1. Organizational Behavior: An Introduction to Your Life in Organizations
Chapter 16
Organizational Structure as a Design Tool
©2007 Prentice Hall

2. Preview
After managers divide up the organization’s work, how do they coordinate their employees to get it done?
How can you expect an organizational structure to evolve?
What are some recent trends in organizational structure?
How do managers use organizational structure to advance their company’s strategy?
How do international organizational structures usually evolve?
What are international strategic alliances?
©2007 Prentice Hall

3. Differentiation
Horizontal differentiation is the degree to which labor is divided
Horizontal firms are companies that emphasize decision making through teams rather than through the organizational hierarchy
Vertical differentiation is the distribution of authority from lower to higher level managers
Vertical firms are companies in which decision making depends on hierarchical process like centralization and employee-manager communication, rather than on teams
©2007 Prentice Hall

4. Span of control The number of subordinates a manager supervises
The number of individuals a manager can supervise effectively depends on:
the nature of the employees’ tasks
the nature of a company’s available strategies for integration
the business the company is in and the company’s size
©2007 Prentice Hall

5. Integration Options
Hierarchy: a system in which some individuals are ranked higher than others
Departmentalization: process of dividing up the company’s work into integrating subunits
Set targets and goals to be achieved and allow groups and individuals decide how to meet them
Rules, procedures and policies standardize behaviors across subunits
Communication: a set of processes whose purposes are instruction, information, persuasion, integration and innovation
The use of information technology (IT) to affect the centralization and decentralization of decision making
Create a formal integrator role
©2007 Prentice Hall

6. Why do organizational structures evolve?
Because it is growing
To align it with a new company strategy
Because it is facing a business crisis
©2007 Prentice Hall

7. How do organizational structures evolve?
The simple structure evolves in a simple, dynamic environment in which an entrepreneur finds a strategic niche that can be filled by one person with a few supporting staff
In a functional structure, employees are expected to specialize in their particular function, and they report to a manager who heads up and also specializes in that function
In the divisional structure (also called a “unit structure”), a layer is added below top management, delegating at least some responsibility for profit-making and customer responsiveness to vice presidents in charge of products or regions
A matrix structure is a multiple command system, including a related structure and the necessary support mechanisms, culture and behaviors
©2007 Prentice Hall

8. Structured networks
Spin off each profit center units into separate but still interacting companies
Advantages: it is easy for a network to be flexible and adaptable, each company can focus on its core competency
Disadvantages: the potential loss of control over parts of the business, risk losing proprietary knowledge to any one of their members that chooses to steal it, complicated adjustments and coordination required for outsourcing
©2007 Prentice Hall

9. The front-back structure
Divides an organization into two components:
those that are oriented to the customer and/or the geographical region in which the company is doing business, called the front end
a back end that is organized by product and technology
Advantages: focus on more than one dimension at a time, manage cross-product strategies and coordination
Disadvantages: lack of clarity about how the front end is supposed to work with the back end, high need for collaboration along with the high possibility for conflict
©2007 Prentice Hall

10. The boundaryless organization
Is one in which people rarely or never see each other face to face, but rather are linked by computers, video teleconferencing, computer-aided design systems and so on
Some individuals are not formal parts of an organization at all, but rather form an alliance with an organization through their contractual obligations, and when the particular project they are working on is finished, they move on
©2007 Prentice Hall

11. Different business strategies suggest different organizational structures
A company following a differentiation strategy should have an organic/enterprising design, and its structure should be organized around products, with many cross-functional teams
A company following the low-cost strategy should use the simplest possible structure, probably a functional one
©2007 Prentice Hall

12. Structure affects how strategic decisions are made
As the structure becomes more centralized there is a stronger probability that the strategic decision making process will be initiated by only those few dominant individuals who run the company, and that it will be the result of their proactive seeking for business opportunities
As the structure becomes more formalized the strategic decision making process is likely to become reactive rather than proactive
As the level of complexity of the structure grows, so does the probability that members will either not recognize the strategic impacts of a policy or will ignore these impacts in favor of the interests of the immediate unit in which they work
©2007 Prentice Hall

13. What are international strategic alliances?
Organizations network to achieve a particular competitive advantage
Examples:
“licensing agreements,” by which international firms can quickly and inexpensively develop manufacturing capability in other countries
a “joint venture” occurs when existing companies that are already networked together develop new organizations
“consortia” are groups of firms that take on new products and technologies together
©2007 Prentice Hall

14. Apply what you have learned
World Class Company: Dell, Inc.
Advice from the Pro’s
Gain Experience
Can you solve this manager’s problem?
©2007 Prentice Hall

15. Summary – After managers divide up the organization’s work, how do they coordinate their employees to get it done?
Organizational design is dividing up the work of a company into jobs (the process called differentiation) and then finding ways to coordinate the people in these different jobs (the process called integration)
The greater a company’s differentiation, the greater the challenge of integration
Integration can be achieved through such means as hierarchy, departmentalization, goals, integrating departments, and integrator roles
©2007 Prentice Hall

16. Summary – How can you expect an organizational structure to evolve?
Company structures change because companies grow, change their strategies, or face crises
As a company grows, a typical structural evolution is from a simple structure to a functional structure to a divisional structure
©2007 Prentice Hall

17. Summary – What are some recent trends in organizational structure?
Network: spin off strategic business units into separate but still interacting companies
The front-back structure, in which one part of the company, the front, is oriented to the customer, and another, the back, is oriented toward manufacturing and new product development
A concept popularized in recent years is the boundaryless organization, in which boundaries between levels and units and also between the company and its customers are reduced
©2007 Prentice Hall

18. Summary – How do managers use organizational structure to advance their company’s strategy?
Companies change their designs because they believe that doing so will give them a competitive advantage
For example, a company following a differentiation strategy, in which it plans to develop a variety of innovative products, should be an enterprise, while a company following a low-cost strategy should be a bureaucracy
©2007 Prentice Hall

19. Summary – How do international organizational structures usually evolve?
A company that is going international typically follows these steps:
start out using a direct reporting structure
later moves to an international division
finally, it may adopt a global structure based on product, region, or function, although they may also be matrixes
©2007 Prentice Hall

20. Summary – What are international strategic alliances and why are they important?
Companies are likely to pursue relationships with companies in other countries through:
licensing agreements
joint ventures
consortia
©2007 Prentice Hall