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Designing Your Organization
Kates, Amy Galbraith, Jay R. · 2007
In a sentence
A practical guide arguing that different business strategies require deliberately different organizational designs, and showing how to align structure, processes, rewards, and people to build the capabilities needed to execute five common complex strategies.
Building on the Star Model developed over thirty years by Jay Galbraith, this book equips leaders and organization design practitioners to solve the five most vexing design challenges facing modern firms: organizing around customers, operating across borders, making a matrix work, resolving the centralization-decentralization dilemma, and organizing for innovation. Rather than offering fads or one-size-fits-all templates, the authors ground every recommendation in contingency and complementary-systems theory: strategy dictates the organizational capabilities a firm must excel at, and those capabilities become the criteria for choosing among complementary sets of structures, processes, metrics, rewards, and people practices. With rich company examples (Cemex, IBM, Procter & Gamble, MeadWestvaco, Northwest Guaranty), assessment tools, and clear step-wise reasoning, the book teaches leaders to manage complexity deliberately, use lateral connections as strategic levers, and treat organization design as an ongoing process rather than a periodic reorganization event.
The four lenses
- Science
- Statistics
- Systems
- Strategy
The model
A causal framework in which strategy determines the differentiating organizational capabilities a firm needs, which serve as design criteria for configuring complementary design levers (structure, processes and lateral connections, rewards, people practices). Alignment of these levers builds capabilities and shapes psychological/behavioral states (collaboration, motivation, trust) that drive effectiveness outcomes; contextual conditions like business/portfolio diversity and complexity moderate the appropriate configuration.
Business Strategycontextual condition
The company's formula for competitive advantage, encompassing vision, mission, goals, target markets, and the chosen basis of competition that sets the direction and requirements for organization design.
Organizational Capabilities (Design Criteria)psychological state
The unique, integrated combinations of skills, processes, technologies, and human abilities that differentiate a firm and that the strategy demands; they serve as the criteria against which all design decisions are judged.
Structuredesign lever
The formal configuration of power, authority, reporting relationships, and grouping of units around function, product, geography, or customer dimensions that determines who contacts whom and what work is deemed most important.
Processes and Lateral Connectionsdesign lever
The connected activities and integrating mechanisms—work and management processes, networks, teams, integrative roles, and matrices—that move information across the organization and coordinate work across structural boundaries.
Rewards and Metricsdesign lever
The measures and reward systems (salary, bonuses, recognition, evaluation processes) that align individual and collective behavior with organizational goals and communicate what the company values.
People Practicesdesign lever
Human resource policies for selection, staffing, training, and development that form the competencies and mind-sets—such as cross-boundary collaboration and influencing without authority—needed to execute the strategy.
Design Alignmentpsychological state
The degree to which structure, processes, rewards, and people practices reinforce one another and support the strategy as a complementary, coherent system rather than piecemeal choices.
Lateral Capabilitybehavioral pattern
An organization's ability to build, manage, and reconfigure its processes and lateral connections in service of strategic goals, forming the foundation for reconfigurability and complex organizational forms.
Social Capital and Trustpsychological state
The values, norms, relationships, and mutual trust (competence, commitment, communication, consideration) shared among members that permit cooperation, candid conflict resolution, and efficient shared decision making.
Cross-Boundary Collaborationbehavioral pattern
The behavioral pattern of employees and managers working interdependently across organizational boundaries—sharing resources, making joint decisions, and integrating activities rather than competing or compromising.
Business and Portfolio Complexity/Diversitycontextual condition
Contextual conditions including number of products, business units, customers, geographies, and diversity of underlying business models that determine the interfaces to be managed and the appropriate design response.
Organizational Effectiveness and Growthoutcome metric
The outcome of strategy execution—competitive advantage, customer satisfaction and share, profitability, organic growth, speed, and reconfigurability—achieved when the organization builds and deploys the right capabilities.
How they connect
- business strategy → predicts organizational capabilities
- organizational capabilities → influences structure design
- organizational capabilities → influences processes lateral connections
- organizational capabilities → influences rewards metrics
- organizational capabilities → influences people practices
- structure design → predicts design alignment
- processes lateral connections → predicts design alignment
- rewards metrics → predicts design alignment
- people practices → predicts design alignment
- processes lateral connections → predicts lateral capability
- people practices → predicts social capital trust
- social capital trust → predicts collaboration behavior
- lateral capability → predicts collaboration behavior
- design alignment → predicts organizational effectiveness
- collaboration behavior → predicts organizational effectiveness
- lateral capability → predicts organizational effectiveness
- contextual complexity → moderates structure design
- contextual complexity → moderates processes lateral connections
The story
The reader A business leader or organization design/HR practitioner who wants to build an organization capable of executing a complex, third-generation strategy and gaining competitive advantage.
External problem
Their current organization is a barrier rather than an enabler to executing complex strategies involving customers, geographies, matrices, scale, and innovation.
Internal problem
They feel overwhelmed by organizational complexity, frustrated by silos and politics, and uncertain whether to centralize, matrix, or reorganize.
Philosophical problem
It is just plain wrong to make far-reaching design decisions based on intuition, imitation, or personal experience rather than a structured framework tied to strategy.
The plan
- Articulate strategy and translate it into no more than five differentiating organizational capabilities as design criteria.
- Diagnose which of the five challenges you face and how far along the relevant spectrum your strategy requires you to be.
- Choose complementary structures, processes, lateral connections, rewards, and people practices aligned to those capabilities.
- Build lateral capability by evolving from networks to teams to integrative roles to matrix, using the lightest touch needed.
- Treat the change as a project with a decision framework, goals, milestones, transition management, and participative change management.
Success
- An organization that is an enabler, not a barrier, so employees can easily make the right decisions and focus energy on customers and innovation.
- The ability to reconfigure quickly around opportunities and threats, gaining competitive advantage over slower rivals.
- Successful execution of complex strategies—customer solutions, global coordination, matrix integration, balanced centralization, and organic growth.
At stake
- Introducing complexity, confusion, and frustration by installing forms like a matrix without the required supporting capabilities, then abandoning them.
- Oscillating between centralization and decentralization and reaping the disadvantages of both.
- Failing to execute strategy because the organization remains a formidable obstacle and opportunities are missed.
Questions this book answers
- How does a company translate its strategy into the organizational capabilities and design criteria that should drive design decisions?
- When and how should a firm organize around customers, across borders, as a matrix, or for innovation?
- How can a company get the benefits of both centralization and decentralization without oscillating between extremes?
- What lateral connections (networks, teams, integrative roles, matrix) are appropriate for a given level of required coordination?
- How should new ventures be separated from and linked to the core business to fuel organic growth?
Glossary
- Business Strategy
- A company's formula for gaining competitive advantage, encompassing its vision, mission, short- and long-term goals, target customers, and chosen basis of competition.
- Organizational Capabilities (Design Criteria)
- Unique, integrated combinations of skills, processes, technologies, and human abilities created within the organization that differentiate it and provide competitive advantage.
- Structure
- The formal grouping of units and configuration of authority, reporting relationships, and communication channels around function, product, geography, or customer dimensions.
- Processes and Lateral Connections
- Series of connected activities and integrating mechanisms (work and management processes, networks, teams, integrative roles, matrices) that move information and coordinate work across boundaries.
- Rewards and Metrics
- The measures used to evaluate performance and the reward systems (salary, bonuses, stock, recognition, benefits) that motivate and reinforce value-adding behaviors.
- People Practices
- Human resource policies for selection, staffing, training, and development that build the competencies and mind-sets required to execute strategy across boundaries.
- Design Alignment
- The degree to which structure, processes, rewards, and people practices reinforce one another and support the strategy as a complementary, coherent system.
- Lateral Capability
- The organization's ability to build, manage, and reconfigure processes and lateral connections in service of strategic goals, underpinning reconfigurability.
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