Organization Design in the 21st Century: From Structure Follows Strategy to Process Follows Proposition

Abstract

Organization design is the discipline within the field of organization theory and management theory aimed at creating efficient organizations of firms. In the twentieth century organization design, at least at the governance level of organization, used to be merely a choice between a limited number of alternative organization forms. Due to a number of developments the scope, the design variables and design criteria need to be reconsidered. Especially Chandlers design rule ‘structure follows strategy’ is to be questioned and seems to be replaced by ‘processes follow proposition’ (the customer value proposition). The focus in the twentieth century on structure as the parameter of design, which was replaced by processes in the nineties, now, according to Herbert Simon, appears to be replaced by the design of the information space of the firm and the design of the objective function of the firm and those within its organization, due to the declining costs of information and communication. The design of the objective function also answers the issue that firms need to adapt their internal organization in view of the weakening of the institutions in society, on which in the twentieth century a number of processes within the internal organization were based. Due to the emergence of new business models and new type of customer value propositions, a more precise design of especially processes is needed in which structure as configuration plays a secondary role. Because the 21st century firm needs a high capacity of data processing and information in the modern firm is a resource to be exploited, new conditions are needed to facilitate workers to turn data into new revenue streams. This requires an approach to organization design that includes management accounting and information management, as well specific elements of organizational behavior. This new approach is needed since competition shifts towards innovation of business models and firms need to have simultaneously explorative business models and exploitative business models to be in-control as required by shareholders and other stakeholders. This paper provides an overview of changes in the field of organization design and its institutional context, based on existing publications, thus laying the groundwork for a new multidisciplinary integrative approach for organization design as induced by the changing nature of the firm.

Keywords: Organization design, organization forms, business model innovation, nature of the firm, institutions, organization of information, design of the objective function

JEL Classification: M10, M14, M19, D82, L21, L22, L23