Chapter 13: Organizational Design Creating Effective Organizations

Chapter 13: Chapter 13: Organizational Organizational DesignDesign

Creating Effective Creating Effective OrganizationsOrganizations

What is Organization What is Organization Structure and Design?Structure and Design?

1.1. An authority systemAn authority system

2.2. A communication systemA communication system

3.3. A decision making systemA decision making system

4.4. An activities/work systemAn activities/work system

Key Concepts in Key Concepts in DesignDesign Bureaucracy—Creation of formal rules Bureaucracy—Creation of formal rules

to solve organizational problemsto solve organizational problems Mechanistic versus Organic StructuresMechanistic versus Organic Structures

—the more environmental uncertainty —the more environmental uncertainty the greater the need for an organic the greater the need for an organic structurestructure

Differentiation (division of labor) and Differentiation (division of labor) and Integration (coordinating mechanisms) Integration (coordinating mechanisms)

Span of ControlSpan of Control

Functional Organizational Functional Organizational Structures:Structures: “Typical” Functional “Typical” Functional Organizational StructureOrganizational Structure

General ManagerGeneral Manager

EngineeringEngineering ManufacturingManufacturing MarketingMarketing Finance and Finance and AccountingAccounting PersonnelPersonnel Research andResearch and

DevelopmentDevelopment

Process-Oriented Functional StructureProcess-Oriented Functional Structure

General ManagerGeneral Manager

FoundryFoundryAndAnd

CastingsCastings

MillingMillingAndAnd

GrindingGrinding

ScrewScrewMachiningMachining

FinishingFinishingAnd HeatAnd HeatTreatingTreating

InspectionInspectionLoadingLoading

AndAndShippingShipping

Customer Customer ServiceService

BillingBillingAndAnd

AccountingAccounting

Functional Organizational Functional Organizational Structures: Structures: Strategic Strategic Advantages/DisadvantagesAdvantages/Disadvantages

Strategic AdvantagesStrategic Advantages

Permits Permits centralized centralized control of control of strategic resultsstrategic results

Promotes in-Promotes in-depth functional depth functional expertiseexpertise

Enhances Enhances operating operating efficiency where efficiency where tasks are routine tasks are routine and repetitiveand repetitive

Strategic DisadvantagesStrategic Disadvantages

Poses problems Poses problems of functional of functional coordinationcoordination

Can lead to Can lead to interfunctional interfunctional rivalry, conflict, rivalry, conflict, and empire-and empire-buildingbuilding

May promote May promote overspecializatiooverspecialization/ narrow n/ narrow viewpointsviewpoints

Geographic Organizational Geographic Organizational StructureStructure

Chief Chief ExecutiveExecutive

Corporate StaffCorporate StaffFinance and AccountingFinance and AccountingPersonnelPersonnelMarketing ServicesMarketing ServicesLegalLegalPlanningPlanningResearch and Research and DevelopmentDevelopment

GenerGeneralalManagManagererWesternWesternDistrictDistrict

GenerGeneralalManagManagererSoutherSouthernnDistrictDistrict

GenerGeneralalManagManagererCentralCentralDistrictDistrict District StaffDistrict Staff

PersonnelPersonnelAccounting and Accounting and ControlControl

GenerGeneralalManagManagererEasternEasternDistrictDistrict

GenerGeneralalManagManagererNortherNorthernnDistrictDistrict

EngineerinEngineeringg

ProductioProductionn

MarketiMarketingng

Geographic Organizational Geographic Organizational Structures: Structures: Strategic Strategic Advantages/DisadvantagesAdvantages/Disadvantages

Strategic AdvantagesStrategic Advantages Allows tailoring Allows tailoring

of strategy to of strategy to needs of each needs of each geographic geographic marketmarket

Improves Improves coordination coordination within the within the marketmarket

Takes Takes advantage of advantage of economies of economies of local operationslocal operations

Strategic DisadvantagesStrategic Disadvantages Greater difficulty Greater difficulty

in maintaining in maintaining consistent consistent company image company image across areas across areas

Can result in Can result in duplication of duplication of staff services at staff services at headquarters and headquarters and district levels, district levels, making a relative-making a relative-cost disadvantagecost disadvantage

Divisional Structure--Divisional Structure--Usually done by product or Usually done by product or customer/marketcustomer/marketChief Executive Chief Executive

OfficerOfficerCorporate Staff Corporate Staff Services/FunctionsServices/Functions

Group Vice Group Vice PresidentPresidentSBU ISBU I

R & R & DDFinance and Corporate Finance and Corporate AccountingAccountingMarketing ServicesMarketing ServicesPlanningPlanningPersonnelPersonnelLegal AffairsLegal AffairsPublic Relations and Public Relations and CommunicationsCommunications

Group Vice Group Vice PresidentPresidentSBU IIISBU III

Group Vice Group Vice PresidentPresidentSBU IISBU II

Business Business Units/DivisionsUnits/Divisions



Divisional/SBU Type Divisional/SBU Type Organization Structure: Organization Structure: Advantages/DisadvantagesAdvantages/Disadvantages

Strategic AdvantagesStrategic Advantages Provides a Provides a

strategically strategically relevant way to relevant way to organize large organize large numbers of numbers of different business different business unitsunits

Improves Improves coordination within coordination within business units business units

Helps allocate Helps allocate corporate resources corporate resources to areas with to areas with greatest growth greatest growth opportunitiesopportunities

Strategic DisadvantagesStrategic Disadvantages

Divisions can still Divisions can still be myopic in be myopic in charting their charting their future directionfuture direction

Adds another Adds another layer to top layer to top managementmanagement

Little Little coordination coordination across divisions across divisions

Redundant roles Redundant roles cause increasecause increase

Matrix Organization Matrix Organization StructureStructure

General General ManagerManager

Head of R&D Head of R&D andand

EngineeringEngineering

Engineering/Engineering/R&D R&D

SpecialistsSpecialists







Business/ Business/ Project/ Project/ Venture Venture

Manager 1Manager 1


Manager 2Manager 2


Manager 3Manager 3


Manager 4Manager 4

Head ofHead ofManufactuManufactu

ringring

ProductionProductionSpecialistsSpecialists




Head ofHead ofMarketingMarketing

MarketingMarketingSpecialistsSpecialists




Head ofHead ofFinanceFinance

FinanceFinanceSpecialistsSpecialists




Arrows denote Arrows denote reporting channelsreporting channels

Matrix Organization Matrix Organization Structures: Structures: Strategic Strategic Advantages/DisadvantagesAdvantages/Disadvantages

Strategic AdvantagesStrategic Advantages Gives formal Gives formal

attention to each attention to each dimension of dimension of strategic prioritystrategic priority

Creates checks Creates checks and balances and balances among among competing competing viewpointsviewpoints

Promotes Promotes making trade-off making trade-off decisions .decisions .

Strategic DisadvantagesStrategic Disadvantages Very complex to Very complex to

managemanage Hard to maintain Hard to maintain

“balance” “balance” between the two between the two lines of authoritylines of authority

It is hard to It is hard to move quickly move quickly and decisively and decisively without getting without getting clearance from clearance from other peopleother people

The Network The Network OrganizationOrganization

DistributorsDistributors

BrokersBrokers

SuppliersSuppliers

DesignersDesigners ProducersProducers

Process for Creating Process for Creating an Organization’s an Organization’s StructureStructure1.1. Identify the critical activities needed to Identify the critical activities needed to

carry out the organization’s strategycarry out the organization’s strategy2.2. Understand the relationships between Understand the relationships between

these activities (the degree of these activities (the degree of interdependence)interdependence)

3.3. Group the activities into organizational Group the activities into organizational unitsunits

4.4. Determine the degree of authority and Determine the degree of authority and independence of each of these unitsindependence of each of these units

5.5. Provide for coordination between the Provide for coordination between the various units.various units.

Source: ThompsonSource: Thompson

Signs of Poor Signs of Poor Organization Structure Organization Structure and Designand Design1.1. Poor forecastingPoor forecasting2.2. Not meeting customer needsNot meeting customer needs3.3. Higher than expected costs Higher than expected costs 4.4. Slow response to changes in the Slow response to changes in the

environmentenvironment5.5. Conflict between individuals and/or Conflict between individuals and/or

groupsgroups6.6. Poor communication/coordinationPoor communication/coordination7.7. Poor decision making—Decisions being Poor decision making—Decisions being

made by the wrong people or at the made by the wrong people or at the wrong level in the hierarchy. Inadequate wrong level in the hierarchy. Inadequate information to make good decisions.information to make good decisions.

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Chapter 13: Organizational Design Creating Effective Organizations