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The Role of Organizational Design in 21st Century Organizations Jacob Kelly | Category: Articles

Leaders tend to invest a tremendous amount of time, money and energy in long-range initiatives and various organizational designs to achieve a competitive edge. However, no sooner than these initiatives hit the market, they became almost obsolete. Often, it appears that current organizational designs are too complex to blend in with unforeseen markets trends or too weak to quickly and effectively adapt to ongoing technological advances.  While constructing relevant organizational designs may be difficult and time-consuming at best, it is hard to imagine how companies settle for the typical, ad hoc organizational structures that have no stake in assisting the company in its ability to reinvent itself when the need arises; or take advantage of emerging opportunities.

 

This paper describes the importance of organizational design and how 21st century organizations can use organizational design to increase their competitive advantage. It discusses the challenges and requirements of effective organizational design and describes three areas of considerations as the impetus for future reconfiguration efforts. These areas of emphasis include: 1) Investment in leadership knowledge and the knowledge worker; 2) Elimination of organizational boundaries; and 3) Implementation of strategic initiatives.

 

Definition of Organizational Design

 

According to Dumais (2011), organizational design is not simply about structure and organization charts. It is also not about balance sheets. The true essence of organizational design -as a process- rests in the relationships and interconnectivity between people, work, formal structures, informal practices, and cultural behaviors, both internally and externally. Moreover, it is about the way in which an organization manages and coordinates its human, administrative and operational resources to benefit from unique capabilities over the long-term. Deborah Jenks (2007) surmises that in the 21st century, the role of organization design has been redefined because organizations can no longer adequately compete using traditional structures. Jenks reminds us that the world has become global and complex, and organizations must not only accommodate that complexity, but become authors of it to remain competitive.

 

Organizational design is a fluid process oriented toward achieving results based on current and future environmental, economic and global influences. Gilmore (2007) posits that organizations exist to realize the purpose of achieving a competitive advantage. Daft (2007) agrees that it is this purpose and direction that helps shape how the organization is designed and managed. To wit, executives must appreciate their role in organizational design “because they see their decisions as high-leveraged, and see effective organizational design as a source of notable improvement in a world of temporary advantage.” Thus, organizational design, at its core and fundamental base of assumption, refers to the principles and tools leaders use to develop business entities in a more superior manner than their competitors.

 

Requirements of Effective Organizational Design

 

In today’s global and competitive digital age, research suggests that there is a tremendous need for organizations to work faster and achieve more with much less. During the 20th century, most organizations gained their business structure from an industrial system that viewed profits as the only bottom line indicator. Therefore, organizations approached their business development from a hierarchical, authoritative, vertically integrated alignment. Of course, this structure had its place and purpose. However, as technological advances expanded, the demand for a more agile, flexible organization design leaped into the discussion and created the need for 21st century organizations to consider a broader perspective. The challenge, then, became the requirement for organizations to “respond effectively and rapidly to customer demands with the ability to achieve a unique competitive advantage (Gailbraith, 2002). These challenges take into account an organizational framework, which Galbraith refers to as a “series of design policies controlled by management and influenced by employee behavior.”

 

Gailbraith calls this framework the ‘Star Model.’ The Star Model includes five categories of emphasis: strategy, structure, processes, rewards, and people. But at the heart of this strategy is leadership. Galbraith believes leadership must develop the strategy, which then propels the organization in a winning direction. He also believes that through effective leadership, power and authority will be properly placed and exercised; and excellent processes and procedures will be implemented to correctly direct the flow of resources and information. Furthermore, he notes that strong reward systems invigorate people to perform. Meanwhile, human resource policies are developed to address employees’ skills and mindset. If realized, all of these efforts underpin an organizational design that embodies the responsibility of leaders who make good choices and sound decisions that have a profound and positive impact on the organization’s competitive advantage. In spite of great leadership, however, inherent challenges will continue to abound and, if not properly checked, can adversely affect the complexities of change within the organizational structure. The next section discusses what some of these challenges are and how they can be addressed.

 

Inherent Challenges of Organizational Design

 

During the 20th century, organizational designs were generally based on the “keep it simple” philosophy. The primary structure was often defined by a Chief Executive Officer and a number of hierarchal Vice Presidents who served as department heads or business unit leaders. The guiding principle was the efficiency of the organization which often utilized information technology systems to reengineer business processes and spur growth of the bottom line. Employees were required to navigate around production systems, processes, and changing business needs.  “What is the profit margin?” was the all encompassing question. Yet, Handy (1990) describes a current period where the changes being experienced by organizations and individuals in the 21st century are different than those experienced in the past.

 

Handy (1990) asserts this difference is a phenomenon he terms “discontinuous change.” He concludes that effective organizations work differently when they are indeed interested in sustained growth. In other words, 21st century organizations embody certain business structures that not only look different, but exemplify different working habits, different age profiles, and different traditions of authority.  This requires a certain organizational design which supports an environment of flexibility and quick self-adjustments aimed at an esteemed sense of purpose. Bryan and Joyce (2005) note that trying to run a 21st-century company with 20th century organizational models puts a significant burden on how well a company performs. They surmise that current organizational designs hamper modern corporations with hard-to-manage [decentralization], thick silo walls, confusing matrix structures, e-mail overload, and “undoable” jobs. Yet, this organizational dilemma offers opportunities for design change and structural reinvention that has the potential to generate positive outcomes in the 21st century.

 

Considerations for Organizational Design in the 21st Century

 

If done correctly, effective organizational design provides the framework for developing a company’s capabilities. At every level, the design helps shape not only the company’s profits but its people and their willingness and ability to improve their performance over the long term - utilizing their inherent knowledge, experience and expertise. I believe companies can significantly reduce the challenges of organizational interactions and improve the overall quality of their internal collaboration by implementing three interrelated design principles: 1) Investment in leadership knowledge and the knowledge worker, 2) Elimination of organizational boundaries; and 3) Increasing the organization’s strategic initiatives.

 

a. Investment in Leadership Knowledge and the Knowledge Worker

 

David Nadler and Michael Tushman (1997) assert that the only real sustainable source of competitive advantage left in our volatile environment is in the organizational architecture (design) – the way in which an organization structures and coordinates its people and process in order to maximize its unique capabilities over the long-term.  The time to make changes is before they are needed. As a result, successful organizations create flexible architecture that can accommodate constant change. Flexible architectures and designs that leverage competitive strengths will remain the ultimate competitive advantage deep into the 21 century.

 

Jim Murray states that in the 21st century, the very nature, speed and complexity of change  will alter the way organizations address their internal functions as well as their global reach. If that is indeed the case, then the nature of leadership also requires reconsideration. What made the leaders of yesterday will not make the leaders of tomorrow. Murray notes that in the past, the leader was a “doer.” Yet, the leader in the 21st century must be a “planner,” not only charting the organization’s strategic direction, but recognizing and leveraging the organization’s capabilities; while further creating, harnessing and developing intellectual capital.  Rather than simply deploying organizational assets, the 21st century leader focuses on increasing the organization’s capacity to achieve greatness through agility and resiliency.

 

Additionally, knowledge leaders in the 21st century must understand how to share information and build social networks rather than rely on stale hierarchies or silos to generate a competitive edge. They must be able to distinguish between the costs of paying people from the value of investing in them. They must cultivate and expand their expertise in the context of human strategy; that is, they inspire smart people to work smarter by making tacit knowledge more explicit, and understanding how to train people, as well as embracing the limits to training (Murray). In the 21st century, knowledge leaders are expected to not only be good at contributing direct and distinct knowledge to the organization, but also for developing the knowledge talent of others. Hence, the knowledge worker is a vital partner in organizational design for the 21st century.

 

Bryan and Joyce (2005) cite Peter Drucker as coining the phrase "knowledge worker" to describe a new class of employees whose basic means of production is no longer capital, land or labor, but the productivity of knowledge. Drucker’s vision is of professional employees who are knowledge generators rather than commodity or capital generators. He puts forth the notion that these intellectually skilled and educationally talented workers are the innovators of new business ideas, making it possible for companies to deal with today’s rapidly changing and uncertain business conditions; thereby producing and managing the intangible assets that are the primary way companies create value (Bryan and Joyce, 2005).

 

1)            Elimination of Organizational Boundaries

 

The 21st century business is in the midst of a social and economic revolution, shifting from rigid to permeable structures, while creating something new: the boundaryless organization. Boundaries are necessary to prevent chaos, yet it is imperative that they allow greater flexibility and fluidity of movement between people, processes, and production (Askenas, Ron, Ulrich, Dave, Jick, Todd and Kerr, Steve, 2002). In fact, there are a number of studies that suggest the purpose of leadership in the 21st century is not about making money, but about the process of making sure the right people are talking to one another about the right things and have enough resources and flexibility to do what needs to be done. This means that unproductive designs are discarded and vertical structures that prohibit professionals from working horizontally across the whole of the organization are ignored. The elimination of organizational boundaries make it easier for workers to exchange knowledge and collaborate with other professionals both internally and externally. The new organizational design of the 21st century recognizes the value of people and their capacity to generate ideas across organizational boundaries.

 

Nadler and Tushman (1997) make a very succinct point about organizational design and capacity for workers to interconnect, especially outside of the proverbial company walls. They note that the role of organizational design in contemporary 21st century corporations is to streamline and simplify vertical and linear structures. Traditional lines of supervision, they suggest, tend to create barriers, which block the willing transfer of knowledge and hinder important bilateral relationships. Thus, they conclude that the organizations of the 21st century do not resemble organizations with vertical and linear constraints. Rather, their appearance is of fluid and dynamic groups similar to cross-functional work teams. Each group has an assigned membership; but they also have the ability to draw temporary members into the group for special projects and share their resources with other groups in an environment of fluidity and flexibility. Having the ability to interact and overlap across operational lines results in leaner, less vertically and linearly oriented designs.

 

2)             Increase Efforts in Strategic Initiatives

 

One definition of strategy initiative includes a process whereby an organization takes various actions to gain and maintain a competitive advantage. To this end, leaders invest enormous energy in understanding their current organizational designs and engaging in long-range planning processes to adapt, evolve and adjust. That being said, Bryan and Joyce (2007), contend that most leaders overlook a golden opportunity to create a durable competitive advantage and generate high returns for less money and with less risk by failing to make organizational design the heart of their corporate strategy.

 

At the corporate level, this puts forth the notion that companies must manage their short and long-term earning in a way that integrates their spending on strategic initiatives within the overall budget, so they need to adopt a systematic, effective approach of making the necessary trade-offs. This is what Bryan and Joyce calls “dynamic management.” Dynamic management helps organizations in the areas of decision-making protocols, rolling budgets, and management procedures. These opportunities make it possible for companies to manage the portfolio of strategic initiatives as part of an integrated business approach. (Bryan and Joyce, 2005).

 

Conclusion

 

In the last century, we witnessed national monolithic organizations choosing a strategy of “going global.” Organizations grappled with how to morph hierarchical and American headquarters –centric structures-- into organizations that worked effectively across borders and with empowered workforces (Jenks, 2007). And, while de-centralization, diversity, and teams became local and global issues, the old success factors of size, role clarity, specialization, and control have been replaced in the new paradigm with speed, flexibility, integration, and innovation (Jenks, 2007). What does this mean for organizational design in the 21st century? Simply put, a new organizational model for today's big corporations will not emerge spontaneously from the obsolete legacy structures of the industrial age. Rather, companies must design new models from a holistic point of view; using new principles that take into account the way employees behave and the way professionals view and embrace value and culture. Big companies that follow these principles will get more organizational mileage - at less cost - from the managers and the professionals they employ and lean on for vision and execution. In the process, they will become fundamentally better at overcoming the challenges—and capturing the opportunities—of today's rapidly changing environment both at home and abroad.

 

References

 

Askenas, Ron, Ulrich, Dave, Jick, Todd and Kerr, Steve (2002). The Boundaryless Organization, Breaking the Chains of Organizational Structure. Josey-Bass. San Francisco, CA.

Byran, Lowell and Joyce, Claudia. (2005). The 21st Century Organization: Big corporations must make sweeping organizational changes to get the best from their professionals. The McKinsey Quarterly.

Byran, Lowell and Joyce, Claudia. (2007). Better strategy through organizational design. McKinsley Quarterly. Retrieved from https://www.mckinseyquarterly.com/Better_strategy_through_organizational_design_1991

Daft, Richard (2007). Organization Theory and Design. Thomson South-Western, Mason: OH.

Dumais, Paul. The Role of Organizational Design in 21st Century Organizations. weLEAD Online Magazine. Retrieved from http://www.leadingtoday.org/Onmag/2011%20Archives/Feb%2011/pd-february11.pdf.

Galbraith, Jay R. (2002). Designing Organizations, An Executive Guide to Strategy, Structure, and Process. Jossey-Bass, San Francisco, CA

Galbraith, Jay R. (2000). Designing the Global Corporation. San Francisco: Jossey-Bass.

Gilmore, Bridget (2007). The Role of Organizational Design in 21st Century Organizations: Capitalizing on Intellectual Property. Retrieved from http://www.cioindex.com/cio_career/ArticleId/1303/The-Role-of-Organizational-Design-in-21st-Century-Organizations-Capitalizing-on-Intellectual-Propert.aspx

Handy, Charles (1990). The Age of Unreason. Boston: Harvard Business School Publishing

Jenks, Deborah F. (2007). The Role of Organizational Design in 21st Century Organizations. weLEAD Online Magazine. Retrieved from http://www.leadingtoday.org/Onmag/2007%20Archives/september07/dj-september07.pdf

Nadler, David A. and Tushman, Michael L. (1997). Competing By Design, The Power of Organizational Architecture. Oxford University Press, New York, NY.

 

About the author:

Jacob Kelly is a Doctorate candidate in Strategic Leadership at Regent University

 

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