Organizational architecture, also known as organizational design, is a field concerned with the creation of roles, processes, and formal reporting relationships in an organization. It refers to architecture metaphorically, as a structure which fleshes out the organizations. The various features of a business's organizational architecture has to be internally consistent in strategy, architecture and competitive environment.
It provides the framework through which an organization aims to realize its core qualities as specified in its vision statement. It provides the infrastructure into which business processes are deployed and ensures that the organization's core qualities are realized across the business processes deployed within the organization. In this way, organizations aim to consistently realize their core qualities across the services they offer to their clients. This perspective on organizational architecture is elaborated below.
Content According to most authors organizational architecture is a metaphor. Like traditional architecture, it shapes the organizational (some authors would say the informational) space where life will take place. It also represents a concept which implies a connection between the organizational structure and other systems inside the organization in order to create a unique synergistic system that will be more than just the sum of its parts.
Conventionally organizational architecture consists of the formal organization (organizational structure), informal organization (organizational culture), business processes, strategy and the most important human resources, because what is an organization if not a system of people? The table shows some approaches to organizational architecture.
Nadler and Tushman (1997) Merron (1995) Galbraith (1995) Henning(1997) Churchill (1997) Corporate Transitions International (2004) Vision, strategic goals and strategic management Strategy The role of the organization Strategy Informal organization Organizational culture Reward systems Reward systems Organizational culture Organizational culture Formal organization Organizational structure Organizational structure Groupings Organizational structure Organizational structure Business processes Processes and lateral links Business processes and work design Human resources Human resources Human resource development Communication
The goal of organizational architecture is to create an organization that will be able to continuously create value for present and future customers, optimizing and organizing itself.
Some under organizational architecture understand building blocks, which are mandatory for the growth of the organization. To design an organization means to set up a stage where the drama of life will take place.
Design
Design process and approach Although the process of organization design isn't necessarily linear, a five milestone process has been created to organize the approach. The five milestone design process is as follows:
Business case and discovery Goal: Build a business case for the change; compare the current state to future state and implications that would be involved. Milestone: at the end of this phase, the problem to be solved is clear. Strategic grouping Goal: Determine what basic grouping of work will create the capabilities necessary to deliver the decided strategy. Milestone: Decided on a structure change which supports the strategy.
Integration Goal: The boundaries created by grouping work must be breached to deliver results for customers, partners and shareholders. Milestone: Pieces have been tied together and defined power relationships. Talent and leadership Goal: Determine the number of positions, the profile of a candidate who will fill those positions, and who will report to the leader of the new structure(s). Milestone: Critical roles have been designed and staffed and defined work for the executive team. Transition Goal: Set the transition plan to account for a logical implementation plan. Milestone: The change is being executed and lead, and closely monitoring the changes to prepare for any adjustments
Reshaping organization structure
Organization design can be defined, narrowly, as the process of reshaping organization structure and roles. It can also be more effectively defined as the alignment of structure, process, rewards, metrics, and talent with the strategy of the business. Jay Galbraith and Amy Kates have made the case persuasively (building on years of work by Galbraith) that attention to all of these organizational elements is necessary to create new capabilities to compete in a given market. This systemic view, often referred to as the "star model" approach, is more likely to lead to better performance.
Organization design may involve strategic decisions, but is properly viewed as a path to effective strategy execution. The design process nearly always entails making trade-offs of one set of structural benefits for another. Many companies fall into the trap of making repeated changes in organization structure, with little benefit to the business. This often occurs because changes in structure are relatively easy to execute while creating the impression that something substantial is happening. This often leads to cynicism and confusion within the organization. More powerful change happens when there are clear design objectives driven by a new business strategy or forces in the market require a different approach to organize resources.
The organization design process is often explained in phases. Phase one is the definition of a business case, including a clear picture of strategy and design objectives. This step is typically followed by "strategic grouping" decisions, which define the fundamental architecture of the organization - essentially deciding which major roles will report at the top of the organization. The classic options for strategic grouping are to organize by:
Behavior Function Product or category Customer or market Geography Matrix
Each of the basic building block options for strategic grouping brings a set of benefits and drawbacks. However, such generic pros and cons are not the basis for choosing the best strategic grouping. An analysis must be completed relative to a specific business strategy.
Subsequent phases of organization design include operational design of processes, roles, measures, and reward systems, followed by staffing and other implementation tasks.
The field is somewhat specialized in nature and many large and small consulting firms offer organization design assistance to executives. Some companies attempt to establish internal staff resources aimed at supporting organization design initiatives. There is a substantial body of literature in the field, arguably starting with the work of Peter Drucker in his examination of General Motors decades ago. Other key thinkers built on Drucker's thinking, including Galbraith (1973), Nadler, et al. (1992) and Lawrence and Lorsch (1967).
Organization design can be considered a subset of the broader field of organization effectiveness and organization development, both of which may entail more behaviorally focused solutions to effectiveness, such as leadership behaviors, team effectiveness and other characteristics of that nature. Many organizational experts argue for an integrated approach to these disciplines, including effective talent management practices.
Various approaches There are various approaches to organizational architecture including
(1986, 1991, 2004) - Kenneth D. Mackenzie (1992, 1993) - David A. Nadler and Michael L. Tushman. Organizational Architecture - by David A. Nadler, Marc S. Gerstein and Robert B. Shaw. (1993, 1995) - Designing organizations using the STAR Model as developed by Jay Galbraith Benjamin's Layered Model of organizations. The Organizational Adaption Model by Raymond E. Miles and Charles C. Snow. (1995) - Richard M. Burton and Børge Obel (2001) - Ralph Kilmann (2004) - Richard L. Daft
Five principles of good design Source: Specialization principle - the primary concern in the specialization principle how to group responsibilities into units. The unit boundaries should be defined to achieve the important benefits available. Coordination principle - this principle links closely with the specialization principle, to ensure the links are established between the units. Knowledge and competence principle - the primary concern in this principle is determining which responsibilities to decentralize and what hierarchical levels to create. Control and commitment principle - the primary concern in this principle is insuring managers have a process to effectively discharge decentralized principles. Innovation and adaptation principle - the primary concern in this principle is insuring the organization can change and evolve in the future.
Five good design tests Source:
Each tests coincides with the principles previously mentioned.
Specialist culture test (Specialization Principle) Difficult links test (Coordination Principle) Redundant hierarchy test (Knowledge and Competence Principle) Accountability test (Control and Commitment Principle) Flexibility test (Innovation and Adaptation Principle)
Characteristics of effective organizational design Some systems are effective and efficient whereas others are not. Successful systems may be attributable to the skill exercised in designing the system or to the quality of management practised during operations, or both. Successful systems are characterized by their simplicity, flexibility, reliability, economy, and acceptability.Richard A. Johnson, Fremont E. Kast, and James E. Rosenzweig, The Theory and Management of Systems, 3rd ed. (New York: McGraw-Hill, 1973), pp. 144-46. Simplicity, flexibility, and reliability tend to be a function of design, whereas economy and acceptability pertain to both design and operations. Numerous relationships exist among these characteristics; for example, simplicity will affect economy and possibly reliability. Moreover, management must reach a compromise between economy and reliability, and between technical efficiency and organizational climate. The balance reached will determine whether short- or long-run objectives are optimized.
Simplicity
An effective organizational system need not be complex. On the contrary, simplicity in design is a desirable quality. Consider the task of communicating information about the operation of a system and the allocation of its inputs. The task is not difficult when components are few and the relationships among them are straightforward. However, the problems of communication multiply with each successive stage of complexity.
The proper method for maintaining simplicity is to use precise definitions and to outline the specific task for each subsystem. Total systems often become complex because of the sheer size and nature of operations, but effectiveness and efficiency may still be achieved if each subsystem maintains its simplicity.
Flexibility
Conditions change and managers should be prepared to adjust operations accordingly. There are two ways to adjust to a changing operating environment: to design new systems or to modify operating systems. An existing system should not be modified to accommodate a change in objectives, but every system should be sufficiently flexible to integrate changes that may occur either in the environment or in the nature of the inputs. For example, a company should not use the same system to build missiles as it uses to build airplanes, nor the same system to sell insurance as the one originally designed to sell magazines. However, it should be possible to modify an existing system to produce different sizes, varieties, or types of the same product or service.