Spin-Out Management: Theory and Practice Critique

Name: Yue Qi BA501 1H-Management Theory & Org-FA12 Instructor: Dr. Scott Burke Week 8(10/17-10/23)-Spin-out management: Theory and practice Critique Critique The article The Tensions of Organization Design: Optimizing Trade-offs discusses a new theory of organization design which is the tensions of organization design that managers must face and resolve. Robert Simons introduces four crises in different stages of organizational growth, including the crisis of leadership, the crisis of autonomy, the crisis of control, and the crisis of red tape.

To anticipate and avoid the crises just mentioned, managers must design organizations that can adapt over time. And the author offers a number of tensions that affect organization design which we must be sensitive to the need to reconcile the tensions between: Strategy and structure, Accountability and adaptability, Ladders and rings, Self-interest and mission success. The author uses an organized thought process throughout the article that helps to develop a clear understanding of the subject matter.

The author begins with a background of the importance of this subject and the factors that make the subject relevant in today’s environment: “New technologies have increased productive capacity, markets have become global, the pace of competition has quickened, work has become more complex, and the capabilities of workers have been enhanced. Information technology, outsourcing, and alliances have changed the traditional boundaries of the firm”. Then the article go with the negative effects an organization will encounter by doing nothing, using previous research from Greiner and Miller & Friesen.

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Next, the four tensions of organization design are discussed in a manner that is easy to comprehend. Each tension is given its own section that gives a background of the information that is about to be presented and the implications for organizations to tend to those tensions. A crisis of leadership emerges in an entrepreneurial structure when the leadership of founding entrepreneurs is no longer suitable for the management of a larger company and the organizational structure will change to functional structure which is based on specialization and separate business functions.

Under this structure, decision making becomes highly centralized. As the firm is growing, the decision making prevents company from contact with customers and market and leads to a crisis of autonomy. Then the organizational structure will be redesigned as a decentralized structure. After the company's growth resumes, a crisis of control arises from a set of problems, such as waste of resource, decline of profit, and hampered coordination. The segment structure, which relies on the new centralized staff groups, like a new top management team, replaces the former structure.

Over time, central staff groups become more powerful, leading to a crisis of red tape in which decision making slows down and a lot of time is wasted in meetings. Therefore, the organizational structure will back to basics and cut through the bureaucracy. To avoid the crises just described, managers must always redesign organizations with changing circumstances. The second one is the tension between accountability and adaptability. There are always some imbalance problems between accountability and adaptability, like agency problem and ethic problem.

For instance, top managers may focus on the accountability for today's goal to accomplish a great job while stakeholders may emphasize the adaptability for the future to retain competitiveness of the company. By using governance mechanisms, like stock-based compensation schemes or promotion tournaments and career paths, this kind of problem can be resolved. The third one is the tension between ladders and rings, namely, the tension between vertical hierarchy and horizontal networks. If an organization has vertical hierarchy, it chooses a mechanistic structure; and, an organization with horizontal networks has an organic structure.

When managers trade off ladders against rings, they also balance differentiation and integration, centralization and decentralization, and standardization and mutual adjustment. The tension between self-interest and mission success is the last one managers should consider. The author demonstrates this problem through introducing the change of the view of human nature in organizations, and concludes that every individual in every organization makes some important decisions: Should I work toward my own self-interest, the goals of the subunit to which I belong, or the goals of the overall organization taken as a whole?

If the tension is interrupted, employees may leave the organization and the organization will lose part of its workforce. Thus managers should recognize the importance of the tension between self-interest and mission-based goals to keep the advantage of human resources. In all, Robert Simmons’ work was organized in a way that made the information clearly understandable and that helped to engage the reader.

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