Designing Adaptive Organizations D: Chapter 10 Designing Adaptive Organizations

Organizing The deployment of organizational resources to achieve strategic goals Reflects deployment of resources Shows division of labor Formal lines of authority and mechanisms is developed

Organization Structure Defines how tasks are divided, resources are deployed, and departments are coordinated The set of formal tasks assigned Formal reporting relationships The design of systems to ensure effective coordination of employees across department

The Organization Chart Visual representation Set of formal tasks “The Home Depot is the world's largest home improvement retailer currently operating 1,363 stores. Framework for vertical control Formal reporting relationships

Work Specialization Tasks are subdivided into individual jobs Division of labor concept Employees perform only the tasks relevant to their specialized function Jobs tend to be small, but they can be performed efficiently

Chain of Command Unbroken line of authority that links all persons in an organization Shows who reports to whom Associated with two underlying principles Unity of Command Scalar Principle

Authority Formal and legitimate right of a manager to make decisions and issue orders Allocate resources to achieve organizationally desired outcomes Authority is distinguished by three characteristics Authority is vested in organizational positions, not people Authority is accepted by subordinates Authority flows down the vertical hierarchy

Responsibility The duty to perform the task or activity an employee has been assigned Managers are assigned authority commensurate with responsibility

Accountability Mechanism through which authority and responsibility are brought into alignment People are subject to reporting and justifying task outcomes to those above them in the chain of command Can be built into the organization structure

Process managers use to transfer authority and responsibility Delegation 1 Process managers use to transfer authority and responsibility 2 Organization encourage managers to delegate authority to lowest possible level

Techniques for Delegation Give thorough instructions Maintain feedback Evaluate and reward performance Techniques for Delegation Delegate the whole task Ensure that authority equals responsibility Select the right person

Line and Staff Positions Line vs. staff positions Line vs. staff authority Advantages and complexities of using staff positions

TYPES OF AUTHORITY President Legal Department Vice-President, Production Marketing Vice President, Accounting A B C Line authority Staff authority Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 1998 8 8 8

Span of Management Number of employees who report to a supervisor Traditional view, about seven subordinates per manager Many lean organizations today have 30, 40, or even higher subordinates When supervisors must be closely involved with subordinates, the span should be small Supervisors need little involvement with subordinates, it can be large

Factors Influencing the Span Supervisor Preferences and skills Few non-supervisory duties Subordinates Competence and needs Job Work similarity physical proximity Low interaction requirements

Tall versus Flat Structure Span of Control used in an organization determines whether the structure is tall or flat Tall structure has a narrow span and more hierarchical levels Flat structure has a wide span, is horizontally dispersed and fewer hierarchical levels The trend has been toward wider spans of control

SPAN OF MANAGEMENT 1 2 3 4 5 6 7 Org. Level MEMBERS AT EACH LEVEL 1 TM 8-6 SPAN OF MANAGEMENT Org. Level MEMBERS AT EACH LEVEL 1 (highest) 1 1 8 4 2 64 16 3 512 64 4 256 4,096 5 Span of 8 1,024 6 Operatives : 4,096 Managers : 585 4,096 7 Span of 4 Operatives : 4,096 Managers : 1,396 Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 1998 6 6 6

Centralization vs. Decentralization The extend to which the power and authority is retained at the top vs. delegated to lower levels. Factors influencing… Size of the organization Geographic dispersion Technological complexity Environmental uncertainty

DECENTRALIZATION CENTRALIZATION Decision-making Decision-making small TM 8-7 DECENTRALIZATION CENTRALIZATION Decision-making Decision-making Restrictive policies, rules, procedures General policies, rules, procedures small centralized simple certain size geographics technology environment large dispersed complex uncertain factors Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 1998 7 7 7

Decentralization Tends To … Make greater use of human resources Reduce burdens of top managers Cause decisions to be made close to the action Permit rapid response to changes

Departmentalization The basis on which individuals are grouped into departments Vertical functional approach. People are grouped together in departments by common skills. Divisional approach. Grouped together based on a common product, program, or geographical region. Horizontal matrix approach. Functional and divisional chains of command. Some employees report to two bosses Team-based approach. Created to accomplish specific tasks Virtual Network approach. An organization structure that disaggregates major functions to separate companies that are brokered by a small headquarters organizations.

Five Approaches to Structural Design

Five Approaches to Structural Design Slide 2

Functional Structure Advantages Efficient use of resources Skill specialization development Top management control Excellent coordination Quality technical problem solving

Functional Structure Disadvantages Poor communications Slow response to external changes Decisions concentrated at top Pin pointing responsibility is difficult Limited view of organizational goals by employees

Divisional Structure Advantages Fast response, flexibility in an unstable environment Fosters concern for customers’ needs Excellent coordination across functional departments Emphasis on overall product and divisional goals Development of general management skills

Divisional Structure Disadvantages Duplication of resources across divisions Less technical depth and specialization in divisions Poor coordination across divisions Less top management control Competition for corporate resources

Horizontal Matrix Advantages More efficient use of resources than divisional structure Adaptable to changing environment Development of both general and specialists management skills Expertise available to all divisions Enlarged tasks for employees 32

Dual Authority Structure in a Matrix Organization

Horizontal Matrix Disadvantages Dual chain of command High conflict between two sides of matrix Many meetings to coordinate activities Need for human relations training Power domination by one side of matrix 33

Team Advantages Same advantages as functional structure Reduced barriers among departments Quicker response time Better morale Reduced administrative overhead 35

Team Disadvantages Dual loyalties and conflict Time and resources spent on meetings Unplanned decentralization 36

Virtual Network Advantages Disadvantages Can draw on expertise worldwide Highly flexible and responsive Reduced overhead costs Disadvantages Lack of control, weak boundaries Greater demand on managers Weakened employee loyalty

Chapter Outline The horizontal organization The need for coordination Task force, teams and project management

Organizing for Horizontal Coordination The need for coordination Quality of collaboration across departments

Structural Design Task Force...A temporary team or committee formed to solve a specific short-term problem Team…Participants from several departments who meet to solve ongoing problems Project Manager…A person responsible for coordinating the activities of several departments

Evolution of Organization Structures Traditional Vertical Structure Teams and Project Managers for Horizontal Coordination Reengineering to Horizontal Processes New Workplace Learning Organization

Factors Influencing Organizational Structure Strategy Traditional Vertical Structure Environment Company Performance Technology New Horizontal Structure Interdependence

Strategy & Structure Which Comes first—strategy or structure? Form follows function But, once the form is in place, it impacts the function.

Structure Follows Strategy Differentiation strategy, organization attempts to develop innovative products Cost leadership strategy, striving for internal efficiency

Relationship of Strategic Goals to Structural Approach Traditional Vertical Organization Horizontal Teams Strategic Goals: Differentiation, innovations, flexibility Strategic Goals Strategic Goals: Cost leadership, efficiency, stability

Three Things Happen Due To Uncertain Environments Increased differences occur among departments The organization needs increased coordination to keep departments working together The organization must adapt to change

Structure Reflects the Environment Organic vs. Mechanistic Structure

Woodward’s Manufacturing Technology Small batch and unit production Large batch and mass production Continuous process production

Manufacturing Technology and Organizational Structure

Interdependence The extent to which departments depend on each other for resources or materials to accomplish their tasks.

Types of Interdependence and Required Coordination