Chapter 9 ©2001 South-Western College Publishing Pamela S. Lewis Stephen H. Goodman Patricia M. Fandt Slides Prepared by Bruce R. Barringer University of Central Florida Pamela S. Lewis Stephen H. Goodman Patricia M. Fandt Slides Prepared by Bruce R. Barringer University of Central Florida Designing the Contemporary Organization

Transparency 9-2 © 2001 South-Western Publishing Learning Objectives Slide 1 of 3 1.Explain why organizational design is important for organizational success. 2.Identify the three major components of organizational design. 3.Discuss the four types of organizational structure and the strategic conditions under which each might be appropriate.

Transparency 9-3 © 2001 South-Western Publishing Learning Objectives Slide 2 of 3 4.Describe the factors that affect an organization’s need for coordination and explain how integrating mechanisms can be used to coordinate organizational activities. 5.Explain the concept of locus of decision making and the advantages and disadvantages of centralized and decentralized decision making.

Transparency 9-4 © 2001 South-Western Publishing Learning Objectives Slide 3 of 3 6.Describe organic and mechanistic organizational systems and discuss the relationships between these systems and environmental stability. 7.Describe an adaptive organizational design.

Transparency 9-5 © 2001 South-Western Publishing Organizational Design Defined The way in which the activities of an organization are arranged and coordinated so that its mission can be fulfilled and its goals achieved.

Transparency 9-6 © 2001 South-Western Publishing Components of Organizational Design Overall organizational design is defined by three primary components: Organizational Structure Integrating Mechanisms Locus of Decision Making

Transparency 9-7 © 2001 South-Western Publishing Organizational Structure –Defines the primary reporting relationships that exist within an organization. –The chain of command and hierarchy of responsibility, authority, and accountability are established through organizational structure. –Common forms of organizational structure: Functional structure, division structure, matrix structure, and network structure.

Transparency 9-8 © 2001 South-Western Publishing Functional Structure Slide 1 of 3 Functional Structure –Members of the organization are grouped according to the particular function that they perform within the organization. –Appropriate when an organization’s greatest source of complexity comes from the diverse tasks that must be performed rather than from its products, geographic markets, or consumer groups.

Transparency 9-9 © 2001 South-Western Publishing Functional Structure Slide 2 of 3 Advantages –Facilitates specialization. –Cohesive work groups. –Improved operational efficiency. Disadvantages –Focus on departmental vs. organizational issues. –Difficult to develop generalists needed for top- level management. –Only top-level management held accountable for profitability.

Transparency 9-10 © 2001 South-Western Publishing Functional Structure Slide 3 of 3 PGP, Inc. CEO Marketing Finance Sales Production Human Resources Human Resources

Transparency 9-11 © 2001 South-Western Publishing Divisional Structure Slide 1 of 7 Divisional Structure –Members of the organization are grouped on the basis of common products, geographic markets, or customers served. Types of Divisional Structures –Product divisional Most appropriate for organizations with relatively diverse product lines that require specialized efforts to achieve high product quality.

Transparency 9-12 © 2001 South-Western Publishing Divisional Structure Slide 2 of 7 Types of Divisional Structures –Geographic divisional Most appropriate for organizations with limited product lines that either have wide geographic coverage or desire to grow through geographic expansion. –Customer divisional Most appropriate for organizations that have separate customer groups with very specific and distinct needs.

Transparency 9-13 © 2001 South-Western Publishing Divisional Structure Slide 3 of 7 Advantages –Enhanced coordination. –Better assessment of manager performance and responsibility. –Development of generalist managers. Disadvantages –Managers may lack expertise to operate in wide geographic areas. –Duplication of resources. Product Divisional

Transparency 9-14 © 2001 South-Western Publishing Divisional Structure Slide 4 of 7 Product Divisional Structure: Clariant (abbreviated) CEO Functional Chemicals Functional Chemicals Master- batches Master- batches Fine Chemicals Fine Chemicals Europe Asia/ Pacific Asia/ Pacific Soaps Process Chemicals Process Chemicals Electric Materials Electric Materials Specialty Inter- mediaries Specialty Inter- mediaries

Transparency 9-15 © 2001 South-Western Publishing Divisional Structure Slide 5 of 7 Advantages –Allows for focus on specific new markets. –Good structure for growth along geographic lines. –Adaptable to local needs. Disadvantages –Duplication of product or product/technology efforts. –Coordination and integration are difficult. Geographic Divisional

Transparency 9-16 © 2001 South-Western Publishing Divisional Structure Slide 6 of 7 Disadvantages –May be difficult to manage diverse product lines. Geographic Divisional

Transparency 9-17 © 2001 South-Western Publishing Divisional Structure Slide 7 of 7 Geographic Divisional Structure: Canadian National Railway Company CEO Eastern Canada Division Eastern Canada Division Gulf Division Gulf Division Pacific Division Pacific Division Prairie Division Prairie Division Midwest Division Midwest Division

Transparency 9-18 © 2001 South-Western Publishing Matrix Structure Slide 1 of 3 Matrix Structure –A structure in which the tasks of the organization are grouped along two organizational dimensions simultaneously. –Examples include product/function, product/geographic region, etc.

Transparency 9-19 © 2001 South-Western Publishing Matrix Structure Slide 2 of 3 Advantages –Can achieve simultaneous objectives. –Managers focus on two organizational dimensions, resulting in more specific job skills. Disadvantages –Complex, leading to difficulties in implementation. –Behavioral difficulties from “two bosses.” –Time consuming from a planning/coordination perspective.

Transparency 9-20 © 2001 South-Western Publishing Matrix Structure Slide 3 of 3 A Multinational Matrix Structure: PGP, Inc. CEO VP Cosmetics VP Nail Care VP Skin Care Domestic Europe Asia

Transparency 9-21 © 2001 South-Western Publishing Network Structure Slide 1 of 4 Network Structure –A contemporary organizational structure that is founded on a set of alliances with other organizations that serve a wide variety of functions. Types of Network Structures –Internal network A network structure that relies on internally developed units to provide services to a core organizational unit.

Transparency 9-22 © 2001 South-Western Publishing Network Structure Slide 2 of 4 Types of Network Structures –Stable network A network structure that utilizes external alliances selectively as a mechanism for gaining strategic flexibility. –Dynamic network A network structure that makes extensive use of outsourcing through alliances with outside organizations.

Transparency 9-23 © 2001 South-Western Publishing Network Structure Slide 3 of 4 Advantages –Maximizes the effectiveness of the core unit. –Do more with less resources. –Flexibility. Disadvantages –Fragmentation makes it difficult to develop control systems. –Success is dependent on ability to locate sources. –Difficult to develop employee loyalty.

Transparency 9-24 © 2001 South-Western Publishing Network Structure Slide 4 of 4 Brokers Suppliers Designers Distributors Producers

Transparency 9-25 © 2001 South-Western Publishing Managing Complexity Through Integration Interdependence –The degree to which work groups are interrelated. Three primary levels of work group integration: –Pooled interdependence. –Sequential interdependence. –Reciprocal interdependence.

Transparency 9-26 © 2001 South-Western Publishing Pooled Interdependence Occurs when organizational units have a common resource but no interrelationship with one another Head- quarters B C D A F E

Transparency 9-27 © 2001 South-Western Publishing Sequential Interdependence Occurs when organizational units must coordinate the flow of information, resources, and tasks from one unit to another ABC

Transparency 9-28 © 2001 South-Western Publishing Reciprocal Interdependence Occurs when information, resources, and tasks must be passed back and forth between work groups A C EF D B

Transparency 9-29 © 2001 South-Western Publishing Integrating Mechanisms Slide 1 of 2 Integrating Mechanisms –Methods for managing the flow of information, resources, and tasks within the organization. Three Major Categories of Integrating Mechanisms: –General management systems. –Methods of increasing coordination potential. –Methods of reducing the need for coordination.

Transparency 9-30 © 2001 South-Western Publishing Integrating Mechanisms Slide 2 of 2 Methods of increasing coordination potential Methods of increasing coordination potential Methods of reducing the need for coordination Methods of reducing the need for coordination Integrating mechanisms General management systems General management systems

Transparency 9-31 © 2001 South-Western Publishing Boundary Spanning Roles Boundary Spanning –Lateral relationships that help to integrate and coordinate the activities of the organization. Examples include: –Liaisons, committees, task forces, integrating positions, and interfunctional work teams.

Transparency 9-32 © 2001 South-Western Publishing Locus of Decision Making Slide 1 of 2 Locus of Decision Making –The degree to which decision making is centralized versus decentralized. –Centralized decision making Advantage –Gives top-level management maximum control. Disadvantage –Limits the organization’s ability to respond quickly and effectively to changes in the environment.

Transparency 9-33 © 2001 South-Western Publishing Locus of Decision Making Slide 2 of 2 Locus of Decision Making –Decentralized decision making Advantage –Organizations can respond to environmental change more rapidly and effectively because the decision makers are the people closest to the situation. Disadvantage –Top-level managers lose some control.

Transparency 9-34 © 2001 South-Western Publishing Mechanistic versus Organic Systems Mechanistic Systems –Highly centralized organizations in which decision-making authority rests with top-level management. Organic Systems –Decentralized organizations that push decision making to the lowest levels of the organization in an effort to respond more effectively to environmental change.

Transparency 9-35 © 2001 South-Western Publishing The Impact of Environmental Stability Stable Environments –Environments that experience little change. Turbulent Environments –Environments that are characterized by rapid and significant change.

Transparency 9-36 © 2001 South-Western Publishing Organizational Design for a Changing Environment Adaptive Organization –An organization that eliminates bureaucracy which limits employee creativity and brings the decision makers of the organization closer to the customer.