Organization Design in the Future
Less Number of Management Levels
The distance between the point where an organization experiences the forces of change-especially in its markets, technologies, and products and the point where strategic decisions are made to redesign the company in response to these forces is often five or more levels of management. As a result, the time it takes to respond to major changes may be much longer than necessary, causing organizations to be reactive rather than proactive (the forefront of change). Requests for changes carry a heavy burden of documentation, justification, presentation and timing as they move up and down each of the several levels of management.
Organization of the future will seek to reduce the physical and psychological distance from the top to the bottom of their structure. The authority, responsibility and power necessary to deal effectively with rapidly changing conditions will be vested in the lower levels of the organization, where the factors relevant to decisions about change are most readily apparent and best understood. John Sculley at Apple moved in this direction by adjusting Apple’s design so that territorial managers have greater discretion in deciding how Apple can meet the needs of major customers (educational or business) in their areas. Sculley also created rapid-response teams composed of the territorial manager, a production manager, and an ancillary product manager. This team has the authority to make significant decisions about how Apple will price, produce, and supply products for customers whose needs exceed certain levels.
Adhocracy and Porous Departments
As organizations get larger, they begin to stifle the ability of subunits to make decisions and respond automatically to change. One of the major reasons for the success of the corporate raiders of the 1980s was the efficiencies to be gained by simply buying highly diversified companies and breaking them apart into their individual, separate businesses. The resulting freedom and flexibility often produced much more profitable businesses.
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Organizations of the future will accept adhocracy:
Federations of relatively autonomous units each of which can operate entrepreneurially. And within each unit, the structure will be more fluid or porous. Arbitrary barriers between and within departments will be less important – may even be removed – to allow people to “float” more between units, contribute to decisions, and get key jobs done.
Systems Decoupled from Structure
Most organization structures are quasi-permanent. They stay in place for many years. It is not surprising that most of the systems that help “ manage” the company –compensation, promotion, accounting, communication, and planning, to mention a few – are fitted to the structure of the organization.
If flexible structures such as adhocracy and fewer levels of management evolve, the supporting systems will have to stand alone. Promotions must be more than movements between slots in units and levels. Compensation must be linked to more than unit-related criteria. The key will be tailoring the systems to individuals rather than to organization units. Systems generally exist today to protect the company from human error. Systems of the future must enhance innovation which necessitates systems to decouple from structures and serve to enhance individual initiative, not limit it.
Sharing Rather than Dividing of Resources
The systems that many organization use to make decision about the future and to commit resources to support those decisions is budgeting. Hence many managers are preoccupied with determining what resources they have to work with. Then, on the basis of that, they decide what they can do in the future. They ask, “What resources do we have under our control and what options do they allow us to pursue?” The central theme in this orientation is the need to identify and control the resources available.
Another system or orientation that many organizations are beginning to take seriously looks at the opportunities dictated by changing
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environments as the true starting point for making future decisions. Managers with this orientation ask, “What opportunities are available to us?” Only after settling on a range of opportunities do they address the issue of resources: “What resources do we need [not ‘’’’’control;’’] in order to pursue favorable opportunities?”. The manager who takes this approach seeks to borrow or temporarily use resources, not to own and control them. Resources are viewed simply as a means of pursuing attractive opportunities, not as things to accumulate as a source of organizational power. Manages in firms that employ this type of systems use company resources (people, facilities, money, capacity, technology, and marketing capability) only as long as they are needed. And because it is critical to make resources available in time for managers to seize the opportunities they discover, this system encourages access to resources in a manner that reduces paper work, levels of management through which decisions must travel, and the extent of “political” activity necessary to secure resources. Many people feel that this orientation – sharing rather than owning resources will be the most effective orientation for organization designs of the future.
Strategy and Organization Design
The primary consideration in designing an organization is organizationstrategy.Awelldevelopeddesignenhancestheaccomplishment of strategic objectives, and these strategic objectives should be carefully selected to ensure successful organizational performance. Organization structure facilitates organizing the work, goals, relationship and decisions of an organization in such a way that people can perform to the best of their abilities. Thus the ultimate goal of organization design is to facilitate performance. A poorly conceived design can prevent high performance. In a well-managed organization, the connection among strategy, design and performance is strong.
Researchers have pointed out that an organization’s existing design also affects its strategy. For example, the design places power in the hands of a certain group of people, so there is a tendency among the members of this group to formulate strategies that preserve the status quo. It is not necessary to figure out whether strategy or design came first, or which has more impact, but it is critical to acknowledge the strong reciprocal relationship that exists between strategy and design.
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Informal Organization and Culture
The informal organization consists of the personal relationships and means of communication that are often necessary to accomplishing the work of the organization but are not a part of the formal organization structure. A related concept is the organization cultures the shared beliefs, attitudes and opinions about the company and what it stands for. The informal organization and the organization’s culture are created by people throughout the company rather than being controlled by top management.
Informal organization and culture are important considerations in the overall design of an organization because of their influence on the behavior and performance of employees. In designing or redesigning an organization, management must always take the informal organization and the prevailing culture into account. If the organization’s design clashes with its culture, it is most unlikely that the design will be effective. And where the design specifically attempts to frustrate part of the informal organization, harmful conflict may result.
Impact of Technology on Organizational Design
Three factors have been found to have an effect on the design of an organization. The most appropriate design for an organization seems to be contingent on such variables as its environment, the complexity of its technology and its size. The organization’s environment is an external variable, its technology has internal as well as external aspects; and its size is principally an internal factor.
Impact of Environment on Organization Design
Organizations are influenced by the broader environment in which they exist. Government policy, societal values and social norms, economic trends, and the rate of technological change and innovation are general environmental factors that affect virtually any organization. And every business must adjust to its customers, competitors, suppliers and creditors
– all of which are part of its immediate environment.
Managers of business design their organizations to take advantage of opportunities that arise in their environment and to respond to changes
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in the environment. Most of the studies investigated the relationship between organization design and its environment and concluded that the best design for a given organization is contingent on the characteristics of its environment.
Environment Variability
In assessing the possible impact of the environment on its design, an organization must consider the amount of variability in its environment
– that is, the degree of change with which it must be prepared to cope. It must consider the frequency of change, the magnitude of change, and the predictability of change. An organization’s environment may be stable, changing or turbulent.
Stable Environment
A stable environment is one that experiences little or not unexpected or sudden changes. Products require only minor changes, if any, and the market shows very few fluctuations. For whatever reasons, the product attracts neither regulatory attention nor technological innovation. Consequently, organizations in a stable environment remain virtually unchanged for a long time. But stable environments are becoming scarcer. It is difficult to think of many organizations that have made the same product with the same process and sold it in essentially the same way for a long time.
Arms & Hammer is one organization with stable environment. It has been providing baking soda to similar markets for over one hundred years. The markets have grown, outlets for selling baking soda have changed, and additional uses for the product have been found, but the overall level and rate of change in the product and its markets have been minimal.
Dynamic Environment
Dynamic environment is characterized by trends that are predictable. Thus organizations can be prepared to adjust to the changes when they occur. For example, the environment of many service firms could be characterized as changing. Trends in demand for services often
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