PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Chapter 4 Organizational Redesign Diagnosis exposes the current realities of organizational life, with particular attention to the fit between patterns of employee behavior and the strategic requirements of the firm, to discussion and analysis. Combined with mutual engagement, diagnosis provides both the motivation for and target of change. Now, employees can engage in a process of organizational redesign to help shape required new behaviors. Redesign provides a sense of direction for the change effort. This chapter will analyze the complexities of design choices made to support change implementation. In particular, this chapter will: Define organizational design and differentiate between formal and informal design elements Explore the main challenges posed by organizational redesign Appreciate the special design challenges faced by multinational companies Analyze the requirements for building collaboration in an organization Discuss the dynamics of changing the design of an organization in order to impact patterns of behavior First, we will look at the design challenges faced by the CEO of one of the world's oldest and largest humanitarian organizations. As you read this introductory case, ask yourself: Why was the original, decentralized design of CARE less effective in addressing 21st century issues than it had been in CARE's earlier years? What do you think the challenge will be in promoting collaboration across national units of CARE? What steps might Dr. Helene Gayle take to promote the improvements she hopes for? Dr. Gayle Brings Collaboration to CARE CARE, one of the world's leading nongovernmental organizations, was created to provide aid to devastated European countries in the immediate aftermath of World War II. When Dr. Helene Gayle became CEO in 2006after working at both the Center for Disease Control and the Bill and Melinda Gates Foundationthe mission had changed considerably. Under the broadly stated mandate of \"Defending Dignity, Fighting Poverty,\" CARE expanded its reach. The organization described its new mission this way: CARE is a leading humanitarian organization fighting global poverty. We place special focus on working alongside poor women because, equipped with the proper resources, women have the power to help whole families and entire communities escape poverty. Women are at the heart of CARE's communitybased efforts to improve basic education, prevent the spread of HIV, increase access to clean water and sanitation, expand economic opportunity and protect natural resources. CARE also delivers emergency aid to survivors of war and natural disasters, and helps people rebuild their lives.1 Dr. Gayle believed, however, that CARE was better designed to serve its past mission than its future opportunities. The organization Dr. Gayle found when she became CEO was designed in a way that maximized the autonomy of country offices: France, Germany, Italy, and so forth. \"The country officers raised most of their own funds and were used to being on their own,\" she explained, \"having a lot of autonomy, and not thinking about the greater whole.\"2 The managers in the organization were \"comfortable\" with that highly decentralized design, but Gayle believed the approach undermined CARE's effectiveness. Now, the organization had to learn how to collaborate across national borders. \"To do that,\" she said, \"we had to ask, 'How do we make the whole greater than the sum of its parts?'\" The organizational change would require both improved information sharing across country units and more rigorous measurement of results to evaluate effectiveness. One of CARE's first efforts at crosscountry collaboration involved a project called Access Africa. That microfinance program (making small loans to encourage entrepreneurial efforts in poverty regions) was a 10year investment commitment targeting 39 subSaharan African countries with a combined population of 150 million. \"In 10 years,\" Gayle noted, \"we'd like to be able to look back and say, 'Wow, this is very different than if we had continued to function as separate country units.'\" Still, she could not deny the challenge of implementing this change. Organizational Redesign In order to address the challenges of global poverty, Dr. Helene Gayle needed to encourage collaboration among formerly independent national units of CARE. To achieve that goal, she addressed organizational design. Organization design refers to the arrangements, both formal and informal, that an organization calls upon to help shape employee behavior (see Exhibit 41 ). Building a Vocabulary of Change Organization design the arrangements, both formal and informal, that an organization calls upon in order to shape employee behavior. PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Formal Compensation and measurement Reporting structures Informal Defining roles and responsibilities of employees Defining relationships within the organization and between the organization and external stakeholders Exhibit 41 Design Elements. Formal aspects of design include rewards and performance measurements as well as the reporting relationships depicted on an organization chart. Informal aspects of design relate to how people perform the required tasks of the organization and how they collaborate and work with others, both inside the organization (within their own groups as well as across groups and functions) and outside (with suppliers and customers, for instance). Informal design addresses questions of focus and coordination, of where decisionmaking authority will be located, and the necessary balance between the requirement for flexibility and the need for control. Changing Informal Design First Effective change implementation separates the two aspects of design, targeting informal design before seeking to alter formal design.3 Theory into Practice Effective change implementation starts with informal rather than formal design changes. That distinction between informal and formal designs can, at times, be confusing. Job design is informal, although job descriptions are formal. Expecting individuals to work collaboratively is informal, although paying them based on joint outcomes is formal. To appreciate the distinction between formal and informal design elements, we can return to the case of ASDA from Chapter 1 . Facing bankruptcy as the result of poor strategic decisions made by its leadership team, the chain's board brought in a new CEO with the goal of revitalization. The CEO and his top team elected to place their hopes for the revival of the chain in the hands of the 205 store managers, those responsible for making sure that the stores met the expectations of their customers while increasing revenues. In the earliest stages of ASDA's transformation, store managers were asked to spend more of their time and energies looking outside of the storeat their customers and competitorsrather than inside. Stop being supervisors and start being strategic leaders that was the direction provided by the company. In order to succeed, they would have to push more and more responsibility down to the individual department managers. The roles and responsibilities of store managers changed dramatically. Howeverand here is the pointnothing in the formal design system changed, at least not at first. Job descriptions were not rewritten pay systems were not changed reporting relationships were not altered measurement systems remained the same. Over time, those formal structures would all be altered, but not in the early stages of the process. At the beginning, nobody in the company knew exactly what the store manager job would evolve into they only knew it would be changed. Informal redesignnew definitions of how the store manager job would be played outcreated a fluid, even experimental situation. Different roles were tried out as transformation moved from one store to the next. Informal design fits more effectively at the early stages of change precisely because it is informal. No policies or procedures are altered. Nothing is written in stone or committed to formal documents. Instead, informal design involves experimentation, trying out new roles. What will work? What will not work? Helene Gayle did not alter the organization chart at CARE. Reporting relationships remained unchanged. Instead, she focused on informal redesignredefining roles, responsibilities, and relationshipsin order to create greater crossborder collaboration. At a later stage, when new behaviors have been instilled, formal structures and systems can be changed, if required, to reinforce and institutionalize those behaviors. Piloting Redesign Design choices represent an attempt by organizational leaders to address the challenges inherent in managing in dynamic environments. Shifting customer expectations, disruptive technologies, new competitors, and renewed strategies provide the impetus for redesign. If all those elements remained the same, then the design that worked effectively in the past would continue to prove useful in the future. However, a truly static environment does not really exist. New competitors enter and exit the marketplace. New technologies replace existing processes. Customer expectations shift. Companies age they expand and contract. Strategies change. No design solution, no matter how useful it may be at any one time, is impervious to the need for change. Changing an organization's design, a process known as organizational redesign , presents its own set of implementation challenges. Optimally, redesign occurs in a systemic and strategic way: aligning multiple design elements with the renewed strategy of the firm. Often, however, organizational leaders embark upon redesign in a much more haphazard, piecemeal manner. Building a Vocabulary of Change Organizational redesign the process of changing an organization's informal design in response to shifting dynamics in the organization's environment. Theory into Practice The most effective way to change organizational design is to be systemic and strategic rather than piecemeal and haphazard. Why is it that leaders often approach redesign in such a suboptimal way? For one thing, comprehensive redesign can be intimidating. Write Michael Goold PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. and Andrew Campbell, \"It's immensely complicated, involving an endless stream of tradeoffs and variables.\"4 In addition, organizational redesign can be divisive, often pitting individuals against each other and devolving into power plays.5 Dr. Gayle admitted that country unit managers at CARE were \"comfortable\" with the current design. Organizational leaders may prefer to avoid the potential for discomfort and confrontation inherent in comprehensive redesign. Given the potential for discomfort, it is not surprising that executives often stick with their existing designs long after shifting circumstances seem to demand change. They may tinker, making marginal design change, while leaving the core of the organization intact. The status quo had worked well for us in the past, they may conclude. Why stir up all the potential conflicts in order to change?6 6 In a dynamic environment, commitment to past design arrangements can undermine organizational effectiveness. CARE's broadened scope, for instance, required greater collaboration across national boundaries. When a diagnostic intervention reveals that existing design arrangements undermine performance, organizational leaders may wish to avoid that potential trap and decide that the negative performance consequences outweigh any perceived \"advantage\" of conflict avoidance. The requirement for strategic change poses what seems to be a dilemma. Organizational redesign, to be effective, targets the entire organization. Targeting an entire organization is difficult, however. In a large, complex company, it is downright impossible. The way out of this apparent dilemma is through change pilots. Note that Dr. Gayle did not target all of CARE's activities for change. Rather, she focused attention on a singlealbeit a boldproject: Access Africa. Likewise, Duke University's Children's Hospital (Chapter 2 single unit: pediatric intensive care. ) focused its initial transformation on a In both cases, leaders utilized change pilots: individual units or processes that can provide the opportunity for change. They are, in essence, change laboratories: opportunities to try things out, experiment, and learn. Building a Vocabulary of Change Change pilots small units or specific processes that can be targeted at the early stage of change implementation to experiment and learn. Theory into Practice When implementing change, seek early \"wins\" through pilot projects. Change pilots offer the opportunity to engage in systemic change within a small, contained unit. In selecting a target for early pilots, organizational leaders can consider the following characteristics: Select a selfcontained unit with clear and measurable outcomes. Select a unit or process of strategic importance to the company. If the organization's strategy is changing, select a unit that exemplifies the desired future state. Most importantly, select a unit or process where success is most likely. Early successes can build credibility and momentum, leading to more widespread transformation. Theory into Practice In selecting change pilots, select units where the change is most likely to be successful. An understanding of the key issues involved in informal design will help focus the attention of leaders, so let us turn next to an analysis of those key informal design elements that will be addressed in a change process. Understanding Design Challenges Although all organizations are unique in terms of purpose and strategic direction, they face some common design challenges: All organizations require some level of differentiated activities: focusing on different tasks and customers and operating in different competitive environments. At the same time, integrated activities will provide organizations with the benefits of efficiency and the ability to move knowledge and resources across and around their various activities and units. All organizations, regardless of their histories, strategies, and competitive environments, rely on some type of control mechanisms to help shape employee behaviors. They need to deploy control mechanisms, however, without losing requisite levels of creativity and innovative response from the employees whose behaviors they are attempting to influence. All organizations must decide how and where to allocate decisionmaking rights and responsibilities. Before embarking on a change implementation effort, organizational leaders need to appreciate these three challenges: the challenge of integration and differentiation, of control and creativity, and of allocating decisionmaking rights. The Challenge of Differentiation and Integration To understand the challenge of differentiation and integration, we can turn to the shifting strategic choices made by management at SAP America.7 SAP America is a subsidiary of Germanybased SAP AG, producer of the integrated software architecture that dominated the enterprise systems market. The American division faced a number of organizational challenges. Its U.S.based strategy supported growth through highly autonomous regional markets. Each region developed its own processes and procedures for selling and supporting SAP software. SAP's products, however, developed a reputation in the marketplace for being expensive, complex, slow to install, and confusing to maintain. New SAP America president Jeremy Coote felt the need to focus on supporting customers. In particular, he was convinced that SAP's professional consultants, whose job it was to help clients plan, install, and support the systems, PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. needed to share knowledge and coordinate their efforts across the regional markets. Customer service, in his view, was not a regional challenge it was national. Here is where past design decisionsespecially the heavy emphasis on regional autonomyprovided a barrier. Regional autonomy offered flexibility in response to local customers. At the same time, it hampered coordinated national consulting support. SAP's consultants from different regions failed to share experiences and learning with each other. Consultants responded to the same customer issues in the Northeast and Southwest, for instance, without communicating with each other or sharing knowledge. It was like reinventing the wheel when a customer problem arose in, say, St. Louis. Even though the same problem had been dealt with effectively in Phoenix, that experience had remained local. The St. Louis folks had to address the problem as if they, and the company, had no experience with it. In order to encourage sharing, Coote focused on his existing group of professional consultants. After collecting performance data from the regions and setting goals for the upcoming year, he worked with his newly hired national manager of professional consulting to redefine responsibilities while defining nationally agreedupon consulting roles. SAP also involved consultants at an early stage of all new product development and implementation plans. SAP America made a strategic choice early in its U.S. operation: to emphasize regional autonomy as a way of spurring rapid growth. The ideaan idea that, the evidence indicates, was perfectly validallowed regional managers to focus their resources and shape their responsiveness to match the particular needs of their regional customer base. To pursue that strategy, SAP created a design high in differentiation , which refers to the degree to which different functions, departments, and units in an organization are allowed to develop their own approaches in response to their particular goals and unique competitive environments. Building a Vocabulary of Change Differentiation the degree to which different functions, departments, and units in an organization are allowed to develop their own approaches in response to their particular goals and unique competitive environments. Theory into Practice Use high differentiation to enable different functions, departments, and units in an organization to develop their own responses to their particular goals and unique competitive environments. Paul Lawrence and Jay Lorsch's classic study, Organization and Environment (1967), defined the dynamics and challenges of differentiation and integration.8 Highly differentiated designs, they found, become reinforced not just in terms of distinctive processes and procedures, but also in terms of cognitive and emotional orientation of employees. Comparing one highly differentiated unit to another, they found that individuals within those units not only worked differently but also thought and behaved differently. Individuals who work in functions such as manufacturing, engineering, marketing, and finance, for instance, think differently about how to approach problems and evaluate potential solutions. These differences should be embraced rather than avoided they are part of what helps an organization think and act in a creative way. Goals A sales function may have the goal of increasing revenues, while a manufacturing function may have the goal of reducing costs. Time A research department will likely have a longterm orientation toward research orientation and development, while a sales function will want new products that it can sell by the end of the quarter. Interpersonal Research scientists might believe that they can maximize creativity and style contribution by focusing all their individual attention on their task, while manufacturing managers might desire to create rich interpersonal relationships among key individuals to maximize quality. Formality An assembly operation is more likely to be governed bytight rules and strict procedures, while a research and development laboratory would find such rules stifling to creativity. Exhibit 42 Dimensions of Differentiation. Because of the particular and differing nature of the tasks, each unit develops its own way of working, of thinking, and of behaving. Exhibit 42 presents the four distinct dimensions of differentiation. In complex organizations, differentiation relates not just to functional distinctions but also to product and/or geographic divisions. We saw that in SAP America, where consultants within each region developed their own patterns of thinking and behaving in response to local customers. Differentiation is necessary, even helpful. It does raise its own challenges, however. After all, the differentiated parts must also work together if the overall organization is to perform at an exceptional level. Here's one example. With Christmas orders poured into a large retail toy business over the Internet, the traditional functions of logistics, warehousing, and distribution strained to the breaking point, causing a near disaster in customer relations. The manager of the ebusiness unit was stunned that the rest of the organization was surprised. \"They acted as if they weren't expecting a Christmas surge,\" complained the ebusiness managers, while \"they\"the managers of the more traditional functionsretorted, \"It would have been helpful if they would have kept us in the loop.\"9 High levels of differentiation had not been matched with requisite integration. Integration refers to the required level of coordination across differentiated functions, units, and divisions. Collaboration among differentiated units must occur, conflicts must be resolved, and unity of effort must be achieved. Within business units, differentiated functions can, and often do, fail to achieve the required level of integration. The same is true for multiple divisions in large corporations where poor coordination across business can hamper efficiencies. Building a Vocabulary of Change Integration the required level of coordination across differentiated functions, units, and divisions. PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Exhibit 43 The Challenge of Differentiation and Integration. Theory into Practice Use integration to enable the organization to achieve efficient operations among different functions, departments, and units. Theory into Practice Levels of differentiation need to be matched by appropriate levels of integration. Differentiation is a relatively easy achievement for organizational design: Most people respond positively to autonomy. But how is integration achieved?A number of possibilities present themselves: Crossfunctional teams to achieve integration across differentiated functions. The challenge becomes even greater for complex, multiunit corporations Global teams to help with crossnational coordination A strong sense of common purpose and direction combined with a unified commitment to core values and business strategy Common, wellunderstood values applied across different business units The particular challenges presented by multinational organizations will be explored later in this chapter. The Challenge of Control and Creativity A second design challenge relates to the apparently paradoxical requirements for control and creativity. Control refers to design elements called upon to establish order, create predictability, and ensure efficiencies of operation. Traditional controls rely on a number of design features: fixed job descriptions with strict individual accountability close, watchful supervision a heavy emphasis on rules, procedures, and hierarchically based differences of status and authority pay incentives tightly linked to performance and information distributed on a strict \"needtoknow\" basis.10 Building a Vocabulary of Change Control design choices called upon to shape employee behavior in alignment with the requirements of outstanding performance. Traditional controls are especially congruent with a business strategy that emphasizes predictability and standardization. Explicit rules and procedures will be useful when shaping consistent behaviors among employees. Fastfood chain McDonald's has achieved great success by proscribing in careful detail virtually every movement and action of its behindthecounter employees. Stephen Robbins notes that United Parcel Service (UPS) drivers also follow strictly delineated procedures: \"It's also no accident that all UPS drivers walk to a customer's door at the brisk pace of 3 feet per second and knock first lest seconds be lost searching for the doorbell.\"11 When the core tasks of an organization are largely routine and repetitive, traditional control designs may be more than adequate for the task. Traditional controls, on the other hand, may hamper an organization's ability to achieve high degrees of flexibility and creativity. But organizations seeking to enhance creativity and flexibility among employees cannot ignore controls. Instead, they can call on organic controls: controls that rely less on specific rules and procedures and more on shared values, clarity of organizational strategy, a common understanding about risks to be avoided, attention to performance outcomes, and expectations of interactive and open dialogue. Building a Vocabulary of Change Organic controls an approach to shaping employee behavior that emphasizes shared values, a common understanding of strategy, loosely defined roles and responsibilities, and overall organizational performance. Theory into Practice Traditional controls can create predictability and standardization but can undermine creativity, flexibility, and collaboration. Sun Hydraulics is a Floridabased company that designs and manufactures screwin hydraulic cartridge valves and manifolds for industrial and mobile markets. This may seem like an industry that would lend itself to traditional controls: lots of rules and procedures. Instead, since its founding in 1970, Sun has leaned heavily on organic controls. \"Our workplace is as distinctive as our products,\" the company proclaims on its web page, \"and provides just as many advantages. We have no job titles, no hierarchy, no formal job descriptions, organizational charts or departments. We have open offices, promoting open communication. Each member of our technologically skilled, crosstrained workforce is trusted to take the initiative and invent new ways to serve you better.\"12 Sun's reliance on organic rather than traditional controls provides it with both \"a motivated work force\" and a company \"always on the lookout for emerging market needs and creating innovative ways to fill them.\"13 Companies that use organic controls expect employee behaviors to be shaped by company strategy and objectives as well as widely shared performance information. And it is not just small, hitech companies. A number of companies in a wide range of industriesGoogle, Southwest Airlines, Nordstrom, United Services Automotive Association, W.L. Gore, and Sun PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Hydraulics among themhave decided that greater reliance on organic controls will increase the capability of employees at all organizational levels to serve customers, improve their satisfaction with their work, and reduce employee turnoverall of which will lead directly to improved customer satisfaction and enhanced competitiveness. Theory into Practice Organic controls, which are intended to increase employee flexibility and creativity, rely on shared values and clarity about overall strategy and performance expectations. The Challenge of Allocating DecisionMaking Rights At what level of the organization are decisions made about how to allocate resources, what businesses to be in, when and how to enter new markets, or what strategies to pursue? How about deciding what discount to give to a favored customer, which supplier to use, or how to create work schedules in order to meet a pressing order? All of these decisions must be made somewhere in the organization. However, because they represent different levels of decision making, they are likely to occur at different levels of the organization. Organizations have multiple points of decision making. The question of who makes what decision is therefore a key design challenge. Decisionmaking rights involve what Nitin Nohria describes as \"the rights to initiate, approve, implement, and control various types of strategic or tactical decisions.\"14 The ideal design, Nohria adds, is one that grants decisionmaking rights to those \"who have the best information relevant to the decision.\"15 Building a Vocabulary of Change Decisionmaking rights the determination of who should make what decisions in organizations. Just where does the \"best information\" reside? That is a judgment call for organizational leaders to make. That call can be based on a combination of company values and strategic intent. When Robert McDermott became CEO of United Services Automotive Association (an insurance company serving current and past U.S. armed forces officers and their families), he decided on a strategy that would convert customers into partners. That strategy would, he believed, take full advantage of the nature of his customer base. In order to implement his planned strategic renewal, McDermott placed considerable discretionary decisionmaking rights in the hands of employees at the lower end of the traditional hierarchy. Telephone receptionists, for instance, had a great deal of liberty concerning how to deal with clients who phoned in their claims. Granting decision making rights to individuals who dealt directly with customers, McDermott reasoned, would create a codependent bond with customers and improve performance. Pushing down operational decision making to employees with the \"best information\" is intended to unleash motivation and creativity. At the same time, McDermott recognized that allocating decision making to frontline employees needed to occur within a controlled environment. The controls that McDermott designed were organic in nature, placing special emphasis on \"the necessary education and training base\" to support that allocation.16 Clarity of purpose and strategy, and of values and performance expectations can support the allocation of decisionmaking rights to lower hierarchical levels. Theory into Practice Allowing frontline employees to make autonomous decisions is intended to unleash motivation and creativity among those organizational members with the \"best information\" to make decisions. The Special Challenge of Multinational Organizations When organizations move from operating in a single country to operating in multiple countries, they face special challenges regarding the allocation of decisionmaking rights. There are benefits, for example, in allowing the general managers of country operations high levels of autonomy. That way, they can respond to the particular and unique challenges and opportunities faced within their home country. These national managers possess greater understanding than do corporate personnel of their own operational, customer, and national issues. As a result, business units will be able to adapt in a speedy manner to shifts in their marketplace. Such autonomy promotes what Jay Lorsch called \"entrepreneurial zeal\" among countrybased general managers.17 Too much autonomy, of course, comes with its own set of problems. For an example, we can look at Airbus, which suffered a very public humiliation with significant delays in the production of its A380 superjumbo jet. The doubledeck, widebodied plane was designed to be the largest passenger jet ever built, boasting 50 percent more interior floor space than its nearest competitor. The goal of Airbus was to break the dominance of Seattlebased Boeing over the jumbo jet marketplace. Given the nature of that ambition, it would also be an intensely complex engineering and building feat. This is where too much autonomy created problems. For the previous three decades, Airbus had divided itself into national \"centers of excellence\" that encouraged depth and focus on specific aspects of the aircraft manufacturing process. The avionics center was in France, cabin design and installation occurred in Germany, wings were manufactured in the United Kingdom, and tail sections were built in Spain. That system allowed for both multinational participation and technological focus. For the multibillion dollar A380 project, however, the focus on technological excellence and national pride interfered with the company's ability to deliver a welldesigned aircraft. \"Rearfuselage sections of the A380 built in Hamburg [Germany],\" the New York Times reported, \"arrived in Toulouse [France] in 2004 without the requisite electric wiring for the planes' inflight entertainment system.\"18 That handoff glitch proved to be just the beginning. The computer modeling software usedin Germany was incompatible with what was in use by the French center ofexcellence. PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. CEO Louis Gallois took a number of steps to enhance integration. He banned the use of national symbols in all Power Point presentations and formed transnational teams to redesign Airbus into an integrated organization. Finally, the A380 made its maiden commercial flight. Even then, the number of planes Airbus was able to deliver to commercial carriers fell far short of promises. In the end, delays cost Airbus an estimated $65 billion in profits. Theory into Practice The challenge for multinational organizations is to allocate a high level of autonomy to national units as a way of achieving marketplace responsiveness while simultaneously making corporatelevel decisions that allow the exploitation of synergies across the divisions. Working across country units allows the corporation to exploit opportunities for synergies the advantages of efficiency and effectiveness conferred by the combined effect of interaction and collaboration among multiple units. For that reason, corporate executives will expect to make some decisions that apply to all divisions. Building a Vocabulary of Change Synergies the advantages of efficiency and effectiveness conferred by the combined effect of interaction and collaboration among multiple units. The challenge for executives of multinational corporations is to seek synergies across country divisions while maintaining an adequate level of divisional autonomy. A number of integrative devicesplanning and budgeting systems, regular interface meetings among divisional and corporate executives, task forces, and measurement and reward systems for divisional managers tied to corporate performancecan be used to exploit synergies.19 Building Commitment Design choices represent attempts by organizational leaders to align employee behavior with renewed strategies and shifting realities. Helene Gayle needed to design high levels of collaboration across national organizations in order to address CARE's ambitious Access Africa project. Gayle, like all organizational leaders, seeks to increase effort, energy, creativity, and persistence among employees. That level of commitment to the achievement of organizational goals is also determined, in large part, by informal design. High employee commitment exists when employees sense a strong overlap between individual goals and the shared goals of the organization. Highly committed employees find a sense of purpose within their organization's mission and actively seek out opportunities to fulfill that mission.20 Building a Vocabulary of Change Employee commitment the internalized desire of employees to expend energy and discretionary effort on behalf of the goals of the organization. Organizations able to achieve high commitment can gain a great many performance advantages: Highly committed employees are more likely to communicate with each other and to act in a collaborative manner. Productivity, quality, and creativity are all positively associated with high commitment. Additionally, from the change perspective, highly committed employees will be motivated to alter their own patterns of behavior based on the requirements of outstanding performance.21 From the perspective of organizational performance, the advantages of achieving high employee commitment are substantial. Theory into Practice High employee commitment can improve organizational performance by enhancing productivity, creativity, collaboration, and the willingness to change. In recent years, a number of companies in widely diverse industriesmanufacturing and assembly (Lincoln Electric, for example), food service (Stake n Shake, for example), retailing (Costco, for example), transportation (Southwest Airlines, for example), and software (SAS, for example)have made design choices intended to increase employee commitment. In each case, the purpose is similar: improved productivity, increased quality, and greater flexibility and adaptation. Organizations seeking to change to a high commitment approach have followed many paths, differing from company to company and industry to industry. However, some generalized approaches that can be adopted in the organizational redesign stage of change implementation include: Clarify organizational goals, strategy, and values Allow employees greater access to managers Create teams Share performance information widely Rely on organic rather than traditional controls Offer employees opportunities for individual development Note that these changes are all informal, leaving the formal organization systems and structures untouched for the time being. These informal design mechanisms intended to build employee commitment are summarized in Exhibit 44 . Perhaps most fundamental to designing for high employee commitment is the manner in which work is performed. Organizational leaders seeking to engage in redesign as a way of building high commitment will benefit from a basic understanding of the options available for job design. Rethinking Job Design Choices Step 2 of change implementation raises the question of how individuals perform the jobs to which they have been assigned. That question is addressed through job design, which refers to organizational expectations for how tasks will be performed in order to meet both individual task requirements and the overall performance requirements of the organization. At first glance, it may seem there are as many answers to that question as there are jobs in an organization. A closer PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Additionally, from the change perspective, highly committed employees will be motivated to alter their own patterns of behavior based on the requirements of outstanding performance.21 From the perspective of organizational performance, the advantages of achieving high employee commitment are substantial. Theory into Practice High employee commitment can improve organizational performance by enhancing productivity, creativity, collaboration, and the willingness to change. In recent years, a number of companies in widely diverse industriesmanufacturing and assembly (Lincoln Electric, for example), food service (Stake n Shake, for example), retailing (Costco, for example), transportation (Southwest Airlines, for example), and software (SAS, for example)have made design choices intended to increase employee commitment. In each case, the purpose is similar: improved productivity, increased quality, and greater flexibility and adaptation. Organizations seeking to change to a high commitment approach have followed many paths, differing from company to company and industry to industry. However, some generalized approaches that can be adopted in the organizational redesign stage of change implementation include: Clarify organizational goals, strategy, and values Allow employees greater access to managers Create teams Share performance information widely Rely on organic rather than traditional controls Offer employees opportunities for individual development Note that these changes are all informal, leaving the formal organization systems and structures untouched for the time being. These informal design mechanisms intended to build employee commitment are summarized in Exhibit 44 . Perhaps most fundamental to designing for high employee commitment is the manner in which work is performed. Organizational leaders seeking to engage in redesign as a way of building high commitment will benefit from a basic understanding of the options available for job design. Rethinking Job Design Choices Step 2 of change implementation raises the question of how individuals perform the jobs to which they have been assigned. That question is addressed through job design, which refers to organizational expectations for how tasks will be performed in order to meet both individual task requirements and the overall performance requirements of the organization. At first glance, it may seem there are as many answers to that question as there are jobs in an organization. A closer Clarity of Employees at all levels and in all units are provided with an organizational goals understanding of the goals and values of the organization as well as its strategic choices. Influencemechanisms A variety of formal (elected board of representatives) and informal (open doors and accessible managers) mechanisms enable wide participation in the dialogue and decision making of the organization. Teamwork Teams designated to perform interdependent tasks. Shared information Employees kept informed about how the organization is performing, including the dissemination of data such as financial performance, costs, profitability, information on competitors, and feedback from customers. Organic controls Control exerted through peer pressure, organizational culture, and expectations of outstanding performance reinforced through performance feedback. Individual Employees provided an opportunity through a combination of developmental mechanismsjob mobility, task variety, facilitative supervision, and opportunities formal trainingto develop competencies consistent with their own needs and those of the organization. Exhibit 44 Informal Design Elements for Building High Commitment. examination, however, reveals a set of underlying principles that shape job design choices and impact the commitment, adaptability, and performance of jobholders. Building a Vocabulary of Change Job design the amount of task identity, variety, significance, autonomy, and feedback built into the performance ofa job. In search of high commitment, managers ask: how might they think about designing jobs in order to enhance their potential to evoke initiative and motivation? Richard Hackman and Greg Oldham offered a job characteristic model to suggest alternative job design options meant to enhance motivation and initiative.22 All jobs, they said, regardless of specific organizational levels or assigned responsibilities, can be understood as having the same core dimensions. By enhancing or enriching work on any or all of those dimensions, jobs will become more motivational. Exhibit 45 presents the five universal job dimensions as well as sample actions managers can take to enrich work and increase employee commitment. Theory into Practice By enriching jobs along any or all of five characteristicsskill variety, task identity, task significance, autonomy, and feedbackorganizations can increase the motivation and commitment of employees performing those tasks. Managers seeking to change job design as a way of enhancing employee commitment have something of a road map. Take skill variety as an example. Instead of having an employee perform a single job over and over again, the PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Job Description Enrichment Action The degree to which job requires a variety of Enlarging task requirements different activities in carrying out the work, to involve multiple and varied involving the use of a number of different skills skills. Dimension Skill variety and talents Task The degree to which the job requires Combining individuals into a identity completion of a \"whole\" and identifiable piece of team with shared work that is, doing job from beginning to end responsibility for the final with a tangible outcome. product. Task The degree to which the performance of the Communicating regularly and significance task has a substantial impact on outcomes that clearly how individual and are deemed to be important to employees, to group effort contributes to the organization, and/or to society as a whole. overall performance of the company. Autonomy Feedback The degree to which the job provides Allowing individuals or groups substantial discretion to the individual in to schedule work and assign scheduling work and determining procedures specific tasks consistent with for carrying it out. achieving performance goal. The degree to which carrying out work activities Communicating frequently required by the job results in the individual concerning progress toward acquiring direct and clear information about the work goals. effectiveness of his or her performance. Exhibit 45 Using Job Enrichment to Increase Commitment. skills required of that worker in the performance of his job could be enlarged. A machine worker, for instance, might be asked to meet with suppliers or customers. By adding some measure of discretion to that employee'sschedulingsay, providing that employee with a monthly production schedule but allowing the individual to make decisions concerning daily and weekly production schedulesmanagers could also enhance autonomy. Providing regular information about the quality of work and the progress being made toward achieving the goal adds greater feedback. Communicating regularly to that employee about how her effort contributes both to the overall product or service being offered by the company and how that product or service helps advance the strategic purpose of the business enhances task identity and significance. The job characteristics model offered a systematic way of redesigning jobs in order to build employee commitment and achieve outstanding performance for the organization. Building Collaboration As we saw in the opening case of this chapter, Dr. Helene Gayle sought to build collaboration at CARE so as to \"make the whole greater than the sum of its parts.\" In his study of collaboration in business organizations, Morten T. Hansen notes how collaboration helped Apple leverage its capabilities to overcome Sony and gain dominance in the MP3 portable music players market.23 Sony had all but invented the portable music market with its Walkman, a devise originally built to meet Sony Chairman Akio Morita's passion for opera. Introduced to the public in 1979, the Walkman allowed the listener to play audiotapes (and later, CDs) using headphones. The devices were portable and easy to use. They held only one tape or CD at a time, of course, and required the owner to purchase the music independently of the listening device, with Sony capturing none of that revenue (except for music on the record labels owned by Sony). In the late 1990s, several companies launched commercial versions of MP3 players with their own hard drives, eliminating the need to purchase separate tapes or CDs. Now, for the first time, music could be loaded directly on the listening devise. The MP3 market remained relatively unsettled until 2001, when Apple launched its revolutionary iPod. Coupled with iTunes, Apple quickly dominated not just the device market but also music sales and distribution, thereby capturing a much larger portion of the total revenues. As revolutionary as it might have seemed, the iPod itself contained very little in the way of innovative technology. What made the iPod remarkable was not its components. Rather, the iPod represented a \"design triumph.\"24 And that triumph came about because of collaboration. What was especially vital was that Apple promoted a seamless interaction between its hardware and software units, as well as between its iTunes and industrial design units. After all, one of the factors that made the iPod so attractive was the ease of interacting with iTunes as a way of purchasing and downloading music from the Internet onto the player. Collaboration involves willing cooperation among individuals and groups with a common goal. Helene Gayle's notion that CARE needed collaboration across national units to make the whole greater than the sum of its parts lies behind an organization's desire to promote collaboration. It was collaboration among hardware and software units in particular that helped Apple triumph in the portable music business. But why couldn't Sony respond effectively to Apple? It was, says Hansen, the inability of the company to collaborate effectively. Building a Vocabulary of Change Collaboration a process of willing cooperation among individuals and groups with a common goal. Although still committed to its Walkman portable music player, Sony mounted a response to the iPod in 2003. Under the guidance of Howard Stringer and Phillip Wiser, head of Sony's U.S. operations and chief technology officer for Sony U.S., respectively, Sony attempted to take advantage of its considerable assets.25 In terms of overall revenue, Sony was 10 times bigger than Apple. All the pieces seemed to be in place. The Walkman division could develop its own hard drive machine. In addition, Sony's various business unitsVAIO personal computers, Sony Music, and Sony Electronicscould pull together to produce an iPod rival \"in nine months\" promised Wiser. Even the name of the product, the Connect, suggested Stringer and Wiser's faith that collaboration across Sony's business units could help the company respond to Apple. PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. In nine months, the Connect was launched, but it was a commercial flop. Stringer blamed the failure on the inability of the various Sony units to collaborate. \"It's impossible to communicate with everyone,\" Stringer said, \"when you have so many silos.\" Listen to this description provided by Morten Hansen: Each division had its own ideas about what to do. The PC and the Walkman groups introduced their own competing music players, and three other groups Sony Music in Japan, Sony Music in the United States, and Sony Electronics in the United Stateshad their own music portals or download services. Stringer, who had no authority over Japanese operations, complained, to no avail, that the Connect software being developed in Japan was hard to use. Whereas the U.S. team wanted a hard disk for the music player, the Japanese team went with the arcane MiniDisc. And whereas the U.S. group pushed for using the MP3 formatthe de facto U.S. standardthe Japanese PC division chose a proprietary standard called ATRAC.26 In 2007, Sony announced its intention to withdraw the Connect from the market. And in 2010, nine years after the introduction of the iPod, Sony discontinued Japanese manufacture of its once iconic Walkman. There are, as the iPod story suggests, compelling reasons for a business to build collaboration and integration across divisions. To promote collaboration, companies frequently turn to teams. Teams, which are interdependent groups with shared responsibility for an outcome, come in many forms: product development teams, project management teams, customer service teams, and process innovation teams. A summary of the main team prototypes is presented in Exhibit 46 . Building a Vocabulary of Change Team an interdependent group of individuals with shared responsibility for an outcome. Theory into Practice Collaboration will require effective teamwork across units and functions of an organization. Work team By sharing responsibilities, developing multiple skills, and performing varied tasks, motivation and quality are enhanced. Product Through concurrent rather than sequential development activities, speed to development market and innovation are enhanced while costs associated with rework are team diminished. Problem By bringing together individuals from multiple functions, problem associated with solving team handoffs and crossfunctional interactions can be creatively addressed. Project The multiple functions and tasks of the value chain are linkedin order to enhance management quality, coordination, and customerresponsiveness. team Exhibit 46 Team Types. CrossFunctional Teams Traditional organizations are often made up of a collection of freestanding functional silos. Activities such as market research, design, engineering, manufacturing, quality checking, distribution, and sales all take place within discrete domains. Although those functional units provide required differentiation, organizations also need to achieve integration across functions in order to be effective. Crossfunctional teams, which are teams that span multiple organizational functions, provide a way of achieving that integration. Crossfunctional teams address the difficulty of highly differentiated functions have in pulling together into seamless, wellintegrated processes. By creating crossfunctional teams, organizations seek to eliminate handoff problems that produce waste, high cost, quality problems, and sluggish response time. The teams are intended to create a seamless, interconnected web of activities.27 Building a Vocabulary of Change Crossfunctional teams teams made up of representatives from multiple organization functions typically intended to achieve required coordination along a chain of interrelated activities and processes. Theory into Practice Use crossfunctional teams to help create seamless, wellintegrated processes. Creating Teamwork The first requirement of effective teamwork is that team members transcend the individual or functional agendas each member brings to the effort and create a shared purpose. Team members agree both on what their goal is and why that goal is important. Creating shared purpose can be a slow and difficult process. Individuals who have spent much of their professional lives within a function or unit adopt, often unconsciously, a particular lens through which they view all organizational problems. When they become members of a crossfunctional team, their agendaat least initially is to optimize the interests of their own function or unit, often at the cost of others. Effective teamwork starts with the need to create a central purpose focused on companywide goals and equally accepted by all members. Theory into Practice Don't just place employees on teams and expect the performance benefits of teamwork organizations need to create the context required for teamwork. Effective teamwork is unlikely to flow from a group of individuals who do not feel equally and jointly accountable for an agreedupon outcome. Therefore, effective teams develop shared responsibility. On effective teams, members evolve beyond seeing themselves as individuals with narrowly defined and measured outcomes. Instead, they take full responsibility for and joint ownership over every aspect, every contribution, every input, and every outcome of the team's task. PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Theory into Practice When members of a team feel equally responsible for the outcome of their efforts, teamwork is enhanced. Theory into Practice At least in the early stages of change, organizations need to make sure teams are buffered from traditional hierarchical power and are allowed to work across functions. Theory into Practice In order to encourage teamwork, organizations can take care to ensure that team members have the appropriate skills to perform the task effectively. Effective teamwork also requires that team members possess a set of behavioral competencies, including critical thinking, brainstorming, problem solving, nondefensive communications, process facilitation, and conflict management. Many employees lack those skills. They have, after all, spent the better part of their lives learning how to work, think, and act as individuals. If an organization intends on enabling teams to operate effectively, then they have to provide individuals with the required competencies of teamwork. Not surprisingly, as companies evolve toward reliance on teamwork, they increasingly require training for these required skills. Much of that training focuses on providing employees with multiple skills to enable them to understand all parts of the organization so they can operate more effectively in a crossfunctional environment.28 Training in specific teamwork skills also becomes vital. One of the most striking findings of a recent international study of highperforming companies (rated by profits, productivity, and quality of output) was that 100 percent of the high performers had trained their employees in problemsolving techniques compared to less than 20 percent of the low performers.29 Ultimately, no matter how successful an organization might be in creating teams, the success of teamwork depends on a culture and a context within the larger organization that supports coordinated efforts: recruiting and developing individuals with teamwork competencies holding team members jointly accountable for joint efforts removing barriers to effective crossfunctional coordination. All of these actions help create a context in which teamsand, more importantly, teamworkare simply part of the way of operating. Most important of all, teamwork in the operations of the organization relies on teamwork at the top of the organization. Theory into Practice Teams succeed or fail in organizations based not just on the efforts of team members but on the overall design and context of the organization, which must support and reinforce joint efforts. Conclusion Organizational design refers to the ways an organization defines roles that employees enact and relationships among employees both within their own functions, units, and divisions as well as across those boundaries. No matter how well designed an organization may be at any one time, a dynamic competitive environment is likely to demand that the design be reconsidered. Poor coordination, high levels of dysfunctional conflict, slow decision making, and low responsiveness to shifts in the external environment are all symptomatic of an organization whose design has outlived its functionality. When a diagnostic intervention reveals that these types of issues hinder the implementation of an organization's strategy or the achievement of outstanding performance, leaders will need to consider addressing the redesign challenge as the next sequential step in the change process. That does not mean, however, that all design issues need to be addressed at an early stage of change implementation. Organizational design has two interrelated but separate components. Formal aspects of design relate mainly to reporting relationships as depicted on the \"official\" organization chart and systems such as pay and performance measurement. Informal elements of design relate to how an organization meets the challenges of differentiation and integration, of controls and creativity, and of decisionmaking allocation. Informal design also encompasses how an organization seeks to build employee commitment and coordination. Both elements of designformal and informalneed to be addressed in a change implementation process. It is useful, however, to separate the two sequentially: addressing informal design challenges first and formal design challenges later. Effective change implementation requires experimentation and learning. No leader knows precisely what solutions will be needed. Even if she did, the impositions of solutions from above would engender resistance. When design changes are informal, employees at multiple levels and from numerous units and divisions can try things out. Ideas on how to approach the challenges posed of differentiation and integration, the tension between control and creativity, and the allocation of decisionmaking rights can be tested: maintained if they succeed, discarded otherwise. As experimentation and learning unfold, employees can seek to \"refreeze\" (Lewin's termsee Chapter 2 ) desired behaviors by calling on more formal design mechanisms. The next step in the change implementation process involves addressing an organization's human resource policies and practices, both as a way of helping to develop required new behaviors and of reinforcing those behaviors among the organization's employees. Discussion Questions 1. Why do organizations find it so difficult to address the requirements of differentiation and integration simultaneously? 2. What are the advantages and disadvantages of allowing for high levels of autonomy within divisions of multidivisional organizations? What are some effective means of coordinating efforts among divisions? 3. Why is it so difficult to achieve high levels of employee commitment within today's business organizations? List the factors that are working against commitment and the potential benefits to be achieved through high commitment. 4. Some people have argued that there is far too much emphasis on \"teamwork\" in today's business world and that the danger is that individual creativity and initiative is being sacrificed. Do you agree or disagree? Explain. 5. The chapter argues that change efforts should address informal design before addressing formal design. Do you agree with that theory? Explain your thinking. PRINTED BY: smj@staceymjohnson.com. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Chapter 4 Organizational Redesign Diagnosis exposes the current realities of organizational life, with particular attention to the fit between patterns of employee behavior and the strategic requirements of the firm, to discussion and analysis. Combined with mutual engagement, diagnosis provides both the motivation for and target of change. Now, employees can engage in a process of organizational redesign to help shape required new behaviors. Redesign provides a sense of direction for the change effort. This chapter will analyze the complexities of design choices made to support change implementation. In particular, this chapter will: Define organizational design and differentiate between formal and informal design elements Explore the main challenges posed by organizational redesign Appreciate the special design challenges faced by multinational companies Analyze the requirements for building collaboration in an organization Discuss the dynamics of changing the design of an organization in order to impact patterns of behavior First, we will look at the design challenges faced by the CEO of one of the world's oldest and largest humanitarian organizations. As you read this introductory case, ask yourself: Why was the original, decentralized design of CARE less effective in addressing 21st century issues than it had been in CARE's earlier years? What do you think the challenge will be in promoting collaboration across national units of CARE? What steps might Dr. Helene Gayle take to promote the improvements she hopes for? Dr. Gayle Brings Collaboration to CARE CARE, one of the world's leading nongovernmental organizations, was created to provide aid to devastated European countries in the immediate aftermath of World War II. When Dr. Helene Gayle became CEO in 2006after working at both the Center for Disease Control and the Bill and Melinda Gates Foundationthe mission had changed considerably. Under the broadly stated mandate of \"Defending Dignity, Fi