Organization Design in the 21st Century

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J Strikwerda Organization design in the 21st century 2. Organization design is the discipline within the field of organization theory and. management theory aimed at creating efficient organizations of firms In the twentieth century. organization design at least at the governance level of organization used to be merely a choice. between a limited number of alternative organization forms Due to a number of developments. the scope the design variables and design criteria need to be reconsidered Especially Chandlers. design rule structure follows strategy is to be questioned and seems to be replaced by processes. follow proposition the customer value proposition The focus in the twentieth century on. structure as the parameter of design which was replaced by processes in the nineties now. according to Herbert Simon appears to be replaced by the design of the information space of the. firm and the design of the objective function of the firm and those within its organization due to. the declining costs of information and communication The design of the objective function also. answers the issue that firms need to adapt their internal organization in view of the weakening of. the institutions in society on which in the twentieth century a number of processes within the. internal organization were based Due to the emergence of new business models and new type of. customer value propositions a more precise design of especially processes is needed in which. structure as configuration plays a secondary role Because the 21st century firm needs a high. capacity of data processing and information in the modern firm is a resource to be exploited. new conditions are needed to facilitate workers to turn data into new revenue streams This. requires an approach to organization design which includes management accounting and. information management as well specific elements of organizational behavior. This paper provides an overview of changes in the field of organization design and its. institutional context based on existing publications and laying the groundwork for a new. multidisciplinary integrative approach for organization design as induced by the changing nature. of the firm,Draft of 9 February 2012, Electronic copy available at http ssrn com abstract 2002236. J Strikwerda Organization design in the 21st century 3. Prof Dr J Strikwerda CMC 1, Universiteit van Amsterdam Amsterdam Business School 1. Nolan Norton Institute 1,Abstract 2,Contents 3,1 Introduction 6. 1 1 Organization design matters 6,1 2 The objectives of organization design 13. 1 3 Context and organization design 15,1 4 Questions addressed in this paper 16.
2 What is organization in organization design 18,2 1 Organization versus firm 18. 2 2 What is a firm 19, 2 3 Organization as a multi facetted phenomenon 23. Figure 1 Overview of the different concepts of organization in relation to the concept of the. 3 What is design in organization design 29, 3 1 Organization emerging engineered or designed 29. 3 2 Design as abductive thinking 30, Figure 3 Martin s Knowledge Funnel in business design Modified from Martin 2009 8 31. 3 3 Elements and steps in organization design 33,4 The functions of the internal organization 38.
4 1 The metaphysical nature of organization 38, 4 2 Organizations Rational Natural and Open Systems 38. 4 3 Functions of the internal organization 42,4 4 Organization Gesellschaft or Gemeinschaft 45. 5 Dimensions of organization design 49, 5 1 The internal organization sub systems or Gestalt 49. Figure 6 Different types of design projected on the different types of coordination instruments. of the organization 51,5 2 Dimensions of organization design 52. These three dimensions are arranged on the ribs of a cube Figure 7 53. Figure 7 Three design dimensions of the internal organization of the firm 53. Table 1 Overview of the different aspect structures with respect to organization design Based. on Strikwerda 2008 59,Draft of 9 February 2012, J Strikwerda Organization design in the 21st century 4.
5 3 The objective function as an element in organization design 63. 5 4 The role of theory in organization design 64, 6 The impact of the changing institutional environment on the design of organizations 68. 6 1 Structure strategy and market 68, 6 2 Institutions as a context for organization design 70. 6 3 Effects of the weakening of institutions on organization design 73. 6 4 Institutions and to be in control 75, Figure 10 Factors that influence the design and deployment of new organization forms 79. 7 Implications of the changing nature of the firm on organization design 80. 7 1 The modern business enterprise as context for organization design 80. 7 2 Characteristics of the modern business enterprise 83. 7 3 Implications for organization design 89, Intangible assets human capital organization capital and information capital 90. Figure 11 Intangible assets have create value only through complementarity and co. specilization 91,7 4 Business model innovation 102.
8 The role of psychology and information in organization design 106. 8 1 Organization design as a process of decision making 106. 8 2 Psychological aspects of organization design 109. 8 3 Organization design as a problem of consciousness 113. 8 4 Organization design as a problem of information 115. 8 5 The design of the objective function 118,Textbox 1 List of typical staff departments 119. 8 6 Designing behavior the re design of the systemic context 124. 8 7 Organization design as a process of change 132. 9 What will be core questions and objectives for organization design in the 21st century 135. 9 1 Hierarchy in design business over structure 135. 9 2 To design for in control 136, 9 3 Designing the organization for processing information 138. 9 4 A generic model for organization design 147, Figure 14 A generic comprehensive model for organization design 148. Figure 15 A dynamic model of the firm and its key elements in its internal organization 153. 10 Conclusion 154, 11 Annex Provisionary overview of sources of design criteria 155. 11 1 Design criteria for the firm 155,11 2 Design criteria for the business model 155.
11 3 Design criteria for internal governance 156, 11 4 Design criteria for resource configuration and operational processes 157. Draft of 9 February 2012, J Strikwerda Organization design in the 21st century 5. 11 5 Design criteria for the service infrastructure 158. 12 References 159,Draft of 9 February 2012, J Strikwerda Organization design in the 21st century 6. 1 Introduction,1 1 Organization design matters, There is a ceaseless broad stream of publications on new organization forms of firms. varying from high abstract academic discourses via practical manuals to apodictic pamphlets. Some advocate specific new organization forms others not so much new organization forms but. emphasize aspects like leadership intrapreneurship team work culture etc Some question the. use of forma organization in sometimes extreme cynical expressions. It seems to be legitimate to raise the question does the organization of the firm matter. Is organization a necessary cost or is it an asset of the firm When the Dutch based multinational. company Philips Electronics in the early nineties of the twentieth century changed its cost. accounting system to adapt it to the changing nature of its assets and technology it introduced. the cost category costs of organization to calculate income EBITDA In doing so it was suggested. that these costs of organization needed to be minimized to maximize income This is in stark. contrast with the results of research on the role of intangible assets with respect to the growth of. labor productivity return on investments in ICT and the value of the firm Brynjolfsson Hitt. Yang 2002a Brynjolfsson Hitt Yang 2002b Powell Dent Micallef 1997 van Ark J ger. 2010 van Rooijen Horsten van den Bergen Tanriseven 2008 Although research into the. role of intangible assets perhaps still is in its infancy so much can be concluded that the. complementarities and co specialization of human capital organization capital and information. capital does play a material role in the value of the firm the organization of the firm is if well. designed and operating is not a cost but an asset Even so much that in national statistics. investments in human capital organization capital and information capital are measured as a. percentage of GDP because it turns out that in developed countries higher investments in. Draft of 9 February 2012, J Strikwerda Organization design in the 21st century 7.
intangible assets compared to investments in tangible assets significantly contribute to a higher. growth in labor productivity Brynjolfsson Saunders 2010 van Ark Hao Hulten 2009. The accounting rules IASB IAS 38 do not allow investments in human capital. organization capital nor information capital except investments in IT hardware en software to. be capitalized Despite this accounting rule especially the USA for the last thirty years has shown. higher investments in intangible assets as compared to investments in tangible assets These. higher investments in intangible assets correlate significantly with a higher growth of labor. productivity compared to Europe van Ark Hao Hulten 2009 The fact that investments in. the three forms of intangible assets need to be expensed and therefore are detrimental to the. profit in the short term apparently does not derange managers from the insight and experience. of the value of investing in intangible assets despite the emphasis on shareholder value and. related to that a focus on short term profits Which raises the question in which cases time and. money spent on organization development is a waste of money and in which cases it will be an. investment producing future returns, The issue of organization design traditionally was aimed on creating a most efficient. organization in terms of operational costs Now the question is raised in which way investments. in organization capital together with those in human capital and information capital will. produce the most value for the firm That is the aim of designing organization is to create an. efficient organization but now the focus is on efficiency in welfare economic terms This. provides a new perspective to the issue of organization design. The issue of organization capital is not addressed in studies like Burton et al Designing. Organizations 21st Century Approaches neither in e g B llingtoft et al New approaches to organization. design theory and practice of adaptive enterprises nor in Roberts The Modern Firm Organizational Design. for Performance and Growth B llingtoft H konsson Nielsen Snow Ulh i 2009 Burton. Eriksen H konsson Knudsen Snow 2008 Roberts 2004 The idea of organization capital is. part of the practitioner s concept of the strategy map together with human capital and. Draft of 9 February 2012, J Strikwerda Organization design in the 21st century 8. information capital Kaplan Norton 2004 However the strategy map is usually perceived to. be a tool for management control and is not seen as an element in organization design. The twentieth century was an organizational society Presthus 1962 with individuals. groomed to live and work in those organizations as depicted in Whyte s The Organization Man. One of the chief founders of the school of English neoclassical economists Alfred Marshall. labeled organization as the fourth production factor after capital labor and land Best 2001 63. The OECD assumes that to explain the growth of welfare since 1900 technology is the first. explanatory factor organization and management the second factor. In Coase his famous paper The Nature of the Firm 1937 he asked the question why do firms. exist His answer was because firms manage to coordinate their activities in the market and their. internal activities more efficiently as does the market The decline of transaction costs due to the. vanishing costs of information and communication De Kuijper 2009 and thus a higher. efficiency of markets made some predict that large firms would dissolve and more transactions. would be conducted through the market mechanism making the internal organization of the. firm less important A higher efficiency of markets after the Second World War forced especially. manufacturing firms to deverticalize and to outsource a number of business processes. suggesting that the internal organization is less a factor of importance in the 21st century. compared to the 20th century In the financial industry through mergers and acquisitions firms. have grown in size also in terms of numbers of employees At the same time investors through. the various systems of corporate governance have set new requirements to the efficiency of the. organization of the firm as do regulators especially in the financial industry The question of. how to organize has not disappeared from the agenda of boards but organization has become a. different phenomenon and will change by nature for the time coming At the same time the. narure of the firm is changing 7 1 The question to be asked and to be answered is what the. Draft of 9 February 2012, J Strikwerda Organization design in the 21st century 9. changing nature of the firm and its organization implies for designing organization by issues and. by process, Deciding a new organization form or organization structure used to be seen as an issue. use of forma organization in sometimes extreme cynical expressions It seems to be legitimate to raise the question does the organization of the firm matter Is organization a necessary cost or is it an asset of the firm When the Dutch based multinational company Philips Electronics in the early nineties of the twentieth century changed its cost accounting system to adapt it to the

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