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9/28/2015
1
M A N A G E M E N T1st E D I T I O N
Gulati | Mayo | Nohria
Chapter 7
Organizational
Design
ORGANIZATIONAL
PERSPECTIVE
©South-Western, a part of Cengage Learning PowerPoint Presentation by Charlie Cook
Learning Objectives
• Understand the role that organizations play in helping a firm achieve its strategic objectives
• Define the various organizational design decisions that are central to creating an organization that is aligned with a firm’s strategic objectives
• Explain the different forms of organizational structure including functional, divisional, matrix, network, and hybrid and outline the advantages and disadvantages of each form
© South-Western, a part of Cengage Learning 7-2
Learning Objectives
• Determine what organizational choices and leadership approaches correspond to specific life-cycle stages of a business
• Describe how firms are redefining their organizations to better meet the demands of customers and improve their operational efficiency
© South-Western, a part of Cengage Learning 7-3
9/28/2015
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© South-Western, a part of Cengage Learning 1–4
Figure 1.1 - The Pillars of Management
We are here
Organizational DesignOrganizational Design
© South-Western, a part of Cengage Learning 7-5
The formal systems, levers, and decisions an organization adopts or employs in pursuit of its strategy
Why organizing is relevant:
Rule of 150
Why organizing is relevant:
Rule of 150
Robin Dunbar suggested a cognitive limit to the number of people with whom one can maintain
stable social relationships.
• Over 150 employees:– Managers no longer know what all the employees
do
– Employees no longer know what all the other employees do.
– A need for organization comes up
– Multiple ways to organize a company
9/28/2015
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Division of LaborDivision of Labor
© South-Western, a part of Cengage Learning 7-7
Horizontal specialization - The
breadth of activities that are performed in a certain job
Horizontal specialization - The
breadth of activities that are performed in a certain job
The manner in which work in a firm is divided among employeesThe manner in which work in a firm is divided among employees
Vertical specialization - How much
an employee creates, executes, and administers activities in a certain
area of the firm
Vertical specialization - How much
an employee creates, executes, and administers activities in a certain
area of the firm
Division of LaborDivision of Labor
© South-Western, a part of Cengage Learning 7-8
• Advantages
– Creation of highly specialized jobs can help develop expertise or competency in a certain skill or function
– Repetitive and specialized nature of jobs helps in quick and efficient training of new resources
• Disadvantages
– Extreme specialization resulting in tedious repetitive work can lead to low job satisfaction
– Due to high levels of job specialization, firms are unable to prevent turnover
The level of division of labor is related to the expectation
on how long employees will remain with the firm
Recap Chapter 1:
Theories of Management
Recap Chapter 1:
Theories of Management
© South-Western, a part of Cengage Learning 1–9
A focus on how jobs, work, and incentive schemes could be designed to improve productivity using industrial
engineering methods
A focus on how jobs, work, and incentive schemes could be designed to improve productivity using industrial
engineering methods
Scientific management
Scientific management
The belief that organizations must be understood as systems of interdependent human beings who share a
common interest in the survival and effective functioning of the firm
The belief that organizations must be understood as systems of interdependent human beings who share a
common interest in the survival and effective functioning of the firm
Human relations movement
Human relations movement
A view of the firm where effective organizational structure is based on fit or alignment between the organization and
various aspects in its environment
A view of the firm where effective organizational structure is based on fit or alignment between the organization and
various aspects in its environment
Contingent view
Contingent view
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Coordinating MechanismsCoordinating Mechanisms
© South-Western, a part of Cengage Learning 7-10
Those who believe that more control is warranted in organizational design to ensure that jobs are performed
satisfactorily and efficiently
Those who believe that more control is warranted in organizational design to ensure that jobs are performed
satisfactorily and efficiently
Organizers (Scientific
Mgmt)
Organizers (Scientific
Mgmt)
An extreme form of organizational control in which systems are highly formalized and are characterized by
extensive rules, procedures, policies, and instructions.
An extreme form of organizational control in which systems are highly formalized and are characterized by
extensive rules, procedures, policies, and instructions.
Bureaucratic
approach
Bureaucratic
approach
Greater job standardization
Specific definitions of roles and responsibilities
More hierarchical leadership
Close personal surveillance of superiors over subordinates
Not useful in creative environments
Coordinating MechanismsCoordinating Mechanisms
© South-Western, a part of Cengage Learning 7-11
Those who support a more open organizational structure where roles and responsibilities are loosely definedThose who support a more open organizational structure where roles and responsibilities are loosely defined
Behaviorists (Human
Relations Mgmt)
Behaviorists (Human
Relations Mgmt)
A type of organizational control that includes self-supervising teams that are responsible for a set of tasksA type of organizational control that includes self-supervising teams that are responsible for a set of tasks
Clan approach
Clan approach
© South-Western, a part of Cengage Learning 7-12
Figure 7.1 - Bureaucratic and Clan Approaches to Control
Source: Adapted from B. R. Baliga and Alfred M. Jaeger, “Multinational Corporations: Control Systems and Delegation Issues,” Journal of International Business
Studies, Vol. 15, Fall 1984, pp. 25–40
Most fast food restaurants,
many industrial companies
Some start-up, consulting ,
advertising and high tech
companies
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Organizational StructureOrganizational Structure
© South-Western, a part of Cengage Learning 7-13
Organizes a firm in terms of the main activities that need to be performed, such as production, marketing, sales, and accountingOrganizes a firm in terms of the main activities that need to be performed, such as production, marketing, sales, and accounting
Functional structure
Functional structure
Groups diverse functions into separate divisionsGroups diverse functions into separate divisionsDivisional structureDivisional structure
Both divisional and functional managers have equal authority in the organizationBoth divisional and functional managers have equal authority in the organization
Matrix structureMatrix structure
Knowledge workers are organized to work as individual contributors or to be a part of a work cluster that provides a
certain expertise for the organization
Knowledge workers are organized to work as individual contributors or to be a part of a work cluster that provides a
certain expertise for the organization
Network structure Network structure
© South-Western, a part of Cengage Learning 7-14
Figure 7.2 - Three Functions of an Organization
Case study in Organizational Design
A simplified and subjective view of the company
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Hewlett Packard
• Founded in 1939 in a garage in Palo Alto, CA (now Silicon Valley)
HP Functional Organizational structure
• Started out with 1 product
– Oscillator - sold to Walt Disney
• Company grew and organized as a functional
organization with
– sales,
– manufacturing,
– finance and
– human resource departments
© South-Western, a part of Cengage Learning 7-18
Figure 7.3 - Functional Organizational Structure
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Functional FormFunctional Form
© South-Western, a part of Cengage Learning 7-19
• Each functional department conducts its own budgeting and planning processes
• Works well for small businesses and businesses with a limited number of products or services
• Supports:
– Easy flow of communication
– Straightforward approach to supervision
– Reduced level of redundancy
• Best suited for competitive situations that requireefficiency of production or functional expertise
Hewlett Packard Decision MakingHewlett Packard Decision Making
• Additional products:
– HP 12C calculator
– Printers & other products
• One of the employees created a new type of computer
• Hewlett Packard was offered the right of first refusal
• Took too long to make a decision
Hewlett Packard and WozniackHewlett Packard and Wozniack
• Steven Wozniack decided to work with Steven Jobs and create Apple Computer instead
9/28/2015
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HP Product Growth - Sales GrowthHP Product Growth - Sales Growth
HP - Re-organization to product groupsHP - Re-organization to product groups
– HP established a division structure, with each product group becoming a self-sustaining organization responsible for developing, manufacturing and marketing its products. For example:
• Printers
• Plotters
• Computers
• Servers
• Services
© South-Western, a part of Cengage Learning 7-24
Figure 7.4 - Divisional Organizational Structure
9/28/2015
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© South-Western, a part of Cengage Learning 7-25
Silos: A functional or divisional unit that operates by its own rules and guidelines and does not openly share information
with other units
Recent Trends in Organizational DesignRecent Trends in Organizational Design
HP: Impact of Divisional StructureHP: Impact of Divisional Structure
• Same company would get 4 Hewlett Packard salespeople calling on the same purchasing
manager
– receive visits from:
• HP printer salesperson
• HP plotter salesperson
• HP computer salesperson
• HP server salesperson
Hewlett Packard re-organizationHewlett Packard re-organization
• HP response to customer irritation:
– Sell total services and solutions, rather than individual products
• Reorganize into
– Large customers
– Small customers
– Public Sector
– etc
Re-organization by customer type
1 sales executive to call on each corporation
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Divisional FormDivisional Form
© South-Western, a part of Cengage Learning 7-28
• Can be organized around products, geographies, or clients
• Each division is accountable for its own profit and loss
• Employees feel more loyal towards their division rather than function
• Allows greater accountability
• Promotion is based on management capabilities
across divisions rather than functional expertise
All types of divisional forms have their own
advantages and disadvantages
© South-Western, a part of Cengage Learning 7-29
Figure 7.5 - Matrix Organizational Structure
Matrix FormMatrix Form
© South-Western, a part of Cengage Learning 7-30
• Combines the positive elements from different organizational configurations to:
– Cope with strong environmental pressures
– Assist complex internal interrelationships
– Facilitate sharing and optimization of resources
• To facilitate optimized performance, uses:
– Technological expertise within functions
– Horizontal coordination across the functions
• Assigns equal authority to both divisional and
functional managers
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Proctor and Gamble Matrix structureProctor and Gamble Matrix structure
© South-Western, a part of Cengage Learning 7-31
© South-Western, a part of Cengage Learning 7-32
Figure 7.6 - Network Organizational Structure
Network FormNetwork Form
© South-Western, a part of Cengage Learning 7-33
• Uses cross-functional teams and technology to coordinate the work of geographically-dispersed
work groups
• Emphasizes on the informal structure of the firm
– Informal relationships between clusters of workers and cross-functional teams dominate the action of the firm
• Allows firms to quickly to adapt to changes in the marketplace or respond to a competitor’s action
9/28/2015
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<click screenshot for video>
Modern Shed
1. Describe how Modern Shed functions as a modular organization.
2. What are the advantages and disadvantages of Modern Shed’s organizational structure?
© 2015 Cengage Learning
© South-Western, a part of Cengage Learning 7-35
Table 7.1 - Advantages and Disadvantages of Different Organizational Structures
The contingent view describes which type of
organization has the best internal and external fit
Organizational Design LeversOrganizational Design Levers
© South-Western, a part of Cengage Learning 7-36
Are concerned with how decisions are madeAre concerned with how decisions are made
How information should flow through
the organization
How information should flow through
the organization
Who should make decisions regarding
that information
Who should make decisions regarding
that information
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Decision Rights Decision Rights
© South-Western, a part of Cengage Learning 7-37
Rights that include initiating, approving, implementing, and controlling various types of strategic or tactical decisions
Differ based on vertical and horizontal
dimensions
Differ based on vertical and horizontal
dimensions
Delegation: The process by which managers
transfer decision rights to individual employees
Delegation: The process by which managers
transfer decision rights to individual employees
© South-Western, a part of Cengage Learning 7-38
An organizational structure characterized by formal structures that control employee behavior
by concentrating decisions in a top-down, hierarchical fashion
An organizational structure characterized by formal structures that control employee behavior
by concentrating decisions in a top-down, hierarchical fashion
Centralized
organization
Centralized
organization
An organizational structure where key decisions are made at all levels of the firm, not mandated
from the top
An organizational structure where key decisions are made at all levels of the firm, not mandated
from the top
Decentralized
organization
Decentralized
organization
Decision RightsDecision Rights
Informal Structures Informal Structures
© South-Western, a part of Cengage Learning 7-39
• Contribute in defining an organization
• Develop over a period of time
• Not listed in the firm’s bylaws or management practices
• Are affected by organizational changes
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Mutual AdaptationMutual Adaptation
© South-Western, a part of Cengage Learning 7-40
The process by which firms impact the nature of their
overarching industrial environment and adapt their
organization in response to evolving contextual factors
The process by which firms impact the nature of their
overarching industrial environment and adapt their
organization in response to evolving contextual factors
Critically important in industries where change
is a constant, such as technology and fashion
Critically important in industries where change
is a constant, such as technology and fashion
Hewlett Packard had been adapting and re-organizing for the last 20-40 years
Still in process – no end stage
© South-Western, a part of Cengage Learning 7-41
Figure 7.7 - Role of Leadership across Life-Cycle Stages
Source: Adapted from Anthony J. Mayo, Nitin Nohria, and Mark Rennella, Entrepreneurs, Managers, and Leaders: What the Airline Industry Can Teach Us About
Leadership (New York: Palgrave MacMillan, 2009), pp. 1–20.
Organizational FlexibilityOrganizational Flexibility
© South-Western, a part of Cengage Learning 7-42
• Ambidextrous organizations
– Maintain efficiency in current strategic operations while preparing for imminent changes
– Create a separate team to work on future opportunities while the rest of the firm focuses on the primary business
• Advantage - Creates a forum for innovation and creativity
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Recent Trends in Organizational DesignRecent Trends in Organizational Design
© South-Western, a part of Cengage Learning 7-43
CooperationCooperation
Capability
development
Capability
development
Customer-
centric model
Customer-
centric model
CoordinationCoordination
ConnectionConnection
Key Terms
© South-Western, a part of Cengage Learning 7-44
Behaviorists
Bureaucratic approach
Centralized organization
Clan approach
Decentralized organization
Decision rights
Behaviorists
Bureaucratic approach
Centralized organization
Clan approach
Decentralized organization
Decision rights
Functional structure
Matrix structure
Mutual adaptation
Network structure
Organizational design
Organizational structure
Organizers
Silos