Organization Design: Volume 40

Organizational cultures that facilitate collaboration are valuable, but little is known about how to create them. The authors investigate the microfoundations of this problem using computational models of dyadic coupled learning. The authors find that merely altering initial beliefs about the consequence of actions (without altering the consequences themselves) can under some conditions create cultures that promote collaboration. The results of this study show why the right initial “framing” of a situation – established for instance through persuasive rhetoric, an inspiring vision, or careful recruitment choices – may under the right conditions be self-reinforcing, instead of becoming empty symbolism.

In this chapter, the authors theorize organizational integration by extending, elaborating, and combining various theoretical perspectives, such as structural contingency theory, organization economics, and organizational culture. The aim of this study is to provide the foundation for a holistic theory of integration that examines the different relevant facets of integration and a comprehensive set of tools – integrative devices – by which integration can be sought by those who design the organization. To this end, the authors examine the integration challenge that arises from various types of subunit interdependence – pooled, sequential, and reciprocal – and theorize which configurations of integrative devices are more likely to be effective in a given task environment. The authors close by discussing directions for future research on organizational integration.

In this chapter, the authors argue that organizational controls are best depicted and studied as sets of control configurations. Concepts from extant control research streams describing basic control elements as well as ideal types of control systems are used to identify and classify control configurations. The authors present compositional distinctions among four control configurations using a decade-long case study of a start-up company. By displaying how specific control elements are simultaneously distinct and intertwined in this company, the authors reveal significant theoretical insights that can assist scholars in distinguishing between different configurational patterns and in comprehending dynamics present in holistic perspectives of control. The authors conclude by discussing how conceptualizing controls as configurations most accurately reflects both organizational and managerial practice in ways that can motivate the development of new theories and approaches to studying this key aspect of organizational design. Because control configurations inherently reflect interdisciplinary concerns, and because such configurations affect the attainment of strategic goals, this work provides findings and ideas that fit the interests of a broad audience.

The authors examine how firms can achieve organizational ambidexterity, that is, how they can successfully engage in concurrent exploitation of existing competencies and exploration of new competencies in their search for new products. Existing research has identified three enablers to manage these fundamentally different activities: temporal separation, structural separation, and the creation of context. Studying the strategic orientation, organization design, and performance of a unique sample of mid-sized German manufacturing firms, the authors find that the controlled interplay of decentralized decision making and formalized processes and goals is another effective means to manage the challenges of pursuing an innovation strategy balancing both exploitative and exploratory activities. The findings of this study suggest that this balanced control constitutes a fourth enabler of ambidexterity.

How do organizations respond to negative feedback regarding their innovation activities? In this chapter, the authors reconcile contradictory predictions stemming from behavioral learning and from the escalation of commitment (EoC) perspectives regarding persistence under negative performance feedback. The authors core argument suggests that the seemingly contradictory psychological processes indicated by these two perspectives occur simultaneously in decision makers but that the design of organizational roles and reward systems affects their prevalence in decision-making tasks. Specifically, the authors argue that for decision makers responsible for an individual project, responses given to negative performance feedback regarding a project are dominated by self-justification and loss-avoidance mechanisms predicted by the EoC literature, while for decision makers responsible for a portfolio of projects, responses to negative performance regarding a project are dominated by an under-sampling of poorly performing alternatives that behavioral learning theory predicts. In addition to assigning decision-making authority to different organizational roles, organizational designers shape the strength of these mechanisms through the design of reward systems and specifically by setting more or less ambiguous goals, aspiration levels, time horizons of incentives provided, and levels of failure tolerance.

In this study, the authors unpack the micro-level processes of knowledge accumulation (experiential learning) and knowledge application (problem solving) to examine how task allocation structures influence organizational learning. The authors draw on untapped potential of the classical garbage can model (GCM), and extend it to analyze how restrictions on project participation influence differentiation and integration of organizational members’ knowledge and consequently organizational efficiency in solving the diverse, changing problems from an uncertain task environment. To isolate the effects of problem or knowledge diversity and experiential learning, the authors designed three simulation experiments to identify the most efficient task allocation structure in conditions of (1) knowledge homogeneity, (2) knowledge heterogeneity, and (3) experiential learning. The authors find that free project participation is superior when the members’ knowledge and the problems they solve are homogenous. When problems and knowledge are heterogeneous, the design requirement is on matching specialists to problem types. Finally, the authors found that experiential learning creates a dynamic problem where the double duty of adapting the members’ specialization and matching the specialists to problem types is best solved by a hierarchic structure (if problems are challenging). Underlying the efficiency of the hierarchical structure is an adaptive role of specialized members in organizational learning and problem solving: their narrow but deep knowledge helps the organization to adapt the knowledge of its members while efficiently dealing with the problems at hand. This happens because highly specialized members reduce the necessary scope of knowledge and learning for other members during a certain period of time. And this makes it easier for the generalists and for the organization as a whole, to adapt to unforeseen shifts in knowledge demand because they need to learn less. From this nuanced perspective, differentiation and integration may have a complementary, rather than contradictory, relation under environmental uncertainty and problem diversity.

In this chapter, the author outlines the link between organization design and competitive strategy, focusing on rivalry. A firm’s organization design choices can affect its competitive advantage as well as the strategic decisions of its rivals. Therefore, organization design can influence the nature and intensity of competitive interactions between firms. To illustrate this effect, the author focuses on the literature on divisionalization and offers a set of propositions as examples. Taken together, the author makes three main observations: (1) a firm’s competitive position and objectives are reflected in its organizational choices; (2) heterogeneity in competitive position and objectives lead to heterogeneity in organization design choices across firms; and (3) organization design and competitive strategy are interdependent processes. The author concludes by discussing the implications for strategy and management research and pointing out some opportunities for future research.

The authors argue that organization design needs to play a more active role in the explanation of differential performance and outline a set of ideas for achieving this both in theoretical and empirical research. Firms are heterogeneous in terms of (1) how well they do things, capturing persistent productivity differences, and (2) how they do things – and both reflect firms’ organization design choices. Both types of heterogeneity can be persistent, and are interdependent, although they have typically been studied separately. The authors propose a simple formal framework – the “aggregation function framework” – that aligns organization design thinking with the emphasis on performance heterogeneity among firms that is characteristic of the strategy field. This framework allows for a more precise identification of how exactly organization design may contribute to persistent performance differences, and therefore what exactly are the assumptions that strategy and organization design scholars need to be attentive to.

A collaborative community is an organizational form that is increasingly being used in knowledge-intensive industries to accelerate innovation via collaboration. This study examines key design issues faced by a bilateral broker collaborative community at the point of its formation: (1) whether a critical mass of members is required for community survival, (2) the nature of the match between member skills and community challenges, and (3) how the mix of member skills needs to be adjusted over time to sustain community growth. Findings from our agent-based simulation study indicate that, contrary to suggestions in the literature, a critical mass of members is not necessary for a bilateral broker community to survive early on. The literature also suggests that there should be a match between the skill levels of community members and the skill requirements of the challenges that the community must solve in order for it to grow. We find that a match between skill levels and challenge requirements is necessary but not sufficient: the skill levels of community members must significantly exceed the skill requirements of the challenges. Lastly, we find that the appropriate amount of heterogeneity in member skills is contingent on several factors associated with how the community adapts over time. Implications of these findings for the theory and practice of organization design are discussed.

An emerging management trend is to use the “wisdom of the crowd” to make decisions traditionally made by the top management alone. Research on this phenomenon has focused mainly on the capacity of crowds to generate ideas, but much less is known about a crowd’s capacity to select ideas. To study crowd-based idea selection in firms, this chapter develops a mathematical model of a crowd that makes decisions by majority voting. The model takes into account contingencies that are of particular importance to firms, namely: the size of the population from which the crowd is drawn, the distribution of accuracy among members of the population, and the firm’s ability to recruit the population’s most accurate individuals. The results show that: (1) under relatively common conditions, increasing the size of the crowd may actually reduce performance; (2) near-optimal performance can usually be achieved by a much smaller crowd than the one required to achieve optimal performance; (3) determining the best crowd size depends critically on the firm’s ability to recruit “accurate” individuals; and (4) good performance does not require large crowds unless all population members exhibit low levels of accuracy.

The authors provide new quantitative evidence of the relationship between technologies and organizational design in the context of complex one-off products. The systems that produce complex, one-off products in mature, fragmented industries such as construction lack many of the typical organizational features that researchers have deemed critical to product development success (e.g., team familiarity, frequent communication, and strong leadership). In contrast, the complexity of these products requires a diverse knowledge base that is rarely found within a single firm. The one-off nature of construction’s products further requires improvization and development by a distributed network of highly specialized teams. And because the product is complex, significant innovations in the end product require systemic shifts in the product architecture. Riitta Katila, Raymond E. Levitt and Dana Sheffer use an original, hand-collected dataset of the design and construction of 112 energy-efficient “green” buildings in the United States, combined with in-depth fieldwork, to study these questions. A key conclusion is that the mature US construction industry, with its particularly fragmented supply chain, is not well suited to implementing “systemic innovations” that require coordination across trades or stages of the project. However, project integration across specialists with the highest levels of interdependence (i.e., craft, contract integration) mitigates the knowledge and coordination problems. There are implications for research on how technology shapes organizations (and particularly how organizations shape technology), and on the supply chain configuration strategies of firms in the construction industry as well as building owners who are seeking to build the best buildings possible within their budgets.