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7/25/2019 CMGT500 w02 Gailbraith Ch6 With Cover Page
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Copyright
2002
byJohn Wiley
Sons, Inc.
All rights reserved.
Published byjossey-Bass
A Wiley
Imprint
989
Market Street, San
Francisco,
CA
94103-1741
www.josseybass.com
No
part of this
publication
may
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in
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or
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the
1976
United States
Copyright Act
without either the prior
written
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of
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or on
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Requests
to the publisher
for
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or online at http://www.wiley.com/go/permissions.
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Warranty:
While
the publisher and
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The advice and strategies
contained
herein
ma y
not
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for
your situation.
Yo u
should consult
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Neither the
publisher nor
author shall
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for any loss
ofprofit or any
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damages, including
but not limited
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and when it
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Library of Congress
Cataloging-in-Publication
Data
Galbraith,Jay
R.
Designing organizations
an executive
guide
to
strategy,
structure,
and
process
/
byjay
R.
Galbraith.—New
and
revised ed.
p.
cm.— TheJossey-Bass business
management
series
Includes
bibliographical references
and
index.
iSBN
0-7879-5745-3
alk. paper
1.
Organizational
effectiveness.
2.
Strategic planning. I.
Title. II. Series.
HD58.9 .G35 2002
658.4012—dc2l
2001003155
Printed in the United
States
of America
NEW
AND
REVISED
EDITION
HBPrinting
10
9
8
7
7/25/2019 CMGT500 w02 Gailbraith Ch6 With Cover Page
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he
sub-
should
eween
s
to
esig
ning
a R
econ
figu
rable
and
rga
niza
tion
t rix are
ng
role
dimen-
Every
company
needs
an
organization
that
changes
as
quickly
npany’s
s
its
business
changes.
If
not
the company
s falling
behind.
To
ovem keep
from falling behind
many companies
are devoting enormous
able of
amounts
of
time
and
energy
to
change
management.
This task
can
escala- be
made less
difficult
and
less
time
consuming
if some
effort
s
t
some focused
on
designing
organizations
from
the outset
to
be
more
eas
lateral
ily
changeable
If
change
s
constant
why
t
design our
organiza
w
corn-
t o s to
be
constantly
and
quickly
changeable
It
s this easily
i pres-
changeable
or
reconfigurable
organization
that s the
subject of
this
anizing
chapter
ler
omp
eting with No
Sust
aina
ble dva
ntag
e
Organizations
have
always
been
created to execute
business
strate
gies.
As
mentioned in
Chapter Two different
strategies
have led
to
different
organizations.
But
when advantages
do
t
last
long
n
ther
do
the
organizations
that
execute
them. In
the
past
manage
ment
crafted a
winning
business
formula
and
erected barriers
to
entry
to
sustain the advantage.
Then management
created
an
orga
nization
structure
around
functions products
or services
markets
or
geographies
that was
designed
to
deliver
the
success
formula.
To
complete the integrity
of
the
organization
planning and
bud
geting
processes
information systems
new
product
development
73
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74 DESIGNING ORGANIZATIONS
nativ
proce
purpo
lnste2
have
ured
gies
prod
beth
Und
conti
will r
pass
FIGuRE 6 The Star
Model,
neuv
coun
processes,
compensation
systems,
selection
and promotion criteria,
capal
career
paths,
performance
appraisals,
and training
and development
cours
sequences would all be
designed and aligned
with each
other
IS t
and
with the
organization’s
strategy
and structure. Such an
aligned
organization
would execute
the
strategy
with s
little friction
as
pos-
The
sible.
This
thinking resulted in
concepts like
the
star model
described in Chapter Two, which
is
repeated
for
your convenience
The;
as
Figure
6.1.
capal
Today,
in many
industries, that
model of organization
design
is
and
flawed.
The
success formulas
it generates
do not last
very
long
tuIs
D’Aveni, 1994 .
The
advantages
around which
the
organization
is
inC.
designed are quickly
copied or even surpassed
by high-speed
corn-
price
petitors.
Every
advantage
is temporary. Therefore,
to
focus
and
align
of
mi
the
organization
is
to become
vulnerable. As a
result,
some
people
secui
have concluded
that
alignment
is
no longer
a useful
organizational
an
e
design
criterion. agree
that alignment around
a
focused
strategy
thre
can impede
change to a
new
strategy,
but
it is the continued
focus
on a nonsustainable advantage that
is
the
flaw,
rather than the
prod
alignment
itself.
The point can
be
made
by
focusing
on the
alter-
tenc
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DE
SIG
NIN
G
RE
CON
FIG
UR
L
E OR
G
NIZ
TI
ON
na
tive
—m
isali
gnm
ent. M
isa
lignm
ent
o
f str
ategy
,
s
truc
ture,
an
d
pro
cess
es
w
ill
caus
e
acti
vitie
s
t
o
co
nfli
ct, u
nits
to
wo
rk
a
t
cro
ss-
pu
rpos
es,
a
nd
org
aniz
atio
nal
ene
rgy to
dis
sipat
e
ove
r
man
y fric
tions
.
Ins
tead
,
w
e n
eed
new
,
al
igne
d org
aniz
atio
nal
d
esig
n.
We n
eed
to
have
org
aniz
ation stru
cture
s
a
nd pro
cess
es
tha
t ar
e
easi
ly
reco
nfig
ur
ed
and
reali
gned
with
co
nsta
ntly
c
hang
ing
stra
tegy
.
T
hus
th
e ch
allen
ge
is t
o desi
gn
o
rgan
izati
ons
to e
xecu
te
str
ate
gie
s
whe
n
ther
e
are
no susta
inab
le com
peti
tive
adv
anta
ges. W
hen
pro
duct
adv
anta
ges
are n
ot
sus
taina
ble ov
er
t
ime, th
e
win
ners
w
ill
be
th
ose
w
ho
c
reate
a
se
ries
o
f
sh
ort-t
erm
tem
pora
ry
adv
antag
es.
Und
er
t
his
sce
nario
,
th
e l
eade
rs will
be
futu
re-o
rien
ted
an
d
wil
l
continuously create capabili ties
that
lead to customer
value.
They
wil
l
mov
e
quic
kly
to
c
omb
ine
thes
e cap
abil
ities
to mat
ch an
d
sur
p
ass
cur
rent a
dva
ntag
es incl
udin
g t
heir
own
. T
hey
wi
ll o
utm
a
neuv
er
c
omp
etito
rs
b
y strin
ging
t
oget
he r
s
erie
s o
f
m
oves a
nd
cou
nterm
ove
s,
s in
g
ame
of
ch
ess,
Thos
e
com
pani
es
with
the
cr
iteria
,
c
apab
ilitie
s fo
r
f
lexib
le
res
pons
e and
v
ariet
y
of
m
ove
s ove
r t
he
lopm
ent
cour
se of
time
wi
ll
mo
st like
ly w
in. T
he r
econ
figu
rable
orga
niza
tion
h
other
is
the
means to execute this continuous strategy
shifting.
li
gned
s
po
s-
Th
e
e
conf
igur
able
rgan
izati
on
r
mod
el
e
nien
ce
The
re
conf
igur
able
orga
niza
tion
res
ults
f
rom t
he
ski
lled
u
se
of thr
ee
c
apab
ilitie
s.
Fi
rst,
t
he orga
niza
tion
is re
conf
igur
ed
by form
ing
te
ams
d
esig
n
is
an
d
n
etw
orks acro
ss
o
rgan
izat
iona
l de
part
ment
s. T
hes
e
later
al
s
tmc
lo
ng
ture
s r
equi
re
an exte
nsiv
e
inte
rnal
net
wor
king c
apab
ility
s
de
scrib
ed
za
tion is
in
Chapters
Four
and
Five
.
Seco
nd,
the
or
gani
zatio
n u
ses
inte
rnal
e
d
com
-
p
rice
s,
mar
kets
, an
d m
ark
etlik
e
de
vice
s to
co
ordi
nate
th
e
com
plex
ity
ri
d align
of
m
ultip
le team
s,
And
fin
lly the orga
niza
tion f
orm
s
p
artn
ersh
ips
to
peo
ple
s
ecur
e
cap
abili
ties
that
d
oes not
h
ave,
T
hese p
artn
ersh
ips
re
quir
e
[
zatio
nal
an
exter
nal
ne
two
rking
ca
pabi
lity,
s
d
iscu
ssed
in Cha
pter
Nin
e. T
he
stra
tegy
t
hree
ca
pabi
lities
are bes
t illu
stra
ted
w
ith
an
exam
ple.
ed
foc
us
The
exam
ple
com
pan
y
i
s
man
ufac
turer
of
co
nsum
er
b
akin
g
n
the
products—cookies and crackers and
so
on.
The
firm
had
compe
a
e
alter
-
t
enci
es
i
n bra
nd m
ana
gem
ent an
d d
istri
butio
n.
It
had
netw
ork
of
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7 DESGNNG
ORGANZATONS
bakeries
across
North
America
and
a
logistics
system
that
could
mana
deliver directly from the
bakery
to
the
retail
store.
Baking
has
tirie
always
been
a
just-in-time business. This
company’s
brands
and its
to
the
distribution
system
only
Coca-Cola
and
Pepsi
could
match
it
had
ageim
been its
advantages
and
its
barriers
to
entry.
the
c
In the 1980s these
advantages
came
under
attack. Retailers
and
their private
label
suppliers could
easily
match the company’s
prod-
t ’ e Pr
uct
quality at
significantly
lower prices.
Also,
the
baker’s
products
were
high fat
and
high
calorie.
Hence,
the
company’s
products
were
ested
being
avoided by
both
the
budget conscious
and
the
health
on
scious.
of
pan
The company’s
resurgence
began
with
its
discovery
of a
low-fat
1i
ingredient
that maintained
the product’s taste,
After
the
U.S.
Food
t r i
and
Drug
Administration
approved
use
of this
ingredient,
the corn-
prod
ii
pany began
reformulating
its most
popular
brands and focused
pro-
mana,
motions
on the
he lth segment.
The
new
products
literally
flew off
inent.
of
the
shelves.
The
reformulation
revived
the brands
and created
an
the
p
advantage
that the
private labels
could not
match.
and
it
To
capitalize
further
on the
product
popularity, the
company
iigred
expanded
into
all
possible
distribution channels.
However,
differ-
k
ent
channels
require different
packaging.
The
company
then
cre-
tion,
ated
partnerships
with
independent
manufacturers
called
ities
n’
co-packers
to
provide
multiple packages.
It
now provides products
has
cn
in
enormous
boxes for
the
discount club stores
and
single-serving
new
c
portions for vending
machines
and
convenience stores.
ments,
Next, the company took the
new
ingredient into new
cate-
exarn
gories
such
as breakfast
products
and
snacks
where
it could
create
colnp2
an
advantage. It
created new
products
for these new
categories
with
advani
partners
and
co-packers because
the
products
like
granola
bars
is
next
were
not baked, The
expansion
provided
a
new business
in
differ-
Tl
ent
aisles of
the
grocery store.
The
new products could
also
be
kept
focuse
fresh
by
using
the company’s
existing delivery
system.
ther
man-
one
wj
ufacturers of breakfast
foods
did
not
have this
capability
nor the
dienti,
low-fat
ingredient.
the
Col
The company
also
created
partnerships
which
it
called
category
w
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DE
SIG
NIN
G REC
ON
FIG
UR
L
E
O
RG
N I
Z T
ION
lat
c
ould
m
ana
gem
en t
w
ith
two o
f
it
s
lar
ger c
usto
mers
. The
se
c
ustom
ers
kin
g
has
tu
rned
th
e
ma
nage
men
t of the
enti
re co
okie
and
cra
cker a
isle
o
ver
I
s
and its
t
o
the
ba
king
co
mpa
ny. T
he
b
akin
g
co
mpa
ny’s
sk
ills in
bra
nd m
an
h
t had
agement,
sophisticated
analysis
of bar code
data , and knowledge
of
t
he
co
okie and c
rack
er
ca
tego
ry
a
llow
ed bot
h
custo
mer
and ma
nu
iil
ers
and
fac
turer
to
incr
ease t
he ir
res
pec
tive pro
fitab
iliti
es. B
y co
ordi
natin
g
l
y’s
p
rod-
the
p
rodu
ct
an
d cash f
low
from
bak
ery
t
o
sto
re, the
par
tner
s
c
ould
p
rodu
cts
m
inim
ize
w
orki
ng
c
apit
al.
T
he
g
roce
ry cust
ome
rs
a
re now i
nter
icts
wer
e
este
d
in
pac
kag
ing
tha
t
i
s
un
ique
to
the
m. H
ere a
gain
, t
he
bakin
g
i
lth
c
on-
com
pany
,
wi
th i
ts
p
ack
aging fl
exib
ility th
roug
h it
s exter
nal
n
etwo
rk
o
f
part
nersh
ips, i
s
ab
le
to
mee
t
it
s cu
stom
ers’
need
s.
a
low-fat
In
summary
,
our e
xam
ple com
pan
y crea
ted
an
adv
anta
ge
J S Fo
od
thro
ugh
its d
isco
very
of
a
low
-fat in
gred
ient
wh
ich m
ain
tains
the
the co
m-
p
rod
uct
ta
ste.
Usin
g its e
xisti
ng ca
pabi
lities in lo
gistic
s
and
br
and
used
pr
o-
m
anag
eme
nt,
t su
cce
ssful
ly t
arge
ted
and
dom
inat
ed
the
h
ealth se
g
y
fle
w
off
me
nt. It
crea
ted
a m
ulti
chan
nel, m
ultip
acka
ge ca
pabi
lity
to
enla
rge
rea
ted an
th
e
p
opul
at ion
tha
t
its
pro
duc
ts c
an rea
ch.
It
use
d
the
ingr
ed ie
nt
a
nd
its lo
gistic
s
to
en t
er
a new
cate
gory
br
eakf
ast
foo
ds . T
he
:ompany ingredient advantage
will buy
time
for
the company
while
t
builds
d
iffer
-
know
led
ge
in the
n
ew cate
gory
. n
d final
ly,
its en
han
ced
rep
uta
:
hen
cre
-
tio
n,
b
ran
d
m
ana
gem
ent, l
ogis
tics,
and flex
ible
pac
kag
ing cap
abil
calle
d
id
es
m
ade
t
an attr
activ
e p
artne
r f
or
la
rge
re
tailer
s,
T
he
c
omp
any
p
rodu
cts
has
cre
ated
a ser
ies
o
f
a
dvan
tage
s
by
com
bin
ing
a
nd r
ecom
bin
ing
-s
erv1
ng
new
cap
abili
ties an
d old o
nes
to add
ress
n
ew p
rodu
cts,
new se
g
me
nts, n
ew ch
anne
ls,
a
nd
ne
w
u
stom
er
re
latio
nship
s.
It
is a go
od
ew
ca
te-
exa
mple o
f
th
e co
ntinu
ous
cre
ation
of advantages.
he
baking
ld
create
co
mpa
ny c
reat
es a
nd impl
eme
nts an
i
nitia
tive w
hich
giv
es t
r
ies w
ith
adva
ntag
e.
h
en t
qu
ickly
mov
es o
n
t
o
the
ne
xt
ad
vant
age.
hat
ola
bars
is
nex
t?
in
d
iffer
-
h
e co
mpan
y’s n
ext st
eps
ar
e
also
in
struc
tive.
Its
man
ager
s
o
be
kep
t
f
ocus
ed
t
heir
atte
ntion
o
n the
sea
rch fo
r
a
noth
er
new
ingre
dien
t,
h
er
m
an-
one
with
low
fat, lo
w calor
ies, and
goo
d ta
ste. B
ut w
hen n
o in
gre
n
or
the
die
nt
w
as foun
d,
n
o
new
adv
anta
ges
we
re
in tr
oduc
ed ,
A
s
a
r
esu l
t
the competition
not
only
caught
up
but launched
an
initia tive
of
it
s
I c
ateg
ory
ow
n.
A
com
petit
or
focu
sed o
n the
old pro
duct
line
s,
adde
d som
e
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78
DESIGNING
ORG NIZ TIONS
f
lavo
r
en
hanc
ers
an
d
add
ress
ed
itse
lf
to
t
he
chil
dren
’s
seg
men
t.
Th i
s
seg
men
t
valu
ed
fla
vor
and
unf
ortun
atel
y
wa
s less he
al th
co
n
sci
ous The
comp
etit
or
s
tole m
arke
t sh
are
in th
e
cat
egor
y
as a re
sult
.
The shar
e loss w
as
a
w
ake
up call to th
e c
omp
any.
It
retal
iated
with
its
own
flavor
enhancers and
followed
with
a
marketing
ini
tia
tive
focu
sed
on
kid
s
I
t
con
tinu
ed
to
d
evelo
p
its
s
egm
ent
c
p
bil
ities of
wor
king ac
ross
pr
oduc
ts
and
bran
ds
a
nd fo
cusi
ng them
on new
segm
ents
. T
he
nex t
se
gme
nt
wa
s His
pani
cs.
This s
egm
ent
cont
inue
s
to
gro
w in
num
bers and
in d
ispos
able inco
me. T
he b
k
er
y
f
ocus
ed
on
a
doze
n
prod
ucts and
the
six
maj
or
Hisp
anic
mar
kets
like t
he Me
xica
n
So
uthe
rn
Cal
iforn
ia
and
the C
uba
n
So
uth
Fl
orida
. he
seg
men
t
li
ned
up
c
o pa
cke
rs
fo
r
pac
kag
ing in
the
Sp
anis
h lang
uage
a
nd
prep
ared
a
ds
for th
e Sp
anis
h sp
eakin
g
m
edia
T
he
co
mpa
ny al
so retu
rned
to the e
xpa
nsion
of
its e
xisti
ng in
i
tiati
ves.
I
t ex
pand
ed
its
par
tners
in
c
ateg
ory
ma
nage
men
t fro
m
tw
o
t
o five
wi
th
m
ore
bei
ng
p
ursu
ed.
It
en
tered
the
sn
ack
cat
egor
y w
ith
a
partn
er. It
avo
ided F
rito
Lay
and
po
sitio
ned
it
self
again
st
th
e
num
ber
thr
ee
and
fou
r
pl
ayer
s
in
t
he mar
ket.
T
he
com
pan
y
al
so
p
ositi
oned its
elf as heal
thier
b
ecau
se its pro
duc
ts were bak
ed
rat
her
th n
fried.
Any
fi
nally
the
bak
ery has
fo
und a
w
ay
to
pro
fit
f
rom
it
s dis
tri
bu
tion
c
apab
ility
.
The
com
pany
has beco
me
a
lead
er
in c
ollab
ora
t
ive
lo
gisti
cs.
h
t
is
u
sing the
We
b
as
a
ce
ntra
l coor
dina
tion
t
ool
pro
duc
ers
re
taile
rs and
t
ruck
ers can
sh
are truck
s
and
wa
reho
uses
wh
en
go
ing
to and
fr
om the
sam
e
l
ocat
ions. It h
as
jo
ined
ten
othe
r
m
anu
factu
rers
a
nd its c
ateg
ory
man
agem
ent
par
tners
in a
ne
w ve
n
ture in collaborative
logistics.
The venture
has
been
a
major
source
of
savi
ngs
a
nd ne
w
r
even
ue.
So
the c
omp
any a
ppea
rs
to
be
bac
k
on
tra
ck. It is co
ntin
uing
t
o
c
reat
e
n
ew sou
rces of ad
van
tage fr
om co
mbin
ing its n
ew a
nd
old
cap
abil
ities
.
It
als
o kno
ws
th t if
it
re
sts
an
d
does
t gen
erate
the
nex
t
s
ourc
es
o
f ad
vant
age
som
eone
else
w
ill. A
s a
re
sult
it
s
till
s
earc
hes
for
n
ew
in
gred
ients
.
Bu
t
it
also
sear
ches
for n
ew
cate
gorie
s
new cus
tome
rs ne
w
ch
anne
ls n
ew
s
egm
ents and
s
o
on
.
It
h
as
beco
me
a
play
er i
n
th
e er
a o
f tem
pora
ry adva
ntag
es.
ic
u
Cre
a
T
his
be
ef f
ri
r
r
ti fl
rCSO1J
cr
oss
6
2
had
the
t
ad
d
it
n
fl
t
fu
nci
m
eni
tha
t
rela
u
ti
[Tic
f
un ci
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DESIGNING A RECONFIGURABLE
ORGANIZATION
79
Sales
Operations
Marketin
distribution
Product
team
VP
•
Product
team
—
—
—
L
L_
vp
FIGURE
6.2.
Product
Team
Organization.
Creating
Reconfigurabiity
This
strategy
of
creating
a series
of
short-term advantages
can
only
be
effective if
the company has an organization
that
can
execute
it
Prior
to
the discovery of the low-fat
ingredient the company
was
organized
functionally around research and development
opera
tions
marketing
sales
and distr ibution finance
and human
resources. Like
most packaged
consumer
goods
companies
it
used
cross-functional
product
line teams.
These
teams shown
in Figure
6.2 are
chaired
by the product vice
presidents from marketing.
It
had
reasonably good
cross-functional relationships.
Quite a few
of
the
top
management group had
cross-functional
experience. In
addition
for
about
five years
the
company
was
encouraging project
management
experience. Almost all
managers
had a ttended
the
project management course.
Almost
all had worked
on cross-
functional
project teams.
The
company
built
on
this
base
to imple
ment
the continuous
strategy
shifts.
The
first organizational
change was the
creation of a third
team
that
was focused
on the
health segment
and was
to
reformulate
and
relaunch
the company’s products.
This
team
was
chaired
by
a
full-
time
marketing
vice president.
As
with
the
two
existing
teams
each
function
contributed a representative
who
had the time a t
least
50
Human
urces
gment
tth
con-
a
result.
taliated
.ing
mi
capa
ig
them
egment
bak
markets
South
in
the
media
:ing mi
om two
ry
with
.nst
the
tny also
I
rather
distri
[labora
n tool
houses
n
other
w yen
r
source
tuing
to
and
old
rate the
it
still
egories
It
has
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ESIGNING ORG NIZ TIONS
per
cent
th
e auth
orit
y
to
rep
rese
nt
the
f
uncti
on a
nd
the
in
form
a
tion
abou
t
the
fu
nctio
n
to b
e us
ed in
prob
lem so
lving
.
Th
e
main
d
iffe
renc
e was tha
t
t
he
se
gme
nt
team w
as b
oth
cr
oss-
func
tion
and
c
ross
-pro
duct
.
The
new category
was
addressed
by
another
cross-functional
unit
chai
red
by a
v
ice p
resid
ent fr
om m
ark
eting
.
Bu
t
this t
eam
w
s
ful
l-tim
e
and
dedi
cate
d
to th
e
ef
fort of b
reak
ing
into
a ne
w c te
gory
S
ever
al
de
dicat
ed s
alesp
eop
le
work
ed
for
the
u
nit
and
cr
eate
d
t
he new
sale
s app
roac
h fo
r
the n
ew c
ateg
ory. Th
is te
am repo
rted
dir
ectly
to
the
CEO
t
o
ge
t
th
e atte
ntio
n
and
fo
cus tha
t
new
bu
si
nes
s
req
uire
s. T
he
rep
orti
ng r
elatio
nsh
ip als
o
ga
ve
lev
erag
e wi
th
its
partner.
A
si
mila
r
tea
m
was
c
reat
ed fo
r t
he
new
cha
nne
ls. A vic
e pr
esi
den
t
fro
m
mark
etin
g
cha
ired the
t
eam
bu t
re
port
ed
t
o
the sen
ior
vice
pr
esid
ent for s
ales an
d dis
tribu
tion
.
All
func
tions
ex
cep t
res
earc
h
and
deve
lopm
ent
c
ontr
ibu t
ed
a
f
ull-t
ime de
dica
ted
m n
a
ger. T
here w
as n
o
r
esear
ch
and
deve
lopm
ent
rep
rese
ntat
ion
be
caus
e
the
re
were
no
n
ew
prod
ucts in
volv
ed.
Th
e
cha
nnel t
eam
boug
ht prod
ucts
fro
m
th
e
f
acto
ries a
nd
m
anag
ed
the rel
ation
ship
s
with
co-packers
who
packaged
the
products.
I u
Fo
llow
ing
t
hese
c
hang
es
tw
o
mo
re
de
dicat
ed
cro
ss-f
unct
iona
l
u
nits w
ere
f
orme
d f
or
the
tw
o
custo
mer partn
ersh
ips. T
hese unit
s
al
so c
onsi
sted of full
-time
de
dica
ted
pe
ople
fro
m
all
f
unct
ions
syst
agai
n exc
ept
r
esea
rch
and
d
evel
opm
ent.
The units
wer
e
c
hair
ed
by in
f
the
acco
unt
ma
nag
er
fo
r the cust
ome
r and rep
orte
d to th
e
sen
ior
vic
e p
resid
ent
of
sa
les
an
d
d
istrib
utio
n.
Bo
th
t
he
chan
nel an
d
cu
s-
t
ired
tomer
teams
were
cross-function
and
cross-product units.
This
new tnult
orga
niza
tion
is
sho
wn
in
Fig
ure 6.3.
ch
an
In
the
mea
ntim
e
the
fin
anc
e func
tion wa
s
r
edes
ignin
g th
e
th
at
acc
oun
ting sys
tem. It
imp
lem
ented an
a
ctiv
ity-b
ased cos
t sy
stem
.
n
ext
t th
e
sam
e
tim
e
ins
talle
d
en
terpr
ise s
oftw
are
to
auto
mat
e
the
o
rg i
ne
w
sys
tem.
h
re
sult
is t
ha t pr
ofit a
nd loss m
easu
rem
ent can b
e
o
rg i
app
lied to
all of
the
s
trate
gic ini
tiati
ves. T
he
p
rodu
cts s
egm
ents
s
usta
c
ateg
orie
s chan
nels
an
d c
usto
mer
s
are
all
profi
t-an
d-los
s
m
easu
r-
and
ab
le. T
he
hum
an
r
esou
rces d
epar
tmen
t
is red
esig
ning
the
rewa
rd
serie
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D
ESI
GNI
NG
A REC
ONF
IGU
RA
BLE
OR
GA
NIZ
ATIO
N
nf
orm
a
he
main
io
n
a
nd
r
ictio
nal
e
arn
wa
s
ew
cat
e
c
reate
d
rep
orted
ew
b
usi
age
w
ith
ce
pr
esi
s
enior
ex
cep
t
:ed
m
an
n
tatio
n
ieI
te
am
:ionships
n
ction
al
ese
un
its
inct
iOns
aire
d
by
ie
s
enio
r
and
cus
[‘
hi s
n
ew
ain
g
t
he
sy
stem
.
n
ate
the
t
can
be
gm
ents
measur
e
rew
ard
H
uma
n
T
Sale
s
r s
ou
op r tions i
M
ark e
ting
distr
ibut
ion
Pr
oduc
t team
—V
Pro
duc
t tea
m
C
—
V
P
Se
gme
nt team
—
— VP
h n
nel
tea
m
u
stom
er te
am
u
stom
er team
—
.
.
.
FIG
UR
E
6
.3. M
ulti
dim
ensio
nal Org
aniz
ation
syst
ems t
o
in
corp
orate
te
am
base
d
re
ward
s E
ach
of
t
hese tea
ms
is
in f
act
a min
iatu
re
b
usin
ess
u
nit.
In
this
w
ay
th
e
e
xamp
le
co
mpa
ny
has con
figu
red
an
d re
conf
ig
ured
itself
from
a
funct ional
structure
with
brand
managers
to
a
mu
ltist
ruc t
ure
ba
sed
on
f
unc t
ions
prod
ucts
seg
men
ts
cate
gori
es
ch
anne
ls
and
cus
tome
rs. It
i
s
a
m
ulti
ple prof
it
and
los
s
struc
ture
tha
t can
be
f
lexib
ly
ch
ange
d
to
an
y dim
ens
ion
th
at
wil
l
sup
port
the
nex
t
st
rateg
ic ad
vant
age.
he
c
omp
any
i
s
crea
ting
the c
apab
ility
to
org
anize
any
w
ay
w
ant
s
to
org
aniz
e. S
o
i
nstea
d
of
choo
sing
to
org
aniz
e
by fun
ct ion
or p
rodu
ct or
m
arke
t
seg
men
t
to
im
plem
ent
a
s
usta
inab
le
bra
nd a
dvan
tage
th
e
c
omp
any
is
org
aniz
ed
b
y f
unc
tion
and
pro
duc
t
arid se
gme
nt and
chan
nel
and c
usto
mer
to im
plem
ent a
serie
s
of c
ons t
antly
ch
ang i
ng sh
or t
term
a
dva
ntag
es.
fter
the
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DESIGNING
ORGANIZATIONS
company’s
pause
due to
its
unsuccessful search
for
a
new ingredient
the
new
initiatives
were matched
with new
organizational
units
to
implement
them.
These additions
are shown
in
Figure
6.4.
A segment
group was
added
which
s
an
umbrella
group
for
the three current
segments—
health
kids
and
Hispanics. Each
segment
has its own
team. A sim
ilar
group was
created
for
the
five
t ms
that
serve
as
customer
partners
in
the category
management
service.
A
new team
was
added
for collaborative
logistics. A VP
reporting
to the sales
func
tion
chairs
the team.
On
the
team
are the
distribution
managers
from
sales the logistics managers
from operations
and
a
finance
manager.
Even though
this
s
a
new venture
it
still needs to keep
the plants supplied
and
customers
satisfied s the first priority.
Thus
the
creation
of
groups like
the ones for
segments
and
customers
make
the structure
scalable.
To implement
this
reconfigurable
organization a company
needs
an
aligned
set
of
policies
that
permit
it
to form
and
reform
internal
and external networks of
capabilities.
Let
me
describe
in
more
detail
the
elements
of the star
model that support
the capa
bility
to
reconfigure.
Structure
The structure
of
the reconfigurable
organization
consists of a
stable
part and a changing part.
The changing
part was
described
in
the
course
of the
example
s
the company configured
miniature busi
nesses
around products
segments
channels and
customers
This
changing part
s the
reconfigurable
part
which
changes
with
changes
in
competitive
strategy.
The
functional
structure s
the
stable part.
This stable
structure
s
both
home
and
host
to
the company’s employees.
It s home
to
the specialists
and experts in
food
science
distribution manufac
turing
technologies
analysis
of
bar
code
data
and
other competen
cies
that
the
company
has
built. These people
tend
not
to
rotate
across
functions but
do
participate
in
the
cross functional
teams.
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re
di
en
t
un
its
to
_
i_
L
¶
coup
w s
m
en
ts—
L
_Z
A
s
im
us
to
me
r
a
m w
s
z
l
es
fu
nc
>
i
an
ag
er
s
ifi
na
nc
e
t
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efo
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f
ast
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le
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the
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ure
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usi
ers
Th
is
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e
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it
h
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ct
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ia
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ms
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8
DESIGNING ORGANIZATIONS
The functional structure is
also
the
host
to
managers who
move
A
across
functions
or
rotational assignments.
is
rea.
COli
fli
and
r
Processes
posed
The
first
area
information and goal setting
processes
is often
over
pirsu
looked and underestimated in its power to define an organization’s
fleglt
capabilities. The
reconfigurable
organization
needs accounting
sys
is
the
tems data
structures and
planning
processes
that allow it
to oper
cate
I
ate as a collection
of
miniature business units. All the
data
must
be
available
to all
the parties. As mentioned earlier the costs and rev
tions
enues must
be
assignable
to
products segments
channels
and
so
on
the
p
so
that
profitability
can be identified
Policies for transfer prices
so
Ot
need
to accurately reflect market prices to coordinate
resource allo
FifliI
cations
between
miniature
business
units themselves and
with
external
partners.
The
complexity
of coordinating
all
these
minia
in la t
ture
business
units is aided by
the use
of
prices
and markets. Flexi
ble
reconfigurable organizations must
be aligned with
flexible
Peol
reconfigurable accounting systems.
The
management team
must be skilled
at
the
timely
resolution
Equi
of
conflicts. Constant
change
brings constant conflict. For example
must
the products from the health segment stole
sales
from
the
tradi
reco
tional
cookie
and
cracker
product lines. What is best for the total
company? There
are frequent priority
decisions when resources
are
shared.
Which
channel and customers get
supplied when
the
new
skilL
products
are in short
supply? At
the
bakery there
was
the
“Monday
CO1TI
morning meeting” where these
issues
were
thrashed
out.
Atten
v rl
dance varied
from
ten to eighteen
people. The information
systems
and
and the
problem solving
management teams
are
necessary
for the
timely decisions
in a
reconfigurable organization.
recri
A second set
of
processes are the common processes
for
new
job.
product development
order fulfillment and
strategic
planning.
These
are another
source
of stability. In
the
reconfigurable
organi
zation
the
structure
changes but the processes are stable
and
corn
mon
across
the
miniature
business units.
and
L
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DESIGNING A
RECONFIGURABLE
ORGANIZATION
8
And
next,
there
needs
to be a strong management
team, There
io
move
is
really
only
one
business
and one Profit and
Loss
statement
that
counts.
h t
is the company
P L. However,
the strategy
shifting
and
reconfiguring
of
the
organization
requires
that
it
be
decom
posed
into many miniature
business
units.
In this w y
each
unit can
:en
over-
pursue
different
initiatives, but they impact both
positively and
iization’s
negatively
on
the
company
P L.
The
integration
of
all
these units
is
the
task
of
the
management team, which
must
set
priorities, allo
ting
sys
to
oper-
cate
resources,
and
resolve the
inevitable
conflicts.
i
must be
A
joint
project
between the
marketing
and
the
finance func
and
rev-
tions
has been
launched to create modeling tools
to
help determine
irid
so on
the
profit impacts of
initiatives in
products,
segments,
channels, and
so
on.
Marketing
has
the data-mining
tools and the
databases.
:er
prices
urce
allo-
Finance
has
the financial analysis skills,
These
are
to be
combined
md
with
into
modeling techniques and
simulations
to
support the leadership
se
minia-
in
launching
and evaluating the miniature
business,
ts
Flexi
flexible,
People
esolution
Equally
important is
the
area
of
human
resources. The HR policies
example,
must be aligned to create the behaviors and mind-sets that support
:he
tradi-
reconfigurability.
The conflicts within
a unit
and
between units
the
total
over priorities and transfer prices can sap
the
energy from
a minia
ture
business unit.
The
participants need
to be cross-functionally
urces
are
the
new
skilled,
have cross-unit
interpersonal
networks, identify
with
the
“Monday
company
as a
whole,
and
be part
of
a reconfigurable culture. The
Lt.
Atten-
various human resource policies are central to
creating these
skills
and networks,
and
the
overall culture
see Lawler, 1994).
n
systems
iry
for
the
These human
resource
policies start
with hiring
practices
that
recruit
and attract people
who fit the
organization,
not just the
s
for
new
job.
Jobs
will change
and new skills will
be
learned. But individ
planning.
ual
personalities
and
company
values
and culture are much less
Ie
organi-
likely
to change. Hence a person-organization
fit is key
to the
and
corn-
reconfigurable organization. Personality
tests, work
simulations,
and
very
extensive interviews are characteristic
of
hir ing the
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86
DESiGNING
ORGANIZATIONS
person
to fit
the organization.
For
the
reconfigurable
organization
fondness
for working
in
teams
ability
to solve
problems
and
n
dle
conflicts
and the
desire
and potential
to
learn new skills
are
Finall
some
of
the personality
attributes
that
are
sought. For
example
urabh
the baking company
in
the
example
uses
a
cross-functional
inter-
servat
viewing process.
otential
brand
managers are interviewed
by
syster
current
brand managers
and also
by research scientists
manufac-
great
turing
representatives
and
sales managers
with cross-functional
need
experience. The
company
does not
want
a hot shot
marketer
preci
whose
sole
interest
is
the fast track through
brand management.
takes
The
person
must also
be acceptable
to
R D
and manufacturing
plan
he
intensive
interview process
selects
people who will
be
effec-
need
tive in cross-functional
work. This
process
also sends
a
message
that
“cross-function
is the
way we
work”
and
helps build
the
than
reconfigurable
culture.
old.
Assignments
and careers are
also
cross-functional for
many
title
managers.
For
example
R D
people often
follow
a
new
product
So
they
are
working
on into
manufacturing
and then
into
sales and
dis-
Oftei
tribution.
At each
step they learn new
functional
skills. They
also
becat
learn
the
new
product development
process
as
they
move along
it
annu
But
just
as
important
are
the
relationships
they
build which
add to
that
i
their
interpersonal
network. The
assignment
process develops
the
ob1ig
individual and
simultaneously
develops the
organization’s
network
‘
The
process builds
the social
capital
on
which
reconfigurability
is
to
a
t
based.
less
r
Training is
continuous
and
targeted
at cross-unit
participants.
comi
Proj
ec t management training
for
example
is
given to
cross-
have
functional
teams prior
to beginning new
projects.
Other
subjects
are
plete
delivered
to cross-unit
groups
consisting
of
people working
at
key
repe
interfaces.
The purpose
is always
to
simultaneously
build
know-how
tems
and know-who.
The
reconfigurable
organization
sees every
training
ity
s
event
and
especially
social
events as
opportunities
to
build
know-
enco
who.
The
events
are investments
in
building
the
company’s social
capital.
unit
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DES GNiNG
A RECONFIGURABLE OR NIZ TION 87
ation
1 1
Rewards
nan
us are
Finally,
the
reward
system needs to
be equally flexible
and
reconfig
mple,
urable
see
Ledford, 1995). Yet nothing turns
a manager
into a con-
inter-
servative
faster than
a
recommendation to change
the
compensation
ed
by
system.
Because of
this
conservatism,
compensation
systems are
the
ftufac-
greatest
barriers
to
change
and
flexibility.
At
a
time
when
pay plans
tional
need
to
be
approximate,
flexible,
simple,
and
valid, they
are
instead
rketer
precise,
complex,
quantitative,
nonaligned,
out
of date,
and
rigid. It
ment.
takes
years
to
study
a
pay
system, reevaluate
the jobs,
pilot the
new
:uring.
plan,
and introduce it
unit
by
unit,
Far
more
speed
and
flexibility
are
effec-
needed.
essage
The new,
nimble reward
systems have
far
fewer
grades
or
bands
[d
the
than
their
predecessors—three
rather than the
thirty pay grades
of
old. Salaries are
based on a
person’s
skills
and no t the
person’s
job
many
title, Today
we pay the
person,
not the
job. Jobs change too quickly.
oduct
So do
the people—but
the
more
they
learn the
more they
earn,
dis-
Often,
skill-based
pay
is given
as
a
one-time
bonus
for
learning
y
also
because
skills also
come
and
go.
Employees
get
fewer raises—
ng
it
annuity-style
additions to
their pay—and more one-time bonuses
add
to
that reflect
current
efforts without generating
an ongoing
financial
ps
the
obligation
for
the
company.
Ework
The
appraisal process is also moving away from
a
boss’s
appraisal
ility
is
to a
team-based
appraisal or
360-degree
feedback model.
There is
less
ranking
of all
220
engineers along a
single dimension and
less
pants.
complexity in the
performance
rating scales.
Some organizations
cross-
have an
appraisal
day—an
automated
process
that
is
done and
corn
ots are
pleted
in less
than a
day.
It is
done easily
and
quickly and can be
at
key
repeated
more
often
for quickly changing
environments.
So pay
sys
v-how
tems
are
becoming
more
flexible
in
using more bonus and less annu
aining
ity
simpler
scales and grades,
pay for skills
rather
than
jobs,
and
mow-
encouraging
faster changes
and
more experimentation.
social
Collectively
these
people and reward practices
build
the
cross
unit
skills,
cross-unit interpersonal networks, and ultimately
a
DES
IGN
ING
ORG
N
IZ
TIO
NS
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re
qui
natir
CO
T I
may
who
pl
ay
• Com
pan
y
fi
t
Hom
es
m
• S
pec
ial ist
s and
Cros
s-un
it
iran
g
ene
ral ist
s
team
s i
flatl
• Cro
ss-u
ni t
care
er
ti
on
a
nd
hirin
g
th
e
intel
cost
adju
• Com
mo
n pro
ces
ses
su
ch
as new pr
oduc
t
de
velo
pme
nt
tinu
• C
ros
s-un
it go
al
set
ting
v
ery
• D
ata-c
en tri
c d
atab
ase s
F
IGU
R
6
R
econ
figu
rable but
Al
igne
d S
tar
Mod
el
resu
rec
c
sist
reconflgurable cul
ture.
Such
pra
ctice
s b
uild
the
ski
lls
a
nd
min
d set
s
to link
fu
ncti
ons
bot
h
insi
de and
outs
ide th
e
co
mpa
ny
i
nto
a
ba
n
m
inia
ture
bu
sines
s
un
it.
In this
man
ner
an orga
niza
tion
s be
tter
c
usi
po
sitio
ned
to
c
apita
lize on
a
n
opp
ortu
nity
an
d
b
uild
a
new
capa
bil
a
n
ity Th
ese
ca
pab
ilitie
s
c
an
be
com
bine
d
and
rec
omb
ined
in in
ter
p
org
esti
ng
w
ays
t
o
c
reat
e
th
e
nex
t a
dva
ntage
.
But
th
e
la
stin
g
c
apab
ility
and
po
ssib
ly
a
m
ore
susta
inab
le
s
ourc
e
of
a
dvan
tage
s
th
e
cap
abil
ity of
an organization
to
reconfigure
itself. Figure
6 5
shows
an
alig
ned
sta
r
m
ode
l wit
h the
vari
ous p
ract
ices t
hat
co
nsti
tute
the
re
conf
lgur
able
org
aniz
atio
n.
T
he
ost
econ
figu
rabil
ity
R
econ
figu
rabi
lity u
nlik
e
qual
ity
s
t f
ree.
I
t tak
es tim
e
and
re
sour
ces
t
o b
uild
the
information
systems
and
human
resource
p
ract
ices
. A sig
nific
ant i
nves
tme
nt
i
n rec
ruiti
ng
an
d tr
aini
ng
s
• Sequ
ence
of
ad
vant
ages
• Pay
for s
kills
• O
ne-t
ime
awar
ds
•
Nim
ble
s
ystem
s
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DESIGNING A
RECONFIGURABLE
ORGANIZATION
required.
Then
there
is the investment
of
management
in coordi
nating
work within
and
between
miniature
business
units.
It
is a
communications
intense
form
of organization.
It
is
also
fraught with the
potential
for
problems.
Companies
may
not
always be able
to find
people who
can manage
conflict
and
who
desire growth
and development.
Everyone
is
looking for
team
players.
In
addition
there
is the
potential
for
unresolved
conflict.
Transfer
price
issues can
consume enormous
amounts
of time.
As
in
matrix type
organizations
discussions
in a
reconfigurable
organiza
tion
can degenerate into
endless
internal
negotiations
that
cut
into
the
time available
for customers.
If
not
all
policies
are aligned
these
internal
frictions
can
absorb
the company’s
energy. However
these
costs
and
risks
must be weighed
against
those of not
being able
to
adjust
to
a reconfigurable
competitor.
The
reconfigurable
organization
is the
companion
to the
o
tinually
shifting
strategy
‘When competitive
advantages
do
not
last
very
long neither
do organizations
Instead
competitive
advantage
results from
a
string of short term
advantages
delivered
through
a
reconfigurable
organization
The
reconfigurable
organization
o
sists
of a
stable functional
structure
around
which
projects and
a
miniature business
units
are
continually
formed
combined
and
dis
er
banded. These units
can focus
on
products
channels
segments
customers
regions suppliers
technologies
and so
on. Th e
corn
pany
can
literally
and
simultaneously
organize
any
way
it wants
to
organize.
The
reconfigurability
rests
on three capabilities:
• Extensive
internal
cross unit
networking.
This capability
is built
through
aligned
human
resource
policies.
It
attracts
holds
and develops
the flexible
people
who
create the flexible
orga
nization.
•
Use of prices
markets
and
marketlike devices
to
coordinate
t
multiple
profit center units.
An
accounting
and information sys
tem
that
permits
an
accurate and flexible
determination
of
profit
and
loss on any
dimension is the
central tool
underlying
this
capability.
E
SIG
NIN
G
ORG
N
IZ
TIO
NS
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Exte
rnal
net
wor
king
w
ith pa
rtne
rs
to
ex
pand
the
ca
pabi
lities
that
c
an
e
c
omb
ined
in cre
atin
g n
ew
adva
ntag
es
Th
e
sam
e
be
h v
ioral
s
kills
o
f co
oper
atio
n con
flict
m
anag
em e
nt and
infl
uenc
e
with
out
autho
rity
th
at
a
re
us
ed in
in
terna
l net
wor
king
ar
e
i
ndis
pens
able
in
man
agin
g e
xter
nal
net
works
The
f
inal
elem
ent
i
s to
p ma
nage
men
t tea
m
that s
ees
its
v
alue
a
dded
as d
esig
ning
a
nd sup
por
ting
the
orga
nizat
ion’
s
re
conf
igura
bi
lity
m
uli
sion
incn
the
ch
a
proc
cha
l
n
iza
ton
cap
pric
cu
si
foci
b
ui
ca
p
h