1. BA105-1: Organizational Behavior Professor Jim Lincoln Week 2: Lecture

2. 2 Organization design I: Session objectives Introduce organization design as the clearest case of the “manager as engineer” perspective Understand the legacy of classical (“one best way”) design theory Understand principles of grouping and linking Get a feel for strategic organization design from the congruence or “fit” perspective –There is no “one best way” –Every design must be aligned with the organization’s environment, strategy, & internal architecture.

3. 3 Strategy (diversification; innovation) Input Environment (Competition, change) Resources (munificence) History (age, conditions at founding) Output Systems Unit Individual Informal Organization (culture, leadership, networks, politics) Tasks ( technologies, work flows) People (ability, skills, motivation, biases) Formal Organization (job titles, departments, reporting hierarchy, IT & HR systems Organizational Design

4. 4 What is formal organization? Bureaucracy! Meaning what exactly…? 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 rules & measurement systems –Accounting & finance –Inventory and process control –Human resource

5. 5 What should structure do? Provide efficiency in the accomplishment of tasks Coordinate and integrate activities across the organization Allow for flexibility –adjust quickly and smoothly to new conditions –Support creativity & innovation Channel individual behavior in cooperative & productive ways Economize on information processing Empower people to undertake and accomplish challenging tasks Fit the organization’s strategy and environment Align with & support the organization’s culture, networks, incentive systems, etc.

6. 6 What shouldn’t structure do? Cause overspecialization leading to 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” Be a residue or holdover from the past Mire the organization in “red tape” Divert or smother alternative means of channeling & coordinating action Provide a safe haven for the incompetent or unmotivated

7. 7 This week: –Classical and mainstream design perspectives Next week: –Modern “new economy” design perspectives

8. 8 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….

9. 9 The Scientific Management Program: The Origin of Industrial Engineering Time and motion study Reduce physical tasks to elemental units (“therbligs”). Recombine in maximally efficient way Fixed rules & standards for physical task performance Pay geared to performance (piece rates) Production scheduling, equipment design, shop layout Scientific method (measure, experiment) Functional foremanship

10. 10 Oper- ations Foreman Worker AWorker BWorker C Main- tenance Foreman Quality Assurance Foreman Taylor’s Functional Foremanship

11. 11 Line Foreman Worker AWorker BWorker C Main- tenance Quality Assurance The Line and Staff Alternative

12. 12 CLASSICAL ADMINISTRATIVE THEORY Principles of horizontal structuring –Specialization (divide tasks) –Unity of direction (group tasks into departments) Principles of vertical structuring –Unity of command –Scalar chain “Go through channels” –Span of control Principles of authority and decision-making –Centralization: Fit authority to responsibility 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

13. 13 Specialization (Division of Labor)

14. 14 Unity of Direction (Grouping)

15. 15 Principles of Hierarchy: Unity of Command, Scalar Chain, Span of Control

16. 16 CEO “A” Logical flaws in CM: The trade-off between hierarchy & span of control CEO “A” Case 1 Case 2 Herbert Simon: “The proverbs of administration.” Public Administration Review 6 (1946):53-67.

17. 17 Do organizations have to be hierarchical?

18. 18 Market- ing Market- ing Engineer ing Engineer ing Manu- facturing Manu- facturing Human Resources Human Resources Manage- ment Manage- ment Coordination by hierarchy economizes on communication and centralizes control Accounting

19. 19 Coordination by mutual adjustment maximizes communication and diffuses control Marketing Engineer- ing Engineer- ing Manu- facturing Manu- facturing Human Resources Human Resources Accounting

20. 20 Market- ing Market- ing Engineer ing Engineer ing Manu- facturing Manu- facturing Human Resources Human Resources Coordination by rules & standards economizes on hierarchy and communication Accounting

21. 21 Choose the coordination solution that fits the degree of interdependence Regional HQ Aircraft Scheduling 1. Pooled Interdependence 2. Sequential Interdependence Product Development ManufacturingSales Hotel AHotel BHotel C OperationsMaintenance Need for Integration Low Medium High Coordinating Mechanism Rules/standards Hierarchy Mutual Adjustment 3. Reciprocal Interdependence

22. 22 Strategic grouping: Functional and Divisional Organization

23. 23 Strategic grouping dimensions Inputs –Functions, disciplines, or skills: engineering, finance, manufacturing, marketing, accounting, HR, PR, maintenance, quality, legal, logistics, etc. Outputs –Product: attributes, benefits to customers, underlying technology (what does it do? or how does it work?) –Customer: attributes or preferences; ways of buying or using products –Region: (Northeast, midwest; Europe; East Asia)

24. 24 Engineer- ing Manufac- turing Market ing General Manager Human Resources Account- ing Functional organization

25. 25 Engineer- ing Manufac- turing Market- ing General Manager Human Resources Account- ing Product A Product B Product C Functional organization

26. 26 CEO Product A (Cars) Product B (Prefab Houses) Product C (Electronics) HRMfgMktHRMfgMktHRMfgMkt Product division organization

27. 27 CEO North America Europe Asia Pacific HRMfgMktHRMfgMktHRMfgMkt Regional division organization

28. 28 CEO Home market Education market Corporate market HRMfgMktHRMfgMktHRMfgMkt Customer-type divisions

29. 29 OBIR faculty (Chatman, Ding, Freeman, Lincoln, Staw, Tetlock) Undergrad Program MBA Program PhD Program Undergrad MBA PhD Profs. Ding & Lincoln Profs. Chatman & Staw Profs. Freeman & Tetlock Is the Haas teaching mission organized functionally or divisionally?

30. 30 Functional Organization Pluses Lean and simple –Good fit to small, young, focused organizations Functions are efficiently deployed Breeds strong, highly-developed functions Good fit to strategy based on functional capabilities Good fit to a stable, homogenous environment Good coordination of functions across products & markets Minuses High interdependence –Problem of hand-offs & functions becoming “silos” –Puts a heavy coordination burden on top management Poor development of GM skills Hard to monitor performance Poor fit to these strategies: –Diversification –Product, customer, or region focus Poor fit to turbulent, heterogeneous environment

31. 31 Engineer- ing Manufac- turing Market- ing General Manager Human Resources Account- ing Product A Product B Product C Functional organization

32. 32 Next time: Allentown Materials Case Steps in preparation: 1.Assess Allentown’s problems in relation to its strategy and environment 2.Consider all the issues in the case but focus on the strategic design issues of grouping (differentiation) and linking (integration). 3.Analyze cause and effect relationships behind problems »Work back from immediate to root causes »Assess importance of cause-and-effect chains 4.Devise solutions that: »Impact causes »Are consistent and realistic 5.Think about an implementation plan that: »Has few negative spillovers (unintended consequences) »That minimizes alignment problems »That minimizes resistance