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Designing Organizations
Jay R. Galbraith · 2014
In a sentence
A prescriptive guide to strategic organization design that shows how different business and portfolio strategies require different, aligned combinations of structure, processes, rewards, and people—captured in the Star Model—across business-unit and enterprise levels.
Designing Organizations distills Jay Galbraith's decades of research and consulting into a practical, top-down method for building high-performing organizations. Starting from the premise that different strategies lead to different organizations, the book uses the Star Model—strategy, structure, processes, rewards, and people—as a holistic framework for aligning design choices. It traces companies from single-business functional start-ups through related and unrelated diversification, network and reconfigurable forms, and value-adding conglomerates and synergy portfolios, using vivid cases (Nike, IBM, Disney, GE, BMW, RBC, Danaher) to show how lateral processes, integrators, matrix structures, and partnerships coordinate increasingly complex work. It closes by examining how big data and real-time decision making may create a new organizational dimension. For any leader entrusted with stewardship of a complex institution, this book explains not just what to organize but how to align every design lever so people can excel rather than merely cope.
The four lenses
- Science
- Statistics
- Systems
- Strategy
The model
A causal framework in which strategy and contextual conditions (diversity, interdependence, change dynamics) drive design levers (structure, processes, rewards, people, lateral coordination), which shape psychological and behavioral states (coordination, collaboration, motivation, decision speed) that produce organizational alignment and performance outcomes.
Business/Portfolio Strategydesign lever
The chosen direction for growth including what to do, where to play, and how to win, spanning single-business and multibusiness portfolio choices that guide all subsequent organization design decisions.
Variety and Diversitycontextual condition
The number and difference of products, services, customers, and business units a company must coordinate, ranging from a single product line to many unrelated businesses with distinct business models, which increases information-processing demands.
Interdependencecontextual condition
The degree to which activities in one organizational unit affect the goal accomplishment of other units, ranging from pooled to sequential to reciprocal, which determines the amount of coordination and communication required.
Dynamics of Change (Unpredictability)contextual condition
The rate and especially the predictability of change in a business; when change is constant and unpredictable, plans and schedules require constant revision, driving the need for high communication, flexibility, and lateral coordination.
Structuredesign lever
The distribution of power and authority across the hierarchy including choice of functional, product, customer, channel, geographic, hybrid, or matrix forms, plus division of labor, spans, and centralization decisions.
Lateral Coordination Processesdesign lever
Information and decision processes that coordinate activities across organizational units, varying from voluntary/informal processes and e-coordination to formal groups, integrators, and matrix organizations, matched to coordination needs.
Information and Decision Processesdesign lever
The informal, business, and management processes through which work gets done and scarce resources are allocated, including planning, budgeting, and resource allocation that align goals and set priorities.
Reward Systemsdesign lever
Compensation, promotion, recognition, and job challenge practices designed to align individual goals with organizational goals and motivate the strategic behaviors required to execute strategy.
People Practicesdesign lever
Recruiting, selection, development, rotation, and promotion practices used to build the skill sets and mind-sets aligned with strategy, emphasizing hiring for fit, training for skills, and rotational assignments.
Cross-Unit Coordination and Collaborationbehavioral pattern
The behavioral state in which interdependent units communicate, share information, resolve conflicts, and cooperate effectively to execute interdependent work flows and deliver integrated products, services, and solutions.
Employee Motivationpsychological state
The psychological state in which individuals are energized to behave in ways that execute strategy, driven by aligned rewards, recognition, job challenge, and consistent behavioral messages from the design system.
Decision-Making Speed (Clock Speed)behavioral pattern
The velocity at which the organization detects information, generates insight, decides, and acts, ranging from periodic project cycles to continuous real-time responses enabled by newsroom models and big data.
Organizational Alignment (Fit)psychological state
The degree to which strategy, structure, processes, rewards, and people fit together and reinforce one another so people receive a consistent message about appropriate behavior, the load-bearing mediator to performance.
Reconfigurabilitybehavioral pattern
The organizational capability to be easily and quickly changed by forming and reforming cross-functional teams, using flexible systems, and building partnerships to combine and recombine capabilities into new advantages.
Corporate Value-Adding Capabilitybehavioral pattern
The ability of the corporate center to create economic value beyond the sum of stand-alone businesses through talent mobility, technology transfer, leverage, brand, expertise sharing, solutions, and leveraging intellectual property.
Organizational Performanceoutcome metric
The outcome of effective strategic organization design, including high performance, competitive advantage, customer service, growth, economic value, and superior total shareholder return relative to expectations.
How they connect
- business strategy → predicts structure design
- business strategy → predicts reward systems
- business strategy → predicts people practices
- variety diversity → influences structure design
- variety diversity → influences lateral coordination
- interdependence → moderates lateral coordination
- change dynamics → moderates lateral coordination
- lateral coordination → predicts coordination capability
- structure design → influences coordination capability
- reward systems → predicts employee motivation
- people practices → predicts coordination capability
- information decision processes → influences decision speed
- structure design → mediates organizational alignment
- reward systems → mediates organizational alignment
- people practices → mediates organizational alignment
- coordination capability → influences organizational alignment
- employee motivation → influences organizational alignment
- organizational alignment → predicts organizational performance
- reconfigurability → predicts organizational performance
- lateral coordination → predicts reconfigurability
- value creation capability → predicts organizational performance
- business strategy → influences value creation capability
- decision speed → predicts organizational performance
The story
The reader A senior leader or general manager entrusted with the stewardship of an organization who wants to build a high-performing enterprise that excels at executing its strategy.
External problem
Their organization has grown more complex and is misaligned with its strategy and stakeholder environment, so it cannot serve customers effectively.
Internal problem
They feel that 'doing what comes naturally' and relying on good people is no longer enough, and they are confused about how to organize amid rising complexity and constant change.
Philosophical problem
It is just plain wrong to force talented people to work around a broken system when the organization could be designed to support them in excelling.
The plan
- Clarify your strategy: decide what to do, where to play, and how to win.
- Use the Star Model to design structure, processes, rewards, and people as an aligned whole.
- Match lateral processes—voluntary, e-coordination, formal groups, integrators, or matrix—to your coordination needs.
- As you diversify, choose the right portfolio structure and define how the corporate center adds value.
- Build reconfigurability and real-time decision capability to compete when advantages are temporary.
Success
- An aligned, high-performing organization where people excel and get consistent messages about desired behavior.
- The ability to coordinate complex, interdependent work rapidly and to reconfigure as strategy shifts.
- A corporate center that adds genuine economic value to its portfolio of businesses.
At stake
- A misaligned organization riddled with friction, silos, confusion, and wasted energy on unnecessary conflict.
- Inability to serve customers or respond to rapid, unpredictable change.
- Falling behind competitors, trading at a discount, and losing talent and capital.
Questions this book answers
- How should an organization be designed given its strategy?
- Why do different strategies require different structures, processes, rewards, and people?
- How do companies coordinate interdependent work through lateral processes when change is rapid and unpredictable?
- How do multibusiness enterprises add value beyond the sum of their stand-alone businesses?
- How can organizations be made reconfigurable when competitive advantages are temporary?
Glossary
- Business/Portfolio Strategy
- The direction in which a company chooses to grow, defined by goals (what to do), scope (where to play), and competitive advantage (how to win), spanning single-business to multibusiness portfolio decisions.
- Variety and Diversity
- The number and difference of products, services, customers, and business units the organization must coordinate, increasing the information-processing and decision-making load.
- Interdependence
- The degree to which activities in one unit affect the activities and goal accomplishment of other units, categorized as pooled, sequential, or reciprocal.
- Dynamics of Change (Unpredictability)
- The rate and predictability of change in a business; unpredictable change forces constant revision of plans and drives the need for high communication and lateral coordination.
- Structure
- The distribution of power and authority across the hierarchy, including the type of hierarchical form, division of labor, spans, and vertical and horizontal power distribution.
- Lateral Coordination Processes
- Information and decision processes that coordinate work across organizational units, ranging in intensity from voluntary and e-coordination through formal groups, integrators, and matrix organizations.
- Information and Decision Processes
- The informal, business, and management processes through which work is done and scarce resources are allocated to opportunities, aligning goals and setting priorities.
- Reward Systems
- The compensation, promotion, recognition, and job-challenge practices used to align individual goals with organizational goals and motivate strategic behavior.
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