Ch 12 Managing Organization Design Functional Structure of Abercrombie & Fitch Divisional Structure of the “Limited”

The Nature of Organizational Design What is organizational design? The overall set of structural elements and relationships among those elements used to manage the total organization. Organizations change continuously For large organization, it can be incomprehensibly complex

Why Are There Different Types of Organizations? Depending on what the product or service is, the management has to structure the organization to met the customer’s needs. Two universal (one best way) perspectives of OD Bureaucratic model & Behavioral model

Bureaucracy: Based on a Legitimate and Formal System of Authority The organization should adopt a distinct division of labor. Develop a consistent set of rules. Establish a hierarchy of positions. Managers should conduct business impersonally to maintain social distance. Employment and promotion should be based on technical expertise, and employees should be protected from arbitrary dismissal. Weber Red Tape | Logical!, Rational! Efficient! Ex: Government, University (form processing)

Behavioral Model A model of organization design consistent with the human relations movement and stressing attention to developing work groups and concern about interpersonal process. More Effective!

Character of Org.: System 1 Design Leadership process includes no perceived confidence and trust. Motivational process taps only physical, security, and economic motives. Communication process is such that information flows downward. Interaction process is closed. Decisions occur at the top. Goal setting occurs at top. Control is centralized. Performance goals are low.

System 4 Organization (Based on Behavioral Model) Leadership process includes perceived confidence and trust. Motivational process taps a full range of motives through participatory methods. Communication flows freely. Interaction process is open. Decisions occur at all levels. Goal setting encourages group participation. Control process is dispersed. Performance goals are high.

System 3, System 2

Situational Influences on OD Idea: Optimal design depends on a set of relevant situational factors. Situational factors play a role in determining the best organization design for any particular circumstance. There are four basic situational factors.

The Basic Situational Factors 1. Core Technology: Most Important Conversion processes used to transform inputs into outputs. 2. Environment: Organizations in stable environments tend to have different kind of design from organizations in unstable environments.

Two Designs Emerged from Stable and Unstable Environments Mechanistic organization: Similar to the bureaucratic or system 1 model; most frequently found in stable environments. Organic organization: Very flexible and informal model of organization design; most often found in unstable and unpredictable environments.

Organizations Characterized by Two Primary Factors: Differentiation: The extent to which the organization is broken down into subunits. Integration: The degree to which the various subunits must work together in a coordinated fashion.

Organizational Size The total number of full-time or full-time equivalent employees. Impact of style and technology Large Vs. Small firms

Organizational life cycle Progression through which organizations evolve as they grow and mature. Stages | Birth  Youth  Midlife  Maturity. Design issues Who deals with it? Bigger Mechanistic, Decentralized

Two Strategy Levels Corporate-level Strategy (Companywide) Specifies actions taken by the firm to gain a competitive advantage by selecting and managing a group of different businesses competing in several industries and product markets. Vs. Business level strategy

Strategy and Organization Designs Organizations can adopt a variety of corporate level strategies. The chosen strategy affects the organizational design. such as: Single-product strategy Functional Departmentalization Mechanistic Design Related diversification High coordination (synergy) Unrelated Diversification Strong Hierarchical reporting system Portfolio approach Arrange various unit under a single umbrella How much decision making Design fits Strategy

Business Level Strategy Business-level Strategy (Competitive) Each business unit in a diversified firm chooses a business-level strategy as its means of competing in individual product markets. These strategies can affect the design of individual businesses within the organization as well the overall organization itself. Possible outcomes? Centralized, decentralized. Defender Strategy Tall, Centralized, Narrow Span, Functional Departmentalization = Bureaucratic Prospecting Strategy~ Opposite! Analyzer Strategy~ in the middle! Competitive Strategy- Focus

Organizational Functions Aggressive marketing strategy calls for separate departments such as advertising, direct sales, and sales promotion. A production strategy can call for manufacturing in diverse locations. Human resource strategy may call for a lesser degree of decentralization. Develop skills of new managers Functional: Marketing, Low Debt!

Basic Forms of Organizational Design U-Form or Functional design: An organizational arrangement based on the functional approach to departmentalization. H-Form or Conglomerate design: An arrangement used by an organization made up of a set of unrelated businesses.

Figure 12.1: Functional or U-Form Design for a Small Manufacturing Company An organizational arrangement based on the functional approach to departmentalization. Coordination!, Dependency!, Advantages similar to Functional Depart. CEO on top of functional areas

Figure 12.2: Conglomerate (H-Form) Design at Pearson PLC An arrangement used by an organization made up of a set of unrelated businesses. Unrelated diversification (Holding company) Independent responsibility Performance Evaluation | Resource Allocation Complexity | Performance!

M-Form or Divisional Design An organizational arrangement based on multiple businesses in related areas operating within a larger organizational framework. Matrix design: (see Figure 12.4) An organizational design based on two overlapping bases of departmentalization. Hybrid design: The use of two or more common forms of organizational design. Related and unrelated diversification

Figure 12.3: Multidivisional (M-Form) Design at The Limited, Inc. based on multiple businesses in related areas operating within an org. framework. Some Centralization! Autonomy and Coordination Market Research | Purchasing Internal competition Cooperation Performance A+

Figure 12.4: A Matrix Organization two overlapping bases of departmentalization Functional Departments Superimposing Product Group Multiple command structure Page 333

Emerging Issues in Organizational Design Team organization: Relies almost exclusively on project type teams, with little or no underlying functional hierarchy. Floating within organization Split large units to smaller units Virtual organization: Has little or no formal structure Few permanent employee and need-based temporary employees, facilities, outsourcing …. Ex: GRC- Global Research Consortium

Emerging Issues in Organizational Design Learning organization: Works to facilitate the lifelong learning and personal development of all its employees while transforming itself to respond to changes and demands Achieve continuous improvement Shell learning center

International Organizational Design International markets create an organization design that fits unique circumstances: Separate international divisions. Extension of product departmentalization. Extension of the multidivisional structure.

Figure 12.5 : Common Organization Designs for International Organizations, A Simple: Levi Strauss

Location departmentalization: Ford Figure 12.5 : Common Organization Designs for International Organizations, B Location departmentalization: Ford

Figure 12.5 : Common Organization Designs for International Organizations, C Location departmentalization as an extension of Product departmentalization

Multidivisional Structure: Branches in Various area! Figure 12.5 : Common Organization Designs for International Organizations, D Multidivisional Structure: Branches in Various area!