1. UGBA105: Organizational Behavior Professor Jim Lincoln Week 3: Lecture on Organizational Design Walter A. Haas School of Business University of California, Berkeley

2. 2 Organization design: Session objectives Discuss organization design as case of “manager as engineer” perspective Contrast vertical (mechanistic) and horizontal (organic) models of design Examine grouping & linking as strategic design decisions

3. 3 What exactly should structure do? Increase efficiency Allow for flexibility Channel individual behavior in desired directions Empower people to accomplish tasks Enable cooperation Fit the informal org, strategy, environment

4. 4 What shouldn’t structure do? Create unmanageable coordination problems Balkanize the organization into warring fiefdoms Disempower and demotivate people Become a weapon in organizational politics Become sacred and ceremonial Breed “bureaucratic personalities” Cause inertia Mire the organization in “red tape” Divert or smother informal ways of accomplishing tasks Provide a safe haven for the incompetent or unmotivated

5. 5 Source: S. Adams, Dogbert’s Big Book of Business, DILBERT reprinted by permission of United Features Syndicate, Inc. It’s easy to rationalize restructurings

6. 6 Two models of structure Mechanistic or vertical Organic or horizontal

7. 7 THE MECHANISTIC or VERTICAL MODEL: I. SCIENTIFIC MANAGEMENT : “Systems so perfect that no one will need to be good” Frederick W. Taylor: The Principles of Scientific Management, 1911. Frank B. Gilbreth: Motion Study, a Method for Increasing the Efficiency of the Workman. New York, D. Van Nostrand Company, 1911. Which always brings to mind….

8. 8 THE VERTICAL (MECHANISTIC) MODEL: II. CLASSICAL ADMINISTRATIVE THEORY Horizontal structuring (grouping) –Narrow division of labor –Employees grouped by task similarity Vertical structuring (linking) –Coordinate by hierarchy of authority Unity of command Scalar chain Span of control Decision-making –Routinize decisions with rules & SOP’s –Delegate routine decisions; manage exceptions Henry Fayol: General and Industrial Management, 1949 L. Gulick and L. Urwick: Papers on the Science of Administration, 1937 J. Mooney: The Principles of Organization, 1947 Max Weber: Essays in Sociology. 1948.

9. 9 Principles of Vertical Structuring

10. 10 CEO “A” Principles of vertical organization: Unity of command, scalar chain, span of control CEO “A” Case 1 Case 2

11. 11 Market- ing Market- ing Engineer ing Engineer ing Manu- facturing Manu- facturing Human Resources Human Resources Manage- ment Manage- ment What’s good about hierarchy as a coordination mode? Account- ing Account- ing

12. 12 As opposed to.. Market- ing Market- ing Human resources Human resources Engin- eering Engin- eering Account- ing Account- ing Manu- facturing Manu- facturing

13. 13 The horizontal (organic) model Broad division of labor –Teams as unit of work Flat hierarchy –Communicate laterally –Coordinate with networks, leadership, and culture Few formal rules & SOP’s –Employees make discretionary decisions at point of action Focus on outputs & processes –Less on inputs Horizontal (zig-zag) career paths

14. 14 “One best way” vs. congruence (or contingency) The vertical model theory was presented as the “one best way” The horizontal model was first presented as a “contingent” design –But lately it is presented as the “one best way” When should managers use one or the other?

15. 15 Let’s return to the basics: Strategic grouping and linking Dividing and coordinating people, activities, and resources so as to maximize efficiency, flexibility, and success Let’s return to the basics: Strategic grouping and linking Dividing and coordinating people, activities, and resources so as to maximize efficiency, flexibility, and success

16. 16 Dimensions to group on Dimensions to group on Inputs –Function, tasks, disciplines, or skills: Outputs –Product, customer, market, region

17. 17 R&D Engineer- ing Manu- facturing General Manager Human resources Sales Product A Product B Product C Functional grouping

18. 18 CEO Cars Prefab Houses Electronics HRMfgMktHRMfgMktHRMfgMkt Product grouping

19. 19 CEO North America Europe Asia Pacific HRMfgMktHRMfgMktHRMfgMkt Regional grouping

20. 20 A hybrid form

21. 21 Finance Professors Lyons, Odean, Stanton Undergrad Program MBA Program PhD Program Undergrad MBA PhD Professor Lyons Professor Odean Professor Stanton Are Haas professors organized by function or product?

22. 22 What’s this? What’s this? Marketing R&D Engineering Manu- facturing Sales Cars Prefab houses Electronics

23. 23 The function - product matrix at the Haas School Accounting FinanceMarketingOBIREAP Under- grad MBA PhD

24. 24 Product Z Engineer- ing Manufac- turing Marketing General Manager Z Eng Z Mfg Z Mkt Coordinating by hierarchy in a matrix

25. 25 Engineer- ing Manufac- turing Marketing General Manager Z Eng Z Mfg Z Mkt Alternatives to hierarchy: (1) leadership

26. 26 Engineer- ing Manufac- turing Marketing General Manager Z Mfg Z Mtg Product Z cross- functional team Alternatives to hierarchy: (2) cross-functional teams Z Eng

27. 27 Engineer- ing Manu- facturing Marketing General Manager Z Eng Z Mfg Z Mkt Product Z culture Alternatives to hierarchy: (3) culture

28. 28 Process organization: Grouping by interdependence General Manager Marketing Manufacturing Engineering Product Manager Prod. B Prod. A

29. 29 Process organization: Grouping by interdependence Hammer and Champy: Reengineering the Corporation, 1993 Identify core business processes Assign & empower teams as “owners” of processes Shrink functional groups but preserve specialist expertise Revamp accounting & reward systems

30. 30 Keep functional expertise but dispense with functional groups “’Create a house Yellow Pages so functional expertise is easy to find even though dispersed. Link experts in a real or electronic network where they can keep each other up to date and can get training and career development help’…’The engineers can have a club. But they can’t work in the same room, and they can’t sit at the same table at the company banquet.’” Thomas A. Stewart: “The search for the organization of tomorrow” Fortune, 5/18/92.

31. 31 Top Management Team Process Coordinators Team Process Coordinators Team Process Coordinators New product development process Order fulfillment process Procurement, logistics process

32. 32 Network organization Small, lean, & focused firms Rely on entrepreneurial, leadership, and networking skills to create and coordinate a division of labor –Examples: Silicon valley New York fashion industry Japanese keiretsu

33. 33 Designers Core Firm Producers Distributors Suppliers Managers Suppliers Distributors IT Services Producers Designers Distributors Suppliers Brokers Full Vertical Integration Full Network Organization Networked Firm HR Services IT Services HR Services Designers Marketers HR Services IT Services

34. 34 Takeaways Finding the right division of labor isn’t easy –Different ways of slicing the organization have their trade-offs –Congruence with strategy, environment and people is key There’s no one right way to coordinate –Apply multiple solutions –Again, congruence is key