Managing Organizational Structure

Today’s Operative Word Don’t -- as in… No! Nyet! No way! Go away!

Overview How to group tasks into motivational jobs The need to centralize and decentralize authority Choosing the right structure

Overview How to coordinate, integrate and evolve jobs and structure as an organization grows Using strategic alliances and networks to increase efficiency and effectiveness without adding structure Why structure -- like bread dough – wants to rise and expand making today’s operative word vital

Why Study Structure? In order to empower your people to achieve goals efficiently and effectively, you must use SWOT to pick the structure best suited to your internal resources and the external environment

Organizational Structure Structure, control systems, culture and human resource management systems combine to determine how efficiently and effectively an organization uses resources

Designing Organizational Structure The system of responsibilities and reporting relationships that enables workers to use resources to achieve goals efficiently and effectively.

The Organizational Environment Organizational Strategy Different environments require different strategies and structures A differentiation strategy needs flexible structure to foster innovation A low-cost strategy may need more rigid structure to drive cost-control Increased vertical integration or diversification also requires a more flexible structure because it requires reacting quickly to multiple, complex environments tracked by a small “corporate” staff using KPIs

Forces Affecting Structure Technology The combination of skills, knowledge, tools, equipment and computers used to run the organization frequently forces the structure into new shapes that require new and different management methods

Forces… Human Resources Highly skilled workers whose jobs require teamwork that usually needs flexible structure Professionals (e.g., CPA’s, doctors, lawyers, etc.) often have internalized professional norms that affect structure

The Organizational Environment Managers must take into account environment, strategy, technology, and human resources when designing the organization’s structure

Job Design Job design: dividing tasks into specific jobs to create an effective and efficient workforce Job simplification: reducing the number of tasks each worker performs Warning: too much simplification can cause boredom

Job Design Job enlargement: increasing the number of tasks in a job to reduce boredom Job enrichment: expanding the depth or breadth of responsibility to increase worker involvement

Grouping Jobs into Functions Functional Structure An organizational structure including all departments an organization requires to produce its goods or services Advantages Encourages learning from others doing similar jobs. Easy for managers to monitor and evaluate workers. Disadvantages Difficult for departments to communicate with others (silo effect) Preoccupation with department goals obscures organizational goals Requires unified corporate plan and cross-departmental teams to breach silo walls

Divisional Structures An organizational structure composed of separate business units each of which houses all the functions necessary to produce a specific product for a specific customer Divisions create smaller, manageable parts of a firm Divisions develop a business-level strategy to compete Functional managers report to divisional managers who report to corporate management GE (a diversified conglomerate) is an example of this sort of corporation; this approach requires KPIs to be effective

Types of Divisional Structures Product Structure Customers are served by self-contained divisions that handle a specific type of product or service (such as jet engines or luxury cars). Allows functional managers to specialize in one product area Division managers become experts in their area Removes need for direct supervision of division by corporate managers (corporate just tracks KPIs such as customer satisfaction index or ROI) Divisional management improves the use of resources

Types of Divisional Structures Geographic Structure Each region, country or area containing customers with differing needs is served by a local, self-contained division locally producing or importing products to meet those needs.

Types of Divisional Structures Global geographic structure Different divisions serve each world region when managers find different problems or demands across the globe. Generally occurs when managers pursue a multi- domestic strategy

Types of Divisional Structures Market (Customer) Structure Each kind of customer is served by a self-contained division (e.g., Toyota, Lexus, Scion) Global market (customer) structure Customers in different regions buy similar products so firms can locate manufacturing facilities and product distribution networks where they decide is best. Also achieves economy of scale. Firms pursuing a global strategy will use this type of structure.

Product Team Design Structure Product Team Structure Members permanently assigned to the team and empowered to bring a product to market. Avoids problems of two-way communication and the conflicting demands of functional and product team bosses. Cross-functional team is composed of a group of managers from different departments working together to perform organizational tasks. Each team member has a channel back to his-her department. Breaks down silo walls to focus silo power on satisfying customers Toyota product development

Hybrid Structures Hybrid Structure The structure of a large organization with many divisions that simultaneously uses many different organizational structures Managers can select the best structure for a particular division—one division may use a functional structure, another division may have a geographic structure. The ability to break a large organization into smaller units makes it easier to manage. Customized, complex and confusing, but can be made to work if central management uses KPIs to track results.

Coordinating Functions: Allocating Authority Authority: the power to hold people accountable for their actions and to make decisions concerning the use of organizational resources Hierarchy of Authority: an organization’s chain of command, specifying the relative authority of each manager – the power spine

Allocating Authority Span of Control The number of subordinates reporting directly to a manager (How many departments do you oversee?) Line Manager Managers in the direct chain of command who have authority over people and resources lower down Primarily responsible for the production of goods or services (e.g., a plant manager) Staff Manager Functional-area specialists who give advice and support to line managers (e.g., a human resources specialist)

Tall and Flat Organizations Tall structures have many levels of authority and narrow spans of control. Can slow decision-making and implementation Can hinder coordination Can garble communications as they are repeated down the line Can separate decision-making from execution. Flat structures have fewer levels and wider spans of control. Creates quicker decision-making and communication but can overwork managers Requires good line-of-sight control

Downside of Decentralization Decentralization diffuses control by distributing leadership; can cause loss of unified purpose, direction and focus Rule of thumb: extremely decentralized organizations need a strong corporate culture so everyone has an embedded compass – all pointing in the same direction; replace external (management) control with internal (corporate DNA) control Toyota faces this problem as it tries to evolve into a more decentralized, global organization

Strategic Alliances Strategic Alliance Network Structure: Managers pool or share firm’s resources and know-how with another company and the two firms share the risks and rewards of starting a new venture (Ford and Toyota on hybrids) Network Structure: A series of strategic alliances an organization creates with suppliers, manufacturers, and distributors to produce and market products.

Basic Rules of Structure Silos (vertical); demand (horizontal) Badly designed structure can garble communication, divide decision from execution, and slow reaction time Can frustrate initiative and leadership No bread dough; just say “NO!” In-source, outsource or leave empty

Summary Look in, look out. Base structure on your resources and the external environment. Keep it small, simple, flexible, flat, and fast. Continually re-assess structure to see if it can be improved to better match the changing environment, avoid waste, and provide more value to customers. As you decentralize and empower, reinforce corporate DNA to assure shared direction, shared focus, and consistent decision-making. Make certain managers have the right incentives and KPIs to motivate and measure performance; never get FDH (Fat Dumb Happy).