Designing Effective Organizations Chapter Fifteen

After reading the material in this chapter, you should be able to: LO15.1 Describe the four characteristics common to all organizations. LO15.2 Explain the difference between closed and open systems. LO15.3 Define seven basic ways organizations are structured LO15.1 Describe the four characteristics common to all organizations. LO15.2 Explain the difference between closed and open systems. LO15.3 Define seven basic ways organizations are structured LO15.4 Discuss Burns and Stalker’s findings regarding mechanistic and organic organizations.

After reading the material in this chapter, you should be able to: LO15.4 Discuss Burns and Stalker’s findings regarding mechanistic and organic organizations. LO15.5 Identify when each of the seven organization structures is the right fit. LO15.6 Describe the four generic organizational effectiveness criteria. LO15.4 Discuss Burns and Stalker’s findings regarding mechanistic and organic organizations. LO15.5 Identify when each of the seven organization structures is the right fit. LO15.6 Describe the four generic organizational effectiveness criteria.

What is an Organization? system of consciously coordinated activities or sources of two or more people. Organization system of consciously coordinated activities or sources of two or more people.

What is an Organization? Four common denominators Coordination of effort Common goal Division of labor Hierarchy of authority Four common denominators Coordination of effort Common goal Division of labor Hierarchy of authority

What is an Organization? Unity of command principle each employee should report to a single manager. Unity of command principle each employee should report to a single manager.

Question? At Creative Calendars, Inc., each employee reports only to one manager. This reflects: The division of labor. Coordination of effort. A narrow span on control. The unity of command principle. The correct answer is “D” – unity of command AACSB:  Group-individual dynamics Bloom's Taxonomy:  Knowledge Difficulty:  Medium Page:  396

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 The partial organization chart in Figure 15–1 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.

Sample Organization Chart for a Hospital The partial organization chart in Figure 15–1 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 15–2 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 in a Changing World 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 manufacturing, marketing, finance Divisional structure groups together activities related to outputs type of product or customer Functional structure groups people according to the business functions they perform manufacturing, marketing, finance Divisional structure groups together activities related to outputs 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 15–3, 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 needed 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 needed

Designs That Open Boundaries between Organizations Hollow structure organization identifies core competencies and outsources other activities such as manufacturing, order taking and shipping Modular structure Outsources parts of a product instead of processes Hollow structure organization identifies core competencies and outsources other activities such as manufacturing, order taking and shipping Modular structure Outsources parts of a product instead of processes

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 as they work toward a common goal 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 as they work toward a common goal

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 slide 15-20

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

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

Question? Bankers International (BI) can be described as a rigid bureaucracy with strict rules, narrowly defined tasks and top-down communication. BI can also be described as a(n) __________ organization. Mechanistic Organic Decentralized Wide-span The correct answer is “A” – mechanistic. AACSB:  Group-individual dynamics Bloom's Taxonomy:  Knowledge Difficulty:  Medium

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 Figure 15-4 A good way to better understand this complex subject is to consider four generic approaches to assessing an organization’s effectiveness (see Figure 15–4). 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 15–4, the four effectiveness criteria can be used in various combinations

Generic Effectiveness Criteria Goal accomplishment most widely used effectiveness criteria Resource acquisition organization is effective if it acquires necessary factors of production Goal accomplishment most widely used effectiveness criteria Resource acquisition organization is effective if it acquires necessary factors of production

Question? Sherman, a new manager at Get Well Industries, is interested in learning about the most likely used effectiveness criterion for organizations. Which of these would you recommend to Sherman? Goal accomplishment Resource acquisition Internal processes Strategic constituencies satisfaction The correct answer is “A” - Goal accomplishment AACSB:  Group-individual dynamics Bloom's Taxonomy:  Knowledge Difficulty:  Medium

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.

Strategic Constituencies Satisfaction Strategic constituency any group of individuals who have some stake in the organization—for example, resource providers, users of the organization’s products or services, producers of the organization’s output, groups whose cooperation is essential for the organization’s survival, or those whose lives are significantly affected by the organization Strategic constituency any group of individuals who have some stake in the organization—for example, resource providers, users of the organization’s products or services, producers of the organization’s output, groups whose cooperation is essential for the organization’s survival, or those whose lives are significantly affected by the organization

Mixing Effectiveness Criteria: Practical Guidelines Goal accomplishment approach is appropriate when goals are clear, consensual, time-bounded, and measurable Goal accomplishment approach is appropriate when goals are clear, consensual, time-bounded, and measurable

Mixing Effectiveness Criteria: Practical Guidelines Resource acquisition approach is appropriate when inputs have a traceable effect on results or output Resource acquisition approach is appropriate when inputs have a traceable effect on results or output

Mixing Effectiveness Criteria: Practical Guidelines Internal processes approach is appropriate when organizational performance is strongly influenced by specific processes Internal processes approach is appropriate when organizational performance is strongly influenced by specific processes

Mixing Effectiveness Criteria: Practical Guidelines Strategic constituencies approach is appropriate when powerful stakeholders can significantly benefit or harm the organization Strategic constituencies approach is appropriate when powerful stakeholders can significantly benefit or harm the organization

Video: One Smooth Stone The corporate event planning industry is very dynamic. What characteristics of One Smooth Stone help it to remain competitive and successful in this industry? Why won’t the premises of organization theory proposed by theorists like Fayol and Weber work for organizations in a dynamic environment? Why won’t they work with knowledge workers? How important is it to ensure that the values of outsourcing partners align with One Smooth Stone’s? Why? One Smooth Stone utilizes a relatively flat decentralized team environment. This is necessary to allow team members to react to rapidly changing conditions and requirements of the client. The organizational premises of Fayol and Weber are too rigid and hierarchical to allow a company to react quickly to changing conditions or manage well educated knowledge workers. The rigid hierarchical command and control structure works well in a slow changing, well defined environment which employs mostly low level or uneducated workers. When outsourcing, it is critical for an organization who prizes itself on customer service and relations to ensure its outsource partners have like values. In the case of One Smooth Stone in particular, they believe their success is based on the way they interact with their customers using their core values. If they outsource to a firm who treats their customers in a manner that is not consistent with these values, they risk that relationship and hence jeopardize their success and reputation.