BA105-1: Organizational Behavior Professor Jim Lincoln Week 3: Lecture

2 Organization design II: Session objectives Discuss the pros and cons of product division organization View functional and product division organization as ends of an evolutionary continuum along which a series of designs, including matrix, can be arrayed Introduce process and network organization designs as the main forms of modern “flat” or “horizontal” organization

3 CEO Cars Prefab Houses Electronics HRMnfgMktgHRMnfgMktgHRMnfgMktg Organizing around outputs: Product division organization

4 CEO North America Europe Asia Pacific HRMnfgMktgHRMnfgMktgHRMnfgMktg Organizing around outputs: Regional division organization

5 CEO Home market Education market Corporate market HRMnfgMktgHRMnfgMktgHRMnfgMktg Organizing around outputs: Customer-type divisions

6 Product organization pros & cons Alfred Chandler: Strategy and Structure, 1962 Oliver Williamson: Markets and Hierarchies, 1975 Pluses Low interdependence –Easy monitoring of division performance –Coordination by accounting standards –Easy absorption of acquisitions –Top execs freed for strategy Responsiveness to product, customer, & regional concerns Breeds GM skills Good fit to turbulent, heterogeneous environment Good fit to these strategies: –Diversification –Product/customer/region focus Minuses Poor within-function coordination Breeds weak functions Breeds inbred division cultures –Loss of corporate identity High redundancy and cost Excessive management by the numbers –Headquarters out of touch –Rigid, short-term expectations Excessive scale & sprawl

7 Hybrid forms Most large firms are functional/product hybrids: some functions are centralized others are decentralized to the division level The trend in recent years has been to consolidate divisions & centralize functions

8 Lou Gerstner, CEO of IBM on strategic organizational design Gerstner has been designing ways to decentralize what he calls, “the things that matter in running a business” but reinforce the things that benefit from size. That means decentralizing some things and centralizing others. “So, while unit managers can expect to define their customers, design their own products, manage most of their costs, and set prices, they’ll be expected to cooperate more on such issues as technology and product announcements, such as the power PC”

Hybrid form at Levi Strauss: Divisional organization with some functions centralized Haas CEO Product Group A Mktg Distribution Sales Manufact. Product Group B Mktg Distribution Sales Manufact. Product Group C Mktg Distribution Sales Manufact. LegalFinanceR&DAcctg.

10 CEO R&D Product Division Z Product Division Y Z R&D Z Engineering Hybrid form: dotted-line relationship between corporate and divisional R&D

11 Product Z manager Engineer- ing Manufac- turing Marketing General Manager Z Eng Z Mnfg Z Mktg Matrix

12 Matrix organization pros & cons Pluses Balances functional and product priorities –Product focus with stronger, less redundant, & better deployed functions than in divisional form Forces consensus resolution of disputes Forces a corporate-wide perspective on product/market divisions Good fit where technical & production requirements are high but speed and cost are secondary Good fit to large firms that can afford the infrastructure costs –Small firms can achieve similar results with less structure Minuses Costly in time and management overhead Bureaucratic, cumbersome Slow, requires consensus decision-making Unstable– power tends to shift to one side or the other Causes stress & frustration Complex, nonlinear career paths

13 Matrix as the (unstable) midpoint of an evolutionary continuum 1Pure functional organization 2Functional org with product-centered culture 3Liaison roles (employee transfers) 4Cross-functional task forces & teams 5 Integrating roles (product, brand, & account mgrs) 6 Matrix 7 Heavyweight product manager form 8 Fully self-contained product division organization

14 Engineer- ing Manufac- turing Market ing General Manager Human Resources Account- ing Functional organization

15 Engineer- ing Manu- facturing Marketing General Manager Z Eng Z Mnfg Z Mktg Product Z culture Product-specific culture coordinates functions around product Z

16 Engineer- ing Manufac- turing Marketing General Manager Z Mnfg Z Mktg Liaison roles: Cross-functional employee rotations coordinate functions around product Z

17 Engineer- ing Manufac- turing Marketing General Manager Z Mnfg Z Mktg Product Z cross- functional team Cross-functional teams coordinate functions around product Z Z Eng

18 Z brand manager Engineer- ing Manufac- turing Marketing General Manager Z Eng Z Mnfg Z Mktg Integrating roles: Brand, account, & project managers coordinate functions around product Z

19 Product Z manager Engineer- ing Manufac- turing Marketing General Manager Z Eng Z Mnfg Z Mktg Matrix: Formal reporting lines to a product division manager coordinate functions around Product Z

20 Product Z manager Engineer- ing Manufac- turing Marketing General Manager Z Eng Z Mnfg Z Mktg “Heavyweight product manager” form

21 CEO Product WProduct X Product Z EngMnfgMktgEngMnfgMktgEngMnfgMktg Fully self-contained product divisions

22 Matrix as culture, not structure Strongly shared commitments to product quality, customer service, and functional expertise (as in Total Quality Mangement) Bartlett and Ghoshal: “Matrix management-- not a structure, a frame of mind.”

23 Process (“horizontal”) & network organization designs Abandonment of the “Manager as engineer” model (despite “reengineering” termninology) –Less hierarchical command & control –Fewer rules, standards, and procedures –Less detailed and rigid division of labor –No more vertical career “Manager as leader” model. Strategies and capabilities are: –Teamwork (coordination through mutual adjustment) –Networking and political –Leadership and cultural –Entrepreneurial

24 The problem with the previous designs is that many business processes cut across functions & products General Manager Marketing ManufacturingEngineering Product Manager Prod. B Prod. A

25 Process organization: Grouping by interdependence, not similarity Hammer and Champy: Reengineering the Corporation, 1993 –Identify core business processes Chains of interdependent tasks delivering a product or service to a customer –Create multi-functional teams to run processes –Appoint manager or team as “owner” of each process –Empower teams with authority & information Move decision-making to point of action; customer contact –Revamp accounting and reward systems to orient new structure to customer satisfaction –Shrink functional departments but preserve specialist expertise –Eliminate activities that add no value

26 Top Management Team Process Coordinators Team Process Coordinators Team Process Coordinators New product development process Order fulfillment process Procurement, logistics process

27 Keep functional skills but dispense with functional groups “Create a house Yellow Pages so functional expertise is easy to find even though dispersed. Link experts in a real or electronic network where they can keep each other up to date and can get training and career development help…The engineers can have a club. But they can’t work in the same room, and they can’t sit at the same table at the company banquet.” Thomas A. Stewart: “The search for the organization of tomorrow” Fortune, 5/18/92.

28 Network Organization Small, lean, specialized firms The “organization” is a network Absence of authority and structure to control and coordinate division of labor –Examples: Japanese keiretsu Silicon valley New York fashion industry Germany’s mittelstand Northern Italy’s furniture industry Ethnic enclaves

29 Designers Core Firm Producers Distributors Suppliers Managers Suppliers Distributors IT Services Producers Designers Distributors Suppliers Brokers Full Vertical Integration Full Network Organization Networked Firm HR Services IT Services HR Services Designers Marketers HR Services IT Services

30 Physical proximity facilitates teamwork and networking (e.g., New York, Silicon Valley) Advertising Manu- facturing Finance Legal Designers Suppliers

31 Teleconferencing Groupware Knowledge management ERP Information technology facilitates teamwork and networking

32 Thursday Loose ends in lecture & reading Prepare the Appex case –Evaluate the cause & effect chains leading to problems –Critique Ghosh’s design solutions Why so many unintended consequences? –Propose alternatives Consider nonstructural solutions Assignment to project teams