by: Idris Mootee

How is an organization born? Is it usually by design? What's inside that black box of an organization? Do we think about how organizations should be organized in the first place .... or we just take any org chart and add titles? How often do people try to invent a new organizational form to fit their needs? Not very common. No wonder why companies can break out of their performance trap.

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The N-form organization design helped solve many interaction problems through institutionalized teamwork and inclusion of lower level employees. But the form still has some weaknesses such as lack of cohesive vision. Any redesign of an organization can profoundly affect its performance. What innovations in corporate design are likely to succeed in the crazy business environment of the next decade? Organizational design needs to look inside the "black box" of the corporation by examining the task of motivating and coordinating human activity and harnessing creativity.

The whole idea of organization design is to align the people and the organization hierarchy /functions to match the form of the organization as closely as possible to the purpose(s) the organization seeks to achieve. Purpose before strategy, through the design process, organizations act to improve the productivity and the long-term performance of the businesses.

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Today’s organization designs have been heavily influenced by the "command and control" structure of the military (wonder why there is a problem). Most organizations today are designed as a bureaucracy (machine) in which authority and responsibility are arranged in a hierarchical fashion. Within the hierarchy, rules and policies are impersonally applied to exert control over people’s behaviors. Activities are organized within business or functional units in which people perform specialized functions such as marketing, sales, or operations. People who perform similar tasks are put together. This has been working for a while and is causing problem. The first problem is silos get bigger as divisions get more efficient. Multi-disciplinary development is hard to achieve. Some companies have set up business units in order to boost initiative, but have then struggled to bring about the interaction between units on which knowledge generation and value creation depend.

Organization design starts with the creation of a strategy — a set of decision logic on how to do business by which managers follow. The strategy is derived from a usually unarticulated purpose (sometimes expressed as vision or mission). Strategy unifies the intent of the organization and focuses members toward actions designed to accomplish desired outcomes. The strategy encourages actions that support the purpose and discourages those that do not. Having a business strategy does not mean designing the organization. You have to open that "black box". The business model does not specify how specifically to connect people with each other in meaningful and purposeful ways and encouraging sharing of ideas and collective imagination. What we are talking here is every organization design is in fact a social network. And often today, these social networks are virtual.

Organizations are just an invention of man. They are contrived social systems through which groups seek to exert influence or achieve a stated purpose. Companies have moral obligations to the environment, community, societies, customers and employees. A "strategy" helps a company to maintain focus and competitive and economic viability while a "purpose" helps a company to keep its moral compass and aligns its stakeholders.

The emerging of "Corporate Social Responsibility" helps to achieve that balance. How those interests are balanced is not an easy task. The current system is too heavily in favor of the shareholders. Most importantly, I believe we need to increase the importance of the purpose or at the very least provide some minimum level of corporate social responsibility. Shareholder activism should help but the alignment is not there today.

How many companies understand the importance of blending business concerns -- “the need to make money to reward those who’ve trusted us with investment” -- with a socially responsible mission. A good business fulfills its purpose “by providing goods/services/experiences at a price people can “afford” in a manner which makes these activities “sustainable”.

The question is what sort of organizations would result from the systematic reinforcement of “purposes’? Economists speak of “the modern firm” as a federated body rather than a single hierarchical enterprise—one where the decisions of constituent units often precede or powerfully influence those of top management and shareholders.

Original Post:  http://mootee.typepad.com/innovation_playground/2008/05/look-inside-the-black-box-of-todays-organization-and-youll-whats-wrong.html

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