Organizational Design, Effectiveness, and Innovation Chapter Seventeen

Organization Charts Organization chart a graphic representation of formal authority and division of labor relationships Organization chart a graphic representation of formal authority and division of labor relationships

Dimensions of an Organizational Structure Hierarchy of authority Division of labor Spans of control Line and staff positions There are four basic dimensions of organizational structure: (1) hierarchy of authority (who reports to whom), (2) division of labor, (3) spans of control, and (4) line and staff positions.

Sample Organization Chart for a Hospital The partial organization chart in Figure 17–1 reveals four basic dimensions of organizational structure: (1) hierarchy of authority (who reports to whom), (2) division of labor, (3) spans of control, and (4) line and staff positions.

Organization Charts Span of control the number of people reporting directly to a given manager. Generally, the narrower the span of control, the closer the supervision and the higher the administrative costs as a result of a higher manager-to-worker ratio. Span of control the number of people reporting directly to a given manager. Generally, the narrower the span of control, the closer the supervision and the higher the administrative costs as a result of a higher manager-to-worker ratio.

Organization Charts Staff personnel Line Managers Do background research and provide technical advice, and recommendations to line managers. Line Managers have authority to make organizational decisions. Staff personnel Do background research and provide technical advice, and recommendations to line managers. Line Managers have authority to make organizational decisions.

An Open-System Perspective Closed System self-sufficient entity, closed to the surrounding environment. Open System depends on constant interaction with the environment for survival Closed System self-sufficient entity, closed to the surrounding environment. Open System depends on constant interaction with the environment for survival

The Organization as an Open System The model in Figure 17–2 reveals the organization to be a living organism that transforms inputs into various outputs. The outer boundary of the organization is permeable. People, information, capital, and goods and services move back and forth across this boundary. Moreover, each of the five organizational subsystems—goals and values, technical, psychosocial, structural, and managerial—is dependent on the others.

Organization Design Organizational design The structures of accountability and responsibility used to develop and implement strategies, and the human resource practices and information and business processes that activate those structures Organizational design The structures of accountability and responsibility used to develop and implement strategies, and the human resource practices and information and business processes that activate those structures

Traditional Design Functional structure Divisional structure groups people according to the business functions they perform, for example, manufacturing, marketing, and finance Divisional structure groups together activities related to outputs, such as type of product or customer Functional structure groups people according to the business functions they perform, for example, manufacturing, marketing, and finance Divisional structure groups together activities related to outputs, such as type of product or customer

Traditional Design Matrix structure combines functional and divisional chains of command to form a grid with two command structures Matrix structure combines functional and divisional chains of command to form a grid with two command structures

Matrix Structure In the example shown in Figure 17–3 , Ford might set up vice presidents for each functional group and project managers for each make of car. Employees would report to two managers: one in charge of the function they perform and the other in charge of the project they are working on.

Principles for Designing a Horizontal Organization Organize around complete workflow processes Flatten hierarchy and use teams to manage everything Appoint process team leaders to manage internal team processes Let supplier and customer contact drive performance Provide required expertise from outside the team as required Organize around complete workflow processes Flatten hierarchy and use teams to manage everything Appoint process team leaders to manage internal team processes Let supplier and customer contact drive performance Provide required expertise from outside the team as required

Designs That Open Boundaries between Organizations Hollow structure organization identifies core competencies and outsources noncore processes to vendors who can do them cheaper or faster Modular structure Outsources parts of a product instead of processes Hollow structure organization identifies core competencies and outsources noncore processes to vendors who can do them cheaper or faster Modular structure Outsources parts of a product instead of processes

Question? Chad has developed a new product to improve gas mileage. He has formed a new venture but must outsource his marketing and distribution. His firm has a _________ organization. Functional Divisional Matrix Hollow The correct answer is “D” – hollow. See previous slide

Designs That Open Boundaries between Organizations Virtual organization organization identifies partners with the needed talents and negotiates an agreement in which the participants typically work in separate facilities, linked by technology Virtual organization organization identifies partners with the needed talents and negotiates an agreement in which the participants typically work in separate facilities, linked by technology

The Contingency Approach to Designing Organizations Contingency approach to organization design organizations tend to be more effective when they are structured to fit the demands of the situation Contingency approach to organization design organizations tend to be more effective when they are structured to fit the demands of the situation

Mechanistic versus Organic Organizations Mechanistic organizations Rigid bureaucracies with strict rules, narrowly defined tasks, and top-down communication. Organic organizations Flexible networks of multitalented individuals who perform a variety of tasks Mechanistic organizations Rigid bureaucracies with strict rules, narrowly defined tasks, and top-down communication. Organic organizations Flexible networks of multitalented individuals who perform a variety of tasks

Characteristics of Mechanistic and Organic Organizations As illustrated in Table 17–2 , each of the mechanistic-organic characteristics is a matter of degree. Organizations tend to be relatively mechanistic or relatively organic.

Different Approaches to Decision Making Centralized decision making key decisions are made by top management Decentralized decision making important decisions are made by middle- and lower-level managers Centralized decision making key decisions are made by top management Decentralized decision making important decisions are made by middle- and lower-level managers

Getting the Right Fit A functional structure can save money by grouping together people who need similar materials and equipment Divisional structures increase employees’ focus on customers and products A functional structure can save money by grouping together people who need similar materials and equipment Divisional structures increase employees’ focus on customers and products

Getting the Right Fit A successful matrix structure requires superior managers who communicate extensively, foster commitment and collaboration, manage conflict and negotiate effectively to establish goals and priorities consistent with the organization’s strategy A successful matrix structure requires superior managers who communicate extensively, foster commitment and collaboration, manage conflict and negotiate effectively to establish goals and priorities consistent with the organization’s strategy

Getting the Right Fit Horizontal designs improve coordination and communication Organizations that become hollow, modular, or virtual can generate superior returns by focusing on what they do best Horizontal designs improve coordination and communication Organizations that become hollow, modular, or virtual can generate superior returns by focusing on what they do best

Question? Oneal, CEO of Fredhandbag HobbyTown, wants to improve the communication in his firm. He should change to a _________ organization. Functional Matrix Horizontal Modular The correct answer is “C” – horizontal. See previous slide.

Four Dimensions of Organizational Effectiveness A good way to better understand this complex subject is to consider four generic approaches to assessing an organization’s effectiveness (see Figure 17–4 ). These effectiveness criteria apply equally well to large or small and profit or not-for-profit organizations. Moreover, as denoted by the overlapping circles in Figure 17–4 , the four effectiveness criteria can be used in various combinations.

Generic Effectiveness Criteria Internal processes focuses on “what the organization must excel at” to effectively meet its financial objectives and customers’ expectations. Strategic constituencies satisfaction Strategic constituency: any group of people with a stake in the organization’s operation or success. Internal processes focuses on “what the organization must excel at” to effectively meet its financial objectives and customers’ expectations. Strategic constituencies satisfaction Strategic constituency: any group of people with a stake in the organization’s operation or success.