The goodness of fit between a firm’s design and its environment is a major determinant of the firms’ performance. To get the design “wrong,” is to lose out to those competitors that get their design “right.” To get the design “more right” than do the competitors is to gain performance and survival advantage.
By George P. Huber
In everyday usage, a firm’s design refers primarily to its structure. But structure must be congruent with the firm’s strategy (which refers primarily to its product mix and chosen markets) and with its core technology (the primary process for producing and distributing the firms goods or services). Besides being congruent with each other, these three features must also be congruent with the firm’s current or anticipated environment, e.g., the technologies, internal political forces, regulatory constraints, societal expectations, and economic and competitive conditions that confront the firm. In actual practice, choices concerning strategy, core technology, and structure are made in conjunction with each other and with regard to the firm’s environment and to the perceived ability of the firm to influence aspects of its environment.
A key organization design characteristic is the set of arrangements the firm has with other firms. Which of its activities does the firm keep inside and which does it pass off to contractors, partners, or firms in its network or other collective arrangement of firms? This decision, which must be in accord with the decisions concerning organizational strategy and core technology, determines the firm’s scope, i.e., its boundaries in terms of the range of its activities and, to an extent, its size. The two other primary structural characteristics to be chosen are (1) the nature of the firm’s subunits, i.e., their number, size, and specialization and (2) the firm’s integrative and coordinative mechanisms, i.e., its authority, consultation, and information flow relationships. (Organization charts are rudimentary representations of these last two organization design characteristics.)
In recent times, more sophisticated organization designers have come to take into account not only strategy, core technology, and structure (generally regarded as the primary organization design features), but also the desired characteristics of the firm’s employees, culture, and routines. These latter organizational features are not so clearly design features, as they are not as readily molded as are the three primary features.
It is important to recognize that we are rarely able to observe the designer’s intended design in practice. Efforts to achieve fully the intended design are constrained by the difficulty of achieving congruence among the organization design features and also with the firm’s environment. Whatever the level of success achieved with regard to attaining the intended design, the processes for implementing the intended design are not without flaw or friction, leading to erosion of the intended design’s characteristics before it is fully implemented. Finally, during the interval between implementation and observation, internal and external environmental conditions change, eroding the goodness of fit between the implemented design and these environments and requiring alterations in the design features – such that the observed design is generally not what its designers intended.
The above description of the organization design process and outcomes provides an underpinning and background for the following multiple definitions of organization design.