1. Designing Effective Organizations
Chapter Fifteen

2. 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.

3. 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.

4. 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.

5. 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

6. 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.

7. 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

8. 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

9. 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.

10. 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.

11. 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.

12. 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.

13. 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

14. 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.

15. 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

16. 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

17. 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

18. 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.

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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.

31. 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

32. 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

33. 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

34. 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.

35. 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

36. 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

37. 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

38. 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

39. 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

40. 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.