Chapter 13: Organizational Design Creating Effective Organizations

What is Organization Structure and Design? 1. An authority system 2. A communication system 3. A decision making system 4. An activities/work system

Key Concepts in Design Bureaucracy—Creation of formal rules to solve organizational problems Bureaucracy—Creation of formal rules to solve organizational problems Mechanistic versus Organic Structures—the more environmental uncertainty the greater the need for an organic structure Mechanistic versus Organic Structures—the more environmental uncertainty the greater the need for an organic structure Differentiation (division of labor) and Integration (coordinating mechanisms) Differentiation (division of labor) and Integration (coordinating mechanisms) Span of Control Span of Control

Functional Organizational Structures: “Typical” Functional Organizational Structure General Manager EngineeringManufacturingMarketing Finance and AccountingPersonnel Research and Development Process-Oriented Functional Structure General Manager FoundryAndCastingsMillingAndGrindingScrewMachiningFinishing And Heat TreatingInspectionLoadingAndShippingCustomerServiceBillingAndAccounting

Functional Organizational Structures: Strategic Advantages/Disadvantages Strategic Advantages Permits centralized control of strategic results Permits centralized control of strategic results Promotes in-depth functional expertise Promotes in-depth functional expertise Enhances operating efficiency where tasks are routine and repetitive Enhances operating efficiency where tasks are routine and repetitive Strategic Disadvantages Poses problems of functional coordination Poses problems of functional coordination Can lead to interfunctional rivalry, conflict, and empire-building Can lead to interfunctional rivalry, conflict, and empire-building May promote overspecialization/ narrow viewpoints May promote overspecialization/ narrow viewpoints

Geographic Organizational Structure Chief Executive Corporate Staff Finance and Accounting Personnel Marketing Services LegalPlanning Research and Development GeneralManagerWesternDistrictGeneralManagerSouthernDistrictGeneralManagerCentralDistrict District Staff Personnel Accounting and Control GeneralManagerEasternDistrictGeneralManagerNorthernDistrict EngineeringProductionMarketing

Geographic Organizational Structures: Strategic Advantages/Disadvantages Strategic Advantages Allows tailoring of strategy to needs of each geographic market Allows tailoring of strategy to needs of each geographic market Improves coordination within the market Improves coordination within the market Takes advantage of economies of local operations Takes advantage of economies of local operations Strategic Disadvantages Greater difficulty in maintaining consistent company image across areas Greater difficulty in maintaining consistent company image across areas Can result in duplication of staff services at headquarters and district levels, making a relative-cost disadvantage Can result in duplication of staff services at headquarters and district levels, making a relative-cost disadvantage

Divisional Structure--Usually done by product or customer/market Chief Executive Officer Corporate Staff Services/Functions Group Vice President SBU I R & D Finance and Corporate Accounting Marketing Services Planning Personnel Legal Affairs Public Relations and Communications Group Vice President SBU III Group Vice President SBU II BusinessUnits/DivisionsBusinessUnits/DivisionsBusinessUnits/Divisions

Divisional/SBU Type Organization Structure: Advantages/Disadvantages Strategic Advantages Provides a strategically relevant way to organize large numbers of different business units Provides a strategically relevant way to organize large numbers of different business units Improves coordination within business units Improves coordination within business units Helps allocate corporate resources to areas with greatest growth opportunities Helps allocate corporate resources to areas with greatest growth opportunities Strategic Disadvantages Divisions can still be myopic in charting their future direction Divisions can still be myopic in charting their future direction Adds another layer to top management Adds another layer to top management Little coordination across divisions Little coordination across divisions Redundant roles cause increase Redundant roles cause increase

Matrix Organization Structure General Manager Head of R&D and Engineering Engineering/R&D Specialists Business/ Project/ Venture Manager 1 Business/ Project/ Venture Manager 2 Business/ Project/ Venture Manager 3 Business/ Project/ Venture Manager 4 Head of Manufacturing ProductionSpecialists ProductionSpecialists ProductionSpecialists ProductionSpecialists Marketing MarketingSpecialists MarketingSpecialists MarketingSpecialists MarketingSpecialists Finance FinanceSpecialists FinanceSpecialists FinanceSpecialists FinanceSpecialists Arrows denote reporting channels

Matrix Organization Structures: Strategic Advantages/Disadvantages Strategic Advantages Gives formal attention to each dimension of strategic priority Gives formal attention to each dimension of strategic priority Creates checks and balances among competing viewpoints Creates checks and balances among competing viewpoints Promotes making trade-off decisions. Promotes making trade-off decisions. Strategic Disadvantages Very complex to manage Very complex to manage Hard to maintain “balance” between the two lines of authority Hard to maintain “balance” between the two lines of authority It is hard to move quickly and decisively without getting clearance from other people It is hard to move quickly and decisively without getting clearance from other people

The Network Organization Distributors Brokers Suppliers DesignersProducers

Process for Creating an Organization’s Structure 1. Identify the critical activities needed to carry out the organization’s strategy 2. Understand the relationships between these activities (the degree of interdependence) 3. Group the activities into organizational units 4. Determine the degree of authority and independence of each of these units 5. Provide for coordination between the various units. Source: Thompson

Signs of Poor Organization Structure and Design 1. Poor forecasting 2. Not meeting customer needs 3. Higher than expected costs 4. Slow response to changes in the environment 5. Conflict between individuals and/or groups 6. Poor communication/coordination 7. Poor decision making—Decisions being made by the wrong people or at the wrong level in the hierarchy. Inadequate information to make good decisions.