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Daft What Is The Right Organization Design 2007 PDF
Daft What Is The Right Organization Design 2007 PDF
What is it? Breaking down internal boundaries and vertical silos to make subunits
work together horizontally
Design principles (1) Organize around complete workflow processes rather than tasks.
(2) Flatten hierarchy and use teams to manage everything.
(3) Appoint process team leaders to manage internal team processes.
(4) Let supplier and customer contact drive performance.
(5) Provide required expertise from outside the team as required.
Advantages (1) Rapid communication and reduction in cycle time of work done.
(2) Individuals working together on teams develop broader perspective,
more flexible and empowered roles.
(3) Rapid organizational learning is facilitated.
(4) Improved customer responsiveness.
Disadvantages (1) Separation of business activities into processes and non-process functions
may be problematic.
(2) Cinderella problem: non-process bits of the organization could feel neglected.
(3) Teamwork could get in the way of functional specialization.
(4) Traditional departments may instigate turf battles.
When to use When the organization can create better value by improving internal coordination to
enable greater flexibility and tailored responses to fit customer needs.
What is it? Outsourcing internal organization processes that support an organization’s mission
Design principles (1) Determine non-core processes – those that are not
(a) critical to business performance,
(b) creating current or potential business advantage,
(c) likely to drive growth or rejuvenation.
(2) Harness market forces to get non-core processes done efficiently.
(3) Create an effective and flexible interface through a contract that aligns incentives.
Advantages (1) Cost savings due to less capital expenditure and overhead.
(2) Tapping into best sources of specialization and technology.
(3) Market discipline that leads to supplier competition and innovation.
(4) Flexibility in using lower cost and higher quality inputs.
Disadvantages (1) Loss of in-house skills.
(2) Possible decrease in internal innovation capacity.
(3) Costs of transitioning to hollow state.
(4) Higher monitoring to align incentives.
(5) Reduced control over supply.
(6) Competitive threat of being supplanted by suppliers.
When to use When there is heavy price competition with pressure to cut costs and there is
enough of a market outside the organization to perform required processes.
The design features of the horizontal orga- outsourced everything else. Second, harness
nization are summarized in Table 2. market forces to outsource non-core pro-
cesses. With increasing globalization and
installation of high-touch informational tech-
Design Principles
nology systems, it is possible to offshore
There are three principles governing the work to places that are not only cheaper,
design of the hollow organization. First, but also of higher quality. Big tax and audit
determine core and non-core business pro- firms, for example, routinely outsource the
cesses in the organization. Typically, core filing of individual and corporate tax returns
processes share these characteristics: they to India-based firms such as MphasiS where
are critical to business performance, they highly qualified local accountants complete
create current or potential business advan- the task at a fraction of the price that an
tage, and they are likely to drive future equivalent U.S. employee would cost. Third,
growth and rejuvenation. All other processes write an effective and flexible contract to
can be deemed non-core and are likely can- align incentives between the firm and the
didates for being outsourced. For example, in outsourcing provider. One sensitivity issue
building the Cayenne SUV, Porsche retained in using PMCs in war zones is that such firms
critical processes such as engine production, are ultimately accountable to shareholders
transmission manufacturing, and final rather than the U.S. military, and therefore
assembly – contributing to just about 10% incentives have to be put in place to ensure
of the finished automobile as core – and continued cooperation.
335
Advantages MODULAR ORGANIZATION
The main advantage of the hollow organi- The modular organization was another design
zation is in the cost savings that comes from that was popularized in the early 1990s. The
utilizing a lesser amount of capital expendi- image that it presents of the organization is
ture and in carrying a less administrative one of a collection of Lego bricks that can snap
overhead. This design also provides greater together or be hived off as necessary. The
organizational flexibility by allowing the use design is similar to the hollow organization
of higher quality inputs at less cost. Firms can in its use of outsourcing. Crucially, however,
focus on what they do best, while tapping into what is different and distinctive about this
the best sources of specialization and technol- form is that outsourcing conforms to pieces
ogy that outsourcers can bring with them. The of the product rather than outsourcing orga-
growing market for outsourced services, in nizational processes (e.g., human resources,
turn, makes providers more competitive and warehousing, and logistics) in the hollow
innovative, thereby adding more to the bot- form. The assembly of decomposable product
tom line of the hollow organization. chunks provided by internal and external
subcontractors is the defining feature of mod-
ular organization design.
Disadvantages
There are several downsides to using the Examples
hollow design option. There is a loss of in- The making of Bombardier’s Continental
house skills, and with that possibly the business jet shows how flexible modular orga-
reduced capacity to innovate. The costs of nizations can be. The jet can fly eight passen-
transitioning to a hollow state are high, and gers comfortably from coast to coast in the U.S.
include intangibles such as reduced employee without stopping to refuel. Bombardier has
morale. Also, if the supplier is distant both broken up the design of the aircraft into 12
geographically and culturally, then there may large chunks provided by internal divisions
be additional costs in terms of increased mon- and external contractors. The cockpit, center,
itoring or switching to another supplier. Hol- and forward fuselage are produced in-house,
low organizations have less control over the but other major parts are supplied by manu-
supply of their products because of depen- facturers spread around the globe: tailcone
dence on outsourcing partners, and there is (Hawker de Havilland, Australia), stablizers
even a threat of being supplanted by suppli- and rear fuselage (Aerospace Industrial
ers. To illustrate, Motorola Inc. hired BenQ, a Development, Taiwan), engines (General
Taiwanese manufacturer, to design and Electric Co., U.S.A.), wing (Mitsubishi, Japan),
develop handsets for its American markets; fairings to improve aerodynamics (Fischer,
BenQ then used the expertise gained to create Austria), landing gear (Messier-Dowty,
a market for itself in mainland China. Canada), and avionics (Rockwell Collins,
U.S.A.). It takes just four days for employees
in Bombardier’s factory in Wichita, Kansas to
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snap the parts together. There were a number
The hollow design is usually considered of upsides for Bombardier in using the mod-
when an organization faces heavy price com- ular design. The firm was able to share devel-
petition, and consequently, pressure to cut opment costs with its partners, slash the cycle
costs. This prompts managers to see what time required to launch a new product, and
processes can be done cheaper outside the enter the market at a price point that was
organization. In order to avoid being held about $3 million less than its nearest compe-
hostage to a single supplier, there has to be titor.
enough of a market to stimulate efficiency in Other industries in which modular organi-
the performance of outsourced processes. zations tend to be prevalent include automo-
336 ORGANIZATIONAL DYNAMICS
TABLE 3 DESIGN FEATURES OF THE MODULAR ORGANIZATION
FEATURES MODULAR ORGANIZATION
Figure
What is it? Assembling decomposable product chunks (modules) provided by internal and external
subcontractors
Design (1) Break products into manageable modules.
principles (2) Design interfaces that allow different chunks to work together.
(3) Outsource product chunks that are produced more efficiently by others.
(4) Design the organization to focus on assembling and distributing chunks created
in-house and outside.
Advantages (1) Cost savings and speed of responsiveness.
(2) Take advantage of competence beyond one’s boundary.
(3) Scope to experiment with different suppliers that focus on improving their own part.
(4) Increased ability to innovate through recombination of modules in different ways.
Disadvantages (1) Not all products may be amenable to chunking into modules.
(2) Poorly specified interfaces that hinder modules from work can hamper assembly.
(3) Laggards can hold up innovation that occurs concurrently across a chain of collaborators.
When to use When it is possible to specify the nature of product modules and to design interfaces
that allow them to join up and function.
bile manufacture, bicycle production, consu- that can be made more efficiently by external
mer electronics, household appliances, power contractors. PalmOne Inc., the manufacturer
tools, computing products, and software. of personal digital assistants, uses modularity
The design features of the horizontal orga- in the product to focus on developing the
nization are summarized in Table 3. software while outsourcing various hardware
modules to subcontractors such as HTC of
Taiwan. Finally, enable the organization to
Design Principles
focus on assembling the different chunks of
Four principles govern the design of mod- the product created in-house and outside.
ular organization. First, break products up
into separable modules that can be made on
Advantages
a stand-alone basis. Second, design interfaces
that allow different modules to work with The prime advantage of the modular struc-
each other. If this aspect is poorly done, then ture is its efficiency and speed of response.
it can cause tremendous headaches down the Nissan operates the most efficient automobile
line. Bombardier learned this principle from plants in the U.S., thanks to its modular orga-
tough experience while outsourcing modules nizational design. Parts such as the frame,
for aircraft that it developed before the Con- dashboard, and seats are built by contractors
tinental jet. Third, outsource product chunks and shipped to the assembly line. Modular
337
design also allows firms to take advantage of competitors, changing technology, and new
competence beyond their own boundaries. By regulations. Organizations around the
partnering with HTC, PalmOne was able to world are embedded in complex networks
reduce defects by 50%. Firms can experiment of relationships: competing fiercely in some
with the use of different suppliers that focus markets while collaborating in others. Col-
on being the best in their class. Another laboration or joint ventures with competitors
advantage for modular firms is the increased usually takes the form of a virtual organiza-
ability to innovate through the recombination tion – a company outside a company created
of modules in different ways. Nissan, for specifically to respond to an exceptional
example, can use its assembly line to build market opportunity that is often temporary.
many more different models of autos than The metaphor for this design comes from
rivals, thanks to its greater modularity. virtual memory in a computer, which makes
it act if there were more storage capacity than
actually present.
Disadvantages
One key issue that limits applicability of
Examples
the modular organization design is the fact
that not all products or production processes When Marks & Spencer (M&S), the vener-
are amenable to chunking into modules. Sec- able British retail chain, suffered dramati-
ond, poorly designed interfaces can hinder cally declining sales in its core product of
modules from working with each other and women’s clothing, it turned to a one-time
lead to costly rework. DaimlerChrysler rival for help. George Davies is a serial entre-
adopted a highly modular design for its preneur who has previously set up two com-
two-seater Smart Car, but the launch was panies that have competed successfully with
beset with a number of problems because M&S. Together they created a virtual orga-
various parts of the car would not snap into nization called Per Una, with the objective of
place as planned and required extensive getting younger women interested in a range
debugging. Finally, firms have to manage of fashionable but reasonably priced cloth-
partner firms as if they were part of one large ing. The arrangement was unusual for M&S,
coalition – and this is where the modular which is famously insular and likes to keep
design differs significantly from hollow. all its branding and merchandising in-house.
Innovation has to occur concurrently across In launching Per Una, M&S provided only
a chain of partner firms in order to create a retail shelf space and marketing support.
new generation of products, and laggards Davies contributed everything else, includ-
can hold up the entire development cycle. ing apparel and accessories, logistics, and
sales training. M&S benefited from increased
traffic into its stores, while Davis retained a
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major share of the profits. Per Una proved to
The modular design is used when it is be a big hit and helped revive M&S’ business
possible to break up the organization’s fortunes, and was later absorbed completely
product into self-contained modules, and into M&S. This example illustrates the key
where interfaces can be specified such that features of the virtual organization – will-
the modules work when they are joined ingness to collaborate with unlikely partners,
together. capitalizing on market opportunity, and dis-
solving the virtual entity when it has served
its purpose.
Virtual organization design is very preva-
VIRTUAL ORGANIZATION
lent in the high-technology industry where
Few of today’s companies can go it alone concurrent competition and cooperation is
under a constant onslaught of international rife. For example, Symbian Ltd., a software
338 ORGANIZATIONAL DYNAMICS
developer for mobile phones, is a virtual offices, facilities, and other types of infra-
organization set up by a consortium of com- structure. It exists in people’s minds. What
petitors for handsets, including Nokia AB makes it coherent is the sense of purpose and
oyj, Sony Ericsson, Samsung Electronics resources that are dedicated to achieving
Co., Panasonic, and Siemens AG. Large goals. For example, Billable Hour, a small
and mature companies also use virtual orga- business specialty wristwatch and greeting
nization design to respond swiftly to a com- card retailer, relies on a far-flung network
mercial opportunity. For example, rivals of partnerships, linked by technology, to pro-
P&G and Clorox have recently collaborated duce its goods. Third, each partner brings its
with each other to create a new generation of domain of excellence to bear. Fourth, disband
plastic wrap, Glad Press ‘n Seal, to compete or absorb once the opportunity evaporates.
with market leader Saran. For example, at the height of the dot-com
The design features of the horizontal orga- boom, Procter & Gamble Co. used technology
nization are summarized in Table 4. partners to create a virtual organization
called Reflect.com, with the aim of selling
cosmetics online. After the boom faded away,
Design Principles
P&G disbanded the organization and
There are four principles governing the absorbed the learning from the experience
design of the virtual organization. First, cre- into a more traditional cosmetics division.
ate boundaries around a temporary organiza-
tion with external partners. The organization
Advantages
may look like a separate entity as in a joint
venture. Second, use technology to link peo- The virtual organization provides firms
ple, assets, and ideas. Often the virtual orga- with the ability to move nimbly to exploit a
nization is not tangible in terms of separate favorable market opportunity. Virtual design
339
also allows a firm to provide a product organizations. In such situations, typically
extension that would have been impossible one organization does not have the neces-
otherwise, and also to jointly leverage orga- sary capability to respond, and it is necessary
nizational assets that are distributed across to look around to see what other organiza-
partnering firms. In the Glad joint venture, tions (including competitors) can offer. The
for example, the wrap was invented in P&G design works best when there is clear under-
labs but marketed under Clorox’s well-estab- standing among partnering organizations as
lished Glad brand name. Since then, the two to their rights and obligations.
companies have continued the collaboration
with the introduction of Glad Force Flex trash
bags, which make use of a stretchable plastic
NEW DEMANDS ON
also invented in P&G labs. Finally, another
MANAGERS AND
advantage of the virtual form is that it can be
ORGANIZATIONS
easily disbanded or absorbed once the oppor-
tunity for collaboration goes away, or it can be The shifting emphasis from vertical designs to
made into a stand-alone entity if the oppor- horizontal designs to partnership designs has
tunity becomes larger. reshaped the roles of managers. The biggest
change has been from having direct control
over resources required for performance
Disadvantages
toward dependence on others over whom
The major downside of virtual organiza- there is no direct control. Even with more
tion design is that it requires a tremendous dependence and less control under newer
amount of communication and understand- structural designs, managers are still respon-
ing to keep it going. Partners need to talk to sible for performance outcomes. For a man-
each other to avoid duplication and redun- ager who is used to a traditional top-down
dancy. One recurring problem with the Per approach, it is hard to let go of control. The late
Una organization was that some of its apparel business guru Peter Drucker once noted that
was strikingly similar to what M&S had the problem with large company managers is
designed. Another problem is that lack of trust that they are used to giving orders and not to
or misalignment of incentives could break working with a partner – a totally different
down communication and coordination. In proposition.
the Per Una case this problem manifested A nice example is provided by the tran-
itself in terms of M&S’s indefinite return pol- sition of Strida, a U.K.-based company that
icy – customers can bring in goods that they sells lightweight foldable bicycles, from a
are dissatisfied with any time; George Davies, functional design, vertically integrated man-
on the other hand, wanted a time limit on ufacturer to a completely hollow form. In
when customers could come back in to claim a 2001, Strida received a large order from an
refund or exchange, so as to protect the profit- Italian customer, willing to buy at a price that
ability of the operation and also its reputation was below the cost of producing the bicycles
for fair commercial exchange. A final draw- in the U.K. The CEO of the company, Steed-
back is that employees in the virtual entity man Bass, immediately began investigating
may have partisan or weak organizational ways of making the organization more effi-
identification, and this, in turn, may reduce cient. First, he decided to shut down the in-
their commitment. house production plant and identified a
manufacturing partner in the Far East who
could make the bike at lower cost. He used
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expert contractors to continue developing
The virtual design is used when it is pos- new bicycle models, to design the owner’s
sible to explore a fleeting market opportu- manual, to design the company’s Web site.
nity by partnering with complementary He used various Web-based software ser-
340 ORGANIZATIONAL DYNAMICS
vices to ensure smooth communication For routine, commodity-type sourcing, due
between the designers and the manufacturer, diligence is less important. But for a signifi-
to manage accounts, materials and docu- cant partnership, trust in the partner is essen-
ments. He then turned to a long-time vendor tial. Check for gaps in skills and competency
to take over the back-end operation of the to assess whether the partner can deliver what
company – including warehouse manage- your business needs. It is good to investigate
ment, order fulfillment, inventory control, prospective partners by talking to other com-
customer service, inbound container man- panies they’ve partnered with and to develop
agement, and accounts generation. The a sense of how well suited their culture and
company has low overhead and is now struc- priorities are to your own. For hollow and
tured to ramp up and down quickly in modular designs, it is good to understand the
response to market fluctuations. Bass focuses process being outsourced and what to expect
almost exclusively on managing the various from the partner. When the partner takes it
relationships that make up the business. Bass over, your control will be gone. The partner
had loved making his own bikes, and there- will get most of the benefit from improve-
fore the biggest barrier in making the transi- ments, innovation, and efficiencies.
tion was in his willingness to find, trust, and
hand over that responsibility to someone else
Select People With Lateral
that could do it more efficiently.
Organizing Skills
A study of the fit between executive style
and executive roles by the Hay Group Lateral organizing skills refers to the abil-
distinguished between operations roles and ity to work with people across organizations,
collaborative roles. Operations roles have tra- including those with whom lines of respon-
ditional line authority and are accountable sibility and accountability are a little fuzzy.
for business results, typically through direct People who are part of a horizontal team or
control over people and resources. Successful who work with outside partners must have
operations managers set goals, establish ana- excellent coordination, personal influence,
lyses, take risks, and are intensely focused on and negotiation skills. Soft skills dominate
results. Collaborative roles, however, lack hard skills in the newer organization designs.
direct authority over horizontal colleagues A process owner or a partner cannot simply
or partners, and are nonetheless accountable order a change. It’s about influence, influ-
for key business results. Successful managers ence, and influence to adjust the relationship
in collaborative roles are extremely flexible to serve new demands. Managers with lateral
and proactive, achieve outcomes through organizing skills may also act as evangelists,
personal communication and influence tai- convincing people to give up their own needs
lored to people and situations, and asser- for the greater good of collaboration for cus-
tively seek out needed information. tomer satisfaction.
The old way of managing was to defend
the unit’s boundaries and oversee its perfor-
Seek Clarity, Not Control
mance by emphasizing operations roles.
However, collaborative roles are more com- As relationships move from vertical to
mon in new organizational structures. The horizontal and from work that can be
key manager demands for succeeding with observed to work performed elsewhere,
newer structural designs are as follows. much time has to be devoted to the front
end of the relationship–setting expectations
and creating structure. Every conceivable
Get the Right Partner on the Bus
issue must be discussed and probably writ-
In a hollow or modular design this means ten down in contracts with outside partners.
spending time to get to know a potential Memos of understanding are effective for
partner’s strengths, weaknesses, and goals. process teams. The respective goals, incen-
341
tives, and desired outcomes should be suppliers. The product had to be supplied in
defined in advance. During the relationship, bulk for horticulture nurseries, and in appeal-
problems surely will arise and changes will ing individual packages for retail sales. The
be made, but clarity in the beginning is time and travel overseas was only a fraction of
essential. Steedman Bass of Strida says that the cost of buying machines and building a
careful negotiation beforehand is critical. small manufacturing plant. Building strong
‘‘Good contracts are important. They may relationships with sales distributors and a
be time-consuming, but taking the time to marketing agency was more challenging.
write and negotiate good contracts that work These businesses were focused on their own
for both parties is essential. You’re placing a needs more than on a partnership. Moreover,
lot of reliance on people, and it has to work. the board member who worked with distri-
We did our homework up front, thinking of butors had something of an autocratic tem-
how we wanted the relationships to work, perament, which made it hard to connect with
and that has probably eliminated 98% of the the prospective partners. The CEO, however,
potential misunderstandings on either our had a knack for building horizontal relation-
part or theirs.’’ Bass also emphasized, ‘‘I ships with growers and university researchers
had never used contracts to sue or punish for testing product efficacy. The science sup-
partners; I used them to mutually establish porting the superior efficiency of SmartGrow
the playing field and rules of the game.’’ was thereby accomplished at minimal cost.
After some trial and error, the hollow organi-
zation form proved a boon to WRG.
Design Coordination
The movement from Era 1 to Era 3 has
Mechanisms
vastly expanded the array of organization
Some amount of mutual control with part- design choices available to managers. The
ners can be asserted through explicit colla- new designs – particularly variations of the
boration mechanisms. For an outside partner, horizontal and hollow forms – that have
example mechanisms might include a Leader- evolved in the past three decades offer a
ship Governance Board of senior executives number of advantages, but as we have noted,
that meets quarterly, or monthly meetings of each has particular challenges as well. The
team leaders, or periodic visits to each others’ shift from vertical to horizontal thinking and
sites to see the work, build relationships, and behavior can be difficult. The implementa-
discuss results. Scheduled periodic discus- tion of a horizontal or sourcing design has its
sions of metrics, performance results, and own challenges. Realigning a large company
written reports should also be part of the along horizontal processes can require a
coordination process with internal or external wrenching change in people and culture.
partners. Adopting a hollow form may require less
change in culture, but a new manager para-
digm will be needed, with special focus on
finding suitable external partners and build-
CONCLUSION
ing relationships that serve both partners.
After much debate, the managers at WRG, the Maintaining external collaboration requires
start-up horticulture supply company its own expertise. With increasing global
referred to at the beginning of this article, competition, managers have to be astute
decided to adopt a hollow rather than a func- and realistic about the organization design
tional organization design. It was a learning that provides them with competitive advan-
process for managers and board members tage and their customers with greatest value.
because the team’s experience had been in
traditional structures. A manager and board
member made trips to India and China to
meet and build personal relationships with
342 ORGANIZATIONAL DYNAMICS
SELECTED BIBLIOGRAPHY
Robert Duncan’s original article titled ‘‘What Norman Jonas’s 1986 article ‘‘The Hol-
Is the Right Organization Structure? Decision low Corporation,’’ Business Week, 3 March,
Tree Analysis Provides the Answer,’’ Orga- 57–59, attracted widespread attention to the
nizational Dynamics, 1979 (winter), 59–80, growing trend in outsourcing. The key prin-
provides a brief overview of functional, divi- ciples of the hollow form are summarized by
sional, and matrix structures. Stewart A. Simon Domberger in The Contracting Organi-
Clegg’s book Modern Organizations (Sage, zation (Oxford University Press, 1998). Exam-
1990) traces the evolution from traditional ples of the hollow form can be found in the
to contemporary organization designs. The following articles: Anthony Bianco and
classic reference on divisional structures is Stephanie Anderson Forest, ‘‘Outsourcing
Strategy and Structure (MIT Press, 1962) by War,’’ Business Week, 15 September 2003,
Alfred Chandler. Matrix (Addison-Wesley, 42–49; Pete Engardio, Aaron Berstein, and
1979) by Stanley Lawrence and Paul Davis Manjeet Kripalani, ‘‘The New Global Job
is the definitive introduction to the topic. Jay Shift,’’ Business Week, 3 February 2003,
Galbraith’s Designing Complex Organizations 36–48; and Pete Engardio and Bruce Einhorn,
(Addison-Wesley, 1973) provides a brief yet ‘‘Outsourcing Innovation,’’ Business Week, 21
comprehensive description of Era 1 designs. March 2005, 86–94. More generally, John
In their book Reengineering the Corpora- Hagel III and Marc Singer discuss the Era
tion (HarperBusiness, 1993) Michael Ham- 3 philosophy of design in their aptly titled
mer and James Champy discuss how article ‘‘Unbundling the Corporation,’’
reengineering horizontal processes can cut Harvard Business Review, March–April 1999,
costs and improve customer value. John A. 133–141.
Bryne’s ‘‘The Horizontal Corporation,’’ Busi- The article titled ‘‘The Modular Corpora-
ness Week, 20 December 1993, 76–81, provides tion’’ by Shawn Tully and Tricia Welsh, For-
a number of original illustrations of compa- tune, 8 February 1993, 106–115, helped
nies that have adopted the horizontal design. spread awareness of this Era 3 option to a
The principles of team-oriented organization wide business audience. A comprehensive
design are succinctly articulated by Albert discussion of the modular form can be found
Cherns in ‘‘The Principles of Sociotechnical in Carliss Y. Baldwin and Kim B. Clark,
Designs,’’ Human Relations, 1976, 29, 783–792. Design Rules: The Power of Modularity v.1
The Ford Escape SUV example used in the (MIT Press, 2000). Academic articles discuss-
article is adapted from Chuck Salter’s article ing the key features of the modular form
‘‘Ford’s Escape Route,’’ FastCompany, Octo- include the following: Ron Sanchez and
ber 2004, 106–110. Frank Ostroff’s book The Joseph T. Mahoney, ‘‘Modularity, Flexibility,
Horizontal Organization (Oxford University and Knowledge Management in Product and
Press, 1999) is a comprehensive exposition Organizational Design,’’ Strategic Manage-
of that design option. A wonderful firsthand ment Journal, 1996, 17, 63–76; and Melissa
report of an organization moving from pre- A. Schilling and Kevin T. Steensma, ‘‘The
dominantly Era 1 vertical lines of command Use of Modular Organizational Forms: An
to Era 2 horizontal processes can be found in Industry Level Analysis,’’ Academy of Man-
Mary Walton’s Car (W.W. Norton, 1999). agement Journal, 2001, 44, 1149–1168. Exam-
343
ples of the modular form can be found in Business School Press, 1998). The P&G-
Philip Siekman’s ‘‘The Snap-Together Busi- Clorox virtual organization example was
ness Jet,’’ Fortune, 21 January 2002, 104A– drawn from Patrica Seller’s article ‘‘Teaching
104H; and David Welch’s ‘‘How Nissan Laps an Old Dog New Tricks,’’ Fortune, 31 May
Detroit,’’ Business Week, 22 December 2003, 2004, 166–180.
60–62. Transitioning from a traditional organi-
William Davidow and Michael Malone’s zation design to a more contemporary option
book The Virtual Corporation (HarperCollins, can be challenging. A number of books pro-
2003) provides a good introduction to the vide guidance on how the redesign challenge
opportunities and challenges of the virtual can be met, including Bruce Pasternack
form. A framework that considers when the and Albert Viscio’s The Centreless Corporation
virtual form should be favored is provided (Simon & Schuster, 1998); David Nadler and
by Henry Chesbrough and David Teece in Michael Tushman’s Competing by Design
their article ‘‘When is Virtual Virtuous? (Oxford, 1997); Henk Volbreda’s Building
Organizing for Innovation,’’ Harvard Business the Flexible Firm (Oxford, 1998); Jay Gal-
Review, January–February 1996, 65–73. Shona braith’s Designing Organizations (Jossey-Bass,
Brown and Kathleen Eisenhardt theorize 2002); and Michael Goold and Andrew
the virtues of temporary organizations in Campbell’s Designing Effective Organizations
their book Competing on the Edge (Harvard (Josey-Bass, 2002).
Richard L. Daft holds the Brownlee O. Currey, Jr. Chair in the Owen
Graduate School of Management, Vanderbilt University, where he
studies and teaches leadership, high-performance cultures, and change
management. Daft has authored 12 books, including his best selling
textbook, Organization Theory and Design, 9th ed. (Thomson, 2007). Daft
also co-authored Fusion Leadership: Unlocking the Forces that Change People
and Organizations (Berrett-Koehler, 2000), and has published dozens of
scholarly articles. He has been involved in management development
and change consulting for many organizations, including Bridgestone/
Firestone, the National Academy of Science, American Banking Associa-
tion, Bristol-Myers Squibb, Allstate Insurance, Pratt & Whitney, and State
Farm Insurance (email: dick.daft@owen.vanderbilt.edu).