1. ECON 308: Employment Decisions Chapters 13 Week 10: Nov. 2, 2012 1

2. Structure of Decision Rights (Ch 13) BUNDLING TASKS INTO JOBS – Specialized versus Broad Task Assignment – Productive Bundling of Tasks BUNDLING OF JOBS INTO SUBUNITS – Grouping Jobs by Function – Grouping Jobs by Product or Geography – Trade-offs between Functional and Product or Geographic Subunits Environment, Strategy, Architecture Matrix Organizations – Mixed Designs – Network Organization – Organizing within Subunits 2

3. Bundling Tasks into Job Subunits Example: FinWare Financial Software Distributor Task 1 Task 3 Task 4 Task 2 Customer Type Individuals Firms Sales Service Function 3

4. Methods of grouping jobs U-form of organization(unitary)(Smokestack) –by functional specialty Sales Finance Engineering Marketing Manufacturing –each primary function in one major sub-unit 4

5. Finware as functional organization 5

6. Specialized task assignment: Assign by function Benefits – Comparative Advantage (Different Skill sets) Sales Technicians – Lower Cross-Training Costs Costs – Foregone complementarities(Car door & Latch) – Coordination Costs: ( Insurance sales, underwritting) – Functional Myopia – Reduced Flexibility 6

7. Incentive Issues Cost of monitoring Broad Bundling and compensation (Faculty) – Teaching – Research Incentive effects – Sales: Commission – Technicians: Customer Satisfaction 7

8. Bundling of Jobs into Sub-units Group by Function – Benefits Coordination within the functional area Promotes functional expertise Hiring and reward structure easier to define – Problems Management must coordinate Information flows poorly across departments Difficult to compensate profitability Wasted time: (Airport Security 4 per flight) 8

9. Bundling of Jobs into Sub-units Group by Geography – Benefits Decentralized decision making authority Managers compensated on performance of division – Problems May ignore interdependencies 9

10. Where Functional Subunits Work Well Small firms Homogeneous products Stable underlying technology 10

11. Methods of grouping jobs U-form of organization (unitary) M-form of organization (multidivisional) Matrix organization –intersecting lines of authority –functional departments address performance reviews and professional development –product/geographic subunits address customer/client needs 11

12. Matrix Organizations: Multidemensional Consumer Products Team Sales Division Business Products Team Service Division Business Sales Department Consumer Sales Department Business Service Department Consumer Service Department 12

13. Chrysler Original: Functional Revised: Product teams – Engineers – Finance – Marketing – Assembly line production Ex. Moon-roof control on cheaper model 13

14. Case Study: IBM Credit Valued at $10 billion in 1993 Reduced the time needed to process credit applications from 6 days to 4 hours – Old task assignment system: Functionally organized Credit Checkers Contract preparers Loan Pricing Document preparation – Reorganized task assignment: Case workers 14

15. IBM Credits Old Functional Organization Credit Department Contracts Department Pricing Department Documents Department General Manager 15

16. IBM Credits Revised Organization Case Worker General Manager 16