Organization Design 2023 PDF

University of Primorska Faculty of Management Prof. dr. Andrej Bertoncelj Organisation Design The road to success is always under repair. Organisational aspects….  Megatrends Complexity...

University of Primorska Faculty of Management Prof. dr. Andrej Bertoncelj Organisation Design The road to success is always under repair. Organisational aspects….  Megatrends Complexity Trends Affecting Organisations in the 21st Century Internationalization Five complex inter-linked proceses, and the dynamic characteristics: Flexibility Innovation internationalization (globalization vs glocalization) flexibility (speed) innovation Informatization Marketing Synergy informatization (ICT vs digitalization) Chaos marketing (relation marketing) “Swimming with global trends” (Naisbitt) “Swimming against the current”  Global business environment change 1. Economic relationships (trade) increasingly among economic blocks instead of individual countries 2. Increasing number of strategic alliances 3. Economic restructuring (at national level) will continue intensively and will globalize 4. Strategic leadership essential for competitive success 5. Intense (global) marketing is key in achieving competitive advantage Think globally – Act locally Company! Consumer? & Economy of scale and synergies  In search of new value orientation towards customer and his needs decreased process time (development cycle, market implementation - time to market) parallel activities, which are inter-related (development, production, acquisitions, logistics) multi-disciplinary project teams (development teams) integration of different segments and processes relative decrease of costs abolishment/spin-off of activities, which do not generate “added value” (added value products or services) increased productivity (implementation od new technologies) increased flexibility (modern methods; shoelace theory; right stuff)  FREE FLOW in EU FREE FLOW of: - People - Goods - Capital - Knowledge 1980 working better RE-ENGINEERING 1990 working cheaper OUTSOURCING 2000 working elsewhere OFFSHORING 2022 working anywhere ONLINE ??? World of organisations – How we see it?  Economic model of an Organization Costs INPUT PRODUCTION OUTPUT Revenue Profit = revenues - costs EUOSHA 2004, 69.  Organisation(al) design no “best structure” available no good or bad structures structures either match or not match the strategy The purpose of organisation design: create “right structure”or modify existing structure to fit the implemented strategy  Organisation(al) design Organisation(al) design is the process of: creating selecting changing the structure of a company/corporation.  Organisation(al) design ORGANISATION COMPANY/CORPORATION DESIGN Strategy and Organisation design GOALS STRATEGY DESIGN DEJAVNOSTI ASSETS Structure Programs Material Sistems Directions Non-material Processes/Rules GOALS + STRATEGY = POLICY  Organisation Design Process(es) Structure(s) DESIGN Rule(s) Organisation Design authority & responsibility – Structure vertical division work sharing horizontal division existing rules, conduct and Rules acting for all units, departments… core activities Procesees value creation  Horizontal and Vertical dimension Authority Division of Division of Labor Labor Responsibility Labor division (sharing) + Co-ordination  Organisational structures VERTICAL vs. HORIZONTAL Students’ opinion – Discussion in class  Process(es) Emphasis on FUNCTION Emphasis on PROCESS Managemnet of Management of “functions” “processes” Process(es) - Projects  Organisational process(es) PROCESS vs. FUNCTION Students’ opinion – Discussion in class Continuous adaptation to discontinuous change (Un)certainty of business environment (In)complexity of environment -> influence of environmental factors (In)stability of environment -> frequency and extent of change Continuous change (turbulent environment) Adaptation to change Mechanic vs. organic organizational structure The meaning and importance of adaptation capacity.  Stable and dynamic environments Stable environments do not change frequently and changes are slowly Dynamic environments change frequently and changes are quick COMPLEXITY S T Simple Complex A B Stable 1. Small range of change 1.Large range of change I L 2. Slow and rarely occurring change 2. Faster and more frequent change I T Instable 1.Huge amount of change 1.All-encompassing change Y 2.Quick and frequent change 2.Constant change  The External (Organizational) Environment The external organizational environment includes all elements (factors) existing outside the boundary of the organization that have the potential to affect the organization. The environment includes competitors, resources, technology, and economic conditions that influence the organization. It does not include those events so far removed from the organization that their impact is not perceived. PEST Analysis  Strategic triangle Characteristics of modern company adjusting to discontinuity: flexible with a low latency emphasis on consumers result-centered (not process-centered) Three strategic factors of success: Customer Competition Change 3C C Kenichi Ohmae (Japanesse guru): Corporation Customer Competition C C  Characteristics of “Modern Organization” decrease in number of hierarchy levels emphasis on organization in form of inter-linked autonomous profit centers functional organization is loosing on importance ODD – Outsourcing, Delayering, Deconstruction frequent flow of information within company and with its environment innovation is becoming the winning factor partner relationships with suppliers and customers empowerment of employees autonomous multi-disciplinary team based decision making (team work and decisions) project based organization customer and satisfaction of his needs are at the center of attention emphasis on social responsibility and ethical behaviour Organizational adaptive evolution Adaptive capacity and organisation design  Terminology Formalisation Specialisation Professionalism Centralisation / Decentralisation Departmentalisation Hierarchy / Market Span of Control Chain of Command Unity of Command  Formalisation Formalisation: the amount of written documentation that includes procedures, regulations and different policy manuals of an organisation Formalisation = documentisation Formal structures vs informal structures: how rules and procedures are followed in an organisation Advantages & Disadvantages of formalisation Today’s view about it  Formalisation Advantages increased rationality of an organisation more visible structure of relationships Routine, albeit some formalisation is required for control Disadvantages possible work load discrimination less strict norms and (in)formal behavior less individual involvement  Formalisation Elements of organisational structure Departmentalisation Centralisation Span of Control Formalisation  Specialisation Specialisation is when an individual or an organisation specialises in doing one part of a task, and relies on others to complete the other parts. Describes the degree to which tasks in an organization are divided into separate jobs (division of labor). Basic idea: an entire job is not done by one individual but broken down into steps, and a different person completes each step. Individual employees specialise in doing part of an activity rather than the entire activity.  Benefits of Specialisation Specialisation allows for: greater production: the ability to produce a good or render service using fewer resources than other producers use – comparative advantage choosing the most suitable person for the job practice makes perfect saving time in training saving time in moving around operation making full use of capital goods mechanisation but decline in the quality of craftsmanship work becomes dull and monotonous excessive standardisation of products higher living standards vs than being self-sufficient : a larger volume and a wider choice of goods and services Specialisation results in interdependence. Interdependence is when people depend on one another.  Division of Labor Simple division of labor Complex division of labor (e.g. sub-processes of production) Regional/international division of labor (e.g. conutry specialisation)  Professionalism What is a Professional? knowledge competencies, skills scope of practice (work expirience) values (agreed upon) code or oath accountability professional behavior Professionalism should be achieved, it is not coming automatically.  Characteristics of Profession Value Orientation Autonomy in Decision Making & Action Knowledge Used, Adaptably & Skillfully  Centralisation Centralisation: is the concentration of authority (retaining of power) to make decisions done by the upper level/top managers: decisions consistent with objectives can facilitate coordination can avoid duplication of activities but overburning possibility central authority can easier push for organisational change Decentralisation is the extend to which authority to make decisions is delegated to lower levels of management (delegated or decentralised authority): development of professionalism more authonomy but more competitive climate further training is expensive can lead to duplication of activities/functions  Centralisation vs Decentralisation More Centralisation More Decentralisation stable environment unstable environment decisions are major, significant complexity – diversity, size large organisations decisions are minor, insignificant organisational crisis geographically dispersed high failure risk organisations increase consistency capable upper and lower level reduce costs managers hierarchical decision making open organisational culture upper level managers more involment and flexibility in say – capable/skilled/experinced than lower desire for empowerment level managers retaining say – management desire for control Balancing Centralisation and Decentralisation Equating an Ideal Organisation: empowering of middle and lower level managers to make important decisions top level managers should focus on long-term strategy making change Cost and risks as determinats: the more costly and risky the outcome, the more likely top management is to centralise decision making! Complexity and uncertainty as determinats: the greater the uncertainty and coplexity, the greater the tendency to centralise Consistency (uniformity of policy) favors centralisation  Departmentalisation Departmentalisation is classification and grouping of (work) activities. Five common forms of departmentalisation: Functional departmentalisation Product departmentalisation Geographical departmentalisation Process departmentalisation Customer departmentalisation  Hierarchy & Span of Control Hierarchy of authority: who reports to whom Span of control: number of subordinates reporting to superior Authority Responsibility  Span of Control Managerial span of control: number of employees reporting to the manager AUTHORITY RESPONSIBILITY 5 – 11 subordinates 30 - 40 subordinates Managers can delegate the authority but not the responsibiliy Span of control defines organisational structure: - hierarchical structure (traditional organisations: 7) - flat structure (lean organisations: 30 or more Centralisation →Decentralisation  Unity & Chain of Command The order in which authority and power in organisation is wielded and delegated from top managers to the employees (subordinates). An employee is responsible to one superior, and so on up the organisational hierarchy. Unity & Chain of Command  Division of Labor Remains the fundamental organisational structuring philosophy Division of Labor – People and groups performing different jobs Formal Structure – Official structure of the organisation Informal Structure (Shadow organisation) – Unofficial relationships that develop among an organization’s members. The unofficial relationships are often stronger than the formal relationships. Managers often establish informal relationships outside of the formal structure. Organising As A Management Responsibility Organising: a process of arranging people and resources to work toward a common goal.  Gantt Chart - Projects A Gantt chart is a type of bar chart that illustrates a project schedule. Gantt charts illustrate the start and finish dates of the terminal elements and summary elements of a project. Modern Gantt charts also show the dependency (i.e., precedence network) relationships between activities.  Organising ORGANISING vs. ORGANISATION students’ opinion – Discussion in class  Historical Background Management philosophies and organisation forms change over time to meet new needs The 1st known management ideas were recorded between 3000-4000 B.C.: Sporadic, Widely scattered Span of Control discussed by Egyptians Socrates discussed leadership Plato described work specialisation but some ideas and practices from the past are still relevant and applicable to management today  Historical development of society Pre-industrial society (feudal basis of society, archaic military and state organisations) Industrial society (from taylorism to organic organisation) Today’s post-industrial society (virtual organisations)  Industrial Revolution(s) Two stages of industrialisation Development of an industrial infrastructure – Nationwide Transportation System – Source of cheap power – Technological innovations – Modern Communications – Networked Financial Institutions – Educated Labor Force Creation of capital goods sector  Some time glimps……… 1783 Steam engine (J.Watt) 1835 First steam engine in Slovenia 1844 Telegraph (G. Bell) 1866 Transatlantic underwater cable 1898 Water power plant in Ljubljana (among first in Europe) 1913 Assembly (production) line (H. Ford) 1923 Decentralisation of an organisation (General Motors) 1927 Hawthorn (social) studies 1950 TQM (Total Quality Management) 1965 Commercal use of computers 1995 Commercal use of internet  Organisation as Instruments Mechanistic view Instrument Organisation – from latin world »organom«, meaning means or instrument Organisation as an INSTRUMENT FOR ACHIEVING GOALS  Morgans Organisations as Organisms Organic view EXTERNAL INTERESTS Skupnost INTERNAL INTERESTS interesov Organisations are living / open systems. They depend on their wider environment to meet their needs and are more efficient when needs are met. Adaptation capacity is crucial -THE SURVIVAL OF THE FITTEST. Managers get things done by coordinating and motivating other people. Management is often a different experience from what people expect. Management is defined as the attainment of organizational goals in an effective and efficient manner through planning, organizing, leading, and controlling organizational resources. Turbulent environmental forces have caused a significant shift in the competencies required for effective managers. Traditional management competencies could include a command-and-control leadership style, a focus on individual tasks, and standardizing procedures to maintain stability. New management competencies include the ability to be an enabler rather than a controller, using an empowering leadership style, encouraging collaboration, leading teams, and mobilizing for change and innovation. Management is the attainment of organizational goals in an effective and efficient manner through planning, organizing, leading, and controlling organizational resources. There are certain elements of management that are timeless, but environmental shifts also influence the practice of management. In recent years, rapid environmental changes have caused a fundamental transformation in what is required of effective managers. Technological advances such as social media and mobile apps, the rise of virtual work, global market forces, the growing threat of cybercrime, and shifting employee and customer expectations have led to a decline in organizational hierarchies and more empowered workers.  Organisational design decisions contrast mechanistic and organic organisation explain the relationship between strategy and structure explain how organisational size effects organisational design explain how envriomental changes affect organisational design Students’ opinion – Discussion in class  Mechanistic vs Organic Organisations Mechanistic Organic high specialisation cross-functional teams rigid departmentalisation cross-hierarchical teams narrow span of control wide span of control centralisation decentralisation high formalisation low formalisations clear chain of command free flow of information  Stakeholders PRINCIPALS MANAGERS EMPLOYEES  Traditional organisational schools 1. Scientific management (Taylor) 2. Administrative management (Fayol) 3. Bureaucratic management (Weber)  Scientific management (Taylor, 1856-1915) Frederick. W. Taylor was a manufacturing manager who coined a term “scientific management” to describe the system of industrial management. He was one of the first people to study the behavior and performance of people at work. Often called Taylorism – a theory of management that analysed and synthesised workflows. The systematic study of relationships between people and tasks for the purpose of redesigning the work process to increase efficiency. Main objective was to improve economic efficiency, especially labor productivity. He believed that by increasing specialisation and the division of labor, the production process will be more efficient. The Principles of Scientific Management (1911)  Taylor’s 4 principles 1. Study the way workers perform their tasks, gather all the informal job knowledge that workers posses, and experiment with ways of improving how tasks are performed. 2. Codify the new methods of performing tasks into written rules and standard operating procedures. 3. Carefully select workers who possess skills and abilities that match the needs of the task, and train them to perform the task according to the established rules and procedures. 4. Establish a fair or acceptable level of performance for a task, and then develop a pay system that provides a reward for performance above the acceptable level.  Implementation Problems Rather than sharing performance gains with workers through bonuses, only increased the Managers did not care about the amount of work that each worker workers’ well beings was expected to do. Workers withheld job knowledge to protect their jobs and pay. Workers develop informal work Unhappy workers: more work but rules that discourage high same pay; increase in performance. performance meant fewer jobs and greater layoffs; dissatisfied with monotonous and repetitive jobs. Administrative management (Fayol, 1841-1925) French mining engineer and industrial manager. Administrative management is the process of managing information through employees by performing the storage of info to those within an organisation. Top level management pertains thinking and planning. Fayolism – a theory of management (business administration) that analysed and synthesised the role of management in organisations General and Industrial management (1916).  Fayol’s 14 principles 1. Division of Work Work should be divided among individuals and groups 2. Authority and Responsibility The right to give orders and the power to exact obedience Being accountable Responsibility is naturally associated with authority 3. Discipline Obedience to authority, observance of the rules and norms of performance, efforts for completing the job, respect for superiors and organisation… 4. Unity of Command Each employee receives instructions about particular work from one superior only 5. Unity of Direction “One head and one plan” Teams work under directions of one manager  Fayol’s 14 principles 6. Subordination of Individual to General Interest First priority are general interest of an organisation Emplyees’ interest are often against the interest of an organisation (more money, status…) and that should not be allowed 7. Remuneration “Fair, proper and satisfactory” wages of payment Fair remunaration increases efficiency Foster better relations between managers and workers 8. Centralisation & Decentralisation Centralisation as lowering the role and importance of subordinates On the other hand, decentralisation is increasing the importance of subordinates Proper judgement and effective adjustment between both for better results 9. Scalar Chain & Gang plank Formal line of authority from highest to lowest rank Gang Plank- which a subordinate may contact a superior or his superior in case of emergency  Fayol’s 14 principles 10. Equity Provision of justice and fair treatment. All workers (employees) should be treated equally, free of prejudices and personal likes and dislikes 11. Order “Right place for everything and right man at right place”. Carrier opportunities. Systematic and ordely arragements Increases loyalty 12. Stability of Tenure of Personnel Security of job assurance (long-term employment) Important motivator 13. Initiative Opportunity should be given to employees for new ideas, methods of work Employees should be given necessary level of freedom to create and carry out activities 14. Esprit de Corps Team spirit Harmony and unity. Shared enthusiasm and evotion to common cause. “Divide and rule” should be avoided  5 key functions of management PLANNING ORGANISING CONTROLLING COMMAND DIRECTING Bureaucratic management (Weber, 1864-1920) Bureau – menas small desks (French) Kratein – means to rule (Greek) Bureaucracy – rule by office – all the rules and procedures followed by government and organisations German lawyer and political economist. First administrative thinker, bureaucracy is based upon legal-rational authority “ Bureaucracy is the best form of an organisation. As an organisation, it substitutes a rule of law based on whims of those who happen to govern.” – Max Weber  Weber’s principles Toward a streamlined process 1. Hierarchical authority structure Bureaucratic organisation is based upon hierarchy and hierarchy is based on authority 2. Task specialisation Become an expert 3. Extensive rules 4. Clear goals 5. Merit principle 6. Impersonality Remove emotinal ties. Eliminates favoritism and personal conflict. 7. Committment to and from organisation Lifelong employment and tenure  Bureaucratic organisation An organisation designed to accomplish large-scale administrative tasks sistematically coordinating the work of many employees Advantages Disadvantages policies can be implemented without “red tape” fear or favorism exploit bureaucracy specialisation fear of reaction rationally designed to achieve rigid & inflexible functional performance vulnerability to nepotism hierarchy of authority survival of historical experience formal employees collaboration perpetuation to the spoils system based on position competence and efficiency Red tape: comes from the ribbon used selection and promotion based on by civil servants in Britain qualifications decisions in measure way  10 elements of bureaucracy 1. Precision 2. Speed 3. Unambigious 4. Knowledge 5. Knowledge of files 6. Continuity repeated quality 7. Unit 8. Strict subordination to some extent if you want to have a flexible environment not so much 9. Reduction of friction 10.Reduction of material and personal costs 75  Characteristics and features of bureaucracy 1. High degree of specialisation (division of labor) 2. Defined hierarchy of authority 3. Rationality, Objectivity and Consistency 4. Formal and Impersonal relations 5. Relations based on position 6. Rules and regulations are well-defined 7. Methods are well defined 8. Selection and Promotion basis 9. Authonomy  Fiedler’s Contingency school “no best or universal way to do things” Optimal organisation/leadership style is contingent upon various internal and external constrains, it depends on the nature of the environment to which an organisation relates (adapts) Task-oriented managers: focus on task that best fits the given (unique) situation Effective organisations have proper “fit”  Fiedler’s contingency model Fiedler’s model assumes that group performance depends on: Leadership style described in terms of task motivation and relationship motivation Situational favorableness determined by three factors: 1. Leader-member relations – degree to which a leader is accepted and suported by the group members 2. Task structure – extend to which the task is structured and defined with clear goals and procedures 3. Position power – the ability of a leader to control subordinates through reward and punishment  Key aspects Adapting to changing circumstances No one wants dogmatic and inflexible managers Steve Jobs: - “there is no one right way of leading and that a leader must adjust their style depending on the context” - “Innovation distinguishes between a leader and a follower”.  Adhocracy (Drucker, Mintzberg) a term from Alvin Toffler’s Future Shock Organisational philosophy or style characterised by adaptive, creative, integrative behavior which (in contrast to a bureaucratic style) is flexible and non-permanent and which, therefore, can respond faster to a changing environment. Adhocracy is capable of sophisticated innovation in which the other configurations have the limited capability to become. This kind of structure can be found in a space agency, avant-garde film company, factory manufacturing complex prototypes, and integrated petro-chemicals company. Adhocracy is a problem-solving structure, to invent new ones.  Types of Adhocracy Two Types of Adhocracy: 1. The Operating Adhocracy This type of Adhocracy innovates and solves problems directly on behalf of its clients. Its multidisciplinary teams of experts often work directly under contract, as in the think- tank consulting firm, creative advertising agency, or manufacturing of engineering prototypes. 2. The Administrative Adhocracy This type also functions with project teams, but towards a different end. In Operating Adhocracy, it undertakes projects to serve its clients; in Administrative Adhocracy, it undertakes projects to serve itself. In here, there is sharp distinction between its administrative component and operating core. The operating core is truncated – cut right off the rest of the organisation – so that the administrative component that remains can be structured as an Adhocracy. Organisation structures “It’s all about working together” What is organising as a managerial responsibility? What are the most common types of organisation structures?  Organisation structure & Organisation chart Organisation Structure system of tasks, reporting relationships, and communication that links people and positions within an organisation. Organisation Chart describes the formal structure, how an organisation should ideally work.  Types of Organisational Structures Functional Grouping jobs by functions performed Product Grouping jobs by product line Georaphical Grouping jobs on the basis of territory or geography Process Grouping jobs on the basis of product or customer flow Customer Grouping jobs by customer and needs Hierarhical structure Flat vs Tall Organisation  Management Levels – Delayering Process of reducing the number of levels in the hierarchy of employees in an organization Functional structure Product structure Geographical structure Process structure Customer structure  Matrix organisation Some organisations find that none of the afore-mentioned structures meet their needs. One approach that attempts to overcome the inadequacies is the matrix structure, which is the combination of two or more different structures. Advantages: it facilitates the use of highly specialized staff and equipment. Rather than duplicating functions, resources are shared as needed. Highly specialised staff may divide their time among more than one project. In addition, maintaining functional departments promotes functional expertise, while at the same time working in project groups with experts from other functions fosters cross-fertilisation of ideas.  Matrix structure Management S&M Production Procurement R&D Management Product A Product B Product C Product D  Matrix organisation Advantages: it facilitates the use of highly specialized staff and equipment. Rather than duplicating functions, resources are shared as needed. Highly specialised staff may divide their time among more than one project. In addition, maintaining functional departments promotes functional expertise, while at the same time working in project groups with experts from other functions fosters cross-fertilisation of ideas.  Matrix organisation Disadvantages: organisations arise from the dual reporting structure. The organisation's top management must establish proper procedures for the development of projects and to keep communication channels clear so that potential conflicts do not arise. Top management is responsible for arbitrating conflicts, but in practice power struggles between the functional and product manager can prevent successful implementation of matrix structural arrangements. Large multinational corporations that use a matrix structure most commonly combine product groups with geographic units. Product managers have global responsibility for the development, manufacturing, and distribution of their own product or service line, while managers of geographic regions have responsibility for the success of the business in their regions. General Motors’ Matrix Organization http://www.cio.com/archive/090103/hs_reload.html  Network structure A C B D E F Network structure  Spider net structure informal/formal frequently a preface to capital alliances business concept of advanced companies (e.g. northern Italy) “spider net” Spider nets – company as a part of the net  Interorganisational cooperation: a new view of stategic alliances Organisation 1 Organisation 2 Organisation 3  Organisational Alliances Organisations coordinate some of their operations or link some of their resources to form organisational (business, corporate) alliances. Types of alliances – Horizontal – Vertical – Congeneric – Conglomerate  Inter- relations and inter-independence Three levels of competitiveness: national competitiveness – socio-political situation and economic sanctions competitiveness between companies in the same national economy or competitiveness between companies outside national economies (international competitiveness) product (service) competitiveness National economy Company Products or services Adopted from Dubrovski  3C- Global Collaboration Strategy Cost Forces of product differentiation Capability Context Lower costs Superior capabilities Contextual knowledge Lower costs of work Quick access to capacities Market access Lower costs of materials Tehnical know-how Access to suppliers Lower costs of suppliers Process expertise Institutional relations Lower costs of infrastructure Specialist knowledge Government relations  ICT internet Technology & Communication Interorganisational Information Systems An InterOrganizational System (IOS) is an information system shared by one or more suppliers and customers. The most familiar example of IOSs are Electronic Data Interchange (EDI) systems which provide for the transfer of data between businesses. Electronic Funds Transfer (EFT) systems provide for the transfer of money between financial institutions. Virtual communication (video-conference) Virtualisation of personal relations  Team work Coming together is the beginning, keeping together is progress and working together is success. T Together E Everyone A Achieve M More The need of all employees working together in an organisation is to make it efficient anf effective!  Teamwork Beliefs and Attitudes Sharing Responsibility Individual vs Group Responsibility Open Communication Climate of Trust ?? Conflict Solving Is conflict inevitable? Core competence(s) Core competence  Organisational Restructuring Organisational restructuring vs Corporate restructuring Main causes: Changing Strategy Changing Structural types Downsizing Expanding  Change Management Managment in a stable or in an unstable environment. Differences?