© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. CHAPTER 10 STRATEGIC ORGANISATION DESIGN

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Lecture outline Overview: Organisation structure design Assessing structural alternatives Weighing contingency factors Matching strategy & structure Promoting innovation

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Organisation structure design Strategy & structure: which comes first? –Strategy & structure are closely linked with each other. –Mismatches in strategy/structure lead to difficulties. Factors influencing organisation design –Contingency factors: technology, size, environment. –Need to promote innovation: roles, differentiation, transfer processes.

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Organisation structure design Strategy Contingency factors Technology Size Environment Contingency factors Technology Size Environment Organisation structure Functional Divisional Hybrid Matrix Organisation structure Functional Divisional Hybrid Matrix Structural methods for promoting innovation Roles Reservations Differentiation Transfer processes Structural methods for promoting innovation Roles Reservations Differentiation Transfer processes Organisational goals (efficiency & effectiveness) Organisational goals (efficiency & effectiveness)

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Assessing structural alternatives Functional structure Divisional structure Hybrid structure Matrix structure Emergent structure

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Assessing structural alternatives Functional structure Structure in which positions are grouped according to their main functional (or specialised) area. CEO Manager, Distribution Manager, Administration Manager, Manufacturing

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Functional structure Advantages In-depth expertise development. Clear career path within function. Efficient use of resources. Economies of scale (possible). Ease of co-ordination. Technical advantage on competition. Disadvantages Slow response re: multifunction problems. Decision backlog at top of hierarchy. Bottlenecks re: sequential tasks. Inexact measures of performance. Narrow training of future managers.

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Assessing structural alternatives Divisional structure: Structure in which positions are grouped according to similarity of products, services or markets.

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Assessing structural alternatives CEO, Alpha Industries Chief General Manager Copier products Chief General Manager Copier products Chief General Manager Scanner products Chief General Manager Scanner products Chief General Manager Photographic products Chief General Manager Photographic products Chief General Manager Industrial Imaging products Chief General Manager Industrial Imaging products Chief General Manager Computer Storage products Chief General Manager Computer Storage products Chief General Manager Marine Electronic products Chief General Manager Marine Electronic products

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Divisional structure Advantages Fast response to environmental change Simplified co-ordination across functions Simultaneous emphasis on organisational goals Strong customer orientation Accurate measurement of performance Broad training in management skills Disadvantages Resource duplication in each division Reduction of in-depth expertise Competition amongst divisions Limited sharing of expertise between divisions Innovation restricted to each division Neglect of overall goals

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Assessing structural alternatives Hybrid structure: Structure adopting both functional and divisional structures at the same management levels.

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Hybrid structure Advantages Alignment of corporate & divisional goals. Functional expertise &/or efficiency. Adaptability & flexibility in divisions. Disadvantages Conflicts between corporate departments & divisions. Excessive administration overhead. Slow response to exceptional situations.

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Assessing structural alternatives Matrix structure: Structure superimposing a horizontal set of divisional reporting relationships onto a hierarchical functional structure. Appropriate when: Need for a strong focus on both functional & divisional dimensions. Need to quickly process information & co-ordinate activities. There is pressure for shared resources.

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Assessing structural alternatives GM, Transport GM, Sales GM, HRM GM, Finance Manager, Business A Manager, Business B Manager, Business C Manager, Business D Manager, Business E Transport, Business A Transport, Business B Transport, Business C Transport, Business D Transport, Business E Sales, Business A Sales, Business B Sales, Business C Sales, Business D Sales, Business E HRM, Business A HRM, Business C HRM, Business D HRM, Business E Finance, Business A Finance, Business B Finance, Business C Finance, Business D Finance, Business E HRM, Business B

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Matrix structure Advantages Decentralised decision- making. Strong product co- ordination. Improved environmental monitoring. Flexible use of human resources. Efficient use of support systems. Fast response to change. Disadvantages High administrative costs. Confusion over authority & responsibility (potential). Excessive focus on internal relations. Overemphasis on group decision making. Slow response to change (possible).

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Assessing structural alternatives Emerging structures: Process structure Type of departmentalisation where positions are grouped by a complete flow of work. Networked structure Form of organising where many functions are contracted out to other independent firms & coordinated by use of information technology networks to operate as if they were within a single corporation.

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Weighing contingency factors The best structure for an organisation depends on contingency factors such as: Technology Size Environment.

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Weighing contingency factors Technology: Technological complexity (Woodward) –Unit & small batch production –Large batch & mass production –Continuous process production Technological interdependence (Thompson) –Pooled interdependence –Sequential interdependence –Reciprocal interdependence

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Weighing contingency factors Four trends With growth: more departments, shift from functional to divisional form With growth: more departments, shift from functional to divisional form With growth: more staff positions to assist senior management With growth: more staff positions to assist senior management With growth: tendency to decentralise (enabled by formalisation) With growth: tendency to decentralise (enabled by formalisation) With growth: additional rules & regulations (formalisation) With growth: additional rules & regulations (formalisation)

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Weighing contingency factors Stable environments, mechanistic Narrow tasks, prescribed tasks, hierarchical control, decision-making levels, communication vertical, instructions by superiors, loyalty to organisation & obedience to superiors Unstable/uncertain environments, organic General tasks, tasks subject to continuous negotiation, network control, decision making rests with those with knowledge, communication across & between levels, ‘supervision’ is information & advice, commitment to organisational goals, possession of expertise Lawrence & Lorsch: Balance of differentiation & integration

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Matching strategy & structure Managers must match strategy & structure to achieve effectiveness e.g: Niche differentiation: –narrow target market Niche differentiation: –narrow target market Cost leadership: –organisational efficiency, lower prices Cost leadership: –organisational efficiency, lower prices Market differentiation: – advertising, prestige pricing & market segmentation Market differentiation: – advertising, prestige pricing & market segmentation Innovative differentiation: –complex product or service innovations Innovative differentiation: –complex product or service innovations

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Promoting innovation Structure’s ability to support strategy can be enhanced by using structural means to encourage innovation. Innovation is critical to various differentiation strategies.

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Promoting innovation Four major means of using organisation structure to facilitate innovation are: Vital roles Idea champion, sponsor, orchestrator. Reservations Organisation units devoted to the generation of innovative ideas. Differential paradox Separating innovation process decreases chance of implementation. Transfer process The difficulty of translating ideas into products/services.

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Lecture summary Overview: Organisation structure design –Strategy & structure closely linked. –Factors influencing design: contingency factors, need for innovation. Assessing structural alternatives –Functional, divisional, hybrid, matrix, emerging structures. Weighing contingency factors – Technology, size, environment.

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint Slides t/a Management: A Pacific Rim Focus Enhanced Edition. Slides prepared by David Meacheam & George Sansbury. Lecture summary Matching strategy and structure –Structure must match chosen strategy for effectiveness. Promoting innovation –Structure may enhance innovation. – Key factors : vital roles, reservations, differential paradox, transfer process.