11CHAPTER

McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Organizational Design:Organizational Design:Structure, Culture, and Structure, Culture, and ControlControl

Instructor:Dr.Gehan Shanmuganathan

ChapterCase 11 ChapterCase 11 Zappos: An Organization Designed to Deliver HappinessZappos: An Organization Designed to Deliver Happiness

• Zappos: Success through customer serviceZappos: Success through customer service Customer service all in-houseCustomer service all in-house No scripts or timed callsNo scripts or timed calls

• Flat Organizational Structure = FlexibilityFlat Organizational Structure = Flexibility Job rotation = trained talentJob rotation = trained talent 4 weeks of orientation training4 weeks of orientation training

Including 2 weeks on customer service phones!Including 2 weeks on customer service phones!

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LO 11-1 Define organizational design and list its three components.

LO 11-2 Explain how organizational inertia can lead established firms to failure.

LO 11-3 Define organizational structure and describe its four elements.

LO 11-4 Compare and contrast mechanistic versus organic organizations.

LO 11-5 Describe different organizational structures and match them with appropriate strategies.

LO 11-6 Describe the elements of organizational culture and explain where organizational cultures can come from the how they can be changed.

LO 11-7 Compare and contrast different strategic control and reward systems.

How to Organize for Competitive Advantage

• Organizational designOrganizational design Goal is to translate strategies into realized onesGoal is to translate strategies into realized ones

StructureStructureProcessesProcessesProceduresProcedures

• Structure Structure followsfollows strategies strategiesStructure must be Structure must be flexibleflexibleYahoo failed to make changes to their Yahoo failed to make changes to their

organizational structure!organizational structure!

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EXHIBIT 11.2 Organizational Inertia

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The Key Elements of Organizational Structure

• Organizational structure determines Organizational structure determines Work efforts of individuals and teamsWork efforts of individuals and teams Resource distributionResource distribution

• Key building blocksKey building blocks SpecializationSpecialization FormalizationFormalization CentralizationCentralization HierarchyHierarchy

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Assembling the Pieces: Mechanistic vs. Organic Organizations

• Organic organizationsOrganic organizations Low degree of specialization and formalizationLow degree of specialization and formalization Flat structureFlat structure Decentralized decision makingDecentralized decision making Uses virtual team due to information technologyUses virtual team due to information technology

Example: Zappos, W. L. Gore, and many high-tech firmsExample: Zappos, W. L. Gore, and many high-tech firms

• Mechanistic organizationsMechanistic organizations High degree of specialization and formalizationHigh degree of specialization and formalization Tall hierarchyTall hierarchy Centralized decision makingCentralized decision making

Example: McDonald’sExample: McDonald’s

Video on Web 2.0Changing workplace

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Matching Strategy and Structure

• Simple structureSimple structure

Small firms with low complexitySmall firms with low complexity

Top management makes all important strategic Top management makes all important strategic decisionsdecisions

Low degree of formalization and specializationLow degree of formalization and specialization

A basic organizational structureA basic organizational structure Examples: small advertising, consulting, accounting, and Examples: small advertising, consulting, accounting, and

law firmslaw firms

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Functional Structure

• Functional structureFunctional structure Groups of employees with distinct functional areasGroups of employees with distinct functional areas The areas of expertise correspond to distinct stages The areas of expertise correspond to distinct stages

in the company value chain activitiesin the company value chain activities Example: College of Business Administration, School of Example: College of Business Administration, School of

Management…etc.Management…etc.

• Recommended with narrow products/servicesRecommended with narrow products/services Matches well with Matches well with business-level strategybusiness-level strategy

Cost leadership Cost leadership Mechanistic organization Mechanistic organization Differentiation Differentiation Organic organization Organic organization Integration strategy Integration strategy Ambidextrous organization Ambidextrous organization

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Multidivisional Structure

• Multidivisional structureMultidivisional structure Consists of several distinct SBUsConsists of several distinct SBUs Each SBU is independent and led by a CEOEach SBU is independent and led by a CEO Each CEO of SBUs report to the corporate officeEach CEO of SBUs report to the corporate office Examples: Examples:

Zappos is an SBU under AmazonZappos is an SBU under Amazon Skype is an SBU under MicrosoftSkype is an SBU under Microsoft Paypal is an SBU under eBayPaypal is an SBU under eBay

Companies using M-form structure Companies using M-form structure GE, HondaGE, Honda

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EXHIBIT 11.7 Typical M-Form Structure

Functional Structure

Matrix Structure

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Matrix Structure• A combination of functional and M-form A combination of functional and M-form

structurestructure Creation of dual line of authority and reporting linesCreation of dual line of authority and reporting lines Each SBU receives support both horizontally and Each SBU receives support both horizontally and

verticallyvertically Very versatileVery versatile Enhanced learning from different SBUsEnhanced learning from different SBUs

• ShortcomingsShortcomings Difficult to implementDifficult to implement Complexity increases when expanding, especially Complexity increases when expanding, especially

globallyglobally Unclear reporting structure causes confusion and Unclear reporting structure causes confusion and

delaysdelays

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Organizational Culture

• Culture must be valuable, rare, inimitable, and non-substitutable (RBV) Causal ambiguity and social complexity

• Organizational culture is an important resource! Southwest Airlines

Friendly and energized employees work collaboratively

Zappos Deliver WOW through service

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Strategic Control and Reward Systems• Internal governance mechanisms

Culture Sanctions

• Input controls Rules and standard operating procedures Budgets Behavior guidelines

• Output controls Result-oriented ROWEs

Dan Pink’s RSA Video

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ChapterCase 11/ ChapterCase 11/ Consider ThisConsider This• WOW factors became WOW mistakes

• Erroneous price cap not discovered for 6 hours

• Zappos honored the sales placed during the time with mistaken price$49.95 everything!

• Customers are happyCustomers are happy due to the fact that Zappos handled the situation smoothly

• This is the real WOW!!!WOW!!!

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