Self Contained Organizational Designs & Horizontal Organization Design Paper Even the strongest of organizations that have an open and productive culture b

Self Contained Organizational Designs & Horizontal Organization Design Paper Even the strongest of organizations that have an open and productive culture based in executive engagement, creation of buy-in, and empowerment need the right organizational design and structure. These designs and structures should allow for forward thinking, creativity, and innovation. Teams are the spine of an organization’s structure and processes. Successful teams will reduce response times, support and facilitate the organization’s strengths, decrease the impact of the entity’s weaknesses, turn threats into opportunities, and opportunities into productive strategies. Making the right decisions at the right time and with the appropriate strategies are all important factors when evaluating designs and structures. Review the provided PDF: “What is the Right Organization Design” (Anand & Daft, 2007) Through research from academic and scholarly resources, determine, analyze and evaluate the following elements: Evaluate Self-Contained Organizational Designs. Apply the three self-contained organizational designs (functional, divisional, and matrix) to your organization (or a former organization). Analyze the horizontal organization design with a team and process-based emphasis and the relationship this design creates with customers and suppliers. The paper should contain the following APA formatted elements: Title Page Abstract Body of the essay Conclusion References Section (At least 3) Organizational Dynamics, Vol. 36, No. 4, pp. 329–344, 2007
ß 2007 Elsevier Inc. All rights reserved.
www.organizational-dynamics.com
ISSN 0090-2616/$ – see frontmatter
doi:10.1016/j.orgdyn.2007.06.001
What is the Right
Organization Design?
N. ANAND
INTRODUCTION
A start-up company in Florida, called World
Response Group (WRG), developed an unusual woven mat for the horticulture industry that was made from all-natural fibers.
Horticulture growers in the U.S. produce
hundreds of millions of potted plants each
year. The product, called SmartGrow, dramatically reduced weed growth in potted
plants and simultaneously provided important nutrients – all with no chemicals. SmartGrow raw materials and manufacturing
expertise were available in China and India.
As the company grew, the managers and
board members talked frequently about
organization structure. Two schools of
thought emerged. One group wanted to
import raw materials into the U.S. for manufacturing by WRG and thereby have direct
control over manufacturing, marketing, and
sales. These functions would be departments within WRG. The second group
wanted to import already manufactured
and packaged products from overseas, outsource marketing to an agency, and hire a
horticulture distribution company to handle
sales. The second group pushed the concept
that no one within the company would
ever touch the product. Nor would there
be functional departments for manufacturing, marketing, and sales.
That discussion of structure within WRG
would not have occurred 30 years ago when
Robert Duncan published his seminal article,
‘‘What is the Right Organization Structure?’’
in Organization Dynamics in 1979. At that
time, organizations were thought to be selfcontained, and structure defined the reporting relationships among internal functional
RICHARD L. DAFT
departments. Duncan’s article provided
important insights about the conditions
under which different internal arrangements
would achieve a company’s mission. His
insights are still referenced in management
textbooks today.
The purpose of this article is to present
key developments in organization structure
and design that have occurred since Duncan’s article and describe when each can be
used for greatest effect. We will briefly
review the important structural designs from
30 years ago and then describe key developments since that time. The concepts are organized into three eras, which reflect
substantive changes in management thinking from vertical organization to horizontal
organizing to open boundaries via outsourcing and partnering.
ERA 1: SELF-CONTAINED
ORGANIZATION DESIGNS
The first era of organizational design probably took hold in the mid-1800s, and was
dominant until the late 1970s. In Era 1, the
ideal organization was self-contained. It had
clear boundaries between it and suppliers,
customers or competitors. Inputs arrived at
the organization’s gate, and after a transformation process, left as a completed product
or service. Almost everything that was
required during the transformation process
was supplied internally. Design philosophies from this era emphasized the need to
adapt to different environmental and internal contingencies and the ability to control
the different parts of the organization
329
through reporting relationships in a vertical
chain of command.
The structure of self-contained organizations can be thought of as: (1) the grouping of
people into functions or departments; (2) the
reporting relationships among people and
departments; and (3) the systems to ensure
coordination and integration of activities
both horizontally and vertically. The structures of this era, including functional, division, and matrix designs, rely largely on the
vertical hierarchy and chain of command to
define departmental groupings and reporting relationships.
Functional
In a functional structure, activities are
grouped together by common function from
the bottom to the top of the organization.
Each functional activity – accounting, engineering, human resources, manufacturing,
etc. – is grouped into a specific department.
Most small companies use this structure, as
do many large government organizations
and divisions of large companies.
Divisional
The divisional structure occurs when
departments are grouped together based
on organizational outputs. The divisional
structure is sometimes called a product structure or profit center. Most large companies
have separate divisions that use different
technologies or serve different customers.
People within each division have more product focus, accountability, and flexibility
than would be the case if they were part of
a huge functional structure. For example,
United Technologies Corporation (UTC),
which is among the 50 largest U.S. industrial
firms, has product divisions for air-conditioning and heating (Carrier), elevators and
escalators (Otis), aircraft engines (Pratt &
Whitney), helicopters (Sikorsky), and aerospace (Hamilton Sundstrand), among others.
Each division acts like a stand-alone company, doing its own product development,
marketing, and finance.
330 ORGANIZATIONAL DYNAMICS
Horizontal Overlays and Matrix
Few organizations can be successful
today with a pure functional structure,
because the resulting functional or divisional silos inhibit the amount of coordination needed in a changing competitive
environment. Organizations break down
silos by using a variety of horizontal linkage
mechanisms to improve communication
among departments and divisions. These
coordination relationships are often drawn
on organization charts as dotted lines. Many
organizations use full-time product managers, project managers, or brand managers,
to coordinate the work of several departments. The brand manager for Planters Peanuts, for example, serves as an integrator
by coordinating the sales, advertising,
and distribution for that product. General
Motors Corp. has brand managers who are
integrators responsible for marketing and
sales strategies for each of GM’s new models.
Organizations that need even stronger
horizontal coordination may evolve to a
matrix structure. The matrix combines a
vertical structure with an equally strong
horizontal overlay. While the vertical structure provides traditional control within
functional departments, the horizontal
overlay provides coordination across
departments to achieve profit goals. This
structure has lines of formal authority along
two dimensions, such as functional and
product or product and region. Some
employees report to two bosses simultaneously. For example, after a regional marketing promotion went $10 million over
budget, Nike Inc. managers engineered a
matrix structure that assigned dual responsibility by product and region to manage
the introduction of new products each year.
Headquarters establishes which product to
push. Then product managers determine
how to do it, but regional managers have
authority to modify plans for their regions.
Nike’s matrix provides a counterbalance
between product manager and regional
manager ambitions.
ERA 2: HORIZONTAL
ORGANIZATION DESIGN
WITH TEAM- AND PROCESSBASED EMPHASIS
The second era of organizational design
started in the 1980s. As the world grew
increasingly complex, organizations of Era
2 experienced the limits of traditional
designs. Coordination between departmental silos within the organization became
more difficult, and vertical authority-based
reporting systems often were not effective in
creating value for customers. At the same
time, information processing capacity of
organizations improved greatly, due to the
availability of personal computers and networks. Design philosophies of this era
emphasize the need to reshape the internal
boundaries of the organization in order to
improve coordination and communication.
The horizontal organization emphasizes
reengineering along workflow processes
that link organizational capabilities to customers and suppliers. While traditional selfcontained organizations of Era 1 embodied
the need for hierarchical control and separate functional specializations, the horizontal organization advocated the dispensing
of internal boundaries that are an impediment to effective business performance. If
the traditional structure can be likened to
a pyramid, the metaphor that best applies
to the horizontal organization is a pizza –
flat, but packed with all the necessary
ingredients.
Examples
New product development is one context
in which the horizontal organization design
is most appropriate. Take the example of
Ford Motor Co.’s Escape gas-electric hybrid
sport utility vehicle (SUV), conceived in
response to consumer demand and competition from rivals such as Toyota Motor
Corp. and Nissan Motor Co. Ford adopted
the horizontal organization design, which
involved creation of a cross-functional team
to handle the entire workflow for develop-
ing and launching a new automobile model.
The team included highly accomplished
individuals from research and product
engineering – two groups that are traditionally in separate silos in Ford. There were
two team leaders, one with experience in
product development and another with
expertise in launching vehicles in the market on time. In the development phase, the
team invested a considerable amount of
time learning about customer requirements
firsthand, by talking to potential owners in
addition to relying on market research
reports. The research scientists and engineers shared a common office space, discussed emerging issues over group lunches,
and improved product design through hallway chats. The team was sheltered from the
rest of the organization and provided with
resources rapidly as and when required.
For example, when discussions with the
Japanese battery supplier were stalling
because of language difficulty, the Ford
corporate office dispatched an engineer fluent in Japanese to help the team out. Once
the prototype vehicle was developed, the
team shifted into launch mode in order to
get it ready for production. The team
started working more intensively with outside suppliers that provided critical parts
for the new vehicle and were always
around to solve manufacturing problems.
The Escape Hybrid SUV was launched on
time and is regarded by industry experts as
a successful product for Ford.
Other firms that have used the horizontal
organization for new product development
include Xerox Corp., Lexmark Printers,
and Eastman Kodak Co. Another domain
in which this design works effectively
is in back-office tasks of financial services
firms that involve handoffs to multiple
departments. Barclays Bank in the U.K.
uses the horizontal design for its mortgage
services, incorporating legal and relocation
services in addition to traditional tasks
such as loan sanctioning and credit
assessment.
The design features of the horizontal organization are summarized in Table 1.
331
TABLE 1
DESIGN FEATURES
FEATURES
OF THE HORIZONTAL ORGANIZATION
HORIZONTAL ORGANIZATION
Figure
What is it?
Design principles
Advantages
Disadvantages
When to use
Breaking down internal boundaries and vertical silos to make subunits
work together horizontally
(1) Organize around complete workflow processes rather than tasks.
(2) Flatten hierarchy and use teams to manage everything.
(3) Appoint process team leaders to manage internal team processes.
(4) Let supplier and customer contact drive performance.
(5) Provide required expertise from outside the team as required.
(1) Rapid communication and reduction in cycle time of work done.
(2) Individuals working together on teams develop broader perspective,
more flexible and empowered roles.
(3) Rapid organizational learning is facilitated.
(4) Improved customer responsiveness.
(1) Separation of business activities into processes and non-process functions
may be problematic.
(2) Cinderella problem: non-process bits of the organization could feel neglected.
(3) Teamwork could get in the way of functional specialization.
(4) Traditional departments may instigate turf battles.
When the organization can create better value by improving internal coordination to
enable greater flexibility and tailored responses to fit customer needs.
Design Principles
Five principles govern the design of a
horizontal organization. First, organize
around complete workflow processes rather
than departments. The key is to move away
from a traditional department-centered
mindset of breaking things down by functions. Instead, think about how different
pieces of work are holistically accomplished
in the organization. For example, at Progressive Casualty Insurance Company, adjusters
and claims personnel are organized into
teams that handle the entire claims process
from beginning to end. Departmental boundaries are eliminated, and the claims response
takes a few hours rather than a week. Second,
diminish hierarchical differences and use
teams to carry out the work, which is what
Progressive does. The use of team structure
332 ORGANIZATIONAL DYNAMICS
empowers employees, decentralizes decision-making, and allows for greater learning
across the organization. Third, appoint team
leaders to manage the internal process in
addition to coordinating the work. It is
important to realize that monitoring the
team’s processes is as important as taking
care of expected outputs. In the Escape
Hybrid team, one individual took the lead
role during development and adopted a
relaxed and exploratory mindset, while
another individual took on a more taskoriented and deadline-driven role during
the launch phase. Fourth, allow team members to interact with customers and suppliers
directly, so as to adapt and respond quickly if
required. Direct contact allows members to
keep abreast of changes in the environment
more quickly. Finally, provide required
expertise from the outside as and when
requested by the team. A good team realizes
that it does not have all the answers, and
therefore it should not be shy about asking
for help when needed.
Advantages
There is rapid communication among
team members with different functional
backgrounds, resulting in reduction in the
time for getting workflows completed. Members of a team develop a broader perspective
and become adept at solving problems that
have the potential to hinder the effectiveness
of the entire organization. Employees
become more flexible in terms of skill and
competence by being aware of the roles of
others, and thus feel more empowered to
make decisions. Being part of the team also
guarantees some recognition and social support. Overall, the level of learning within the
horizontal organization increases tremendously compared with the traditional pyramid structure, because of close contact with
both customers and suppliers at either end
of the workflow. For example, Ford executives used the horizontal approach to customer service for the Escape SUV. Several
horizontally aligned groups were responsible for core processes such as parts supply
and logistics, vehicle service programs,
and technical support. As the processes took
hold, learning and responsiveness increased
sharply.
Disadvantages
As with any design option, the horizontal
organization has its fair share of drawbacks.
First, the identification of complete and selfcontained work processes within an organization can be problematic. It may be difficult
to separate workflows from departmental
tasks in a straightforward manner. Strong
departments within a firm might fight hard
because they might perceive a loss of ‘‘turf.’’
Even where the identification is done well
and in a politically astute manner, there can
be a short-run increase in costs while transitional arrangements are perfected and as
employees adjust to the lack of traditional
and direction. Second, there is the Cinderella
problem: employees belonging to parts of the
organization that have not been earmarked
as horizontal might feel relatively neglected.
The emphasis on cross-disciplinary teamwork and immediate customer gratification
could stand in the way of deeper technical
specialization that can result in innovative
products. Finally, managers in entrenched
departments may feel a loss of turf and
may act politically to stymie attempts at
effective horizontal collaboration.
When to Use
The horizontal design is best when the
organization can create better customer
value by improving internal coordination
so as to be flexible and responsive to customers’ needs. By creating key workflow processes and defining support tasks, there is a
better line of sight to customers. This design
should be used when the organization is able
to move to the mindset of a team-based
structure without great difficulty, and also
when it is able to trade off the short-term
losses incurred in making the new structure
work against the gains that eventually accrue
from it.
ERA 3: ORGANIZATIONAL
BOUNDARIES OPEN UP
The third era of organizational design came
into its own in the mid-1990s, with rapid
improvements in communication technology
in the form of the Internet and mobile
phones. Era 3 also coincides with the rise
of emerging economies such as China and
India, where there is a great pooled of skilled
expertise in performing very specific tasks
such as low-cost manufacturing and software development. The external and internal
boundaries of the organization opened up as
never before. Managers became increasingly
comfortable with the idea that their organization could not efficiently perform all of the
tasks required to make a product or service.
333
In the early years of the era, large and bloated
organizations shed a lot of tasks that were
completed internally, and this led to a difficult period of adjustment. Later on, start-up
organizations were designed at the outset to
be more lightweight by having a number of
tasks performed externally.
HOLLOW ORGANIZATION
The biggest trend in the design of organizations in Era 3 has been, without doubt, the
outsourcing of various pieces of work done
internally to outside partners. The phenomenon became most noticeable in the shifting
of the manufacturing function from the U.S.
to cheaper areas of production in Asia. In
1986, a Business Week article noted that a
number of industries – including auto, steel,
machine tools, consumer electronics, and
semiconductor chips – were shifting their
production elsewhere, and hence could be
characterized, in contrast to traditional manufacturers, as ‘‘hollow corporations.’’ More
than 20 years later, business commentators
recognize that adopting the hollow organization design form has led to more value creation, because U.S. firms now focus on honing
profit-making functions such as design and
marketing.
Examples
There are now few industries that remain
untouched by the hollow organization
design option. Take the case of the U.S.
military. Faced with contradictory demands
– for greater troop deployment to fight terrorism around the world and pressure to cap
the number of active personnel and reservists
who are called up – the military has turned
towards ever increasing use of private military company (PMC) contractors to provide
all services except the core one of fighting
battles and securing defensive positions. For
instance, Kellog Brown & Root, a subsidiary
of the Haliburton Corporation, builds and
maintains military bases that have been
deployed in Iraq and also provides for all
334 ORGANIZATIONAL DYNAMICS
catering and cleaning requirements and its
employees (comprising engineers, architects,
logistics experts, cooks, and cleaners) live
and work alongside servicemen and women
in many active theatres around the world.
Much of the sophisticated weaponry used by
the military – such as the F-117 fighters, the
Patriot missile, and the Global Hawk drone –
is maintained on site by PMCs. A study of the
use of PMCs by the military in Bosnia
showed that outsourcing had reduced troop
numbers by 24% and cut operational costs by
27%. As this illustratio…
Purchase answer to see full
attachment