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Hitting the "sweet spot"between integration and separation in organization design Nicolay Worren www.nicolayworren.com
Discussions about organization design often center on whether one should divide or combine units CEO Sales & Marketing Customer  Support Engineering Operations Partition? Integrate?
However, one often spends little time considering «the white spaces on the organization chart»   CEO Sales & Marketing Customer  Support Operations Engineering Potential interface after split Current interface
The result is that ineffective designs are selected – sometimes causing serious performance problems Separated ”Siloes” Formal structure Effective design Integrated    Too much/ unecessary collaboration Low High  Degree of interdependency in work processes
Examples from two international oil services firms headquartered in Norway
The first firm centralized the responsibility for technical sales around 2004 Technical sales, engineering and production in HQ Illustration: Sales process in the 2004-2010 time period ”Their [the local subsidiaries’] estimates were way off…” 1. RFQ 2. Proposal 3. Product delivery
However, it is right now in the process of decentralizing the same process Illustration:Sales process in 2011  Hvordan vi er organisert i dag  Endringer vi har gjennomført de siste tre år ”Everything that can be done in the Region should be done in the Region”  Trender og eksterne krav  Viktige veivalg vi vil stå ovenfor de neste tre år Proposals are developed locally (or in regional Shared Services centers); Production is also done locally in many cases
The second firm initially outsourced production, but then decided to insource   Illustration: Change that was implemented in one engineering/oil services company  Hvordan vi er organisert i dag  Endringer vi har gjennomført de siste tre år Service /Aftermarket Sales Procurement Engineering Internally Fabrication Externally  Trender og eksterne krav  Viktige veivalg vi vil stå ovenfor de neste tre år ”We outsourced too much of the production process…it’s hard to manage this interface…this is one of the reasons we almost went bankrupt”
The two examples can be analyzed in terms of the (mis)alignment between structure and processes Situation in engineering firm after initial outsourcing of Fabrication   Separated Formal structure Standardization and modularization of processes allow decopling Integrated Technical sales and engineering in the same unit Low High Situation after insourcing of Fabrication Degree of interdependency in work processes
Three main implications follow if we accept the logic of the framework proposed here 2) One can increase alignment either by altering the formal structure or by formalizing/standardizing work processes S Formal structure I H L Process interdependency Effective design 1) To make effective organization design decisions we must know something about the work processes and the interfaces (ideally, we should know the degree of interdependency) 3) Too much integration is potentially as damaging as too little integration
I will add more information about this and other organization design topics to my blog www.nicolayworren.com Subscribe by pressing this button! www.organizationdesign.net New domain in June 2011:

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Hitting the sweet spot between integration and separation in organization design

  • 1. Hitting the "sweet spot"between integration and separation in organization design Nicolay Worren www.nicolayworren.com
  • 2. Discussions about organization design often center on whether one should divide or combine units CEO Sales & Marketing Customer Support Engineering Operations Partition? Integrate?
  • 3. However, one often spends little time considering «the white spaces on the organization chart» CEO Sales & Marketing Customer Support Operations Engineering Potential interface after split Current interface
  • 4. The result is that ineffective designs are selected – sometimes causing serious performance problems Separated ”Siloes” Formal structure Effective design Integrated Too much/ unecessary collaboration Low High Degree of interdependency in work processes
  • 5. Examples from two international oil services firms headquartered in Norway
  • 6. The first firm centralized the responsibility for technical sales around 2004 Technical sales, engineering and production in HQ Illustration: Sales process in the 2004-2010 time period ”Their [the local subsidiaries’] estimates were way off…” 1. RFQ 2. Proposal 3. Product delivery
  • 7. However, it is right now in the process of decentralizing the same process Illustration:Sales process in 2011 Hvordan vi er organisert i dag Endringer vi har gjennomført de siste tre år ”Everything that can be done in the Region should be done in the Region” Trender og eksterne krav Viktige veivalg vi vil stå ovenfor de neste tre år Proposals are developed locally (or in regional Shared Services centers); Production is also done locally in many cases
  • 8. The second firm initially outsourced production, but then decided to insource Illustration: Change that was implemented in one engineering/oil services company Hvordan vi er organisert i dag Endringer vi har gjennomført de siste tre år Service /Aftermarket Sales Procurement Engineering Internally Fabrication Externally Trender og eksterne krav Viktige veivalg vi vil stå ovenfor de neste tre år ”We outsourced too much of the production process…it’s hard to manage this interface…this is one of the reasons we almost went bankrupt”
  • 9. The two examples can be analyzed in terms of the (mis)alignment between structure and processes Situation in engineering firm after initial outsourcing of Fabrication Separated Formal structure Standardization and modularization of processes allow decopling Integrated Technical sales and engineering in the same unit Low High Situation after insourcing of Fabrication Degree of interdependency in work processes
  • 10. Three main implications follow if we accept the logic of the framework proposed here 2) One can increase alignment either by altering the formal structure or by formalizing/standardizing work processes S Formal structure I H L Process interdependency Effective design 1) To make effective organization design decisions we must know something about the work processes and the interfaces (ideally, we should know the degree of interdependency) 3) Too much integration is potentially as damaging as too little integration
  • 11. I will add more information about this and other organization design topics to my blog www.nicolayworren.com Subscribe by pressing this button! www.organizationdesign.net New domain in June 2011:

Notes de l'éditeur

  1. Selv om endringene er av ulik karakter og foregår på ulike nivåer i selskapene så er et fellestrekk at de innebærer en kraftig desentralisering (jeg kommer tilbake til årsakene til dette).Et eksempel – riktignok ekstremt – kan illustrere denne tendensen: Ett av selskapene har engineering og produksjon i Norge og har vokst ved å etablere salgsenheter i ulike land. Selskapet sentraliserte for noen år siden ansvaret for teknisk salg. Erfaringen den gang var at estimater og forpliktelser som ble gitt av det lokale salgskontoret ikke var i tråd med det produksjonsenheten i Norge var i stand til å levere. Følgelig opprettet man et teknisk salgsteam i Norge med ansvar for å utarbeide tilbud. Man etablerte da arbeidsprosessen som er illustrert på lysarket hvor det lokale salgskontoret fanger opp RFQ’er og videreformidler disse til teknisk salg, som samarbeider med engineering i å utarbeide et tilbud.
  2. I dag er man i ferd med å desentralisere disse prosessene. Nå utarbeides tilbud lokalt eller i regionale Shared Services sentre, produksjonen foregår i mange tilfeller lokalt, og selv om engineering foreløpig er i Norge fikk jeg inntrykk av at det også vil kunne bli flyttet ut over tid. Det mantraet man nå forfølger er at alt som kan gjøres i regionen skal gjøres i regionen. Tilsvarende eksempler ble gitt for flere av de andre selskapene.
  3. Eksemplet ovenfor gjelder altså grensesnittet mellom salg og engineering. Et annet viktig grensesnitt er mellom engineering og fabrikasjon. Dette var flere opptatt av. Rent historisk er trenden i mange bransjer at produksjon etter en tid settes ut til underleverandører. For noen oljerserviceselskaper har dette vært en utfordring. Et eksempel var et selskap hvor man hadde satt ut fabrikasjon til eksterne leverandører. Men de opplevde at de mistet kontroll, det ble forsinkelser og kostnadene ble høyere enn forventet. En annen bekymring nevnt av flere er at man ved å sette ut eller flytte produsjonen står i fare for å miste nøkkelpersoner. Selskapet som sitatet på arket kommer fra har i dag egne fabrikasjonsenheter, riktignok i utlandet, men har i større grad integrert disse med engineering ved at det foregår en hyppig informasjonsutveksling undervis i et prosjekt mellom engineering og fabrikasjon og vet at de har et såkalt «site team» fra engineering på plass der hvor ting monteres. Et annet selskap nevnte også at de ville vurdere å insource fabrikasjon i noen regioner på grunn av kvalitetshensyn.Det kan også være andre årsaker til at man beholder fabrikasjon internt: I noen tilfeller er ikke teknologien moden nok til at man kan sette ut fabrikasjon(en annen årsak til at man beholder fabrikasjon kan være at markedet av tilbydere ikke er stort nok). Jeg bør nevne her at det selvsagt er en forenkling å kategorisere fabrikasjon som enten «intern» eller «ekstern» som jeg gjør her på dette lysarket: Det kan være ulike løsninger for ulike produkter, ulike regioner (avh. av kvalitet, risiko, kompleksitet på leveransen. Det er også mange måter å styre dette grensesnittet på som vi ikke har tid til å komme inn på her.
  4. Jeg har utarbeidet et enkelt rammeverk som kanskje kan bidra til å illustrere problemstillingen i de to eksemplene vi har nettopp har diskutert. Logikken er ganske enkel. Rammeverket sier at organisering i stor grad dreier seg om å enten koble roller, enheter eller prosesser sammen (for eksempel organisere noe i samme enhet eller la to enheter rapportere til samme leder) eller splitte det opp (organisere de i to ulike enheter eller å la en underleverandør ta ansvaret). Så på den vertikale aksen har vi separering versus integrering. Samtidig må vi ta hensyn til hvor store avhengigheter det er i de arbeidsprosessene som skal utføres av disse enhetene. Avhengigheter betyr etpar ting. Det kan bety at man i stor grad må ta hensyn til hva den andre enheten gjør før man selv kan ta beslutninger eller sluttføre sin leveranse, og at det kreves hyppig uformell kommunikasjon mellom de som er ansvarlig i de to enhetene. Tenk for eks. på en ingeniør som må konsultere med leder for fabrikasjon for å sikre at det man designer faktisk kan produseres. Men man kan også tenke seg en situasjon hvor det er en lav grad av avhengighet, hvor det er etablert standarder som gjør at man i liten grad må ta hensyn til neste ledd i kjeden så lenge man holder seg innenfor standarden. Så langs den horisontale aksen er graden av avhengighet fra høy til lav. Effektiv organisering har man når det er et samsvar her. Hvis man splitter opp to enheter som faktisk utfører prosesser som krever koordinering så får man de berømte siloene. På den annen side, det er en like stor kostnad å gjøre det motsatte, å integrere prosesser som faktisk kunne ha blitt utført av adskilte enhter – da får man en unødvendig koorderingskostnad – folk bruker tid på møter og samarbeid som strengt tatt ikke er nødvendig. Det kan også bety at man utfører aktiviteter internt som det hadde vært mer kostandseffektivt å sett ut.