Concept
Every organization exists in a context that includes regulatory environment, labor markets, competition, macro and micro economic climates, political backdrop, and many other factors. When one begins to design or redesign an organization, one ignores these factors at their own risk.
Economic conditions will affect numerous elements of design including capital structure, borrowing capacity, investment opportunities, and much more.
Labor markets will affect the ability of the organization to find the kind of employees needed to populate the business.
Proximity to corporate headquarters will affect a plant’s ability to innovate new processes.25
Awareness of the competitive environment in the company’s industry will also affect design decisions.26
The political environment will also affect a company’s design decisions.27
The size of an organization will also affect its design and success. As will the company’s customer base. A company with one customer will face different design issues than a company with 1,000 customers or one with one million.
I doubt that any model of background factors would be comprehensive enough to apply to all situations. That said, any executive making design decisions should be aware that the contextual factors surrounding them will affect their results, so they should analyze them carefully as they make design decisions—often without a careful awareness of their own VABEs and the way they shape their assessment of the linkage between background factors and design options.
At least one Japanese car manufacturer looking to build a plant in the southeastern part of the United States where wage rates were lower, climate was better, and tax conditions were favorable had to construct an intensive training program in order to bring the skill level of the local labor market up to their standards.28,29,30
Coca-Cola found that the introduction of products in Japan was shaped dramatically by the Japanese business context and cultural expectations.31
Companies wanting to start businesses in the Middle East must learn many new ways of thinking about organizational design. Sharia law along with different assumptions about payments are but two key issues to understand.32 I once conducted a seminar for a client in the Middle East and was informed afterward, to my surprise, that I would be paid when the organizer was paid. Final payment didn’t arrive until over a year later.
Diagram
Challenge
1. What are the important background factors in which you are conducting business?
2. How do they affect your design decisions?
25 http://tennessean.com/picture-gallery/news/local/williamson/spring-hill/2014/03/23/history-of-saturn-plant-in-spring-hill/6798363/
26 https://scholar.harvard.edu/files/aghion/files/causal_effects_of_competition.pdf
27 https://bizfluent.com/info-8377458-effects-political-environment-business-organizations.html
28 https://charlestonbusiness.com/news/automotive/72801/
29 https://charlestonbusiness.com/news/automotive/72801/
30 https://toyota.com/usa/tten/
31 http://coca-colacompany.com/coca-cola-unbottled/innovation-resilience-key-to-coca-cola-heritage-in-japan
32 https://businessknowhow.com/manage/middleeast.htm