ORGANIZATION STRUCTURE chapter 16 DETERMINANTS OF ORGANIZATION STRUCTURE AND CULTURE 1

Design Contingencies The organization’s environment 2 Design Contingencies The organization’s environment The technology the organization uses The organization’s strategy

Organizational Environment 3 Organizational Environment The organizational environment is the set of forces surrounding an organization that determine its ability to obtain resources. Because resources are often scarce and many organizations compete for the same resources, obtaining them is a difficult and uncertain process. The structure and culture of an organization must be designed in a way that allows organizational members to secure and protect the organization’s access to the resources it needs to achieve its goals.

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Differentiation and Integration 6 Differentiation and Integration Managers of organizations have to create a structure with the right levels of both differentiation and integration to match the uncertainty of the environment in which it operates. Differentiation measures the degree to which a function or division develops orientations that allow its members to manage the specific environmental force that each function or division is dealing with. Integration measures the degree of coordination or mutual adjustment between functions.

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Mechanistic and Organic Structures 8 Mechanistic and Organic Structures A mechanistic structure is an organizational structure that is designed so that individuals and functions behave in predictable ways and can be held accountable for their actions. An organic structure is an organizational structure that is designed so that individuals and functions can behave flexibly and respond quickly to frequently changing and unusual situations.

Mechanistic and Organic Structures (Table 16.1) 9 Mechanistic and Organic Structures (Table 16.1) Mechanistic Structures Tall, centralized hierarchy of authority Top-down communication and decision making Great use of standardization: many detailed rules and standard operating procedures Clearly specified tasks and roles and a defined division of labor Organic Structures Flat, decentralized hierarchy of authority Lateral communication and decision making between people in different departments Great use of mutual adjustment: much face-to-face communication in task forces and teams Deliberately ill-defined tasks and roles and a loose division of labor

Organizational Culture 10 Organizational Culture Organizations with organic structures develop very different cultures than organizations with mechanistic structures. Typical instrumental values in a mechanistic organization stress being cautious, obeying superior authority, and the importance of staying inside one’s role and respecting tradition. Typical instrumental values in an organic organization stress being creative, taking risks, and challenging established traditions and opinions.

11 Advice to Managers Analyze the set of forces in the environment surrounding your organization and the degree of uncertainty associated with each force. Evaluate the way your organizational structure and culture are designed to manage these forces. Are the levels of differentiation and integration appropriate? Is your organization sufficiently mechanistic or organic? Implement organizational design changes that will improve your organization’s ability to respond to its environment.

12 Technology The combination of human resources and raw materials and equipment that workers use to convert raw materials into finished goods and services.

Woodward’s Model of Technology 13 Woodward’s Model of Technology Small-batch technology relies on the skills and knowledge of individual workers to produce one-of-a-kind, customized goods and services or small quantities of goods and services. Mass production technology results in the production of large numbers of identical products. Continuous-process technology is one in which the manufacturing process is entirely mechanized and the workers’ role is to monitor the machines and computers that actually produce the goods.

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Perrow’s Model of Technology 15 Perrow’s Model of Technology Task Variety: The number of new and different demands that a task places on an individual or a function. Task Analyzability: The degree to which standardized solutions are available to solve problems that arise.

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The Effects of New Information Technology 17 The Effects of New Information Technology IT has increased the mechanistic side of organizations because it has made it much easier to coordinate between jobs and functions and has given managers much more power to monitor and control organizational activities. IT has increased the organic side of organizations because people and teams far down the hierarchy have access to more information so that they can perform their jobs more autonomously.

18 Advice to Managers Use Woodward’s, Thompson’s, and Perrow’s frameworks to identify the main contingencies associated with operating the technologies in your organization. Decide whether your organization’s current structure and culture are matched to the needs of your technology. Implement any changes in organizational design, such as decentralizing authority or raising the level of integration by empowering workers, that may allow you to operate your technology more effectively.

19 Strategy An organization pursues a strategy to develop the skills, knowledge, and capabilities that will allow it to compete successfully in its environment for resources and gain a competitive advantage, outperforming its competitors.

Types of Organizational Strategies 20 Types of Organizational Strategies Cost-Leadership Strategy - aims to attract customers with low prices that are made possible by low costs. Differentiation Strategy - aims to attract customers with unique or distinctive goods and services. Focused Cost-Leadership Strategy - aims to attract one kind of customer or group of customers with a low-cost product. Focused Differentiation Strategy - aims to attract one kind of customer or group of customers with a differentiated product.

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Benefits of Organizational Design 22 Benefits of Organizational Design Organizational design can help an organization achieve increases in efficiency, quality, innovation and creativity, and responsiveness to customers. Increasing efficiency is most closely associated with a cost-leadership strategy. Increases in quality, innovation, and customer responsiveness are most closely associated with a differentiation strategy.

Increasing Efficiency 23 Increasing Efficiency Designing structure Keep the structure as flat as possible Decentralize authority Reevaluate form of differentiation being used Reevaluate integrating mechanisms being used Managing culture Create a cost-cutting culture

Increasing Quality Designing structure Managing culture 24 Increasing Quality Designing structure Keep the structure as flat as possible Decentralize authority Use cross-functional teams Increase standardization Managing culture Create a quality-oriented culture

Increasing Innovation 25 Increasing Innovation Designing structure Use a matrix structure Use cross-functional teams Managing culture Create a creative and innovation-oriented culture Stress instrumental values of risk taking and exploration

Increasing Customer Responsiveness 26 Increasing Customer Responsiveness Designing structure Employ a geographic structure Employ a market structure Managing culture Create a quality-oriented culture Promote instrumental values of caring for customers, attentive service, and speedy after-sales support

27 Advice to Managers Evaluate the way you are currently pursuing your strategy, and decide how you might improve efficiency, quality, innovation, or customer responsiveness to increase performance. Consider implementing a T.Q.M. program to discover ways to increase performance. Evaluate how your organization’s structure and culture are helping or hurting organizational performance, and implement any organizational design changes that will help to increase your competitive advantage.