Summary organizational design a step by step approach
Chapter 1 Assessing the scope and goals of the organization
Challenge of designing the organization
Globalization, world-wide competition, deregulation, political risk, and ever-new technologies drive
ongoing redesign of organizations. New organizational forms challenge old ways of organizing for
efficiency and effectiveness. The fundaments are: what are our goals? What are the basic tasks? Who
makes which decision? What is the structure of communication, and what is the incentive structure?
Structural changes or design changes can on paper be effective immediately, but to implement a
complete organizational redesign involves much more and will take time.
Why are organizations redesigned? Research on the relationship between organizational design and
efficiency shows that approximately 30% of the variation in performance can be explained by the
organizational design. Imbalances (misfits) between the various design components of organizational
design can therefore be crucial for the performance of organizations. In many cases changes in
design components are carried on to enhance the internal components of the organization (such as
climate and work processes) and therefore are implemented without consideration of how these
internal components are in effect interdependent with external design components.
Organizational design is not only reorganizing the organizational chart, it involves many interrelated
components. Structural components include goals, strategy and structure. Human components
include work processes, people, coordination and control, and incentive mechanisms. Together these
components view a holistic approach to the organizational design challenge.
It follows a seven step approach: (1) getting started, (2) assessing strategy, (3) analysing the
structure, (4) assessing process and people, (5) analysing coordination, control and incentives, (6)
designing the architecture, (7) implementing the architecture.
Multi contingency organizational design
Organizational design involves two complementary problems: (1) how to partition a big task of the
whole organization into smaller tasks of the sub-units; and (2) how to coordinate these smaller sub-
units tasks so that they fit together to efficiently realize the bigger task or organizational goals. By
complementary, we mean that the smaller tasks must be defined and arranged in a way that allows
effective coordination. The multi-contingency approach consist of five components; goal/scope,
strategy, structure, process and people, coordination, control and incentives. It is an extension of the
model which integrates and extends the many single contingency models on strategy, size,
environment, technology, and climate.
the lines between the circles represent fit, alignment, connections.
Misalignments in any of these connections will result in lower
performance than could otherwise be obtained. The step-by-step
approach is used, which is a ‘how to’ method for diagnosing,
designing and implementing an organization design change, based on
the components of the diamond model. Each step and its
subcomponents provide fundamental building blocks for any
organization. It represents a framework for dealing with the high
degree of complexity. The multi-contingency model provides a
comprehensive framework for diagnosing the organizational design
components and whether they are aligned.
,Misfit leads to a decrease in organizational performance, either today or in the future. Misfits are
thus the starting point for the implementation of change.
Organizational design is an ongoing executive process that includes both short-term, routine
changes, as well as intermittent, larger-scale changes. To find the right design or architecture is
important, and to implement the design is even more important. This approach is based on an
information-processing view of the firm, this view provides you with a framework and a process for
understanding a wide range of organizations.
The information-processing view
An organization uses information in order to coordinate and control its activities in the face of
uncertainty where uncertainty is an incomplete description of the world. By processing information,
the organization observes what is happening, analyses problems, and makes choices about what to
do, and communicate to others. Information processing is a way to view the organization and its
design. Information channels can be created or abandoned by their capacities and types of signals to
be transmitted over them are subject to choice, a choice based on comparison of benefits and costs.
Both information systems and people possess a capacity to process information, but this capacity is
not unlimited and the scarcity of information handling ability is an essential feature for the
understanding of both individual and organizational behaviour.
The step-by-step approach is based on the fundamental assumption that the work of an organization
can be seen as information processing: observing, transmitting, analysing, understanding, deciding,
storing, and taking action for implementation.
The basic design problem is to create an organizational design that matches your organizational
demand for information processing with its information-processing capacity. Task or work
uncertainty can arise from a firms technology and the business environment. If the information-
processing demand comes from many routine and predictable tasks with an efficiency focus, then
formalization in the form of rules and programs can increase the number of tasks that can be
handled. When there are uncertainties associated with the tasks, then information processing is
referred up the hierarchy to a level where an overall perspective exist. This is the traditional use of
exception-based hierarchical decision-making. Unfortunately, such hierarchical decision-making can
handle only a limited amount of uncertainty. Organizations thus face a trade-off: they can either
reduce their need for information processing or increase their capacity to process information. These
are two managerial options.
The first option is to reduce the organization’s need for information processing by increasing slack
resources. Reducing information needs must be balanced with the returns from coordinated
activities. A second option is to increase the organization’s capacity to process information.
Without a doubt, organizations are information processing entities, and both information-processing
capacity and demands for firsm have surged as the cost of information-processing technology and
information in general has decreased. All of this lead to leaner (and meaner) organizations, less
inventory, less equipment, and fewer employees, particularly middle managers. Those who remain
use information much more quickly and efficiently.
Asses the scope of the organization
Organizations can be defined as a consciously coordinated social entity, with a relatively identifiable
boundary, which functions on a relatively conscious basis to achieve a common goal or a set of goals.
, Once the organization has been chosen, it is important to state what the organization is doing, this is
what we call scope. It is also important to bear in mind why you are doing the analysis. As stated
earlier, organizational design involves two complementary problems: (1) how to partition a big taks
into smaller sub-units; and (2) how to coordinate these smaller sub-unit tasks so that they fit
together to efficienctly realize the bigger task and organizational goal. The smaller task must be
defined and arranged in a way that allowed effective coordination.
Assessing organizations goal
You should start by assessing the relative importance to the organization of two fundamental goal
dimensions: (1) efficiency, a primary focus on inputs, use of resources, and costs; and (2)
effectiveness, a focus more on outputs, products or services, and revenues. These are competing
priorities. All organizations value both efficiency and effectiveness to some degree, but the question
is which is the dominant priority. Few organizations state their goal directly in terms of efficiency or
effectiveness. To access the company goal you have to inspect the official goals and analyse them to
asses if the goal has a focus on efficiency, effectiveness, or a balanced combination. Be aware that
sometimes the goals that direct the top management are merely implicitly stated.
Four different goal states are possible:
- Quadrant A: organization with relatively low emphasis on both efficiency and effectiveness.
Has little focus on using resources well and it has few or no specific goals related to higher-
level ideas or targets. Could be the case of a monopoly or early start-up
- Quadrant B: focus on utilization of the smallest amount of resources necessary to produce it
services or products. Firms here continue to do what they have done in the past, refining for
continued improvement. Such companies often exist well in stable environments, where they
can defend their position with a low-cost focus.
- Quadrant C: higher focus on effectiveness, but lower focus on efficiency. It focusses on its
goals, but takes les care to attend to the efficient use of resources. This could be the case in
highly volatile environments or in situations where the organization constantly develops new
ideas and has first mover advantage with high prices, as such, treats the cost of resources as
a secondary concern.
- Quadrant D:; emphasis on both efficiency and effectiveness. They confront competitive,
complex and volatile environments that require both product innovations and low cost in
order to compete successfully. They pursue the dual goals of efficiency and effectiveness
with equal vigour.
The goal of the position of the organization affects its information processing requirement. Efficiency
can be related to first-order learning: a routine, incremental conservative process that serves to
maintain stable relations and sustainable existing rules. Effectiveness can be associated with second-
order learning: existing rules are modified and new knowledge in the organization has to be
facilitated. Information requirements are much greater if the organizations primary goal is
effectiveness rather than efficiency.
Chapter 1 Assessing the scope and goals of the organization
Challenge of designing the organization
Globalization, world-wide competition, deregulation, political risk, and ever-new technologies drive
ongoing redesign of organizations. New organizational forms challenge old ways of organizing for
efficiency and effectiveness. The fundaments are: what are our goals? What are the basic tasks? Who
makes which decision? What is the structure of communication, and what is the incentive structure?
Structural changes or design changes can on paper be effective immediately, but to implement a
complete organizational redesign involves much more and will take time.
Why are organizations redesigned? Research on the relationship between organizational design and
efficiency shows that approximately 30% of the variation in performance can be explained by the
organizational design. Imbalances (misfits) between the various design components of organizational
design can therefore be crucial for the performance of organizations. In many cases changes in
design components are carried on to enhance the internal components of the organization (such as
climate and work processes) and therefore are implemented without consideration of how these
internal components are in effect interdependent with external design components.
Organizational design is not only reorganizing the organizational chart, it involves many interrelated
components. Structural components include goals, strategy and structure. Human components
include work processes, people, coordination and control, and incentive mechanisms. Together these
components view a holistic approach to the organizational design challenge.
It follows a seven step approach: (1) getting started, (2) assessing strategy, (3) analysing the
structure, (4) assessing process and people, (5) analysing coordination, control and incentives, (6)
designing the architecture, (7) implementing the architecture.
Multi contingency organizational design
Organizational design involves two complementary problems: (1) how to partition a big task of the
whole organization into smaller tasks of the sub-units; and (2) how to coordinate these smaller sub-
units tasks so that they fit together to efficiently realize the bigger task or organizational goals. By
complementary, we mean that the smaller tasks must be defined and arranged in a way that allows
effective coordination. The multi-contingency approach consist of five components; goal/scope,
strategy, structure, process and people, coordination, control and incentives. It is an extension of the
model which integrates and extends the many single contingency models on strategy, size,
environment, technology, and climate.
the lines between the circles represent fit, alignment, connections.
Misalignments in any of these connections will result in lower
performance than could otherwise be obtained. The step-by-step
approach is used, which is a ‘how to’ method for diagnosing,
designing and implementing an organization design change, based on
the components of the diamond model. Each step and its
subcomponents provide fundamental building blocks for any
organization. It represents a framework for dealing with the high
degree of complexity. The multi-contingency model provides a
comprehensive framework for diagnosing the organizational design
components and whether they are aligned.
,Misfit leads to a decrease in organizational performance, either today or in the future. Misfits are
thus the starting point for the implementation of change.
Organizational design is an ongoing executive process that includes both short-term, routine
changes, as well as intermittent, larger-scale changes. To find the right design or architecture is
important, and to implement the design is even more important. This approach is based on an
information-processing view of the firm, this view provides you with a framework and a process for
understanding a wide range of organizations.
The information-processing view
An organization uses information in order to coordinate and control its activities in the face of
uncertainty where uncertainty is an incomplete description of the world. By processing information,
the organization observes what is happening, analyses problems, and makes choices about what to
do, and communicate to others. Information processing is a way to view the organization and its
design. Information channels can be created or abandoned by their capacities and types of signals to
be transmitted over them are subject to choice, a choice based on comparison of benefits and costs.
Both information systems and people possess a capacity to process information, but this capacity is
not unlimited and the scarcity of information handling ability is an essential feature for the
understanding of both individual and organizational behaviour.
The step-by-step approach is based on the fundamental assumption that the work of an organization
can be seen as information processing: observing, transmitting, analysing, understanding, deciding,
storing, and taking action for implementation.
The basic design problem is to create an organizational design that matches your organizational
demand for information processing with its information-processing capacity. Task or work
uncertainty can arise from a firms technology and the business environment. If the information-
processing demand comes from many routine and predictable tasks with an efficiency focus, then
formalization in the form of rules and programs can increase the number of tasks that can be
handled. When there are uncertainties associated with the tasks, then information processing is
referred up the hierarchy to a level where an overall perspective exist. This is the traditional use of
exception-based hierarchical decision-making. Unfortunately, such hierarchical decision-making can
handle only a limited amount of uncertainty. Organizations thus face a trade-off: they can either
reduce their need for information processing or increase their capacity to process information. These
are two managerial options.
The first option is to reduce the organization’s need for information processing by increasing slack
resources. Reducing information needs must be balanced with the returns from coordinated
activities. A second option is to increase the organization’s capacity to process information.
Without a doubt, organizations are information processing entities, and both information-processing
capacity and demands for firsm have surged as the cost of information-processing technology and
information in general has decreased. All of this lead to leaner (and meaner) organizations, less
inventory, less equipment, and fewer employees, particularly middle managers. Those who remain
use information much more quickly and efficiently.
Asses the scope of the organization
Organizations can be defined as a consciously coordinated social entity, with a relatively identifiable
boundary, which functions on a relatively conscious basis to achieve a common goal or a set of goals.
, Once the organization has been chosen, it is important to state what the organization is doing, this is
what we call scope. It is also important to bear in mind why you are doing the analysis. As stated
earlier, organizational design involves two complementary problems: (1) how to partition a big taks
into smaller sub-units; and (2) how to coordinate these smaller sub-unit tasks so that they fit
together to efficienctly realize the bigger task and organizational goal. The smaller task must be
defined and arranged in a way that allowed effective coordination.
Assessing organizations goal
You should start by assessing the relative importance to the organization of two fundamental goal
dimensions: (1) efficiency, a primary focus on inputs, use of resources, and costs; and (2)
effectiveness, a focus more on outputs, products or services, and revenues. These are competing
priorities. All organizations value both efficiency and effectiveness to some degree, but the question
is which is the dominant priority. Few organizations state their goal directly in terms of efficiency or
effectiveness. To access the company goal you have to inspect the official goals and analyse them to
asses if the goal has a focus on efficiency, effectiveness, or a balanced combination. Be aware that
sometimes the goals that direct the top management are merely implicitly stated.
Four different goal states are possible:
- Quadrant A: organization with relatively low emphasis on both efficiency and effectiveness.
Has little focus on using resources well and it has few or no specific goals related to higher-
level ideas or targets. Could be the case of a monopoly or early start-up
- Quadrant B: focus on utilization of the smallest amount of resources necessary to produce it
services or products. Firms here continue to do what they have done in the past, refining for
continued improvement. Such companies often exist well in stable environments, where they
can defend their position with a low-cost focus.
- Quadrant C: higher focus on effectiveness, but lower focus on efficiency. It focusses on its
goals, but takes les care to attend to the efficient use of resources. This could be the case in
highly volatile environments or in situations where the organization constantly develops new
ideas and has first mover advantage with high prices, as such, treats the cost of resources as
a secondary concern.
- Quadrant D:; emphasis on both efficiency and effectiveness. They confront competitive,
complex and volatile environments that require both product innovations and low cost in
order to compete successfully. They pursue the dual goals of efficiency and effectiveness
with equal vigour.
The goal of the position of the organization affects its information processing requirement. Efficiency
can be related to first-order learning: a routine, incremental conservative process that serves to
maintain stable relations and sustainable existing rules. Effectiveness can be associated with second-
order learning: existing rules are modified and new knowledge in the organization has to be
facilitated. Information requirements are much greater if the organizations primary goal is
effectiveness rather than efficiency.
