Designing Organisations for Performance

Alignment of spans

4 Cs Tools Levers Span of control

Business • Customer
strategy definition • Unit structure
• Resources Span of
• Critical • Diagnostic
• Measures and accountability
performance control systems
rewards
variables • Interactive
• Out-of-the-box Span of
• Creative networks
pressure influence
tension • Shared
• Leadership
• Commitment responsibilities
to others Span of support

Span of
attention

➢ Linear action steps fail to recognize the interdependency of

these design variables of people on the ground
➢ Also, the design should influence the span of attention of
people
Equilibrium of resources
SPAN OF CONTROL

Supply of
resources Customer
definition

SPAN OF SUPPORT Critical

Commitment
Business strategy performance SPAN OF
to others variables ACCOUNTABILITY

Creative Demand for

tension
resources

SPAN OF INFLUENCE

To summarize,
(Hard levers) (Soft levers)
• Supply of resources = Span of control + Span of support
Demand for resources= Span of accountability + Span of influence

• Span of control + Span of support = Span of accountability + Span of influence

Spans for Market-facing Managers at General
Electric

• Centralized
• Wider entrepreneurial gap : Span
of accountability > Span of control Span of Control
• Wider Span of influence :
Boundary less organization and
out-of-the-box thinking, Variety of Span of
dual-influence structures and Accountability
cross-unit initiatives
• Wider Span of support : Strong
Span of Influence
focus on mission and Leader’s
personality Span of Support
Spans for Market-facing Managers at Johnson &
Johnson
• Highly decentralized
• Narrower entrepreneurial gap :
Spans of control and accountability
are tightly aligned
• Wider Span of control : Top managers Span of Control
use profit-planning system
interactively to infuse creative
tension Span of
• Wider Span of influence : Operating
managers follow an intensive bottom-
Accountability
up process several times a year to re
estimate profit plans and forecasts Span of Influence
• Wider Span of support : Promotes
only from within, routine inter-
business transfers and J&J’s credo Span of Support
Entrepreneurial growth- Span of control is very narrow
because resources are scarce and no one controls all the
resources needed to accomplish their job

Functional Specialization- resources are formally

allocated to separate market-facing and operating-core
units

Mature, Complex Organisation- strategy must be

clearly defined so that managers can understand how to
adjust the levers properly
Alignment of span during organizational crisis

Span of Control

Span of
Accountability
Span of Influence

Span of Support

Crisis Of Autonomy:
• Span of accountability , influence and support is narrow
Alignment of span during organizational crisis

Span of Control

Span of
Accountability

Span of Influence

Span of Support

Crisis Of Control:
• Supply of resources exceeds managements’ ability to monitor their use and to ensure co ordination of
activities and knowledge sharing with other units
Alignment of span during organizational crisis

Span of Control

Span of
Accountability
Span of Influence

Span of Support

Crisis Of Red Tape:

• When diagnostic and interactive system(Span of accountability and span of influence) become too complex
for the organization
Types of Design Interventions – Hard and Soft
Interventions

Soft Interventions – Interactive networks and shared responsibilities

• First step is to increase creative tension and interactive networks through dual influence structures: task forces,
cross-unit groups.
• Managers can also introduce creative tension through formal systems—stretch goals, cross-unit cost allocations
and interactive control systems—to foster interactive networks
• Senior managers take efforts to communicate responsibility to customers (or other critical constituents) and
emphasize the importance of helping others
• Lack of clarity on customer definition and critical performance variables leads to failure

Hard Interventions – Unit structure and diagnostic control systems

• Managers adopt a new structural configuration to redefine market facing and operating core units and reallocate
resources
• Measures, goals, and incentive systems must be supported by diagnostic and interactive control systems that are
aligned with the new structure
• Hard intervention fails in the long term if soft levers such as interactive networks and shared responsibilities are
not designed carefully
Special Case – Matrix Organization

Span of Control • A matrix organization allows

simultaneous focus on multiple
dimensions of value creation
• Successful matrix organization must have
Span of all four spans set very wide
• More demanding the organization's
Accountability strategy, more resources it will require for
successful implementation of strategy
Span of Influence • Small change in any single lever will
disrupt the equilibrium

Span of Support
• Span of Control : Lack of clarity about who controls resources
• Span of accountability : Inability of accounting and IT systems to aggregate business-level performance data for
operating core and market-facing units
• Span of influence: Unequal access to performance information and inability to accurately allocate indirect costs
to all units
• Span of support: Lack of commitment to others
Recognizing human drives

• Represents individual’s desire for control of resources

Drive to acquire • Organizations must offer opportunities of personal gain to drive organizational
gains

• Represents basic need for protection of things of value

Drive to defend • Organizations must alert employees in advance and allow trade-offs

• Represents the curiosity to experiment and learn

Drive to learn • Organizations must provide resources to exercise their innate desires

• Represents need for interaction and seeking mutual commitment of support

Drive to bond from others
• Organizations must provide platforms for individuals to bond
NOTE ON ORGANISATIONAL STRUCTURE
How Organisational structures help: The Need
:ORG NEED:
Wide variety of Skills
Coordinated Capabilities
:IND NEED:
Learn, Grow, Advance

:ORG NEED:
Integration of activities

Functions of Org
Coordinated Activities
:IND NEED:

Structure
Bondage, collective Work

:ORG NEED:
Purpose & Mission
Coordinated Goals
:IND NEED:
Pursue Ind Interests

:ORG NEED:
Define and sustain
Coordinated Boundaries
:IND NEED:
Joining Decision
Tools of Organisational Structure
DIVISION OF LABORS: Coordinate Capabilities

• Specialization
• Level of Horizontal and Vertical Specialization
• Avoid Duplication, Focus attention VS Costly Coordination

INTEGRATION MECHANISM: Coordinate Activities

• Direct consequence of Division of labour

• Routine Integrations Vs Unusual Matters
• Direct Supervision, Formal rules and SOPs, Negotiation and Adjustments FORMAL INFORMAL
• Liaison Roles, Task force, committees

DISTRIBUTION OF DECISION AUTHORITY: Coordinate Goals EXPLICIT EMERGENT

• Who should make what decision?
• Distributed across Vertical and Horizontal levels of organisation
• Initiated, Approve across horizontals, Implement
• Ideally decision rights should be with those who have best info (Goal based Allocation)

Setting & Sustaining Boundaries: Coordinating Boundaries

• Define Organisation Boundaries and how it interreacts with environment

• Inventory Decision, Customer interactions (Dos and Don’ts)
Forms of Organisational Structure: Management Centric

Functional Structure
• Capabilities Grouped by function
• Coordination through CEO office or senior
Executive committee

Divisional Structure
• Delimited by Product, Geography, market
segment, client type, etc
• Planning and Budgeting done by division
• -ve: Coordination, redundancy, rsrc sharing

Matrix Structure
• Hybrid form
• Functional + Divisional Managers
• Ambiguity of responsibilities, multiple bosses,
authority overlap
• Managers should adapt to power sharing
• Dual Reporting, hamper careers, difficult to
maintain
Forms of Organisational Structure: Employee Centric
Problems with Management Centric structure: Employee Centric Structure
• Over Coordination • Distributed network and Authority
• Corruption via power dynamics • Sophisticated Technology
• Bottom up, Individual needs in focus
• Self Managed team

HOLACRACY:
• Human focused
• Constant adaptability to capture opportunity
and learning
• Invest heavily on structure defining process
• Adaptability, unsustainable, not cost effective
Forms of Organisational Structure: Crowd Centric
Crowd Centric / Self Organising structure
• Build Platforms upon which collectives can interact and iteratively self organise
• Wikipedia, logical Indian
• Technology based
• Meeting held when needed, Temporary task force
• Innovative, distributed authority
• Truly bottom up approach
Need for balance scorecard
Traditional Accounting System Intangible assets

MISSION and
STRATEGY

Measurable
goals

Business Business
Units Units

Business
Units Measured and controlled easily • Cannot be measured
Business
• Give company strong
Units
advantage over competitors
 Balance Scorecard
Multidimensional measurement and accountability framework for strategy execution

Allows managers to measure forward looking indicators that link intangible assets to future business performance

It’s power lies in measurement, Goals and measures are linked to strategy in an easy to understand way

Allows managers to articulate a clear theory of value creation to ensure that employees, processes, and business
functions are aligned with company goals

Define the Identify Assign

Draw a
business measures and accountability
strategy map
strategy allocate to Individual
resources Managers

01 02 03 04
Define Business Strategy

Vision
To be the best retailer in the hearts and
minds of consumers and employees

Mission
How will we create value for customers and differentiate our Saving people money so they can
products and services from competitors ? live better

Porter’s Generic strategy

Generic strategy: Cost leadership
Competitive advantage
Intensive strategy:
▪ Market Penetration – main
Scope

COST LEADERSHIP DIFFERENTIATION strategy

▪ Market Development – secondary
DIFFERENTIATION ▪ Product development - Minimal
COST FOCUS
FOCUS
 Draw a strategy map
Illustrates cause and Effect logic by which resources and A way to analyse and show how the goals of different
employee effort will generate economic value functions are interrelated to support overall business strategy

Financial Customer Internal Business Learning and growth

• Plans and processes • How business products
lead to desired level of are seen by customers in
economic value creation target market
• Product quality, service
time, experience with
company
• Chosen value
proposition to be
reflected in value map
• Critical functional • Human capital – people,
practices talent and knowledge
• Which processes are • Information capital –
essential for meeting Databases, networks
goals and information
• Operation management, technology systems
customer management • Organizational capital –
(new customers, Readiness of company
retention), Innovation to meet business needs
process and Regulatory and appropriate
& social processes company culture

Cause and Effect

▪ Make relationships among goals explicit
▪ Linked chain of cause and effect should pervade all four perspectives discussed above
MOBIL’s Strategic map
Financial perspective
Increase ROCE to 12%
Productivity and growth together
Revenue Growth Productivity make companies confused and
fall back to one dimensional
behaviour. Fortunately, Mobil’s
Increase profitability Cost reduction- Maximize use of BSC allowed it to define and to
New sources of
through premium Become industry cost existing assets- handle
Gasoline revenue clarify this contradictory, to make
brands leader more volume
the organization aware of the
“Delight the customer” “Win-win Dealer relationship” trade-offs and to manage them.
Basic Differentiators

Clean Safe More Customer perspective

Speedy Friendly helpful Recognize Help develop
Quality consumer
purchase employees loyalty business skills Target premium customers by
Brand Trust products
conducting market surveys
“Increase customer value” “Be a good
“Build the Franchise” “Achieve Operational Excellence” neighbour”
Internal Business perspective
Understand customer Improve plant Improve inventory
Create non- To enhance buying experience of
gasoline segments performance management Improve consumers, support win win
products and EHS dealer relationship and reduce
Best in class franchise On spec Industry cost
services
teams On time leader cost

A motivated and strong workforce

Learning and Growth
“Climate for action” “Competencies” “Technology”
•Funtional excellence
•Aligned •Process improvements
•Leadership skills
•Personal Growth •Y2K
•Integrated view
Identify measures and allocate resources
Performance Drivers Choosing Measures
• Should have a good mix of outcome measures • Measures should be SMART
• Specific
and performance drivers
• Measurable
• Outcome measures ( eg: increase in revenue)
• Actionable
• Performance drivers- critical input and process • Realistic
measures • Time related

Financial Goals Customer Goals

• Revenue growth • Market Share
• Profitability • Advertising effectiveness
• Return on investment
Common measures • Customer satisfaction
• Cash on Hand • Number of sales contacts

Internal Business Process Goals Learning and Growth Goals

• Yield rate • Employee engagement scores
• Number of defects • Training hours
• Cycle time • Sales per employee
• Time to launch • Information systems accuracy
MOBIL’s Balanced Score Card
Strategic Themes Strategic Objectives Strategic Measures

FINANCIAL Financial Growth Return on Capital Employed ROCE

Existing Asset Utilization
Profitability
Industry Cost Leader
Profitable Growth
CUSTOMER Delight the Customer Continually delight the customer
Win-win Dealer relations Build Win-win relations with Dealer
Cash Flow
Net margin Rank
Full Cost per Galloon
Volume Growth rate
Premium Ratio
Non-gasoline Revenue
Share of segment in selected key markets
Mystery shopper rating
Dealer Gross profit growth
Dealer survey

INTERNAL Build the Franchise Innovative products and services New product ROI
New product acceptance rate
Best in class Franchise teams Dealer quality
Safe and Reliable Refinery performance Yield gap
Unplanned downtime
Competitive Supplier Inventory management Inventory levels
Run-out rate
Cost leader Activity cost vs. Competition
Quality On spec, on time Perfect Orders
Good Neighbor Improve EHS Number of environmental incidents
Days away from work rate

LEARNING/ Motivated workforce Climate for action Employee safety

GROWTH Core competencies and skills Personal Balanced Scorecard
Access to strategic information Strategic competency availability
Strategic information availability
Assign accountability to Individual managers
▪ Translating strategy into measures that make it clear to managers what they are expected to
achieve

▪ Managers must be held personally accountable for achieving these measures and thus they
should be assigned targets

▪ Attach incentives to measures – managers are better motivated to achieve balanced scorecard
goals

▪ By assigning accountability, company avoids manipulation and undesirable behavior