Separation versus

integration in

organization design Nicolay Worren European Organisation Design Forum conference, Vevey,

Switzerland, May 10-11, 2012

The dilemma

Integration Separation

Vs.

Three arguments for separation

1. 2. 3.

The governance perspective

Nestlé Corporate Governance Report

Separation of responsibilities

Underlying principle

Universal?

“Let the wolf take care of the sheep”

“Let the fox guard the hen house”

“Let the dingo take care of the kids”

“Letting the ram take care of the bag of oats”.

“Giving the keys to the thief”

Three arguments for separation

1. Avoid conflict of interest

2. 3.

Three arguments for separation

1. Avoid conflict of interest

2. 3.

Integration leads to coordination... which leads to coordination costs.

0

5

10

15

20

25

30

35

2003 2004 2005 2006

Time in meetings

1982

1960

Corporate e-mail traffic

(billions of messages per year)

When there’s no role separation, everybody needs to coordinate with

everybody 1 2 3 4 5 6 7 8 9 10

Advisor 1 (responsible for employee survey and

division 1) 1

x x x x x x x x

Advisor 2 (responsible for performance mngt

and division 2) 2

x x x x x x x

Advisor 3 (responsible for leadership

development and division 3) 3

x x x x x x x

Advisor 4 (responsible for competence

management and division 4) 4

x x x x x x x x

Advisor 5 (responsible for succession planning

and division 5) 5

x x x x x x x

Advisor 6 (works on performance mngt,

responsible for division 6) 6

x x x x x x x

Advisor7 (works on leadership development,

responsible for division 7) 7

x x x x x x x

Advisor 8 (works on employee survey,

responsible for division 8) 8

x x x x x x

Advisor 9 (works on employee survey) 9

x

Advisor 10 (works on competence

management) 10x

Source: Worren (2012)

Three arguments for separation

1. Avoid conflict of interest

2. Minimize coordination cost

3.

Three arguments for separation

1. Avoid conflict of interest

2. Minimize coordination cost

3.

Three arguments for separation

1. Avoid conflict of interest

2. Minimize coordination cost

3.

Pursuing different goals in same vs different unit

Q: What's the best way to organize for innovation?

Option 1 Option 2 Option 3

90% succeeded

Source: O’Reilly, C. A. & Tushman, M. L. (2004)

Structurally independent Cross-functional team

New business

Existing business

Manager

New business

Mfg

Manager

Sales R&D

25% succeeded

Functional structure

Mfg

Manager

Sales R&D

Nestlé does it

“The corporate team set up a

separate unit, fully owned by

Nestlé, but completely independent

from the main organization”

Informant in case study of innovation in Nestlé by Raisch & Tushman (2011)

Three arguments for separation

1. Avoid conflict of interest

2. Minimize coordination cost

3. Avoid goal conflicts

Resources

http://www.amazon.co.uk

Book Article Blog: www.organizationdesign.net