Organization design Chapter 11

Organization design Chapter 11
Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Learning Objectives 11.1 Describe six key elements in organizational design Contrast mechanistic and organic structures Discuss the contingency factors that favor either the mechanistic model or the organic model of organizational design Describe traditional organizational design options Discuss organizing flexibility in the twenty-first century. Develop your skill at acquiring and using power. Know how to stay connected and “in the loop” when working remotely. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Defining Organizational Structure
The formal arrangement of jobs within an organization. Organizational Design A process involving decisions about six key elements: Work specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Some Purposes of Organizing
Divides work to be done into specific jobs and departments. Assigns tasks and responsibilities associated with individual jobs. Coordinates diverse organizational tasks. Clusters jobs into units. Establishes relationships among individuals, groups, and departments. Establishes formal lines of authority. Allocates and deploys organizational resources. Copyright © 2019 Prentice Hall, Inc. All rights reserved. Figure 10.1

Organizational Structure
Work Specialization The degree to which tasks in the organization are divided into separate jobs with each step completed by a different person. Overspecialization can result in human diseconomies from boredom, fatigue/tiredness, stress, poor quality, increased absenteeism, and higher turnover. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Exhibit 11-2 Economies and Diseconomies of Work Specialization
But, as Exhibit 11-2 illustrates, a good thing can be carried too far. At some point, the human diseconomies from division of labor—boredom, fatigue, stress, low productivity, poor quality, increased absenteeism, and high turnover—exceed the economic advantages. Most managers today continue to see work specialization as important because it helps employees be more efficient. At some point, however, work specialization no longer leads to productivity. Exhibit 11-2 shows the economies and diseconomies of work specialization. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Departmentalization by Type
Functional Grouping jobs by functions performed Product Grouping jobs by product line Geographic Grouping jobs on the basis of territory or geography Process Grouping jobs on the basis of product or customer flow Customer Grouping jobs by type of customer and needs Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Functional Departmentalization
Advantages Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations Coordination within functional area In-depth specialization Disadvantages Poor communication across functional areas Limited view of organizational goals Copyright © 2019 Prentice Hall, Inc. All rights reserved. Figure 10.2a

Geographical Departmentalization
Advantages More effective and efficient handling of specific regional issues that arise Serve needs of unique geographic markets better Disadvantages Duplication of functions Can feel isolated from other organizational areas Copyright © 2019 Prentice Hall, Inc. All rights reserved. Figure 10.2b

Product Departmentalization
+ Allows specialization in particular products and services + Managers can become experts in their industry + Closer to customers – Duplication of functions – Limited view of organizational goals Source: Bombardier Annual Report. Copyright © 2019 Prentice Hall, Inc. All rights reserved. Figure 10.2c

Process Departmentalization
+ More efficient flow of work activities – Can only be used with certain types of products Copyright © 2019 Prentice Hall, Inc. All rights reserved. Figure 10.2d

Customer Departmentalization
+ Customers’ needs and problems can be met by specialists - Duplication of functions - Limited view of organizational goals Copyright © 2019 Prentice Hall, Inc. All rights reserved. Figure 10.2d

Cross-Functional Team
Cross-functional team: a work team composed of individuals from various functional specialties. Especially used as work tasks have become more complex and diverse skills are needed to accomplish those tasks. Another popular trend is the use of teams, especially as work tasks have become more complex and diverse skills are needed to accomplish those tasks. One specific type of team that more organizations are using is a cross-functional team, a work team composed of individuals from various functional specialties. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

LEADER MAKING A DIFFERENCE
Chairman and CEO of Haier Group, Zhang is considered to be one of China’s leading corporate executives. He was responsible for turning his company into a global brand with almost $30 billion in revenue. He did this by promoting efficient mass production, setting a high standard of quality and by using self-managed groups. Zhang believes success requires a different competency. So he reorganized the company into self-managed groups, each devoted to a customer or group of similar customers. What can you learn from this leader making a difference? Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Organization Structure (cont’d)
Chain of Command The continuous line of authority that extends from upper levels of an organization to the lowest levels of the organization and clarifies who reports to who. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Authority The rights inherent in a managerial position to tell people what to do and to expect them to do it. Responsibility The obligation or expectation to perform. Unity of Command The concept that a person should have one boss and should report only to that person. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Span of Control The number of employees who can be effectively and efficiently supervised by a manager. Width of span is affected by: Skills and abilities of the manager. Employee characteristics: personality, skills.. Characteristics of the work being done. Similarity of tasks. Complexity of tasks. Standardization of tasks . Physical proximity of subordinates. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Contrasting Spans of Control
Copyright © 2019 Prentice Hall, Inc. All rights reserved. Figure 10.3

Centralization The degree to which decision-making is concentrated at a single point in the organizations. Organizations in which top managers make all the decisions and lower-level employees simply carry out those orders. Decentralization Organizations in which decision-making is pushed down to the managers who are closest to the action. Employee Empowerment Increasing the decision-making made by employees. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Factors that Influence the Amount of Centralization
More Centralization Environment is stable. Lower-level managers are not as capable or experienced at making decisions as upper-level managers. Lower-level managers do not want to have a say in decisions. Decisions are significant. Organization is facing a crisis or the risk of company failure. Company is large but same geographical area. Effective implementation of company strategies depends on managers retaining say over what happens. Copyright © 2019 Prentice Hall, Inc. All rights reserved. Figure 10.4a

Factors that Influence the Amount of Decentralization
More Decentralization Environment is complex, dynamic, uncertain. Lower-level managers are capable and experienced at making decisions. Lower-level managers want a voice in decisions. Decisions are relatively minor. Corporate culture is open to allowing managers to have a say in what happens. Company is geographically dispersed. Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions. Copyright © 2019 Prentice Hall, Inc. All rights reserved. Figure 10.4b

Formalization The degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures. Highly formalized jobs offer little discretion over what is to be done. Low formalization means fewer constraints on how employees do their work. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Organizational Design Decisions/Models
Mechanistic Organization A rigid and tightly controlled structure High specialization Rigid departmentalization Narrow spans of control High formalization Limited information network (downward) Low decision participation Organic Organization Highly flexible and adaptable structure Non-standardized jobs Fluid team-based structure Little direct supervision Minimal formal rules Open communication network Empowered employees Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Mechanistic versus Organic Organization

Contingency Factors Affect Structure
Structure is influenced by: Overall strategy of the organization Organizational structure follows strategy. Size of the organization Firms change from organic to mechanistic organizations as they grow in size. Technology use by the organization Firms adapt their structure to the technology they use. Degree of environmental uncertainty Dynamic environments require organic structures; mechanistic structures need stable environments. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Strategy Frameworks: organic or mechanistic Innovation Pursuing competitive advantage through meaningful and unique innovations favors an organic structuring. Cost minimization Focusing on tightly controlling costs requires a mechanistic structure for the organization. Imitation Minimizing risks and maximizing profitability by copying market leaders requires both organic and mechanistic elements in the organization’s structure. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Strategy and Structure Achievement of strategic goals is facilitated by changes in organizational structure that accommodate and support change. Size and Structure As an organization grows larger, its structure tends to change from organic to mechanistic with increased specialization, departmentalization, centralization, and rules and regulations. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Technology and Structure Organizations adapt their structures to their technology. Woodward’s classification of firms based on the complexity of the technology employed: Unit production: describes the production of items in units or small batches. Mass production: describes large-batch manufacturing. Process production in continuous process of outputs, most technologically complex group. Routine technology = mechanistic organizations Non-routine technology = organic organizations Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Woodward’s Findings on Technology, Structure, and Effectiveness

Interpretation to previous table
Unit production: related to small units, few layers in the structure, simple activities and process and few departments and low formalization: organic. Mass production: medium or large business size, 2-3 layers in the structure, and many departments and high formalizations, mass production: mechanic. E.g., car makers. Process production: many processes sequential, Small business or medium, and low formalization: organic. Software industry. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Environmental Uncertainty and Structure Mechanistic organizational structures tend to be most effective in stable and simple environments. The flexibility of organic organizational structures is better suited for dynamic and complex environments. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Common Organizational Designs
Traditional Designs Simple structure Low departmentalization, wide spans of control, centralized authority, little formalization Functional structure Departmentalization by function Operations, finance, human resources, and product research and development Divisional structure Composed of separate business units or divisions with limited autonomy under the coordination and control the parent corporation. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Strengths and Weaknesses of Common Traditional Organizational Designs

Organizational Designs (cont’d)
Contemporary Organizational Designs Team structures The entire organization is made up of work groups or self-managed teams of empowered employees, e.g. IT business developers and construction companies. Matrix structures Specialists for different functional departments are assigned to work on projects led by project managers. Matrix participants have two managers. Project structures Employees work continuously on projects; moving on to another project as each project is completed. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

A Matrix Organization in an Aerospace Firm

Contemporary Organizational Designs (cont’d) Boundaryless Organization An flexible and unstructured organizational design that is intended to break down external barriers between the organization and its customers and suppliers. Removes internal (horizontal) boundaries: Eliminates the chain of command Has limitless spans of control Uses empowered teams rather than departments Eliminates external boundaries: Uses virtual, network, and modular organizational structures to get closer to stakeholders. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Removing Boundaries How To apply Boundary less Organization
Virtual Organization An organization that consists of a small core of full-time employees and that temporarily hires specialists to work on opportunities that arise. Network Organization A small core organization that outsources its major business functions (e.g., manufacturing) in order to concentrate what it does best. Modular Organization (assembly lines, e.g., Toyota) A manufacturing organization that uses outside suppliers to provide product components for its final assembly operations. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

The Learning Organization An organization that has developed the capacity to continuously learn, adapt, and change through the practice of knowledge management by employees. Characteristics of a learning organization: An open team-based organization design that empowers employees Extensive and open information sharing Leadership that provides a shared vision of the organization’s future, support and encouragement A strong culture of shared values, trust, openness, and a sense of community. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Characteristics of a Learning Organization

Task Forces Task force (or ad hoc committee): a temporary committee or team formed to tackle a specific short-term problem affecting several departments Open innovation: opening up the search for new ideas beyond the organization’s boundaries and allowing innovations to easily transfer inward and outward Another structural option organizations might use is a task force (also called an ad hoc committee), a temporary committee or team formed to tackle a specific short-term problem affecting several departments. The temporary nature of a task force is what differentiates it from a cross-functional team. The days may be numbered when businesses generate their own product development ideas and develop, manufacture, market, and deliver those products to customers. Today, many companies are trying open innovation, opening up the search for new ideas beyond the organization’s boundaries and allowing innovations to easily transfer inward and outward. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Exhibit 11-10 Benefits and Drawbacks of Open Innovation
Gives customers what they want—a voice High demands of managing the process Allows organizations to respond to complex problems Extensive support needed Nurtures internal and external relationships Cultural challenges Brings focus back to marketplace Greater need for flexibility Provides way to cope with rising costs and uncertainties of product development Crucial changes required in how knowledge is controlled and shared Exhibit describes some of the benefits and drawbacks of open innovation. Sources: Based on S. Lindegaard, “The Side Effects of Open Innovation,” Bloomberg BusinessWeek online, June 7, 2010; H. W. Chesbrough and A. R. Garman, “How Open Innovation Can Help You Cope in Lean Times,” Harvard Business Review, December 2009, pp. 68–76; A. Gabor, “The Promise [and Perils] of Open Collaboration,” Strategy & Business online, Autumn 2009; and J. Winsor, “Crowdsourcing: What It Means for Innovation,” BusinessWeek online, June 15, 2009. e benefits and drawbacks of open innovation. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Telecommuting Telecommuting: a work arrangement in which employees work at home and are linked to the workplace by computer Information technology has made telecommuting possible, and external environmental changes have made it necessary for many organizations. Working from home used to be considered a “cushy perk” for a few lucky employees, and such an arrangement wasn’t allowed very often. Now, many businesses view telecommuting as a business necessity. Despite its apparent appeal, many managers are reluctant to have their employees become “laptop hobos.” Employees often express the same concerns about working remotely, especially when it comes to the isolation of not being “at work.” Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Compressed Workweeks, Flextime, and Job Sharing
Compressed workweek: a workweek where employees work longer hours per day but fewer days per week Flextime (or flexible work hours): a scheduling system in which employees are required to work a specific number of hours a week but are free to vary those hours within certain limits Job sharing: the practice of having two or more people split a full-time job Organizations may sometimes and they need to restructure work using forms of flexible work arrangements. One approach is a compressed workweek, a workweek where employees work longer hours per day but fewer days per week. The most common arrangement is four 10-hour days (a 4–40 program). Another alternative is flextime (also known as flexible work hours), a scheduling system in which employees are required to work a specific number of hours a week but are free to vary those hours within certain limits. A flex-time schedule typically designates certain common core hours when all employees are required to be on the job, but allows starting, ending, and lunch-hour times to be flexible. Organizations might offer job sharing to professionals who want to work but don’t want the demands and hassles of a full-time position. For instance, at Ernst & Young and Google, employees in many of the company’s locations can choose from a variety of flexible work arrangements, including job sharing. Also, many companies have used job sharing during the economic downturn to avoid employee layoffs. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

The Contingent Workforce
Contingent workers: temporary, freelance, or contract workers whose employment is contingent on demand for their services According to the U.S. Bureau of Labor Statistics, contingent workers are persons who do not expect their jobs to last or who reported that their jobs are temporary. Also, they do not have an implicit or explicit contract for ongoing employment. Alternative employment arrangements include persons employed as independent contractors, on-call workers, temporary help agency workers, and workers provided by contract firms. One of the main issues businesses face with their contingent workers, especially those who are independent contractors or freelancers, is classifying who actually qualifies as one. The decision on who is and who isn’t an independent contractor isn’t as easy or as unimportant as it may seem. Companies don’t have to pay Social Security, Medicare, or unemployment insurance taxes on workers classified as independent contractors. And those individuals also aren’t covered by most workplace laws. So it’s an important decision. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Review Learning Objective 11.1
Describe six key elements in organizational design. 1. Work specialization 2. Departmentalization 3. Chain of command 4. Span of control 5. Centralization/decentralization 6. Formalization Work specialization is dividing work activities into separate job tasks. Today’s view is that work specialization can help employees be more efficient. Departmentalization is how jobs are grouped together. Today most large organizations use combinations of different forms of departmentalization. The chain of command and its companion concepts—authority, responsibility, and unity of command—were viewed as important ways of maintaining control in organizations. The contemporary view is that they are less relevant in today’s organizations. The traditional view of span of control was that managers should directly supervise no more than five to six individuals. The contemporary view is that the span of control depends on the skills and abilities of the manager and the employees and on the characteristics of the situation. Centralization–decentralization is a structural decision about who makes decisions—upper-level managers or lower-level employees. Formalization concerns the organization’s use of standardization and strict rules to provide consistency and control. Today, organizations rely less on strict rules and standardization to guide and regulate employee behavior. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Contrast mechanistic and organic structures. Mechanistic structure: rigid, tightly controlled Organic structure: highly adaptable, flexible A mechanistic organization is a rigid and tightly controlled structure. An organic organization is highly adaptive and flexible. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Discuss the contingency factors that favor either the mechanistic model or the organic model of organizational design. An organization’s structure should support the strategy. Structure can be affected by size and technology. Organic structure is most effective with unit production and process production technology. Mechanistic structure is most effective with mass production technology. If the strategy changes, the structure also should change. An organization’s size can affect its structure up to a certain point. Once an organization reaches a certain size (usually around 2,000 employees), it’s fairly mechanistic. An organization’s technology can affect its structure. An organic structure is most e effective with unit production and process production technology. A mechanistic structure is most effective with mass production technology. The more uncertain an organization’s environment, the more it needs the flexibility of an organic design. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Describe traditional organizational design options. Simple structure: little departmentalization, wide spans of control, authority centralized in one person, and little formalization. Functional structure Divisional structure A simple structure is one with little departmentalization, wide spans of control, authority centralized in a single person, and little formalization. A functional structure groups similar or related occupational specialties together. A divisional structure is made up of separate business units or divisions. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

Discuss organizing for flexibility in the twenty-first century. Structures: Team Matrix Project Boundaryless organization Virtual organization Compressed workweeks, flextime, job sharing Contingent workforce In a team structure, the entire organization is made up of work teams. The matrix structure assigns specialists from different functional departments to work on one or more projects being led by project managers. A project structure is one in which employees continuously work on projects. A boundaryless organization’s design is not defined by, or limited by, the horizontal, vertical, or external boundaries imposed by a predefined structure. A virtual organization consists of a small core of full-time employees and outside specialists temporarily hired as needed to work on projects. Another structural option is a task force, which is a temporary committee or team formed to tackle a specific short-term problem affecting several departments. Telecommuting is a work arrangement in which employees work at home and are linked to the workplace by computer. A compressed workweek is one in which employees work longer hours per day but fewer days per week. Flextime is a scheduling system in which employees are required to work a specific number of hours a week but are free to vary those hours within certain limits. Job sharing is when two or more people split a full-time job. Contingent workers are temporary, freelance, or contract workers whose employment is contingent on demand for their services. Organizing issues include classifying who actually qualifies as an independent contractor; setting up a process for recruiting, screening, and placing contingent workers; and having a method in place for establishing goals, schedules, and deadlines and for monitoring work performance. Copyright © 2019 Prentice Hall, Inc. All rights reserved.

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