Strategic Organization Design

This module will introduce the fundamental dimensions of organization design. We will take a designer’s point of view and first introduce the “objective” elements of organization design, the organizational structure. This is reflected in the organization chart, the size and importance of the functional units, the organization by product lines, functions or geographical units. The second part of the module will cover other elements that govern the interaction between units and individuals, such as the degree of formalization and centralization, the reward system and the degree of task division.

This module will integrate the elements laid out in the previous one. For an organization designer, it is crucial to realize that each of the elements will interact with others. For example, screening employees for their intrinsic motivation and subsequently leaving them little autonomy would lead to decreased performance. After laying out the general patterns of complementarity and substitutability, the module will proceed to outline the consequences for changing an organization’s design. Changes of a single design element will likely trigger further changes in other, related elements, and some organizational aspects like corporate culture or existing human capital may not be easy to change, if at all.

The design of an organization is also affected by the firm’s environment. Firms finding themselves in a competitive environment may have to compete for key resources, including employees, with other firms, which may affect the way they recruit, but it may also have repercussions for the type of employees, or other resources, the firm can acquire. Similarly, if firms strive to continuously innovate and seek out new market opportunities, they have to be designed in a way to support this goal. Thus, a firm’s strategy, its competitive environment and its organization design have to be aligned to help a firm achieve its objective.

This module will highlight the role of the corporate office in a number of ways. First, its importance in corporate decision-making is analyzed: On the one hand, the corporate office is best placed to take the firm’s overall objectives into account, so corporate choices may be more efficient if taken by the corporate office. On the other hand, lower ranks in the hierarchy often carry more detailed information about the immediate challenges and changes in the different activities of the firm. Second, this module looks at the scope of decisions the corporate office takes. While some corporate offices restrict themselves to providing an internal financial market, others will heavily control the specific actions of the lower-ranked units.