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An axiomatic approach to analysing organization design innovations r3

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Presentation held at Aarhus business school. See my blog http://www.organizationdesign.net for tips and tools related to organization design.

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An axiomatic approach to analysing organization design innovations r3

  1. 1. An axiomatic design approach to analyzing innovations in the organization of complex firms Presentation at Aarhus Business School, June 23, 2010 Nicolay Worren, PhD Worren Consulting
  2. 2. In designing organizations, managers are often faced with multiple and conflicting functional demands
  3. 3. The evicence suggests that organizations that do not prioritize one demand will operate suboptimally Quality Efficiency Other oriented oriented /combination Profitability U.S. hospitals 0.3 0,02 -0.5 Dine-in OR Sales growth Pizza restaurants delivery Dine-in AND delivery 1.3 0.6
  4. 4. However, we should also allow for the possibility of inventing new designs that can meet multiple demands 90 micrometer! Quantity of aluminium Strength /stiffness
  5. 5. Indeed, many organizational design innovations represent the removal – or at least lessening - of a design contradiction Functional CEO Engineering Production Marketing Coordination cost Multidivisional CEO Scale Product A Product B Engineering Engineering Production Production Marketing Marketing
  6. 6. The axiomatic approach developed by Nam Suh provides an analytical basis for supporting design processes
  7. 7. A key premise is the distinction between functions and design parameters How we want to achieve it What we want to achieve Design Parameters Manufacturing plant Division A Division B Functional requirements Manufacture products X Maximize sales revenue for product A X Maximize sales revenue for product B X
  8. 8. Complexity is defined as the existence of coupling Design Parameters Manufacturing plant Division A Division B Functional requirements Manufacture products X Maximize sales revenue for product A X X Maximize sales revenue for product B X X
  9. 9. Two main axioms are proposed that may be translated into design principles for organizations Axiom 1 • Maintain independence FR 1 X of functional requirements (i.e., FR 2 X minimize coupling) Axiom 2 • Ensure that the system range fits within the design range (or maximize overlap) 10 20 30 40 50
  10. 10. This framework can be used to study multidimensional organizations, an emerging organisational form FR1: FR2: Achieve economies of scale Achieve customer focus and scope in production in sales and marketing Company X Product A Product B Product C Region 1 Region 2 Region 3 Dimension 1 + Dimension 2
  11. 11. Scandinavian Telecom is a firm with 7 main units FR 1 Create value for stakeholders by Functional requirements offering telecommunications services FR 1.1 FR 1.2 FR 1.3 FR 1.4 FR 1.5 FR 16 FR 1.7 Provide cost- Develop and Maximise profits Maximise profits Maximise Maximise Perform effective IT systems manage an for Fixed for Mobile revenue in the revenue in the enabling and and applications efficient network telephony telephony Business Consumer control that meet internal infrastructure services services segment segment processes client needs Design parameters IS Operations Fixed Mobile Business Consumer Staff Process Infrastructure/ platform Market segment
  12. 12. One option for organizing this firm is to adopt a matrix structure Scandinavian Telecom - Excerpt - CEO Measured on sales or profits of Fixed Fixed Mobile Measured on telephony across overall sales or segments profit in Business Director Director segment IT Business Director Sales manager 2 Director Sales manager 1 Operations Measured on sales Consumer or profits of Fixed Director telephony in Business segment Director
  13. 13. The matrix structure creates interdependencies that represent coupling Corporate Function IS Operations Fixed Mobile Business Consumer staff Provide cost-effective IT systems 1 applications that meet business X x x needs Develop and manage an efficient 2 x X x network infrastructure Develop and launch a high 3 x x X x x x number of fixed net products Develop and launch a high 4 number of mobile telephone x x X x x x services Maximise market share in the 5 x x x x X x x Business segment Maximise revenue in the 6 x x x x X x Consumer segment Perform enabling and control 7 X processes Infrastructure/ Interdependencies operational due to dual reporting interdependencies line and overlapping accountabilities
  14. 14. The adoption of the front-back model would separate the roles and remove the dual reporting lines Measured on overall sales, CEO market share, Measured quality, (profit) in delivery time, Business segment Fixed Mobile (cost), etc. Director Director Business Sales manager 1 IT Director Director Sales manager 2 Operations Consumer Director Director
  15. 15. The effect is to remove coupling between some of the functional requirements Corporate Function IS Operations Fixed Mobile Business Consumer staff Provide cost-effective IT systems 1 applications that meet business X x x needs Develop and manage an efficient 2 x X x network infrastructure Develop and launch new fixed 3 x x X x net products Develop and launch new mobile 4 x x X x telephone services Increase market share and 5 customer satisfaction in the x x X x Consumer segment Increase market share and 6 customer satisfaction in the x x X x Business segment Perform enabling and control 7 X processes Re-definition of functions allow units to pursue independent goals
  16. 16. A modular organizational form goes one step further by allowing external sourcing and flexible resource utilization CEO Profit center Fixed Mobile Profit center Resource pool Director Director Business Director Sales manager 1 IT Director Profit center Director Sales manager 2 Operations Consumer Director Director
  17. 17. The effect is to further remove coupling due to operational interdependencies Corporate Function IS Operations Fixed Mobile Business Consumer staff Maximise profits of information 1 X x systems services Maximise profits of network 2 X x services Maximise profits of fixed net 3 X x products Maximise profits of mobile 4 X x telephony services Maximise profits in Business 5 X x segment Maximise profits in Consumer 6 X x segment Perform enabling and control 7 X processes Product and market units no longer dependent on internal suppliers
  18. 18. The modular design allows the creation of a ”pull” system where processes are initiated by downstream units Example: Fulfill demand process 1 Define Negotiate Perform Assess Orders 3 Customer Requests bid solution 2 Accepts Creates Details product Delivers bid proposal specifications solution Market unit Defines Configures Verifies solution solution installation Product unit Confirms Installs capacity infrastructure Operations
  19. 19. In sum, the matrix is only one of three possible multidimensional designs Matrix Front-back Modular Two or more dimensions Front end defined according to market segments Customer-supplier relations between dimensions Resources organised in a common pool Degree of complexity
  20. 20. A key question is how the axiomatic approach may be used to optimize designs prior to implementation New structure Plan Develop Implement FR X 1 FR X 2 10 20 30 40 50
  21. 21. We should also consider how to further improve and adapt the approach to the social sciences What is a design parameter? ”Linguistic robustness” Produce stuff X Reach production X X goals Sell stuff X Reach sales goals X X Does it make people more /less creative? The way I usually think Axiomatic thinking Overall Function 1 purpose Function 2 Function 3
  22. 22. About the presenter Nicolay Worren has 12 years of experience as management consultant and project manager. He established his own consulting practice in 2009 after several years with large consulting firms (Accenture and PA Consulting Group). He was also an internal consultant with Aker Solutions for three years. He has led or participated in more than 12 major re-design projects for firms in various industry sectors. Nicolay holds a master’s degree from McGill University and received his doctorate from Oxford University where he wrote a dissertation on flexibility and modular systems. He has written several articles in refereed journals and presented numerous conference papers. Nicolay is working on a textbook on organization design (to be published by Pearson Education in 2011). He writes a blog: www.nicolayworren.com

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