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Enterprises change at a breathtaking pace, reorganizing too often. Wasting a lot of time, energy, money and morale in the process. in the middle of a market tornado, enterprises try to reach a “stable state”. We would argue, enterprises should strive to reach a dynamic state. A state where adaption doesn’t equal reorganization. Such an organizational design is already being utilized.
The Multidimensional (MD) Design
The Multidimensional Design was originally developed at Dow Corning. It eliminates the need to reorganize when faced with a significant internal or external change.
The need to organize comes from the need to divide labor. To organize is to divide labor among different individuals or groups and to coordinate their activities in such a ways as to obtain a desired output. The more divided the labor, the more coordination is required. There are only three ways of dividing labor, meaning only three types of organizational unit:
a) Functionally defined units (Purchasing, R&D, Industrial Relations, etc.)
b) Product- or service-oriented output units (the magazines of a publishing company, the coffee of Starbucks)
c) Market- or user-defined units (units defined by the geographic areas they sell in)
Most enterprises have all three types of units. Their importance is often ordered in the structure of most organizations. If product uniqueness is most important, then product-defined units dominate. If costs are the primary concern, functionally defined units rise to the top. All reorganizations involve changing the relative importance of the three criteria used in dividing labor, that is, changing the organizational levels at which units of the three types appear.
If units of all three types are established at a particular level of an organization, as their relative importance changes all that is required at that level is a reallocation of resources among them. Their reorganization is not required. Therefore, if the three types of unit are established at every level of an organization, the need to reorganize at any time is completely eliminated. Units of any of the three types can be added or subtracted without requiring reorganization; the organization’s structure remains the same.
Conventional representations of organizational structures do not indicate the interactions of the units. Three-dimensional representation of an organization makes it possible to show explicitly the interactions that should or do take place between units.
Product- or Service-Define Output Units
In a multidimensional organization, product- and service-defined (output) units consists of a management and only a small supporting staff, but no other personnel, and no facilities other than what is required to house this small staff of people. They are responsible for providing or arranging for all the activities required to make their products and services available to customers. These units obtain income from sale of their products and services. If they require more capital than they generate or accumulate, they can apply for it from a higher level of the organization. They are expected to treat such funds as loans or investments. They must pay for their use, one way or another.
Function-Defined Input Units
Units whose outputs are consumed primarily by other internal units are functionally defined , or input units. Functional units are often divided into two types, one defined as “operations” and the other as “service”. Operation units are ones that have a direct effect on the output (operations) of the organization, for example, manufacturing, maintenance, and purchasing. Service units have no such effect; they affect the nonoperational behavior of other units; they affect the nonoperational behavior of other units. Functional units are free to both purchase whatever they need and to sell whatever they produce or provide, either internally or externally. Their purchasing and selling decisions are subject to intervention from above and to compensation for such intervention when appropriate. They receive the income that their sales generate, and they pay the cost of whatever they purchase.
Market- or User-Defined Units
Market units – units that are defined by the users by the users they serve – have two complementary functions. First, they sell the outputs of any other unit in the organization that wants to use their services, as well as selling outputs externally. Second, market units also serve as advocates of the users in the markets for which they are responsible. They should not only represent the company in the market, but also the market in the company.
Market units evaluate the activities and outputs of other internal units from the point of view of potential and actual users of the organization’s outputs, who are outside of the organization and are affected by these outputs. For that reason, market units operate as consultants to the executive office and other unit heads.
A uniform, explicit, and operationally unambiguous measure of performance – which incorporates some function of the amount of profit generated, for example, return on capital employed – can be applied to units at every level, including the executive office. This makes possible comparison of the performances of units at all levels and discourages make-work and bureaucracy. However, profit is by no means the only important performance characteristic. Recall that in socially-systematically conceived organization, development of the organization, its stakeholders, and its containing system are its overriding objectives. Although profit is necessary for corporate development, it is not sufficient.
In our next installation, we discuss a plan being a system of solutions.