Chapter 21 Organization Design

Objectives Distinguish between mechanistic and organic structures Describe the three traditional types of organizational structures and their advantages and disadvantages Describe horizontal and network structures and their advantages and disadvantages Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -1

…Objectives Distinguish between formal and informal organizational structure Describe the boundaryless organization Explain the differentiation-integration issue in organization design Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -2

The 7-S Model Structure Systems Strategy Style Skills Staff Shared Values/Goals Systems Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -3

Mechanistic Vs. Organic Structures Specialized Rigidly Defined Centralized Vertical Rigid Departmentalization Clean Chain of Command Narrow High Tasks Authority Communication Unit Hierarchy Span of Control Formalization Common Broadly Defined Decentralized Horizontal Cross-Functional Teams Cross-Hierarchical Teams Wide Low Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -4

Organizational Structure - Defined Organizational structure refers to the pattern of roles, authority, and communication that determines the coordination of the technology and people within an organization Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -5

Functional Structure Marketing Manufacturing Accounting 21 -6 Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -6

Functional Structure Advantages Disadvantages Develop functional expertise Loyalty to function and standards of performance Can assign specialists where needed reducing duplication Promote standardization Facilitates centralized purchasing Disadvantages Integration and coordination difficulties Slow decision making Information sharing and collaboration can be problematic Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -7

When to Use a Functional Structure? Size: small Product or service: single Number of markets: small Cycle time: long Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -8

Divisional Structure Product Division 1 Product Division 2 Marketing Manufacturing Accounting Marketing Manufacturing Accounting Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -9

Divisional Structure Disadvantages Advantages Duplication of effort and resources May require more equipment Lost economies of scale Decreased opportunity for technical specialization Standardization is harder Coordination and collaboration problems Client service? Advantages Focus leads to improvements Customer satisfaction Responsiveness to market and environment Coordination across functions Decentralized decision making Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -10

When to Use a Divisional Structure? Products or services: several Environment: rapidly changing and unpredictable Technology: nonroutine and depends on several functional areas Size: large Strategy: adaptive, customer service Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -11

Matrix Structure Marketing Manufacturing Accounting Product Division 1 Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -12

Matrix Structures - Defined Matrix structures have a dual focus, usually products and functions. It is an attempt to profit from the advantages of both functional and product structures However, having both a product boss and a functional boss can cause confusion and conflict Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -13

When to Use a Matrix Structure? Pressure to share scarce resources across product lines Environmental pressure for two or more critical outputs Environment is both complex and uncertain Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -14

Horizontal Structures - Defined Horizontal corporations are flat structures with minimal layers of management and self-managing multidisciplinary teams organized around core processes Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -15

Horizontal Hospital Structure Senior Management Nurse Coordinators Team Team Team Patient Flow Nurse Coordinators Team Team Team Patient Flow Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -16

When to Use Horizontal Structures? Short product life and development cycles Customer satisfaction is a goal Environment is uncertain Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -17

Network Structure - Defined Network organizations consist of brokers who subcontract needed services to designers, suppliers, producers, and distributors linked by full-disclosure information systems and coordinated by market mechanisms Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -18

Network Organization Structure Designers Producers Brokers Suppliers Marketers & Distributors Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -19

When to Use Network Structures? Need to concentrate on core function and can subcontract the rest Can’t afford large start-up costs Fast-paced changing industries Environment is uncertain Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -20

Network Idealists - Defined Networked idealists are initially non- profit entrepreneurs who develop organic, cellular distributed network structures to accomplish their work Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -21

Characteristics of Networked Idealists Guerilla infrastructures and radical architectures – bypass traditional entry barriers Winning by not trying – “a different game” Value-based motivation – do good and make $ Attack strengths – attack strong incumbents Knowledge from the people – partners and customers add value Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -22

Networked Idealists Inner circle Founder Active users Passive users Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -23

Characteristics of Boundaryless Organizations Permeable internal and external boundaries Good ideas welcomed regardless of their source Cross-functional customer service teams Delegated authority Shared information Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -24

Informal Structures - Defined The informal structure refers to natural formations, informal leadership, and communication patterns that evolve in an organization and run parallel to the formal structure Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -25

Differentiation Vs. Integration - Defined The differences in cognitive and emotional orientations among managers in different functional departments, and the difference in formal structure among these departments Integration: The behaviors and structures used by differentiated organizational subunits to coordinate their work activities Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -26

Differentiation High Low Formality of structure Social Task Mostly task Interpersonal orientation Short Long Time horizon Customer satisfaction Efficient production New developments, quality Goals Sales Department Manufacturing Department R&D Department Characteristic Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -27

Contingencies That Influence Design Strategy Environment Technology Size National culture People and their shared values Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -28

Environmental Characteristics and Recommended Organizational Designs Complex Simple High Uncertainty Decentralized, organic structure; participation and teamwork; numerous departments and boundary spanners Moderate Uncertainty Decentralized, organic structure with participation and teamwork; few departments; boundary spanning roles Unstable Formal, centralized mechanistic structure with many depts. and integration roles Low Uncertainty Formal, centralized mechanistic structure with few departments Stable Environmental Rate of Change Environmental Complexity Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -29

International Structures – Strategic Alliances Licensing – allow products to be sold for a fee by foreign firms with access to global markets and distribution channels Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -30

…International Structures – Strategic Alliances Joint ventures – separate business entities designed to enter new markets, formed by two or more firms that share development and production costs Consortia – groups of independent companies that join together to share skills, resources, costs, and access to one another’s markets Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -31

International Structures - Integrated Network Models Distributed, specialized resources and capabilities Large flows of components, products, resources, people, and information among interdependent units Complex processes of coordination and cooperation in an environment of shared decision making Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -32

International Structures – The Family Business Most common structure worldwide is the family business Dominant values in Chinese family businesses are: patrimonialism, paternalism, hierarchy, mutual obligations, responsibility, familialism, personalism, and connections Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -33

Keiretsu and Chaebols - Defined Japanese keiretsu – complex inter-firm networks that combine market exchange and non-economic social relations Korean chaebols – business group consisting of large companies owned and managed by family members or relatives in many diversified business areas Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -34

When Does Culture Matter in Design? High power distance cultures tend toward structures with centralized decision making. Low PD cultures prefer decentralization High uncertainty avoidance generally correlates with greater formalization and more formal structures Matrix structures did not fit the French respect for hierarchy and unity of command Organizational Behavior: An Experiential Approach 8/E Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner 21 -35