1. ENGM 742: Engineering Management and Labor Relations
Organizing and Organizational Theory
Participative Management

2. Organization Theory
Organization Theory is systematic study of organizations that aims to identify basic patterns and regularities in organizational functioning.
Organizational Behavior; primary focus is on individual and group behaviors in organizational settings.

3. Why Study Org. Theory?
Proactive Management in shaping organization to meet competitive challenges
Corporate Downsizing (OB Insight)
Downsizing tends to create:
centralized decision making
greater operational standardization
decreased job autonomy
greater specialization

4. 5 Attributes of Organizations
System Entities
Contrived Systems
Work-Performing Systems
Sociotechnical Systems
Open Systems

5. Organizational Attributes
System Entities: Organizations are best viewed from a system perspective (Ackoff); it is the interaction of the parts taken as a whole that is of interest.

6. Organizational Attributes
Contrived Systems: organizations can be considered as contrived systems in that they only exist as cycles of structured activities.
Work-Performing Systems: Organizations are created to do work

7. Organizations as Systems
Outputs
goods
services
information
waste
economic
development
Inputs
energy
material
people
finances .
Competition
Organization
Political
Technology
Sociological
Educational
Cultural
Environmental Subsystems

8. Deming System Design and Consumer redesign Research Distribution
Production,
assembly, inspection
Suppliers A B C
Tests of processes
machines, methods,
costs

9.  Deming System Productivity Increases Provide jobs and more jobs
Improve
Quality 
Stay in
Business
Capture
Market
Cost decrease due
to less rework, fewer
delays

10. Organizational Attributes
Sociotechnical Systems: people and machines interact with one another in the execution of the organizational task.
Open Systems: systems that interact with and adapt to their environment

11. Organizational Design
Universal Approach
prescribes one best way to design organizations
Weber’s bureaucracy
Taylor’s Scientific Management
Likert’s System 4
Contingency Approach
organizational structure is dependent upon contextual factors
size
technology
environment

12. Formal Structure Dimensions
Centralization
distribution of decision-making authority
Formalization
extent to which actions of organization are governed by written rules & policies
Specialization
extent to which organizational tasks are subdivided into separate jobs

13. Structure Dimensions Mechanistic Intermediate Organic
Centralization High Med Low
Formalization High Med Low
Specialization High Med Low

14. Dimension & Context Organizational Size Small Org. Large Org.
Centralization High Low
Formalization Low High
Specialization Low High

15. Dimension & Context Organizational Technology Mass Prod. Unit/Process
Pooled Inter Reciprocal Inter.
Routine Task Non-routine
Centralization High Low
Formalization Low High
Specialization Low High

16. Dimension & Context Environmental Uncertainty Low Moderate High
Uncertainty Uncertainty Uncertainty
Centralization High Med Low
Formalization High Med Low
Specialization High Med Low

17. Legal Forms of Organization
Sole Proprietorship
Few legal restrictions
Owner forced to make all decisions
Profits taxed once

18. Legal Forms of Organization
Partnership
Two or more partners
Easy to organize
Partners do individual tax
Unlimited liability for partners debts

19. Legal Forms of Organization
Corporations
Owned by shareholders
No liability beyond stock
Taxed twice
Subject to many state and federal controls

20. Legal Forms of Organization
Cooperatives
Owned by users and customers
Usually tax free

21. American Business

22. Business Sales

23. Spans of Control Subordinate training Nature of jobs
Rate of change of activities and personnel
Clarity of delegation
Staff assistance

24. Spans of Control

25. Line and Staff Relationships
Line: Superior/Subordinate relationships typically represented vertically in organizational charts

26. Line and Staff Relationships
Staff: Advisory in nature, degree of influence may vary
Provide advice on request
Recommendations when appropriate
Must be consulted by line but have no direct authority
Concurring authority - veto authority over line

27. Line and Staff Relationships
Service: Centralized support functions
Custodial
Security
Medical

28. Line and Staff Relationships

29. Line and Staff Relationships
Functional: Specialized authority
As binding as line authority
Usually procedural
Budget formats
Computer systems
Cafeteria

30. Organizational Design

31. Organization Structure
Three Key Components of Organization Structures
Organization structure designates formal reporting relationships, including the number of levels in the hierarchy and the span of control of managers and supervisors.
Organization structure identifies the grouping together of individuals into departments and of departments into the total organization.
Organization stricture includes the design of systems to ensure effective communication, coordination, and integration of effort across departments.

32. A Sample Organization Chart
Chief
Accountant
Budget
Analyst
Vice President
Finance
Plant
Superintendent
Maintenance
Manufacturing
Training
Specialist
Benefits
Administrator
Director
Human Resources
CEO

33. Organization Design Alternatives
Departmental Groupings
Functional
Divisional (Product-based)
Geographical
Multifocused (Matrix or Hybrid)
Horizontal
Modular

34. Functional Structure Functional Grouping CEO Engineering Marketing
Manufacturing
Source: Adapted from David Nadler and Michael Tushman,
Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.

35. Functional Structure Context Internal Systems
Environment: Low uncertainty, stable
Technology: Routine, low interdependence
Size: Small to Medium
Goals: Internal efficiency, technical quality
Internal Systems
Operative goals: Functional goal emphasis
Planning and budgeting: Cost basis – budget, statistical reports
Formal authority: Functional managers

36. Functional Structure STRENGTHS:
Allows economies of scale within functional departments
Enables in-depth knowledge and skill development
Enables organization to accomplish functional goals
Is best with only one or a few products
WEAKNESSES:
Slow response time to environmental changes
May cause decisions to pile on top, hierarchy overload
Leads to poor horizontal coordination among departments
Results in less innovation
Involves restricted view of organizational goals
Source: Adapted from Robert Duncan, “What Is the Right
Organization Structure? Decision Tree Analysis Provides the Answer,”
Organizational Dynamics (Winter 1979): 429.

37. Divisional Structure (product-based)
Grouping
CEO
Product Division 1
Product Division 2
Product Division 3
Source: Adapted from David Nadler and Michael Tushman,
Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.

38. Divisional Structure (product-based)
Context
Environment: Moderate to high uncertainty, changing
Technology: Nonroutine, high interdependence among depts.
Size: Large
Goals: external effectiveness, adaptation, client satisfaction
Internal Systems
Operative Goals: Product line emphasis
Planning and budgeting: Profit center basis – cost and income
Formal authority: Product managers

39. Divisional Structure (product-based)
STRENGTHS:
Suited to fast change in unstable environment
Leads to client satisfaction because product responsibility and contact points are clear
Involves high coordination across functions
Allows units to adapt to differences in products, regions, clients
Best in large organizations with several products
Decentralizes decision-making
WEAKNESSES:
Eliminates economies of scale in functional departments
Leads to poor coordination across product lines
Eliminates in-depth competence and technical specialization
Makes integration and standardization across product lines difficult
Source: Adapted from Robert Duncan, “What Is the
Right Organization Structure? Decision Tree Analysis
Provides the Answer,” Organizational Dynamics
(Winter 1979): 431.

40. Geographical Structure
CEO
Apple
Europe
Pacific
France
Products
Asia
Japan
Australia
Americas
Canada
Latin
America/
Caribbean
Sales
Service and
Marketing
to Regions
Source:

41. Matrix Structure President Director Design Mfg Marketing Procure- ment
of Product
Vice
President
Vice
President
Vice
President
Controller
Operations
Manager
Product
Manager A
Product
Manager B
Product
Manager C
Product
Manager D

42. Matrix Structure Context Internal Systems
Environment: High uncertainty
Technology: Nonroutine, many interdependencies
Size: Moderate, a few product lines
Goals: Dual – product innovation and technical specialization
Internal Systems
Operative Goals: Equal product and functional emphasis
Planning and budgeting: Dual systems- by function and by product line
Formal authority: joint between functional and product heads

43. Matrix Structure STRENGTHS: WEAKNESSES:
Achieves coordination necessary to meet dual demands from customers
Flexible sharing of human resources across products
Suited to complex decisions and frequent changes in unstable environment
Provides opportunity for both functional and product skill development
Best in medium-sized organizations with multiple products
WEAKNESSES:
Causes participants to experience dual authority, which can be frustrating and confusing
Means participants need good interpersonal skills and extensive training
Is time consuming; involves frequent meetings and conflict resolution sessions
Will not work unless participants understand it and adopt collegial rather than vertical-type relationships
Requires great effort to maintain power balance
Source: Adapted from Robert Duncan, “What Is the Right
Organization Structure? Decision Tree Analysis Provides the
Answer,”Organizational Dynamics (Winter 1979): 429.

44. Hybrid Structure Functional Structure Product Structure President
Chief
Counsel
Human
Resources
Director
Technology
Vice
President
Financial
Services
Vice Pres.
Product
Structure
Fuels
Vice
President
Lubricants
Vice
President
Chemicals
Vice
President
Sources: Based on Linda S. Ackerman, “Transition Management:
An In-Depth Look at Managing Complex Change,”
Organizational Dynamics (Summer 1982): ;
and Frank Ostroff, The Horizontal Organization,
(New York: Oxford University Press, 1999), Fig. 2.1, 34.

45. Hybrid Structure Context Internal Systems
Environment: Moderate to high uncertainty, changing customer demands
Technology: Routine or nonroutine, with some interdependencies between functions
Size: Large
Goals: External effectiveness and adaptation plus efficiency within some functions
Internal Systems
Operative Goals: Product line emphasis, some functional emphasis
Planning and budgeting: Profit center basis for divisions; cost basis for central functions
Formal authority: Product managers; coordination responsibility resting with functional managers

46. Hybrid Structure WEAKNESSES: STRENGTHS:
Allows organizations to achieve adaptability and coordination in product divisions and efficiency in centralized functional departments
Results in better alignment between corporate-level and division-level goals
Achieves coordination both within and between product lines
WEAKNESSES:
Has potential for excessive administrative overhead
Leads to conflict between division and corporate departments

47. Modular or Activity Network Structure
Accounting Module
Marketing Module
Hub Module
Example Model
Service Module
Manufacturing Module

48. Modular or Activity Network Structure
Context
Environment: High-Moderate Uncertainty
Technology: Routine or nonroutine
Size: Large
Goals: External effectiveness and adaptation
Internal Systems
Operative Goals: Emphasis on key functional activities that establish competitive advantage; outsource all other activities to competent partners
Planning and budgeting: Cost basis for contracted modules
Formal authority: Coordination responsibility resting with hub module

49. Modular or Activity Network Structure
STRENGTHS:
Enables even small organizations to obtain talent and resources worldwide
Gives a company immediate scale and reach without huge investments in factories, equipment, or distribution
Enables the organization to be highly flexible and responsive to changing needs
Reduces administrative overhead costs
WEAKNESSES:
Managers do not have hands-on control over many activities and employees
Requires a great deal of time to manage relationships and potential conflicts with contract partners
There is a risk of organizational failure if a partner fails to deliver or goes out of business
Employee loyalty and corporate culture might be weak because employees feel they can be replaced by contract services

50. Functional (Norwegian)

51. Dictatorial

52. Educational Form

53. Guidelines for Designing Formal Structure
Develop Org Architecture
Task Responsibilities
Vertical reporting Relationships
Grouping of people into departments
Choose between functional and product structures
Implement hybrid structures when needed
Consider a matrix structure if:
Dual requirements for coordination across functions and functional expertise within functions?
Highly uncertain environments?
Need to share human resources across products or product lines? (most likely if small-medium size)
Provide vertical and horizontal info. linkages
Consider reorganization when symptoms of structural deficiency

54. Organizational Design

55. “We trained hard....but it seemed that every time we were beginning to form up into teams we would be reorganized. I was to learn late in life that we tend to meet any new situation by reorganizing; and a wonderful method it can be for creating the illusion of progress while producing confusion, inefficiency, and demoralization.”
Petronius Arbiter, 210 B.C.

56. Symptoms of Structural Deficiency
Decision making is delayed or lacking in quality
The organization does not respond innovatively to a changing environment
Too much conflict is evident

57. Information-Processing Perspective on Structure
Vertical Information Linkages
Used to coordinate and control activities between the top and bottom of an organization
Hierarchical Referral
Rules and Plans
Vertical Information Systems
Horizontal Information Linkages
Refers to the amount of communication and coordination horizontally across organizational departments
Information Systems
Direct Contact
Task Forces
Integrators
Teams

58. The Relationship of Organization Design to Efficiency vs
The Relationship of Organization Design to Efficiency vs. Learning Outcomes
Horizontal Organization
Designed for Learning
Horizontal structure is dominant
Shared tasks, empowerment
Relaxed hierarchy, few rules
Horizontal, face-to-face communication
Many teams and task forces
Decentralized decision making
Dominant
Structural
Approach
Vertical structure is dominant
Specialized tasks
Strict hierarchy, many rules
Vertical communication and reporting systems
Few teams, task forces or integrators
Centralized decision making
Vertical Organization
Designed for Efficiency

59. Participative Management
Combines elements of many systems
Made popular by visits to high quality Japanese manufacturers beginning in the late 1970s and 1980s
One part of the whole

60. "An empowered organization is one in which individuals have the knowledge, skill, desire, and opportunity to personally succeed in a way that leads to collective organizational success." Stephen R. Covey

61. Employee Involvement
“The practice of providing a structure that involves the employee in the search for the best way of accomplishing the tasks that are being done.” (Compton)

62. Key Success Factors Desire for both continuous and radical improvement
Responsibility and authority in the same hands
Organization culture

63. Kaizen (Continuous Improvement)
Process of discovering and eliminating waste in as little time as possible at the lowest cost
Should be performed by all associates (not limited to specialists)
Results in safer work methods, lower costs, better quality and shorter leadtime

64. Kaizen Steps Grasp the current condition (usually the hardest task)
Actual situation
Data
Determine root cause
Ask 5 whys
5 W’s and 1H - what, where, when, who, why, how
Determine and implement countermeasures
Check effectiveness

65. Inter-organizational Relationships
Enduring resource transactions, flows, and linkages that occur among two or more organizations
Organizational Ecosystem
System formed by the interaction of a community of organizations and their environment
Can cut across traditional industry lines
Ex:GE, Westinghouse
Inter-organizational
Framework Model:
ORGANIZATION TYPE
Population
Ecology
Resource
Dependence
Collaborative
Network
Institutionalism
Cooperative
Competitive
Similar
Dissimilar
ORGANIZATION
RELATIONSHIP

66. Inter-organizational Relationships
Frameworks
Resource Dependence
Orgs minimize their dependence on other organizations for the supply of important resources and try to influence the environment to make resources available
Ex: General Motors
Collaborative Network
Orgs join together to become more competitive and to share scarce resources, knowledge, spur innovation, share risks, and cash in on rewards
Emerging alternative to resource dependence theory
Ex: Japanese keiretsu (Toyota & NipponDenzo)

67. Inter-organizational Relationships
Frameworks (cont.)
Population Ecology
Orgs focus on diversity and adaptation within a population (set of orgs engaged in similar activities with similar patterns of resource utilization and outcomes)
Compete for similar resources and customers
Ex: Banks in Ann Arbor competing for customers (online banking, free checking, etc.)
Institutionalism
Orgs survive and succeed through congruence between the organization and the expectations from its environment
Orgs need legitimacy from their stakeholders; a right to exist
Ex: Internal Revenue Service (needed but hated)

68. Inter-organizational Relationships
Supply Chain (example of org ecosystem)
The total sequence of business processes, within a single or multiple enterprise environment, that enable customer demand for a product or service to be satisfied
Supply Chain Management (SCM)
Organization of the overall business processes to enable the profitable transformation of raw materials or products into finished goods and their timely distribution to meet customer demand (Glossary of IMM Definitions)
Set of approaches utilized to efficiently integrate suppliers and clients (comprised of stores, retailers, wholesalers, warehouses, and manufacturers) so merchandise is produced and distributed…
… at the right quantities,
… to the right locations,
… at the right time,
…in order to minimize system wide costs while satisfying service level requests

69. Inter-organizational Relationships
3 Flow Types in SCM
Product – includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs
Information – involves transmitting orders and updating the status of delivery
Finances – consists of credit terms, payment schedules, and consignment and title ownership arrangements
FARMER
(TIER 2 & 3)
DISTRIBUTOR
(TIER 1)
RESTAURANT
(OEM)
CUSTOMER / CONSUMER
Example of a Supply Chain
Material Flow
Information / $$ Flow