McGraw-Hill/Irwin

CHAPTER

11

Organizational Design: Structure, Culture, and Control

Instructor: Dr.Gehan Shanmuganathan

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

ChapterCase

11 Zappos: An Organization Designed to Deliver Happiness

• Zappos: Success through customer service

 Customer service all in-house  No scripts or timed calls

• Flat Organizational Structure = Flexibility

 Job rotation = trained talent  4 weeks of orientation training  Including 2 weeks on customer service phones!

11-2

LO 11-1

Define organizational design and list its three components

.

to

LO 11-2

Explain how organizational inertia can lead established firms failure.

LO 11-3

elements.

Define organizational structure and describe its four

LO 11-4

Compare and contrast mechanistic versus organic organizations.

LO 11-5

with Describe different organizational structures and match them appropriate strategies.

LO 11-6

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

LO 11-7

Compare and contrast different strategic control and reward systems.

11-3

How to Organize for Competitive Advantage

•

Organizational design



Goal is to translate strategies into realized ones



Structure



Processes



Procedures

•

Structure follows strategies



Structure must be flexible



Yahoo failed to make changes to their organizational structure!

11-4

EXHIBIT 11.2

Organizational Inertia

11-5

The Key Elements of Organizational Structure

• Organizational structure determines  Work efforts of individuals and teams  Resource distribution • Key building blocks  Specialization  Formalization  Centralization  Hierarchy 11-6

Assembling the Pieces: Mechanistic vs. Organic Organizations

• Organic organizations  Low degree of specialization and formalization  Flat structure  Decentralized decision making  Uses virtual team due to information technology  Example: Zappos, W. L. Gore, and many high-tech firms • Mechanistic organizations  High degree of specialization and formalization  Tall hierarchy  Centralized decision making  Example: McDonald’s Video on Web 2.0

Changing workplace 11-7

Matching Strategy and Structure

• Simple structure  Small firms with low complexity  Top management makes all important strategic decisions  Low degree of formalization and specialization  A basic organizational structure  Examples: small advertising, consulting, accounting, and law firms 11-8

Functional Structure

• Functional structure  Groups of employees with distinct functional areas  The areas of expertise correspond to distinct stages in the company value chain activities  Example: College of Business Administration, School of Management…etc.

• Recommended with narrow products/services  Matches well with

business-level strategy



Cost leadership



Mechanistic organization

 

Differentiation



Organic organization Integration strategy



Ambidextrous organization

11-9

Multidivisional Structure

• Multidivisional structure  Consists of several distinct SBUs  Each SBU is independent and led by a CEO  Each CEO of SBUs report to the corporate office  Examples:  Zappos is an SBU under Amazon  Skype is an SBU under Microsoft  Paypal is an SBU under eBay  Companies using M-form structure  GE, Honda 11-10

EXHIBIT 11.7

Typical M-Form Structure

Functional Structure Matrix Structure 11-11

Matrix Structure

• A combination of functional and M-form structure  Creation of dual line of authority and reporting lines  Each SBU receives support both horizontally and vertically  Very versatile  Enhanced learning from different SBUs • Shortcomings  Difficult to implement  Complexity increases when expanding, especially globally  Unclear reporting structure causes confusion and delays 11-12

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 11-13

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 11-14

ChapterCase 11/

Consider 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 happy

due to the fact that Zappos handled the situation smoothly • This is the real

WOW!!!

11-15