Real Options and Flexibility in Organizational Design

This paper applies the concept of Real Options (RO) to the design of a flexible organization adaptable to changing team members and evolving requirements. While management theory is often used to develop an organization and later align it with specific goals, the authors contend that applying systems engineering principles will prove more valuable to an organization's success. This paper provides a comparison of the traditional hierarchical organization to how an organization really functions-through interpersonal connectivity. The authors relate the connectivity of the organization to recent laws for valuing a network, and show where these laws both demonstrate the potential RO in a networked organization and how using connectivity to measure the quality of organizational design provides a misleading evaluation of organizational health. This research includes a review of historical organizational structures that enhanced organizational flexibility and organizational performance.