Organizational Design: Structure, Culture, and Control Instructor: Dr.Gehan Shanmuganathan

Zappos: Success through customer service Zappos: An Organization Designed to Deliver Happiness ChapterCase 11 Zappos: Success through customer service Customer service all in-house No scripts or timed calls Flat Organizational Structure = Flexibility Job rotation = trained talent 4 weeks of orientation training Including 2 weeks on customer service phones! 11-2

LO 11-1 Define organizational design and list its three components. LO 11-2 Explain how organizational inertia can lead established firms to failure. LO 11-3 Define organizational structure and describe its four elements. LO 11-4 Compare and contrast mechanistic versus organic organizations. LO 11-5 Describe different organizational structures and match them with appropriate strategies. LO 11-6 Describe the elements of organizational culture and explain where organizational cultures can come from the how they can be changed. LO 11-7 Compare and contrast different strategic control and reward systems. 11-3

How to Organize for Competitive Advantage Organizational design Goal is to translate strategies into realized ones Structure Processes Procedures Structure follows strategies Structure must be flexible Yahoo failed to make changes to their organizational structure! 11-4

Organizational Inertia EXHIBIT 11.2 Organizational Inertia 11-5

The Key Elements of Organizational Structure Organizational structure determines Work efforts of individuals and teams Resource distribution Key building blocks Specialization Formalization Centralization Hierarchy 11-6 6

Assembling the Pieces: Mechanistic vs. Organic Organizations Low degree of specialization and formalization Flat structure Decentralized decision making Uses virtual team due to information technology Example: Zappos, W. L. Gore, and many high-tech firms Mechanistic organizations High degree of specialization and formalization Tall hierarchy Centralized decision making Example: McDonald’s INSTRUCTOR: Embedded at the bottom of this slide is a link to a 10-minute video by MIT professor Andrew McAfee on how Web 2.0 may change the workplace. https://www.mckinseyquarterly.com/Business_Technology/BT_Strategy/How_Web_2_0_is_changing_the_way_we_work_An_interview_with_MITs_Andrew_McAfee_2468?gp=1 Video on Web 2.0 Changing workplace 11-7 7

Matching Strategy and Structure Simple structure Small firms with low complexity Top management makes all important strategic decisions Low degree of formalization and specialization A basic organizational structure Examples: small advertising, consulting, accounting, and law firms 11-8 8

Functional Structure Functional structure Groups of employees with distinct functional areas The areas of expertise correspond to distinct stages in the company value chain activities Example: College of Business Administration, School of Management…etc. Recommended with narrow products/services Matches well with business-level strategy Cost leadership  Mechanistic organization Differentiation  Organic organization Integration strategy  Ambidextrous organization 11-9 9

Multidivisional Structure Consists of several distinct SBUs Each SBU is independent and led by a CEO Each CEO of SBUs report to the corporate office Examples: Zappos is an SBU under Amazon Skype is an SBU under Microsoft Paypal is an SBU under eBay Companies using M-form structure GE, Honda 11-10 10

Typical M-Form Structure EXHIBIT 11.7 Typical M-Form Structure Functional Structure Matrix Structure 11-11

Matrix Structure A combination of functional and M-form structure Creation of dual line of authority and reporting lines Each SBU receives support both horizontally and vertically Very versatile Enhanced learning from different SBUs Shortcomings Difficult to implement Complexity increases when expanding, especially globally Unclear reporting structure causes confusion and delays 11-12 12

Organizational Culture Culture must be valuable, rare, inimitable, and non-substitutable (RBV) Causal ambiguity and social complexity Organizational culture is an important resource! Southwest Airlines Friendly and energized employees work collaboratively Zappos Deliver WOW through service 11-13

Strategic Control and Reward Systems Internal governance mechanisms Culture Sanctions Input controls Rules and standard operating procedures Budgets Behavior guidelines Output controls Result-oriented ROWEs INSTRUCTOR: Embedded at the bottom of this slide is a 10-minute video by RSA about Daniel Pink’s work on motivation and the surprising results that paying more actually yields lower performance…The video is referenced in the text at the top of page 323. RSA Animate is well worth a look if you have not explored their video library yet. It can be found at: http://comment.rsablogs.org.uk/videos/ or their home website: http://www.thersa.org/ and searching for “Animate”. http://www.youtube.com/watch?v=u6XAPnuFjJc Dan Pink’s RSA Video 11-14

ChapterCase 11/ Consider This WOW factors became WOW mistakes Erroneous price cap not discovered for 6 hours Zappos honored the sales placed during the time with mistaken price$49.95 everything! Customers are happy due to the fact that Zappos handled the situation smoothly This is the real WOW!!! 11-15