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© 2015 University of Southern California
Lateral Approaches toOrganization Design
June 22, 2015Webinar with
Sue MohrmanCenter for Effective OrganizationsUniversity of Southern California
Marshall School of Business(213) 740‐9814
[email protected]://ceo.usc.edu
© 2015 University of Southern California
• Widely known for organization design and effectiveness and large‐scale change research
• The design of knowledge‐based firms • Knowledge creating systems• Sustainability and how to design
complex collaborations to foster it• Examination of the research process
itself• How to create academic/company
partnerships to yield useful knowledge
Some of Sue’s focuses
Dr. Susan A. Mohrman
CEO Senior Research Scientist
© 2015 University of Southern California (3)
Complexity and Organization Design
•Core Trade‐offs of Organization Design•Evolving Design Complexity•Lateral Approaches
© 2015 University of Southern California
Star Model
Adapted from: Galbraith (1994)
Strategy
Rewards
People Structure
ManagementProcesses
WorkProcesses/Capabilities
(4)
© 2015 University of Southern California
Hierarchical, Functional Organization
(5)
BenefitsSpecialist
ManagerSoftwareEngineer
ManagerHardwareEngineer
QASpecialist
TestingManager
ManagerTech
Support
MfgQA
Manager
MfgTestingManager
CompManager
Comp.Specialist
Comp.Analyst
Comp &BenefitsManager
etc. etc. etc. etc. etc.
etc. etc.
etc. etc.
General Manager
Director ofMarketing
Director ofManufacturing
AdministrativeDirector
ManagerProduct
Marketing
ManagerMarketingSupport
ManagerMfg
Engineer
ManagerOperations
Manager HR
FinanceManager
ManagerInfo
Systems
QASpecialist
QASpecialist
TrainingSpecialist
QAManager
Director ofEngineering
© 2015 University of Southern California (6)
Organizational “Glue” – andself-containment to reduce complexity
Adapted from J. Galbraith.
Self-containedUnits
Hierarchical ControlGoals, Plans, and MetricsVertical Information SystemsStandard Processes
Cross-Unit Lateral Designs
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Divisional Structure
SM35I (7)
Admin. Dir.Mkt. Dir. Mfg. Dir.
General ManagerDivision A
Eng. Dir.
Group V P
Mkt. Dir. Mfg. Dir.
General ManagerDivision B
Eng. Dir.
AdminV P
© 2015 University of Southern California (8)
Generic Divisional Structure
CEO
General ManagerDivision B
The“Center”
General ManagerDivision A
What goes in the Center?
Function Head
Function Head
Function Head
Function Head
Function Head
Function Head
Function Head
Function Head
Function Head
© 2015 University of Southern California (9)
The World is Not What It Was…
It was:
Stable Simple Domestic Focused on
performance
Now it’s:
Dynamic Complex Global Focused on
sustainability
© 2015 University of Southern California (10)
Forces of Change
BenefitsSpecialist
ManagerSoftwareEngineer
ManagerHardwareEngineer
QASpecialist
TestingManager
ManagerTech
Support
MfgQA
Manager
MfgTesting
Manager
CompManager
Comp.Specialist
Comp.Analyst
Comp &BenefitsManager
etc. etc. etc. etc. etc.
etc. etc.
etc. etc.
General Manager
Director ofMarketing
Director ofManufacturing
AdministrativeDirector
ManagerProduct
Marketing
ManagerMarketingSupport
ManagerMfg
Engineer
ManagerOperations
Manager HR
FinanceManager
ManagerInfo
Systems
QASpecialist
QASpecialist
TrainingSpecialist
QAManager
Director ofEngineering
Introduction of new
dimensions of performance
Expansion of scale and
scope
Increased competition
Technology advances
Discontinuous change
Rate of changePerformance
pressures
Changing workforce
expectations
© 2015 University of Southern California (11)
Managing Complexity – Core Challenge:
A functional organization is no longer adequate to handle complexity of size, diversity of product, customer, and geography; speed and change. Cross functional leadership and action capabilities need to be developed deeper in the organization:
• by building lateral structures across the functions, or
• by building self‐contained multi‐functional units.
(11)
© 2015 University of Southern California (12)
Related Units—Opportunities for Leverage
Customers buy multiple products that cut across businesses
Products and services configurable into a system
Efficiency in administrative and back office functions
Common product or process technologies Common skill/competency requirements
Opportunities for leverageTension between self-contained
business units and leverage
(12)
© 2015 University of Southern California (13)
• Functional/discipline knowledge across multiple business units
• Customer knowledge and opportunities across businesses
• Functions and customers across geographies• Product/Service processes and knowledge across geographies and customers
• Industry knowledge and opportunities across functions, geographies, product/services
Multiple Dimensions—examples
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Self-Contained Business Units
(14)
Group GM
May seek out synergies across units, if in best interests of the involved divisions
Units optimize their own performance
Business Unit A
Business UnitB
Business UnitC
Functions,Custom Services,Product Teams
Functions,Custom Services,Product Teams
Functions,Custom Services,Product Teams
© 2015 University of Southern California
Group as System to be Optimized
(15)
Seeks out synergies in products, technologies and markets, if in best interests of group
Optimize group-level performance
Group GM
Business Unit A
Functions,Custom Services,Product Teams
Business UnitB
Functions,Custom Services,Product Teams
Business UnitC
Functions,Custom Services,Product Teams
Group GM
© 2015 University of Southern California (16)(16)
Lateral Approaches
LINE ORGANIZATION UNIT
MATRIX ORGANIZATION
MANAGEMENT POSITIONSDimension Champions, Project/Program Manager
FORMAL OVERLAY TEAMS
LATERAL INTEGRATING ROLESLiaison Roles, Mirror Organizations, Overlapping Membership
ELECTRONIC COORDINATIONProject-Ware, Group-Ware, CRM Systems, Social Media
BUILDING INFORMAL LATERAL FOUNDATIONPersonal Networks, Co-Location, Rotations, Interdepartmental Events, IT Connections
ORGANIZATIONAL PROCESSESStandard Processes, Goals, Measures, Plans & Reviews
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Lateral Organization
(17)
Shared Services
Team
Executive Team
Councils Centers of Excellence
Business Unit 1Leadership Team
Process Team
TeamTeamTeam Team
Business Unit 2Leadership Team
Process Team
TeamTeamTeam Team
Team
Cross Unit Opportunity
Teams
© 2015 University of Southern California (18)
All Designs are Trade-offs
(18)
The key ongoing trade-off decision:The advantages of speed, ownership, focus
and accountability that accrue toself‐contained units
The advantages of leverage and ease of cross organization coordination that come from sharing, integration, commonality,
lateral, and matrix relationships
‐ versus ‐
© 2015 University of Southern California (19)
Types of Leverage
Resources
• Economies of scale• Doing it once• Focus• Sharing
Activities:Across products and services,
markets and functions
• Coordinated activities• Multiple applications
Expertise
• Embodied in “experts”
Knowledge andLearning
• Diffusion, dissemination• Encoding
© 2015 University of Southern California (20)
Managing complexity effectively requires an
organization to be highly skilled at designing and
managing various approaches to the lateral organization
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Lateral Councils
CEO
Region1
Region2
Business Unit 1
Business Unit 2 Finance Supply
Chain R&D
Healthy Foods Council
Healthy Foods Council: Develops a business plan and charters and manages projects that build a healthy foods business that will be integrated into the BU’s.
© 2015 University of Southern California
W O R K F L O W
Lateral Mechanisms in (Example from Large Pharma)
CompoundDiscovery
Clinical &Regulatory
Manufacturing& Distribution
Sales & MarketDevelopment
Marketing Strategy& Materials
CEO
Discovery Development Manufacturing Sales & Marketing Regions
Drug Discovery Teams
Development Teams
Market Development Leader Local Commercialization andMarket Delivery Teams
(22)
Therapy Area
© 2015 University of Southern California (23)
Highly IntegratedSolutions Organization
Platform A
Platform B
Platform C
Customer A Solution
Customer BSolution
Customer C Solution
Self‐ContainedProduct Organization
Business Unit 1
‐ Engineering
‐ Operations
‐Marketing
Business Unit 2
‐ Engineering
‐ Operations
‐Marketing
Business Unit 3
‐ Engineering
‐ Operations
‐Marketing
The Convergence Transition
© 2015 University of Southern California (24)
(Simplified) Domestic Aerospace and Defense Companywith International Sales
CEO
Division A Division B
Int’l Sales
Business Development
Engineering
Program 1
Operations
Int’l Sales
Business Development
Engineering
Program 2
Operations
Int’l Sales
Business Development
Engineering
Program 1
Operations
Int’l Sales
Business Development
Engineering
Program 2
Operations
© 2015 University of Southern California (25)
(Simplified) Aerospace and Defense Company with International Business Development and Operations
CEO
Division A Division B
Business Development
Int’l Sales
Engineering
Program 1
Operations
InternationalOperations
Business Development
Engineering
Program 2
Operations
Business Development
Engineering
Program 1
Operations
Business Development
Engineering
Program 2
Operations
Region 2
Program B1
SharedServices
Operations
Program B2
Program B2
Shared Services
Operations BusinessDevelop‐ment
Region 1
BusinessDevelop‐ment
Regional Operations Teams are matrixed to Programs for A2, B1 and B2Program 1 International Operations is solid line to Program 1
Program A2
Program A2
© 2015 University of Southern California (26)
(Simplified) Regional Structure in Outsourcing Firm Providing Services to Government Customers
CEO
Region 1 Region 3Region 2
Contract 1
Contract 2
Contract 3
Contract 1
Contract 2
Contract 3
Contract 1
Contract 2
Contract 3
Contract 4
Key: Color shaded boxes = Service Lines
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Con‐tract 1
Con‐tract 2
Con‐tract 3
Con‐tract 1
Con‐tract 2
Con‐tract 3
(Simplified) Structure Outsourcing Firm Providing Services to Governments and Private Sector Customers
Region 1 Region 3Region 2
Service Line A
Con‐tract 1
Con‐tract 2
Con‐tract 3
Con‐tract 4
Global Private Services Division
‐ Contract 1
‐ Contract 2
‐ Contract 3
CEO
‐ Contract 1
‐ Contract 2
‐ Contract 3
‐ Contract 1
‐ Contract 2
‐ Contract 3
Service Line B
Service Line C
© 2015 University of Southern California (28)
Knowledge Forums for Advancing Organizational Capabilities
Forum Leader(e.g. for global
talent sourcing)
Region B
Recruitment
Global Business Unit 2
Recruitment
Region A
Recruitment
Centers of Excellence: collects information defines process based on best
practice sponsors tools and advancement shares lessons learned continual improvement spearheads talent rotation
Regions and Global Business Units: provide input based on local knowledge tailor test and learn
Forum Leader(e.g. for Service
Line 1)
Region AService Line 1
Private Services Division‐Service
Line 1
Region BService Line 1
Global Brand Management
© 2015 University of Southern California (29)
Networks
Integrating Councils
Management TeamUnit 1
Integrating Teams
Team TeamTeam
Executive Team
Shared Services
Integrating Teams
Team TeamTeam
Management TeamUnit 2
Knowledge Network
Opportunity Team
(29)
© 2015 University of Southern California (30)
Local Foods Network: A Web of Interdependent Connections
Key:Focal SystemOther Systems in IndustryIndustry SuppliersGeneral SuppliersCommunity StakeholdersIndustry AssociationsProfessional Associations
© 2015 University of Southern California (31)
The Lateral Organization is Carefully Designed
Adapted from: Galbraith (1994)
Strategy
Rewards
People Structure
Management/GovernanceProcesses
WorkProcesses/Capabilities
Lateral Organization
© 2015 University of Southern California (32)
Organizing for Innovation, Agility, and Sustainability
• Ambidextrous organizations• IT as a driver of innovation and design• Open innovation• The agile organization• Design for sustainability
© 2015 University of Southern California (33)
Shared Services
CustomerFocused
Team/Business Unit(Multiple Product
Solutions)
CustomerFocused
Team/Business Unit(Multiple Product
Solutions)
Product Generation “Pulls” Product“Bundles” Products“Customizes” Products & Service“Provides” Services
Supply Chain
ProductLine 1
ProductEnhancement
Product Line 2 Team
NPDTeam
ProductEnhancement
Product Line 1 Team
NPDTeam
ProductLine 2
Back End Front End(IBM Simplified)
Shared Services
© 2015 University of Southern California (34)
The “Ambidextrous” Organization:Designs in the Capacity for Two Different Kinds of Performance
Support TeamContracts
Project 1(Cross
Functional Team)
Project 2 (Cross
Functional Team)
Global Business Unit 1
General Manager
Engineering Manufac‐turing
Global Business Unit 2
Global Business Unit 3
New Market / New Venture
© 2015 University of Southern California (35)
Open Innovation
Internal CompanyInnovation
Partnerships
Crowd Sourcing
KnowledgeLinkages
New Businesses
Partnerships
Licensing
© 2015 University of Southern California (36)
Encyclopedia Britannica and Wikipedia
Encyclopedia Britannica
32 volume set of books 65,000 articles
Written in English by
4,000 scholars
3.5 millionarticles in the
English Wikipedia
Created and edited by
thousands of volunteers
Many in up to 269
languagesW
Wikipedia
© 2015 University of Southern California (37)
Governance:
• Strategy• Purpose• Goals• Policies and guidelines of the organization• Legal and ethical requirements• Stakeholder expectations
Mechanisms purposefully designed to align behavior across the organization with:
In order to achieve valued outcomes.
© 2015 University of Southern California (38)
Decision Making/Governance in a Multiple Dimensional Organization
Cannot rely on uni‐dimensional hierarchical authority Councils, Boards and other representative forums (with clear charters) must be established for strategically critical decisions that commit multiple units to integrated action
These decisions provide the framework for lateral processes and structures
The executive team is the highest level decision‐making forum and escalation path
Goals and objectives and rewards along all vertical and horizontal chains must be aligned with these decisions
© 2015 University of Southern California (39)
Matrix Organizations Require Organizational Clarity – Structures and Processes
Common work and business processes Clear charters for lateral and vertical units Information sharing and information technology Matrix (multi‐cell) planning and goal‐setting (organizational and individual level)
Matrix (multi‐cell) decision griding Top management team providing integrated strategic leadership
Multiple input performance management systems
© 2015 University of Southern California (40)
Ongoing TacticalCoordination
Performance Related Goals, Feedback
Learning and Improvement
Strategic EnvironmentalScanning and Planning
Content of Information
CommunicationMedia
AccountabilitiesWhen?
Design Communication Processes & Systems
© 2015 University of Southern California (41)
Ongoing TacticalCoordination
Performance Related Goals, Feedback
Learning and Improvement
Strategic EnvironmentalScanning and Planning
Content of Information
CommunicationMedia
AccountabilitiesWhen?
Design Communication Processes & Systems -Examples
Customer Issues
CRM System Sales, Field Service Managers and Product Team Members
By end of work day
Any critical path delay
E-mail and Project Management Groupware
Functional team members
By Friday AM prior to end of work team meeting
© 2015 University of Southern California (42)
Planning and Goal Setting
Strategic planning reflects all three dimensions
Product planning drives the technology roadmap—Working with customer plans, project commitments, and functional capital/investment capability
Functional plans constructed to execute product plans (by cell)
Iteration & commitment to contribution in each cell
Metrics determined Regular reviews and updates Rewards reflect multiple
dimensions
Function
Functional Plans to Support /Execute Product and CustomerStrategies
Pro
duct
© 2015 University of Southern California
Decision-Making Responsibility Chart
(43)
KEY: E=Escalation Path; D=Decision Authority; R=Recommend; I=Input;N=Need to Know; U=Uninvolved
DecisionsParties to Decisions
© 2015 University of Southern California (44)
Matrix Organizations Require Individual Technical, Informal, and Interpersonal Competence
Social network linkages—Cross functional familiarity
Negotiation skills “Enlistment” skills Business model understanding and business
case formulation Collaboration skills Conflict resolution skills
© 2015 University of Southern California (45)
Charter Format
(45)
Team mission:Team goals: Stakeholders: Customers: Managers: Co‐Performers:
Resources:Decision authority:Requirements for integrationwith other groups:Communication responsibilities:Escalation paths:Review processes: