Crux of OS&D course and learning from case studies

We got 4 case studies to understand the concept of organization structure and design, why we need it, what are the different models, and what works best for what situation. I’m presenting here the learning/takeaways from the 4 case studies we had in our class:

1.      Robin Hood Case (Strategy Formulation)

• How to formulate a strategy
• What is a sustainable competitive advantage, positional or competency based
• Why we need a strategic competitive advantage (Organizations need to create value superior to their competitors)
• Short term and long term strategy for companies
• Process model of strategy formulation: Know the purpose, assume, analyze, and formulate strategy, followed by organization structure, and keep on doing it via measuring organization efficiency/output/performance, innovating and building competencies to remain ahead of others.

Key Learning: Organizational structure follows strategy. It’s defined to maintain competitive advantage, and strategy never follows the org design.

2.      Cunningham Motors (Make Vs. Buy)

• Two ways to build organizations: Within organizations vs. markets
• Why are companies’ movies towards outsourcing? It’s not about core/non-core, or cost reduction only, it’s also about value maximization. Four main reasons, cost reduction, accessing superior competencies and privileged assets, superior resource leverage, and risk diversification.
• When can extreme outsourcing succeed: When we have modularity and standardization of outputs, I’m good in drawing and enforcing contracts, I can limit others opportunistic behavior, I can minimize uncertain conditions.
• Markets do have hidden costs such as transaction costs and strategic risks. So, it may look like that basic org costs are more for producing something, but if we see total picture, org costs may score high on cost reduction.
• Organizations get formed when markets fail
• Organizations do have principle-agent issue. It can be solved in two ways, Live with goal divergence, but use direct supervision, rules and regulations, financial incentives and penalties, etc. or Increase Goal convergence, by socializing, aligning, inspiring, motivating and mentoring.
• Outsourcing sometimes is mindset problem/core rigidities. This mindset is changing, as we are seeing outsourcing of strategic consulting, R&D, etc. by firms now, than never before.

Key Learning: Don’t be rigid when it comes to outsourcing. Now days with complicated technology, full vertical integration is almost impossible. If it fits the bill, and work is not strategic, do go for it. You can outsource even for strategic consulting. Make sure you have control over the markets from where you are buying.

3.      Old car manufacturers Vs. Henry Ford Vs. Alfred Sloan‘s way of managing things  (Craft Vs. Mass Vs. Variety)

• Old Car manufacturers: “Craft” way, Handmade, highly customized, and highly differentiated for every customer, high on innovation, low on scale. Very high on cost.
• Henry Ford: Vertical integration, assembly line, standardization, specialization, low variety, high efficiency, very low cost, mass manufacturing, economies of scale -> Totally opposite to the “craft” way of doing things.
• Alfred Sloan: Multi-divisional structure, breaking the variety-scale trade off, more variety means increase in costs but keeping other things same as Henry’s model.

Key Learning: Choose the way that fits your strategy. Never try to be on both sides, but we can have some variety without sacrificing advantages of standardization, cost reduction and economies of scale.

4.      Acme and Omega (Organizational structured, Input based and Output based)

• Org structures: Functional, Divisional, Hybrid and Matrix based
• Functional: Input based, Advantages: Specialized within functions, good repo between managers and subordinates, efficient, feedback is taken positively, Disadvantages: lack the vision of overall goal, functional silos, and bureaucracy and communication issues within divisions. -> Good for medium/big enterprise working with defined output and less uncertainty. Mass production, like Acme. -> Cost Leader
• Divisional:  Advantages: Output based, business units based on geographies, products, customers, etc., gets the overall vision of product, Disadvantages: Product silos, Redundancy, non-communicating product divisions, lower in depth specialization. -> Good for small/medium enterprise working with lots of uncertainty, complicated requirements, and complex solutions: R&D efforts, like Omega -> can charge premium for product specialization and customization.
• Hybrid structure: This is combination of functional and divisional but they don’t interfere with each other, for ex. where divisions can be Finance, HR, etc. nonfunctional roles, and then we can have purchase, sales, development, production come under different business units.
• Matrix structure: One employee, multiple bosses, both functions existing and simultaneously too, Product and functional managers have equal responsibilities and authorities. Advantages: Caters to highly changing environment, innovation driven by in depth specialization, not as redundant as divisional model, Disadvantages: Confusing, Can create politics if not implemented properly, Pseudo bosses, need high degree of coordination
• Matrix structure looks very confusing, but is being implemented by organizations successfully. Here are the roles people play in this:

i.            Matrix Leader: Power balancing, dual evaluation, bring out conflicts in open, timely resolution, open debates, and provide directions, stretch and challenge.

ii.            Matrix Boss: Source of power is superior customer knowledge and not just hierarchy, treat the same level boss as customer, keeps in mind the bigger goal that is common to both bosses.

iii.            Two Boss Manager: Should not develop affiliations for favors from either of the boss, resolves conflicts involving both bosses

Key Learning: Structure should be such that it helps people to collaborate, rather than restrict any activity. It should render temporariness, so that processes and behavior matters, and not the structure, should prevent power bases so that changes are accepted, develop orientation towards learning and adapting. Matrix structure has got able characteristics, and is good for very large organizations, if implemented properly.

5.      VFM Solutions (Restructuring)

• Three dimensions to consider while restructuring, strategic objective, job content and human dimension.
• If size of proposed business is huge, it’s better to create it as a Business unit under upper management/CEO.
• Also, need to check if new business is one off or strategic aligned with the objective.
• Can new job be done with existing skill sets? Is there need for training?
• Have I taken my current important colleagues into confidence and was there enough communication with them?

Key Learning: Restructuring is an important aspect, and where exactly to restructure should be determined after carefully accessing the attributes of the new business, skill set required and aspirations of the existing employees.