Chapter 15 Organizational Design and Structure 1 Define differentiation and integration as organizational design processes. 2 Discuss the basic design dimensions managers must consider in structuring an organization. 3 Describe five structural configurations for organizations. 4 Describe four contextual variables that influence organizational structure. 5 Explain the forces reshaping organizations. 6 Discuss emerging organizational structures. 7 Identify two cautions about the effect of organizational structures on people. Learning Outcomes © 2009 Cengage Learning. All rights reserved.

© 2009 Cengage Learning. All rights reserved. Learning Objective 1 Define differentiation and integration as organizational design processes. © 2009 Cengage Learning. All rights reserved. 2

Organizational Design-Evan the process of constructing and adjusting an organization’s structure to achieve its goals. © 2009 Cengage Learning. All rights reserved. 2

Organizational Design-Evan Organizational Design – the process of constructing and adjusting an organization’s structure to achieve its goals. organization’s structure the linking of departments and jobs within an organization © 2009 Cengage Learning. All rights reserved. 2

Key Organizational Design Processes Differentiation Integration © 2009 Cengage Learning. All rights reserved. 3

© 2009 Cengage Learning. All rights reserved. The process of deciding how to divide the work in an organization-Katie Differentiation Four Dimensions Manager’s goal orientation Time orientation Interpersonal orientation Formality of structure © 2009 Cengage Learning. All rights reserved.

Horizontal Differentiation-Katie The degree of differentiation between organizational subunits Based on employee’s specialized knowledge, education, or training © 2009 Cengage Learning. All rights reserved.

Vertical Differentiation-Katie The difference in authority and responsibility in the organizational hierarchy Greater in tall, narrow organizations than in flat, wide organizations © 2009 Cengage Learning. All rights reserved.

Spatial Differentiation-Katie Geographic dispersion of an organization’s offices, plants, and personnel Complicates organizational design, but may simplify goal achievement or protection © 2009 Cengage Learning. All rights reserved.

Differentiation Between Marketing and Engineering Basis for Difference Marketing Engineering Goal orientation Time orientation Interpersonal orientation Structure Sales volume Long run People oriented Less formal Design Medium run Task oriented More formal

© 2009 Cengage Learning. All rights reserved. The process of coordinating the different parts of an organization-Robin Integration Designed to achieve unity among individuals and groups Supports a state of dynamic equilibrium – elements of organization are integrated, balanced © 2009 Cengage Learning. All rights reserved.

Vertical Integration-Robin Hierarchical referral Rules and procedures Plans and schedules Positions added to the organization structure Management information systems © 2009 Cengage Learning. All rights reserved.

Horizontal Integration-Robin Liaison roles Task forces Integrator positions Teams © 2009 Cengage Learning. All rights reserved.

© 2009 Cengage Learning. All rights reserved. Learning Objective 2 Discuss the basic design dimensions managers must consider in structuring an organization. © 2009 Cengage Learning. All rights reserved. 2

2 Ways to Approach-Justin Organizational Design Process I establish desired level of each structural dimension on a high-low continuum and develop structure that meets desired configuration © 2009 Cengage Learning. All rights reserved.

2 Ways to Approach-Justin Organizational Design Process II describe what is or is not important to the success of the organization rather than worry about specific characteristics © 2009 Cengage Learning. All rights reserved.

Hierarchy of Authority – Specialization – Formalization – the degree to which the organization has official rules, regulations, and procedures Centralization – the degree to which decisions are made at the top of the organization Ben M. Hierarchy of Authority – the degree of vertical differentiation across levels of management Specialization – the degree to which jobs are narrowly defined and depend on unique expertise Basic Design Dimensions Complexity – the degree to which many different types of activities occur in the organization Standardization – the degree to which work activities are accomplished in a routine fashion

© 2009 Cengage Learning. All rights reserved. Learning Objective 3 Describe five structural configurations for organizations. © 2009 Cengage Learning. All rights reserved. 2

Machine Bureaucracy – Professional Bureaucracy – Simple Structure – a centralized form of organization that emphasizes the upper echelon and direct supervision Machine Bureaucracy – a moderately decentralized form of organization that emphasizes the technical staff and standardization of work processes Kyle P Structural Configurations of Organizations Adhocracy – a selectively decentralized form of organization that emphasizes the support staff and mutual adjustment among people Professional Bureaucracy – a decentralized form of organization that emphasizes the operating level and standardization of skills Divisional Form – a moderately decentralized form of organization that emphasizes the middle level and standardization of outputs

Five Structural Configurations of Organization-Kyle P Prime Coordinating Mechanism Key Part of Organization Type of Decentralization Simple Structure Direct Supervision Upper Echelon Centralization Limited Horizontal Decentralization Machine Bureaucracy Standardization of Work Processes Technical Staff Vertical and Horizontal Decentralization Professional Bureaucracy Standardization of Skills Operating Level Divisionalized Form Standardization of Outputs Middle Level Limited Vertical Decentralization Adhocracy Mutual Adjustment Support Staff Selective Decentralization

© 2009 Cengage Learning. All rights reserved. Middle Line Strategic Apex Operating Core Support Staff Techno- structure Mintzberg’s Five Basic Parts of an Organization © 2009 Cengage Learning. All rights reserved. From H. Mintzberg, The Structuring of Organizations (Upper Saddle River, N.J.: Prentice-Hall, 1979): 20. Reprinted with permission.

© 2009 Cengage Learning. All rights reserved. Learning Objective 4 Describe four contextual variables that influence organizational structure. © 2009 Cengage Learning. All rights reserved. 2

Size Technology Strategy and Goals Environment Contextual Variables – a set of characteristics that influences the organization’s design processes Strategy and Goals Environment 4

Basic Design Small Large Dimensions Organizations Organizations Implications of Size Basic Design Small Large Dimensions Organizations Organizations Formalization Centralization Specialization Standardization Complexity Hierarchy of authority Less High Low Flat More Tall 4

Technological Interdependence the degree of interrelatedness of the organization’s various technological elements © 2009 Cengage Learning. All rights reserved. 4

Relationship Between Technology and Basic Design Dimensions Task Variability Few Exceptions Many Exceptions Ill-defined and Unanalyzable Craft 1. Moderate 2. Moderate 3. Moderate 4. Low moderate 5. High 6. Low Nonroutine 1. Low 2. Low 3. Low 4. Low 5. High 6. Low Problem Analyzability Well-defined and Analyzable Routine 1. High 2. High 3. Moderate 4. High 5. Low 6. High Engineering 1. Moderate 2. Moderate 3. High 4. Moderate 5. Moderate 6. Moderate Key 1 Formalization 4 Standardization 2 Centralization 5 Complexity 3 Specialization 6 Hierarchy of Authority Built from C. Perrow, “A Framework for the Comparative Analysis of Organization,” American Sociological Review, April 1967, 194-208

© 2009 Cengage Learning. All rights reserved. Environment anything outside the boundaries of an organization © 2009 Cengage Learning. All rights reserved. 4

© 2009 Cengage Learning. All rights reserved. Task Environment – the elements of an organization’s environment that are related to its goal attainment Environmental Uncertainty – the amount and rate of change in the organization’s environment ? Environment Environment © 2009 Cengage Learning. All rights reserved. 4

Extremes of Environmental Uncertainty-Tyson Mechanistic Structure – an organizational design that emphasizes structured activities, specialized tasks, and centralized decision making Organic Structure – an organizational design that emphasizes teamwork, open communication, and decentralized decision making © 2009 Cengage Learning. All rights reserved.

Key Organizational Design Elements-Tyson Context of the organization Correct size Current technology Perceived environment Current strategy and goals Influences how manager perceive structural needs Structural dimensions Level of formalization Level of centralization Level of specialization Level of standardization Level of complexity Hierarchy of authority © 2009 Cengage Learning. All rights reserved.

Strategic Dimension Predicted Structural Characteristics Innovation—to understand Low formalization and manage new processes Decentralization and technologies Flat hierarchy Market differentiation—to Moderate to high complexity specialize in customer Moderate to high preferences formalization Moderate centralization Cost control—to produce High formalization standardized products High centralization efficiently High standardization Low complexity Miller’s Integrative Framework of Structural & Strategic Dimensions Dillin © 2009 Cengage Learning. All rights reserved. D. Miller, “The Structural and Environmental Correlates of Business Strategy,” Strategic Management Journal 8 (1987): 55-76. Copyright @ John Wiley & Sons Limited. Reproduced with permission. 4

Differentiation and Integration Context of the organization Which characterize the organizational processes-Dillin Differentiation and Integration Which influence how well the structure meets its Purposes Designate formal lines of authority information- processing patterns Which influence how well the structure fits the Context of the organization © 2009 Cengage Learning. All rights reserved.

© 2009 Cengage Learning. All rights reserved. Learning Objective 5 Explain the forces reshaping organizations. © 2009 Cengage Learning. All rights reserved. 2

Organization Life Cycle the differing stages of an organization’s life from birth to death © 2009 Cengage Learning. All rights reserved.

Forces Reshaping Organizations Globalization Changes in Information-Processing Technologies Demands on Organizational Processes Emerging Organizational Structures © 2009 Cengage Learning. All rights reserved.

Structural Roles of Managers Roles of Managers Today 1. Strictly adhering to boss– employee relationships 2. Getting things done by giving orders 3. Carrying messages up and down the hierarchy 4. Performing a set of tasks according to a job description 5. Having a narrow functional focus 6. Going through channels, one by one by one 7. Controlling subordinates Roles of Future Managers 1. Having hierarchical relationships subordinated 2. Getting things done by negotiating 3. Solving problems and making decisions 4. Creating the job through entrepreneurial projects 5. Having a broad cross- functional collaboration 6. Emphasizing speed and flexibility 7. Coaching one’s workers Management Review, January 1991, Thomas R. Horton.

© 2009 Cengage Learning. All rights reserved. Learning Objective 6 Discuss emerging organizational structures. © 2009 Cengage Learning. All rights reserved. 2

© 2009 Cengage Learning. All rights reserved. Emerging structures Network organizations Virtual organizations Circle organizations © 2009 Cengage Learning. All rights reserved.

HD’s Circle Organization Create Demand Produce Product Provide Support Leadership and Strategy Council (LSC) From R. Teerlink and L. Ozley, More than a Motorcycle: The Leadership Journey at Harley-Davidson. Boston, MA, 2000. P. 139. Copyright © 2000 by the Harvard Business School Publishing Corporation; all rights reserved. © 2009 Cengage Learning. All rights reserved.

© 2009 Cengage Learning. All rights reserved. Learning Objective 7 Identify two cautions about the effect of organizational structures on people. © 2009 Cengage Learning. All rights reserved. 2

Four Symptoms of Structural Weakness-Zach Delay in decision making Poor quality Lack of innovative response to changing environment High level of conflict Overloaded hierarchy; information funneling limited to too few channels Right information not reaching right people in right format No coordinating effort Departments work against each other, not for organizational goals © 2009 Cengage Learning. All rights reserved.

Personality/Organization Paranoid Depressive Dysfunctional Personality/Organization Combinations-Zach Schizoid Dramatic Compulsive