SDC Swiss-AIT-Vietnam Management Development Programme
c/o HCMC University of Technology, 268 Ly Thuong Kiet, Dist.10, Ho Chi Minh City, Vietnam Tel: (84-8) 865 08 80 Fax: (84-8) 865 08 81 E-mail: [email protected] /
Organizational Behavior and StructureFaculty: Dr. Arno Schircks
Session #9 and assignment for session #10
Session #9:• Review session #8: Chap. 11 “Power and Politics” and chap. 12
“Conflict, Negotiation and Intergroup Behavior”• New: Chap. 13 “Foundations of Organization Structure”
Assignment for session #10:• Prepare:
Individually• Read chapter 13• True/False• Multiple Choice Questions• Read Chap. 14 “Work Design”• For increasing your chance to get a good Final Exam grade
check your understanding in your LEARNING TEAM !
Each colour team• Case study: ‘International Equity Claims Department Work Design’• Please, prepare a presentation with powerpoint (beamer), installed and
ready before session #10 starts.
S A V
Organizational Behavior and Structure – session #9\Handouts
BASIC DEFINITION OF ORGANIZATION
ORGANIZATION
IS
A COLLECTION OF
• PEOPLE WORKING TOGETHER
• IN A DIVISION OF LABOR
• USING ALLOCATED RESOURCES
• IN AN EFFECTIVE AND EFFICFENT WAY
• TO ACHIEVE A COMMON GOAL.
Chap.13: “Foundations of Organization Structure” 2
Organizational Behavior and Structure – session #9\Handouts
KEY DIMENSIONS OF
AN ORGANIZATION STRUCTURE
1. The allocation of tasks and responsibilities, providing appropriate discretion
over methods and use of resources.
2. The designation of formal- reporting relationships, determining spans of
control of managers and supervisors.
3. The grouping of individuals into sections and departments , and the grouping
of departments into divisions or other major units.
4. The delegation of authority with associated procedures for performance
monitoring and evaluation, which may either be regular or may operate by
exception.
5. The design of communication and coordinating systems to provide
information and participation in decision-making.
6. The provision of reward systems, to motivate' individuals.
7. The establishment of decision-support system such as regular management
meetings, project teams and specialists posts or departments.
Source: C. Camall (I 990, 56)
Chap.13: “Foundations of Organization Structure” 3
Organizational Behavior and Structure – session #9\Handouts
WHY IS ORGANIZING IMPORTANT?
1. Clarity of individual performance expectations and specialized tasks.
2. Division of work, avoiding duplication, conflict, and misuse of resources, both
material and human.
3. A logical flow of work activities that can be comfortably performed by individuals
or groups.
4. Established channels of communications that enhance decision making and
control.
5. Coordinating mechanisms that ensure harmony among organization members
often engaged in diversified activities.
6. Focused efforts that relate to objectives in a logical and efficient manner.
7. Appropriate authority structures with accountability to enhance planning and
monitoring throughout the organizational hierarchy.
Chap.13: “Foundations of Organization Structure” 4
Effective organization of both human and material, -resources ultimately increases productivity.
Organizational Behavior and Structure – session #9\Handouts
GENERAL OBJECTIVES OF AN ORGANIZATION
EFFECTIVE Generating the postulated or requested benefits (fulfillment of agreed
mission).
EFFICIENT Producing the results with a minimum of outlay (productivity).
FLEXIBLE Capable of adapting promptly to internal a-id external changes.
TRANSPARENT Working, with clear and understandable structures and processes.
MOTIVATING Deploying employees in accordance with their capabilities and
personal desires, given them meaningful jobs and encouraging them to
give good performance and positive cooperation
Chap.13: “Foundations of Organization Structure” 5
Organizational Behavior and Structure – session #9\Handouts
PROBLEMS RESULTING FROM
INAPPROPRIATE ORGANIZATION
1. Low motivation and low morale of employees.
2. Delayed or poor decisions.
3. Conflict between departments.
4. Rising costs.
5. A tendency to stick to the rules and regulations, whether or not appropriate
action will follow.
6. Lack of capacity to adapt to changing circumstances.
Source: C. Camall (1990:36)
Chap.13: “Foundations of Organization Structure” 6
Organizational Behavior and Structure – session #9\Handouts
ORGANIZATION COMPONENTS
1. COMPLEXITY
e.g.: multinational corporations:
geography, product, division…
the extent of differentiation within organization,
including e.g.: multi-national the degree of
specialization or corporations: geography, division
of labor, number of levels, or geographic division
setup.
2. FORMALIZATION
e.g.: bank, insurance company.
the degree to which organization relies on rules
and procedures to direct the behavior/ activities of
employees.
3. CENTRALIZATION
e.g.: government
Where the focus of decision making authority lies:
centralized (upward) or decentralized (downward).
Chap.13: “Foundations of Organization Structure” 7
Organizational Behavior and Structure – session #9\Handouts
ATTRIBUTES OF ORGANIZATION (1)
1. FORMAL STRUCTURES:
- Defines the basic division of labor. within the organization and identifies the
number of management levels in the hierarchy of authority.
- Are typically represented on an organization chart.
2. VERTICAL SPECIALIZATION:
- Is the hierarchical division of labor that specifies where formal authority is
located for various decisions.
- Chain of command exists to link lower-level workers with senior managers.
- Span-of-control is the number of persons reporting directly to one
supervisor.
- Line units and personnel conduct the major business of the organization;
staff units and personnel assist the line units by providing specialized
expertise and services.
- Managerial techniques (e. g. decision support and expert computer
systems) are used in order to reduce staff and increase operating
efficiency.
3. CONTROL:
- Is the set of mechanisms used to keep action and Outputs within
predetermined limits. It deals with:
- setting standards
Chap.13: “Foundations of Organization Structure” 8
Organizational Behavior and Structure – session #9\Handouts
ATTRIBUTES OF ORGANIZATION (2)
- measuring results versus standards
- and instituting corrective action
- Formalization refers to the written documentation of rules, procedures and
policies to guide behavior and decision-making.
- Standardization involves the creation of guidelines so that similar work
activities are repeatedly performed in a similar fashion.
- In highly centralized organizations, control is concentrated-at the top; in
more decentralized one, control is dispersed among workers at all levels.
4. HORIZONTAL SPECIALIZATION:
Is the division of labour that results is various work units or groups in the organization;
often is referred to as the process of departmentalization, by:
- function
- division
- matrix
5. COORDINATION:
- Is a means through which the behavior of multiple sub-groups in an
organization is linked together.
- Like the control process, coordination can be accomplished by a variety of
personal (common values, committees, task forces) and impersonal means
(written rules, policies, procedures; i\41S)
Chap.13: “Foundations of Organization Structure” 9
Organizational Behavior and Structure – session #9\Handouts
Chap.13: “Foundations of Organization Structure”
MID
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10
Computer HW
Division
Organizational Behavior and Structure – session #9\Handouts
INTEGRATING MECHANISMS
A. Liaison Roles
B. Task Force or Team
C. Integrating Roles or Department
Chap.13: “Foundations of Organization Structure”
Research & Development
MarketingProduction
Sales
Production
Production
Research & Development
MarketingEngineering
Task Force
Integrating Role or Dept.
Computer SW
Division
Application Division
11
Organizational Behavior and Structure – session #9\Handouts
FORMS OF ORGANIIZATION
Customer-orientation by customer groups, industries,
markets, etc.
Result-oriented by products (production sites) and
services.
Functional orientation by main functions, i.e.,
research and development (R&D),
production, finance, marketing,
human resource, etc.
Geographical orientation by countries, regions. continent,
economic areas, etc.
Chap.13: “Foundations of Organization Structure” 12
Organizational Behavior and Structure – session #9\Handouts
THE DILEMMAS OF ORGANIZATION
1. Centralization VS. Decentralization
2. Efficiency VS. Effectiveness
3. Professional VS. Management
4. Control VS. Commitment
5. Change VS. Stability
6. Short-term VS. Long-term
etc.
Chap.13: “Foundations of Organization Structure” 13
Organizational Behavior and Structure – session #9\Handouts
ORGANIZATION COMPONENTS
4. COMPLEXITY
e.g.: multinational corporations:
geography, product, division…
the extent of differentiation within organization,
including ea.: multi-national the degree of
specialization or corporations: geography, division
of labor, number of levels, or geographic division
setup.
5. FORMALIZATION
e.g.: bank, insurance company.
the degree to which organization relies on rules
and procedures to direct the behavior/ activities of
employees.
6. CENTRALIZATION
e.g.: government
Where the focus of decision making authority lies:
centralized (upward) or decentralized (downward).
Chap.13: “Foundations of Organization Structure” 14
Organizational Behavior and Structure – session #9\Handouts
RELATIONSHIP BETWEEN TECHNICAL COMPLEXITY
AND STRUCTURAL CHARACTERISTICS
Structural Characteristics
TechnologyUnit
production (1)
Mass production
(2)
Continuous process (3)
• Number of management level
• Supervisor span of control
• Direct/indirect labor ratio
• Manager/total personnel ratio
• Workers' skill level
• Formalized procedures
• Centralization
• Amount of verbal
communication
• Amount of written
communication
• Overall structure
• 3
• 23
• 9:1
• Low
• High
• Low
• Low
• High
•
• Low
•
• Organic
• 4
• 48
• 4:1
• Medium
• Low
• High
• High
• Low
•
• High
•
• Mechanistic
• 6
• 15
• 1:1
• High
• High
• Low
• Low
• High
•
• Low
•
• Organic
Note: 0) relies heavily on human operator, e.g., custom electronic equipment and
custom clothing.
(2) long production runs of standardized parts, e.g., automobiles assembly
lines.
(3) the entire process is mechanized, e.g., oil refineries, nuclear power
plants
Source: Joan Woodward 0965)
Chap.13: “Foundations of Organization Structure” 15
Organizational Behavior and Structure – session #9\Handouts
LINE/STAFF FUNCTIONS
INTERNAL EXTERNAL
LIN
E U
NIT
Se.g.: PRODUTION
Transforming raw
material and information
into products and/or
services
e.g.: MARKETING
Linking clients and/or
suppliers to the
organization
ST
AF
F U
NIT
S
e.g.: ACCOUNTING
Assisting line units in the
technical areas of
budgeting and fiscal
control
e.g.: PUBLIC-RELATION
Linking the organization
to its environment
through the conveyance
of a positive public
image
Chap.13: “Foundations of Organization Structure” 16
Organizational Behavior and Structure – session #9\Handouts
LINE/STAFF FUNCTIONS
Exp: Manufacturing enterprise
Line Staff
Mission/Responsibility
Business objectives
accomplishment
Support and assistance to
line in achieving set
objectives
Function
- Development
- Manufacturing
- Marketing &services
Other functions:
- Finance &planning
- Personnel &
communication
- Business support, etc.
Activity
Perform/manage product
revenue & profit
generating activities
- Advice, prepare
guidance, control
- Planning
- Service
Authority Hierarchical power Authority of ‘ Knowledge’
Decision process
Decide, supervise &
implement decision
Plan, propose, concur,
assess, criticize, follow-up
Chap.13: “Foundations of Organization Structure” 17
Organizational Behavior and Structure – session #9\Handouts
STAFF UNITS IN FORMAL STRUCTURE
An organization with minimal staff
An organization with many staff at the top
An organization with many staff at the middle
CHARACTER- Centralized - Decentralized
ADVANTAGES:- Reinforces the expertise &
managerial scope of the top- Expands top management
capabilities
- Expands action capacity of middle management
- Promotes independence/self management
DISADVANTAGES: - Heavy overhead at headquarter- Bureaucratic- “Empire building” syndrome
- Policy/strategy integrity- Coordination/control/synergy- “Run away” syndrome
Chap.13: “Foundations of Organization Structure” 18
Organizational Behavior and Structure – session #9\Handouts
CENTRALIZATION VS. DECENTRALIZATION (1)
• TREND
⇒ Centralize key issues such as finance, business development, acquisition,
corporate strategy, and management development (decline period).
⇒ Decentralize operational / profit accountability to the unit (growth period).
• CENTRALIZATION:
1. Coordination is more straight forward.
2. Senior management has a broader perspective on developments within the
organization and maintains conformity with established policies.
3. Centralization of control and procedures provides a way of assisting the various
functional areas in the organization to maintain an appropriate balance.
4. Centralization can allow rationalization of managerial overheads by avoiding
duplication of activities or resources.
5. Top managers are seen to have proved themselves by the time they reach a
senior position.
6. Crises often require strong leadership to cope with external and internal
pressures.
• DECENTRALIZATION:
1. Delegation can reduce the amount of stress and overload experienced by senior
management, especially when operating in large-scale, complex organizations.
2. Many believe that the motivation of employees will increase with a higher degree
of discretion and control that they can apply to their work.
3. Large or growing organizations need managers who are able to cope with
uncertainty because of the volume of complex tasks that have to be performed.
4. Delegation generally allows for greater flexibility by providing for less rigid
response to problems at the operative levels in the organization-
Chap.13: “Foundations of Organization Structure” 19
Organizational Behavior and Structure – session #9\Handouts
5. By establishing relatively independent submits within an organization, delegation
can result in improved controls and performance measurements. Accountability
can be identified.
• CRITERIA FOR CONSIDERATION:
1. The objectives, strategy and technology of the organization.
2. The ability of senior management to develop and implement a new management
structure.
3. Timing, particularly taking account of other changes in the environment or within
the organization.
4. The skills and attitudes of employees and their commitment to the organization.
5. The size of the organization, including size of divisions and/or units.
6. The geographic dispersion of the organization.
7. Time scales and decision making. Technological, safety or other reasons can
mean that some decisions must be made quickly, and locally.
8. Relevant external issues such as legislation or central government requirements.
Chap.13: “Foundations of Organization Structure” 20
Organizational Behavior and Structure – session #9\Handouts
ORGANIC Vs MECHANISTIC ORGANIZATION
Organic
Organization
Mechanistic
Organization
Hierarchy of authority Decentralized Centralized
Rules and procedures Few Many
Division of labour Loose Precise
Use of managerial
techniques
Minimal Extensive
Coordination and control Informal and
personal
Formal and
impersonal
Source: T. Burns & G. Stalker (The management of Innovation)
Chap.13: “Foundations of Organization Structure” 21
Organizational Behavior and Structure – session #9\Handouts
MECHANISTIC VS. ORGANIC
ORGANIZATIONAL CONTROL
Organization
Outcomes
Mechanistic
approach
1960s-1970s
VS.
Organic
Approaches
1980s-1990s
1. Contextual/variables
Environment Certain Uncertain
Technology Routine Nonroutine
Size Large Small
Goals Efficiency Effectiveness
Culture Employees-taken
for granted
Employee-centered
2. Internal outcomes
Structure Functional
centralized
Teams, decentralized
Control mechanism Bureaucratic Clan
Communication Formal information
system
Face-to-face
Innovation Infrequent Frequent
Interdepartment
relationships
Cooperation Conflict
Decision making Rational analysis Trial-and-error
Chap.13: “Foundations of Organization Structure” 22
Organizational Behavior and Structure – session #9\Handouts
WHEN SHOULD YOU USE IT?
1. The Simple Structure :
• the organization is small or in formative stage of development.
• the environment is simple and dynamic.
• the organization faces high hostility or a crisis.
• the senior executive is also the owner.
• the number of employees is few.
• the senior executive wants to hoard power or has power thrust upon him
by his/her subordinates.
2. The Machine Structure:
• large size organization; simple and stable environment.
• the technology contains routine work that can be standardized.
3. The Professional Structure:
• large size organization; complex and stable environment.
• routine technology internalized through professionalism.
4. The Divisional Structure:
• large size organization; simple and stable environment.
• when an organization chooses a diversification strategy (multiproduct or
multi-market organization)
• when it diversifies, conflicts along the horizontal dimensions between
functions becomes great, necessitating a change in structural design -
(size, technology, environment).
5. The Adhocracy:
Chap.13: “Foundations of Organization Structure” 23
Organizational Behavior and Structure – session #9\Handouts
• associated with strategies of diversity, chancre and/or high risk, requiring
the flexibility
• the technology is non routine and complex
• contains little formalization, relying on the expertise of professionals.
• requires high coordination and integration of specialized and
heterogeneous skills.
• the environment is dynamic and complex.
Chap.13: “Foundations of Organization Structure” 24
Organizational Behavior and Structure – session #9\Handouts
STRUCTURAL CHARACTRISTICS
Mechanistic
structure
Organic structure
Tall
organization
Flat
organization
Centralized
decision-
making
Decentralized
decision-
making
Standardizat
ion
Mutual
adjustment
Source: Jones (1995:266)
Chap.13: “Foundations of Organization Structure” 25
Manufacturing Sales R&D
Manufacturing Sales R&D
Manufacturing Sales R&D
Manufacturing Sales R&D
Organizational Behavior and Structure – session #9\Handouts
Chap.13: “Foundations of Organization Structure” 26
OPERATION LEVEL
MANAGERIAL LEVEL
STRATEGIC LEVEL
Conceptual
Computer
Human
Technical
Conceptual
Computer
HumanTechnical
Conceptual
Computer
HumanTechnical
TOP MANAGEMENT
MIDDLE MANAGEMENT
FIRST-LEVEL MANAGEMENT
OPERATING EMPLOYEES
BASIC MANAGEMENT SKILLS
MANAGERS & LEVELS OF MANAGEMENT
Organizational Behavior and Structure – session #9\Handouts
MECHANISTIC vs. ORGANIC ORGANIZATION
Mechanistic Organic1. Tasks are broken down into
specialized, separate parts.
1. Employees contribute to the
common tasks of the department.
2. Tasks are rigidly defined. 2. Tasks are adjusted and redefined
through employee teamwork
3. There is a strict hierarchy of
authority and control, and there are
many rules.
3. There is less hierarchy of authority
and control, and there are few rules.
4. Knowledge and control of task are
centralized at the top of
organization.
4. Knowledge and control of tasks are
located anywhere in the
organization.
5. Communication is vertical 5. Communication is horizontal.
Source: Quoted in Draft (1992:83)
Chap.13: “Foundations of Organization Structure” 27
Organizational Behavior and Structure – session #9\Handouts
ORGANIZATION CONFIGURATION
CHARACTERISTIC SIMPLE STRUCTURE
MACHINE BUREAUCRACY
PROFESSIONAL BUREAUCRACY
DIVISIONAL STRUCTURE
ADHOCRACY
SPECIALIZATION Low High functional High social High functional High social
FORMALIZATION Low High Low High within
divisions
Low
CENTRALIZATION High High Low Limited
decentralization
Low
ENVIRONMENT Simple and
dynamic
Simple and
stable
Complex and
stable
Simple and
stable
Complex and
dynamic
GENERAL
STRUCTURAL
CLASSIFICATION
Organic Mechanistic Mechanistic Mechanistic Organic
Chap.13: “Foundations of Organization Structure” 28
Organizational Behavior and Structure – session #9\Handouts
THE TOP-MANAGEMENT HIERARCHY
Ownership Shareholders
Trusteeship
Executive
Committee
Board
of Directors
Salary
Committee
Chair of Board of Directors
Corporate Management Chief Exec. Officer
President
Exec. Vice Presidents
Senior Vice Presidents and Vice Presidents
Divisional Management General Manager or Divisional Managers
Functional management Functional Managers
Chap.13: “Foundations of Organization Structure” 29
Organizational Behavior and Structure – session #9\Handouts
GENERAL STRUCTURAL CLASSIFICATIONNETWORK
STRUCTURE
♦ ADVANTAGES:
- Enables highly flexible and adaptive responses to dynamic environments.
- Enhances each member organization's distinctive competence.
- Brings resources and competencies to bear on tasks that are too complex and
large for single organization to perform.
- Can produce synergistic results.
♦ DISADVANTAGES:
- Can be very difficult to manage lateral relations across organization.
- Motivating members to relinquish autonomy to join the network cart be
troublesome.
- Sustaining membership and benefit can be problematic
♦ CONTINGENCIES:
- Highly complex and uncertain environment
- All size organizations
- Complex technologies involving high interdependencies across organizations
- Goals of organization specialization and innovation
OVERVIEW OF MANAGEMENT +
Chap.13: “Foundations of Organization Structure” 30
Designer
Organization
Broker
Organization
Supplier
Organization
Distributor
Organization
Producer
Organization
Organizational Behavior and Structure – session #9\Handouts
ORGANIZATION THEORY
Closed system
(classic theory)
Open system
(contemporary theory)R
atio
nal
vis
ion 1. Scientific
management:
- Measurability
- Rationality
- General normative
rules
Authors: Weber, Taylor,
Fayol, etc.
3. Contingency approach:
- Adaptation to the external
environment (certainty and
stability)
- Adjustment to technological
and social characteristics in
internal environment
Authors: Chandler, Laurences,
Lorsch, Perrow, Galbraith,
Mintzberg.
Nat
ura
l, o
rgan
ic v
isio
n 2. Human relations:
- Visionists
- Motivation
- Expectation
Authors: Likert, Mc
Gregor, Argyris,
Selzwick
4. Organization development
+ “excellence” literature
Task structure approach
Transition management
Human resource management
Authors: Bennis, Nelsen,
Beckhardt, Peters& Waterman,
Authos & Pascale, Tichy, Grove
+ Organizational culture
Chap.13: “Foundations of Organization Structure” 31
Organizational Behavior and Structure – session #9\Handouts
MECHANISTIC/OGANIC DESIGN HYBRIDS
Chap.13: “Foundations of Organization Structure” 32
FINANCE
Customer Affairs
PERSONNEL
MARKETING
LEGALMARKETINGLEGAL
Legislative Liaison
Public Relations
Purchasing
FINANCE
PERSONNEL
OPERATIONS
R&D
OperationsEngineering
(often grouped by product or service)
An organic core protected by a mechanistic shell
A mechanistic core wrapped by an organic shell
Organizational Behavior and Structure – session #9\Handouts
COREPORATE STRUCTURES FOR GROWTH STRENGTHS AND WESKNESSES
STRENGTH WEAKNESSES
- Closed contact between CEO and operations- Simplified mechanisms for control- Clear definition of responsibilities- Opportunity for focused competencies
- Too many routine responsibilities- Neglect of strategic issues- Inability to manage diversity- Lack of coordination between functions
- Ability to concentrate on specific business- Ease of measurement of unit performance- Freedom to add or divest businesses- Scope for management to focus on strategy
- Confusion over focus of responsibility- Conflict between goals of divisions- Repetition of functions between divisions- Complexity of inter-divisional coordination
- High level of decentralization- Freedom to react to market changes- Ability to customize strategies- Accountability for each business
- Relinquishing of strategic control- Difficulty of coordinating different units- Lack of authority over financial management- Conflict between corporate and division goals
- Prevention of overlap of functions- Direct contact instead of bureaucracy- Increase in managerial motivation- Development of managerial skill
- Delay in decision-making due to confusion- Lack of clarity about responsibilities- Difficulty in tracking profitability of each product- High degree of conflict over priorities
- Offsetting of individual business’ losses- Spread of risk for holding company- Ability to outsource capital and technology- Reduced cost of central overheads
- Unavailability of skills at group level- Dilution of focus and synergies- Difficulty of strategic control- Risk of secessions and takeovers
- Concentration on core competence- High degree of flexibility- Lowering of costs and complexities- Opportunity to leverage outsourced skills
- Lack of control over many functions- Unhealthy dependence on partners- Need for high degree of cooperation- Over-narrowing of expertise
Chap.13: “Foundations of Organization Structure” 33
THE FUNCTIONAL STRUCTURE
THE MULTI DIVISIONAL STRUCTURE
THE SBU STRUCTURE
THE MATRIX STRUCTURE
THE MULTI-COMPANY STRUCTURE
THE NETWORK STRUCTURE
Organizational Behavior and Structure – session #9\Handouts
INTERNATIONAL EQUITY CLAIMS DEPARTMENTCASE-STUDY SHEET
The Claims Department of International Equity Life Insurance Company processes
death-benefit claims on the deaths of policyholders. The procedure includes ensuring
that the policy is in effect, checking the eligibility of the beneficiaries, processing the
necessary paperwork, and authorizing the payment of the death benefits in
accordance with the terms of the policy.
The department staff includes one manager (at a salary of $42,000 per year), three
assistant managers (at $27,500 each per year), eighteen claim representatives (at $2
1,000 each per- year), and five clerk-typists (at $17,000 each per year). The manager
is responsible for- the overall operation of the department. The assistant managers
not only supervise and train the claim representatives and the clerk-typists but also
work with the staff to resolve problem claims. All authorizations for payment of
benefits must be checked and approved an assistant manager. In addition to typing,
the clerk-typists' responsibilities include distributing and filling paper work. Organized
as a "pool," they work on a “first-come, first-serve” basis.
As claim inquiries or materials related to a claim are received, they are put in the in-
basket of one of the claim representatives. This is done in such a way that the
representatives have equal work loads.
For each claim the representative first checks to see whether a file has been started.
If so, the representative writes a work order asking a clerk to retrieve the file from a
central file room. If no file likes been started on the claim, the representative obtains a
file number from an assistant manager and starts a file.
Then the representative takes whatever claim action is necessary, such as checking
eligibility, adding completed claim forms to the file, and so on. Once the
representative decides what needs to be done and fills out any necessary paperwork
by hand, the file of materials is given to a clerk-typist so that the handwritten
Chap.13: “Foundations of Organization Structure” 34
Organizational Behavior and Structure – session #9\Handouts
paperwork can be typed. After all handwritten paperwork has been typed, the file is
returned to the representative for proofreading and signing. The representative then
gives the file to the clerk-typist to mail typed materials as necessary and to return the
file to the central file room. (No fares are kept at the representative's work station.)
This process is repeated for each new action that has to be taken on that claim. Each
action requires that the file be retrieved from and returned to the central file room.
The claim representative has the key role in this process. He or she determines
whether the deceased person has a valid policy; verifies the details of the policy,
including payment amounts; identifies the paperwork that is to be sent to
beneficiaries; and checks returned paperwork and has it filed. When the papers are in
order, the representative prepare a request for payment and sends it to Financial
Disbursement . A variety of problem can arise during this process, such as death of
one or more beneficiaries; and the claim representative must handle such problems.
Each week two claim representatives are designated as "on call," which means that
they handle phone inquiries. While they are on call, their work on mail inquiries is
reduced. "On-call" assignments are rotated weekly among the eighteen claim
representatives.
Last year the department processed 13,000 claims, a 10-percent increase over the
number processed in the previous year. Each claim takes an average of forty-three
days to process from the time of initial inquiry to the date that payment is authorized.
Management concern about the operations of the Claims Department has been
increasing. This concern centers around three areas:
1. Over the past two years, customer complaints have increased.
Customers say that claims take too long to process; some claims get "lost"
or do not receive follow-up; and too many mistakes are made on routine
claims. A recent study found that there were approximately 1.2 "errors" per
claim. These errors included misplaced files, lost forms, and mistakes in
recording.
Chap.13: “Foundations of Organization Structure” 35
Organizational Behavior and Structure – session #9\Handouts
2. Employee turnover is 35 percent per year. This is felt to be too high
and too expensive in view of the fact that claim representatives must be
trained extensively in claims procedures and insurance-policy language.
Although management feels that the work is interesting and challenging,
exit interviews indicate that this opinion is not shared by the workers.
3. The average salary cost for processing a claim-$45-is too high. This
cost has to be passed on to the customer.
Chap.13: “Foundations of Organization Structure” 36
Organizational Behavior and Structure – session #9\Handouts
INTERNATIONAL EQUITY CLAIMS DEPARTMENT
WORK SHEET
You are a team of managers from International Equity Life Insurance Company. Your
superiors in top management have asked your team to redesign the work of the
Claims Department. They, are hopeful that you will find a way to serve customers
better, which means that the claims will be processed faster, without error, and at a
lower- cost. They are also hopeful that the expensive turnover in personnel will be
lowered significantly.
In your discussions with top management you have been assured that (1)
adequate funds will be made available for new equipment, if needed; and (2)
comparable jobs will be found in the company for any employee who is replaced or
who chooses to leave the Claims Department because of this reorganization.
Your team will be given a designated period of time to redesign the Claims
Department and to prepare a five-to-ten minutes presentation of the new design for
the total group. Consider choosing one person to record the salient points of the
design and to make the presentation. In your presentation you should accomplish the
following:
1. Describe the organizational structure of the new design. Be specific
about the number of employees, their roles, and the supervisory rela-
tionships that will be necessary.
2. Describe the work flow - the steps to be taken with a claim from initial
inquiry to final payment.
3. Describe how the new design will reduce employee turnover. (How will
it be more motivating to employees? How will it lead to a better quality of
work life?
4. Compare the new design with the current design using the table that
appears below. The data for the current design is taken from the case-
study sheet. You will have to estimate the data for some measurements in
your new design.
Chap.13: “Foundations of Organization Structure” 37
Organizational Behavior and Structure – session #9\Handouts
Current Work Design New Work Design
Total Number of Employees 27
Annual Payroll Cost $587,000
Average Time to Process a
Claim
43days
Average Number of Errors
per Claim
1.2
Annual Employee Turnover 35 percent
Salary Cost per Claim $45
Chap.13: “Foundations of Organization Structure” 38
Organizational Behavior and Structure – session #9\Handouts
INTERNATIONAL EQUITY CLAIMS DEPARTMENT GUIDELINES FOR WORK DESIGN
1. Invent the process from the customer's perspective.
2. Determine key process measurements, such as number of errors and average
time to process a claim. Set ambitious goals for these elements under the new
process.
3. Determine what internal stakeholders (employees and management) need
and want with regard to the work and the work environment. Here are some
examples:
♦ Interaction with others;
♦ Identifiable, complete pieces of work;
♦ Autonomy;
♦ Variety;
♦ Task significance; and
♦ Feedback from others and from the work itself.
4. Design the whole work system, not just individual jobs. Have people do more
than one task.
5. Reduce or eliminate activities that do not contribute directly to what customers
need and want. (For example, consider tasks such as checking the work and
transferring files.)
6. Add or reconfigure technology, such as automation, procedures, tools, equip-
ment, and facilities.
Chap.13: “Foundations of Organization Structure” 39