The Star Model (1)
The Star Model provides a framework to assess and design organisations which successfully implement strategy. This model helps us to see the way in which all the elements of an organisation need to be aligned to deliver strategy. It is a combination of technical issues like the actual design of structures, processes, procedures and systems; and the social factors such as culture, capabilities, attitudes and values.
The Star Model was developed by Jay R Galbraith and the descriptions in this paper are adapted from his book 'Designing Organisations'
Strategy
Strategy is the company’s formula for ‘winning’. It specifies the short and long term goals and objectives to be achieved as well as the values and mission to be pursued. It sets out the basic direction of the company. The strategy specifically outlines: * The products or services to be provided * The markets to be served * The value to be offered to the customer * The source of competitive advantage * What activities are most necessary (core work processes)
It should also allow for experimentation and opportunism. Thus strategy should be shaped as broad framework to guide choices and decisions rather than a fixed set of plans and actions. Strategy should contain within it that which is fixed in terms of the core business and ideology of the organisation and that which is to change in terms of the challenging aspirations which will stimulate progress. It should never be expressed simply in terms of profit, which will always be a necessary condition for existence, but is never the overall point of the organisation.
If a strategy is not in place or agreed it will result in Confusion * No common direction * People pulling in different directions * No criteria for decision making
Developing strategy means asking * What is happening in the environment? * What are our competitors doing? * How would we measure success? * Where does our focus need to be – products, operations or customers? * What kinds of shifts do we need to make? * What are our audacious goals for the long term? * How can we express this in simple meaningful ways?
Structure
The structure of the organisation determines the placement of power and authority. Structure policies fall into four areas: * Specialisation – the type and number of job specialities used in performing the work * Shape – the number of people constituting the departments at each level (that is spans of control and number of levels) * Distribution of power – in the vertical refers to the degree of centralisation and in the horizontal how power moves across departments dealing with critical issues * Departmentalisation – is the basis for forming departments at each level such as functions, products, work flow processes, markets and geography.
If the structure is not aligned to the strategy it will cause Friction * An inability to mobilise resources * Ineffective execution * Lost opportunities
Reviewing the structure means asking: * Do people have to work with others outside their immediate department but find it difficult to cross boundaries? * Does the structure cause barriers to people working with people outside the organisation (internal and external stakeholders, customers and suppliers)? * Are there groups that could be combined? * Is there a logic and rational for all the pieces and do they connect together with smooth handovers (no dropping the baton)? * Are their overlaps between roles of departments or units?
Processes
Information and decision processes cut across the organisations structure. So structure can be thought of as the bones of the organisation and processes as the muscles, connective tissue and neural networks.
Some processes run vertically – to cascade objectives, build plans and allocate budgets. Other run horizontally along work flows and across departments – for new product development, or order fulfilment. Processes can be standardised to allow for ease of cross functional working
Rewards and Metrics
The purpose of the reward system is to align the goals of employees with the goals of the organisation. It provides motivation and incentive for the completion of the strategic direction.
The reward system should define policies regulating: * Salaries * Promotions * Bonuses * Stock option * Profit sharing * Benefits * Pensions * Recognition programmes
A great deal of change is happening in this area, particularly in support of lateral processes to encourage teamwork and collaboration across departments. Companies are now implementing pay-for-skill salary practices, along with team bonuses. There is also a growth in non-monetary recognition or challenging assignments as rewards.
The star model suggests that rewards should be congruent with the structure and processes to influence the strategic direction. Metrics should be in place to track key parts of the strategy and assess progress. These metrics need to assigned to individuals or teams to allocate responsibility.
When metrics and rewards do not support the goals it causes Internal Competition * Wrong results (loss of profits) * Diffused energy * Low standards * Frustration and turnover
Developing a powerful metric and rewards system needs to listen out for: * Do people understand their goals and how they link to the strategy? * Do the measures drive the right behaviours and results? * Do people get timely and specific feedback? * Do people take responsibility for improvements? * How well do metrics report potential problems (leading) and what has been achieved (lagging)?
People
This area governs the human resource policies of * Recruiting * Rotation * Training * Development * Talent management * Skills set definition * Culture & attitude * Behaviours
These build the organisational capabilities necessary to execute the strategic direction. Flexible organisations need flexible people. Cross functional working requires team development skills and meeting skills. Policies can simultaneously develop people and build organisational capability.
When people practices do no enable and empower people the result will be Low Performance: * A lot of effort without results * Low employee satisfaction * Blaming and complaining
Building the people capabilities in the organisation means asking: * Do we have the right people to deliver our strategy? * How do our policies need to change to recruit more of the right people? * What are the skills gaps and what is the most sensible route to fill them (recruit or develop)? * How well are people supported and developed? * What additional tools and resources do we need to help people do a good job?

The Star Model (2)

Organizational design is a process for integrating technology, people, and information within an organization. It is used to enable the physical organizational form (people, technology, processes etc) achieve the stated goals or strategy of the organization. Simply stated, by using an organizational design process we are aiming to maximize the organizations chances of delivering it’s strategy.
A very common organizational design framework is the Star Model, developed by Jay Galbraith in the 1960’s. The framework is designed to be used as the basis for an organization’s design choices. The framework is made up of 5 categories of design policies which can be manipulated by management/leadership to shape an organization and the behaviour of the people within it. The framework is shown below:

We can see in the above diagram that the 5 categories of policies are: Strategy, Structure, Processes, Rewards, and People. Let’s look at each of these categories briefly.
Strategy
Strategy is the first set of policies to be tackled in the Star Model. Strategy defines the direction of the organization. It is important to tackle strategy first because any organizational form we end up with will involve compromise, so by setting the strategy first it enables us to make the right compromises.
Structure
Structural policies determine the location of decision making power. Structural policies can be divided into four areas: * Specialization: refers to the type of specialists which will be needed to get the work done and theirnumber. * Shape: refers to how many people exist at each level of the organization. Clearly a flat organization will result in lots of people at each level as opposed to a more hierarchical organization. * Distribution of Power: refers to centralization vs. decentralization along with whether we push power down through the organisation to where the issues and information are or whether we want all decisions to go through decision making bodies. * Departmentalization: refers to which departments should be formed.
Processes
Process policies determine the flow of information and decisions in the organization. We can trade off between processes which are vertical (budgeting and planning) and lateral (collaboration based).
Rewards
Reward related polices aim to ensure that the goals of the employee are aligned with organization. This provide motivation to employees to move the organization towards the strategic goal.
People
These policies relate to how people are recruited, rotated, and trained etc to ensure the organization has the talent to follow the strategic direction in an efficient manner.

Structure and Process
Introduction
This issue is the second of a three-part series on Organization Design. It covers two of the five important elements that must be taken into account when doing organization design work, Structure and Processes.
In the next issue, we will discuss People and Rewards, the two remaining variables. You may wish to review the first issue that gave an overview of the topic and Strategy before continuing with this one. You can access it here.
This issue also contains:
2. A Review of Designing Organizations: An Executive Briefing on Strategy, Structure, and Process by Jay R. Galbraith.
3. Pointers to additional information on this topic.

1. STRUCTURE AND PROCESSES: THE RECIPROCALS OF ORGANIZATION DESIGN
One of the fundamental concepts underlying Organization Design is Differentiation and Integration (D/I). Differentiation refers to determining what the basic units of the organization will be--what needs to be separate and distinct, based on the required functions or focuses of the organization. Integration refers to how to get the differentiated parts to "play" together, i.e. how to ensure that the parts of the organization can interact to provide the necessary coordinated outputs.
In large, complex, highly interdependent organizations, it is especially important to pay attention to the balance between the two in order to enable the required collaboration. Therefore, when designing an organization, each time a differentiation step is taken, consideration must be given to a corresponding integration step: it is the Structure of the organization that creates differentiation, and the Processes that enable integration.
STRUCTURE defines how the organization's resources are to be grouped and held. It also specifies reporting relationships; layers or levels of management; the placement of power and authority; work design; and the relationship of functions, groups, operations, and tasks to each other and to various stakeholders. The dimensions around which organizations are most typically differentiated or structured are: products, markets and/or customers, functions, and geography.
Because of the multiple demands and market conditions that organizations face, structures are often created that address more than one dimension. For example, matrixed organizations combine elements of product/customer and functional dimensions are employees work simultaneously for two bosses. Business Units focus attention on a particular market or line of business, giving it the resources that are required for it to operate essentially as a separate entity (though it may share the services of some centralized or common functions, e.g. finance, human resources, facilities, legal, etc.)
Structures are also said to be hierarchical or flat. This refers to thenumber of layers or levels of managers and their respective groups and the distribution of power and authority within the organization. Thus, a steep hierarchy would have many layers with the power and authority concentrated at the top. A flat organization would have fewer layers of management, each with a larger span of control. Because a single manager can't direct all the activities or make all the decisions, more authority and power is given to work groups, teams, and individuals. This form of organization requires more integrating processes.
PROCESSES enable organizations to perform well on the dimensions of speed, cost, quality, and innovation. They include both business processes (e.g., quality systems, order fulfillment, and financial reporting) and processes that enable human interaction or manage the interface between employees and the business, such as performance appraisal, problem solving and decision making, and information and communication. These processes enable the knowledge, skills, and abilities of many "people, groups, functions, organization" to be brought to bear on problems, opportunities, and outcomes that are complex and/or require the expertise of multiple specialties for resolution.
Processes are also either vertical or lateral. Vertical processes manage the allocation of scarce resources. Lateral or horizontal processes manage coordination across the steps in a continuous or interdependent work process that spans departments, functions, and/or organizations.
In order to design an organization that functions effectively, the Structure and the Processes must be considered and developed concurrently and interactively. A common error in organization design is thinking that the Structure is all there is, so the "lines and boxes" are redrawn, but little or no attention is paid to the processes that define, focus, and enable the required integration, coordination, and collaboration among the differentiated entities.
But just as the Structure won't work without corresponding integrative processes to support it, there are Structural design alternatives that will increase the likelihood that people will be able to work together more collaboratively and interdependently. When undertaking a design effort, we encourage our clients to do a thorough and detailed analysis of interdependencies before finalizing a structure. The Structure and the Processes can then be designed in relationship with each other against a set of overall design criteria.

2. Designing Organizations: An Executive Briefing on Strategy, Structure, and Process by Jay R. Galbraith. (Jossey-Bass Publishers, 1995)
Leaders of modern organizations are becoming increasingly involved in organization design: first, to create knowledge-based organizations, and second, to create effective, rapid responses to powerful customers. Designing Organizations is a leader's concise guide to the creating and managing of an organization. It focuses primarily on the structure and process sections of the Star Model (discussed previously).
Galbraith examines the forces that are shaping today's organizations "buyer power, variety, speed, and change" and how they affect organization design. As a result of buyer power, more organizational structures are being designed around market segments or specific customers. Variety forces management to bring more people into the decision processes, primarily through decentralization. Change requires that companies make more decisions more frequently, and thus to expand their decision-making capacity. Speed requires that decisions be moved to points of direct contact with the work, to meet shorter lead times.
In the section Choosing an Effective Design, Galbraith introduces the concepts of Structure and Process. The structure of the organization determines the placement of power and authority. Structure policies fall into four areas:
1. SPECIALIZATION: the type and number of job specialties used in performing the work;
2. SHAPE: the number of people constituting the departments;
3. DISTRIBUTION OF POWER: the classic issues of centralization and decentralization, and the more modern concept of movement of power to the departments;
4. DEPARTMENTALIZATION: the basis for forming departments at each level of the structure. The standard dimensions on which departments are formed are functions, products, workflow processes, markets, and geography.
Information and decision processes cut across the organization's structure. Management processes are both vertical and horizontal:
1.VERTICAL PROCESSES allocate the resources of funds and talent.They are usually business planning and budgeting processes. The needs of different departments are centrally collected, and priorities are decided for the budgeting and allocation of the resources to capital, research and development, training, etc.
2.HORIZONTAL PROCESSES (also known as Lateral Processes) are designed around the workflow (e.g., new product development or customer order fulfillment). These processes are becoming the primary vehicle for managing in today's organizations. Lateral processes can be carried out in a range of ways, from voluntary contacts between employees to complex and formally chartered teams.
Designing Organizations offers us both time-tested knowledge and current innovative trends. It is intended to provide a contrast to the oversell that often accompanies popular ideas. Sometimes the hype diminishes the usefulness of new ideas by turning them into fads. This book portrays new ideas as useful tools that should be understood by every leader and consultant to be kept in every their toolboxes and taken out only when appropriate.
Where the book falls short, however, is in the implementation of the tools introduced. Over and over again, I found myself wishing that Galbraith would say more about how to use the concepts and how to integrate them into an already existing organization and culture.
People and Rewards - The Glue That Holds it Together
The PEOPLE element of organization design encompasses all things that have to do with having the best workforce and ensuring that the culture of the organization and the contract between workers and the company is mutually beneficial. It includes how and by what criteria people are recruited and hired to work at the company, how they develop and maintain the necessary skills and competencies, and how they are valued and managed. The key underlying principles of the People aspect of Organization Design have to do with designing a system that enables having the right people, at the right place, at the right time, encourages and enables all employees to make significant contributions that add value, and ensures that they be highly engaged, take initiative, and be involved in meaningful and motivating ways.
The "old" way of thinking about people and work emphasized matching an individual's skills and experience to a particular job which was clearly defined and specified and relatively static (think job description). In fast-paced, continuously changing, high performance organizations, the emphasis must be on finding the people who not only bring relevant skills, competencies, and experience but who are also willing and able to apply them in a variety of situations and projects. Here, flexibility and adaptability are essential, and people are viewed as resources whose abilities contribute to the core capabilities and overall performance of the organization.
Compatibility with corporate culture becomes more important,because an employee's ability to see what needs to be done and do it in an environment that has less stability and structure takes on added importance. Under these conditions, adaptive thinking, seeing and making a path where there was none, and influencing others are critical success factors for the individual and the organization. The "how" of these capabilities is heavily influenced by unique aspects of company norms.
There is also greater emphasis on leadership at all levels, because relying on and waiting for direction that comes primarily from the top slows down organizations. Instead, vision, alignment, and engagement of stakeholders throughout the organization enable people to act with more initiative and speed to achieve common, well understood objectives.
Other aspects of the contract between employee and organization are also changing:
Because innovation is occurring at ever-increasing rates, making sure that workers' competencies are staying current is even more critical. This includes organization, team, leadership, and business skills, as well as the technical, because success in content arenas is increasingly dependent on one's ability to manage organization processes.
As people and organizations move and change at faster rates and structures become flatter, individuals need to take more responsibility for managing their own careers. Frequently, career changes will take the form of "grow-motions" rather than promotions, i.e. changes in scope and complexity of the work and increased opportunities to influence or contribute rather than moves up the hierarchy.
Since the employment contract is based on the evolving match between organization direction and capability and the skills, competencies, and cultural fit of workers, this contract may be less stable and the workforce more fluid than in the past. Increased reliance on temps and contractors as a way to manage the size and cost of the workforce are also contributing factors.
A REWARD SYSTEM is the complex set of formal and informal incentives that connect individual motivation, behavior, performance, and ultimately results to the various forms of pay or compensation received in exchange. It includes not only how people are incented and paid but also how the underlying philosophy and principles about people and their contributions and the goals of the organization are created and communicated, how each individual's contribution is aligned with and tied to organization results, and how performance is managed and appraised. In research done on reward systems, several basic premises have emerged:
. rewards do influence motivation and behavior
. reward systems must focus on what is valued in the organization
. there must be a clear connection between the valued behavior/result and the reward
. if there is a discrepancy between what is espoused as valued in behavior and/or outcomes and what is rewarded, that which is rewarded will be the stronger influencer of behavioral choices
. reward systems must be comprised of thoughtfully and strategically integrated components in order for them to be effective
It is our experience that getting the Reward System of an organization to match and support other aspects of the organization design is the most difficult and challenging part of the process. There are several reasons for this:
Changes in behavior and results are typically a desired outcome in organization design efforts, and the new, valued results must first be clearly communicated and understood prior to making changes in the rewards system. Therefore, actual modifications to the reward system are made later in the process and there will likely be period of time during which a perceived discrepancy between what is being espoused and being rewarded exists.
There is a vast range of combinations of incentives and motivators and of various individual responses to them. What motivates, interests, or supports one person may not work for someone else, even if they're doing essentially the same work. For example, the shift to a cafeteria approach to the selection of health and other benefits recognizes this fact. However, we have not figured out how to comprehend individual variability when it comes to performance management and compensation.
Despite the fact that different parts of the organizations require different behaviors and results, most corporations insist that their reward systems be consistent across the organization. It is difficult to persuade compensation and benefits organizations to modify the fundamental processes which feed and trigger the payout of certain forms of compensation or the underlying assumptions on which they are built. For example, most compensation systems are based on individual performance, thus creating both subtle and overt forms of competition among employees who need to collaborate with each other to meet the organization's objectives.
Nevertheless, if what you have is an organization that needs to rely on collaboration, involvement, initiative, and synergy in order to achieve it's objectives and result--and these days, most do--then the reward system must include, value, and mirror these requirements. Specifically, it will need to:
. comprehend group/team performance as well as individual contribution to the team's results,
. show a clear connection between collaborative behavior and the rewards received,
. avoid creating a dynamic whereby people who need to collaborate end up competing over scarce resources, including the rewards themselves, and
. reward change and speed, for without these, innovation of products and evolution of the organization won't occur
Some closing thoughts on Organization Design: The key here it fit. It's not enough to get a couple of the elements right, because this is a system--all the elements need to be designed in concert with each other in order for it to work well. Paradoxically however, while tight fit is important, if it's too tight, it will be difficult to modify the design and system in response to the continuously emerging need for change.
Paying attention to the total design of the organization (not just its structure), needs to be as important as paying attention to customer satisfaction or financial results, for this is the source of organizational capability and effectiveness.

2. Innovative Reward Systems for the Changing Workplace by Thomas B. Wilson (McGraw-Hill, Inc., 1995)
As today's organizations seek to reduce unnecessary levels of management, delegate decision-making authority to the lowest possible level, and create teams with accountability for critical functions, they are creating conflict with traditional reward systems. Traditional thinking about reward systems focused on the external marketplace and what was necessary to be competitive in attracting and retaining people. In this book, Tom Wilson focuses the reward strategy on those actions needed to implement a firm's competitive strategy.
Wilson defines a reward system as any process within an organization that encourages, reinforces, or compensates people for taking a particular set of actions. It may be formal or informal, cash or non-cash, immediate or delayed. He says that organizations should develop and implement a behavioral framework for rewards. This involves rethinking the reward systems that currently exist.
The process entails viewing reward systems as supporters, if not drivers, of change, and modifying the concept that pay programs are just an infrastructure to the organization. It goes beyond making sure that people are getting paid, and includes understanding the messages that a program sends and the behaviors it reinforces. This approach also involves establishing a strategy for building and integrating a set of systems, programs, and practices that reinforces the behaviors necessary for the implementation of the organization's goals.
Wilson introduces the "Reward Smart" model, stating that effective reward systems are:
Specific - Performance measures and feedback systems need to define what people should do to contribute to the organization's success. There needs to be a clear line of sight between the results desired and the behaviors required to achieve them.
Meaningful - Rewards need to make people feel valued for their achievements from their own point of view.
Achievable - The desired actions or results need to be within the participants' control or influence, and attainable through reasonable effort.
Reliable - The system needs to be designed and operated in a fashion consistent with its purpose. Not only should rewards be contingent on the achievement of desired results, the whole process must be managed in a cost-effective manner.
Timely - Feedback, reinforcement, and rewards need to be provided as soon after the achievement and/or behaviors as possible. Wilson cites data showing that an examination of employee performance in relation to most annual incentive plans indicates that employees make a concerted effort to achieve goals toward the end of a performance period.
Wilson then goes on to show how to redesign base pay, variable/contingent pay, profit sharing/gain sharing, and special recognition programs in light of the SMART concepts to encourage the collaborative behaviors needed to serve the customer's needs better than competitors do. He suggests developing new approaches to performance management, and gives 10 guidelines for this new approach:
1. Recognize that there is a problem
2. Reformulate the purpose of the performance management process
3. Use objectives to focus activities; use goals to reinforce progress
4. Measure both results and behaviors
5. Provide continuous, real-time feedback
6. Make reinforcement a part of every day
7. Use performance reviews to celebrate and to learn
8. Make review meetings as frequent as necessary
9. Reward results and reinforce behaviors
10. Earn the right to skip annual performance appraisals
In addition to introducing the concepts, this book is filled with revealing case studies of companies that are successfully using this methodology. Helpful charts and diagrams clarify the core concepts and techniques. This book can help organizations create state-of-the-art reward and recognition systems that really work.