Transcript Document 1882744

Organizing for
Action
Chapter Seven
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Organizational Structure
 An organization’s success often depends on
the way work and responsibilities are
organized.
 This chapter focuses on organization
structure.
 Organizational Structure
 The vertical and horizontal configuration of
departments, authority, and jobs within a
company.
• Is concerned with questions such as, ”Who reports to
whom?” and “Who does what?” and “Where is the
work done?”.
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Fundamentals of Organizing
 Organization chart
 The reporting structure
and division of labor in
an organization
• The box represents
different work
• The titles in the boxes
show the work performed
by each unit.
• Reporting and authority
relationships are indicated
by solid lines
• Levels of management are
indicated by the number of
horizontal layers int eh
chart.
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Conventional Organization Chart
Figure 7.1
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Fundamentals of Organizing
 The organization chart represents the
structure of the organization
 Mechanistic organization
• Formal, centralized, rigid organizations intended to
promote internal efficiency
 Organic organization
• Less formal, decentralized organizations that are more
flexible
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Department Design
1.
2.
3.
4.
Organic Structure
Low formalization
Low centralization
Training plus experience
Moderate to narrow span of
control
5. Horizontal communications
meetings
1.
2.
3.
4.
5.
Mechanistic Structure
High formalization
High centralization
Little training or experience
Wide span of control
Vertical, written
communications
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Fundamentals of Organizing
 Differentiation creates specialized jobs.
 Differentiation is an aspect of the organization’s
internal environment created by job
specialization and the division of labor.
 The organization is comprised of many different
units that work on different kinds of tasks, using
different skills and work methods.
• Division of labor – work of the organization is
subdivided into smaller tasks.
• Specialization refers to the fact that different people or
groups often perform specific parts of the entire task.
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Fundamentals of Organizing
 Integration coordinates employees’ efforts
 Integration means that these differentiated units
are put back together so that work is coordinated
into an overall product.
 Coordination refers to the procedures that link
the various parts of the organization to achieve
the organization’s overall mission.
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The Vertical Structure
 Authority is granted formally and informally
 Authority
 The legitimate right to make decisions and to tell
other people what to do.
 Authority resides in positions rather than in
people.
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Authority in Organizations
 Board of directors led by the chair, makes major
decisions affecting the organization, subject to
corporate charter and bylaw provisions.
 The board performs at least three major sets of duties:
• selecting, assessing, rewarding, and perhaps replacing the CEO
• determining the firm’s strategic direction and reviewing financial
performance
• assuring ethical, socially responsible, and legal conduct.
 Boards made up of strong, independent outsiders are
more likely to provide different information and
perspectives and to prevent big mistakes.
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Authority in Organizations
 The chief executive officer is personally
accountable to the board and to the owners for
the organization’s performance.
 The CEO usually holds two positions either as the
chair of the board or the president of the
organization.
 The top management teams
 These teams comprise a group of key members of the
management team, which shares the authority of the
CEO.
 Usually comprised of the CEO, president, chief
operating officer, chief financial officer, and other key
executives.
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Hierarchy Defines Levels of
Authority



Top management
 a. Hierarchy is the authority levels of the organizational pyramid.
 b. The CEO occupies the top position and is the senior member of top
management.
 c. Presidents and vice presidents are also included in the top
management.
Middle management
 This is the second broad level.
 Made up of managers who are in charge of plants or departments.
Operational management
 This is the lowest level of management.
 It includes office managers, sales managers, supervisors, and other
first-line managers as well as the employees who report directly to
them.
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Authority Versus Power: Power
Exhibit 5.4b
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Span of Control
 Span of control determines a manager’s
authority
 Span of control
 The number of subordinates who report directly
to an executive or supervisor
 Narrow spans build a tall organization with many
reporting levels.
 Wide spans create a flat organization with fewer
reporting levels.
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Tall and Flat Organizations
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Span of Control
 The optimal span of control depends of a
number of factors:
 Is the work clearly defined and unambiguous?
 Are subordinates highly trained and have access to
information?
 Is the manager highly capable and supportive?
 Are jobs similar and performance measures
comparable?
 Do subordinates prefer autonomy to close
supervisory control?
 If the answer is yes to these questions then the
span can be wider; if no is the answer then the
span should be narrower.
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Delegation
 Delegation
 The assignment of new or additional
responsibilities to a subordinate
 How manager’s use others talents
 Responsibility and accountability
must be looked at before
delegating any authority
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Delegation
 Responsibility
 The assignment of a task
that an employee is
supposed to carry out
 Authority means that
the person has the
power and the right to
make decisions, gives
orders, draws upon
resources, and does
whatever else is
necessary to fulfill the
responsibility.
Accountability
 The expectation that
employees will
perform a job, take
corrective action
when necessary, and
report upward on the
status and quality of
their performance
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Advantages of Delegation
 Leverages managers’ energy and talent
 Develops managerial skills and knowledge in
subordinates
 Conserves managers’ most valuable asset:
time
 Promotes subordinates’ sense of importance
and commitment to organization
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Steps in Effective Delegation
Figure 7.4
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Decentralization Spreads
Decision-Making Power
Centralized
Decentralized
organization
organization
 An organization in
which high-level
executives make most
decisions and pass
them down to lower
levels for
implementation
 An organization in
which lower-level
managers make
important decisions
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Centralization and Decentralization
of Authority
• Top managers must seek the balance between
centralization and decentralization of authority
• Decentralizing authority: Giving lower-level managers
and nonmanagerial employees the right to make
important decisions about how to use organizational
resources
• Decentralized teams may begin to pursue their own goals
at the expense of organizational goals
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How to be a More
Effective Delegator
1.
2.
Trust your staff to be a good job
Avoid seeing perfection
3.
4.
5.
Give effective job instructions
Know your true interests
Follow up on progress.
6.
7.
8.
Praise the efforts of your staff.
Don’t wait to the last minute to delegate.
Ask questions, expect answers, assist employees.
9.
Provide the resources you would provide if doing the
assignment yourself.
10. Delegate to the lowest possible level.
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The Horizontal Structure
 As the task of an organization becomes
increasingly complex, the organization inevitably
must be subdivided or departmentalized into
smaller units or departments.
 Line departments are units that deal directly with the
organization’s primary goods and services; they make
things, sell things, or provide customer service.
 Staff departments are those that provide specialized
or professional skills that support line departments
such as research, legal, accounting, public relations,
and human resources department.
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The Functional Organization
Functional
organization
 jobs are specialized
and grouped
according to business
functions and the
skills they require such
as production,
marketing, and human
resources.
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The Functional Organization
Figure 7.5
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Advantages of Functional
Organizations
1.
2.
3.
4.
5.
6.
Economies of scale can be realized
Effective monitoring of the environment
Performance standards better maintained
Greater opportunity for specialized training and skill
development
Technical specialists are relatively free of
administrative work
Decision making and lines of communication are
simple and clearly understood
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The Divisional Organization
Divisional
organization
 Departmentalization
that groups units
around products,
customers, or
geographic regions.
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Product Departmentalization
United Technologies
1.2
Carrier
Chubb
Hamilton
Sundstrand
Otis
Pratt & Whitney
Sikorsky
--Administrative services
--Communication & public relations
--Customer service & support
--E-Business
--Engineering
--etc…
UTC Power
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Product Departmentalization
Advantages
•
•
•
Disadvantages
Managers specialize, • Duplication of activities
but have broader
• Difficult to coordinate
experiences
across departments
Easier to assess workunit performance
Decision-making is
faster
1.2
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Customer Departmentalization
Sprint
Corporation
Business
Solutions
1.3
Consumer
Solutions
Mobile
Broadband
Product
Development
U.S.
Businesses
Local
Service
Local
Service
Supply Chain
Integration
International
Businesses
LongDistance
Service
LongDistance
Service
Logistics
Network
Solutions
Wireless
Services
Wireline &
Wireless
Services
Distribution
Centers
(Partial Listing)
33
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Customer Departmentalization
Advantages
•
•
Disadvantages
• Duplication of
resources
Focuses on customer
needs
• Difficult to coordinate
across departments
Products and
services tailored to
• Efforts to please
customer needs
customers may hurt the
company
1.3
34
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Coca-Cola Enterprises
Territories of Operation
Geographic Departmentalization
1.4
35
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Geographic Departmentalization
Advantages
•
•
Responsive to the
demands of different
market areas
Unique resources
located close to the
customer
Disadvantages
• Duplication of
resources
• Difficult to coordinate
across departments
1.4
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The Matrix Organization
 Matrix organization
 An organization composed of dual reporting
relationships in which some managers report to
two superiors—a functional manager and a
divisional manager
 It is a hybrid form of organization in which
functional and divisional forms overlap.
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Matrix Organizational Structure
Figure 7.7
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Advantages of a Matrix Design
 Cross-functional problem solving leads to betterinformed and more creative decisions
 Decision making is decentralized
 Extensive communications networks help
process large amounts of information
 Higher management levels are not overloaded
with operational decisions
 Resource utilization is efficient
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Disadvantages of a Matrix Design
 Confusion can arise because people do not
have a single superior
 Encourages managers who share
subordinates to jockey for power, so conflict
can occur.
 Can lead to slower decision making
 Too much democracy can lead to not enough
action
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The Network Organization
 Network organization
 A collection of independent, mostly singlefunction firms that collaborate on a good or
service
 The dynamic network is also called the modular
or virtual corporation. It is a very flexible version
of the network organization.
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The Network Organization
Figure 7.8
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The Network Organization
 Successful networks offer flexibility, innovation,
quick responses to threats and opportunities,
and reduced costs and risks.
 But to be successful, they must
 choose the right specialty
 choose collaborators that are also excellent, but
provide complementary strengths
 make certain that all parties fully understand the
strategic goals of the partnership
 be able to trust all parties with strategic information
and trust that collaborators will deliver, even when
business demands are heavy.
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Organizational Integration
 Besides structuring the organization around
differentiation-the way the organization is
composed of different jobs and tasks, and
the way they fit on an organization chartmanagers also need to consider integration
and coordination-the way all parts of the
organization work together.
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Standardization Coordinates Work
 Standardization
 establishing common rules and procedures that
apply uniformly to everyone.
 These rules and procedures should apply to most
(if not all) situations.
 Formalization
 The presence of rules and regulations governing
how people in the organization interact.
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Plans Set a Common
Direction
 Coordination by plan
 It does not require the same high degree of
stability and routinization required for
coordination by standardization.
 Interdependent units are required to meet
deadlines and objectives that contribute to a
common goal
 Employees are free to modify and adapt their
actions, as long as deadlines and targets
required.
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Mutual Adjustment Allows
Flexible Coordination
 Coordination by Mutual
Adjustment
 Involves feedback and
discussions to jointly figure out
how to approach problems and
devise solutions that are
agreeable to everyone.
 Can be very effective when
problems are novel and cannot
be programmed in advance with
rules, procedures, or plans.
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Coordination requires
communication
 To cope with high uncertainty and heavy
information demands, managers use two
general strategies:
 Reducing the need for information
• Slack resources-EXTRA RESOURCES ORGANIZATIONS
RELY ON IN A PINCH
 Increasing information processing capability
• Investing in information systems
• Engaging in knowledge management
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Managing High InformationProcessing Demands
Figure 7.9
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Organizational Agility
 Strategies promote organizational agility
 Organizing around core competencies
• A well-understood, well-developed core competence can
enhance a company’s responsiveness and competitiveness.
• Managers who want to strengthen their firms’
competitiveness via core competencies need to focus on
several related issues:
– Identify existing core competencies.
– Acquire or build core competencies that will be important for the
future.
– Keep investing in competencies so that the firm remains worldclass and better than competitors.
– Extend competencies to find new applications and opportunities
for the markets of tomorrow.
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Strategic Alliances
 A strategic alliance is a formal relationship created
with the purpose of joint pursuit of mutual goals.
 In a strategic alliance, individual organizations share
administrative authority, form social links, and accept
joint ownership.
 The best alliances are true partnerships that meet these
criteria:
–
–
–
–
–
–
–
–
Individual excellence - both partners add value.
Importance - both partners contribute to meeting strategic objectives.
Interdependence - both partners need each other.
Investment - partners devote resources to the relationship.
Information - partners communicate openly.
Integration - partners develop shared ways of operating.
Institutionalization - relationship has formal status
Integrity - both partners are trustworthy
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Learning organizations
 A learning organization is an organization
skilled at creating, acquiring, and transferring
knowledge, and modifying its behavior to
reflect new knowledge and insights.
 People engage in disciplined thinking and attention
to details
 Employees search constantly for new knowledge and
ways to apply it.
 They carefully review success and failures.
 They benchmark
 They share information throughout the organization
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High Involvement Organization
 A high-involvement organization or
participative management is one in which
top management ensures that there is
consensus about the direction in which the
business is heading.
 Organizational form is a flat, decentralized
structure built around a customer, product or
service.
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Organizational Size
 The case for large organizations:
 Scale economies - lower costs per unit of production
 Economies of scope – economies in which materials
and processes employed in one product can be used
to make other, related products.
 The case for small organizations:
 As firms get larger customers begin to view their
products as having lower quality.
 Small companies can:
–
–
–
–
move fast
provide quality goods and services to targeted market niches
inspire greater involvement from their people
outmaneuver big bureaucracies.
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Organizational Size
 Being big and small
 To avoid problems of growth and size, companies
decentralize decision making and organize around
small, adaptive, team-based work units.
 Downsizing
 Companies downsize in an attempt to gain the
responsiveness of a small company.
 Downsizing is the planned elimination of positions or
jobs.
 Rightsizing
 a successful effort to achieve an appropriate size at
which the company performs most effectively.
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Organizational Size
 To ease the pain of downsizing firms engage
in a number of positive practices such as:
• Choose positions to be eliminated based on careful
analysis and strategic thinking.
• Train people to cope with the new situation.
• Identify and protect talented people.
• Give special attention and help to those who have lost
their jobs.
• Communicate constantly with people about the
process.
• Emphasize positive future and people’s new roles in
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attaining it.
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Agile Organizations Focus on
Customers



Total quality management (TQM) is an integrative approach
to management that supports the attainment of customer
satisfaction through a wide variety of tools and techniques
that result in high-quality goods and services.
Commitment to total quality requires a thorough, extensive,
integrated approach to organizing.
ISO 9000 is a series of quality standards developed by a
committee working under the International Organization for
Standardization to improve total quality in all businesses for
the benefit of producers and consumers.
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Deming’s “14 points” of Quality
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Create constancy of purpose
Adopt the new philosophy
Cease dependence on mass inspection
End the practice of awarding business based on price tag
alone
Improve constantly the system of production and service
Institute training and retraining
Institute leadership
Drive out fear
Break down barriers among departments
Eliminate slogans, exhortations and arbitrary targets
Eliminate numerical quotas
Remove barriers to pride in workmanship
Institute a vigorous program of education and retraining
Take action to accomplish the transformation
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Technology can support agility
Technology configurations
 Small batch technologies – when goods or
services are provided in very low volume or small
batches, a company that does such work is called
a job shop.
 Large batch technologies or mass production
technologies produce goods and services in high
volume.
 Continuous process technologies are a process
that is highly automated and has a continuous
production flow.
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Woodward’s Classification Based on
System of Production
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Technology
Unit
Structural Characteristics Production
3
Management Levels
23
Span of Control
9:1
Direct/Indirect labor ratio
Low
Mgt/total personnel ratio
High
Worker’s Skill level
Low
Formalized procedures
Low
Centralization
High
Verbal Communication
Low
Written Communication
Organic
Overall Structure
62
Mass
Technology
4
48
4:1
Medium
Low
High
High
Low
High
Mechanistic
Continuous
Process
6
15
1:1
High
High
Low
Low
High
Low
Organic
Organizing for Flexible
Manufacturing
 Mass customization is the production of varied,
individually customized products at the low cost
of standardized, mass-produced products.
 Companies organize around a dynamic network of
relatively independent operating units with each unit
performing a specific process or task called a module.
 Computer-integrated manufacturing encompasses
the use of computer-aided design and computeraided manufacturing to sequence and optimize a
number of production processes.
 Flexible factories are manufacturing plants that have
short production runs, are organized around
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products, and use decentralized scheduling.
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 Lean manufacturing is an operation that strives
to achieve the highest possible productivity and
total quality, cost effectively, by eliminating
unnecessary steps in the production process and
continually strives for improvement.
 For the lean approach to result in a more effective
operation, the following conditions must be met:
–
–
–
–
People are broadly trained rather than specialized.
Communication is informal and horizontal among line workers.
Equipment is general purpose.
Work is organized in teams, or cells, that produce a group of
similar products.
– Supplier relationships are long-term and cooperative.
– Product development is concurrent, not sequential, and is done
by cross-functional teams.
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Organizing for Speed: Time-based
Competition
 Just-in-time operations (JIT) is a system that
calls for subassemblies and components to
be manufactured in very small lots and
delivered to the next stage of the production
process just as they are needed.
 Simultaneous engineering is a design approach in
which all relevant functions cooperate jointly and
continually in a maximum effort aimed at
producing high-quality production that meets
customers’ needs.
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Video: Starbucks
 Why did Howard Schultz return to Starbucks
as CEO?
 What restructuring actions did Schultz take?
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