1. BA105: Organizational Behavior Professor Jim Lincoln Week 3: Lecture

2. 2 Organization design II: Session objectives View functional and product organization as ends of an evolutionary continuum along which a series of designs, including matrix, can be arrayed Introduce process and network organization designs as the main forms of modern “flat” or “horizontal” organization Summarize the differences between “old”, mechanistic, vertical organization and “new”, organic, horizontal organization.

3. 3 CEO Cars Prefab Houses Electronics HRMfgMktHRMfgMktHRMfgMkt Product division organization: Organizing around outputs

4. 4 CEO North America Europe Asia Pacific HRMfgMktHRMfgMktHRMfgMkt Regional division organization

5. 5 CEO Home market Education market Corporate market HRMfgMktHRMfgMktHRMfgMkt Customer-type divisions

6. 6 Product organization Alfred Chandler: Strategy and Structure, 1962 Oliver Williamson: Markets and Hierarchies, 1975 Pluses Low interdependence –Easy monitoring of division performance –Coordination by accounting standards –Easy absorption of acquisitions –Top execs freed for strategy Responsiveness to product, customer, & regional concerns Breeds GM skills Good fit to turbulent, heterogeneous environment Good fit to these strategies: –Diversification –Product/customer/region focus Minuses Poor within-function coordination Breeds weak functions Breeds inbred division cultures –Loss of corporate identity High redundancy and cost Excessive management by the numbers –Headquarters out of touch –Rigid, short-term expectations Excessive scale & sprawl

7. 7 Hybrid forms Most large firms are functional/product hybrids: some functions are centralized others are decentralized to the division level The trend in recent years has been to consolidate divisions & centralize functions

8. 8 Lou Gerstner, CEO of IBM on strategic organizational design “I was wrestling with decentralization because at heart I’m a decentralizer, but as I was looking at mail and customer reports, it became increasingly clear to me that the real issue of effectiveness, of winning in the marketplace, was finding ways to make the company work horizontally.” Gerstner has been designing ways to decentralize what he calls, “the things that matter in running a business” but reinforce the things that benefit from size. That means decentralizing some things and centralizing others. “So, while unit managers can expect to define their customers, design their own products, manage most of their costs, and set prices, they’ll be expected to cooperate more on such issues as technology and product announcements, such as the power PC”

9. 9 CEO R&DProduct Division Z Product Division Y Z Manu- facturing Z Engineering Hybrid form: Divisional organization with some functions centralized

10. 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.

11. 11 CEO R&D Product Division Z Product Division Y Z R&D Y Engineering Hybrid form: dotted-line relationship between corporate and divisional R&D

12. 12 Steps in cross-functional coordination: An evolutionary sequence from functional to product organization 1Pure functional organization 2Functional org with product-centered culture 3Liaison roles (employee transfers) 4Cross-functional task forces & teams 5 Integrating roles (product, brand, & account mgrs) 6 Matrix 7 Heavyweight product manager form 8 Fully self-contained product organization

13. 13 Engineer- ing Manu- facturing Marketing General Manager Z Eng Product Z culture A strong product-specific culture helps to coordinate cross-functionally around product Z

14. 14 Engineer- ing Manufac- turing Marketing General Manager Z engineer Z Mfg Z Mkt Temporary or permanent employee transfers help coordinate cross-functionally around product Z

15. 15 Engineer- ing Manufac- turing Marketing General Manager Z Mfg Z Mtg Product Z cross- functional team Cross-functional teams help coordinate around product Z Z Eng

16. 16 Z brand manager Engineer- ing Manufac- turing Marketing General Manager Z Eng Z Mfg Z Mkt Integrating roles: Brand, account, & project managers help coordinate cross-functionally around product Z

17. 17 Product Z manager Engineer- ing Manufac- turing Marketing General Manager Z Eng Z Mfg Z Mkt Matrix

18. 18 Product Z manager Engineer- ing Manufac- turing Marketing General Manager Z Eng Z Mfg Z Mkt “Heavyweight product manager” hybrid form

19. 19 CEO Product WProduct X Product Z EngMfgMktEngMfgMktEngMfgMkt Fully self-contained product divisions

20. 20 Matrix organization Pluses Balances functional and product priorities –Product focus with stronger, less redundant, & better deployed functions than in PD form Forces consensus resolution of disputes Forces a corporate-wide perspective on product/market divisions Good fit where technical & production requirements are high but speed and cost are secondary Good fit to large firms that can afford the infrastructure costs –small firms can achieve similar results with less structure Minuses Costly in time and management overhead Bureaucratic, cumbersome Slow, requires consensus decision-making Unstable– power tends to shift to one side or the other Source of stress, frustration Complex, nonlinear career paths

21. 21 Matrix as culture, not structure Strongly shared commitments to product quality, customer service, and functional expertise (as in Total Quality Mangement) Bartlett and Ghoshal: “Matrix management-- not a structure, a frame of mind.”

22. 22 Week III: Organization Design II Agenda Business: –Class Reps –http://courses.haas.berkeley.edu/spring2004/ba105http://courses.haas.berkeley.edu/spring2004/ba105 login=lincoln; pw=ba105 –Attendance sheet –Face cards!!! –Team assignments Questions re lecture & readings Lecture tie-up Appex case Meet your team members

23. 23 CLASS REPS Section 101: VANNA TRUONG Email: vt55@uclink.berkeley.edu Section 102: MICHAEL LEW Email: mclew@uclink.berkeley.edu Section 103: JULIA UNGER Email: juliau@uclink.berkeley.edu

24. 24 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

25. 25 Process Organization: Grouping by interdependence, not similarity Hammer and Champy: Reengineering the Corporation, 1993 –Identify core business processes Chains of interdependent tasks delivering a product or service to a customer –Create multi-functional teams to run processes –Appoint manager or team as “owner” of each process –Empower teams with authority & information Move decision-making to point of action; customer contact –Revamp accounting and reward systems to orient new structure to customer satisfaction –Shrink functional departments but preserve specialist expertise –Eliminate activities that add no value

26. 26 Top Management Team Process Coordinators Team Process Coordinators Team Process Coordinators New product development process Order fulfillment process Procurement, logistics process

27. 27 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.

28. 28 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

29. 29 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

30. 30 Physical proximity facilitates teamwork and networking Advertising Manu- facturing Finance Legal Designers Suppliers

31. 31 Email Teleconferencing Groupware Knowledge management ERP Online procurement But globalization has dispersed organizations spatially Solution: Information technology facilitates teamwork and networking at a distance

32. 32 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

33. 33 In general, managing flat & networked organizations requires better leadership skills Abandonment of the “Manager as engineer” model (despite “reengineering” termninology) –Less hierarchical command & control –Fewer rules, standards, and procedures –Less detailed and rigid division of labor –No more vertical career Manager as leader model. Strategies and capabilities are: –Teamwork (coordination through mutual adjustment) –Networking and political –Leadership and cultural –Entrepreneurial

34. 34 Summarizing: “Old”, vertical organization: (Tom Burns and G. M. Stalker: The Management of Innovation, 1961) Individual position/job as basic unit of organization Emphasis on structure and functions Tall: many layers Communication is mostly vertical –Top-down decision-making –Bottom-up information flow (feedback) Emphasis on rules and procedures People are specialized and focused Vertical, linear career paths Fixed hours, time-based pay (e.g., salary) Standardized evaluation & reward systems Environment is stable, homogenous Relations with environment handled by specialist boundary-spanners Single strong culture Environment is country of location Ethnocentric

35. 35 “New” organic, horizontal organization Team as basic unit Flat: few layers Horizontal & vertical communication gd gd –Decisions made where information resides –Front-line empowerment Emphasis on processes Emphasis on results and outcomes Flexible work schedule, part-time and temporaries Flexible, horizontal career paths Customized evaluation & reward systems Environment is unstable, heterogeneous Cultural diversity is valued Organization is specialized and focused Densely networked with environment Global environment International (cosmopolitan) centric

36. 36 Appex Case –What are the problems? –Evaluate cause & effect chains producing problems –Critique Ghosh’s design solutions What are the unintended consequences? –Propose alternative solutions that: Better fit the environment, strategy, culture, etc. Are feasible –Cost-effective –Will overcome resistance –Minimize negative spillovers

37. 37 Organizational design or structure as a lever for problem-solving Strategy Input Environment Resources History Output Systems Unit Individual Informal Organization Tasks People Formal Organization

38. 38 What’s Shikhar Ghosh like? Fast Company interviews him on globalization

39. 39 Closing issues in Ghosh’s design strategy How often should an organization change its structure? –Is frequent change a good thing? Is it consistent with the search for “fit?” Should structural changes occur in a particular sequence? Is there virtue in leanness & simplicity even at some cost cost in “fit”? When are structural solutions right and when are nonstructural solutions right?