Lecture 7 Organization Design.pptx

Lecture 7: Organization Design Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-1 PART I Describe six key elements in...

Lecture 7: Organization Design Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-1 PART I Describe six key elements in organisational design. Contrast mechanistic and organic structures. PART II Discuss the contingency factors that favor either the mechanistic model or the organic model of organisational design. Describe traditional organisational Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-2  Definition Organising - arranging and structuring work to accomplish an organisation’s goals. Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-3 Eli Lilly & Company, a major US pharmaceutical company. Eli Lilly & Co. stands to lose $10 billion in annual revenues between now and 2016 as three of its major drug patents expire. As CEO, John Lechleiter’s job is to find foster new drug development to replace the projected loss revenue. While other pharmaceutical companies are seeking a merger route to acquire new drugs. Eli Lilly One has decided to revamp the company’s operational structure into five global business units and create an improved product research and development center. Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-4  Definition (Cont’d) Organisational Structure - the formal arrangement of jobs within an organisation. Organisational chart - the visual representation of an organisation’s structure. Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-5 Organisation Chart Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-6  Designing Organisational Structure Organisational design - a process involving decisions about six key elements: 1. Work specialisation 2. Departmentalisation 3. Chain of command 4. Span of control 5. Centralisation and decentralisation 6. Formalisation Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-7  1. Work Specialisation (also known as division of labour) Work specialisation - dividing work activities into separate job tasks. For example, Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-8  1. Work Specialisation (also known as division of labour) Most of today’s managers regard work specialisation as an important organising mechanism, but not as a source of ever- increasing productivity. Overspecialisation can result in human diseconomies such as boredom, fatigue, stress, poor quality, increased absenteeism, and higher turnover. Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-9 Exhibit 11-2 Economies and Diseconomies of Work Specialisation Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-10  2. Departmentalisation When work tasks have been defined, they must be arranged in order to accomplish organizational goals. This process, known as departmentalisation, is the basis by which jobs are grouped. Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-11  From Work Specialisation to Departmentalisation… From Work Specialisation To Departmentalisation Owner/Manager Marketing Operations Finance & Sakes & Logistics /Accounts Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-12  2. Departmentalisation (Cont’d) There are five major ways to departmentalise : Functional departmentalisation groups jobs by functions performed. Product departmentalisation groups jobs by product line. Geographical departmentalisation groups jobs on the basis of geographical region. Process departmentalisation groups jobs on the basis of product or customer flow. Customer departmentalisation groups jobs on the basis of specific and unique customers who have common needs. Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-13 Exhibit 11-3 The Five Common Forms of Departmentalisation Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-14 Exhibit 11-3 (cont.) Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-15 Exhibit 11-3 (cont.) Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-16 Multiple Forms of Departmentalisation Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-17  3. Chain of Command Chain of Command - the continuous line of authority that extends from upper levels of an organisation to the lowest levels of the organisation— clarifies who reports to whom Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-18  3. Chain of Command Few important terms associated with chain of command: Authority Responsibility Unity of command Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-19  3. Chain of Command (Cont’d) Authority - the rights inherent in a managerial position to tell people what to do and to expect them to do it. Acceptance theory of authority - the view that authority comes from the willingness of subordinates to accept it. Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-20 The acceptance theory of authority proposed by Chester Barnard. He that subordinates will accept orders only if the following conditions are satisfied: 1. They understand the order. 2. They feel the order is consistent with the organization’s purpose. 3. The order does not conflict with their personal beliefs. 4. They are able to perform the task as directed Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-21  3. Chain of Command (Cont’d) 2 types of authority: Line authority - authority that entitles a manager to direct the work of an employee It follows chain of command Staff authority - positions with some authority that have been created to support, assist, and advise those holding line authority I.e. the authority exists between those at the same level Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-22  Exhibit 11-5 Line Versus Staff Authority Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-23  3. Chain of Command (Cont’d) Responsibility - the obligation or expectation to perform. It comes together with the assigned tasks Unity of command - the management principle that each person should report to only one manager Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-24  4. Span of Control Span of Control - the number of employees who can be effectively and efficiently supervised by a manager. Exhibit 11-6 Contrasting Copyright Spans of Control © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-25  4. Span of Control (Cont’d) Span of control determines the numbers of managers and levels of hierarchy in an organisation 1 2 3 4 5 Exhibit 11-6 Contrasting Copyright Spans of Control © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-26  5. Centralisation and Decentralisation Centralisation - the degree to which decision making is concentrated at upper levels of the organisation Decentralisation - the degree to which lower- level employees provide input or actually make decisions Employee empowerment - giving employees more authority (power) to make decisions Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-27  Exhibit 11-7 Centralisation or Decentralisation Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-28  6. Formalisation Formalisation - the degree to which jobs within the organisation are standardised and the extent to which employee behavior is guided by rules and procedures. – Highly formalised jobs offer little discretion over what is to be done. – Low formalisation means fewer constraints on how employees do their work. Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-29  Designing Organisational Structure (Cont’d) Note: The degree of this SIX (6) elements determine the types of organisational structure. Organisational Design 1. Work specialisation Organisational 2. Departmentalisation structure 3. Chain of command Mechanistic 4. Span of control or 5. Centralisation and decentralisation Organic? 6. Formalisation Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-30  Mechanistic Versus Organic Organisations Mechanistic organisation - Organic organisation an organisational design - an organisational that’s rigid and tightly design that’s highly controlled adaptive and flexible Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-31  PART II TO BE CONTINUE Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-32  Review Questions 1. Explain the SIX (6) elements of organisational design. 2. Differentiate between mechanistic and organic organisations. 3. Explain any TWO (2) traditional design and TWO (2) contemporary design. Copyright © 2012 Pearson Copyright © 2014 Education, Pearson Inc. Education Publishing as 11-33