Managing Organizational Design

Chapter Twelve Managing Organizational Design Learning Objectives After studying this chapter, you should be able to: 1. Describe the basic nature of organization design. 2. Identify and explain the two basic universal perspectives on organization design. 3. Identify and explain several situational influences on organization design. 4. Discuss how an organization’s strategy and its design are interrelated. 5. Describe the basic forms of organization design. 6. Describe emerging issues in organization design. 12–2 The Nature of Organization Design • Organization Design – The overall set of structural elements and the relationships among those elements used to manage the total organization. – A means to implement strategies and plans to achieve organizational goals. • Organization Design Concepts – Organizations are not designed and then left intact. – Organizations are in a continuous state of change. – Designs for larger organizations are extremely complex and have many nuances and variations. 12–3 1 Universal Perspectives on Organization Design • Bureaucratic Model (Max Weber) – A logical, rational, and efficient organization design based on a legitimate and formal system of authority. – Characteristics • A division of labor with each position filled by an expert. • A consistent set of rules that ensure uniformity in task performance. • A hierarchy of positions which creates a chain of command. • Impersonal management; with the appropriate social distance between superiors and subordinates. • Employment and advancement is based on technical expertise, and employees are protected from arbitrary dismissal. 12–4 Bureaucratic Model • Advantages – Efficiency in function due to well-defined practices and procedures. – Organizational rules prevent favoritism. – Recognition of and requirement for expertise stresses the value of an organization’s employees. • Disadvantages – Organizational inflexibility and rigidity due to rules and procedures. – Neglects the social and human processes within the organization. – Belief in ―one best way‖ to design an organization does not apply to all organizations and their environments. 12–5 Table 12.1: System 1 and System 4 Organizations 12–6 2 Situational Influences on Organization Design • Core Technology – Is the conversion processes used to transform inputs into outputs. – Is an organization’s most important technology. • Joan Woodward – Initially sought a correlation between organization size and design; instead, she found a potential relationship between technology and design: • As the complexity of technology increases, so do the number of levels of management. 12–7 Situational Influences on Organization Design (cont’d) • Woodward’s Basic Forms of Technology – Unit or small-batch technology • Produces custom-made products to customer specifications, or else produces in small quantities, similar to Likert’s System 4 organization. – Large batch/mass production • Uses assembly-line production methods to manufacture large quantities of products; resembles Likert’s System 1. – Continuous process • Uses continuous-flow processes to convert raw materials by process or machine into finished products; resembles Likert’s System 4. 12–8 Situational Influences on Organization Design (cont’d) • Burns and Stalker – Forms of the organizational environment • Stable environments that remain constant over time. • Unstable environments subject to uncertainty and rapid change. – Organization Designs • Mechanistic organizations that are similar to bureaucratic or System 1 models; found most frequently in stable environments. • Organic organizations that are flexible and informal models; usually found in unstable and unpredictable environments. 12–9 3 Situational Influences on Organization Design (cont’d) • Lawrence and Lorsch – Differentiation • The extent to which the organization is broken down into subunits. – Integration • The degree to which the various subunits must work together in a coordinated fashion. 12–10 Situational Influences on Organization Design (cont’d) • Organizational Size – Defined as the total number of full-time or full-time equivalent employees – Research findings: • Small firms tend to focus on their core technology. • Large firms have more job specialization, standard operating procedures, more rules and regulations, and are more decentralized. • Organizational Life Cycle – A progression through which organizations evolve as they grow and mature—birth, youth, midlife, and maturity. 12–11 Strategy and Organization Design • Corporate-Level Strategy – Single-product strategy – Related or unrelated diversification – Portfolio approach to managing strategic business units 12–12 4 Strategy and Organization Design (cont’d) • Business-Level Strategy – Defender – Prospecting – Analyzer • Generic Competitive Strategies – Differentiation – Cost leadership – Focus 12–13 Strategy and Organization Design (cont’d) • Organizational Functions – Major functions of the organization influence an organization’s design. 12–14 Basic Forms of Organization Design • Functional or U-form (Unitary) Design – Organizational members and units are grouped into functional departments such as marketing and production. – Coordination is required across all departments. – Design approach resembles functional departmentalization in its advantages and disadvantages. 12–15 5 Figure 12.1: Functional or Uform Design for a Small Manufacturing Company 12–16 Basic Forms of Organization Design (cont’d) • Conglomerate or H-form (Holding) Design – Organization consists of a set of unrelated businesses with a general manager for each business. – Holding-company design is similar to product departmentalization. – Coordination is based on the allocation of resources across companies in the portfolio. – Design has produced only average to weak financial performance; has been abandoned for other approaches. 12–17 Figure 12.2: Conglomerate (Hform) Design at Samsung 12–18 6 Basic Forms of Organization Design (cont’d) • Divisional or M-form (Multidivisional) Design – Multiple businesses in related areas operating within a larger organizational framework. – Results from a strategy of related diversification. – Some activities are decentralized down to the divisional level; others are centralized at the corporate level. – M-form design advantages are the opportunities for coordination and sharing of resources. – Successful M-form organizations can out perform U-form and H-form organizations. 12–19 Figure 12.3: Multidivisional (Mform) Design at Limited Brands 12–20 Basic Forms of Organization Design (cont’d) • Matrix Design – Two overlapping bases of departmentalization: • A set of product groups or temporary departments are superimposed across the functional departments. – Employees in the matrix belong to their departments and the project team: • A multiple command structure in which an employee reports to both departmental and project managers. – A matrix design is useful when: • There is strong environmental pressure. • There are large amounts of information to be processed. • There is pressure for shared resources. 12–21 7 Basic Forms of Organization Design (cont’d) • Matrix Design Advantages – Enhances organizational flexibility. – Creates high motivation and increased organizational commitment for team members. – Gives team members opportunity to learn new skills. – Provides an efficient way for the organization to use its human resources. – Uses team members as bridges to their departments for the team. – Useful as a vehicle for decentralization. 12–22 Basic Forms of Organization Design (cont’d) • Matrix Design Disadvantages – Employees are uncertain about reporting relationships. – Managers may view design as an anarchy in which they have unlimited freedom. – The dynamics of group behavior may lead to slower decision making, one-person domination, compromise decisions, or a loss of focus. – More time may be required for coordinating taskrelated activities. 12–23 Figure 12.4: A Matrix Organization 12–24 8 Basic Forms of Organization Design (cont’d) • Hybrid Designs – Based on two or more common forms of organization design—may have a mixture of related divisions and a single unrelated division. – Most organizations use a modified form of organization design that permits them to have sufficient flexibility to make adjustments for strategic purposes. 12–25 Emerging Issues in Organization Design • The Team Organization – Relies almost exclusively on project-type teams, with little or no underlying functional hierarchy. • The Virtual Organization – Has little or no format structure with few permanent employees, leased facilities, and outsourced basic support services. – May conduct its business entirely on-line and exists only to meet for a specific and present need. • The Learning Organization – Works to facilitate the lifelong learning and development of its employees while transforming itself to respond to changing demands and needs. 12–26 Issues in International Organization Design • The trend toward internationalization of business – How to design a firm to deal most effectively with international forces and to compete in global markets: • Create an international division? • Establish an international operating group? • Make international operations an autonomous subunit? 12–27 9 Figure 12.5: Common Organization Designs for International Organizations 12–28 Key Terms • • • • • • • • • • organization design bureaucracy behavioral model System 1 design System 4 design situational view of organization design technology mechanistic organization organic organization differentiation • • • • • • • • • • • integration organization size organizational life cycle functional design conglomerate design divisional design matrix design hybrid design team organization virtual organization learning organization 12–29 10