Lecture 2 - Organizational Structure

MGT 410 Org. Theory and Design Topic 3: Organizational Structure DR H AMMAD AKBAR Outlines Overview on Organizational structures  Efficiency vs. Learning  Information sharing  Coordination and linkage Organizational design alternatives Organizational structures types, strengths, and...

MGT 410 Org. Theory and Design Topic 3: Organizational Structure DR H AMMAD AKBAR Outlines Overview on Organizational structures  Efficiency vs. Learning  Information sharing  Coordination and linkage Organizational design alternatives Organizational structures types, strengths, and weaknesses 2 Max Weber’s Principles of Bureaucracy  Hierarchical structure  Specialization of labor  Coordination and control through rules and standard operating procedures  Rational-legal authority  Standardization of employment practices  Separation of jobs and people  Formalization of administrative acts, decisions and rules 3  A Sample Organization Chart Source: Richard L. Daft. Organization Theory and Design Eleventh Edition 4 Organization Structure Formal Reporting Relationships  Number of levels, and Span of control Grouping of Individuals  Creation of departments based on: Common tasks, products, geographic proximity, or process. Design of Systems  Communication, coordination, and integration of efforts.  Influences: Economies of scale, Efficiency, Learning, Standardization, and Control systems Horizontal information and coordination reflected in organization chart 5 Information-Sharing Perspective on Structure Vertical and horizontal information flow Traditional organization designed for efficiency?  Centralized authority focused on top level decision-making Learning organization which emphasizes communication and collaboration  Decentralized authority focused on shared tasks and decisions 6  Effi ciency versus Learning Outcomes Source: Richard L. Daft. Organization Theory and Design Eleventh Edition 7 Vertical Information Sharing Vertical linkages coordinate activities between the top and the bottom of the organization Hierarchical referral are the vertical lines which identify the chain of command Rules and Plans create vertical links Reports, computer systems, and written information are vertical information systems 8 Horizontal Information Sharing Horizontal linkage coordinates activities across organizational departments - not traditionally drawn on the organizational chart  Information Systems  Liaison Roles  Task Forces  Full-Time Integrator  Teams 9  Ladder of Mechanisms for Horizontal Linkages Source: Richard L. Daft. Organization Theory and Design Eleventh Edition 10  Teams and Horizontal Coordination Source: Richard L. Daft. Organization Theory and Design Eleventh Edition 11 Relational Coordination High level of horizontal coordination Frequent, timely, problem-solving communication Relationships of shared goals, shared knowledge, and mutual respect 12  Horizontal Coordination and Linkages Source: Richard L. Daft. Organization Theory and Design Eleventh Edition 13 Organization Design Alternatives Required Work Activities Reporting Relationships Departmental Grouping Options 14 Departmental Grouping Options Functional Divisional Multifocused Grouping Grouping Grouping Horizontal Virtual Network Grouping Grouping 15 Functional Structure Activities grouped by common function All specific skills and knowledge are consolidated Promotes economies of scale Slow response to environmental changes Prevalent approach but few companies can respond in today’s environment without horizontal linkages 16  Functional Structure Source: Richard L. Daft. Organization Theory and Design Eleventh Edition 17 Functional: Strengths & Weaknesses 18 Divisional Structure Product structure or strategic business units Divisions organized according to products, services, product groups Good for achieving coordination across functional departments Suited for fast change Loses economies of scale Lacks technical specialization 19  Reorganization from Functional to Divisional Source: Richard L. Daft. Organization Theory and Design Eleventh Edition 20 Divisional: Strengths & Weaknesses 21 Geographic Structure Organizing to meet needs of users/customers by geography Many multinational corporations are organized by country Focuses managers and employees on specific geographic regions Strengths and weaknesses similar to divisional organization 22  Sample Geographic Structure Source: Richard L. Daft. Organization Theory and Design Eleventh Edition 23 Matrix Structure  Multi-focused with strong horizontal linkage  Conditions for Matrix: 1. Share resources across the organization 2. Two or more critical outputs required: products and technical knowledge 3. Environment is complex and uncertain  Allows organization to meet dual demands  Largest weakness is that employees have two bosses and conflicting demands 24  Sample Matrix Organization Source: Richard L. Daft. Organization Theory and Design Eleventh Edition 25 Matrix: Strengths & Weaknesses 26 Horizontal Structure Organization around core processes Processes refers to tasks and activities Shift towards horizontal structure during reengineering Eliminates vertical hierarchy and departmental boundaries 27  Sample Horizontal Structure Source: Richard L. Daft. Organization Theory and Design Eleventh Edition 28 Characteristics of Horizontal Structure Structure is created around cross-functional processes Self-directed teams, not individuals, are dominant players Process owners are responsible for entire process People on the team are given authority for decisions Can increase organization’s flexibility Customers drive the organization, measured by customer satisfaction, employee satisfaction, and financial contribution Culture is one of openness, trust, and collaboration; focus on continuous improvement 29 Horizontal: Strengths & Weaknesses 30 Virtual Networks and Outsourcing Extend horizontal coordination beyond the boundaries of the organization Most common strategy is outsourcing  Contract out certain tasks/functions Virtual or modular structures subcontract most of its major functions to separate companies The virtual network organization serves as a central hub with contracted experts 31  Virtual Network Example Source: Richard L. Daft. Organization Theory and Design Eleventh Edition 32 Virtual Network Strengths and Weaknesses 33 Hybrid Structure Combination of various structure approaches Tailored to specific needs Often used in rapidly changing environments Greater flexibility 34  Example: Typical Chemical Company CEO Corporate Headquarters Staff Oil Division (Functional Structure) Pharmaceuticals Division (Product Team Structure) Plastics Division (Matrix Structure) Copyright © 1998 by Houghton Mifflin Company. All 35 Application of Structural Design Each structure meets different needs and is a tool that can help managers be more effective Structural alignment aligns structure with organizational goals Symptoms of Structural Deficiency:  Decision making is delayed or lacking quality  Organization cannot meet changing needs  Employee performance declines, needs are not meet  Too much conflict 36  Structure to Organization’s Need for Effi ciency vs. Learning Source: Richard L. Daft. Organization Theory and Design Eleventh Edition 37 Design Essentials Structure must provide a framework, linking organization into whole Provide vertical and horizontal linkages Variety of alternatives for grouping Virtual network extends horizontal coordination Matrix structure attempts to achieve balance Managers must find right balance The purpose of the organization chart is to encourage and direct activities 38