Structuring the Company for Entrepreneurship

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E  Structure refers to the formal pattern of how people and jobs are grouped and how the activities of different people or functions are connected  Structures are created to bring order and logic to company operations  Once formalized, the structure is not static

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E  Two (2) components (or issues) of structure Differentiation is about the ways decision- making authority is distributed, tasks are grouped, and people are assigned to tasks. Differentiation is about the ways decision- making authority is distributed, tasks are grouped, and people are assigned to tasks. Integration refers to the ways in which people and functions are coordinated. Integration refers to the ways in which people and functions are coordinated.

E  How many levels should there be in the organization?  What should be the targeted span of control?  How centralized or decentralized should operations be?  How formal or informal should structural relations be?  Should the interaction emphasize functional specialization or cross-functional interaction?

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E Answering these questions comes down to four (4) major policy areas:  Specialization—the number and types of specialties to be used or performed in the organization  Shape—the number of people forming departments at each level  Distribution of power—power distribution within and between levels  Departmentalization—the forming of people into departments, groups, or areas

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E Highly Informal Functional Structure Decentralization and Geographically- Organized SBUs with Centralized Structure Matrix Structure/Cross- Functional Teams Greiner (1972) Structural Evolution

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E  Simple structure—highly informal with top- down coordination  Machine bureaucracy—ridged structure with standardized work roles  Organic—limited hierarchy with highly- flexible structure  Divisional—self-contained business unites with separate production and marketing functions for each

E Mechanistic Structure Operating Styles – must be uniform and restricted Operating Styles – must be uniform and restricted Reluctant adaptation – with insistence on holding fast to tried-and-true management principles despite changes in business conditions Reluctant adaptation – with insistence on holding fast to tried-and-true management principles despite changes in business conditions Tight control – through sophisticated control systems Tight control – through sophisticated control systems

E More benign or controllable external environment Conservative management style is more appropriate Mechanistic/bureaucratic structure is effective

E Organic Structure Operating styles – allowed to vary freely Operating styles – allowed to vary freely Free adaptation – by the organization to changing circumstances Free adaptation – by the organization to changing circumstances Loose, informal control – with emphasis on norm of cooperation Loose, informal control – with emphasis on norm of cooperation

E More hostile external environment Management style must be more entrepreneurial Organic structure is needed to facilitate entrepreneurship

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E An entrepreneurial structure is subject to continual experimentation and change “Organizational designs that facilitate variety, change, and speed are sources of competitive advantage. These designs are difficult to execute and copy because they are intricate blends of many different design policies.” -Galbraith, 1995

E Covin and Slevin (1990) propose some additional elements: Managers allowed to freely vary their operating styles Managers allowed to freely vary their operating styles Authority that is assigned based on the expertise of the individual Authority that is assigned based on the expertise of the individual Free adaptation of the organization to changing circumstances Free adaptation of the organization to changing circumstances An emphasis on results rather than processes or procedures An emphasis on results rather than processes or procedures

E Loose, informal controls with an emphasis on a norm of cooperation Loose, informal controls with an emphasis on a norm of cooperation Flexible on-the-job behavior, shaped by requirements of the situation and personality of the employee Flexible on-the-job behavior, shaped by requirements of the situation and personality of the employee Frequent use of group participation and group consensus Frequent use of group participation and group consensus Open channels of communication with free flow of information Open channels of communication with free flow of information

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E Pseudo- entrepreneurial firms Effective entrepreneurial firms Unstructured unadventurous firms Efficient bureaucratic firms Organic Mechanistic Entrepreneurial Conservative MANAGEMENT

E When deciding which type of organizational structure will be most effective, management must decide to what extent the structure is more:  Simple versus Complex  Centralized versus Decentralized  Formal versus Informal  Autonomous versus Integrated  Highly Specialized versus More Generalist  Full-time versus Part-time

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E Ray of Light projects No budget No budget Not approved Not approved Early conceptualizing Early conceptualizing

E Emerging Potential Projects Seed capital Seed capital Approved by Opportunity Review Board Approved by Opportunity Review Board Concept refinement/prototype testing Concept refinement/prototype testing

E Mainstream Development Projects Formal budget Formal budget Approved by senior mgt/directors Approved by senior mgt/directors Formal NPD process Formal NPD process

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E  More innovation because matching characteristics  Innovation clearly corporate-wide task  Likelihood of interfunctional coordination higher  Ray of light and emerging potential projects bring more flexibility and speed to innovation process