CHAPTER 16 Managing Organization Design Managing Organization Design Copyright © by Houghton Mifflin Company. All rights reserved. PowerPoint Presentation by Charlie Cook

Copyright © by Houghton Mifflin Company. All rights reserved. 12–2 The Nature of Organization Design Organization Design –The overall set of structural elements and the relationships among those elements used to manage the total organization. –A means to implement strategies and plans to achieve organizational goals. Organization Design Concepts –Organizations are not designed and then left intact. Organizations are in a continuous state of change. –Organization design for larger organizations is extremely complex and has many variations. Organization Design –The overall set of structural elements and the relationships among those elements used to manage the total organization. –A means to implement strategies and plans to achieve organizational goals. Organization Design Concepts –Organizations are not designed and then left intact. Organizations are in a continuous state of change. –Organization design for larger organizations is extremely complex and has many variations.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–3 Universal Perspectives on Organization Design Bureaucratic Model (Max Weber) –A logical, rational, and efficient organization design based on a legitimate and formal system of authority. –Characteristics Adopt a division of labor with each position filled by an expert. Create a consistent set of rules to ensure uniformity in task performance. Establish a hierarchy of positions, which creates a chain of command. Engage in impersonal management; with appropriate social distance between superiors and subordinates. Employment and advancement to be based on technical expertise, and employees protected from arbitrary dismissal. Bureaucratic Model (Max Weber) –A logical, rational, and efficient organization design based on a legitimate and formal system of authority. –Characteristics Adopt a division of labor with each position filled by an expert. Create a consistent set of rules to ensure uniformity in task performance. Establish a hierarchy of positions, which creates a chain of command. Engage in impersonal management; with appropriate social distance between superiors and subordinates. Employment and advancement to be based on technical expertise, and employees protected from arbitrary dismissal.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–4 Bureaucratic Model Advantages –Efficiency in function due to well-defined practices and procedures. –Organizational rules prevent favoritism. –Recognition of and requirement for expertise stresses the value of an organization’s employees. Disadvantages –Organizational inflexibility and rigidity due to rules and procedures. –Neglects the social and human processes within the organization. –Belief in “one best way” to design an organization does not apply to all organizations and their environments. Advantages –Efficiency in function due to well-defined practices and procedures. –Organizational rules prevent favoritism. –Recognition of and requirement for expertise stresses the value of an organization’s employees. Disadvantages –Organizational inflexibility and rigidity due to rules and procedures. –Neglects the social and human processes within the organization. –Belief in “one best way” to design an organization does not apply to all organizations and their environments.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–5 Situational Influences on Organization Design ORGANIZATIONDESIGN Organizational Size Organizational Life Cycle Core Technology Environment

Copyright © by Houghton Mifflin Company. All rights reserved. 12–6 Situational Influences on Organization Design (cont’d) Core Technology –Technology is the conversion processes used to transform inputs into outputs. –A core technology is an organization’s most important technology. –Joan Woodward initially sought a correlation between organization size and design; instead, she found a potential relationship between technology and design. –As the complexity of technology increases, so do the number of levels of management. Core Technology –Technology is the conversion processes used to transform inputs into outputs. –A core technology is an organization’s most important technology. –Joan Woodward initially sought a correlation between organization size and design; instead, she found a potential relationship between technology and design. –As the complexity of technology increases, so do the number of levels of management.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–7 Situational Influences on Organization Design (cont’d) Burns and Stalker –Forms of the organizational environment Stable environments that remain constant over time. Unstable environments subject to uncertainty and rapid change. –Organization Designs Mechanistic organizations that are similar to bureaucratic model; found most frequently in stable environments. Organic organizations that are flexible and informal models; usually found in unstable and unpredictable environments. Burns and Stalker –Forms of the organizational environment Stable environments that remain constant over time. Unstable environments subject to uncertainty and rapid change. –Organization Designs Mechanistic organizations that are similar to bureaucratic model; found most frequently in stable environments. Organic organizations that are flexible and informal models; usually found in unstable and unpredictable environments.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–8 Situational Influences on Organization Design (cont’d) Organizational Size –Defined as the total number of full-time or full-time equivalent employees –Research findings: Small firms tend to focus on their core technology. Large firms have more job specialization, standard operating procedures, more rules and regulations, and are more decentralized. Organizational Life Cycle –A progression through which organizations evolve as they grow and mature—birth, youth, midlife, and maturity. Organizational Size –Defined as the total number of full-time or full-time equivalent employees –Research findings: Small firms tend to focus on their core technology. Large firms have more job specialization, standard operating procedures, more rules and regulations, and are more decentralized. Organizational Life Cycle –A progression through which organizations evolve as they grow and mature—birth, youth, midlife, and maturity.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–9 Strategy and Organization Design Corporate-Level Strategy –Single-product strategy –Related or unrelated diversification –Portfolio approach to managing strategic business units Corporate-Level Strategy –Single-product strategy –Related or unrelated diversification –Portfolio approach to managing strategic business units

Copyright © by Houghton Mifflin Company. All rights reserved. 12–10 Strategy and Organization Design (cont’d) Business-Level Strategy –Defender –Prospecting –Analyzer Generic Competitive Strategies –Differentiation –Cost leadership –Focus Business-Level Strategy –Defender –Prospecting –Analyzer Generic Competitive Strategies –Differentiation –Cost leadership –Focus

Copyright © by Houghton Mifflin Company. All rights reserved. 12–11 Strategy and Organization Design (cont’d) Organizational Functions –Major functions of the organization (e.g., marketing, finance, research and development, and manufacturing) influence an organization’s design. Organizational Functions –Major functions of the organization (e.g., marketing, finance, research and development, and manufacturing) influence an organization’s design.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–12 Basic Forms of Organization Design Functional or U-form (Unitary) Design –Organizational members and units are grouped into functional departments such as marketing and production. –Coordination is required across all departments. –Design approach resembles functional departmentalization in its advantages and disadvantages. Functional or U-form (Unitary) Design –Organizational members and units are grouped into functional departments such as marketing and production. –Coordination is required across all departments. –Design approach resembles functional departmentalization in its advantages and disadvantages.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–13 Functional or U-Form Design for a Small Manufacturing Company CEO Vice president, operations Vice president, marketing Vice president, finance Vice president, human resources Vice president, R&D Scientific director Labor relations director Plant human resource manager Controller Accounting supervisor Regional sales managers District sales managers Plant managers Shift supervisors Lab manager Figure 12.1

Copyright © by Houghton Mifflin Company. All rights reserved. 12–14 Basic Forms of Organization Design (cont’d) Conglomerate or H-form (Holding) Design –Organization consists of a set of unrelated businesses with a general manager for each business. –Holding-company design is similar to product departmentalization. –Coordination is based on the allocation of resources across companies in the portfolio. –Design has produced only average to weak financial performance; has been abandoned for other approaches. Conglomerate or H-form (Holding) Design –Organization consists of a set of unrelated businesses with a general manager for each business. –Holding-company design is similar to product departmentalization. –Coordination is based on the allocation of resources across companies in the portfolio. –Design has produced only average to weak financial performance; has been abandoned for other approaches.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–15 Conglomerate (H-Form) Design at Pearson PLC CEO Publishing operations Entertainment operations Oil services operations Fine china operations Periodicals operations Investment banking operations Figure 12.2

Copyright © by Houghton Mifflin Company. All rights reserved. 12–16 Basic Forms of Organization Design (cont’d) Divisional or M-form (Multidivisional) Design –An organizational arrangement based on multiple businesses in related areas operating within a larger organizational framework. –The design results from a strategy of related diversification. –Some activities are extremely decentralized down to the divisional level; others are centralized at the corporate level. –The largest advantages of the M-form design are the opportunities for coordination and sharing of resources. –Successful M-form organizations can out perform U-form and H-form organizations. Divisional or M-form (Multidivisional) Design –An organizational arrangement based on multiple businesses in related areas operating within a larger organizational framework. –The design results from a strategy of related diversification. –Some activities are extremely decentralized down to the divisional level; others are centralized at the corporate level. –The largest advantages of the M-form design are the opportunities for coordination and sharing of resources. –Successful M-form organizations can out perform U-form and H-form organizations.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–17 Multidivisional (M-form) Design at The Limited, Inc. CEO Bath & Body Works StructureThe LimitedExpress Lerner New York Victoria’s Secret Other chains Figure 12.3

Copyright © by Houghton Mifflin Company. All rights reserved. 12–18 Basic Forms of Organization Design (cont’d) Matrix Design –An organizational arrangement based on two overlapping bases of departmentalization (e.g., functional departments and product categories). –A set of product groups or temporary departments are superimposed across the functional departments. –Employees in the resulting matrix are members of both their departments and a project team under a project manager. –The matrix creates a multiple command structure in which an employee reports to both departmental and project managers. –A matrix design is useful when: There is strong environmental pressure. There are large amounts of information to be processed. There is pressure for shared resources. Matrix Design –An organizational arrangement based on two overlapping bases of departmentalization (e.g., functional departments and product categories). –A set of product groups or temporary departments are superimposed across the functional departments. –Employees in the resulting matrix are members of both their departments and a project team under a project manager. –The matrix creates a multiple command structure in which an employee reports to both departmental and project managers. –A matrix design is useful when: There is strong environmental pressure. There are large amounts of information to be processed. There is pressure for shared resources.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–19 Basic Forms of Organization Design (cont’d) Matrix Design Advantages –Enhances organizational flexibility. –Involvement creates high motivation and increased organizational commitment. –Team members have the opportunity to learn new skills. –Provides an efficient way for the organization to use its human resources. –Team members serve as bridges to their departments for the team. –Useful as a vehicle for decentralization. Matrix Design Advantages –Enhances organizational flexibility. –Involvement creates high motivation and increased organizational commitment. –Team members have the opportunity to learn new skills. –Provides an efficient way for the organization to use its human resources. –Team members serve as bridges to their departments for the team. –Useful as a vehicle for decentralization.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–20 Basic Forms of Organization Design (cont’d) Matrix Design Disadvantages –Employees are uncertain about reporting relationships. –Managers may view design as an anarchy in which they have unlimited freedom. –The dynamics of group behavior may lead to slower decision making, one-person domination, compromise decisions, or a loss of focus. –More time may be required for coordinating task-related activities. Matrix Design Disadvantages –Employees are uncertain about reporting relationships. –Managers may view design as an anarchy in which they have unlimited freedom. –The dynamics of group behavior may lead to slower decision making, one-person domination, compromise decisions, or a loss of focus. –More time may be required for coordinating task-related activities.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–21 A Matrix Organization Figure 12.4

Copyright © by Houghton Mifflin Company. All rights reserved. 12–22 Common Organization Designs for International Organizations CEO A. Separate International Division ProductionMarketingFinance International division B. Location Departmentalization North American operations European operations Asian operations CEO Figure 12.5a

Copyright © by Houghton Mifflin Company. All rights reserved. 12–23 Common Organization Designs for International Organizations (cont’d) D. Multidivisional Structure CEO Subsidiary A (in Germany) Subsidiary C (in France) Subsidiary E (in Taiwan) Subsidiary D (in Japan) Subsidiary B (in United States) C. Product Departmentalization Product manager A CEO Product manager B Product manager C Asia North America Europe Figure 12.5b

Copyright © by Houghton Mifflin Company. All rights reserved. 12–24 Structural Configuration The Simple Structure The simple structure uses direct supervision as its primary coordinating mechanism, has as its most important part its strategic apex, and employs vertical and horizontal centralization. Relatively small corporations controlled by aggressive entrepreneurs, new government departments, and medium-sized retail stores are all likely to exhibit a simple structure. These organizations tend to be relatively young. The CEO (often the owner) retains much of the decision- making power. The organization is relatively flat and does not emphasize specialization. Many smaller U-form organizations are structured in this fashion. Trilogy Software would be an example of a firm using this approach. The Simple Structure The simple structure uses direct supervision as its primary coordinating mechanism, has as its most important part its strategic apex, and employs vertical and horizontal centralization. Relatively small corporations controlled by aggressive entrepreneurs, new government departments, and medium-sized retail stores are all likely to exhibit a simple structure. These organizations tend to be relatively young. The CEO (often the owner) retains much of the decision- making power. The organization is relatively flat and does not emphasize specialization. Many smaller U-form organizations are structured in this fashion. Trilogy Software would be an example of a firm using this approach.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–25 Structural Configuration The Machine Bureaucracy The machine bureaucracy uses standardization of work processes as its prime coordinating mechanism; the technostructure is its most important part; and limited horizontal decentralization is established. Examples include McDonald’s and most large branches of the U.S. government. This kind of organization is generally mature in age, and its environment is usually stable and predictable. A high level of task specialization and a rigid pattern of authority are also typical. Spans of management are likely to be narrow, and the organization is usually tall. Large U-form organizations are also likely to fall into this category. The Machine Bureaucracy The machine bureaucracy uses standardization of work processes as its prime coordinating mechanism; the technostructure is its most important part; and limited horizontal decentralization is established. Examples include McDonald’s and most large branches of the U.S. government. This kind of organization is generally mature in age, and its environment is usually stable and predictable. A high level of task specialization and a rigid pattern of authority are also typical. Spans of management are likely to be narrow, and the organization is usually tall. Large U-form organizations are also likely to fall into this category.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–26 Structural Configuration The Professional Bureaucracy The third form of organization design suggested by Mintzberg is the professional bureaucracy. Examples of this form of organization include universities, general hospitals, and public accounting firms. The professional bureaucracy uses standardization of skills as its prime coordinating mechanism, has the operating core as its most important part, and practices both vertical and horizontal decentralization. It has relatively few middle managers. Further, like some staff managers, its members tend to identify more with their professions than with the organization. Coordination problems are common. The Professional Bureaucracy The third form of organization design suggested by Mintzberg is the professional bureaucracy. Examples of this form of organization include universities, general hospitals, and public accounting firms. The professional bureaucracy uses standardization of skills as its prime coordinating mechanism, has the operating core as its most important part, and practices both vertical and horizontal decentralization. It has relatively few middle managers. Further, like some staff managers, its members tend to identify more with their professions than with the organization. Coordination problems are common.

Copyright © by Houghton Mifflin Company. All rights reserved. 12–27 Structural Configuration The Divisionalized Form The divisionalized form, Mintzberg’s fourth design, exhibits standardization of output as its prime coordinating mechanism, the middle line as its most important part, and limited vertical decentralization. This design is the same as both the H-form and the M-form described earlier. Disney is illustrative of this approach. Power is generally decentralized down to middle management—but no further. Hence each division itself is relatively centralized and tends to structure itself as a machine bureaucracy. As might be expected, the primary reason for an organization to adopt this kind of design is market diversity. The Divisionalized Form The divisionalized form, Mintzberg’s fourth design, exhibits standardization of output as its prime coordinating mechanism, the middle line as its most important part, and limited vertical decentralization. This design is the same as both the H-form and the M-form described earlier. Disney is illustrative of this approach. Power is generally decentralized down to middle management—but no further. Hence each division itself is relatively centralized and tends to structure itself as a machine bureaucracy. As might be expected, the primary reason for an organization to adopt this kind of design is market diversity.