective and flexible. Another network approach is no require internal units of the firm to interact at market prices- buy and sell to each other at prices equal to those that can be obtained by outsourcing partners. This “insourcing” approach to the internal network organization can be found in global firms such as the well-known and “shared services” units that compete with outside vendors to furnish services to the bank’s own operating units, and Delta Airlines has established a “business partners” unit to oversee its relations with some 250 vendors and 2,600 contracts for ground crew and customer services at 186 airports around the world. Such global expansion challenges these multinational corporations to make sure they account for cultural differences (see International Application Example).

The Virtual organization

            The term virtual organization has emerged not so much because it describes something distinct from network organizations but because the term itself represents the new Information Age and the partnering and outsourcing arrangements found in an increasing number of global companies. Interestingly, the work virtual as used here comes not from the popular virtual reality but from virtual memory, which has been used to describe a way of making a computer’s memory capacity appear to be greater than it really is. Virtual organizing requires a strong information technology platform. The virtual organization is a temporary network of companies that come together quickly to exploit fast changing opportunities.

            Different from traditional mergers and acquisitions, the partners in the virtual organization share costs, skills, and access to international markets Each partner contributes to the virtual organization what it is best at –its core capabilities. Briefly summarized, here are the key attributes of the virtual organization:

1. Technology: Informational networks will help far-flung companies and entrepreneurs link up and work together from start to finish. The partnerships will be based on electronic contracts to keep the lawyers away and speed the linkups.
2. Opportunism: Partnerships will be less permanent, less formal, and more opportunistic. Companies will band together to meet all specific market opportunities and, more often than not, fall apart once the need evaporates.
3. No borders: This new organizational model redefines the traditional boundaries of the company. More cooperation among competitors, suppliers, and customers makes it harder to determine where one company ends and another begins.
4. Trust: These relationships make companies far more reliant on each other and require far more trust than ever before. They share a sense of  “codestiny”, meaning that the fate of each partner is dependent on the other.
5. Excellence:  Because each partner brings its “core competence” to the effort, it may be possible to create a “best-of-everything” organization. Every function and process could be world class–something that no single company could achieve.

Importantly, virtual organizations can help competitiveness in the global economy. The alliances and partnerships with other organizations can extend worldwide, the spatial and temporal interdependence easily transcend boundaries, and the flexibility allows easy reassignment and reallocation to take quick advantage of shifting opportunities in global markets.

            Examples of virtual organizations include those already mentioned as well-known network organization-Ford, Harley Davidson, and ABB- and also, on smaller scale, firms such as Clark Equipment, a manufacture of forklifts and other industrial equipment: Semco, a Brazilian firm producing pumps, valves, and other industrial products; and the Australian firm Technical and Computer Graphics (TCG). Other well known examples include Nike and Reebok, who do very little of their own production but shift it to Asian firms. In the information technology industry, Sum Microsystems views itself as an intellectual holding company that designs computers and does all other functions (product ordering, manufacturing, distribution, marketing, and customer service) through contractual arrangements with partners located throughout the world, and Intel uses virtual terms with members from Ireland, Israel, England, France, and Asia working on a wide variety of projects. As with the network organization, it is not really possible to show a virtual organization, but it can be depicted graphically how TCG would look as a virtual organization. Because networks and virtual organizations both represent such radically different ways to structure firms, there are many challenges ahead, especially on the human side of these new structural forms.

REFERENCES:

1. Fred Luthans. Organisational Behavior
2. Nicholas Henry. Public administration and Public affairs