Organizational Design Slides are Courtesy of Professor Joe Labianca

Organization Charts

Example Org Chart: Cox Communications (Metro Newspaper Structure) Publisher GM Finance HR Advertising Controller IT Production

What do organization charts tell us? Basic Information Who reports to whom Who has the ultimate official authority to make decisions Which people are being asked to specialize in what areas

Types of Groupings Groupings for specialization happen around two basic types of groups: Functional groupings (e.g., Accounting, Human Resources, Marketing, Nursing) Divisional groupings Products or Services (e.g., Computer Hardware, Software, IT Consulting Services, Sports Medicine, Plastic Surgery) Geographic Areas (e.g., Northern KY, Southern KY, Eastern KY) Clientele (e.g., Educational institutions, Government, Corporate; Women’s Clinics, Sports Clinics; High Net Worth Banking)

Functional vs. Divisional Grouping Structures CEO Human Resources Sales Accounting Divisional Structure CEO Hardware Software Consulting HR Sales Acct HR Sales Acct HR Sales Acct

The Apple-Orange Company Structure (Part One) How will you structure your company? Functional? Divisional? Why do you prefer this structure? What are the advantages? What are the disadvantages? List the criteria you are considering when making this decision Are there other pieces of information you wished you had as you were making the decision? What were they?

Possible Functional Structure for Apple-Orange John Carl Sales Salespeople (Apples, Oranges, Pears, Broccoli, Grapes, Eggplant) Production Grow & Harvest Field Workers Research Researchers

Functional Structure Strengths Enables in-depth knowledge and skill development within the functional area (e.g., all researchers can learn from each other, regardless of what product they are currently researching) Allows economies of scale within functional departments (e.g., might not need as many workers or managers because of less duplication) Very efficient; helps to minimize costs Weaknesses Leads to poor horizontal coordination among departments Involves restricted view of organizational goals (functional silo mentality) May cause decisions to pile on top, creating overload at top of hierarchy Slow response time to environmental changes Results in less innovation Works best when there are few products Low in adaptability

Possible Divisional Structure for Apple-Orange John Carl Apple Division Salespeople (Apples) Orange Division Field Workers (Apples) Researchers (Apples) Salespeople (Oranges) Field Workers (Oranges) Researchers (Oranges) Pear Division Broccoli Division Grapes Eggplant Salespeople (Pears) Field Workers Researchers (Broccoli) (Grapes) (Eggplant)

Example Divisional Structure: IBM (pre-June 2002) CEO Hardware Software Services Global Finance HR Finance Sales IT HR Finance Sales IT HR Finance Sales IT HR Finance Sales IT

Divisional Structure Strengths Allows divisions to adapt to differences in products, geographic regions, and clients Decentralizes decision-making Suited to fast change in unstable environments Best in large organizations with several products Highly adaptable Weaknesses Leads to poor coordination across product lines Eliminates economies of scale in functional departments Restricts in-depth competence and technical specialization in a functional area Very inefficient; great deal of duplication

The Apple-Orange Company Structure (Part Two) Imagine that you chose the functional grouping in Part One As the company continues to grow, the decision is made to diversify into the following products: Pears Eggplant Grapes Broccoli

The Apple-Orange Company Structure (Part Two, continued) Now place yourself in the role of the Vice-President of Research. What problems do you foresee happening as the number of products proliferates? What will happen to the VP of Sales? The VP of Production?

The Apple-Orange Company Structure (Part Three) Now imagine that you chose the divisional grouping in Part One. As the company continues to grow, the decision is made to diversify into the following products: Pears Eggplant Grapes Broccoli

The Apple-Orange Company Structure (Part Three, continued) What problems do you foresee happening as the number of products proliferates?

The Organizational Environment’s Role in Determining Structure

An Organization’s Environment International Context (j) International Sector (a) Industry Sector (i) Socio-cultural Sector DOMAIN (b) Raw Materials Sector (h) Government Sector (c) Human Resources Sector ORGANIZATION (g) Economic Conditions Sector (d) Financial Resources Sector (f) Technology Sector (e) Market Sector

Environmental Sectors Industry Competitors, industry size & competitiveness, related industries Market Customers, clients, potential users of products and services Raw materials Suppliers, manufacturers, real estate, services Human resources Labor market, employment agencies, universities, training schools, employees in other companies, unionization, illegal immigration Financial Stock markets, banks, savings and loans, private investors Technology Production techniques, science, information technology General economic condition Recession, unemployment rate, inflation rate, rate of investment, economics, growth Government City, state, federal laws and regulations, taxes, services, court system, political processes Sociocultural Demographics, values, beliefs, education, religion, work ethic, consumer and green movements International Competition from and acquisition by foreign firms, entry into overseas markets, foreign customs, regulations, exchange rates

Relationship Between Structure and Environment Functional Structure Divisional Structure Flexibility Change Innovation Dominant Structural Approach Efficiency Reliability Reducing Costs Simple, Stable Environments Complex, Unstable Environments Environmental Uncertainty

What happens between the extremes? Simple, stable environments = functional structures Complex, unstable environments = divisional structures Q. What happens when you have a: simple, but unstable environment (e.g., fashion industry)? complex, but stable environment (e.g., universities, hospitals)? Organizations use: hybrid structures matrix structures

Possible Matrix Structure for Apple-Orange John Carl Apple Division Salespeople (Apples) Orange Division Field Workers (Apples) Researchers (Apples) Salespeople (Oranges) FieldWorkers (Oranges) Researchers (Oranges) Pear Division Broccoli Division Grapes Eggplant Salespeople (Pears) Field Workers Researchers (Broccoli) (Grapes) (Eggplant) VP of Sales VP of Production VP of Research

Matrix Structures Provides opportunity for both functional and product skill development Flexible sharing of human resources across products, while still promoting efficiency goals Team-based approach can be useful for satisfying customers’ dual concerns for innovation and cost-savings Causes employees to experience dual authority (e.g., product manager and functional manager), which can be frustrating and confusing Meetings, meetings, and more meetings Is time consuming; involves frequent meetings and conflict resolution sessions Conflict between division heads and functional dept heads is pushed down onto employees Will not work unless participants, particularly managers, understand it and adopt collegial rather than vertical-type relationships; often requires adoption of 360 degree reviews Means employees need good interpersonal skills and extensive training, particularly in conflict resolution Best in medium-sized organizations with multiple products

Possible Hybrid Structure for Apple-Orange John Carl Apple Division Orange Division Field Workers (Apples) Researchers (Apples) Field Workers (Oranges) Researchers (Oranges) Pear Division Broccoli Division Grapes Eggplant Field Workers (Pears) Researchers (Broccoli) (Grapes) (Eggplant) Salespeople (Apples, Oranges, Pears, Broccoli, Grapes, Eggplant)

Hybrid Structures Allows organization to balance achieving some adaptability and coordination in product divisions and some efficiency in centralized functional departments Achieves some degree of coordination both within and between product lines Leads to conflict between divisions and corporate departments Has potential to favor the creation of excessive administrative overhead in the corporate departments

What is the best organizational structure? It depends No way of grouping people is perfect Every structure has its advantages and disadvantages

What determines the choice of structure? Environmental Uncertainty Uncertainty is driven by two main factors: Environmental complexity the number and similarity of elements (e.g., suppliers, customers, regulators) in the organization’s environment Environmental dynamism the rate of change in the elements in the organization’s environment

Example of a Hybrid Structure: Sun Petrochemical President Functional Structure Chief Counsel Human Resources Director Technology Vice President Financial Services Vice Pres. Product Structure Fuels Vice President Lubricants Vice President Chemicals Vice President

Matrix Example: Harland Checks’ Functional Matrix VP Customer Care IT Milton Process & Quality Reporting & Forecasting HR & Training Sales & Mktg Salt Lake City Atlanta

Guidance for Examination on Monday It will, unfortunately, be closed book Exam will cover the following topics: Motivation Personality and Individual Differences Organizational Design You can use translation software You can use laptop (but no consulting slides or online sources when completing exam)

How to Prepare for Exam I Exam will be in-class on Monday. Questions will all be short essay questions. You are being asked by your supervisor to provide your informed opinion about how best to identify and manage important individual differences (both visible ones, like gender and age, and less visible ones, like personality) at work. What advice would you provide and why? You are managing a new team at work and are considering how best to motivate them. Identify any three theories of motivation we have discussed in class and explain how they could be useful to you in both conceiving and defending your approach to motivating your team. Be sure to identify both the potential advantages and disadvantages of each approach. You have been asked to rethink the appropriate organizational design for your growing company. Which factors will you want to consider in making your decision? Which structure would you pick and why. Be sure to identity the potential advantages and disadvantages of each approach.

Resources for Motivation Theories https://www.goldsmithibs.com/resources/free/Motivation/notes/Summary%20-%20Motivation.pdf