M A N A G E M E N T M A N A G E M E N T 1 st E D I T I O N 1 st E D I T I O N Gulati | Mayo | Nohria Gulati | Mayo | Nohria Chapter 7 Chapter 7 Organizational Design Organizational Design ORGANIZATIONAL PERSPECTIVE ©South-Western, a part of Cengage Learning PowerPoint Presentation by Charlie Cook

Learning Objectives Understand the role that organizations play in helping a firm achieve its strategic objectivesUnderstand the role that organizations play in helping a firm achieve its strategic objectives Define the various organizational design decisions that are central to creating an organization that is aligned with a firm’s strategic objectivesDefine the various organizational design decisions that are central to creating an organization that is aligned with a firm’s strategic objectives Explain the different forms of organizational structure including functional, divisional, matrix, network, and hybrid and outline the advantages and disadvantages of each formExplain the different forms of organizational structure including functional, divisional, matrix, network, and hybrid and outline the advantages and disadvantages of each form © South-Western, a part of Cengage Learning7-2

Learning Objectives Determine what organizational choices and leadership approaches correspond to specific life-cycle stages of a businessDetermine what organizational choices and leadership approaches correspond to specific life-cycle stages of a business Describe how firms are redefining their organizations to better meet the demands of customers and improve their operational efficiencyDescribe how firms are redefining their organizations to better meet the demands of customers and improve their operational efficiency © South-Western, a part of Cengage Learning7-3

Organizational Design © South-Western, a part of Cengage Learning7-4 The formal systems, levers, and decisions an organization adopts or employs in pursuit of its strategy

Division of Labor © South-Western, a part of Cengage Learning7-5 Horizontal specialization - The breadth of activities that are performed in a certain job The manner in which work in a firm is divided among employees Vertical specialization - How much an employee creates, executes, and administers activities in a certain area of the firm

Division of Labor © South-Western, a part of Cengage Learning7-6 AdvantagesAdvantages –Creation of highly specialized jobs can help develop expertise or competency in a certain skill or function –Repetitive and specialized nature of jobs helps in quick and efficient training of new resources DisadvantagesDisadvantages –Extreme specialization resulting in tedious repetitive work can lead to low job satisfaction –Due to high levels of job specialization, firms are unable to prevent turnover

Coordinating Mechanisms © South-Western, a part of Cengage Learning7-7 Those who believe that more control is warranted in organizational design to ensure that jobs are performed satisfactorily and efficiently Organizers An extreme form of organizational control in which systems are highly formalized and are characterized by extensive rules, procedures, policies, and instructions. Bureaucratic approach Greater job standardization Specific definitions of roles and responsibilities More hierarchical leadership Close personal surveillance of superiors over subordinates Not useful in creative environments

Coordinating Mechanisms © South-Western, a part of Cengage Learning7-8 Those who support a more open organizational structure where roles and responsibilities are loosely defined Behaviorists A type of organizational control that includes self- supervising teams that are responsible for a set of tasks Clan approach

© South-Western, a part of Cengage Learning7-9 Figure Bureaucratic and Clan Approaches to Control Source: Adapted from B. R. Baliga and Alfred M. Jaeger, “Multinational Corporations: Control Systems and Delegation Issues,” Journal of International Business Studies, Vol. 15, Fall 1984, pp. 25–40

Organizational Structure © South-Western, a part of Cengage Learning7-10 Organizes a firm in terms of the main activities that need to be performed, such as production, marketing, sales, and accounting Functional structure Groups diverse functions into separate divisions Divisional structure The pattern of organizational roles, relationships, and procedures that enable coordinated action among employees

Organizational Structure © South-Western, a part of Cengage Learning7-11 Both divisional and functional managers have equal authority in the organization Matrix structure Knowledge workers are organized to work as individual contributors or to be a part of a work cluster that provides a certain expertise for the organization Network structure

© South-Western, a part of Cengage Learning7-12 Figure Three Functions of an Organization

Functional Form © South-Western, a part of Cengage Learning7-13 Each functional department conducts its own budgeting and planning processesEach functional department conducts its own budgeting and planning processes Works well for small businesses and businesses with a limited number of products or servicesWorks well for small businesses and businesses with a limited number of products or services Supports:Supports: –Easy flow of communication –Straightforward approach to supervision –Reduced level of redundancy Best suited for competitive situations that require efficiency of production or functional expertiseBest suited for competitive situations that require efficiency of production or functional expertise

© South-Western, a part of Cengage Learning7-14 Figure Functional Organizational Structure

Divisional Form © South-Western, a part of Cengage Learning7-15 Can be organized around products, geographies, or clientsCan be organized around products, geographies, or clients Each division is accountable for its own profit and lossEach division is accountable for its own profit and loss Employees feel more loyal towards their division rather than functionEmployees feel more loyal towards their division rather than function Allows greater accountabilityAllows greater accountability Promotion is based on management capabilities across divisions rather than functional expertisePromotion is based on management capabilities across divisions rather than functional expertise

© South-Western, a part of Cengage Learning7-16 Figure Divisional Organizational Structure

Matrix Form © South-Western, a part of Cengage Learning7-17 Combines the positive elements from different organizational configurations to:Combines the positive elements from different organizational configurations to: –Cope with strong environmental pressures –Assist complex internal interrelationships –Facilitate sharing and optimization of resources To facilitate optimized performance, uses:To facilitate optimized performance, uses: –Technological expertise within functions –Horizontal coordination across the functions Assigns equal authority to both divisional and functional managersAssigns equal authority to both divisional and functional managers

© South-Western, a part of Cengage Learning7-18 Figure Matrix Organizational Structure

Network Form © South-Western, a part of Cengage Learning7-19 Uses cross-functional teams and technology to coordinate the work of geographically-dispersed work groupsUses cross-functional teams and technology to coordinate the work of geographically-dispersed work groups Emphasizes on the informal structure of the firmEmphasizes on the informal structure of the firm –Informal relationships between clusters of workers and cross-functional teams dominate the action of the firm Allows firms to quickly to adapt to changes in the marketplace or respond to a competitor’s actionAllows firms to quickly to adapt to changes in the marketplace or respond to a competitor’s action

© South-Western, a part of Cengage Learning7-20 Figure Network Organizational Structure

© South-Western, a part of Cengage Learning7-21 Table Advantages and Disadvantages of Different Organizational Structures

Organizational Design Levers © South-Western, a part of Cengage Learning7-22 Are concerned with how decisions are made How information should flow through the organization Who should make decisions regarding that information

Decision Rights © South-Western, a part of Cengage Learning7-23 Rights that include initiating, approving, implementing, and controlling various types of strategic or tactical decisions Differ based on vertical and horizontal dimensions Delegation: The process by which managers transfer decision rights to individual employees

© South-Western, a part of Cengage Learning7-24 An organizational structure characterized by formal structures that control employee behavior by concentrating decisions in a top-down, hierarchical fashion Centralized organization An organizational structure where key decisions are made at all levels of the firm, not mandated from the top Decentralized organization Decision Rights

Informal Structures © South-Western, a part of Cengage Learning7-25 Contribute in defining an organizationContribute in defining an organization Develop over a period of timeDevelop over a period of time Not listed in the firm’s bylaws or management practicesNot listed in the firm’s bylaws or management practices Are affected by organizational changesAre affected by organizational changes

Mutual Adaptation © South-Western, a part of Cengage Learning7-26 The process by which firms impact the nature of their overarching industrial environment and adapt their organization in response to evolving contextual factors Critically important in industries where change is a constant, such as technology and fashion

© South-Western, a part of Cengage Learning7-27 Figure Role of Leadership across Life-Cycle Stages Source: Adapted from Anthony J. Mayo, Nitin Nohria, and Mark Rennella, Entrepreneurs, Managers, and Leaders: What the Airline Industry Can Teach Us About Leadership (New York: Palgrave MacMillan, 2009), pp. 1–20.

Organizational Flexibility © South-Western, a part of Cengage Learning7-28 Ambidextrous organizationsAmbidextrous organizations –Maintain efficiency in current strategic operations while preparing for imminent changes –Create a separate team to work on future opportunities while the rest of the firm focuses on the primary business Advantage - Creates a forum for innovation and creativityAdvantage - Creates a forum for innovation and creativity

Recent Trends in Organizational Design © South-Western, a part of Cengage Learning7-29 Cooperation Capability development Customer- centric model Coordination Connection

© South-Western, a part of Cengage Learning7-30 Silos: A functional or divisional unit that operates by its own rules and guidelines and does not openly share information with other units Recent Trends in Organizational Design

Key Terms © South-Western, a part of Cengage Learning7-31 Behaviorists Bureaucratic approach Centralized organization Clan approach Decentralized organization Decision rights Behaviorists Bureaucratic approach Centralized organization Clan approach Decentralized organization Decision rights Functional structure Matrix structure Mutual adaptation Network structure Organizational design Organizational structure OrganizersSilos