The Star Model framework for organization design is the foundation on which a company bases its design choices. The framework consists of a series of design policies that are controllable by management and can influence employee behavior. The policies are the tools with which management must become skilled in order to shape the decisions and behaviors of their organizations effectively
In the Star Model, design policies fall into five categories.
1. Strategy, which determines direction
2. Structure, which determines the location of decision-making power
3. Processes,which have to do with the flow of information; they are the means of responding to information technologies
4. Rewards and reward systems which influence the motivation of people to perform and address organizational goals
5. Policies relating to people (human resource policies), which influence and frequently
define the employees’ mind-sets and skills
Strategy: Strategy is the company’s formula for winning. The company’s strategy specifies the goals and objectives to be achieved as well as the values and missions to be pursued; it sets out the basic direction of the company. The strategy specifically delineates the products or services to be provided, the markets to be served, and the value to be offered to the customer. It also specifies sources of competitive advantage. Traditionally, strategy is the first component of the Star Model to be addressed. It is important in the organization design process because it establishes the criteria for choosing among alternative organizational forms. Choosing organizational alternatives inevitably involves making trade-offs. Strategy dictates which activities are most necessary, thereby providing the basis for making the best trade-offs in the organization design.
Structure: The structure of the organization determines the placement of power and authority in the organization.
Processes: Organization's processes are its physiology or functioning. Management processes are both vertical and horizontal. Vertical processes 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. Horizontal–also known as lateral–processes are designed around the workflow, such as new product development or the entry and fulfillment of a customer order. These management processes are becoming the primary vehicle for managing in today’s organizations.
Rewards: The purpose of the reward system is to align the goals of the employee with the goals of the organization. It provides motivation and incentive for the completion of the strategic direction. The organization’s reward system defines policies regulating salaries, promotions, bonuses, profit sharing, stock options, and so forth. A great deal of change is taking place in this area, particularly as it supports the lateral processes. Companies are now implementing pay-for-skill salary practices, along with team bonuses or gain-sharing systems. There is also the burgeoning practice of offering non-monetary rewards such as recognition or challenging assignments. The Star Model suggests that the reward system must be congruent with the structure and processes to influence the strategic direction. Reward systems are effective only when they form a consistent package in combination with the other design choices.
People: This area governs the human resource policies of recruiting, selection, rotation, training, and development. Human resource policies – in the appropriate combinations – produce the talent required by the strategy and structure of the organization, generating the skills and mind-sets necessary to implement the chosen direction. Like the policy choices in the other areas, these policies work best when they are consistent with the other connecting design areas.Human resource policies also build the organizational capabilities to execute the strategic directions. Flexible organizations require flexible people. Cross-functional teams require people who are generalists and who can cooperate with each other.
Implications of the Star Model
1. Though Structure is usually overemphasized because it affects status and power, and a change to it is most likely to be reported in the business press and announced throughout the company , however, in a fast-changing business environment, and in matrix organizations, structure is becoming less important, while processes, rewards, and people are becoming more important.
2. Different strategies lead to different organizations. There is no one-size-fits-all organization design that all companies–regardless of their particular strategy needs–should subscribe to.
3. For an organization to be effective, all the policies must be aligned and interacting harmoniously with one another. An alignment of all the policies will communicate a clear, consistent message to the company’s employees.
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