12-1 managing organization design. 12-2 study guide v bureaucratic model of organization design ...

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Managing Managing

Organization Organization

DesignDesign

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Study GuideStudy Guide Bureaucratic Model of Organization DesignBureaucratic Model of Organization Design

CharacteristicsCharacteristics StrengthsStrengths WeaknessesWeaknesses

Behavioral Model of Organization DesignBehavioral Model of Organization Design CharacteristicsCharacteristics StrengthsStrengths WeaknessesWeaknesses

Situational View of Organization DesignSituational View of Organization Design TechnologyTechnology EnvironmentEnvironment Size and Life CycleSize and Life Cycle StrategyStrategy

Basic Forms of Organization DesignBasic Forms of Organization Design Functional (U-form)Functional (U-form) Conglomerate (H-form)Conglomerate (H-form) Multi-divisionalMulti-divisional MatrixMatrix

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The Nature of Organization DesignThe Nature of Organization Design

Organization DesignOrganization Design The overall set of structural elements and the The overall set of structural elements and the

relationships among those elements used to relationships among those elements used to manage the total organization.manage the total organization.

A means to implement strategies and plans to A means to implement strategies and plans to achieve organizational goals.achieve organizational goals.

Organization Design ConceptsOrganization Design Concepts Organizations are not designed and then left intact. Organizations are not designed and then left intact.

Organizations are in a continuous state of change.Organizations are in a continuous state of change. Organization design for larger organizations is Organization design for larger organizations is

extremely complex and has many nuances and extremely complex and has many nuances and variations.variations.

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Universal Perspectives onUniversal Perspectives onOrganization DesignOrganization Design

Bureaucratic Model (Max Weber)Bureaucratic Model (Max Weber) A logical, rational, and efficient organization A logical, rational, and efficient organization

design based on a legitimate and formal design based on a legitimate and formal system of authority.system of authority.

CharacteristicsCharacteristics1.1. Division of labor Division of labor

2.2. Rules andRules and procedures procedures

3.3. Organizational hierarchyOrganizational hierarchy

4.4. Impersonal Relationships among workersImpersonal Relationships among workers

5.5. Expertise-based promotionsExpertise-based promotions

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Bureaucratic ModelBureaucratic Model AdvantagesAdvantages

Efficiency in function due to well-defined practices and Efficiency in function due to well-defined practices and procedures.procedures.

Organizational rules prevent favoritism.Organizational rules prevent favoritism. Recognition of and requirement for expertise stresses the Recognition of and requirement for expertise stresses the

value of an organization’s employees.value of an organization’s employees. DisadvantagesDisadvantages

Organizational inflexibility and rigidity due to rules and Organizational inflexibility and rigidity due to rules and procedures.procedures.

Neglects the social and human processes within the Neglects the social and human processes within the organization.organization.

Belief in “one best way” to design an organization does Belief in “one best way” to design an organization does not apply to all organizations and their environments.not apply to all organizations and their environments.

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SystemSystem

11

ExploitativeExploitative

AuthoritativeAuthoritative

Job-centered Job-centered leader leader

behaviorbehavior

SystemSystem

22

BenevolentBenevolent

AuthoritativeAuthoritative

SystemSystem

33

ConsultativeConsultative

SystemSystem

44

ParticipativeParticipative

Employee-Employee-centered leader centered leader

behaviorbehavior

Behavioral Model: Likert SystemBehavioral Model: Likert System Renesis Likert: Renesis Likert: ““Organizations that pay attention to Organizations that pay attention to

work groups and interpersonal processes are more work groups and interpersonal processes are more effective than bureaucratic organizations.”effective than bureaucratic organizations.”

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Situational Influences onSituational Influences onOrganization Design Organization Design

ORGANIZATIONORGANIZATIONDESIGNDESIGN

Organizational

OrganizationalSizeSize

Organizational

Organizational

Life Cycle

Life Cycle

Core Technology

Core Technology

Environment

Environment

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Situational Influences onSituational Influences onOrganization Design (cont’d)Organization Design (cont’d)

A.A. Core TechnologyCore Technology Technology is the conversion processes used to Technology is the conversion processes used to

transform inputs into outputs.transform inputs into outputs. A core technology is an organization’s most A core technology is an organization’s most

important technology.important technology. Joan Woodward initially sought a correlation Joan Woodward initially sought a correlation

between organization size and design; instead, between organization size and design; instead, she found a potential relationship between she found a potential relationship between technology and design.technology and design.

As the complexity of technology increases, so do As the complexity of technology increases, so do the number of levels of management.the number of levels of management.

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Woodward’s Basic Forms of TechnologyWoodward’s Basic Forms of Technology Unit or Small-Batch TechnologyUnit or Small-Batch Technology

Produce custom-made products to customer Produce custom-made products to customer specifications, or else produce in small quantities, specifications, or else produce in small quantities, similar to Likert’s System 4 organization.similar to Likert’s System 4 organization.

Large Batch/Mass ProductionLarge Batch/Mass Production Uses assembly-line production methods to Uses assembly-line production methods to

manufacture large quantities of products; manufacture large quantities of products; resembles Likert’s System 1.resembles Likert’s System 1.

Continuous ProcessContinuous Process Use continuous-flow processes to convert raw Use continuous-flow processes to convert raw

materials by process or machine into finished materials by process or machine into finished products; resembles Likert’s System 4.products; resembles Likert’s System 4.

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Rigid hierarchical Rigid hierarchical relationshipsrelationships

Fixed dutiesFixed duties Many rulesMany rules Formalized Formalized

communications communications channelschannels

Centralized Centralized decision authoritydecision authority

Taller structuresTaller structures

CollaborationCollaboration Adaptable rulesAdaptable rules Informal Informal

communicationcommunication Decentralized Decentralized

decision authoritydecision authority Flatter structuresFlatter structures

MechanisticMechanisticOrganic

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B.B. Environment Environment Burns and StalkerBurns and Stalker

Forms of the organizational environmentForms of the organizational environment Stable environments that remain constant over time.Stable environments that remain constant over time. Unstable environments subject to uncertainty and Unstable environments subject to uncertainty and

rapid change.rapid change. Organization DesignsOrganization Designs

Mechanistic organizationsMechanistic organizations that are similar to that are similar to bureaucratic or System 1 models; found most bureaucratic or System 1 models; found most frequently in stable environments.frequently in stable environments.

Organic organizationsOrganic organizations that are flexible and informal that are flexible and informal models; usually found in unstable and unpredictable models; usually found in unstable and unpredictable environments.environments.

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C.C. Organizational SizeOrganizational Size Defined as the total number of full-time or full-time Defined as the total number of full-time or full-time

equivalent employeesequivalent employees Research findings:Research findings:

Small firms tend to focus on their core technology.Small firms tend to focus on their core technology. Large firms have more job specialization, standard operating Large firms have more job specialization, standard operating

procedures, more rules and regulations.procedures, more rules and regulations.

D.D. Organizational Life CycleOrganizational Life Cycle A progression through which organizations evolve as A progression through which organizations evolve as

they grow and maturethey grow and mature—birth, youth, midlife, and —birth, youth, midlife, and maturity.maturity.

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Strategy and Organization DesignStrategy and Organization Design Corporate-Level StrategyCorporate-Level Strategy

Single-product strategySingle-product strategy Related or unrelated diversificationRelated or unrelated diversification Portfolio approach to managing strategic business unitsPortfolio approach to managing strategic business units

Business-Level StrategyBusiness-Level Strategy DefenderDefender Prospecting Prospecting AnalyzerAnalyzer

Organizational FunctionsOrganizational Functions Major functions of the organization (e.g., marketing, finance, research and development, & manufacturing) influence an organization’s design.Major functions of the organization (e.g., marketing, finance, research and development, & manufacturing) influence an organization’s design.

DifferentiationDifferentiation Cost leadershipCost leadership FocusFocus

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Basic Forms of Organization DesignBasic Forms of Organization Design

Functional Functional (U-form) Unitary(U-form) Unitary

DivisionalDivisional (M-form) Multidivisional - related(M-form) Multidivisional - related

ConglomerateConglomerate (H-form) Holding Company - not related(H-form) Holding Company - not related

MatrixMatrix HybridHybrid

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Basic Forms of Organization DesignBasic Forms of Organization Design

Functional or U-form (Unitary) DesignFunctional or U-form (Unitary) Design Organizational members and units are Organizational members and units are

grouped into functional departments such grouped into functional departments such as marketing and production.as marketing and production.

Coordination is required across all Coordination is required across all departments.departments.

Design approach resembles functional Design approach resembles functional departmentalization in its advantages and departmentalization in its advantages and disadvantages.disadvantages.

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Functional or U-Form Design for aFunctional or U-Form Design for aSmall Manufacturing CompanySmall Manufacturing Company

CEOCEO

Vice president,Vice president,operationsoperations

Vice president,Vice president,marketingmarketing

Vice president,Vice president,financefinance

Vice president,Vice president,human resourceshuman resources

Vice president,Vice president,R&DR&D

ScientificScientificdirectordirector

Labor relationsLabor relationsdirectordirector

Plant humanPlant humanresource managerresource manager

ControllerController

AccountingAccountingsupervisorsupervisor

RegionalRegionalsales managerssales managers

DistrictDistrictsales managerssales managers

PlantPlantmanagersmanagers

ShiftShiftsupervisorssupervisors

Lab managerLab manager

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Basic Forms of Organization Design (cont’d)Basic Forms of Organization Design (cont’d)

Conglomerate or H-form (Holding) DesignConglomerate or H-form (Holding) Design Organization consists of a set of unrelated Organization consists of a set of unrelated

businesses with a general manager for each businesses with a general manager for each business.business.

Holding-company design is similar to product Holding-company design is similar to product departmentalization.departmentalization.

Coordination is based on the allocation of Coordination is based on the allocation of resources across companies in the portfolio.resources across companies in the portfolio.

Design has produced only average to weak Design has produced only average to weak financial performance; has been abandoned for financial performance; has been abandoned for other approaches.other approaches.

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Conglomerate (H-Form) Design Conglomerate (H-Form) Design at Pearson PLCat Pearson PLC

CEOCEO

PublishingPublishingoperationsoperations

EntertainmentEntertainmentoperationsoperations

Oil servicesOil servicesoperationsoperations

Fine chinaFine chinaoperationsoperations

PeriodicalsPeriodicalsoperationsoperations

InvestmentInvestmentbankingbankingoperationsoperations

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Divisional or M-form (Multidivisional) DesignDivisional or M-form (Multidivisional) Design An organizational arrangement based on multiple An organizational arrangement based on multiple

businesses in related areas operating within a larger businesses in related areas operating within a larger organizational framework.organizational framework.

The design results from a strategy of related The design results from a strategy of related diversification.diversification.

Some activities are extremely decentralized down to the Some activities are extremely decentralized down to the divisional level; others are centralized at the corporate divisional level; others are centralized at the corporate level.level.

The largest advantages of the M-form design are the The largest advantages of the M-form design are the opportunities for coordination and sharing of resources.opportunities for coordination and sharing of resources.

Successful M-form organizations can out perform U-Successful M-form organizations can out perform U-form and H-form organizations.form and H-form organizations.

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Multidivisional (M-form) DesignMultidivisional (M-form) Designat The Limited, Inc.at The Limited, Inc.

CEOCEO

Bath &Bath &BodyBodyWorksWorks

StructureStructure The LimitedThe Limited ExpressExpress LernerLernerNew YorkNew York

VictoriaVictoria’’ssSecretSecret

OtherOtherchainschains

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Basic Forms of Organization Design (cont’d)Basic Forms of Organization Design (cont’d) Matrix DesignMatrix Design

An organizational arrangement based An organizational arrangement based on two overlapping on two overlapping basesbases of departmentalization (e.g., functional departments of departmentalization (e.g., functional departments and product categories).and product categories).

A set of product groups or temporary departments are A set of product groups or temporary departments are superimposed across the functional departments.superimposed across the functional departments.

Employees in the resulting matrix are members of both their Employees in the resulting matrix are members of both their departments and a project team under a project manager.departments and a project team under a project manager.

The matrix creates a The matrix creates a multiple command structuremultiple command structure in which in which an employee reports to both departmental and project an employee reports to both departmental and project managers.managers.

A matrix design is useful when:A matrix design is useful when: There is strong environmental pressure.There is strong environmental pressure. There are large amounts of information to be processed.There are large amounts of information to be processed. There is pressure for shared resources.There is pressure for shared resources.

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Basic Forms of Organization Design Basic Forms of Organization Design (cont’d)(cont’d)

Matrix Design AdvantagesMatrix Design Advantages Enhances organizational flexibility.Enhances organizational flexibility. Involvement creates high motivation and Involvement creates high motivation and

increased organizational commitment.increased organizational commitment. Team members have the opportunity to learn Team members have the opportunity to learn

new skills.new skills. Provides an efficient way for the organization Provides an efficient way for the organization

to use its human resources.to use its human resources. Team members serve as bridges to their Team members serve as bridges to their

departments for the team.departments for the team. Useful as a vehicle for decentralization.Useful as a vehicle for decentralization.

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Basic Forms of Organization Design Basic Forms of Organization Design (cont’d)(cont’d)

Matrix Design DisadvantagesMatrix Design Disadvantages Employees are uncertain about reporting Employees are uncertain about reporting

relationships.relationships. Managers may view design as an anarchy in Managers may view design as an anarchy in

which they have unlimited freedom.which they have unlimited freedom. The dynamics of group behavior may lead to The dynamics of group behavior may lead to

slower decision making, one-person slower decision making, one-person domination, compromise decisions, or a loss domination, compromise decisions, or a loss of focus.of focus.

More time may be required for coordinating More time may be required for coordinating task-related activities.task-related activities.

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Basic Organizational Design Forms Basic Organizational Design Forms MatrixMatrix

ProjectMa na ger C

ProjectMa na ger B

ProjectMa na ger A

Ma trixD esign

AssignedMa na ger

AssignedMa na ger

AssignedMa na ger

V ice PresidentEngineering

AssignedMa na ger

AssignedMa na ger

AssignedMa na ger

V ice PresidentProduction

AssignedMa na ger

AssignedMa na ger

AssignedMa na ger

V ice PresidentF ina nce

AssignedMa na ger

AssignedMa na ger

AssignedMa na ger

V ice PresidentMa rketing

CEO

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Hybrid DesignsHybrid Designs An organizational arrangement based on An organizational arrangement based on

two or more common forms of organization two or more common forms of organization design.design.

An organization may have a mixture of An organization may have a mixture of related divisions and a single unrelated related divisions and a single unrelated division.division.

Most organizations use a modified form of Most organizations use a modified form of organization design that permits it to have organization design that permits it to have sufficient flexibility to make adjustments for sufficient flexibility to make adjustments for strategic purposes.strategic purposes.

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Emerging Issues in Organization DesignEmerging Issues in Organization Design The Team OrganizationThe Team Organization

An approach to organizational design that relies almost An approach to organizational design that relies almost exclusively on project-type teams, with little or no underlying exclusively on project-type teams, with little or no underlying functional hierarchy.functional hierarchy.

The Virtual OrganizationThe Virtual Organization An organizational design that has little or no format structure An organizational design that has little or no format structure

with few permanent employees, leased facilities, and outsourced with few permanent employees, leased facilities, and outsourced basic support services.basic support services.

It may conduct its business entirely on-line and exists only to It may conduct its business entirely on-line and exists only to meet for a specific and present need.meet for a specific and present need.

The Learning OrganizationThe Learning Organization An organization that works to facilitate the lifelong learning and An organization that works to facilitate the lifelong learning and

development of its employees while transforming itself to development of its employees while transforming itself to respond to changing demands and needs.respond to changing demands and needs.

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Issues in InternationalIssues in InternationalOrganization DesignOrganization Design

The trend toward internationalization of The trend toward internationalization of businessbusiness

How to design a firm to deal most How to design a firm to deal most effectively with international forces and to effectively with international forces and to compete in global markets:compete in global markets: Create an international division?Create an international division? Establish an international operating group?Establish an international operating group? Make international operations an autonomous Make international operations an autonomous

subunit?subunit?

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Common Common Organization Organization Designs for Designs for

International International OrganizationsOrganizations

CEOCEO

A. Separate International DivisionA. Separate International Division

ProductionProduction MarketingMarketing FinanceFinanceInternationalInternational

divisiondivision

B. Location DepartmentalizationB. Location Departmentalization

NorthNorthAmericanAmericanoperationsoperations

EuropeanEuropeanoperationsoperations

AsianAsianoperationsoperations

CEOCEO

Figure Figure 12.5a12.5a

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Common Organization Designs forCommon Organization Designs forInternational Organizations (cont’d)International Organizations (cont’d)

D. Multidivisional StructureD. Multidivisional Structure

CEOCEO

Subsidiary ASubsidiary A(in Germany)(in Germany)

Subsidiary CSubsidiary C(in France)(in France)

Subsidiary ESubsidiary E(in Taiwan)(in Taiwan)

Subsidiary DSubsidiary D(in Japan)(in Japan)

Subsidiary BSubsidiary B(in United(in UnitedStates)States)

C. Product DepartmentalizationC. Product Departmentalization

ProductProductmanager Amanager A

CEOCEO

ProductProductmanager Bmanager B

ProductProductmanager Cmanager C

AsiaAsiaNorthNorthAmericaAmerica EuropeEurope

Figure 12.5b

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ShiftSupervisors

P la ntMa na gers

V ice PresidentO pera tions

D istrictSa les Ma na gers

R egiona l Sa lesMa na ger

V ice PresidentMa rketing

AccountingSupervisor

C ontro ller

V ice PresidentF ina nce

P la nt H um a nR esourceMa na ger

La bor R ela tionsD irection

V ice PresidentH um a n R esources

La bMa na ger

Scientif icD irector

V ice PresidentR & D

CEO

Basic Organizational Design Forms Basic Organizational Design Forms Functional (U-form)Functional (U-form)

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Basic Organizational Design Forms Basic Organizational Design Forms Conglomerate (H-form)Conglomerate (H-form)

Periodica lsO pera tions

PublishingO pera tions

Enterta inm entO pera tions

Investm entB a nking

O pera tions

O il ServicesO pera tions

Fine C hinaO pera tions

CEO

Structure B a th & B odyW orks

T he L im ited Express LernerN ew York

V ictoria 'sSecret

O therC ha ins

CEO

Divisional (M-Form)

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International Organization DesignInternational Organization DesignSimple Form, International DivisionSimple Form, International Division

Production M arke ting F inance Int'l D ivis ion

C EO

North A m .O pera tions

E uropeanO pera tions

A s ianO pera tions

C EO

Extension of Geographic DepartmentalizationExtension of Geographic Departmentalization

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International Organization DesignInternational Organization DesignExtension of Product DepartmentalizationExtension of Product Departmentalization

Pro d u ct M g r. A

North A m erica E urope A s ia

Pro d u ct M g r. B Pro d u ct M g r. C

C E O

Extension of the Multidivisional FormExtension of the Multidivisional Form

Subsid ia ry A(in G erm a ny)

Subsid ia ry B(in U .S .)

Subsid ia ry C(in Fra nce)

Subsid ia ry D(in Ja pa n)

Subsid ia ry E(in T a iw a n)

CEO

12-1 managing organization design. 12-2 study guide v bureaucratic model of organization design ...

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