Presentation held at Aarhus business school. See my blog http://www.organizationdesign.net for tips and tools related to organization design.

1. An axiomatic design approach to analyzing
innovations in the organization of complex
firms
Presentation at Aarhus Business School, June 23, 2010
Nicolay Worren, PhD
Worren Consulting

2. In designing organizations, managers are often faced with
multiple and conflicting functional demands

3. The evicence suggests that organizations that do not
prioritize one demand will operate suboptimally
Quality Efficiency Other
oriented oriented /combination
Profitability
U.S. hospitals
0.3 0,02
-0.5
Dine-in OR
Sales growth
Pizza restaurants delivery
Dine-in AND
delivery
1.3
0.6

4. However, we should also allow for the possibility of inventing
new designs that can meet multiple demands
90 micrometer!
Quantity of
aluminium
Strength /stiffness

5. Indeed, many organizational design innovations represent
the removal – or at least lessening - of a design contradiction
Functional CEO
Engineering
Production
Marketing
Coordination
cost
Multidivisional CEO
Scale
Product A Product B
Engineering
Engineering
Production
Production
Marketing
Marketing

6. The axiomatic approach developed by Nam Suh provides an
analytical basis for supporting design processes

7. A key premise is the distinction between functions and
design parameters
How we want to achieve it
What we want to achieve
Design Parameters
Manufacturing
plant Division A Division B
Functional requirements
Manufacture products X
Maximize sales revenue for product A X
Maximize sales revenue for product B X

8. Complexity is defined as the existence of coupling
Design Parameters
Manufacturing
plant Division A Division B
Functional requirements
Manufacture products X
Maximize sales revenue for product A X X
Maximize sales revenue for product B X X

9. Two main axioms are proposed that may be translated into
design principles for organizations
Axiom 1
• Maintain independence
FR 1 X
of functional
requirements (i.e., FR 2 X
minimize coupling)
Axiom 2
• Ensure that the system
range fits within the
design range (or
maximize overlap)
10 20 30 40 50

10. This framework can be used to study multidimensional
organizations, an emerging organisational form
FR1: FR2:
Achieve economies of scale Achieve customer focus
and scope in production in sales and marketing
Company X
Product A Product B Product C Region 1 Region 2 Region 3
Dimension 1 + Dimension 2

11. Scandinavian Telecom is a firm with 7 main units
FR 1
Create value for stakeholders by
Functional requirements
offering telecommunications services
FR 1.1 FR 1.2 FR 1.3 FR 1.4 FR 1.5 FR 16 FR 1.7
Provide cost- Develop and Maximise profits Maximise profits Maximise Maximise Perform
effective IT systems manage an for Fixed for Mobile revenue in the revenue in the enabling and
and applications efficient network telephony telephony Business Consumer control
that meet internal infrastructure services services segment segment processes
client needs
Design parameters
IS Operations Fixed Mobile Business Consumer Staff
Process Infrastructure/ platform Market segment

12. One option for organizing this firm is to adopt a matrix
structure
Scandinavian Telecom - Excerpt -
CEO
Measured on sales
or profits of Fixed
Fixed Mobile Measured on
telephony across
overall sales or
segments
profit in Business
Director Director segment
IT
Business
Director Sales manager 2 Director
Sales manager 1
Operations
Measured on sales Consumer
or profits of Fixed
Director
telephony in
Business segment Director

13. The matrix structure creates interdependencies that
represent coupling
Corporate
Function IS Operations Fixed Mobile Business Consumer
staff
Provide cost-effective IT systems
1 applications that meet business X x x
needs
Develop and manage an efficient
2 x X x
network infrastructure
Develop and launch a high
3 x x X x x x
number of fixed net products
Develop and launch a high
4 number of mobile telephone x x X x x x
services
Maximise market share in the
5 x x x x X x x
Business segment
Maximise revenue in the
6 x x x x X x
Consumer segment
Perform enabling and control
7 X
processes
Infrastructure/ Interdependencies
operational due to dual reporting
interdependencies line and overlapping
accountabilities

14. The adoption of the front-back model would separate the roles
and remove the dual reporting lines
Measured on
overall sales,
CEO market share,
Measured quality, (profit) in
delivery time, Business segment
Fixed Mobile
(cost), etc.
Director Director
Business
Sales manager 1
IT
Director
Director Sales manager 2
Operations
Consumer
Director
Director

15. The effect is to remove coupling between some of the
functional requirements
Corporate
Function IS Operations Fixed Mobile Business Consumer
staff
Provide cost-effective IT systems
1 applications that meet business X x x
needs
Develop and manage an efficient
2 x X x
network infrastructure
Develop and launch new fixed
3 x x X x
net products
Develop and launch new mobile
4 x x X x
telephone services
Increase market share and
5 customer satisfaction in the x x X x
Consumer segment
Increase market share and
6 customer satisfaction in the x x X x
Business segment
Perform enabling and control
7 X
processes
Re-definition of functions
allow units to pursue
independent goals

16. A modular organizational form goes one step further by
allowing external sourcing and flexible resource utilization
CEO
Profit center
Fixed Mobile Profit center
Resource pool
Director Director
Business
Director
Sales manager 1
IT
Director
Profit center
Director Sales manager 2
Operations
Consumer
Director
Director

17. The effect is to further remove coupling due to operational
interdependencies
Corporate
Function IS Operations Fixed Mobile Business Consumer
staff
Maximise profits of information
1 X x
systems services
Maximise profits of network
2 X x
services
Maximise profits of fixed net
3 X x
products
Maximise profits of mobile
4 X x
telephony services
Maximise profits in Business
5 X x
segment
Maximise profits in Consumer
6 X x
segment
Perform enabling and control
7 X
processes
Product and market units
no longer dependent on
internal suppliers

18. The modular design allows the creation of a ”pull” system
where processes are initiated by downstream units
Example: Fulfill demand process
1
Define Negotiate Perform Assess
Orders
3
Customer
Requests bid solution 2 Accepts
Creates Details product Delivers
bid proposal specifications solution
Market unit
Defines Configures Verifies
solution solution installation
Product unit
Confirms Installs
capacity infrastructure
Operations

19. In sum, the matrix is only one of three possible
multidimensional designs
Matrix Front-back Modular
Two or more dimensions
Front end defined according to
market segments
Customer-supplier relations
between dimensions
Resources organised in a
common pool
Degree of complexity

20. A key question is how the axiomatic approach may be used
to optimize designs prior to implementation
New structure
Plan Develop Implement
FR
X
1
FR
X
2
10 20 30 40 50

21. We should also consider how to further improve and adapt
the approach to the social sciences
What is a design parameter?
”Linguistic robustness”
Produce stuff X Reach production
X X
goals
Sell stuff X Reach sales goals X X
Does it make people more /less creative? The way I usually think
Axiomatic thinking
Overall Function 1
purpose Function 2
Function 3

22. About the presenter
Nicolay Worren has 12 years of experience as management consultant and project manager. He
established his own consulting practice in 2009 after several years with large consulting firms
(Accenture and PA Consulting Group). He was also an internal consultant with Aker Solutions for
three years.
He has led or participated in more than 12 major re-design projects for firms in various industry
sectors.
Nicolay holds a master’s degree from McGill University and received his doctorate from Oxford
University where he wrote a dissertation on flexibility and modular systems.
He has written several articles in refereed journals and presented numerous conference papers.
Nicolay is working on a textbook on organization design (to be published by Pearson Education in
2011).
He writes a blog:
www.nicolayworren.com