This section focuses on what happens inside the company. Figure 3 shows a circle that is divided
into quadrants. These quadrants represent four major organizational elements that mutually
influence each other. We used the same labels for the four elements that Nadler and Tushman
(1989) used in their organization model. However, we located competitive strategy at the center
of our model because of its critical role in giving purpose to the design of the four organizational
elements. A vision guides the overall strategy of the firm and provides the company with a
realistic, credible, and attractive future (Kotter and Cohen, 2002). The strategy is a long-term
plan to bring the company closer to its vision through pursuit and achievement of a set of
coordinated operational goals. The vision should indicate who all of your customers are, what
customers find valuable in your products, which specific customers will be served, and in what
markets. Also, why will sales to these customers lead to sustainable profits? The vision should
inspire and motivate employees even if it is never reached. It should be based on the firm’s
competitive strategy as well as the four organizational elements depicted above. Firms should
beware of writing vision statements that contain only abstract statements of good intentions, but
offer no guidance for action. More attention will be given to forming vision statements in
section 3.6.2.
All four organizational elements should be designed to be aligned with each other and aligned
with the company’s competitive strategy, a point we will come back to in the next section. It’s
easier to get a grasp on changing the formal organization and work, but no matter where you start,
changes in the other elements will likely be required also. The formal organization is shown in
the lower left quadrant in Figure 3. Small companies are likely to be organized by functions.
For example, the first level below top management includes manufacturing, marketing, and
(perhaps) research. These structures tend to emphasize low cost over rapid response. Efficiency
is gained from full utilization of functions across multiple products, but decision-making is
centralized at the top. Function-based structures are probably adequate for most small
companies, but as companies grow, especially if by product or geographical diversification, they
tend to reorganize around products, territories or customers served. Such structures allow more
rapid response to specific customer needs, but at the expense of less efficient utilization of
functions. The timing of a structural change is a matter of judgment. Symptoms of a need to
change are excessive red-tape and delayed decision-making in a function-based structure. As we
shall see, cross-functional teams allow retention of the advantages of function-based structures,
but offset its main disadvantages.
Systems and processes should support structure. Processes include conversion of raw materials
into products (by fabrication and assembly) and organization of data into useful information or
the performance of services. Processes also include movement of materials/information between
departments, and decision-making to coordinate or allocate activities or resources. The
company’s organizational structure influences how many departmental boundaries such
processes must cross. For example, processes must cross more departmental boundaries in
function-based structures than in product-based structures, and generally require more complex
coordination mechanisms. Related boundary management issues apply to companies that
outsource processes or collaborate in performing processes with partners. Systems are designed
to plan (e.g., what and how much to produce) and control (e.g., assure that plans are met or
corrected mid-course). For example, accounting and human resources systems help senior
management to meet its planning and control responsibilities.
Work is shown in the upper left quadrant in Figure 3. Work can be performed by shop-floor and
technical/professional employees as individuals or members of teams. Individual employees
may be members of the same department because they perform similar tasks or perform a
common function. Teams may be a better unit for organizing work if their members perform a
highly interdependent set of tasks or produce a common output. Managers coordinate the work
of individuals or teams through schedules or real-time adjustments and by rewarding employees
for performing tasks according to instructions, such as who does what and when, and for
cooperating with others in achievement of common goals.
People (upper right quadrant on Figure 3) possess varying degrees of knowledge, skills, and
abilities (KSAs) when they are hired. Even with the utmost care in selecting the most qualified
people, companies still need to devote considerable time for education and training and
socialization of employees. Education, training and on-the-job experience, as well as