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Copyright

2002

byJohn Wiley

Sons, Inc.

All rights reserved.

Published byjossey-Bass

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Imprint

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Francisco,

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Library of Congress

Cataloging-in-Publication

Data

Galbraith,Jay

R.

Designing organizations

an executive

guide

to

strategy,

structure,

and

process

/

byjay

R.

Galbraith.—New

and

revised ed.

p.

cm.— TheJossey-Bass business

management

series

Includes

bibliographical references

and

index.

iSBN

0-7879-5745-3

alk. paper

1.

Organizational

effectiveness.

2.

Strategic planning. I.

Title. II. Series.

HD58.9 .G35 2002

658.4012—dc2l

2001003155

Printed in the United

States

of America

NEW

AND

REVISED

EDITION

HBPrinting

10

9

8

7



he

sub-

should

eween

s

to

esig

ning

a R

econ

figu

rable

and

rga

niza

tion

t rix are

ng

role

dimen-

Every

company

needs

an

organization

that

changes

as

quickly

npany’s

s

its

business

changes.

If

not

the company

s falling

behind.

To

ovem keep

from falling behind

many companies

are devoting enormous

able of

amounts

of

time

and

energy

to

change

management.

This task

can

escala- be

made less

difficult

and

less

time

consuming

if some

effort

s

t

some focused

on

designing

organizations

from

the outset

to

be

more

eas

lateral

ily

changeable

If

change

s

constant

why

t

design our

organiza

w

corn-

t o s to

be

constantly

and

quickly

changeable

It

s this easily

i pres-

changeable

or

reconfigurable

organization

that s the

subject of

this

anizing

chapter

ler

omp

eting with No

Sust

aina

ble dva

ntag

e

Organizations

have

always

been

created to execute

business

strate

gies.

As

mentioned in

Chapter Two different

strategies

have led

to

different

organizations.

But

when advantages

do

t

last

long

n

ther

do

the

organizations

that

execute

them. In

the

past

manage

ment

crafted a

winning

business

formula

and

erected barriers

to

entry

to

sustain the advantage.

Then management

created

an

orga

nization

structure

around

functions products

or services

markets

or

geographies

that was

designed

to

deliver

the

success

formula.

To

complete the integrity

of

the

organization

planning and

bud

geting

processes

information systems

new

product

development

73



74 DESIGNING ORGANIZATIONS

nativ

proce

purpo

lnste2

have

ured

gies

prod

beth

Und

conti

will r

pass

FIGuRE 6 The Star

Model,

neuv

coun

processes,

compensation

systems,

selection

and promotion criteria,

capal

career

paths,

performance

appraisals,

and training

and development

cours

sequences would all be

designed and aligned

with each

other

IS t

and

with the

organization’s

strategy

and structure. Such an

aligned

organization

would execute

the

strategy

with s

little friction

as

pos-

The

sible.

This

thinking resulted in

concepts like

the

star model

described in Chapter Two, which

is

repeated

for

your convenience

The;

as

Figure

6.1.

capal

Today,

in many

industries, that

model of organization

design

is

and

flawed.

The

success formulas

it generates

do not last

very

long

tuIs

D’Aveni, 1994 .

The

advantages

around which

the

organization

is

inC.

designed are quickly

copied or even surpassed

by high-speed

corn-

price

petitors.

Every

advantage

is temporary. Therefore,

to

focus

and

align

of

mi

the

organization

is

to become

vulnerable. As a

result,

some

people

secui

have concluded

that

alignment

is

no longer

a useful

organizational

an

e

design

criterion. agree

that alignment around

a

focused

strategy

thre

can impede

change to a

new

strategy,

but

it is the continued

focus

on a nonsustainable advantage that

is

the

flaw,

rather than the

prod

alignment

itself.

The point can

be

made

by

focusing

on the

alter-

tenc



DE

SIG

NIN

G

RE

CON

FIG

UR

L

E OR

G

NIZ

TI

ON

na

tive

—m

isali

gnm

ent. M

isa

lignm

ent

o

f str

ategy

,

s

truc

ture,

an

d

pro

cess

es

w

ill

caus

e

acti

vitie

s

t

o

co

nfli

ct, u

nits

to

wo

rk

a

t

cro

ss-

pu

rpos

es,

a

nd

org

aniz

atio

nal

ene

rgy to

dis

sipat

e

ove

r

man

y fric

tions

.

Ins

tead

,

w

e n

eed

new

,

al

igne

d org

aniz

atio

nal

d

esig

n.

We n

eed

to

have

org

aniz

ation stru

cture

s

a

nd pro

cess

es

tha

t ar

e

easi

ly

reco

nfig

ur

ed

and

reali

gned

with

co

nsta

ntly

c

hang

ing

stra

tegy

.

T

hus

th

e ch

allen

ge

is t

o desi

gn

o

rgan

izati

ons

to e

xecu

te

str

ate

gie

s

whe

n

ther

e

are

no susta

inab

le com

peti

tive

adv

anta

ges. W

hen

pro

duct

adv

anta

ges

are n

ot

sus

taina

ble ov

er

t

ime, th

e

win

ners

w

ill

be

th

ose

w

ho

c

reate

a

se

ries

o

f

sh

ort-t

erm

tem

pora

ry

adv

antag

es.

Und

er

t

his

sce

nario

,

th

e l

eade

rs will

be

futu

re-o

rien

ted

an

d

wil

l

continuously create capabili ties

that

lead to customer

value.

They

wil

l

mov

e

quic

kly

to

c

omb

ine

thes

e cap

abil

ities

to mat

ch an

d

sur

p

ass

cur

rent a

dva

ntag

es incl

udin

g t

heir

own

. T

hey

wi

ll o

utm

a

neuv

er

c

omp

etito

rs

b

y strin

ging

t

oget

he r

s

erie

s o

f

m

oves a

nd

cou

nterm

ove

s,

s in

g

ame

of

ch

ess,

Thos

e

com

pani

es

with

the

cr

iteria

,

c

apab

ilitie

s fo

r

f

lexib

le

res

pons

e and

v

ariet

y

of

m

ove

s ove

r t

he

lopm

ent

cour

se of

time

wi

ll

mo

st like

ly w

in. T

he r

econ

figu

rable

orga

niza

tion

h

other

is

the

means to execute this continuous strategy

shifting.

li

gned

s

po

s-

Th

e

e

conf

igur

able

rgan

izati

on

r

mod

el

e

nien

ce

The

re

conf

igur

able

orga

niza

tion

res

ults

f

rom t

he

ski

lled

u

se

of thr

ee

c

apab

ilitie

s.

Fi

rst,

t

he orga

niza

tion

is re

conf

igur

ed

by form

ing

te

ams

d

esig

n

is

an

d

n

etw

orks acro

ss

o

rgan

izat

iona

l de

part

ment

s. T

hes

e

later

al

s

tmc

lo

ng

ture

s r

equi

re

an exte

nsiv

e

inte

rnal

net

wor

king c

apab

ility

s

de

scrib

ed

za

tion is

in

Chapters

Four

and

Five

.

Seco

nd,

the

or

gani

zatio

n u

ses

inte

rnal

e

d

com

-

p

rice

s,

mar

kets

, an

d m

ark

etlik

e

de

vice

s to

co

ordi

nate

th

e

com

plex

ity

ri

d align

of

m

ultip

le team

s,

And

fin

lly the orga

niza

tion f

orm

s

p

artn

ersh

ips

to

peo

ple

s

ecur

e

cap

abili

ties

that

d

oes not

h

ave,

T

hese p

artn

ersh

ips

re

quir

e

[

zatio

nal

an

exter

nal

ne

two

rking

ca

pabi

lity,

s

d

iscu

ssed

in Cha

pter

Nin

e. T

he

stra

tegy

t

hree

ca

pabi

lities

are bes

t illu

stra

ted

w

ith

an

exam

ple.

ed

foc

us

The

exam

ple

com

pan

y

i

s

man

ufac

turer

of

co

nsum

er

b

akin

g

n

the

products—cookies and crackers and

so

on.

The

firm

had

compe

a

e

alter

-

t

enci

es

i

n bra

nd m

ana

gem

ent an

d d

istri

butio

n.

It

had

netw

ork

of



7 DESGNNG

ORGANZATONS

bakeries

across

North

America

and

a

logistics

system

that

could

mana

deliver directly from the

bakery

to

the

retail

store.

Baking

has

tirie

always

been

a

just-in-time business. This

company’s

brands

and its

to

the

distribution

system

only

Coca-Cola

and

Pepsi

could

match

it

had

ageim

been its

advantages

and

its

barriers

to

entry.

the

c

In the 1980s these

advantages

came

under

attack. Retailers

and

their private

label

suppliers could

easily

match the company’s

prod-

t ’ e Pr

uct

quality at

significantly

lower prices.

Also,

the

baker’s

products

were

high fat

and

high

calorie.

Hence,

the

company’s

products

were

ested

being

avoided by

both

the

budget conscious

and

the

health

on

scious.

of

pan

The company’s

resurgence

began

with

its

discovery

of a

low-fat

1i

ingredient

that maintained

the product’s taste,

After

the

U.S.

Food

t r i

and

Drug

Administration

approved

use

of this

ingredient,

the corn-

prod

ii

pany began

reformulating

its most

popular

brands and focused

pro-

mana,

motions

on the

he lth segment.

The

new

products

literally

flew off

inent.

of

the

shelves.

The

reformulation

revived

the brands

and created

an

the

p

advantage

that the

private labels

could not

match.

and

it

To

capitalize

further

on the

product

popularity, the

company

iigred

expanded

into

all

possible

distribution channels.

However,

differ-

k

ent

channels

require different

packaging.

The

company

then

cre-

tion,

ated

partnerships

with

independent

manufacturers

called

ities

n’

co-packers

to

provide

multiple packages.

It

now provides products

has

cn

in

enormous

boxes for

the

discount club stores

and

single-serving

new

c

portions for vending

machines

and

convenience stores.

ments,

Next, the company took the

new

ingredient into new

cate-

exarn

gories

such

as breakfast

products

and

snacks

where

it could

create

colnp2

an

advantage. It

created new

products

for these new

categories

with

advani

partners

and

co-packers because

the

products

like

granola

bars

is

next

were

not baked, The

expansion

provided

a

new business

in

differ-

Tl

ent

aisles of

the

grocery store.

The

new products could

also

be

kept

focuse

fresh

by

using

the company’s

existing delivery

system.

ther

man-

one

wj

ufacturers of breakfast

foods

did

not

have this

capability

nor the

dienti,

low-fat

ingredient.

the

Col

The company

also

created

partnerships

which

it

called

category

w



DE

SIG

NIN

G REC

ON

FIG

UR

L

E

O

RG

N I

Z T

ION

lat

c

ould

m

ana

gem

en t

w

ith

two o

f

it

s

lar

ger c

usto

mers

. The

se

c

ustom

ers

kin

g

has

tu

rned

th

e

ma

nage

men

t of the

enti

re co

okie

and

cra

cker a

isle

o

ver

I

s

and its

t

o

the

ba

king

co

mpa

ny. T

he

b

akin

g

co

mpa

ny’s

sk

ills in

bra

nd m

an

h

t had

agement,

sophisticated

analysis

of bar code

data , and knowledge

of

t

he

co

okie and c

rack

er

ca

tego

ry

a

llow

ed bot

h

custo

mer

and ma

nu

iil

ers

and

fac

turer

to

incr

ease t

he ir

res

pec

tive pro

fitab

iliti

es. B

y co

ordi

natin

g

l

y’s

p

rod-

the

p

rodu

ct

an

d cash f

low

from

bak

ery

t

o

sto

re, the

par

tner

s

c

ould

p

rodu

cts

m

inim

ize

w

orki

ng

c

apit

al.

T

he

g

roce

ry cust

ome

rs

a

re now i

nter

icts

wer

e

este

d

in

pac

kag

ing

tha

t

i

s

un

ique

to

the

m. H

ere a

gain

, t

he

bakin

g

i

lth

c

on-

com

pany

,

wi

th i

ts

p

ack

aging fl

exib

ility th

roug

h it

s exter

nal

n

etwo

rk

o

f

part

nersh

ips, i

s

ab

le

to

mee

t

it

s cu

stom

ers’

need

s.

a

low-fat

In

summary

,

our e

xam

ple com

pan

y crea

ted

an

adv

anta

ge

J S Fo

od

thro

ugh

its d

isco

very

of

a

low

-fat in

gred

ient

wh

ich m

ain

tains

the

the co

m-

p

rod

uct

ta

ste.

Usin

g its e

xisti

ng ca

pabi

lities in lo

gistic

s

and

br

and

used

pr

o-

m

anag

eme

nt,

t su

cce

ssful

ly t

arge

ted

and

dom

inat

ed

the

h

ealth se

g

y

fle

w

off

me

nt. It

crea

ted

a m

ulti

chan

nel, m

ultip

acka

ge ca

pabi

lity

to

enla

rge

rea

ted an

th

e

p

opul

at ion

tha

t

its

pro

duc

ts c

an rea

ch.

It

use

d

the

ingr

ed ie

nt

a

nd

its lo

gistic

s

to

en t

er

a new

cate

gory

br

eakf

ast

foo

ds . T

he

:ompany ingredient advantage

will buy

time

for

the company

while

t

builds

d

iffer

-

know

led

ge

in the

n

ew cate

gory

. n

d final

ly,

its en

han

ced

rep

uta

:

hen

cre

-

tio

n,

b

ran

d

m

ana

gem

ent, l

ogis

tics,

and flex

ible

pac

kag

ing cap

abil

calle

d

id

es

m

ade

t

an attr

activ

e p

artne

r f

or

la

rge

re

tailer

s,

T

he

c

omp

any

p

rodu

cts

has

cre

ated

a ser

ies

o

f

a

dvan

tage

s

by

com

bin

ing

a

nd r

ecom

bin

ing

-s

erv1

ng

new

cap

abili

ties an

d old o

nes

to add

ress

n

ew p

rodu

cts,

new se

g

me

nts, n

ew ch

anne

ls,

a

nd

ne

w

u

stom

er

re

latio

nship

s.

It

is a go

od

ew

ca

te-

exa

mple o

f

th

e co

ntinu

ous

cre

ation

of advantages.

he

baking

ld

create

co

mpa

ny c

reat

es a

nd impl

eme

nts an

i

nitia

tive w

hich

giv

es t

r

ies w

ith

adva

ntag

e.

h

en t

qu

ickly

mov

es o

n

t

o

the

ne

xt

ad

vant

age.

hat

ola

bars

is

nex

t?

in

d

iffer

-

h

e co

mpan

y’s n

ext st

eps

ar

e

also

in

struc

tive.

Its

man

ager

s

o

be

kep

t

f

ocus

ed

t

heir

atte

ntion

o

n the

sea

rch fo

r

a

noth

er

new

ingre

dien

t,

h

er

m

an-

one

with

low

fat, lo

w calor

ies, and

goo

d ta

ste. B

ut w

hen n

o in

gre

n

or

the

die

nt

w

as foun

d,

n

o

new

adv

anta

ges

we

re

in tr

oduc

ed ,

A

s

a

r

esu l

t

the competition

not

only

caught

up

but launched

an

initia tive

of

it

s

I c

ateg

ory

ow

n.

A

com

petit

or

focu

sed o

n the

old pro

duct

line

s,

adde

d som

e



78

DESIGNING

ORG NIZ TIONS

f

lavo

r

en

hanc

ers

an

d

add

ress

ed

itse

lf

to

t

he

chil

dren

’s

seg

men

t.

Th i

s

seg

men

t

valu

ed

fla

vor

and

unf

ortun

atel

y

wa

s less he

al th

co

n

sci

ous The

comp

etit

or

s

tole m

arke

t sh

are

in th

e

cat

egor

y

as a re

sult

.

The shar

e loss w

as

a

w

ake

up call to th

e c

omp

any.

It

retal

iated

with

its

own

flavor

enhancers and

followed

with

a

marketing

ini

tia

tive

focu

sed

on

kid

s

I

t

con

tinu

ed

to

d

evelo

p

its

s

egm

ent

c

p

bil

ities of

wor

king ac

ross

pr

oduc

ts

and

bran

ds

a

nd fo

cusi

ng them

on new

segm

ents

. T

he

nex t

se

gme

nt

wa

s His

pani

cs.

This s

egm

ent

cont

inue

s

to

gro

w in

num

bers and

in d

ispos

able inco

me. T

he b

k

er

y

f

ocus

ed

on

a

doze

n

prod

ucts and

the

six

maj

or

Hisp

anic

mar

kets

like t

he Me

xica

n

So

uthe

rn

Cal

iforn

ia

and

the C

uba

n

So

uth

Fl

orida

. he

seg

men

t

li

ned

up

c

o pa

cke

rs

fo

r

pac

kag

ing in

the

Sp

anis

h lang

uage

a

nd

prep

ared

a

ds

for th

e Sp

anis

h sp

eakin

g

m

edia

T

he

co

mpa

ny al

so retu

rned

to the e

xpa

nsion

of

its e

xisti

ng in

i

tiati

ves.

I

t ex

pand

ed

its

par

tners

in

c

ateg

ory

ma

nage

men

t fro

m

tw

o

t

o five

wi

th

m

ore

bei

ng

p

ursu

ed.

It

en

tered

the

sn

ack

cat

egor

y w

ith

a

partn

er. It

avo

ided F

rito

Lay

and

po

sitio

ned

it

self

again

st

th

e

num

ber

thr

ee

and

fou

r

pl

ayer

s

in

t

he mar

ket.

T

he

com

pan

y

al

so

p

ositi

oned its

elf as heal

thier

b

ecau

se its pro

duc

ts were bak

ed

rat

her

th n

fried.

Any

fi

nally

the

bak

ery has

fo

und a

w

ay

to

pro

fit

f

rom

it

s dis

tri

bu

tion

c

apab

ility

.

The

com

pany

has beco

me

a

lead

er

in c

ollab

ora

t

ive

lo

gisti

cs.

h

t

is

u

sing the

We

b

as

a

ce

ntra

l coor

dina

tion

t

ool

pro

duc

ers

re

taile

rs and

t

ruck

ers can

sh

are truck

s

and

wa

reho

uses

wh

en

go

ing

to and

fr

om the

sam

e

l

ocat

ions. It h

as

jo

ined

ten

othe

r

m

anu

factu

rers

a

nd its c

ateg

ory

man

agem

ent

par

tners

in a

ne

w ve

n

ture in collaborative

logistics.

The venture

has

been

a

major

source

of

savi

ngs

a

nd ne

w

r

even

ue.

So

the c

omp

any a

ppea

rs

to

be

bac

k

on

tra

ck. It is co

ntin

uing

t

o

c

reat

e

n

ew sou

rces of ad

van

tage fr

om co

mbin

ing its n

ew a

nd

old

cap

abil

ities

.

It

als

o kno

ws

th t if

it

re

sts

an

d

does

t gen

erate

the

nex

t

s

ourc

es

o

f ad

vant

age

som

eone

else

w

ill. A

s a

re

sult

it

s

till

s

earc

hes

for

n

ew

in

gred

ients

.

Bu

t

it

also

sear

ches

for n

ew

cate

gorie

s

new cus

tome

rs ne

w

ch

anne

ls n

ew

s

egm

ents and

s

o

on

.

It

h

as

beco

me

a

play

er i

n

th

e er

a o

f tem

pora

ry adva

ntag

es.

ic

u

Cre

a

T

his

be

ef f

ri

r

r

ti fl

rCSO1J

cr

oss

6

2

had

the

t

ad

d

it

n

fl

t

fu

nci

m

eni

tha

t

rela

u

ti

[Tic

f

un ci



DESIGNING A RECONFIGURABLE

ORGANIZATION

79

Sales

Operations

Marketin

distribution

Product

team

VP

•

Product

team

—

—

—

L

L_

vp

FIGURE

6.2.

Product

Team

Organization.

Creating

Reconfigurabiity

This

strategy

of

creating

a series

of

short-term advantages

can

only

be

effective if

the company has an organization

that

can

execute

it

Prior

to

the discovery of the low-fat

ingredient the company

was

organized

functionally around research and development

opera

tions

marketing

sales

and distr ibution finance

and human

resources. Like

most packaged

consumer

goods

companies

it

used

cross-functional

product

line teams.

These

teams shown

in Figure

6.2 are

chaired

by the product vice

presidents from marketing.

It

had

reasonably good

cross-functional relationships.

Quite a few

of

the

top

management group had

cross-functional

experience. In

addition

for

about

five years

the

company

was

encouraging project

management

experience. Almost all

managers

had a ttended

the

project management course.

Almost

all had worked

on cross-

functional

project teams.

The

company

built

on

this

base

to imple

ment

the continuous

strategy

shifts.

The

first organizational

change was the

creation of a third

team

that

was focused

on the

health segment

and was

to

reformulate

and

relaunch

the company’s products.

This

team

was

chaired

by

a

full-

time

marketing

vice president.

As

with

the

two

existing

teams

each

function

contributed a representative

who

had the time a t

least

50

Human

urces

gment

tth

con-

a

result.

taliated

.ing

mi

capa

ig

them

egment

bak

markets

South

in

the

media

:ing mi

om two

ry

with

.nst

the

tny also

I

rather

distri

[labora

n tool

houses

n

other

w yen

r

source

tuing

to

and

old

rate the

it

still

egories

It

has



ESIGNING ORG NIZ TIONS

per

cent

th

e auth

orit

y

to

rep

rese

nt

the

f

uncti

on a

nd

the

in

form

a

tion

abou

t

the

fu

nctio

n

to b

e us

ed in

prob

lem so

lving

.

Th

e

main

d

iffe

renc

e was tha

t

t

he

se

gme

nt

team w

as b

oth

cr

oss-

func

tion

and

c

ross

-pro

duct

.

The

new category

was

addressed

by

another

cross-functional

unit

chai

red

by a

v

ice p

resid

ent fr

om m

ark

eting

.

Bu

t

this t

eam

w

s

ful

l-tim

e

and

dedi

cate

d

to th

e

ef

fort of b

reak

ing

into

a ne

w c te

gory

S

ever

al

de

dicat

ed s

alesp

eop

le

work

ed

for

the

u

nit

and

cr

eate

d

t

he new

sale

s app

roac

h fo

r

the n

ew c

ateg

ory. Th

is te

am repo

rted

dir

ectly

to

the

CEO

t

o

ge

t

th

e atte

ntio

n

and

fo

cus tha

t

new

bu

si

nes

s

req

uire

s. T

he

rep

orti

ng r

elatio

nsh

ip als

o

ga

ve

lev

erag

e wi

th

its

partner.

A

si

mila

r

tea

m

was

c

reat

ed fo

r t

he

new

cha

nne

ls. A vic

e pr

esi

den

t

fro

m

mark

etin

g

cha

ired the

t

eam

bu t

re

port

ed

t

o

the sen

ior

vice

pr

esid

ent for s

ales an

d dis

tribu

tion

.

All

func

tions

ex

cep t

res

earc

h

and

deve

lopm

ent

c

ontr

ibu t

ed

a

f

ull-t

ime de

dica

ted

m n

a

ger. T

here w

as n

o

r

esear

ch

and

deve

lopm

ent

rep

rese

ntat

ion

be

caus

e

the

re

were

no

n

ew

prod

ucts in

volv

ed.

Th

e

cha

nnel t

eam

boug

ht prod

ucts

fro

m

th

e

f

acto

ries a

nd

m

anag

ed

the rel

ation

ship

s

with

co-packers

who

packaged

the

products.

I u

Fo

llow

ing

t

hese

c

hang

es

tw

o

mo

re

de

dicat

ed

cro

ss-f

unct

iona

l

u

nits w

ere

f

orme

d f

or

the

tw

o

custo

mer partn

ersh

ips. T

hese unit

s

al

so c

onsi

sted of full

-time

de

dica

ted

pe

ople

fro

m

all

f

unct

ions

syst

agai

n exc

ept

r

esea

rch

and

d

evel

opm

ent.

The units

wer

e

c

hair

ed

by in

f

the

acco

unt

ma

nag

er

fo

r the cust

ome

r and rep

orte

d to th

e

sen

ior

vic

e p

resid

ent

of

sa

les

an

d

d

istrib

utio

n.

Bo

th

t

he

chan

nel an

d

cu

s-

t

ired

tomer

teams

were

cross-function

and

cross-product units.

This

new tnult

orga

niza

tion

is

sho

wn

in

Fig

ure 6.3.

ch

an

In

the

mea

ntim

e

the

fin

anc

e func

tion wa

s

r

edes

ignin

g th

e

th

at

acc

oun

ting sys

tem. It

imp

lem

ented an

a

ctiv

ity-b

ased cos

t sy

stem

.

n

ext

t th

e

sam

e

tim

e

ins

talle

d

en

terpr

ise s

oftw

are

to

auto

mat

e

the

o

rg i

ne

w

sys

tem.

h

re

sult

is t

ha t pr

ofit a

nd loss m

easu

rem

ent can b

e

o

rg i

app

lied to

all of

the

s

trate

gic ini

tiati

ves. T

he

p

rodu

cts s

egm

ents

s

usta

c

ateg

orie

s chan

nels

an

d c

usto

mer

s

are

all

profi

t-an

d-los

s

m

easu

r-

and

ab

le. T

he

hum

an

r

esou

rces d

epar

tmen

t

is red

esig

ning

the

rewa

rd

serie



D

ESI

GNI

NG

A REC

ONF

IGU

RA

BLE

OR

GA

NIZ

ATIO

N

nf

orm

a

he

main

io

n

a

nd

r

ictio

nal

e

arn

wa

s

ew

cat

e

c

reate

d

rep

orted

ew

b

usi

age

w

ith

ce

pr

esi

s

enior

ex

cep

t

:ed

m

an

n

tatio

n

ieI

te

am

:ionships

n

ction

al

ese

un

its

inct

iOns

aire

d

by

ie

s

enio

r

and

cus

[‘

hi s

n

ew

ain

g

t

he

sy

stem

.

n

ate

the

t

can

be

gm

ents

measur

e

rew

ard

H

uma

n

T

Sale

s

r s

ou

op r tions i

M

ark e

ting

distr

ibut

ion

Pr

oduc

t team

—V

Pro

duc

t tea

m

C

—

V

P

Se

gme

nt team

—

— VP

h n

nel

tea

m

u

stom

er te

am

u

stom

er team

—

.

.

.

FIG

UR

E

6

.3. M

ulti

dim

ensio

nal Org

aniz

ation

syst

ems t

o

in

corp

orate

te

am

base

d

re

ward

s E

ach

of

t

hese tea

ms

is

in f

act

a min

iatu

re

b

usin

ess

u

nit.

In

this

w

ay

th

e

e

xamp

le

co

mpa

ny

has con

figu

red

an

d re

conf

ig

ured

itself

from

a

funct ional

structure

with

brand

managers

to

a

mu

ltist

ruc t

ure

ba

sed

on

f

unc t

ions

prod

ucts

seg

men

ts

cate

gori

es

ch

anne

ls

and

cus

tome

rs. It

i

s

a

m

ulti

ple prof

it

and

los

s

struc

ture

tha

t can

be

f

lexib

ly

ch

ange

d

to

an

y dim

ens

ion

th

at

wil

l

sup

port

the

nex

t

st

rateg

ic ad

vant

age.

he

c

omp

any

i

s

crea

ting

the c

apab

ility

to

org

anize

any

w

ay

w

ant

s

to

org

aniz

e. S

o

i

nstea

d

of

choo

sing

to

org

aniz

e

by fun

ct ion

or p

rodu

ct or

m

arke

t

seg

men

t

to

im

plem

ent

a

s

usta

inab

le

bra

nd a

dvan

tage

th

e

c

omp

any

is

org

aniz

ed

b

y f

unc

tion

and

pro

duc

t

arid se

gme

nt and

chan

nel

and c

usto

mer

to im

plem

ent a

serie

s

of c

ons t

antly

ch

ang i

ng sh

or t

term

a

dva

ntag

es.

fter

the



DESIGNING

ORGANIZATIONS

company’s

pause

due to

its

unsuccessful search

for

a

new ingredient

the

new

initiatives

were matched

with new

organizational

units

to

implement

them.

These additions

are shown

in

Figure

6.4.

A segment

group was

added

which

s

an

umbrella

group

for

the three current

segments—

health

kids

and

Hispanics. Each

segment

has its own

team. A sim

ilar

group was

created

for

the

five

t ms

that

serve

as

customer

partners

in

the category

management

service.

A

new team

was

added

for collaborative

logistics. A VP

reporting

to the sales

func

tion

chairs

the team.

On

the

team

are the

distribution

managers

from

sales the logistics managers

from operations

and

a

finance

manager.

Even though

this

s

a

new venture

it

still needs to keep

the plants supplied

and

customers

satisfied s the first priority.

Thus

the

creation

of

groups like

the ones for

segments

and

customers

make

the structure

scalable.

To implement

this

reconfigurable

organization a company

needs

an

aligned

set

of

policies

that

permit

it

to form

and

reform

internal

and external networks of

capabilities.

Let

me

describe

in

more

detail

the

elements

of the star

model that support

the capa

bility

to

reconfigure.

Structure

The structure

of

the reconfigurable

organization

consists of a

stable

part and a changing part.

The changing

part was

described

in

the

course

of the

example

s

the company configured

miniature busi

nesses

around products

segments

channels and

customers

This

changing part

s the

reconfigurable

part

which

changes

with

changes

in

competitive

strategy.

The

functional

structure s

the

stable part.

This stable

structure

s

both

home

and

host

to

the company’s employees.

It s home

to

the specialists

and experts in

food

science

distribution manufac

turing

technologies

analysis

of

bar

code

data

and

other competen

cies

that

the

company

has

built. These people

tend

not

to

rotate

across

functions but

do

participate

in

the

cross functional

teams.



re

di

en

t

un

its

to

_

i_

L

¶

coup

w s

m

en

ts—

L

_Z

A

s

im

us

to

me

r

a

m w

s

z

l

es

fu

nc

>

i

an

ag

er

s

ifi

na

nc

e

t

ok

ee

p

it

y

Th

us

i

st

or

ne

rs

om

p

an

y

r

efo

rm

r

sc

rib

e

i

n

hecapa

¶

f

ast

ab

le

d

in

the

i

ure

b

usi

ers

Th

is

x

x

e

sw

it

h

s

tru

ct

ur

e

h

om

et

o

_i

ia

nu

fa

c

pe

te

n

rotate

t

ea

ms



8

DESIGNING ORGANIZATIONS

The functional structure is

also

the

host

to

managers who

move

A

across

functions

or

rotational assignments.

is

rea.

COli

fli

and

r

Processes

posed

The

first

area

information and goal setting

processes

is often

over

pirsu

looked and underestimated in its power to define an organization’s

fleglt

capabilities. The

reconfigurable

organization

needs accounting

sys

is

the

tems data

structures and

planning

processes

that allow it

to oper

cate

I

ate as a collection

of

miniature business units. All the

data

must

be

available

to all

the parties. As mentioned earlier the costs and rev

tions

enues must

be

assignable

to

products segments

channels

and

so

on

the

p

so

that

profitability

can be identified

Policies for transfer prices

so

Ot

need

to accurately reflect market prices to coordinate

resource allo

FifliI

cations

between

miniature

business

units themselves and

with

external

partners.

The

complexity

of coordinating

all

these

minia

in la t

ture

business

units is aided by

the use

of

prices

and markets. Flexi

ble

reconfigurable organizations must

be aligned with

flexible

Peol

reconfigurable accounting systems.

The

management team

must be skilled

at

the

timely

resolution

Equi

of

conflicts. Constant

change

brings constant conflict. For example

must

the products from the health segment stole

sales

from

the

tradi

reco

tional

cookie

and

cracker

product lines. What is best for the total

company? There

are frequent priority

decisions when resources

are

shared.

Which

channel and customers get

supplied when

the

new

skilL

products

are in short

supply? At

the

bakery there

was

the

“Monday

CO1TI

morning meeting” where these

issues

were

thrashed

out.

Atten

v rl

dance varied

from

ten to eighteen

people. The information

systems

and

and the

problem solving

management teams

are

necessary

for the

timely decisions

in a

reconfigurable organization.

recri

A second set

of

processes are the common processes

for

new

job.

product development

order fulfillment and

strategic

planning.

These

are another

source

of stability. In

the

reconfigurable

organi

zation

the

structure

changes but the processes are stable

and

corn

mon

across

the

miniature

business units.

and

L



DESIGNING A

RECONFIGURABLE

ORGANIZATION

8

And

next,

there

needs

to be a strong management

team, There

io

move

is

really

only

one

business

and one Profit and

Loss

statement

that

counts.

h t

is the company

P L. However,

the strategy

shifting

and

reconfiguring

of

the

organization

requires

that

it

be

decom

posed

into many miniature

business

units.

In this w y

each

unit can

:en

over-

pursue

different

initiatives, but they impact both

positively and

iization’s

negatively

on

the

company

P L.

The

integration

of

all

these units

is

the

task

of

the

management team, which

must

set

priorities, allo

ting

sys

to

oper-

cate

resources,

and

resolve the

inevitable

conflicts.

i

must be

A

joint

project

between the

marketing

and

the

finance func

and

rev-

tions

has been

launched to create modeling tools

to

help determine

irid

so on

the

profit impacts of

initiatives in

products,

segments,

channels, and

so

on.

Marketing

has

the data-mining

tools and the

databases.

:er

prices

urce

allo-

Finance

has

the financial analysis skills,

These

are

to be

combined

md

with

into

modeling techniques and

simulations

to

support the leadership

se

minia-

in

launching

and evaluating the miniature

business,

ts

Flexi

flexible,

People

esolution

Equally

important is

the

area

of

human

resources. The HR policies

example,

must be aligned to create the behaviors and mind-sets that support

:he

tradi-

reconfigurability.

The conflicts within

a unit

and

between units

the

total

over priorities and transfer prices can sap

the

energy from

a minia

ture

business unit.

The

participants need

to be cross-functionally

urces

are

the

new

skilled,

have cross-unit

interpersonal

networks, identify

with

the

“Monday

company

as a

whole,

and

be part

of

a reconfigurable culture. The

Lt.

Atten-

various human resource policies are central to

creating these

skills

and networks,

and

the

overall culture

see Lawler, 1994).

n

systems

iry

for

the

These human

resource

policies start

with hiring

practices

that

recruit

and attract people

who fit the

organization,

not just the

s

for

new

job.

Jobs

will change

and new skills will

be

learned. But individ

planning.

ual

personalities

and

company

values

and culture are much less

Ie

organi-

likely

to change. Hence a person-organization

fit is key

to the

and

corn-

reconfigurable organization. Personality

tests, work

simulations,

and

very

extensive interviews are characteristic

of

hir ing the



86

DESiGNING

ORGANIZATIONS

person

to fit

the organization.

For

the

reconfigurable

organization

fondness

for working

in

teams

ability

to solve

problems

and

n

dle

conflicts

and the

desire

and potential

to

learn new skills

are

Finall

some

of

the personality

attributes

that

are

sought. For

example

urabh

the baking company

in

the

example

uses

a

cross-functional

inter-

servat

viewing process.

otential

brand

managers are interviewed

by

syster

current

brand managers

and also

by research scientists

manufac-

great

turing

representatives

and

sales managers

with cross-functional

need

experience. The

company

does not

want

a hot shot

marketer

preci

whose

sole

interest

is

the fast track through

brand management.

takes

The

person

must also

be acceptable

to

R D

and manufacturing

plan

he

intensive

interview process

selects

people who will

be

effec-

need

tive in cross-functional

work. This

process

also sends

a

message

that

“cross-function

is the

way we

work”

and

helps build

the

than

reconfigurable

culture.

old.

Assignments

and careers are

also

cross-functional for

many

title

managers.

For

example

R D

people often

follow

a

new

product

So

they

are

working

on into

manufacturing

and then

into

sales and

dis-

Oftei

tribution.

At each

step they learn new

functional

skills. They

also

becat

learn

the

new

product development

process

as

they

move along

it

annu

But

just

as

important

are

the

relationships

they

build which

add to

that

i

their

interpersonal

network. The

assignment

process develops

the

ob1ig

individual and

simultaneously

develops the

organization’s

network

‘

The

process builds

the social

capital

on

which

reconfigurability

is

to

a

t

based.

less

r

Training is

continuous

and

targeted

at cross-unit

participants.

comi

Proj

ec t management training

for

example

is

given to

cross-

have

functional

teams prior

to beginning new

projects.

Other

subjects

are

plete

delivered

to cross-unit

groups

consisting

of

people working

at

key

repe

interfaces.

The purpose

is always

to

simultaneously

build

know-how

tems

and know-who.

The

reconfigurable

organization

sees every

training

ity

s

event

and

especially

social

events as

opportunities

to

build

know-

enco

who.

The

events

are investments

in

building

the

company’s social

capital.

unit



DES GNiNG

A RECONFIGURABLE OR NIZ TION 87

ation

1 1

Rewards

nan

us are

Finally,

the

reward

system needs to

be equally flexible

and

reconfig

mple,

urable

see

Ledford, 1995). Yet nothing turns

a manager

into a con-

inter-

servative

faster than

a

recommendation to change

the

compensation

ed

by

system.

Because of

this

conservatism,

compensation

systems are

the

ftufac-

greatest

barriers

to

change

and

flexibility.

At

a

time

when

pay plans

tional

need

to

be

approximate,

flexible,

simple,

and

valid, they

are

instead

rketer

precise,

complex,

quantitative,

nonaligned,

out

of date,

and

rigid. It

ment.

takes

years

to

study

a

pay

system, reevaluate

the jobs,

pilot the

new

:uring.

plan,

and introduce it

unit

by

unit,

Far

more

speed

and

flexibility

are

effec-

needed.

essage

The new,

nimble reward

systems have

far

fewer

grades

or

bands

[d

the

than

their

predecessors—three

rather than the

thirty pay grades

of

old. Salaries are

based on a

person’s

skills

and no t the

person’s

job

many

title, Today

we pay the

person,

not the

job. Jobs change too quickly.

oduct

So do

the people—but

the

more

they

learn the

more they

earn,

dis-

Often,

skill-based

pay

is given

as

a

one-time

bonus

for

learning

y

also

because

skills also

come

and

go.

Employees

get

fewer raises—

ng

it

annuity-style

additions to

their pay—and more one-time bonuses

add

to

that reflect

current

efforts without generating

an ongoing

financial

ps

the

obligation

for

the

company.

Ework

The

appraisal process is also moving away from

a

boss’s

appraisal

ility

is

to a

team-based

appraisal or

360-degree

feedback model.

There is

less

ranking

of all

220

engineers along a

single dimension and

less

pants.

complexity in the

performance

rating scales.

Some organizations

cross-

have an

appraisal

day—an

automated

process

that

is

done and

corn

ots are

pleted

in less

than a

day.

It is

done easily

and

quickly and can be

at

key

repeated

more

often

for quickly changing

environments.

So pay

sys

v-how

tems

are

becoming

more

flexible

in

using more bonus and less annu

aining

ity

simpler

scales and grades,

pay for skills

rather

than

jobs,

and

mow-

encouraging

faster changes

and

more experimentation.

social

Collectively

these

people and reward practices

build

the

cross

unit

skills,

cross-unit interpersonal networks, and ultimately

a

DES

IGN

ING

ORG

N

IZ

TIO

NS



re

qui

natir

CO

T I

may

who

pl

ay

• Com

pan

y

fi

t

Hom

es

m

• S

pec

ial ist

s and

Cros

s-un

it

iran

g

ene

ral ist

s

team

s i

flatl

• Cro

ss-u

ni t

care

er

ti

on

a

nd

hirin

g

th

e

intel

cost

adju

• Com

mo

n pro

ces

ses

su

ch

as new pr

oduc

t

de

velo

pme

nt

tinu

• C

ros

s-un

it go

al

set

ting

v

ery

• D

ata-c

en tri

c d

atab

ase s

F

IGU

R

6

R

econ

figu

rable but

Al

igne

d S

tar

Mod

el

resu

rec

c

sist

reconflgurable cul

ture.

Such

pra

ctice

s b

uild

the

ski

lls

a

nd

min

d set

s

to link

fu

ncti

ons

bot

h

insi

de and

outs

ide th

e

co

mpa

ny

i

nto

a

ba

n

m

inia

ture

bu

sines

s

un

it.

In this

man

ner

an orga

niza

tion

s be

tter

c

usi

po

sitio

ned

to

c

apita

lize on

a

n

opp

ortu

nity

an

d

b

uild

a

new

capa

bil

a

n

ity Th

ese

ca

pab

ilitie

s

c

an

be

com

bine

d

and

rec

omb

ined

in in

ter

p

org

esti

ng

w

ays

t

o

c

reat

e

th

e

nex

t a

dva

ntage

.

But

th

e

la

stin

g

c

apab

ility

and

po

ssib

ly

a

m

ore

susta

inab

le

s

ourc

e

of

a

dvan

tage

s

th

e

cap

abil

ity of

an organization

to

reconfigure

itself. Figure

6 5

shows

an

alig

ned

sta

r

m

ode

l wit

h the

vari

ous p

ract

ices t

hat

co

nsti

tute

the

re

conf

lgur

able

org

aniz

atio

n.

T

he

ost

econ

figu

rabil

ity

R

econ

figu

rabi

lity u

nlik

e

qual

ity

s

t f

ree.

I

t tak

es tim

e

and

re

sour

ces

t

o b

uild

the

information

systems

and

human

resource

p

ract

ices

. A sig

nific

ant i

nves

tme

nt

i

n rec

ruiti

ng

an

d tr

aini

ng

s

• Sequ

ence

of

ad

vant

ages

• Pay

for s

kills

• O

ne-t

ime

awar

ds

•

Nim

ble

s

ystem

s



DESIGNING A

RECONFIGURABLE

ORGANIZATION

required.

Then

there

is the investment

of

management

in coordi

nating

work within

and

between

miniature

business

units.

It

is a

communications

intense

form

of organization.

It

is

also

fraught with the

potential

for

problems.

Companies

may

not

always be able

to find

people who

can manage

conflict

and

who

desire growth

and development.

Everyone

is

looking for

team

players.

In

addition

there

is the

potential

for

unresolved

conflict.

Transfer

price

issues can

consume enormous

amounts

of time.

As

in

matrix type

organizations

discussions

in a

reconfigurable

organiza

tion

can degenerate into

endless

internal

negotiations

that

cut

into

the

time available

for customers.

If

not

all

policies

are aligned

these

internal

frictions

can

absorb

the company’s

energy. However

these

costs

and

risks

must be weighed

against

those of not

being able

to

adjust

to

a reconfigurable

competitor.

The

reconfigurable

organization

is the

companion

to the

o

tinually

shifting

strategy

‘When competitive

advantages

do

not

last

very

long neither

do organizations

Instead

competitive

advantage

results from

a

string of short term

advantages

delivered

through

a

reconfigurable

organization

The

reconfigurable

organization

o

sists

of a

stable functional

structure

around

which

projects and

a

miniature business

units

are

continually

formed

combined

and

dis

er

banded. These units

can focus

on

products

channels

segments

customers

regions suppliers

technologies

and so

on. Th e

corn

pany

can

literally

and

simultaneously

organize

any

way

it wants

to

organize.

The

reconfigurability

rests

on three capabilities:

• Extensive

internal

cross unit

networking.

This capability

is built

through

aligned

human

resource

policies.

It

attracts

holds

and develops

the flexible

people

who

create the flexible

orga

nization.

•

Use of prices

markets

and

marketlike devices

to

coordinate

t

multiple

profit center units.

An

accounting

and information sys

tem

that

permits

an

accurate and flexible

determination

of

profit

and

loss on any

dimension is the

central tool

underlying

this

capability.

E

SIG

NIN

G

ORG

N

IZ

TIO

NS



Exte

rnal

net

wor

king

w

ith pa

rtne

rs

to

ex

pand

the

ca

pabi

lities

that

c

an

e

c

omb

ined

in cre

atin

g n

ew

adva

ntag

es

Th

e

sam

e

be

h v

ioral

s

kills

o

f co

oper

atio

n con

flict

m

anag

em e

nt and

infl

uenc

e

with

out

autho

rity

th

at

a

re

us

ed in

in

terna

l net

wor

king

ar

e

i

ndis

pens

able

in

man

agin

g e

xter

nal

net

works

The

f

inal

elem

ent

i

s to

p ma

nage

men

t tea

m

that s

ees

its

v

alue

a

dded

as d

esig

ning

a

nd sup

por

ting

the

orga

nizat

ion’

s

re

conf

igura

bi

lity

m

uli

sion

incn

the

ch

a

proc

cha

l

n

iza

ton

cap

pric

cu

si

foci

b

ui

ca

p

h

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