Organizational Design and Structures

ORGANIZATIONAL DESIGN&

Structures

By

SREENATH B.

ORGANIZATIONAL DESIGN• The process by which managers select and manage

aspects of structure and culture so that an organization can control the activities necessary to achieve its goals.

Differentiation

• The process by which an organization allocates people and resources to organizational tasks and establishes the task and authority relationships that allow the organization to achieve its goals.

• It is the process of establishing and controlling the division of labor or degree of specialization, in the organization.

Division of labor:

• The process of establishing and controlling the degree of specialization in the organization.

Building blocks of differentiation

FROLE

Function

Division

ORGANIZATION

Cont’d

Organizational role• The set of task related behaviors required of a person

by his or her position in an organization.• Authority

The power to hold people accountable for their actions and to make decisions concerning the use of organizational resources.

• Control

The ability to coordinate and motivate people to work in the organizations interest.

Cont’d

• Function

A sub unit composed of a group of people, working together ,who possess similar skills or use the same kind of knowledge ,tools, or techniques to perform their jobs.

• Division

A subunit that consists of a collection of functions or departments that share responsibility for producing a particular goods or service.

Cont’d

The no of diff. fns and divisions that an org possesses is the measure of organization’s complexity (degree of differentiation)

• Support functions

A function which facilitates an organizations control of its relations with its environment and its stake holders.

• Production functions.

Functions mange and improve the efficiency of organizations conversion process so that more value is created.

Cont’d

• Maintenance functions

The functions which enables an organization to keep its departments in operation.

• Adaptive functions

The functions which allow an organization to adjust to changes in the environment.

• Managerial functions.

The function which facilitate the control an coordination of within and among the departments.

Types of functions

• Support functions• Productions functions• Maintenances functions• Adaptive functions• Managerial functions

• Support functions – a function which facilitate an organizations control of its relations with its environment and its stakeholders.

• Support functions includes purchasing- to handling the acquisition of input; sales and marketing – to handling the disposal of outputs .

• Productions functions – Functions manage and improve the efficiency of an orgn’s conversion process so that more value is created.

• Productions functions include production operation, production control, and quality control.

• At Ford production operation department controls the manufacturing process

• Maintenances functions – the functions which enable an orgns to keeps its departments in operation.

• Maintenances functions includes personnel, engineering and janitorial services – keep environment safe and healthy

• Adaptive functions – the function which allow an orgn to adjust to changes in the environment.

• Adaptive function include research and development market research and long range planning

• Managerial functions – the function which facilitate the control and coordination of activities within and among departments.

• Managers at different orgnal level direct the acquisition of, investment in and control of resources to improve the orgnal abilities to create value.

• Managers at different orgnal level direct the acquisition of, investment in , and control of resources to improve the orgnal abilities to create value.

• Eg Top mgt responsible for formulating strategy and establishing the policies

• Middle mgt responsible for managing orgnal resources

• Lower level mgt for oversee and direct the activities of the workforces

Vertical and Horizontal Differentiation

• Vertical Differentiation- the way an orgns designs its hierarchy of authority and creates reporting relationship to link orgnal roles and sub units. It help an orgn more control over its activities and increase its ability to create value.

Horizontal Differentiation

• The way an orgns groups orgnal tasks into roles and roles in to sub units. (functions and divisions )

• Horizontal Differentiation establishes division of labor that enables people in an orgn to become more specialized and productive and increase its ability to create value.

Balancing Differentiation And Integration

• Horizontal Differentiation, enable people to specialize thus become more productive.

• Specialization limits communication between subunits and prevent them from learning from one another.

• Members of different division develop a sub unit orientation

• Subunit orientation – a tendency to view one’s role in the organization strictly from the perspective of the time frame goals & interpersonal orientations of one’s subunit.

• E.g., production dept. concerned with reducing cost & quality( short term ),

In R&D innovation to the production process may take years to come to fruition ( long term ).

Thus communication fails and coordination becomes difficult

• To avoid communication problem – promote cooperation, coordination, and communication among separate subunits

• Advanced forms of IT, allow different func. Or divn. To share databases, memos, and reports, often on a real time basis

• Electronic means – email, teleconferencing, and enterprise management sys. to bring different functions together.

• E.g., buyers at Wal-Mart’s home office use television linkups to show each individual store the appropriate way to display products for sale.

• Integration and integrating mechanism

• Integration – The process of coordinating various tasks and divisions so they work together and not at cross purposes.

• Seven integrating Mechanisms.

• 1. Hierarchy of Authority• 2. Direct contact• 3. Liaison role• 4. task force• 5.Team• 6. Integrating role• 7. integrating Dept.

• Hierarchy of authority

• Differentiate people by the amount of authority they possess.

• Hierarchy dictates who reports to whom, it coordinates various organizational roles.

• Managers must carefully divide and allocate authority within a function and between one function and others to promote coordination.

• Becton Dickinson, a high tech medical instrument maker, Marketing argued that company’s products needed more features to please customers, engineering wanted to simplify product design to reduce cost

• To resolve this conflict B.D. recognised the heirarchy , both dept. reported to the head of instrument product division

• The third party thus make impartial decision, that will be best for the org. as a whole

• Direct Contact

• Using direct contact involves more problems than using hierarchy of authority

• Manger in one function have no authority over a manager on another.

• Managers from diff. func. who have the ability to make direct contact with each other can work together to solve common problems

• If disputes still occur, it is important for both parties to be able to a common superior who is not far removed from the scene of the problem

E.g. Diaper Division sales and manuf. Mangers meet to discuss scheduling

• Liason Roles• A specific manager is given responsibility for coordinating

with managers from other subunits on behalf of his or her subunit

• This interaction helps to overcome barriers between subunits

• E.g. A person from each of J&J’s production, marketing, and R&D department is given responsibility fro coordinating with the other dept.

• Task Forces • Increasing an organization's ability to serve its customers

effectively, may require input from prod., marketing, engineering, and R&D.

• Task force – a temporary committee set up to handle a specific problem

• E.g. A committee is formed to find new ways to recycle diapers.

• Teams • Permanent task force or committee.• Product development & customer-contact teams to

monitor & respond to ongoing challenges of increased competition in global mkt.

• A permanent J&J committee is estd. To promote new product development. in the Diaper Division.

• Integrating Roles or Departments

• A full time position estd. Specifically to improve communication between divisions.

• A new role is estd. To coordinate the activities of two or more func. Or divisions.

• E.g. One manager takes responsibility for coordinating Diaper and Baby Soap divisions to enhance their marketing activities

• Differentiation versus Integration

• Managers must achieve an appropriate balance between differentiation & integration. A complex org. that is highly differentiated needs a high level of integration to affectively coordinate its activities

Balancing centralization and Decentralization

• In discussion vertical differentiation, we note that establishing a hierarchy of authority is suppose to improve the way an org functions because people can be held accountable for their action –the hierarchy defines the areas of each person’s authority within the org.

• Many co however complain that when a hierarchy exist employees are constantly looking to their superiors direction.

• When some new or unusual issues arises their they prefer not to deal with it or they pass it on to their superior rather than assume responsibility and the risk of dealing with it.

• As responsibility and risk taking decline so does org performance because its members do not take advantage of new opportunities for using its core competences.

• .

• For example- at Levi srauss,for ex ,employees often told former CEO roger sant that they felt they couldn't do some thing because “they wouldn't like it ”when asked who ‘they' were ,employee had a hard time saying nevertheless the employee felt that they did not have the authority or responsibility to initiate changes

• Sant started a “They busters" campaign to renegotiate authority and relationships so that employees could take on new responsibilities .

Centralization and decentralization of Authority

• Centralization

• organizational set up whereby the authority to make important decision is retained by manager at the top of the hierarchy .

Decentralization –An org set up where by the authority to make important decisions

About organizational recourses and to initiate new project is delegated to mangers at all levels in the hierarchy

• Authority gives one person the power to hold other people accountable for their action and the right to make decisions about the use of org recourses.

• As we saw in B A R and grille example ,vertical differentiation involve choice about how to distribute authority .but even when a hierarchy of authority exists the problem of how much decision –making authority to delegate to each level must be solved.

Each alternative has certain advantages and disadvantages .

• Centralization keeps the org focused on its goals • Centralization becomes a problem when top manager

becomes overloaded and immersed in operational decision making about day to day recourses issue (such as hiring people and obtaining inputs )

• The advantage of decentralization is that it promote flexibility & responsiveness by allowing lower level manager to the spot decision .

• Manager remain accountable for their action but have the opportunity to assume greater responsibility and take potentially successful risk.

• When authority is decentralized manager can make imp decision that allows them to demonstrate their personal skill &competences and so they be more motivated to perform well for the org .

• The down side of decentralization is that if so much authority is delegated that managers at all level can make their own decision , planning and coordination become very difficult.

• Thus ,too much decentralization may lead an organization to lose control of its decision – making process. The following organizational insight reveals many of its issues surrounding this design choice

BALANCING STANDARDIZATION AND MUTUAL ADJUSTMENT

STANDARDIZATION

• Conformity to specific models or examples. defined by sets of rules and norms that are considered proper in a given situation

• Eg:- IBM was a company close 2 customers later as company grew it sell its products to a certain group of customers

• The organization has to achieve the balance between standardization and mutual adjustment

MUTUAL ADJUSTMENT

The compromise that emerges when decision making and coordination are evolutionary processes and people use their judgment rather than standardized rules to address a problem.

FORMALIZATION

• The use of written rules and procedures to standardize operations

• Eg:- military, FedEx or UPS, everything is done by book, rules perform how people are to perform their roles and how decisions are to be made

Socialization; understood norms

• 1)Rules: formal,written statements that specify the appropriate means for reaching desired goals

• When people follow rules they behave in accordance with certain specified principles

• 2) norms• Standards or styles of behavior that are considered

acceptable or typical for a group of people• Eg people take 1.5hrs of lunch break for a formally specified

one hour lunch break

• Socialization• The process by which organizational members learn the

norms of an organization and internalize these unwritten rules of conduct

Standardization vs mutual adjustment

• People at higher levels depends on mutual adjustments than on standardization to coordinate their actions

• Eg: an organization wants its accountants to perform standard practices, but in R&D it need creative behavior that leads to innovation

Mechanistic &

Organic Organizational Structures

Mechanistic Organizational Structures

• Structures which are designed to induce people to behave people to behave in predictable, accountable ways.

• A mechanistic organization is an organizational design that is rigid and tightly controlled.

• It is characterized by high specialization, rigid departmentalization, narrow spans of control, high formalization, a limited information network, and little participation in decision making by lower-level employees.

• One to one correspondence between a person and task.

• At functional level, each function is separate & communication and cooperation among functions are responibility of top managers.

Cont’d

• Standardization and hierarchy is the main means of orgn control.

• Employee appraisal is normally slow and depends on performance, takes long time.

• Suited for orgns that face unstable, unchanging environments.

• Eg:- – Indian PSU’s in 80-90’s. After 1991 LPG, this orhn structure was

dismantled in many PSU’s.– Old IBM structure.

Organic Organizational Structures

• Structures which promote flexibility, so people initiate change and can adapt quickly to changing conditions.

• An organic organization is an organizational design that is highly adaptive and flexible.

• It is characterized by little work specialization, minimal formalization, and little direct supervision of employees.

• High level of integration is required among employees to share information and overcome problems caused by differences in subunit orientation.

• Specific norms and values develop that emphasize personal competence, expertise, ability to act in innovative ways.

Task and Role relationships• Individual

specialization in a mechanistic structure.

• A person in a role specializes in a specific task or set of tasks

• Joint specialization in an organic structure.

• A person in a role is assigned to a specific task or set of tasks.

• However, the person is able to learn new tasks and develop new skills and capabilities.

A

X

B

Y

C

Z

A B C

X Y Z

HOW THE DESIGN CHALLENGES RESULT IN MECHANISTIC OR ORGANIC STRUCTURES

• Mechanistic structures

1. Individual specialization Employees work separately and specialize in one clearly defined task

2. Simple integrating Mechanisms Hierarchy of authority is clearly defined and is the major integrating mechanism.

3. Centralization

Authority to perform task s is kept at the top of the organization. Most communication is vertical .

4. Standardization

Extensive use is made of rules and SOPs to coordinate tasks, and work process is predictable

• Organic structures

1. Joint specialization

Employees work together & coordinate their actions to find the best way of performing a task

2. Complex integrating mechanisms Task forces and teams are major integrating mechanism

3. Decentralization

Authority to control tasks is delegated to people at all levels in the organization. Most communication is lateral.

4. Mutual Adjustment

Extensive use is made of face to face contact to coordinate tasks, and work process is relatively unpredictable

Burns and Stalker on Organic vs Mechanistic Structures and Environment

• They found that organic structures were more effective in unstable, changing environments than were companies with mechanistic structures.

• In stable environment mechanistic structure worked better.• Unstable, changing environment employees need to be

empowered to take decisions.• In complex environments rapid communication, information

sharing are required to respond to customer needs and develop new products.

• When environment is stable no need for complex decision making systems.

• Burns and Stalker concluded that orgn should design structure to match the dynamism and uncertainty of their environment.

The relationship between environmental uncertainty and Organizational Structure

Cont’d

• Most successful orgn are those who have achieved a balance between two structures.

• Orgn may design its structure so that some functions like (manufacturing and accounting) act as mechanistic structures and (marketing or R&D) act as organic structures.

From Functional Structure to Divisional Structure

• A functional structure best serves a company that produces a few, similar products at a few production sites and markets to one type of customer.

• When production expands to more products at more locations and to several types of customers, a company requires a complex structure.

• This move entails three design choices:

1. Increasing vertical differentiation, increasing the levels in the hierarchy, centralizing decision-making and increasing control with rules.

2. Increasing horizontal differentiation, product teams or divisions to overlay a functional grouping.

3. Increasing integration, using integrating mechanisms such as task forces and teams to improve coordination between subunits and motivation.

Divisional Structure• Its a structure in which functions are grouped together

according to the specific demands of products, markets, or customers.

• A divisional structure groups people from different functions to provide customers with goods or services.

• This structure makes subunits easier to manage as a company grows. The type of divisional structure depends on the source of control problems.

1. If many, complex products cause problems, a product structure fits best.

2. If multiple locations cause problems, a geographic structure fits best.

3. If different customer types cause problems, a market structure fits best.

Divisional Structure I: Three Kinds of Product Structure

• A product structure is a divisional structure in which products are grouped into separate divisions, according to their similarities or differences.

• As the number of products and/or services increase, tasks are grouped by product and function.

• A product structure groups products into separate divisions. A company must determine the difference and complexity of products and coordination methods between support functions and product divisions.

• Support functions can be centralized at the top or grouped for each product division.

• These decisions determine a company’s product division, multi division, or product team structure.

Divisional Structure I: Three Kinds of Product Structure

1. Product Division Structure• A product division structure with centralized support

functions is appropriate when products are similar and target the same market.

• Vertical differentiation is increased and support functions centralized at the top.

• Sharing of skills and resources increases a function’s ability to create value across product divisions.

2. Multidivisional Structure• A multidivisional structure is appropriate if products are

different and are sold in many markets.• Divisions are self-contained, each with their own support

functions and control. Because products differ, centralized support functions at the top is infeasible.

Product Division Structure

Vice PresidentSales and Marketing

Vice President Research and Development

Vice President Materials

Management

CEO

Vice President Finance

CannedSoups

Division

PDM

FrozenVegetableDivision

PDM

FrozenEntreesDivision

PDM

BakedGoods

Division

PDM

Centralized support functions

Divisions

Multidivisional Structure.

CorporateManagers

CEO

Divisional Managers

Senior VPMarketing

Senior VPFinance

Senior VPMaterials Management

Senior VPResearch andDevelopment

Functional Managers

Corporate Headquarters Staff

Division B

Support functions

Division D

Support functions

Division A

Support functions Support functions

Division C

Divisional Structure I: Three Kinds of Product Structure

• An automaker doesn’t know how to market a computer. • The multidivisional structure has a corporate headquarter,

organized functionally and responsible for overseeing division managers.

• Staff members facilitate integration to share information quickly among divisions.

• Unlike a product division structure, a multidivisional structure can control many businesses.

• Advantages of a Multidivisional Structure

1. Increased organizational effectiveness, due to a division of labor between corporate and divisional Managers.

2. Increased control, because corporate managers monitor divisional managers and make comparisons.

Divisional Structure I: Three Kinds of Product Structure

3. Profitable growth, because capital can be allocated to divisions with the greatest potential return on investments.

4. An internal labor market, because good divisional managers are promoted to corporate management.

• Disadvantages of a Multidivisional Structure• Determining what authority to centralize or decentralize from

the corporate to the divisional level• Coordination problems from uncooperative divisions

competing for resources• Determining transfer pricing, the price of a product or service

sold by one division to another• Higher bureaucratic costs• Distorted information, resulting in communication problems.

Divisional Structure I: Three Kinds of Product Structure

3. Product Team Structure• A hybrid of the product division and the multi division

structures, the product team structure customizes products, speeds development time, and reduces costs.

• The poor communication leading to slow development in the multidivisional structure is avoided.

• Functional specialists serve on self-contained, product division teams.

• A team manager oversees design and manufacturing activities, and employees become loyal to product not function.

• Decentralization and integration facilitate rapid decision-making.

Product Team Structure.

ProductDivision

Product Division

CEO

Functions

Product

Development

Teams

Product Division

Vice President

Research and

Development

Vice PresidentSales and

Marketing

Vice President Manufacturing

Vice PresidentFinance

Functional specialist

Vice PresidentMaterials

Management

PTM Product Team Manager

PTM PTM PTM

Divisional Structure II: Geographic Structure

• When an organization experiences control problems that are a function of geography, a geographic divisional structure is used.

• Such a structure organizes divisions according to the requirements of different locations.

• As a company expands into different regions, it needs to organize its core competences to meet the needs of different regional customers.

• The geographic divisional structure permits some functions to be centralized and others to be decentralized.

• This structure increases both horizontal and vertical differentiation. A regional hierarchy is added.

Geographic Structure

Regional Operations

Regional Operations

Regional Operations

Regional Operations

CEO

Central Support Functions

Individualstores

Divisional Structure III: Market Structure• When an organization experiences control problems that are

a function of the differences in the various customer groups being served, a market structure is used.

• Such a structure aligns functional skills and activities with different customer needs.

• The customer is the focus in a market structure: commercial, consumer, corporate, and government customers.

• Each division develop products for its customers but uses centralized support functions.

• This structure permits a quick response to market changes.

4 - 71

Market Structure

CommercialDivision

ConsumerDivision

GovernmentDivision

CorporateDivision

CEO

Central Support Functions

Matrix Structure

• The search for better and faster ways to develop products and meet customer needs led to the matrix structure.

• The matrix structure includes both functional and product responsibility.

• It is used for a high level of group coordination to respond to changing conditions.

• The matrix structure is flat with decentralized authority. Functional employees remain under a functional head, but work under a product manager.

• The product manager leads the team whose members are responsible to both functional and product managers.

• Role and authority relationships are ambiguous. Control is exerted horizontally via teams.

• A matrix is an organic structure.

Matrix Structure

CEO

Vice PresidentEngineering

Vice PresidentFinance

Vice PresidentPurchasing

Vice PresidentSales and Marketing

Vice President Research and Development

Product AManager

Product BManager

Product CManager

Product DManager

Product Team

Two-boss employee

Matrix Structure

• Although both a product team and matrix structure use teams, matrix team members have two bosses and team membership is not fixed.

• Advantages of a Matrix Structure

1. Functional barriers and subunit orientation are reduced.

2. Cross-functional communication allows members to learn and develop skills.

3. Employee skills are utilized.

4. Employees are concerned about both cost and quality.

Disadvantages of a Matrix Structure

1. Lack of bureaucratic structure leads to role ambiguity and role conflict.

2. Teams may fight over resources.

3. Members often refuse transfers to stay with peers.

4. Informal hierarchies emerge in response to uncertainty.

5. Unmet expectations lead managers to increase control resulting in a taller, bureaucratic structure.

Multidivisional Matrix Structure

• A multidivisional matrix structure provides for more integration between corporate and divisional managers and between divisional managers.

• A matrix design can enhance a multidivisional structure when placed at the company’s top to increase integration between corporate and division managers.

• Corporate specialists analyze divisional performance and design action plans.

• Division heads and corporate executives exchange information and coordinate activities.

Multidivisional Matrix Structure

CEO

Senior Vice PresidentMarketing

Senior Vice PresidentFinance

Senior Vice President Research and Development

Senior VicePresidentMaterials Management

AutomobileProductsDivision

PersonalComputerDivision

ConsumerElectronicsDivision