Managerial Economics and Organizational Architecture, 5e Managerial Economics and Organizational Architecture, 5e Chapter 13: Decision Rights: Bundling Tasks into Jobs and Subunits Copyright © 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved. McGraw-Hill/Irwin

Managerial Economics and Organizational Architecture, 5e Task Assignment Specialized –perform limited number of functions e.g. traditional assembly line Broad –perform multiple functions e.g. professors 13-2

Managerial Economics and Organizational Architecture, 5e Specialized Task Assignment Benefits –comparative advantage –lower cross-training expense Costs –foregone complementarities across tasks –coordination costs –functional myopia –reduced flexibility 13-3

Managerial Economics and Organizational Architecture, 5e Incentive Issues Depending on the compensation and ability to measure different tasks, individuals may put more effort into one task over another 13-4

Managerial Economics and Organizational Architecture, 5e Tasks at Finware Task 1 Task 4 Task 2 Task 3 Businesses Individuals Customer type SalesService Function FinWare, Inc. 13-5

Managerial Economics and Organizational Architecture, 5e Bundling Jobs into Subunits Grouping people together reduces communication and coordination costs within the subunit Activities must be coordinated across subunits incentive issues must be considered when grouping –it is easier to devise performance evaluation and reward systems in some groupings than in others 13-6

Managerial Economics and Organizational Architecture, 5e Methods of Grouping Jobs U-form of organization (unitary) –group by functional specialty –each primary function in one major subunit 13-7

Managerial Economics and Organizational Architecture, 5e Finware as Functional Organization Chief Executive Officer Service DepartmentSales Department FinWare, Inc. 13-8

Managerial Economics and Organizational Architecture, 5e Functional Subunits Advantages –promotes effective coordination –promotes functional expertise –well-defined promotion path Disadvantages –opportunity cost of senior management time –coordination problems across departments –employee focus on functions, not customers 13-9

Managerial Economics and Organizational Architecture, 5e Methods of Grouping Jobs M-form of organization (multidivisional) –group by product –group by geographic area –each unit has multiple functions 13-10

Managerial Economics and Organizational Architecture, 5e Finware as Product and Geographic Organization Chief Executive Officer Product OrganizationGeographic Organization Business Products Division Consumer Products Division West Coast Division East Coast Division Sales Department Service Department Sales Department Service Department Sales Department Service Department Sales Department Service Department FinWare, Inc

Managerial Economics and Organizational Architecture, 5e Product/Geographic Subunits Advantages –decision rights tied to specific knowledge –senior management able to focus on strategy –promotes coordination pertinent to product/area Disadvantages –unit interdependencies may be ignored –economies may be foregone 13-12

Managerial Economics and Organizational Architecture, 5e Functional Subunits Tend to work best –in small firms with homogeneous products –when technological change is slow 13-13

Managerial Economics and Organizational Architecture, 5e Methods of Grouping Jobs Matrix organization –intersecting lines of authority –functional departments address performance reviews and professional development –product/geographic subunits address customer/client needs 13-14

Managerial Economics and Organizational Architecture, 5e Finware as Matrix Organization Chief Executive Officer Business Products Team Sales DivisionService Division Business Sales Department Business Service Department Consumer Sales Department Consumer Service Department 13-15

Managerial Economics and Organizational Architecture, 5e Matrix Organization Difficult to implement Incentives for cooperation are not strong Other structures: –mixed design organize by product, geography and function depending on the subunit –Network –Keiretsu 13-16

Managerial Economics and Organizational Architecture, 5e IBM Credit Originally Originally organized around functions –employees assigned specialized set of tasks within functional area –employees had limited decision authority Credit application processing took 6 days as each functional area reviewed the application 13-17

Managerial Economics and Organizational Architecture, 5e IBM Credit with Functional Organization General Manager Credit Department Contracts Department Pricing Department Documents Department 13-18

Managerial Economics and Organizational Architecture, 5e A “Re-engineered” IBM Credit New technology and information systems supported task reassignment and job redesign As reorganized, empowered caseworkers handle process in 4 hours 13-19

Managerial Economics and Organizational Architecture, 5e IBM Credit’s Revised Organization General Manager IBM Credit Case- worker 13-20

Managerial Economics and Organizational Architecture, 5e Appendix

Managerial Economics and Organizational Architecture, 5e Battle of the Functional Managers Quick Motorcycle Company –functionally organized design department marketing department New product design options –speed –safety Marketing options –magazine advertising  older consumers –television advertising  younger consumers 13-22

Managerial Economics and Organizational Architecture, 5e Battle of the Functional Managers game matrix $5000 $2000 Pino—Design 1 Pino—Design 2 $100 $1000 $4000 Lan—Marketing plan 1 Lan—Marketing plan