1. UGBA105: Organizational Behavior Professor Jim Lincoln Week 2: Lecture Organization design: From vertical (mechanistic) to horizontal (organic)

2. 2 Organization design: Session objectives Introduce organization design as “manager as engineer” perspective Understand the legacy of classical design theory Discuss strategic grouping and linking View structure from the congruence perspective Contrast hierarchy with other coordination modes Consider process and network organization as horizontal “organic” forms

3. 3 The Two Faces of Management Manager as engineer: Trained technician who uses a professional body of knowledge to create formal systems that plot strategy, make decisions, incent people, and coordinate units in maximally efficient ways. Manager as leader: Individual who leverages highly personal resources (energy, stamina, charisma, vision, warmth, charm, gregariousness, toughness, daring, know-how) to inspire, empower, and channel the actions of others.

4. 4 Strategy Input Environment Resources History Output Systems Unit Individual Informal Organization Tasks People Formal Organization The Congruence Model

5. 5 What is the formal organization? Formal structure –Grouping (or division of labor or differentiation) Divide work and group people doing similar tasks into distinct jobs and work units –Linking (or coordination or integration) Devise mechanisms of control and coordination to direct activity and create an integrated whole Formal control & information systems (rules, procedures, measurement) –Accounting & finance –Inventory and process control –Human resource

6. 6 Source: S. Adams, Dogbert’s Big Book of Business, DILBERT reprinted by permission of United Features Syndicate, Inc. Why do managers like to change structure?

7. 7 What should structure do? Increase efficiency Allow for flexibility Channel individual behavior in desired directions Empower people to accomplish tasks Enable teamwork Fit the informal org, strategy, environment

8. 8 What shouldn’t structure do? Create unmanageable coordination problems Balkanize the organization into warring fiefdoms Disempower and demotivate people Be a weapon in organizational politics Become sacred and ceremonial Breed “bureaucratic personalities” Cause inertia Mire the organization in “red tape” Divert or smother other ways of doing things Provide a safe haven for the incompetent or unmotivated

9. 9 THE VERTICAL (MECHANISTIC) MODEL: 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….

10. 10 THE VERTICAL (MECHANISTIC) MODEL: CLASSICAL ADMINISTRATIVE THEORY Horizontal structuring (grouping) –Specialization (divide tasks) –Unity of direction (group similar tasks in departments) Vertical structuring (linking) –Unity of command –Scalar chain –Span of control Authority –Fit to responsibility Decision-making –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

11. 11 Horizontal and Vertical Structuring

12. 12 Strategic grouping: Dividing people, activities, and resources so as to maximize efficiency, flexibility, and success

13. 13 Dimensions to group on Inputs – –Function, tasks, disciplines, or skills: Outputs – –Product, customer, market, region

14. 14 R&D Engineer- ing Manu- facturing General Manager Human resources Sales Product A Product B Product C Functional grouping

15. 15 CEO Cars Prefab Houses Electronics HRMfgMktHRMfgMktHRMfgMkt Product grouping

16. 16 CEO North America Europe Asia Pacific HRMfgMktHRMfgMktHRMfgMkt Regional grouping

17. 17 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?

18. 18 Matrix Marketing R&D Engineering Manu- facturing Sales Cars Prefab houses Electronics

19. 19 The discipline – degree program matrix at Haas Accounting FinanceMarketingOBIREAP Under- grad MBA PhD

20. 20 Hybrid forms Most large firms are functional/product hybrids Trend in U. S. in recent years is to centralize functions & consolidate divisions Trend in Japan is to decentralize

21. 21 Hybrid form at Levi Strauss Haas CEO Product Group A Mkt Distribution Sales Manufact. Product Group B Mkt Distribution Sales Manufact. Product Group C Mkt Distribution Sales Manufact. LegalFinanceR&DAcctg.

22. 22 Vertical structuring: The linking (coordination) problem The hierarchical chain of command –Must organizations be hierarchical? (“The iron law of oligarchy” ( Robert Michels, 1915) And alternatives to it

23. 23 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? Account- ing Account- ing

24. 24 The 180 ◦ alternative: mutual adjustment Market- ing Market- ing Human resources Human resources Engin- eering Engin- eering Account- ing Account- ing Manu- facturing Manu- facturing

25. 25 A formal org alternative: rules & standards Market- ing Market- ing Manu- facturing Manu- facturing Account- ing Account- ing Engin- eering Engin- eering Human resources Human resources

26. 26 The choice depends on the level of task interdependence Regional HQ Aircraft Scheduling 1. Pooled Interdependence 2. Sequential Interdependence Product Development ManufacturingSales Hotel AHotel BHotel C OperationsMaintenance Coordination Need? Coordination Method? 3. Reciprocal Interdependence Interdependence

27. 27 CEO “A” Principles of hierarchy: Unity of command, Scalar chain, Span of control CEO “A” Case 1 Case 2 Herbert Simon: “The proverbs of administration.” Public Administration Review 6 (1946):53-67.

28. 28 Product Z manager Engineer- ing Manufac- turing Marketing General Manager Z Eng Z Mfg Z Mkt What principle of vertical structuring does matrix violate?

29. 29 Steps in cross-functional coordination: An evolutionary sequence Pure functional organization Functional org with product-centered culture Liaison roles / employee transfers Cross-functional task forces & teams Integrating roles Matrix “Heavyweight” product manager form Fully self-contained product organization

30. 30 Engineer- ing Manu- facturing Marketing General Manager Z Eng Z Mfg Z Mkt Product Z culture A strong product-specific culture helps to coordinate cross-functionally around product Z

31. 31 Engineer- ing Manufac- turing Marketing General Manager Z Engin Z Mfg Z Mkt Temporary or permanent employee transfers help to coordinate cross-functionally around product Z

32. 32 Engineer- ing Manufac- turing Marketing General Manager Z Mfg Z Mtg Product Z cross- functional team Cross-functional teams help to coordinate around product Z Z Eng

33. 33 Engineer- ing Manufac- turing Marketing General Manager Z Eng Z Mfg Z Mkt Integrating roles: brand, account, & project managers rely on leadership skills to coordinate cross-functionally around product Z

34. 34 Product Z manager Engineer- ing Manufac- turing Marketing General Manager Z Eng Z Mfg Z Mkt Full matrix: What’s the cross-functional coordination device?

35. 35 Product Z manager Engineer- ing Manufac- turing Marketing General Manager Z Eng Z Mfg Z Mkt “Heavyweight product manager” form

36. 36 CEO Product WProduct X Product Z EngMfgMktEngMfgMktEngMfgMkt Fully self-contained product division form

37. 37 Functional organization goods and bads Good Simplicity of design Efficient use of specialists Deepens specialist skill Good fit to function- based strategy Bad Breeds “silos” Pushes coordination up Conflict among groups Poor general mgt skills Poor fit to diversification strategy

38. 38 R&D Engineer- ing Manu- facturing General Manager Human resources Sales Product A Product B Product C Functional organization

39. 39 Product organization goods and bads Good Low interdependence Develops general mgr skills Fits a turbulent environment Fits these strategies: –Product diversification –Product/customer/region focus Bad Breeds weak functions Poor w/in function coordination Isolated divisions High redundancy & cost Headquarters out of touch Short-termism Excessive scale

40. 40 CEO Product WProduct X Product Z EngMfgMktEngMfgMktEngMfgMkt Product organization

41. 41 Matrix organization goods and bads Good Balances functional & product priorities Forces consensus decision making Forces a corporate-wide perspective Fits where quality & service requirements are high but time and cost pressures are low Bad Costly in time and management Unstable Stressful, conflict-prone Nonlinear career paths (?)

42. 42 Product Z manager Engineer- ing Manufac- turing Marketing General Manager Z Eng Z Mfg Z Mkt Matrix organization

43. 43 Matrix as culture, not structure Strongly shared commitments to product quality, customer service, and functional expertise (as in Total Quality Management) Bartlett and Ghoshal: “Matrix management-- not a structure, a frame of mind.” Harvard Business Review, 1990.

44. 44 The problem with the previous designs is that many business processes cut across functions & products General Manager Marketing ManufacturingEngineering Product Manager Prod. B Prod. A

45. 45 Process organization: Grouping by interdependence, not similarity Hammer and Champy: Reengineering the Corporation, 1993 –Identify core business processes –Create and empower multi-functional teams –Revamp accounting & reward systems –Shrink functional groups but preserve specialist expertise –Eliminate low-value added activities

46. 46 Keep functional skills 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.

47. 47 Top Management Team Process Coordinators Team Process Coordinators Team Process Coordinators New product development process Order fulfillment process Procurement, logistics process

48. 48 Network organization Small, lean, specialized firms The “organization” is a network Absence of authority and structure to control and coordinate division of labor –Examples: Japanese keiretsu Silicon valley New York fashion industry Germany’s mittelstand Northern Italy’s furniture industry Ethnic enclaves

49. 49 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

50. 50 Managing process & network organizations Abandonment of the “manager as engineer” (vertical, mechanistic) model –Less hierarchical command & control –Fewer rules, standards, and procedures –Less detailed and rigid division of labor –No more vertical career Embrace of “manager as leader” (horizontal, organic) model –Teamwork (coordination through mutual adjustment) –Networking and political maneuvering –Leadership and culture –Entrepreneurial

51. 51 Email Teleconferencing Groupware Knowledge management ERP Is information technology the answer? It facilitates teamwork and networking

52. 52 IT and the manager’s job Folklore: IT has made organizations flatter, leaner, more flexible, more virtual, more global, less integrated, empowered people, reduced need for rigid control systemsFolklore: IT has made organizations flatter, leaner, more flexible, more virtual, more global, less integrated, empowered people, reduced need for rigid control systems Fact: The effects of IT have been complex & contradictory. It has also disempowered employees by intensifying surveillance, increased written communication and some forms of standardization, created information overloads and shortened attention spansFact: The effects of IT have been complex & contradictory. It has also disempowered employees by intensifying surveillance, increased written communication and some forms of standardization, created information overloads and shortened attention spans

53. 53 Allentown Materials Case What is the structure of the Electronic Products Division, and what are the problems with it? How well aligned is EPD’s structure with its business environment, strategy, corporate culture, and human resource systems? How did the leadership styles of, first, Bennett and then Rogers affect the functioning of the structure? What changes would you recommend for EPD?