Leading & Managing inComplex Organizations

“Organizational Design”

Day 1 – Afternoon Session

Michael J. Deegan, M.D., D.M.

Learning Objectives

Describe the purpose of an organization, its major components, and the contribution each makes to organizational effectiveness.

Explain how an organization’s age, size, technical systems, power structure and environment influence its design & operation.

Appreciate how innovation & disruptive business models may influence the design of future organizations.

“The Organizational Skeleton”

PURPOSE & GENERAL DESIGN CONCEPTS

“ An organization’s formal structurescreate the playing field and rules forall activities that take place in theoverarching system.”

*[Heifetz, Adaptive Leadership, pg. 54]

Strategy(Direction)

People(Skills & Mindsets)

Rewards(Motivation)

Processes(Information Flow)

Structure (Authority / Decision- Making)

GalbraithDesign Domains

Galbraith JR: Designing Organizations; Jossey-Bass. 2002

- Specialization- Shape- Power Distribution- Departments

Organizational Archetypes

Functional Product Customer – Market Process Geographic Matrix Network Combinations

Work Coordination Mechanisms*

Mutual Adjustment

Direct Supervision

Standardization of Work Processes “ “ “ Outputs “ “ Worker Skills

after Mintzberg

Mutual Adjustment

M

A

OO

Operator 1 Operator 2

Manager

Analyst

Direct Supervision

M

A

O O

Standardization

M

A

O O

Input Skills

Specified Training

Work Processes

Specified Steps

Outputs

Specified Features

POWER SHIFT –Manager → Analyst

Increasing Work Complexity

MutualAdjustment

Direct Supervision

·Span of control·Chain of command

Standardization

· Processes · Outputs · Skills

Fayol Weber Taylor

Work Standardization Framework

Highly Standardized

LittleStandardization

Craft

Routine

Non-Routine

Engineering

LO

WH

IGH

Wo

rk A

nal

ysis

Work Variety

LOW HIGH

CarpenterGeneral Manager

University Faculty StrategicPlanning

Tax Accounting

IT SystemDevelopment

Bank Cashier

Call Center staff

Adapted from Cichocki & Irwin, Organizational Design, 2011.

MA?

RN?

Physician?

Coordinating Mechanisms

Bu

reau

crat

izat

ion

→

[ Env

ironm

enta

l Sta

bilit

y →

]

Decentralization →[ Environmental Complexity → ]

DirectSupervision

StandardizeWork Processes

Standardize Outputs

Standardize Skills

MutualAdjustment

?

Environmental Stability – Complexity Framework

Simple Complex

Complexity

Moderate to High Uncertainty

HighUncertainty

LowUncertainty

Low to Moderate Uncertainty

Un

sta

ble

Sta

bleS

tab

ility

Adapted from Cichocki & Irwin, Organizational Design, 2011.

Contextual Factors that Influence Organizational Design *

Age and Size

Technical System(s)

Environmental Factors

Power Relationships

*Mintzberg, Structure in Fives

Contextual Factors: Age & Size

• The older the organization the more formal its behavior• Structure often reflects age when the industry was created• The larger an organization the more elaborate its structure• The larger the organization the larger the average size of its units• The larger an organization the more formalized its behavior

*Mintzberg, Structure in Fives

Contextual Factors: Technical Systems

• ↑ technical system requirements → formal operations → ↑ bureaucracy in operating core

• sophisticated technical system → elaborate staff with increased decentralization to technostructure

• operating core automation → converts bureaucratic structure into organic one

*Mintzberg, Structure in Fives

Contextual Factors: Environment

• dynamic environment → organic structure• complex environment → decentralized structure or design• diverse markets → split units• hostile environment → centralize administrative functions• disparate environment → decentralize selectively to serve

*Mintzberg, Structure in Fives

Contextual Factors: Power

• ↑ external control → centralize, formalize structure

• ↑ member power needs → excess centralization

• fashion favors structure of the day - even if inappropriate

*Mintzberg, Structure in Fives

STRUCTURALALTERNATIVES

Strategic Apex

Technostructure Support StaffMiddle Line

Operating Core

Generic Mintzberg Model

Key Elements of Organizational Structure

Key Part of Organization

Primary Work Coordinating Mechanism

Centralization – Decentralization of Power - Authority

Strategic Apex

Technostructure Support StaffMiddle Line

Operating Core

Generic Mintzberg Model

Where the work of producing an organization’s products or services is performed

New layer(s) of managersproviding guidance between apex and operating core

Technical professional staff focused on work process design & standardization

CEO & executive team- strategy, financing, external relations

Operational support functions

Mintzberg’s Five Structural Options

∙ Simple Structure

∙ Machine Bureaucracy

∙ Professional Bureaucracy

∙ Divisional Form

∙ Adhocracy

Simple Structure

APEX

Operating Core

Support Staff

Informal – Organic - Dynamic

Solo Physician Office

Simple Structure

Primary Coordinating Mechanism: Direct Supervision

Key Part of Organization: Strategic Apex

Main Design Features: Centralization Dynamic organic structure

Contextual Elements: Small Young Simple dynamic environment Little or no technostructure

Simple Structure*

“The simple structure is characterized, above all,by what is not elaborated. Typically, it has no technostructure, few support staff, a loosedivision of labor, and a small managerial hierarchy.Little of its behavior is formalized and it makesminimal use of planning and training. It is, above all, organic.” “Coordination in the simple structure is effected largely by direct supervision. Specifically, powerover all important decisions tends to be centralizedin the owner - manager.”

*Mintzberg, Structure in Fives, pg. 157.

Machine Bureaucracy

AutomobileManufacturing

The Machine Bureaucracy

Primary Coordinating Mechanism: Standardized Work Processes

Key Part of Organization: Technostructure

Main Design Features: Formalized behavior Vertical and Horizontal job specialization Functional groupings Large operating unit size Vertical centralization and limited horizontal decentralization

Contextual Elements: Old, large Regulating technical systems Simple, stable environment External regulation and controls

Professional Bureaucracy

Higher EducationHealth Care Delivery

The Professional Bureaucracy

Prime Coordinating Mechanism: Standardization of Skills [internal vs. external]

Key Part of Organization: Operating Core

Main Design Features: Training [medical school, residency; allied health professional training] Horizontal job specialization Vertical and Horizontal Decentralization

Contextual Elements: Complex, stable environment – true today? Non-regulating technical systems – true today?

Operating Core-Care delivery systems &

processesPhysicians, nurses,

others

MiddleManagementTechnostructure

Finance

Informationsystems

Quality - Safety

Board of Trustees

MedicalStaff

Organization

-Majority independent, not hospital employed-Number from a few dozen to > 1,000 → “a thousand points of veto”-Multiple specialties & support needs-3 to 4 generations of practitioners-Medical education across US & world-Voluntary & Employed physicians-Contractual relationships

Design of a US Acute Care Hospital

“C”Suite Support staffBusiness systems

Strategic Apex

Technostructure

Support StaffMiddle Line

Operating Core

Generic Mintzberg Model

Pull ToStandardize

Pull ToBalkanize

Pull ToCentralize

Pull ToConsolidate

Pull ToProfessionalize

Competing Interests Within an Organization

Mintzberg’s Five Organizational Structures*

Structural Configuration

Prime Coordinating Mechanism

Key Part of Organization

Type of Decentralization

Simple Structure

Direct Supervision

Strategic Apex Vertical & Horizontal Centralization

Machine bureaucracy

Work ProcessStandardization

Technostructure Limited Horizontal Decentralization

Professional bureaucracy

Worker SkillsStandardization

Operating Core Vertical & Horizontal Decentralization

Divisional Form

OutputStandardization

Middle Line Limited Vertical Decentralization

Adhocracy Mutual Adjustment

Support Staff Selective Decentralization

NEWER BUSINESS MODELS

Business Model Typology*

Solution Shop

Value-Added Process Business

Facilitated Network Business

*Christensen, The Innovators Prescription, McGraw Hill, 2009

Solution Shop

∙ Organizations designed to identify [diagnose] and recommend solutions to unusual or unique challenges [problems]

∙ Deliver value to customers using expertise resident in their expert staff – most problems unique and require customized solutions

∙ Examples: consulting firms, advertising agencies, R & D firms, legal firms, general hospitals, specialty physician practices

Value Added Process Business∙ Transforms resource inputs – people, materials, energy, equipment, information, capital – into outputs of higher value

∙ Work is often repetitive and the ability to deliver value rests in the work processes, staff, equipment and other operating functionality

∙ Examples: restaurants, auto manufacturing, smart phones – many medical events or procedures are value-adding process activities [cataract surgery, joint replacement surgery, minute clinics]

Facilitated Network Business

∙ Organizations that operate systems in which customers buy and sell and deliver and receive things from other participants

∙ The networked users are an integral part of the product and contribute to its overall value

∙ Examples: commercial banking, casinos, online investment brokers, Amazon & E-bay Sermo, PatientsLikeMe, disease management networks, Optum are healthcare examples

“The General Hospital is not a viablebusiness model. In the absence of an array of cross-subsidies, restraints oncompetition, and philanthropic lifesupport, most would collapse.” [pg.420]*

“Hospitals suffer from extraordinarily highcomplexity-driven overheads as theyattempt to manage the myriad patient pathways that snake through their facilities.”

*Christiansen CM: The Innovator’s prescription: McGraw Hill, 2009.

Disruptions Within & Across Business Model Type *

Network facilitatorValue-adding ProcessSolution Shop

Dis

rupti

on w

ithin

abu

sine

ss m

odel

type

Dis

rupti

on th

at c

hang

es

busi

ness

mod

el ty

pe

BCGBain CapitalBloomberg

ToyotaWalmartTargetCanon

SkypeElectronicclearing networks

FordKodakTurboTax

eBayGoogle

AmazonGeek Squad

*Christensen CM: The Innovators Prescription, pg. 27

Map of Common Medical Conditions*

Trea

tmen

t E

ffic

acy

Understanding Disease CausationIntuitive Empirical Precise

Migraine

Depression

IBDMS

AAAAppendicitis

Asthma

Prostate Cancer

Strep Throat

Fractures

MI

CVA

Pulmonary Embolism

Intu

itiv

eE

mp

iric

alP

reci

se

* adapted from Christensen, The Innovators Prescription, McGraw Hill, 2009

Type of Medical Practice Required to Diagnose & Treat a Variety of Chronic Conditions

Intuitive: lack of clarity requires multi-disciplinary solution shop

• Systemic lupus• Parkinson’s disease• Fibromyalgia• Bipolar disorder• Infertility• Crohn’s disease• Epilepsy

Rules-Based: single physician can diagnose & treat using evidence-base-based rules

• Type II Diabetes• GERD• Hepatitis C• Heart Failure• Hyperlipidemia• Hypertension• Ischemic heart disease

Disrupting the Business Model of a Physician’s Practice*

Hand Off Hand Off

PCP

NP

Rules-based Precision MedicineFee-for-outcome profit formula

Chronic disease managementFee-for-membership profit formula

PCP

Nurse

Networks

Intuitive medicine practiceFee-for-service profit formula

PCP

Specialist

Wellness Examinations

*Christensen, The Innovators Prescription, McGraw Hill, 2009

Primary Care Physician Practice

Sophisticated Technology that Simplifies

Low cost InnovativeBusiness models

EconomicallyCoherent Value Network

Regulations &Standards that Facilitate Change

Elements of Disruptive Innovation

Christiansen CM: The Innovators Prescription, McGraw Hill, 2009.

Scientific &

Technologic Progress

Intuitive Medicine:

Resource regulation

Empirical Medicine:

Process regulation

Precision Medicine:

Outcome regulation

Time

Com

plex

ity o

f Dx

& R

x

Unpredictable, iterative

Straight-forward

Matching Regulation [ & Reimbursement?] with the Changing Nature of Medical Practice

Adapted from Christiansen CM: The Innovators Prescription, McGraw Hill, 2009.

← Watson

“One of Thomas Kuhn’s most prominentconclusions was that when a newparadigm was emerging from the work of scientists, the experts in the old paradigm, remained convinced, even totheir dying days, the new paradigm cannot possibly be true. The reason is the old paradigm has sopowerfully shaped their beliefs…their mindsliterally cannot see the phenomena leadingto the new paradigm.” [pg. 412]*

Christiansen CM: The Innovator’s Dilemma; McGraw Hill, 2009.