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Organizational Design, Effectiveness, and Innovation

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1 Organizational Design, Effectiveness, and Innovation
As we approach the end of this course, we will focus in this chapter on what is required to create effective organizations, emphasizing how to best coordinate the efforts of individuals through organizational design. McGraw-Hill/Irwin Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.

2 Ch. 17 Learning Objectives
Describe the four characteristics common to all organizations, and explain the difference between closed and open systems. Define the term learning organization. Describe seven basic ways organizations are structured. Discuss Burns and Stalker’s findings regarding mechanistic and organic organizations. Identify when each of the seven organization structures is the right fit. Let’s use the learning objectives to outline the chapter. Objectives 1 and 2 define the term organization and put it into perspective. Objectives 3 through 5 examine different structures and types of organizations and how to determine the right fit.

3 Ch. 17 Learning Objectives
Describe the four generic organizational effectiveness criteria. Explain how managers can prevent organizational decline. Discuss the difference between innovation, invention, creativity, and integration. Review the myths about innovation Explain the model of innovation. Objectives 6 & 7 focus on the effectiveness criteria for organizations and how managers can prevent organizational decline. The last three objectives discuss organizational innovation processes.

4 Characteristics Common to All Organizations
Organization: System of consciously coordinated activities of two or more people. Hierarchy of authority Coordination of effort An organization is a system of consciously coordinated activities of two or more people. The four factors that make up the organization’s structure are coordination of effort, which is achieved through formulation and enforcement of policies, rules, and regulations; division of labor, where the common goal is pursued by individuals performing separate but related tasks; and hierarchy of authority, which provides a control mechanism dedicated to making sure the right people do the right things at the right time. Division of labor Common goal

5 Organization Charts Strategic Planning Officer Legal Counsel Cost-Containment Staff Organization charts are used to show the relationships among employees, illustrating the chain of formal authority and division of labor. Three terms related to organization charts are defined on the next slide. Director of Patient and Public Relations Director of Outpatient Services

6 Organizational Structure Terms
Span of control The number of people reporting directly to a given manager Staff Personnel – denoted by dotted lines Provide research, advice, and recommendations to line managers Line managers – denoted by solid lines Have authority to make organizational decisions [No narration required.]

7 Test Your Knowledge True (A) or False (B)
The ideal span of control is 10. Wider spans of control complement employee empowerment trends. Narrower spans of control save costs and are administratively efficient. With wider spans of control, inadequate supervision and less coordination may result True (A) or False (B) The ideal span of control is 10. False, there is no ideal span of control because it is so dependent on the situation. 2. Wider spans of control complement employee empowerment trends. True, as employees become more empowered, less direct day to day supervision is required. 3. Narrower spans of control save costs and are administratively efficient. False, narrower spans of control are more expensive 4. With wider spans of control, inadequate supervision and less coordination may result True.

8 Closed Vs. Open Systems Closed System a relatively self-sufficient entity Open System organism that must constantly interact with its environment to survive A closed system is a relatively self-sufficient entity. Management theorists used to view organizations as being closed systems, operating somewhat like a clock that only needs a battery to function efficiently. More recently, the view has shifted to one that recognizes that organizations are much more like an open system. An open system is an organism that must constantly interact with its environment to survive. For example, the human body is an open system because we need oxygen, food, and shelter for survival so we are very dependent on the environment. Organizations also have permeable boundaries. Let’s look on the next slide at an open system from an organizational perspective.

9 The Organization as an Open System
Goals and Values Subsystem Technical Subsystem Inputs Material Money Human effort Information Outputs Products Services Human satisfaction Organiz- ational survival and growth Social benefit Managerial Subsystem Structural Subsystem Psychological Subsystem This graphic depicts how an organization is an open system that has to adapt to a changing environment while getting input and feedback from external and internal sources. Feedback

10 Learning Organization
Learning Organization proactively creates, acquires, and transfers knowledge throughout the organization An extension of the open-system model is the adding of a “brain” to the “living body.” A learning organization proactively creates, acquires, and transfers knowledge throughout the organization These organizations constantly seek new information from the external environment and seek to develop their employees. They also pursue experts to employ and stay up to date on practices that affect their business.

11 Organizational Structures
Functional Organized according to business function (marketing, finance, etc.) Divisional Structure Organized by activities related to outputs (e.g., product or service type) Matrix Structure Horizontal cooperation necessary as is functional knowledge Typically organized by function vertically and product/service horizontally Some common organizational structures are depicted here. Functional Organized according to business function (marketing, finance, etc.) Divisional Structure Organized by activities related to outputs (e.g., product or service type) Matrix Structure Horizontal cooperation necessary as is functional knowledge Typically organized by function vertically and product/service horizontally

12 Horizontal Design for Collaboration
Organize around complete workflow processes rather than tasks 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 required. More and more organizations are seeing the need for improved collaboration among their organizational members. One approach towards this end is to organize around processes rather than functional areas and create flexible cross-functional teams. Here are five principles for designing horizontal organizations. Organize around complete workflow processes rather than tasks 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 required.

13 Designs that Open Boundaries Between Organizations
Hollow Outsourcing non-core processes to those more able Modular Outsources parts of a product rather than processes Virtual Temporary company created to respond to an exceptional market opportunity There are some organizations that seek to break down not only the internal boundaries but also the barriers between organizations in order to better pool their resources towards their own advantage. Examples of these types of structures are: Hollow Outsourcing non-core processes to those more able – retain what you do well and outsource functions that others can do faster and cheaper Modular Outsources parts of a product rather than processes – ensure quality meets standards from other companies but assemble parts internally Virtual Temporary company created to respond to an exceptional market opportunity – creates partnerships that help serves customers they wouldn’t be able to without each other

14 Test Your Knowledge Regardless of the specific type, to be effective tomorrow’s organizations will require: Rigidity Short-term thinking Internal focus Flexibility and adaptability Regardless of the specific type, to be effective in tomorrow’s organizations will require: Rigidity Short-term thinking Internal focus Flexibility and adaptability Answer D – the emphasis on staying in tune with the external environment, realigning to meet strategic objectives and being part of a team all require having an open mind and a flexible and adaptable attitude.

15 Characteristics of Mechanistic and Organic Organizations
Mechanistic Organizations Organic Organizations Task definition and knowledge required Narrow; technical Broad; general Linkage between individual’s contribution and organization’s purpose Vague or indirect Clear or direct Other researchers, Burns and Stalker drew a distinction between mechanistic and organic organizations. Mechanistic organizations are rigid, command-and-control bureaucracies. These are important when there is a need for uniform product quality, speedy service, and cleanliness, with McDonalds serving as an excellent example of this. Organic organizations are fluid and flexible networks of multitalented people. People in these organizations perform a variety of tasks. Gore is an example of an organic organization because people don’t have job titles, nor do they report to anybody. Gore uses a very team-based structure. The table on this and the next slide highlights the difference between mechanistic and organic organizations. Task flexibility Rigid; routine Flexible; varied Specification of techniques, obligations, and rights Specific General

16 Characteristics of Mechanistic and Organic Organizations
Mechanistic Organizations Organic Organizations Degree of hierarchal control Low High Primary communication pattern Lateral Top-down Primary decision-making style Democratic; participative Authoritarian Emphasis on obedience and loyalty Low High [No narration required.]

17 Test Your Knowledge Which decision-making approach tends to be used in mechanistic organizations? Decentralized Centralized Which decision-making approach tends to be used in unstable and uncertain environments? 1. Which decision-making approach tends to be used in mechanistic organizations? Decentralized Centralized Answer: B 2. Which decision-making approach tends to be used in unstable and uncertain environments? Answer: A Decentralized decision making – lower level managers are empowered to make important decisions Centralized decision making – top managers make all key decisions Again centralization and decentralization should not be used in extremes. The challenge is to achieve a workable balance between the two extremes.

18 Ways to Assess Organizational Effectiveness
Goal Accomplishment Resource Acquisition Internal Processes In order to determine organizational effectiveness, you need to consider a variety of criteria. These four criteria are generic approaches that broadly apply to both for profit and non-profit organizations. Goal Accomplishment the organization achieves its goals—most widely used effectiveness criterion Does the organizations achieve its publicly stated goals and objectives? Resource acquisition: Does the organization acquire the necessary resources to pursue it’s objectives? Internal Processes the organization functions smoothly with a minimum of internal strain Is the organization a “healthy system” in which information flows freely and employees are loyal, committed, satisfied and trusted. Strategic Constituencies Satisfaction the demands and expectations of key interest groups are at least minimally satisfied Are people who have a stake in the organization's operation or success satisfied. Strategic Constituencies Satisfaction

19 Early-Warning Signs of Decline
Excess personnel Tolerance of incompetence Cumbersome administrative procedures Disproportionate staff power Replacement of substance with form Scarcity of clear goals and decision benchmarks Fear of embarrassment and conflict Organizational decline is defined as a decrease in the organization’s resource base, including money, customers, talent, and innovations. The warning signs listed here and on the next slide may indicate an organization headed for or in decline.

20 Early-Warning Signs of Decline Cont.
Loss of effective communication Outdated organizational structure Increased scapegoating by leaders Resistance to change Low morale Special interest groups are more vocal Decreased innovation [No narration required.]

21 Innovation Innovation Creativity Invention Integration
It is necessary to have both creativity and invention but need to have a way to transform that into a product or service for a customer in order to have innovation. Therefore you need integration which requires collaboration from multiple people, units, departments, and functions to work together.

22 Test Your Knowledge Innovation does not involve an epiphany or “Eureka!” moment – T or F? Innovation can be systematized – T or F? There are two myths with regard to innovation – let’s see if you answered these questions right. Innovation does not involve an epiphany or “Eureka!” moment – T or F? – True – most innovation happens with a lot of hard work and dedication and rarely just “hits” someone Innovation can be systematized – T or F? – False – it ids dependent on too many things to be able to predict it.

23 Seeds of Innovation Seeds of innovation
Hard work in a specific direction – most innovations come from dedicated people working hard to solve a well-defined problem Hard work with direction change – innovations often occur when people change their approach to solving a problem Curiosity – curiosity spawns experimentation and inventiveness Wealth and money – innovations frequently occur because economic viability depends on it Necessity – required to achieve a larger goal Combination of seeds – often innovation is a result of multiple factors


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