Module 3 – Organization Design

Do You Have a Well-Designed Organization?

Getting the Fit Right

1. The Market Advantage Test.Does your design direct sufficient management attention to your sources of competitive advantage in each market?

2. The Parenting Advantage Test.Does your design help the corporate parent add value to the organization?

3. The People Test.Does your design reflect the strengths, weaknesses, and motivations of your people?

4. The Feasibility Test.Have you taken account of all the constraints that may impede the implementation of your design?

Refining the Design

5. The Specialist Cultures Test.Does your design protect units that need distinct cultures?

6. The Difficult-Links Test.Does your design provide coordination solutions for the unit-to-unit links that are likely to be problematic?

7. The Redundant-Hierarchy Test.Does your design have too many parent levels and units?

8. The Accountability Test.Does your design support effective controls?

9. The Flexibility Test.Does your design facilitate the development of new strategies and provide the flexibility required to adapt to change?


How are the boundaries of an organization determined?

What are the critical elemenets of organization design?

What are some of the generic organizational designs?


Elements of Organization Design



Core parts of Organizational Structure




Designing Organizations for effciency vs flexibility



How do we create differentiation in Organizations?

– Defining work activities and specialization
– Decision-making authority and chain of command
– Allocation of resources and departmental groupings


Functional Design



Divisional Design

Structures that are uni-focused in that the divisions are organized according to product groups, services, geography, programs, or markets.
– Product Structure (Self contained product groups)
– Geographic Structure
– Market Structure




Hybrid Structures

Structures that are multi-focused in that both product and function, or product and geography, are emphasized at the same time.
1. Product division structure
2. Multidivisional structure
3. Product team structure




Generic Hybrid Structures

Product Division Advantages:
– More adaptive at division level without sacrificing efficiency in centralized functions
– Better alignment between functional and divisional goals
Product Division Disadvantages:
– Higher administrative overhead
– Misalignment between vertical & horizontal coordination

Multi-Divisional Advantages:
– More sophisticated control and integration systems
– Better capital resource allocation decisions
– Corporate level can focus on long-term strategies
Multi-Divisional Disadvantages:
– Measurement of divisional performance
– New layers in management
– Too powerful corporate

Product Team Advantages:
– Higher decentralization
– Higher integration at team level
– Responsive to market demands and shorter development time
Product Team Disadvantages:
– Limited coordination across teams
– Loss of corporate control




Dynamic Network Design: when you outsource most of the work
– lean and mean
– very flexible
– high specialization
– very low overhead
– little hands-on control
– unclear organizational boundaries
– defection is easy
– weakend employee loyalty


Why are Business Groups successful in emerging economies?
– Capital markets are inefficient in these countries. Thus, internal capital allocations could be more effective.
– They are mostly family businesses
– Growth in the emerging markets depends on diversification especially unrelated diversification in order to reduce risk

In a Conglomerates (Business Groups)
– Affiliates of a business group are legally independent firms
– There is a high degree of involvement between ownership and management that facilitates decision making, resource allocation, and incentive design for managers