1. Organization Structure and Management Systems
OUTLINE
Evolution of the corporation
Principles of organizational design
The role of hierarchy: bureaucratic
control vs. modular integration
Alternative structural forms
Management systems

2. Evolution of the Modern Corporation
The business
environment
Strategic
changes
Organizational
consequences
Early
19th
century
Local markets Firms specialized & Small firms.
Transport slow focused on local Simple manage-
Limited mechanization markets ment structures
Late
19th
century
Introduction of Geographical and Functional struct-
railroads, telegraph vertical expansion ures. Line/staff
industrialization separation. Accou-
nting systems
Early
20th
century
Excess capacity in Product & Development of
distribution. Growth multinational multidivisional
of financial institut- diversification corporation
ions & world trade

3. General Motors’ Organization Structure, 1921
Board of Directors
President
Executive Committee
Financial Staff
GM Acceptance Corporation
Legal Department
General Advisory Staff
Chevrolet Division
Sheridan
Division
Canadian Division
Oldsmobile Division
Buick Division
Cadillac Division
GM Export Company
GM Truck Division
Samson Tractor Division
Oakland Division
Inter-company Parts Division
Scripps Booth Corp.
Source: A.P. Sloan, My Years with General Motors, Orbit Publishing, 1972, p. 57.

4. The Basic Tasks of Organization
Achieving high levels of productivity requires SPECIALIZATION
Specialization by individuals necessitates COORDINATION
For coordination to be effective requires COOPERATION
But goals of employees == goals of owners
THE AGENCY PROBLEM
THE ORGANIZATIONAL CHALLENGE:
To design structure & systems that:
Permit specialization
Facilitate coordination by grouping individuals & link groups with systems of communication, decision making, & control
Create incentives to align individual & firm goals

5. Hierarchy Economizes on Coordination (a) Self Organizing Team:
10 interactions
(b) Hierarchy:
4 interactions
But what about effectiveness of coordination?
--Depends upon the organization’s task

6. Hierarchy of Loosely-Coupled Modules Allows Flexible Adaptation
Tightly-coupled, integrated system: Change in any part of the system requires system-wide adaptation
Loose-coupled, modular hierarchy: partially-autonomous modules linked by standardized interfaces permits decentralized adaptation and innovation

7. Weber’s Principles of Bureaucracy
Rational-legal authority
Specialization of labor
Hierarchical structure
Coordination and control through rules and standard operating procedures
Standardization employment practices
Separation of jobs and people
Formalization of administrative acts, decisions and rules

8. Mechanistic and Organic Forms
FEATURE MECHANISTIC ORGANIC
Task definition Rigid & highly Flexible; less
specialized specialized
Coordination Rules & directives Mutual adjustment.l
& control imposed from the top Cultural control
Communication Mainly vertical Horizontal & vertical
Commitment To immediate superior To the organization & its
& loyalty goals & values
Environmental Stable with low tech Dynamic, ambiguous,
context nological uncertainty high technological
uncertainty

9. Designing the Hierarchy: The Basis for Defining
Organizational Units and their Relationships
Units may be defined on the basis of Common Tasks, Products,
Geographical Proximity, or Process/Function
Critical issue: Intensity of Coordination—Employees with the greatest
interdependence should be grouped into same organizational unit.
Additional criteria: Economies of Scale, Economies of Utilization,
Learning, Standardization of Control Systems

10. General Motors’ Organization Structure, 1997
Board of Directors
Corporate Functions
President’s Council
North American Operations
Delphi Automotive Systems
GM Acceptance Corporation
International Operations
Hughes Electronics
GM Europe
Midsize & Luxury Car Group
Small Car Group
GM Power Train Group
Vehicle Sales, & Marketing Group
Development & Technical Cooperation Group
Asian & Pacific Operations
Latin American, African, & Middle East Operation

11. General Electric’s Organization Structure, 2002
Corporate Executive Office
Chairman & CEO
Corporate Staff
Finance Business R&D Human Legal
Development Resources
Service Divisions
GE Aircraft
Engines
GE Trans-
portation GE
Industrial
Systems GE
Plastics GE
Appliances GE
Supply
GE Power
Systems
GE Medical
Systems GE
Lighting GE
Specialty
Materials
NBC GE
Capital
26 businesses organized into 5 segments:
Consumer Mid-market Specialized Specialty Equipment
Services Financing Financing Insurance Management
General Electric’s Organization Structure, 2002

12. Mobil Corporation, 1997 Board of Directors CEO Executive Office
Corporate Center
Support Services
North America
New Exploration
Worldwide LNG & IPP
Technology
Asia/ Pacific
Europe & CIS
Africa & Middle East
South America
North America M&R
Worldwide Chemicals
Shipping

13. Royal Dutch/Shell Group, 1994: A Matrix Structure

14. The Generic Strategic Planning Cycle
Corporate
Guidelines
Draft
Business
Plans
Discuss
with
Corporate
Revised
Business
Plans
Approval by
Board
Forecasts/
Scenarios/
Planning
assumptions
Corporate
Plan
Capex
Budget
Annual
Performance Targets
Performance
Review 13