Designing Effective Organizations: How to Create Structured Networks / Edition 1

by Michael Goold, Andrew Campbell

Overview

'Goold and Campbell, leading thinkers on corporate-level strategy, have turned their attention to corporate-level organization design. They bring a rigor to this topic that will help managers wrestling with multiple reporting dimensions, decentralization and cross-unit co-ordination.' Professor Gary Hamel, London Business School. Author of Competing for the Future and Leading the Revolution.
'Campbell and Goold are renowned for discovering entirely new and useful dimensions to seemingly familiar business issues. This book is another shining example. It allows executives to replace politics and personality as the rationales for an organizational design with clear, effective logic and experience.' Thomas H. Davenport, Director, Accenture Institute for Strategic Change. Author of Process Innovation and Working Knowledge.
'A "must read" for managers and consultants. Redesigning the organization is the most powerful and fastest means for aligning decisions and behavior with strategic objectives. Goold and Campbell provide the best and most comprehensive framework for developing and testing the validity of an organizational structure I have seen in recent years. Based on years of research and experience they offer clear principles and a process to guide managers in the many design decisions and trade-offs involved in developing a more effective organization.' Professor Michael Beer, Harvard Business School. Author of The Critical Path to Corporate Renewal.
'Books on organization design tend to fall into one of two categories: those that provide interesting concepts but not help on how to implement them and those that are full of check lists on implementation, based on sterile and over-simplified ideas. Michael Goold and Andrew Campbell have written perhaps the finest example of an exception I have ever seen - a very practical book, with detailed guidelines on implementation, yet based on a rich and sophisticated understanding of the real challenges of organization design. It will be of immense use to all careful readers.' Professor Sumantra Ghoshal, London Business School. Author of The Individualized Corporation and Managing Across Borders.
'As companies search for all sources of competitive advantage, many are discovering that the ability to organize and execute complex strategies is an important one. Campbell and Goold have again provided us with a good process through which leaders can give organizing its deserved focus.' Professor Jay Galbraith, author of Designing the Global Corporation.
'Campbell and Goold bring much needed clarity and precision to the language of organizational design and show how this can help managers avoid the misunderstandings and differing interpretations that frequently undermine new organization structures.' Paul Coombes, Director, Organization Practice Area, McKinsey & Company.
'Organization change is close to the top of many companies' agendas. Goold and Campbell's book equips you with ideas and frameworks to take on the journey. The real-world examples help make it both pragmatic and readable.' Steve Russell, Chief Executive, The Boots Company plc.
'An impressive work. The taxonomy of organizational units and organigram symbols will be especially useful to managers working on structures.' Philip Sadler, Patron, The Centre for Tomorrow's Company. Author of The Seamless Organization.
'Incredibly relevant in helping to pull together a complicated structure based around the dimensions of channels, products, customers and geography - immensely clear and valuable.' David Roberts, Chief Executive, Personal Financial Services, Barclays plc.
'A welcome breakthrough in designing more effective corporate organization structures. The nine design tests of Goold and Campbell are a valuable addition to an otherwise sparse toolkit.' Jim Haymaker, Vice President, Strategy & Business Development, Cargill Inc.
...

Product Details

ISBN-13:	9780787960643
Publisher:	Wiley
Publication date:	06/03/2002
Pages:	368
Product dimensions:	6.30(w) x 9.19(h) x 1.02(d)

About the Author

Michael Goold and Andrew Campbell are directors of the Ashridge Strategic Management Centre in London and are acknowledged as leading thinkers on issues of corporate strategy and organization.

The Centre conducts research on large divisionalized companies. It is part of the Ashridge Trust, one of the world's top schools for executive education and development. Prior to establishing the Centre in 1987, both authors were Fellows at the Centre for Business Strategy at London Business School. They have written numerous books together including Strategies and Styles, Corporate Level Strategy and Synergy

Educated at Oxford and Stanford, Michael has extensive consulting as well as academic experience. He worked for a number of years with the Boston Consulting Group, becoming Vice President in 1979.

A Baker Scholar and Harkness Fellow from Harvard Business School, Andrew is currently a visiting professor at City University Business School. Previously he was a consultant with McKinsey and Company.

Read an Excerpt

Designing Effective Organizations

How to Create Structured Networks

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By Michael Goold Andrew Campbell

John Wiley & Sons

ISBN: 0-7879-6064-0

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Chapter One

Structured Networks

Probably the most seductive image of the organization of the future is the self-managed network. It conjures up visions of many highly motivated units, each with a focused expertise, interacting in a creative, bureaucracy-free and cohesive manner. Hierarchy and internal politics are at a minimum. The organization operates like a market, but is more effective than a market due to a set of relationships, ties, commitments, and shared intent that make it a purposeful entity. This image is seductive because it contrasts so vividly with many of today's complex corporate organizations. These organizations impede decision-making with their ambiguity, kill creativity with their rules and procedures, and sap energy through the heavy hand of hierarchy. Managers know that there has to be a better way; but they do not know how to design it. In companies with extensive and complicated interdependencies between product units, market units, geographical units, functional units, and project units, the simplicity of the self-managed network seems out of reach.

What is more, managers find the whole process of organzation design difficult and frustrating. They are overwhelmed by the number of variables they have to consider. They are confused by the advice available from consultants andacademics, much of which they find impractical, irrelevant to their concerns, or contradictory. They are constrained to use vague concepts such as "matrix" structures or "dotted-line" relationships because they lack a precise language for specifying the organizations they want to create. And, when it comes to choosing a design, they are unable to resist the influence of personalities and politics because they have no rigorous framework for selecting between alternatives.

This book sets out to provide practical help for managers confronting these difficulties. We have studied the corporate structures of a number of large, complex companies such as ABB, AstraZeneca, British Petroleum (BP), Citigroup, Dow, General Electric (GE), IBM, Mars, Monsanto, Motorola, Philips, Shell, and Unilever, and several smaller, but no less complex, organizations in sectors such as professional services, speciality chemicals, and e-commerce. We have also undertaken consultancy projects for many clients with organization design issues, and we have reviewed the work of leading organization design experts and consultants. From the research, we have developed a new approach to organization design. Our approach not only provides the tools for rigorous decision-making, it also helps managers to create the network-like organizations that they desire. These organizations balance self-management with structure.

Our approach to corporate organization design includes three components:

1. First, we propose nine tests of good design. The tests, which can be applied to any proposed design, highlight weaknesses in design options. They can be used to identify refinements that will overcome the weaknesses, or to rule out seriously flawed options.

2. Second, we provide a language in the form of a taxonomy of different kinds of unit roles and relationships. The taxonomy helps managers to describe and discuss different design options with more clarity. It also helps them develop radical alternatives.

3. Third, we suggest a process that managers can follow when they are facing a design challenge. The process, which builds on the tests and the taxonomy, provides managers with a rigorous but practical approach to organization design. It also helps them to achieve the outcome they want - an organization with the maximum of self-management, but with sufficient structure and hierarchy to work well. We call this outcome a "structured network".

A structured network has the features of a network - units that are largely self- managing, both in deciding how to achieve their objectives and in their relationships with other units - but sufficient structure, designed-in processes and hierarchy to insure that responsibilities and relationships are clear, that managers can collaborate successfully, and that corporate strategies can be implemented in a purposeful way. At the heart of our thinking is the idea of creating units that are self-managing on all matters except those where influence from the hierarchy or designed-in processes are needed to optimize the working of the network. Our goal is to help managers design organizations that are market-like in much of their behavior, but which are guided by sufficient structure to create more value than markets. Our work over the last 15 years on corporate centers has made us unusually sensitive to the potential that hierarchical structures have both to create and destroy value. A structured network is a design where the value creation potential is amplified and the value destruction potential is minimized.

In this introductory chapter, we will summarize our main messages and identify in which chapters of the book they are developed more fully. This should allow readers to focus their attention on those chapters that are of most interest to them.

Nine Design Tests

Which factors should guide the choice of organization design? (See box: Elements of Organization Design.) There are many informal managerial rules about things such as spans of control and reporting relationships. In addition, academics and consultants have produced a huge amount of work on organization design. But our research told us that managers still lack a practical and systematic framework to guide their organization choices. An important purpose of this book has been to develop a usable framework for guiding organization design choices.

Less an intellectual triumph than a practical checklist for addressing the most important issues, our framework is grounded on some basic concepts. The first and most important, the fit concept, embraces four drivers of fit - product-market strategies, corporate strategies, people, and constraints. In addition, we have condensed previous ideas on optimal organization design into five good design principles: the specialization principle, the co-ordination principle, the knowledge and competence principle, the control and commitment principle, and the innovation and adaptation principle (Figure 1.1).

The principles are broad in nature and not always easy to convert into prescriptive guidance. They are more valuable in orienting managers than in resolving particular organizational dilemmas. However, as we worked with the principles, we found ways to convert them into some practical tests. Perhaps the most important contribution of this book lies in the insights and understandings that the tests produce. The tests match the fit drivers and the good design principles (see Figure 1.2).

The Fit Tests

One almost universally agreed proposition is that organizations need to be fit for purpose. Strategy, therefore, should be a key driver of organization design, and we have found it useful to distinguish between product-market strategies and corporate-level strategy. But strategy is not the only driver of organizational design; at least as important are people. Many authorities counsel against designing an organization around people, preferring to build around the strategy and change the people if necessary. However, people cannot always be changed, and new ones with the required attitudes may be hard to find. So designs should take account of the people available to lead and work in them. Finally, organization design is subject to various constraints, ranging from laws laid down by governments to organizational capabilities or resources that are deeply imbedded. These four drivers of fit are described in detail in Chapter 2.

The fit drivers lead to four fit tests:

The market advantage test: "Does the design allocate sufficient management attention to the operating priorities and intended sources of advantage in each product-market area?"

The parenting advantage test: "Does the design allocate sufficient attention to the intended sources of added value and strategic initiatives of the corporate parent?"

The people test: "Does the design adequately reflect the motivations, strengths, and weaknesses of the available people?"

The feasibility test: "Does the design take account of the constraints that may make the proposal unworkable?"

The fit tests bring out the most important inputs that should guide organization design choices. Provided the design has been selected with these inputs in mind, there should be no problem in passing the fit tests. However, organization design choices are not always so rational. All too often, organizations evolve in ways that are not sufficiently related to the strategy of the company, or else pay scant attention to the limitations of managers who will fill key positions. In one company, we were told that the structure had always been primarily driven by the balance of power between the four barons who ran the main divisions, resulting in business unit groupings that had little to do with the opportunities in the markets being served. Under these circumstances, the organization will be a barrier to successful strategy implementation and will damage competitiveness. The fit tests insure that organizations which are evidently not fit for purpose will be exposed, and that more suitable alternatives will be adopted.

The Good Design Tests

While the four drivers of the fit principle are recognized by most managers, we believe that the good design principles and tests represent more of an advance. They synthesize the vast quantity of academic research and managerial experience about what makes an organization work well into a few basic tests that should guide any organization designer. We devote Chapter 3 to explaining the good design principles in detail.

The specialization principle and co-ordination principle both concern the boundaries between units. The specialization principle states that boundaries should exist to encourage the development of specialist skills, whereas the co-ordination principle emphasizes that activities which need to be co-ordinated should be located within a single unit.

Although these basic principles are clear, there are unfortunately often trade-offs between specialization and co-ordination. A broadly-based product structure may give economies in purchasing and manufacturing, but be detrimental to the development of specialist products for particular markets. A disaggregated geographical structure with many local units may support the special skills needed for different regions, but prevent effective co-ordination in product development or IT infrastructure. Organizational problems arise when there are trade-offs between different ways of grouping responsibilities. In order to help with these trade-offs, we have developed two tests, which give more precision to the principles and make them more practically useful.

The specialist cultures test: "Do any 'specialist cultures', units with cultures that need to be different from sister units and the layers above, have sufficient protection from the influence of the dominant culture?"

The difficult links test: "Does the organization design call for any 'difficult links', co-ordination benefits that will be hard to achieve on a networking basis, and does it include 'solutions' that will ease the difficulty?"

The specialist cultures test questions whether the required specialist skills will thrive only if the managers concerned are insulated from the influence of other parts of the organization. For example, sometimes the best way to develop and market a new product is to set it up as a separate business unit, with little or no contact with the rest of the company. Alternatively, instead of setting up a separate unit, it may be possible for the corporate parent to insure that the specialist culture receives sufficient protection by flexing corporate policies and procedures or by giving it certain powers. The test focuses attention on the dangers of suppressing or damaging activities that fall outside the mainstream corporate culture, dangers which are easy to overlook.

The difficult links test recognizes that many co-ordination benefits can be achieved through spontaneous networking between units, but that others will be more difficult. For example, best practice sharing can often be left to networking between units, whereas the establishment of common technical standards is unlikely without a corporate policy which makes them mandatory. Organization designers should focus only on the few co-ordination benefits that will be difficult: where networking will not deliver the benefits. For these difficult links, it is necessary to develop appropriate co-ordination mechanisms or interventions to overcome the difficulty, or to readjust the design so that the co-ordination lies within the responsibility of a single unit. This test makes managers assess which coordination benefits will be difficult to achieve if left to the network, and to think through whether and how any difficulties can be overcome.

Together, the specialist cultures test and the difficult links test give managers a powerful means of assessing the trade-offs between the benefits that can be gained from co-ordination and from specialization. In the 1980s, IBM decided to set up its PC division as a separate unit, free from the influence of the IBM corporate culture and policies. This promoted a specialist PC culture that was highly successful in bringing the new product to market rapidly. Using a similar logic, many commentators argued that, when faced with performance problems in the early 1990s, IBM should break up the whole company into separate, independent units. Lou Gerstner, CEO of IBM, however, believed that the future for IBM lay in providing integrated customer solutions. He therefore kept the company together; but he recognized that co-ordination between separate product divisions was not proving a satisfactory means of offering integrated solutions, due to conflicting divisional priorities and incompatible technologies. He therefore gave authority to IBM's Sales and Distribution division and to a new unit, the Global Services division, to concentrate, respectively, on customer solutions and services, using both IBM and competitor products. These divisions have the power to offer a unified approach to customers, and have dealt well with previously difficult links between IBM divisions. At the same time, Gerstner has encouraged new business activities, such as Business Innovation Services, IBM's e-business initiative, not to be bound by IBM's traditional policies and ways of doing things. IBM's structure now takes account of both the difficult links and the specialist cultures tests.

Continues...

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Table of Contents

1. Structured Networks.

2. The Fit Drivers and Tests.

3. The Good Design Principles and Tests.

4. Simple and Complex Structures.

5. A Taxonomy of Unit Roles.

6. Parenting in Complex Structures.

7. An Overview of the Design Process.

8. Using the Tests.

9. The Design Process in Detail.

10. Twenty-first Century Organizations.

Editorial Reviews

"A few minutes spent thinking about one's own company, using the Goold and Campbell principles, can be very illuminating. At its best, it will lead to real insights about how to reorganise the company. And at the very worst, you can have hours of fun applying the redundant hierarchy test to your colleagues." (Financial Times, 9 May 2002)

"...There are several ways to rebuild the country manager's role, as Michael Goold, of Britain's Ashridge Strategic Management Centre, argues in a new book...the main thing is to define the scope of the job clearly..." (Economist, 10 May 2002)

From the Publisher

These directors of the Ashridge Strategic Management Centre in London utilize a variety of examples from their personal experiences to describe an innovative framework for assessing business design options. They offer tests managers can use to create more efficient business structures and explain how leaders can use effective logic and experience, instead of politics and personality, as the basis for an organizational design. Copyright (c) 2002 Soundview Executive Book Summaries

Soundview Executive Book Summaries