Organizational Design, Structure and Strategy - Airstar - Case Study Example

Name: Course: Institution: Tutor: Case Study Analysis Report Abstract Well articulated organizational structures and resulting capabilities are a major source of sustainable competitive advantages for modern organizations. The traditional sources of competitive advantages such as production processes, technology and market have gradually become obsolete. This case study report describes what is meant by organizational design, structure and strategy and discusses why they are important for the long term survival and success of organizations. The case study also describes ways in which businesses can align their organizational structures and designs with business strategies in order to cope with change and gain compelling competitive advantages. The paper also recommends how organizations can create reconfigurable working environments to match the designs that are critical in today’s world of business. Table of Contents Name: 1 Course: 1 Institution: 1 Tutor: 1 Abstract 2 Table of Contents 3 Introduction 4 Background 6 Scope 6 Features of Effective Organizational Design, Structure and Strategy and Their Importance to the Success and Growth of Organizations 6 Recommendation 10 Conclusion 11 References 12 Introduction Organizational design and structure serve as the foundation upon which business operations are built including important factor such formal managerial hierarchies and grouping of employees within different functional areas. O'Reilly and Tushman (2004) have defined organizational structure as an organization’s basic operational framework as characterised by its degree of formalization, complexity and centralization (decentralization) of decision making authority. O'Reilly and Tushman (2004) have also defined organizational design as the continuous changing or development of an organization’s structure. Well executed organizational designs can allow organization to develop strong corporate cultures and grow in response to changes in marketplace. Organizational strategy involves contingent plans on how to move an organization forward. An organization’s strategic objectives may involve diversification, growth, increased attention to customer service, reduction of labor costs or increased turnaround times for product delivery (Rivkin & Siggelkow, 2001). Securing an appropriate path for achieving these goals and objectives should be at the core of organizational strategy. For example, if an organization needs to reduce labor costs, it may consider restructuring its staff to avoid reduplication of duties. Similarly, if the goal is to offer the best customer service experience, the organization may decide to beef up call centre service by opening more positions. All these constitute organizational change and have a direct influence on organizational strategy. According to Sutcliffe, Sitkin and Browning (2000) effective organizational structure and design are merely a detailed articulation and support for organizational strategy. A clear alignment of organizational design and strategy translates the goals and objectives of the business into tangible, executable plans. Organizational structure and design fulfill a number of important functions. First, organizational structure allows harmonious division of work into specific job requirements and departments. Secondly, it facilitates assignment of responsibilities and tasks associated with specific jobs. It also clusters tasks into units and establishes relationships between workgroups and among individuals. Finally, it enhances efficient allocation and deployment of resources. Pettigrew, Woodman and Cameron (2001) have highlighted three important contingent factors that influence the effectiveness of organizational design and structure. These are: size; technology and strategy. The kind of strategy that an organization adopts greatly influences its ability to respond to changes in the external and internal business environments. Size affects organizational structure and design because as organizations develop, they tend to be more bureaucratic and formalized. On the other hand, technology influences organizational design and structure by influencing how the production process fits with the organizational structure. Technology also influences an organization’s ability to respond to changing market demand and customer preference for a particular product or service. Background This report is based on organizational design problems experienced by Airstar. A quick overview of the company reveals poorly articulated organizational structure and design which do not support the goals, policies and strategies for the company. Although the company was at one time a market leader, its market position has been reduced significantly due to the inability to adapt and adjust to changes in internal and external market environments. Moreover, the roles of various functional departments have not been clearly defined and as a result there is redundancy and duplication of duties by employees. There are also misunderstandings and confusion about who should be responsible for particular aspects of the company’s business operations. Scope This report covers two important areas of organizational design: structure and strategy. Although the report is based on a case study, it borrows heavily from organizational management and leadership theories to underpin an analytic understanding of the problem facing the company in the case study. The report has among other things discussed the features and ideals of effective organizational design and structure. The report has also discussed what can be done to align organizational design and structure to a company’s business strategy. Features of Effective Organizational Design, Structure and Strategy and Their Importance to the Success and Growth of Organizations The effectiveness of organizational structures influences the relationship between people in organizations and how they function. Poorly designed organizational structures can be counterproductive to the realization of organizational goals in that they often result in organizational ambiguity and lack of accountability. According to Smith and Tushman (2005) poor organizational strategies and structures result in lack of coordination among functional departments, failure to share information and ideas and slow decision making, which in turn bring unnecessary conflicts, stress and complexity to the duties of managers. Braha and Bar-Yam (2007) have asserted that organizational designs determine the flow and nature of work as well as how employees interact with each other and with the management. When an organization’s design and structure are well coordinated with organizational mission and strategy, they enhance workflow efficiency, strategic partnerships and synergy and improved individual performance. Organizational structure also plays a crucial role in enhancing an organization’s ability to deliver accurate and timely results because it determines the way in which work is divided and the nature of the required supervision. In today’s world of business that is characterised by cut-throat competition, well designed organizational structures and strategies accelerate speed of producing and delivering goods to the market and this helps in reducing operating costs (Rivkin & Siggelkow, 2001). It is apparent that the organizational problems and challenges that Airstar faces spring from the inability to articulate strategy and align processes and people to achieve core business objectives. Essentially, an overarching organizational structure and strategy is a vehicle that enables organizational growth, success and effectiveness. Organizations with effective structures are always capable of aligning organizational vision to long term business strategies. They are also able to measure their own competencies and this enables sound decision making and prompt market responsiveness. Smith and Tushman (2005) have asserted that having a clear organizational strategy and a structure that defines roles and responsibilities and establishes performance metrics is not enough. Admittedly, even the best organizational strategies may fail if appropriate structures are not put in place to support the execution of the strategies as is the case with Airstar. In Airstar, core business processes are inefficiently executed and do not flow smoothly through the organizational structures. This is indicative of misalignment between organizational design and structure in the company. Moreover, the poorly conceived organizational structure in Airstar is encumbering the company’s ability to adapt and respond appropriately to sudden changes in the market. This is the reason why the company faces strong competition from its rivals as evidence by deterioration of orders. Multiplication of roles in the company has also made people (both managers and junior employees) to play out positions, which is a cause of poor employee morale and redundancies (Sutcliffe, Sitkin & Browning, 2000). According to Pettigrew, Woodman and Cameron (2001), it is imperative that organizations align their structures with business strategies in order to facilitate cost-efficient execution of business objectives. Well designed organizational structures not only add value to the business through increased operational efficiency and productivity but also establish clear accountabilities, interdependencies and processes which enable strategies to work clearly. Effective organizational design reflects clear leadership structures by setting forth lines of authority and reporting relationships extending from frontlines to the executive level. It also sets a clear map of managerial responsibility and accountability which keep organizations running smoothly. Absence of clear lines of authority makes employees in different functional areas to lose direction and be subjected to unnecessary high levels of supervision (Rivkin & Siggelkow, 2001). In his article, O'Reilly and Tushman (2004) have articulated on the importance of aligning organizational structures with business strategies by noting that the kind of strategic decisions that organizations make have a direct impact on the organizations’ corporate cultures. Managerial hierarchies and grouping of employees into various functional areas influence the ways in which employees relate with each other. Organizational design also influences the authority of frontline managers to solve complex problems without necessarily involving executive managers. Research studies (Drexler, Sibbet & Forrester, 2011) have also shown that organizational design choices made in early stages of a business can hinder or help a company’s growth plans. For instance, organizations designs build to easily accommodate new employees and managers at different levels of management can run successfully without need for structural changes. Effective organizational designs and structures should develop unique competitive advantages. They should allow managers to monitor changes in market and industry, look for opportunities to adapt to these changes and redefine competitive advantages. For this reason, a company like Airstar which has complicated bureaucracies finds it difficult to respond to changing market conditions. Reducing complexities in organizational structures makes it easier for organizations to shift employees around, redesign job requirements and rework managerial hierarchies, all of which enhance productivity and work efficiency in response to market pressures (Nickerson & Zenger, 2002). Recommendation The core of the problem in Airstar lies in the company’s organizational structure and design. As such, the main challenge in solving the company’s problem is to create an effective and streamlined organizational design that is aligned with the strategy and desired objectives of the organization. Essentially, the company is unable to adjust and adapt its internal structure to the changing business demands around it because its processes, structure and systems act as barriers to efficient decision making. The company can take the following steps to help improve organizational design, structure and strategy: i. To enhance its organizational strategy, it is imperative that Airstar develops well coordinated, strategic control systems. These are formal feedback systems which allow the executive management to monitor the progress of business strategies (Braha & Bar-Yam, 2007). Such a system will help executive managers monitor business activities across functional departments and allow frontline mangers the opportunity to determine whether or not the company’s organizational strategies are effective and efficient. Additionally, organizational controls will enable the company monitor and keep its organizational strategies on track and anticipate changes in market conditions. This way, the company will be able to respond to emerging opportunities swiftly. Strategic control systems should be capable of providing accurate information in order to facilitate timely and decision making. ii. Airstar also needs to operate a simple business structure consistent with the company’s strategic mission and vision. Currently, the complexity of the company’s business structure, lack of clear demarcation of authorities and poor description of duties are the reasons for duplication of duties and the apparent job redundancies. It is imperative that the management establishes an independent Human Resource department that will be responsible for allocating tasks to employees. In addition, the HR department should have sole responsibility to divide business tasks into logical and understandable organizational structure to avoid poor coordination between different departments and workgroups. The HR department should also develop strategies for determining the most suitable personnel to occupy positions in the organizational structure (Nickerson & Zenger, 2002). iii. It is also imperative for the company to develop implementation and transition plans. Transition refers to the period between design and start-up of new organizational strategies and this may vary between organizations depending on size, complexity and design of organizations. In transition planning, the company should determine all activities necessary to implement new designs and organizations to enhance the company’s ability to gain competitive advantages (Drexler, Sibbet & Forrester, 2011). iv. It is also important for Airstar’s management to adjust and redefine coordination between various subsystems. Organization-wide coordination of sub-systems will include redefining and adjusting information and communication sharing, authorization and decision making as well as measurement and feedback systems (Braha & Bar-Yam, 2007). Conclusion Effective organizational design and structure can play a critical role in an organization’s growth and development. When aligned well with organizational strategy, organizational structure and design give an expression of how the various functions and tasks of an organization are performed. At the basic level, effective organizational design and structures feature well defined authority relationships and channels of communication. As such, organizational structure and design can not only improve productivity by minimizing duplication of personnel but also make employees comfortable and simplifies tasks. In the company considered in the current case study (Airstar) decision and communication are slow because of poor organization structure which does not allow decentralization of decision making authority. References Braha, D. and Y. Bar-Yam. (2007) The Statistical Mechanics of Complex Product Development: Empirical and Analytical Results. Management Science, 53, 7: 1127–1145. Drexler, A., Sibbet, D. and Forrester, R., (2011) Team Performance Model Abstract, San Francisco: The Grove Consultants International. Nickerson, J. A., & Zenger, T. R. (2002). Being efficiently fickle: A dynamic theory of organizational choice. Organization Science, 13(5), 547-566. O'Reilly, C. A., & Tushman, M. L. (2004). The Ambidextrous Organization. Harvard Business Review, 82(4), 74-81. Pettigrew, A. M., Woodman, R. W., & Cameron, K. S. (2001). Studying organizational change and development: Challenges for future research. Academy of Management Journal, 44(4), 697-713. Rivkin, J., & Siggelkow, N. (2001). Choice interaction and organizational structure: Harvard Business School, Working Paper. Smith, W. K., & Tushman, M. L. (2005). Managing Strategic Contradictions: A Top Management Model for Managing Innovation Streams. Organization Science,16(5), 522- 536. Sutcliffe, K., Sitkin, S., & Browning, L. (2000). Tailoring Process Management to Situational Requirements. In R. Cole & W. R. Scott (Eds.), The Quality Movement and Organization Theory (pp. 315-330). London: SAGE Publications. Read More