BA105-1: BA105-1: Organizational BehaviorOrganizational Behavior

Professor Jim LincolnProfessor Jim Lincoln

Week 3: LectureWeek 3: Lecture

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Organization design II:Session objectives

• Discuss the pros and cons of product division organization

• View functional and product division organization as ends of an evolutionary continuum along which a series of designs, including matrix, can be arrayed

• Introduce process and network organization designs as the main forms of modern “flat” or “horizontal” organization

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CEO

CarsPrefabHouses Electronics

HR Mnfg Mktg HR Mnfg Mktg HR Mnfg Mktg

Organizing around outputs:Product division organization

4

CEO

North America

Europe Asia Pacific

HR Mnfg Mktg HR Mnfg Mktg HR Mnfg Mktg

Organizing around outputs:Regional division organization

5

CEO

Home market

Education market

Corporatemarket

HR Mnfg Mktg HR Mnfg Mktg HR Mnfg Mktg

Organizing around outputs:Customer-type divisions

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Product organization pros & consAlfred Chandler: Strategy and Structure, 1962

Oliver Williamson: Markets and Hierarchies, 1975

Pluses• Low interdependence

– Easy monitoring of division performance

– Coordination by accounting standards– Easy absorption of acquisitions– Top execs freed for strategy

• Responsiveness to product, customer, & regional concerns

• Breeds GM skills • Good fit to turbulent, heterogeneous

environment• Good fit to these strategies:

– Diversification– Product/customer/region focus

Minuses• Poor within-function coordination• Breeds weak functions • Breeds inbred division cultures

– Loss of corporate identity• High redundancy and cost • Excessive management by the numbers

– Headquarters out of touch– Rigid, short-term expectations

• Excessive scale & sprawl

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Hybrid forms

• Most large firms are functional/product hybrids: some functions are centralized others are decentralized to the division level

• The trend in recent years has been to consolidate divisions & centralize functions

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Lou Gerstner, CEO of IBM on strategic organizational design

Gerstner has been designing ways to decentralize what he calls, “the things that matter in running a business” but reinforce the things that benefit from size. That means decentralizing some things and centralizing others.

“So, while unit managers can expect to define their customers, design their own products, manage most of their costs, and set prices, they’ll be expected to cooperate more on such issues as technology and product announcements, such as the power PC”

Hybrid form at Levi Strauss:

Divisional organization with some functions centralized

Haas CEO

Product Group A

Product Group A

Product Group B

Product Group B

Product Group C

Product Group C LegalLegal FinanceFinance R&DR&D Acctg.Acctg.

Mktg

Distribution

Sales

Manufact.

Mktg

Distribution

Sales

Manufact.

Mktg

Distribution

Sales

Manufact.

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CEO

R&DProduct

Division Z Product

Division Y

Z R&D

Z Engineering

Hybrid form: dotted-line relationship

between corporate and divisional R&D

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Product Z

manager

Engineer-ing

Manufac-turing

Marketing

General Manager

Z Eng

Z Mnfg

Z Mktg

Matrix

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Matrix organization pros & consPluses

• Balances functional and product priorities – Product focus with stronger, less redundant,

& better deployed functions than in divisional form

• Forces consensus resolution of disputes • Forces a corporate-wide perspective on

product/market divisions • Good fit where technical & production

requirements are high but speed and cost are secondary

• Good fit to large firms that can afford the infrastructure costs– Small firms can achieve similar results

with less structure

Minuses

• Costly in time and management overhead

• Bureaucratic, cumbersome

• Slow, requires consensus decision-making

• Unstable– power tends to shift to one side or the other

• Causes stress & frustration

• Complex, nonlinear career paths

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Matrix as the (unstable) midpoint of an evolutionary continuum

1 Pure functional organization2 Functional org with product-centered culture3 Liaison roles (employee transfers)4 Cross-functional task forces & teams

5 Integrating roles (product, brand, & account mgrs)

6 Matrix

7 Heavyweight product manager form

8 Fully self-contained product division organization

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Engineer-ing

Manufac-turing

Marketing

General Manager

Human Resources

Account-ing

Functional organization

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Engineer-ing

Manu-facturing

Marketing

General Manager

Z Eng

Z Mnfg

Z Mktg

Product Z culture

Product-specific culture coordinates functions around product Z

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Engineer-ing

Manufac-turing

Marketing

General Manager

Z Mnfg

Z Mktg

Liaison roles: Cross-functional employee rotations coordinate

functions around product Z

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Engineer-ing

Manufac-turing

Marketing

General Manager

Z Mnfg

Z Mktg

ProductZ cross-functional team

Cross-functional teams coordinate functions around product Z

Z Eng

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Z brand manager

Engineer-ing

Manufac-turing

Marketing

General Manager

Z Eng

ZMnfg

Z Mktg

Integrating roles: Brand, account, & project managers coordinate functions around product Z

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Product Z

manager

Engineer-ing

Manufac-turing

Marketing

General Manager

Z Eng

Z Mnfg

Z Mktg

Matrix: Formal reporting lines to a product division manager

coordinate functions around Product Z

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Product Z

manager

Engineer-ing

Manufac-turing

Marketing

General Manager

Z Eng

Z Mnfg

Z Mktg

“Heavyweight product manager” form

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CEO

Product W Product X Product Z

Eng Mnfg Mktg Eng Mnfg Mktg Eng Mnfg Mktg

Fully self-contained product divisions

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Matrix as culture, not structure

Strongly shared commitments to product quality, customer service, and functional expertise (as in Total Quality Mangement)

Bartlett and Ghoshal: “Matrix management-- not a structure, a frame of mind.”

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Process (“horizontal”) & network organization designs

• Abandonment of the “Manager as engineer” model (despite “reengineering” termninology)– Less hierarchical command & control– Fewer rules, standards, and procedures– Less detailed and rigid division of labor – No more vertical career

• “Manager as leader” model. Strategies and capabilities are:– Teamwork (coordination through mutual adjustment) – Networking and political – Leadership and cultural– Entrepreneurial

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The problem with the previous designs is that many business processes cut across functions & products

General Manager

Marketing Manufacturing Engineering

Product

Manager

Prod. B

Prod. A

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Process organization: Grouping by interdependence, not similarity

Hammer and Champy: Reengineering the Corporation, 1993 – Identify core business processes

• Chains of interdependent tasks delivering a product or service to a customer

– Create multi-functional teams to run processes– Appoint manager or team as “owner” of each process – Empower teams with authority & information

• Move decision-making to point of action; customer contact

– Revamp accounting and reward systems to orient new structure to customer satisfaction

– Shrink functional departments but preserve specialist expertise– Eliminate activities that add no value

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Top Management

TeamTeamProcessCoordinators

TeamTeamProcessCoordinators

TeamTeamProcessCoordinators

New product development process

Order fulfillment process

Procurement, logistics process

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Keep functional skills but dispense with functional groups

“Create a house Yellow Pages so functional expertise is easy to find even though dispersed. Link experts in a real or electronic network where they can keep each other up to date and can get training and career development help…The engineers can have a club. But they can’t work in the same room, and they can’t sit at the same table at the company banquet.”

Thomas A. Stewart: “The search for the organization of tomorrow” Fortune, 5/18/92.

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Network Organization

• Small, lean, specialized firms • The “organization” is a network• Absence of authority and structure to control and

coordinate division of labor – Examples:

• Japanese keiretsu• Silicon valley• New York fashion industry• Germany’s mittelstand • Northern Italy’s furniture industry• Ethnic enclaves

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Designers

Core FirmProducers

DistributorsSuppliers

Managers

Suppliers Distributors

ITServices

Producers

Producers

Designers

Distributors

Suppliers

Brokers

Full Vertical Integration

Full Network Organization

Networked Firm

HR Services

IT Services

HR Services

Designers Marketers

HR Services

IT Services

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Physical proximity facilitates teamwork and networking

(e.g., New York, Silicon Valley)

Advertising

Manu-facturing

Finance

Legal

Designers

Suppliers

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EmailTeleconferencing

GroupwareKnowledge management

ERP

Information technology facilitates teamwork and networking

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Thursday

• Loose ends in lecture & reading

• Prepare the Appex case– Evaluate the cause & effect chains leading to

problems– Critique Ghosh’s design solutions

• Why so many unintended consequences?

– Propose alternatives • Consider nonstructural solutions

• Assignment to project teams