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What is Organization Design Theory and Why is it Important?
Organization design is a theoretical perspective that overlaps with others (see organization development & change, Rack BG) but is distinctive in its own right. The field of organizational design encompasses the structures, processes, and systems that organizations utilize to achieve their goals and adapt to their environments. Theorizing in organizational design covers a broad array of important topics like innovation, enhancing performance, employee engagement, and overall organizational effectiveness. What should be emphasized is that despite the emphasis on understanding structures and other tangible artifacts of organization, this perspective does not ignore the human element. In fact, the design of the individual job and therefore conceptions of “fit” in an organization is also included in this perspective.
At its core, organizational design addresses the fundamental challenge of how to structure collective human effort effectively. Prominant design scholar Jay Galbraith (2014) calls this “a prescriptive body of knowledge,” as opposed to other subfields of organization theory that is descriptive, seeking to understanding the organization in its context. This makes organization design very relevant as it understands how choices in structures and processes influence every aspect of organizational life. For example, when an organization decides to use a matrix structure versus a traditional hierarchy, this shapes communication patterns, decision-making processes, innovation capacity, relationships between structures and outcomes, and the shaping of power relations (and resulting inequalities) within the organization.
Organizational design perspectives can also help address how organizations structure themselves (or are structured) to deal with external factors such as matters of complexity and the balancing of contradictory or competing demands. One can see this in the long-running shifts away from vertical integration where the supply chain of a firm is wholly owned by that firm (Coase, 1937) to the contemporary gig economy where the firm owns very little in assets and relies on individual contractors to provide their services (see Episode 40). There are benefits and challenges at each of this spectrum whereby the latter may be better for adaptation and innovation but greater vertical integration may avoid the pitfalls of external dependence for resources (Galbraith, 2014).
There is a maxim that says, “Every system is perfectly designed to get the results its gets.”1 So what are the options for organizing and what factors should be considered for weighing those options? That’s what this field is about.
1Attributed to several scholars although Arthur Jones is among the most credited for it.
Some Leading Design Theories & Concepts
Organizational design parallels the early movements of organization studies from classic management theory to the 1970s. From scientific management and administration theory (Rack BA) to the human relations movement (Rack BH) and contingency theory (Rack BC), structuring to satisfy the organizations’ purposes while accounting for and eventually promoting the needs of the individual members were part and parcel to the theoretical development. According to Galbraith (2014), in the 1970s there were two streams that emerged and diverged with respect to explaining the roles of structures and processes and its relationships with the organizations’ cultures and climates. These two streams are described below, followed by others that have emerged since.
Strategic Design. The first stream was more from the managerial perspective, represented by the work of Joan Woodward (see Episode 60) on various industrial organizational forms and Alfred Chandler (1974) on the emergence of middle management (see Episode 74). Woodward identified several forms of organizational structures common within particular industries due to the nature and character of the goods and services produced. For example, some industries were more successful employing product-based structures whereby the subdivisions within the firm were fully integrated toward the production of a particular product or assigned an encapsulated project, while others were task-oriented whereby subdivisions controlled all assets in a firm related to one function (e.g., human resources, budget, operations) with integration on an as-needed basis becoming important. This allowed for pooling of like resources. Likewise, Chandler found that differences in organizational structures emerged from different strategies including within an industry. A particularly noteworthy case was in his treatment of national expansion of railroads whereby some were more centrally managed while others were more decentralized. Books like Stanford (2015) provide a wide range of foundational and contemporary designs.
Sociotechnical Systems Theory. On the more processual side of things, this stream represents more of a more bottom-up perspective and is represented by the work of Eric Trist. In Episodes 34 and 114, we discussed the seminal work that brought about the theory — Trist and Bamforth’s (1951) study of a technological change introduced for coal-mining that failed due to its breaking apart of the social fabric. A related perspective is that of Alvin Gouldner, who is his (1974) study of gypsum mines, deduced how patterns of bureaucracy emerge as the result of top-down, bottom-up, and mutually agreed rules — with the latter being the most successful in terms of consistent application and acceptance by managers and workers alike (see Episode 78).
Job Design. A third stream revolves around the specifications for a single position — the tasks, responsibilities, and relationships associated with each job in the organization. One of the seminal works in this subfield is Hackman and Oldham (1975, see Episode 77) that identified five “core” job dimensions of skill variety, task variety, task significance, levels of autonomy, and levels of feedback.
Contemporary Research Areas
As organization design is more prescriptive than other theories, research is heavily focused on practical application of design strategies and choices. This is but a representative sample of the topics being studied, grouped into broad themes. Several of these themes are also covered in the “hot topics” section of this resource center (Aisle C). Additional suggestions welcome.
Organizational Learning and Adaptive Organizational Designs. A key area of research covers general adaptability of organization designs to be flexible and responsive to changing environments (see Rack CA). For example, how can scientific research teams be designed so to maintain robustness and adaptability in dynamic contexts (Wang & Rong, 2015)? Or how can hospital organizations be designed to foster learning cultures to enhance knowledge management and improve patient care (Lyman et al., 2019)? This area of research is increasingly relevant as organizations face uncertainties and must develop resilient structures that can withstand external shocks.
Designing to Leverage Digital Transformations and AI. Each new technology (especially potentially disruptive ones like AI) potentially brings with it some design challenges. As organizations increasingly adopt digital technologies (see Rack CD), research on their impacts on organizational designs has become prominent, such as studies into how artificial intelligence (AI) influences firm performance and the organizational structures that support AI-based transformation projects (Wamba-Taguimdje et al., 2020). Also, research on organizational agility emphasizes the need for designs that enable organizations to respond swiftly to market changes and disruptions, such as how an organization’s design can be used to mediate the negative impacts of innovation on performance (Ahmad, 2022).
Design Thinking and Innovation. Design thinking is related to organization design in that it is a cognitive skill under which solutions to design problems can be developed. Rooted in the works of Herbert Simon (1969) and then formalized by David Kelley, design thinking introduces a human-centered approach leveraging empathy, creativity, and experimentation to improve organizations (see Kelley, T. & Kelley, D., 2013). Research into the application of design thinking principles to organizational design has gained attention as a means to foster innovation. For example, Carlgren et al. (2016) highlights some benefits of design thinking as a human-centered approach to innovation, emphasizing the importance of understanding user needs in the design process.
Related TAOP Episodes, Events, and Notes
114: Sociotechnical Systems — Trist & Bamforth (revisited)
105: Manifest & Latent Roles — Alvin Gouldner
85: Carnegie-Mellon Series #6 — Organizations
83: Organizational Design — Jay Galbraith
77: Job Design – Hackman & Oldham
76: Comparative Analysis of Organizations – Charles Perrow
74: Emergence of Middle Management — Alfred Chandler
67: Professions & Professionalism — Andrew Abbott
57: Reward Systems – Steven Kerr
56: Cooperative Advantage – Charles Clinton Spaulding
44: Transaction Costs and Boundaries of the Firm – Williamson and Malone
Centralization and the Inefficient Quest for Efficiency
41: Images of Organization – Gareth Morgan
24: Learning by Knowledge-Intensive Firms — Bill Starbuck
22: Human-Machine Reconfigurations – Lucy Suchman
20: High Reliability in Practice – USN Rear Admiral Tom Mercer
18: Gig Economy, Labor Relations and Algorithmic Management
6: Bureaucracy – Max Weber
Available Resource Pages
Aisle B – Major Theoretical Perspectives and Schools
Rack BA — Classic Organization and Management Theory
Rack BB1 – Organizational Behavior (Micro-Individual)
Rack BB2 — Organizational Behavior (Meso-Groups and Teams)
Rack BB3 — Organizational Behavior (Macro-Org/System)
Rack BC — Contingency Theory
Rack BD — Organizational Design
Rack BG — Organizational Development and Change
Rack BH – Human Dimension – Culture, Climate, Identity
Rack BI — Institution Theory
Rack BL — Leadership Theories
Rack BM – Modern Management Theories
Rack BQ — Postmodern and Critical Theories
References
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Ahmad, A. (2022). Antecedents of technological innovation and further impact on organizational performance. Journal of Digitovation and Information System, 2(1), 1-16. https://doi.org/10.54433/jdiis.2022100009
Carlgren, L., Rauth, I., & Elmquist, M. (2016). Framing design thinking: the concept in idea and enactment. Creativity and Innovation Management, 25(1), 38-57. https://doi.org/10.1111/caim.12153
Coase, R. H. (1937). The nature of the firm. Economica, 4(16), 386-405.
Galbraith, J. R. (1973). Designing complex organizations. Boston: Addison-Wesley.
Galbraith, J. R. (1974). Organization design: An information processing view. Interfaces, 4(3), 28-36.
Galbraith, J. R. (1977). Organization design. Boston: Addison-Wesley.
Galbraith, J. R. (2014). Designing organizations: Strategy, structure, and process at the business unit and enterprise levels, 3rd ed. New York: Jossey-Bass.
Gouldner, A. (1954). Patterns of Industrial Bureaucracy. New York: Free Press.
Hackman, J. R., & Oldham, G. R. (1975). Development of the job diagnostic survey. Journal of Applied Psychology, 60(2), 159-170.
Kelley, T., Kelley, D. (2013). Creative confidence: Unleashing the Creative Potential Within Us All. United Kingdom: Crown.
Lyman, B., Jacobs, J., Hammond, E., & Gunn, M. (2019). Organizational learning in hospitals: a realist review. Journal of Advanced Nursing, 75(11), 2352-2377. https://doi.org/10.1111/jan.14091
Simon, H. A. (2019/1969). The Sciences of the Artificial, reissue of the third edition with a new introduction by John Laird. MIT press.
Wamba-Taguimdje, S., Wamba, S., Kamdjoug, J., & Wanko, C. (2020). Influence of artificial intelligence (AI) on firm performance: The business value of AI-based transformation projects. Business Process Management Journal, 26(7), 1893-1924. https://doi.org/10.1108/bpmj-10-2019-0411
Wang, S. and Rong, L. (2015). The organizational design method for scientific research team based on computational organization theory. https://doi.org/10.2991/jimet-15.2015.102
Woodward, J. (1980). Industrial organization: Theory and practice, 2nd ed. New York: Oxford University Press.
Jump to: Importance | Theories | Research Areas | TAOP Episodes | References
Rack BK (Structures & Organizational Design): Job Design | Organizational Design | Control Structures
Aisle B (Major Theories): Classical Theories (BA) | Org. Behavior – Individual (BB1) | Org. Behavior – Groups & Teams (BB2) | Org. Behavior – Systems & Culture (BB3) | Contingency Theories (BC) | Org. Design (BD) | Org. Development & Change (BG) | Human Relations Theories (BH) | Institution Theories (BI) | Leadership Theories (BL) | Modern Management Perspectives (BM) | Postmodern & Critical Theories (BQ)
Resources: Main Page | Research Methods (A) | Major Theories (B) | Issues and Contemporary Topics (C) | Professional Education (D)