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Internal alignment: Determining the structure

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1 Internal alignment: Determining the structure
Chapter 4

2 The Flow…. What shapes internal structures?
Strategic choices in designing internal structures Guidance from evidence Consequences of structures

3 Internal alignment Pay structure
Often called, Internal Equity, it refers to the pay relationships among different jobs/skills/competencies within a single organization Pay structure It refers to the array of pay rates for different work or skills within a single organization. The number of levels, the differentials in pay between the levels, and the criteria used to determine those differences describe the structure.

4 The pay structure should…
Support the organization strategy, Support the work flow Motivate behavior The pay structure should…

5 Structures Vary Among Organizations
The number of levels of work The pay differentials between the levels The criteria

6 Managerial / professional levels at General Electric Plastics (GEP)
Executive Director Leadership Technical/ managerial Professional Provides vision, leadership and innovation to major business segments or functions Directs a significant functional area or smaller business segment Individual contributors leading projects or programs with defined scope and impact, or managers leading functional components with broad scope and impact. Individual contributors managing projects or programs with defined scope and responsibility, or first-tier management of a specialty area Supervisors and individual contributors working on tasks, activities, and/or less complex, shorter duration projects

7 Pay differentials between levels
Consultant Engineer (162,000) 30% Advisor Engineer (Rs.125,000) 28% Lead Engineer (98,000) 26% Systems Engineer (Rs. 78,000) 24% Senior Engineer (Rs. 63,000) 21% Engineer (Rs. 52,000)

8 The criteria…. The criteria Use Value and Exchange value
Content Refers to work performed in a job and how it gets done. Tasks, behaviors, knowledge required etc. Value Refers to the worth of the work; its relative contribution to the organization’s objectives. Use Value and Exchange value Use value reflects the value of goods or services an employee produces in a job Exchange value is whatever the employer and employee agree on for a job Job and person-based structures Job-based structures relies on the work content – tasks, behaviors and responsibilities Person-based structures relies on the employee’s skills, knowledge and competencies.

9 What shapes internal structures
External factors Economic pressures Govt policies, laws Stakeholders Cultures and customs Organization factors Strategy Technology Human capital HR policy Employee acceptance Cost implications Internal structures Levels Differentials Criteria

10 Strategic choices in designing internal structures
Tailoring the pay structure to the internal structure Tailored Versus Loosely coupled McDonald’s low cost, customer focused business strategy 3M’s constant product innovation and short product- design-to-market cycle times Egalitarian Versus Hierarchical Have fewer levels, smaller differentials between adjacent levels Hierarchies values the differences in work content, individual skills, and contributions to the organization

11 Structure B Delayered Structure A Layered Chief Engineer Chief Engineer Engineering Manager Consulting Engineer Senior Lead Engineer Consulting Engineer Lead Engineer Senior Engineer Engineer Associate Engineer Engineer Trainee

12 Consequences of structures
Efficiency Fairness Compliance


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