12-1 Managing Organization Design

12-2 Study Guide v Bureaucratic Model of Organization Design  Characteristics  Strengths  Weaknesses v Behavioral Model of Organization Design  Characteristics  Strengths  Weaknesses v Situational View of Organization Design  Technology  Environment  Size and Life Cycle  Strategy v Basic Forms of Organization Design  Functional (U-form)  Conglomerate (H-form)  Multi-divisional  Matrix

12-3 The Nature of Organization Design v Organization Design  The overall set of structural elements and the relationships among those elements used to manage the total organization.  A means to implement strategies and plans to achieve organizational goals. v Organization Design Concepts  Organizations are not designed and then left intact. Organizations are in a continuous state of change.  Organization design for larger organizations is extremely complex and has many nuances and variations.

12-4 Universal Perspectives on Organization Design v Bureaucratic Model (Max Weber)  A logical, rational, and efficient organization design based on a legitimate and formal system of authority.  Characteristics 1. Division of labor 2. Rules and procedures 3. Organizational hierarchy 4. Impersonal Relationships among workers 5. Expertise-based promotions

12-5 Bureaucratic Model v Advantages  Efficiency in function due to well-defined practices and procedures.  Organizational rules prevent favoritism.  Recognition of and requirement for expertise stresses the value of an organization’s employees. v Disadvantages  Organizational inflexibility and rigidity due to rules and procedures.  Neglects the social and human processes within the organization.  Belief in “one best way” to design an organization does not apply to all organizations and their environments.

12-6 System 1ExploitativeAuthoritative Job-centered leader behavior System2BenevolentAuthoritativeSystem 3ConsultativeSystem 4Participative Employee- centered leader behavior Behavioral Model: Likert System v Renesis Likert: “ Organizations that pay attention to work groups and interpersonal processes are more effective than bureaucratic organizations.”

12-7 Situational Influences on Organization Design ORGANIZATIONDESIGN Organizational Size Organizational Life Cycle Core Technology Environment

12-8 Situational Influences on Organization Design (cont’d) A. Core Technology  Technology is the conversion processes used to transform inputs into outputs.  A core technology is an organization’s most important technology.  Joan Woodward initially sought a correlation between organization size and design; instead, she found a potential relationship between technology and design.  As the complexity of technology increases, so do the number of levels of management.

12-9 Situational Influences on Organization Design (cont’d) v Woodward’s Basic Forms of Technology  Unit or Small-Batch Technology u Produce custom-made products to customer specifications, or else produce in small quantities, similar to Likert’s System 4 organization.  Large Batch/Mass Production u Uses assembly-line production methods to manufacture large quantities of products; resembles Likert’s System 1.  Continuous Process u Use continuous-flow processes to convert raw materials by process or machine into finished products; resembles Likert’s System 4.

12-10 v Rigid hierarchical relationships v Fixed duties v Many rules v Formalized communications channels v Centralized decision authority v Taller structures v Collaboration v Adaptable rules v Informal communication v Decentralized decision authority v Flatter structures Mechanistic Organic

12-11 Situational Influences on Organization Design (cont’d) B.Environment  Burns and Stalker  Forms of the organizational environment u Stable environments that remain constant over time. u Unstable environments subject to uncertainty and rapid change.  Organization Designs u Mechanistic organizations that are similar to bureaucratic or System 1 models; found most frequently in stable environments. u Organic organizations that are flexible and informal models; usually found in unstable and unpredictable environments.

12-12 Situational Influences on Organization Design (cont’d) C.Organizational Size  Defined as the total number of full-time or full-time equivalent employees  Research findings: u Small firms tend to focus on their core technology. u Large firms have more job specialization, standard operating procedures, more rules and regulations. D.Organizational Life Cycle  A progression through which organizations evolve as they grow and mature—birth, youth, midlife, and maturity.

12-13 Strategy and Organization Design v Corporate-Level Strategy  Single-product strategy  Related or unrelated diversification  Portfolio approach to managing strategic business units v Business-Level Strategy  Defender  Prospecting  Analyzer v Organizational Functions Major functions of the organization (e.g., marketing, finance, research and development, & manufacturing) influence an organization’s design. Major functions of the organization (e.g., marketing, finance, research and development, & manufacturing) influence an organization’s design.  Differentiation  Cost leadership  Focus

12-14 Basic Forms of Organization Design v Functional  (U-form) Unitary v Divisional  (M-form) Multidivisional - related v Conglomerate  (H-form) Holding Company - not related v Matrix v Hybrid

12-15 Basic Forms of Organization Design v Functional or U-form (Unitary) Design  Organizational members and units are grouped into functional departments such as marketing and production.  Coordination is required across all departments.  Design approach resembles functional departmentalization in its advantages and disadvantages.

12-16 Functional or U-Form Design for a Small Manufacturing Company CEO Vice president, operations marketing finance human resources Vice president, R&D Scientific director Labor relations director Plant human resource manager Controller Accounting supervisor Regional sales managers District Plant managers Shift supervisors Lab manager

12-17 Basic Forms of Organization Design (cont’d) v Conglomerate or H-form (Holding) Design  Organization consists of a set of unrelated businesses with a general manager for each business.  Holding-company design is similar to product departmentalization.  Coordination is based on the allocation of resources across companies in the portfolio.  Design has produced only average to weak financial performance; has been abandoned for other approaches.

12-18 Conglomerate (H-Form) Design at Pearson PLC CEO Publishing operations Entertainment operations Oil services operations Fine china operations Periodicals operations Investment banking operations

12-19 Basic Forms of Organization Design (cont’d) v Divisional or M-form (Multidivisional) Design  An organizational arrangement based on multiple businesses in related areas operating within a larger organizational framework.  The design results from a strategy of related diversification.  Some activities are extremely decentralized down to the divisional level; others are centralized at the corporate level.  The largest advantages of the M-form design are the opportunities for coordination and sharing of resources.  Successful M-form organizations can out perform U- form and H-form organizations.

12-20 Multidivisional (M-form) Design at The Limited, Inc. CEO Bath & Body Works Structure The Limited Express Lerner New York Victoria’s Secret Other chains

12-21 Basic Forms of Organization Design (cont’d) v Matrix Design  An organizational arrangement based on two overlapping bases of departmentalization (e.g., functional departments and product categories).  A set of product groups or temporary departments are superimposed across the functional departments.  Employees in the resulting matrix are members of both their departments and a project team under a project manager.  The matrix creates a multiple command structure in which an employee reports to both departmental and project managers.  A matrix design is useful when: u There is strong environmental pressure. u There are large amounts of information to be processed. u There is pressure for shared resources.

12-22 Basic Forms of Organization Design (cont’d) v Matrix Design Advantages  Enhances organizational flexibility.  Involvement creates high motivation and increased organizational commitment.  Team members have the opportunity to learn new skills.  Provides an efficient way for the organization to use its human resources.  Team members serve as bridges to their departments for the team.  Useful as a vehicle for decentralization.

12-23 Basic Forms of Organization Design (cont’d) v Matrix Design Disadvantages  Employees are uncertain about reporting relationships.  Managers may view design as an anarchy in which they have unlimited freedom.  The dynamics of group behavior may lead to slower decision making, one-person domination, compromise decisions, or a loss of focus.  More time may be required for coordinating task-related activities.

12-24 Basic Organizational Design Forms Matrix

12-25 Basic Forms of Organization Design (cont’d) v Hybrid Designs  An organizational arrangement based on two or more common forms of organization design.  An organization may have a mixture of related divisions and a single unrelated division.  Most organizations use a modified form of organization design that permits it to have sufficient flexibility to make adjustments for strategic purposes.

12-26 Emerging Issues in Organization Design v The Team Organization  An approach to organizational design that relies almost exclusively on project-type teams, with little or no underlying functional hierarchy. v The Virtual Organization  An organizational design that has little or no format structure with few permanent employees, leased facilities, and outsourced basic support services.  It may conduct its business entirely on-line and exists only to meet for a specific and present need. v The Learning Organization  An organization that works to facilitate the lifelong learning and development of its employees while transforming itself to respond to changing demands and needs.

12-27 Issues in International Organization Design v The trend toward internationalization of business v How to design a firm to deal most effectively with international forces and to compete in global markets:  Create an international division?  Establish an international operating group?  Make international operations an autonomous subunit?

12-28 Common Organization Designs for International Organizations CEO A. Separate International Division ProductionMarketingFinance International division B. Location Departmentalization North American operations European operations Asian operations CEO Figure 12.5a

12-29 Common Organization Designs for International Organizations (cont’d) D. Multidivisional Structure CEO Subsidiary A (in Germany) Subsidiary C (in France) Subsidiary E (in Taiwan) Subsidiary D (in Japan) Subsidiary B (in United States) C. Product Departmentalization Product manager A CEO Product manager B Product manager C Asia North America Europe Figure 12.5b

12-30 Basic Organizational Design Forms Functional (U-form)

12-31 Basic Organizational Design Forms Conglomerate (H-form) Divisional (M-Form)

12-32 International Organization Design Simple Form, International Division Extension of Geographic Departmentalization

12-33 International Organization Design Extension of Product Departmentalization Extension of the Multidivisional Form