Organizational Structure and Design PDF

Organizational Structure and Design BITS Pilani Hyderabad Campus Designing Organizational Structure Organizing – Arranging and structuring work to accomplish an organization’s goals. Organizational Structure – The formal arrangem...

Organizational Structure and Design BITS Pilani Hyderabad Campus Designing Organizational Structure Organizing – Arranging and structuring work to accomplish an organization’s goals. Organizational Structure – The formal arrangement of jobs within an organization. 9–2 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus  Structures have two Components: groupings and linkings of activities Grouping: How individuals, jobs, functions or activities are differentiated and aggregated Linking: Mechanisms of integration used to coordinate and share information across groups An optimal structure balances differentiation (through grouping) with integration (through linking) 9–3 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus Organizational Design decisions 1. Managers decide how to divide the overall task into successively smaller jobs 2. Managers decide the bases by which to group the jobs 3. Managers decide the appropriate size of the group reporting to each superior 4. Managers distribute authority among the jobs 5. Centralization and decentralization 6. Formalization 9–4 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus  The Design Decisions Specialization Work Specialization : Low High Basis Departmentalization: Homogeneous Heterogeneous Number Span of Control: Few Many Delegation Authority: High Low BITS Pilani, Hyderabad Campus The Design Decisions Decisions: Centralized ------------- decentralized Formalization : high -----------------low 9–6 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus  Organizational Structure Work specialization – dividing work activities into separate job tasks. Early proponents of work specialization believed it could lead to great increases in productivity. Overspecialization can result in human diseconomies such as boredom, fatigue, stress, poor quality, increased absenteeism, and higher turnover. Copyright © 2017 Pearson India Education Services Pvt. Ltd 10 - 6  Exhibit 10-2 Economies and Diseconomies of Work Specialization Copyright © 2017 Pearson India Education Services Pvt. Ltd 10 - 7 Departmentalization – process in which an organization is structurally divided by combining jobs in departments according to some shared characteristic or basis. BITS Pilani, Hyderabad Campus Departmentalization Bases Functional Geographic Product Customer BITS Pilani, Hyderabad Campus Departmentalization by Type Functional – Grouping jobs by functions performed Product – Grouping jobs by product line Geographical – Grouping jobs on the basis of territory or geography Process Grouping jobs on the basis of product or customer flow Customer Grouping jobs by type of customer and needs 9–11 BITS Pilani, Hyderabad Campus  Departmental Bases: Functional Departmentalization Jobs are combined according to the functions of the organization The principal advantage is efficiency – By having departments of specialists, management creates efficient units A major disadvantage is that organizational goals may be sacrificed in favor of departmental goals BITS Pilani, Hyderabad Campus Exhibit 9–2 The Five Common Forms of Departmentalization 9–13 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus  Departmental Bases: Geographic Departmentalization Establish groups according to geographic area The logic is that all activities in a given region should be assigned to a manager Advantageous in large organizations because physical separation of activities makes centralized coordination difficult Provides a training ground for managerial personnel BITS Pilani, Hyderabad Campus Exhibit 9–2 (cont’d) Geographical Departmentalization 9–15 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus BITS Pilani, Hyderabad Campus Departmental Bases: Product Departmentalization All jobs associated with producing and selling a product or product line will be placed under the direction of one manager Product becomes the preferred basis as a firm grows by increasing the number of products it markets Concentrating authority, responsibility, and accountability in a specific product department allows top management to coordinate actions BITS Pilani, Hyderabad Campus Product Departmentalization BITS Pilani, Hyderabad Campus Exhibit 9–2 (cont’d) Process Departmentalization + More efficient flow of work activities – Can only be used with certain types of products 9–19 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus Departmental Bases: Customer Departmentalization The importance of customer satisfaction has stimulated firms to search for creative ways to serve people better Organizations with customer-based departments are better able to satisfy customer-identified needs than organizations that base departments on non-customer factors BITS Pilani, Hyderabad Campus BITS Pilani, Hyderabad Campus  Organizational Structure (cont’d) Chain of Command – The continuous line of authority that extends from upper levels of an organization to the lowest levels of the organization and clarifies who reports to whom. 9–22 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus  Organizational Structure (cont’d) Authority – The rights inherent in a managerial position to tell people what to do and to expect them to do it. Responsibility – The obligation or expectation to perform. Unity of Command – The concept that a person should have one boss and should report only to that person. 9–23 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus BITS Pilani, Hyderabad Campus BITS Pilani, Hyderabad Campus BITS Pilani, Hyderabad Campus  Organizational Structure (cont’d) Span of Control – The number of employees who can be effectively and efficiently supervised by a manager. – Limitation in time, energy ,capacity – Width of span is affected by: ❖ Skills and abilities of the manager ❖ Employee characteristics ❖ Characteristics of the work being done Similarity of tasks / Complexity of tasks ❖ Physical proximity of subordinates ❖ Standardization of tasks ❖ Sophistication of the organization’s information system ❖ Strength of the organization’s culture ❖ Preferred style of the manager 9–27 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus BITS Pilani, Hyderabad Campus BITS Pilani, Hyderabad Campus  Organizational Structure (cont’d) Centralization – The degree to which decision making is concentrated at upper levels in the organization. ❖ Organizations in which top managers make all the decisions and lower-level employees simply carry out those orders. Decentralization – Organizations in which decision making is pushed down to the managers who are closest to the action. Employee Empowerment – Increasing the decision-making authority (power) of employees. – Eg. P&G (brand management) 9–30 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus Exhibit 9–4 Factors that Influence the Amount of Centralization and Decentralization More Centralization Environment is stable. Lower-level managers are not as capable or experienced at making decisions as upper-level managers. Lower-level managers do not want to have a say in decisions. Decisions are relatively minor. Organization is facing a crisis or the risk of company failure. Company is large.. 9–31 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus Exhibit 9–4 (cont’d) Factors that Influence the Amount of Centralization and Decentralization More Decentralization Environment is complex, uncertain. Lower-level managers are capable and experienced at making decisions. Lower-level managers want a voice in decisions. Decisions are significant. Corporate culture is open to allowing managers to have a say in what happens. Company is geographically dispersed.. 9–32 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus  Organizational Structure (cont’d) Formalization – The degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures. ❖ Highly formalized jobs offer little discretion over what is to be done. ❖ Low formalization means fewer constraints on how employees do their work. 9–33 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus BITS Pilani, Hyderabad Campus Exhibit 9–5 Mechanistic Versus Organic Organization High specialization Cross-functional teams Rigid departmentalization Cross-hierarchical teams Clear chain of command Free flow of information Narrow spans of control Wide spans of control Centralization Decentralization High formalization Low formalization 9–35 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus Contingency Factors Structural decisions are influenced by: – Overall strategy of the organization ❖ Organizational structure follows strategy. – Size of the organization ❖ Firms change from organic to mechanistic organizations as they grow in size. – Technology use by the organization ❖ Firms adapt their structure to the technology they use. – Degree of environmental uncertainty ❖ Dynamic environments require organic structures; mechanistic structures need stable environments. 9–36 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus Contingency Factors (cont’d) Strategy Frameworks: – Innovation ❖ Pursuing competitive advantage through meaningful and unique innovations favors an organic structuring. – Cost minimization ❖ Focusing on tightly controlling costs requires a mechanistic structure for the organization. 9–37 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus Contingency Factors (cont’d) Size and Structure As an organization grows larger, its structure tends to change from organic to mechanistic with increased specialization, departmentalization, centralization This refers to capacity, number of personnel, outputs (customers, sales), resources (wealth). 9–38 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus Contingency Factors (cont’d) Technology and Structure – Organizations adapt their structures to their technology. – Routine technology = mechanistic organizations – Non-routine technology = organic organizations 9–39 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus Contingency Factors (cont’d) Environmental Uncertainty and Structure – Mechanistic organizational structures tend to be most effective in stable and simple environments. – The flexibility of organic organizational structures is better suited for dynamic and complex environments. 9–40 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus STRUCTURE AT BUSINESS LEVEL –COMPETING IN SINGLE INDUSTRY  Common Organizational Designs Traditional Designs – Simple structure ❖ Low departmentalization, wide spans of control, centralized authority, little formalization – Functional structure ❖ Departmentalization by function – Operations, finance, marketing, human resources, and product research and development – Divisional structure ❖ Composed of separate business units or divisions with limited autonomy under the coordination and control the parent corporation. 9–42 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus Exhibit 9–7 Strengths and Weaknesses of Traditional Organizational Designs 9–43 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus Simple structure Simple Structure – A structure characterized by a low degree of departmentalization, wide spans of control, authority centralized in a single person, and little formalization BITS Pilani, Hyderabad Campus FIGURE 11.2 Functional Structure for Implementation of a Cost Leadership Strategy Notes: Operations is the main function Process engineering is emphasized rather than new product R&D Relatively large centralized staff coordinates functions Formalized procedures allow for emergence of a low-cost culture Overall structure is mechanical; job roles are highly structured 11–45 Divisional – product based 9–46 BITS Pilani, Hyderabad Campus Divisional – geographical based 9–47 BITS Pilani, Hyderabad Campus Matrix Structure Matrix structures: Functional and product forms are combined simultaneously at the same level of the organization Conditions for matrix structures include: Ideas need to be cross-fertilized across projects or products Scarcity of resources Abilities to process information and to make decisions needs to be improved. BITS Pilani, Hyderabad Campus Matrix structure What it is: A structure that assigns specialists from different functional areas to work on projects but who return to their areas when the project is completed. Project is a structure in which employees continuously work on projects. As one project is completed, employees move on to the next project. Advantages: Fluid and flexible design that can respond to environmental changes. Faster decision making. Disadvantages: Complexity of assigning people to projects. Task and personality conflicts. BITS Pilani, Hyderabad Campus 9–51 BITS Pilani, Hyderabad Campus Advanced Types of Organizational Structures ❖ An flexible and unstructured organizational design that is intended to break down external barriers between the organization and its customers and suppliers. ❖ Removes internal (horizontal) boundaries: – Eliminates the chain of command – Has limitless spans of control – Uses empowered teams rather than departments ❖ Eliminates external boundaries: – Uses virtual, network, and modular organizational structures to get closer to stakeholders. 9–52 BITS Pilani, Hyderabad Campus Exhibit 9–8 Contemporary Organizational Designs Team Structure What it is: A structure in which the entire organization is made up of work groups or teams. Advantages: Employees are more involved and empowered. Reduced barriers among functional areas. Disadvantages: No clear chain of command. Pressure on teams to perform. Matrix-Project Structure What it is: A structure that assigns specialists from different functional areas to work on projects but who return to their areas when the project is completed. Project is a structure in which employees continuously work on projects. As one project is completed, employees move on to the next project. Advantages: Fluid and flexible design that can respond to environmental changes. Faster decision making. Disadvantages: Complexity of assigning people to projects. Task and personality conflicts. 9–53 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus STRUCTURE AT CORPORATE LEVEL – DIVERSIFICATION Multidivisional Structure Strategic Control – Operating divisions function as separate businesses or profit centers Top corporate officer delegates responsibilities to division managers – For day-to-day operations – For business-unit strategy Appropriate as firm grows through diversification 11–55 BITS Pilani, Hyderabad Campus Multidivisional Structure (cont’d) Three Major Benefits – Corporate officers are able to more accurately monitor the performance of each business, which simplifies the problem of control. – Facilitates comparisons between divisions, which improves the resource allocation process. – Stimulates managers of poorly performing divisions to look for ways of improving performance. 11–56 BITS Pilani, Hyderabad Campus Variations of the Multidivisional Structure Figure 11.4 11–57  Multidivisional Structure: Cooperative Form Sharing divisional competencies facilitates development of economies of scope To foster divisional cooperation, the corporate office emphasizes centralization: Strategic planning Human resources Marketing Related-Constrained Strategy 11–58 Copyright © 2004 South-Western. All rights reserved.  Cooperative Form (cont’d) R&D is likely to be centralized Frequent, direct contact between division managers encourages and supports cooperation and sharing of competencies and resources Use of liaison roles Rewards are subjective, emphasizing overall corporate performance in addition to divisional performance 11–59 Copyright © 2004 South-Western. All rights reserved. Cooperative Form of Multidivisional Structure: Related diversification Strategy Notes Structural integration devices create tight links among all divisions Rewards are subjective and tend to emphasize overall corporate Corporate office emphasizes centralized strategic planning, human performance in addition to divisional performance Figure 11.5 resources, and marketing to foster cooperation between divisions Culture emphasizes cooperative sharing R&D is likely to be centralized 60  Multidivisional Structure: SBU Form Strategic business unit (SBU) form is a structure consisting of three levels: Corporate headquarters Strategic business units (SBUs) SBU divisions Divisions within SBUs share Products, or markets, or both Related-Linked Strategy 11–61 Copyright © 2004 South-Western. All rights reserved.  Multidivisional Structure: SBU Form Divisions within SBUs develop economies of scope and/or scale by sharing product or market competencies Each SBU is a profit center controlled and evaluated by the headquarters office Used by large firms Can be complex due to an organization’s size and diversity in products and markets Related-Linked Strategy 11–62 Copyright © 2004 South-Western. All rights reserved.  FIGURE 11.6 SBU Form of the Multidivisional Structure for Implementation of a Related diversification Strategy Notes: Structural integration among divisions within SBUs, but independence Each SBU may have its own budget for staff to foster integration across SBUs Corporate headquarters staff serve as consultants to SBUs and Strategic planning may be the most prominent function in headquarters for divisions, rather than having direct input to product strategy, as in managing the strategic planning approval process of SBUs for the president the cooperative form 11–63 Multidivisional Structure: Competitive Form A structure in which there is complete independence among the firm’s divisions Divisions do not share common corporate strengths Because strengths aren’t shared, integrating devices aren’t developed Organizational arrangements emphasize divisional competition rather than cooperation Unrelated Strategy 11–64  Competitive Form (cont’d) Three benefits from the internal competition Flexibility—corporate headquarters can have divisions working on different technologies to identify those with greatest future potential Challenges the status quo and inertia Motivates effort Creates specific profit performance expectations for each division to promote internal competition for resources Unrelated Strategy 11–65 Copyright © 2004 South-Western. All rights reserved.  FIGURE 11.7 Competitive Form of the Multidivisional Structure for Implementation of an Unrelated Strategy Notes: Corporate headquarters has a small staff The legal affairs function becomes important when the firm acquires or Finance and auditing are the most prominent functions in the divests assets headquarters office to manage cash flow and assure the Divisions are independent and separate for financial evaluation purposes accuracy of performance data coming from divisions Divisions retain strategic control, but cash is managed by the corporate office Divisions compete for corporate resources 11–66 Characteristics of Structures to Implement Diversification Strategies (cont’d) a Strategy implemented with structural form. Table 11.1 11–67 STRUCTURE AT GLOBAL LEVEL - MNC  13-13 International Divisional Structure Corporate Headquarters Division 1 Division 2 Division 3 International Division United United Japan France States Kingdom  13-9 Multidomestic MNC Structure Corporate Headquarters North South European Pacific American American Region Region Region Region  13-11 Global product group structure Corporate Headquarters Product Product Product Group 1 Group 2 Group 3 United United Japan France States Kingdom  13-15 Global Matrix Structure – Transnational N. American S. American Pacific SBU SBU SBU Product Group 1 Product Group 2 Product Group 3 Individual Operating Companies Organizational Designs (cont’d) Contemporary Organizational Designs (cont’d) – Boundaryless Organization ❖ An flexible and unstructured organizational design that is intended to break down external barriers between the organization and its customers and suppliers. ❖ Removes internal (horizontal) boundaries: – Eliminates the chain of command – Has limitless spans of control – Uses empowered teams rather than departments ❖ Eliminates external boundaries: – Uses virtual, network, and modular organizational structures to get closer to stakeholders. 9–73 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus Exhibit 9–8 (cont’d ) Contemporary Organizational Designs Boundaryless Structure What it is: A structure that is not defined by or limited to artificial horizontal, vertical, or external boundaries; includes virtual and network types of organizations. Advantages: Highly flexible and responsive. Draws on talent wherever it’s found. Disadvantages: Lack of control. Communication difficulties. 9–74 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus Removing External Boundaries Network Organization – A small core organization that outsources its major business functions (e.g., manufacturing) in order to concentrate on what it does best. 9–75 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall BITS Pilani, Hyderabad Campus Network Structure Advantages: Increased flexibility and adaptability Ability to concentrate on distinctive competencies Disadvantages: Transitional structure Availability of numerous partners Overspecialization BITS Pilani, Hyderabad Campus