Magazine article New Zealand Management

Structure That's Fit for the Purpose

Magazine article New Zealand Management

Structure That's Fit for the Purpose

Article excerpt

A principal pillar of strategy execution is having a clear, effective organisational structure. Structures can act as great enablers or they can obstruct and frustrate work. So what is the 'right' organisational design?

A historical context on this topic is provided in an article 'What is the Right Organisation Design?' (Anand and Daft, Organisational Dynamics, Vol 36, No4 pp 329-344, 2007). The authors argue that until the late 1970s, organisations were self-contained with clear boundaries separating them from suppliers, customers and competitors. Structural design reflected the need to control the distribution of work through a vertical chain of command.

By the 1980s, vertical structures were reaching their limits. At the same time, technological change was revolutionising access to information. Design philosophies began to highlight the need to reshape internal organisational boundaries. This took the form of the 'horizontal organisation', reflecting workflow processes that linked business capabilities to customers and suppliers.

This form of structure moved away from a traditional functional mindset. Advantages included speed of communication among diverse team members, encouragement of problem-solving ability, broadening of the skill base, and empowered decision making. While not covering all circumstances, it could create customer value through enhanced flexibility and responsiveness.

Organisational boundaries really opened up in the mid-1990s with rapid improvements in communication technology and the surge of globalisation. At the forefront of this was the outsourcing phenomenon both locally and offshore, often typified by the shift in local manufacturing to cheaper sources of production in Asia. This led to the 'hollow organisation' model, where value creation centred on intellectual capital functions such as design and marketing. Few industries have been untouched by this trend.

On the downside, hollow organisations may find they have a reduced capacity to innovate and run the risk of being supplanted by smart suppliers who create markets for themselves.

The 'modular organisation' also came to the fore in the 1990s, with its distinctiveness based on products being broken down into modular chunks that could either be insourced or outsourced. For instance, Nissan outsources car parts such as the frame and seats, but remains responsible for overall assembly. This modular development has given it greater efficiencies and more rapid response. Aircraft manufacturers have gained similar benefits.

Increasingly, organisations are embedded in complex networks or relationships, competing strongly in some markets while collaborating in others. …

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