(Simulated) Organizations in Action

Pilot testing an Organization Design simulation

Nicolay Worren

Simulation developed in collaboration with Tido Eger

The plan

10:35 Introduction

11:00 Simulation

12:00 Break

12:15 Debriefing

Background

Traditionally, one has distinguished between ”top down” and ”bottom up” design perspectives

Strategicdesign

Operational design

The theoretical ideal is to perform the operational design in a manner that minimizes coordination cost

“Under norms of rationality, organizations group positions to minimize

coordination costs”

“Organizations seek to place reciprocally interdependent positions tangent to

one another, in a common group, which is (a) local and (b) conditionally

autonomous”

(Thompson ,1967, p. 57)

Within thesame unit

Acrossdifferentunits

B

A

A

B

We should distinguish between two phases of OperationalDesign

1.Identifying

interdependencies

2. Grouping ofroles/units

based on theinterdependencies

D E FBA C

”Unit A” ”Unit B”

D E FBA C

Today, we skip the first stage by using colors to indicate whois interdependent and thus should be grouped together

1.Identifying

interdependencies

2. Grouping ofroles/units

based on theinterdependencies

D E FBA C

”Unit A” ”Unit B”

D E FBA C

The simulation task is analogous to a company that decides to move from one grouping criterion to another (a)

= Geography A

= Geography B

= Product 1

= Product 2

1 Initial: Geographical organization

2 The firm identifies roles according to new criterion

Unit A Unit B

The simulation task is analogous to a company that decides to move from one grouping criterion to another (b)

3 The firm restructures according to new grouping criterion

= Product 1

= Product 2

Unit A Unit B

We will monitor the performance of each unit (table) and the total group in real time by using an Excel tool*

Changes in total system cost with number of switches

414398

386

366

350338

330

306

278

262250

0 4 8 12 16 20 24 28 32 36 40

0

50

100

150

200

250

300

350

400

450

0 1 2 3 4 5 6 7 8 9 10

Number of switches

Co

st

Total Coord Cost Switching Cost

*The tool was developed by Tido Eger

Simulation Briefing

The plan

10:35 Introduction

11:00 Simulation

12:00 Break

12:15 Debriefing in

Starting configuration (with N = 36)

Note: Players are shown in consecutive order but may be seated in any order around the designated table

1

4

2 3

65

7

3 4

2

1

5 8 9

7

6

10

11

12

13 14 15

16

17

18 19 20

21

22

23 24 25

26

27

28 29 30

31

32

33 34 35

1 1 1 1 1 2 2 2 2 2 3 3 3 3 3 4 4 4 4 4 5 5 5 5 5 6 6 6 6 6 7 7 7 7 7 7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

36

What’s the analogy?

• Colors

– People that you are dependent upon (e.g., that work on the same process

as you do)

• Tables

– The formally defined units (e.g., departments)

• Coordination cost

– The cost associated with collaborating, communicating, exchanging

information etc within and across units

• Switching costs

– The costs that arise as a result of transferring people to another unit (e.g.,

training in new role, temporarily reduced productivity, etc.)

There is a small set of simple rules that we need to follow

1. You should agree around the table about which person to move

2. All moves are reciprocal (i.e., between two tables) – you must

receive a person from the table you are moving a person to

3. Each table can make 5 moves (within the timeframe of the

simulation)

4. Each move must be documented on the attached sheet, which

should be handed to the facilitator when a move is executed

– The two tables involved in swap hand in one paper sheet

The goal : To minimize table and total group coordination cost by grouping same color around table

How to calculate your coordination cost

14 14

6 4

Tablecoordinationcost

Individualcoordinationcost

4 64

1 + 3 = 43 + 3 = 6

6 + 4 + 4 = 14 4 + 4 + 6 = 14

4

De-briefing

A gradual reduction in coordination cost was achieved

518 502 486 470 454 442 430 418 402 402 402

04

812

1620

2428

32 36 40

0

100

200

300

400

500

600

0 1 2 3 4 5 6 7 8 9 10

Co

st

Number of switches

Changes in total system cost with number of switches

Switching Cost Total Coord Cost

Only the last movestands out as suboptimal

Minimal coordination costs were achieved at Table 2

6 7 8 9 10

6 7 8 9 10

6 7 8 9 33

6 7 8 28 33

6 20 8 28 33

0

1

2

3

4

Number of switches

Table 2 after 4 swaps

Table 7 after 2 swaps

31 32 33 34 35 36

31 32 33 34 35 36

31 32 10 34 35 36

31 32 10 34 35 36

31 32 10 34 35 36

0

1

2

3

4

Number of switches

What’s analogous to what we experience in real life?

1. Organizations sometimes change the ”grouping criterion”

– E.g., they move from a functional to process based structure, or from geographical to

product based structure)

2. One must try to increase both individual, team and overall performance

3. Reconfiguring an organization in such situations depends on the capacity to handle

a complex set of direct and indirect interdependencies

– That capacity is limited and the decision process may ”satisfice” rather than ”optimize”

3. At some point, ”switching” (i.e., reconfiguration) costs will exceed the benefits

(reduction in coordination costs)

What simplifying assumptions were made?

1. In real life there are more options. One can:

– Move people

– Move tasks

– Merge two or more sub-units

– Establish integrator roles

– Remove the interdependency that creates need for coordination

2. More time is available too

3. People who are interdependent cannot be identified by means of the color of their

clothing!

In sum: What’s new?

• The simulation creates an experiential setting for learning about key organization

design principles

• It shows how alternative designs may be quantified

• It allows a comparison between ”optimal” and ”actual” decisions in a design

process

Continuing this line of work may contribute to making organization design a more analytical discipline

Thanks

• To you – for participating

• To Thorvald Hærem – for allowing us to use you as test pigeons

• To Tido Eger for developing the Excel tool

• To the following companies, for providing t-shirts:

– Accenture

– Petroleum Geo-Services (PGS)

– Posten

– Expert

– Ringnes (Solo)

– Kiwi

Bio

• Independent consultant

– 12 years of experience with organization re-design, process

improvement, strategic HR, and strategy facilitation

• Previously with Accenture, PA Consulting Group, and Aker

• PhD (2003) from Said Business School, Oxford University

• MA (1994) from McGill University

• Currently writing textbook with Pearson Education, UK

• Blog: www.nicolayworren.com

• Contact: nicolay@worren.com