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