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(Simulated) Organizations

in Action
Pilot testing an Organization Design simulation

Nicolay Worren

Simulation developed in collaboration with Tido Eger


The plan

10:35 Introduction

11:00 Simulation

12:00 Break

12:15 Debriefing
Background
Traditionally, one has distinguished between ”top down”
and ”bottom up” design perspectives
Strategic
design

Operational design
The theoretical ideal is to perform the operational design in
a manner that minimizes coordination cost

Within the
same unit A B

Across
different A B
units

“Under norms of rationality, organizations group positions to minimize


coordination costs”
“Organizations seek to place reciprocally interdependent positions tangent to
one another, in a common group, which is (a) local and (b) conditionally
autonomous”
(Thompson ,1967, p. 57)
We should distinguish between two phases of Operational
Design

1.
Identifying A B C E F
interdependencies
D

”Unit A” ”Unit B”
2.
Grouping of
roles/units A B C E F
based on the
D
interdependencies
Today, we skip the first stage by using colors to indicate who
is interdependent and thus should be grouped together

1.
Identifying A B C E F
interdependencies
D

”Unit A” ”Unit B”
2.
Grouping of
roles/units A B C E F
based on the
D
interdependencies
The simulation task is analogous to a company that decides to
move from one grouping criterion to another (a)
= Geography A
1 Initial: Geographical organization
= Geography B

Unit A Unit B

2 The firm identifies roles according to new criterion


= Product 1
= Product 2
The simulation task is analogous to a company that decides to
move from one grouping criterion to another (b)

3 The firm restructures according to new grouping criterion


= Product 1
= Product 2
Unit A Unit B
We will monitor the performance of each unit (table) and
the total group in real time by using an Excel tool*

Changes in total system cost with number of switches

450

414
400 398
386
366
350 350
338
330

300 306

278
262
250 250
Cost

200

150

100

50
36 40
28 32
20 24
12 16
4 8
0 0
0 1 2 3 4 5 6 7 8 9 10
Number of switches

Total Coord Cost Switching Cost

*The tool was developed by Tido Eger


Simulation Briefing
The plan

10:35 Introduction

11:00 Simulation

12:00 Break

12:15 Debriefing in
Starting configuration (with N = 36)

1 1 1 1 1 2 2 2 2 2 3 3 3 3 3 4 4 4 4 4 5 5 5 5 5 6 6 6 6 6 7 7 7 7 7 7
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36

1 6 11
1 2 12
3
2 7
3 4 5 8 9 10 13 14 15

16 21
26
17
4 22
5 6
27
18 19 20 23 24 25
28 29 30

31

32
7 36

33 34 35

Note: Players are shown in consecutive order but may be seated in any order around the designated table
What’s the analogy?
• Colors
– People that you are dependent upon (e.g., that work on the same process
as you do)
• Tables
– The formally defined units (e.g., departments)
• Coordination cost
– The cost associated with collaborating, communicating, exchanging
information etc within and across units
• Switching costs
– The costs that arise as a result of transferring people to another unit (e.g.,
training in new role, temporarily reduced productivity, etc.)
There is a small set of simple rules that we need to follow
The goal : To minimize table and total group coordination cost by grouping same
color around table

1. You should agree around the table about which person to move

2. All moves are reciprocal (i.e., between two tables) – you must
receive a person from the table you are moving a person to

3. Each table can make 5 moves (within the timeframe of the


simulation)

4. Each move must be documented on the attached sheet, which


should be handed to the facilitator when a move is executed
– The two tables involved in swap hand in one paper sheet
How to calculate your coordination cost

3+3=6 1+3=4
Individual
coordination 6 4 4 4 4 6
cost

Table
coordination 14 14
cost

6 + 4 + 4 = 14 4 + 4 + 6 = 14
De-briefing
A gradual reduction in coordination cost was achieved
Changes in total system cost with number of switches
Only the last move
600 stands out as
suboptimal
0
500 4
8
12
16 20 24 28
32 36 40
400
Cost

300

518 502 486 470 454 442 430 418


200 402 402 402

100

0
0 1 2 3 4 5 6 7 8 9 10
Number of switches

Switching Cost Total Coord Cost


Minimal coordination costs were achieved at Table 2
Table 2 after 4 swaps
Number of switches
0 6 7 8 9 10
1 6 7 8 9 10
2 6 7 8 9 33
3 6 7 8 28 33
4 6 20 8 28 33

Table 7 after 2 swaps

Number of switches
0 31 32 33 34 35 36
1 31 32 33 34 35 36
2 31 32 10 34 35 36
3 31 32 10 34 35 36
4 31 32 10 34 35 36
What’s analogous to what we experience in real life?
1. Organizations sometimes change the ”grouping criterion”
– E.g., they move from a functional to process based structure, or from geographical to
product based structure)

2. One must try to increase both individual, team and overall performance

3. Reconfiguring an organization in such situations depends on the capacity to handle


a complex set of direct and indirect interdependencies
– That capacity is limited and the decision process may ”satisfice” rather than ”optimize”

3. At some point, ”switching” (i.e., reconfiguration) costs will exceed the benefits
(reduction in coordination costs)
What simplifying assumptions were made?
1. In real life there are more options. One can:
– Move people

– Move tasks

– Merge two or more sub-units

– Establish integrator roles

– Remove the interdependency that creates need for coordination

2. More time is available too

3. People who are interdependent cannot be identified by means of the color of their
clothing!
In sum: What’s new?

• The simulation creates an experiential setting for learning about key organization

design principles

• It shows how alternative designs may be quantified

• It allows a comparison between ”optimal” and ”actual” decisions in a design

process

 Continuing this line of work may contribute to making organization design a more
analytical discipline
Thanks
• To you – for participating

• To Thorvald Hærem – for allowing us to use you as test pigeons

• To Tido Eger for developing the Excel tool

• To the following companies, for providing t-shirts:


– Accenture

– Petroleum Geo-Services (PGS)

– Posten

– Expert

– Ringnes (Solo)

– Kiwi
Bio
• Independent consultant
– 12 years of experience with organization re-design, process
improvement, strategic HR, and strategy facilitation

• Previously with Accenture, PA Consulting Group, and Aker

• PhD (2003) from Said Business School, Oxford University

• MA (1994) from McGill University

• Currently writing textbook with Pearson Education, UK

• Blog: www.nicolayworren.com

• Contact: nicolay@worren.com