Chapter 15 Organizational Design and Structure

Learning Outcomes Define differentiation and integration as organizational design processes Discuss the basic design dimensions managers must consider in structuring an organization Describe five structural configurations for organizations Describe four contextual variables that influence organizational structure

Learning Outcomes Explain the forces reshaping organizations Identify and describe emerging organizational structures Identify factors that can adversely affect organizational structure

Organizational Design and Structure The process of constructing and adjusting an organization’s structure to achieve its business strategy and goals Organizational structure The linking of departments and jobs within an organization 2

Learning Outcome Define differentiation and integration as organizational design processes ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Key Organizational Design Processes Differentiation: Deciding how to divide the work in an organization Dimensions Manager’s goal orientation Time orientation Interpersonal orientation Formality of structure 3

Types of Differentiation Horizontal Degree of differentiation between organizational subunits Vertical Difference in authority and responsibility in the organizational hierarchy Spatial Geographic dispersion of an organization’s offices, plants, and personnel

Beyond the Book: Differentiation at Cisco At Cisco, the existence of multiple teams, councils, boards, and working groups within Cisco creates a web of internal integrating structures that lead to fast decisions by the right people to ensure that the company is agile Cisco has a complex organizational structure because it allows the firm to enter into new markets quickly An emphasis on horizontal integration and cross-function teaming allows Cisco to be much more agile than before. A key benefit is speed in decision making Cisco Systems’ organizational structure is so complex that it can take fifteen minutes and a whiteboard to fully explain. John Chambers describes the benefits simply: speed, skill, and flexibility. The core structural unit at the heart of Chambers’ concept is the management team. Cisco managers, employees, and senior leaders are on more than one management team, actually many more. The existence of multiple teams, councils, boards, and working groups within Cisco creates a web of internal integrating structures that lead to fast decisions by the right people to ensure that the company is agile, with the potential to grow even in difficult times. Manny Rivelo is a senior vice president at Cisco and at one point was embedded in at least fourteen internal teams: three councils, six boards, and five working groups, all within the company. What led Chambers to this complex organizational structure was the realization that the company’s hierarchical structure precluded it from moving quickly into new markets. By restructuring with an emphasis on horizontal integration and cross-functional teaming, Chambers flattened Cisco and increased the company’s agility. A key benefit is speed of decision making. Fast decision making is good when the right skilled people are engaged in the process. The team approach through councils, boards, and working groups ensures that the right people are in the right place at the right time to make good decisions, quickly. SOURCE: M. Kimes, “Cisco Systems Layers It On,” Fortune 158 (December 8, 2008): 24. ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Key Organizational Design Processes Integration: Coordinating the different parts of an organization Supports dynamic equilibrium, in which all the parts of an organization are interrelated and balanced

Horizontal integration Vertical integration Horizontal integration Hierarchical referral Rules and procedures Plans and schedules Positions added to the organization structure Management information systems Liaison roles Task forces Integrator positions Teams ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Learning Outcome Discuss the basic design dimensions managers must consider in structuring an organization ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Two Ways to Approach the Organizational Design Process Establish desired level of each structural dimension on a high-low continuum and develop structure that meets desired configuration Describe what is or is not important to the success of the organization

Structural Dimensions Formalization Degree to which the organization has official rules, regulations, and procedures Centralization Degree to which decisions are made at the top of the organization Specialization Degree to which jobs are narrowly defined and depend on unique expertise

Structural Dimensions Standardization Degree to which work activities are accomplished in a routine fashion Complexity Degree to which many different types of activities occur in the organization Hierarchy of authority Degree of vertical differentiation across levels of management

Describe five structural configurations for organizations Learning Outcome Describe five structural configurations for organizations ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Table 15.1 - Five Structural Configurations of Organization ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 15.2 - Five Basic Parts of an Organization ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Learning Outcome Describe four contextual variables that influence organizational structure ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Contextual Variables Set of characteristics that influences the organization’s design processes Size Technology Strategy and goals Environment

Size Measured in number of employees Formalization, specialization and standardization greater in larger organizations Size increases, complexity increases

Technology Tools, techniques, and actions used by an organization to transform inputs into outputs Different departments employ different technologies Types Unit - Small batch manufacturing technology Mass - Large-batch manufacturing technology and made-to-order production Process production - Continuous-production process

Technology Technological interdependence: Degree of interrelatedness of the organization’s various technological elements James Thompson’s research suggests greater technological interdependence leads to greater complexity

Figure 15.3 - Summary of Perrow’s Findings

Environment Anything outside the boundaries of an organization Task environment: Part of the environment that is directly relevant to the organization Environmental uncertainty: Amount and rate of change in the organization’s environment

Extremes of Environmental Uncertainty Mechanistic structure: Organizational design that emphasizes structured activities, specialized tasks, and centralized decision making Organic structure: Organizational design that emphasizes teamwork, open communication, and decentralized decision making

Strategy and Goals Provide legitimacy to the organization, employee direction, decision guidelines, and criteria for performance Help the organization fit into its environment Limitations Changing the organization’s structure drives up costs and difficulties Inefficiency of the structure to perceive environmental changes can lead to organizational failure

Relationships Among Organizational Design Elements Context of the organization Influences how managers perceive structural needs Structural Dimensions Which characterize the organizational processes Differentiation and Integration Which influence how well the structure meets its Purposes Which influence how well the structure fits the Context of the organization ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Explain the forces reshaping organizations Learning Outcome Explain the forces reshaping organizations ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Forces Reshaping Organizations Organizational life cycles Globalization Changes in information-processing technologies Demands on organizational processes

Identify and discuss emerging organizational structures Learning Outcome Identify and discuss emerging organizational structures ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Figure 15.5 - Harley-Davidson’s Circle Organization

Emerging Structures Network organizations Web-like structures that contract some or all operations to other organizations and then coordinate activities Virtual organizations Temporary networks of organizations consisting of independent enterprises Circle organizations Open system, organic structure for customer responsiveness

Identify factors that can adversely affect organizational structure Learning Outcome Identify factors that can adversely affect organizational structure ©2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Four Symptoms of Structural Weakness Delay in decision making Poor quality decision making Lack of innovative response to changing environment High level of conflict

Dysfunctional Personality/Organization Combinations Paranoid Depressive Dramatic Compulsive Schizoid

Rendition Review the section, “Basic Design Dimensions.” Which dimensions does this scene show or imply? Can you sense the division of labor represented by Senator Hawkins and Alan Smith? Corrine Whitman does not appear in this scene but is also part of a division of labor Review the five structural configurations described in the chapter. Which of those configurations best describes the likely structure of Senator Hawkins’ office? Which configurations do not apply? Why?

Modern Shed How did Ryan Smith determine whether his company needed a mechanistic structure with a tall vertical hierarchy or an organic one involving free- flowing partnerships? What are the advantages and disadvantages of Modern Shed’s organizational structure? Give an example of how Modern Shed’s structure enables fast response to rapidly changing market opportunities