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Chapter 17 Organizational Design. Learning Goals. Describe how organizational design coordinates activities in an organization and gets information to decision makers Discuss the contingency factors of organizational design

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Chapter 17 organizational design

Chapter 17Organizational Design


Learning goals
Learning Goals

  • Describe how organizational design coordinates activities in an organization and gets information to decision makers

  • Discuss the contingency factors of organizational design

  • Distinguish between the organizational design effects of strategy, external environment, technical process, and size


Learning goals cont
Learning Goals (Cont.)

  • Describe the design features of functional, divisional, hybrid, and matrix organization forms

  • Explain the characteristics of several forms of organizations that are likely to evolve in the future


Chapter overview
Chapter Overview

  • Introduction

  • The Contingency Factors of Organizational Design

  • Forms of Organizational Design

  • International Aspects of Organizational Design

  • Ethical Issues in Organizational Design


Introduction
Introduction

  • Organizational design refers to the way managers structure their organization to reach the organization’s goals

  • Structural elements include

    • Allocation of duties, tasks, and responsibilities between departments and individuals

    • Reporting relationships

    • Number of levels


Introduction cont
Introduction (Cont.)

  • Organizational charts show the formal design or structure. See text book Figure 17.1

  • An incomplete picture because of informal arrangements and underlying behavioral processes

  • Two basic goals of organizational design

    • Get information to decision makers

    • Coordinate the interdependent parts of an organization


The contingency factors of organizational design
The Contingency Factors of Organizational Design

  • Overview

    • External environment: Includes the organization’s competitors, customers, suppliers, government, . . .

    • Strategy: The plan for reaching the goals of the organization

    • Open systems character of organizations tightly couples these two factors


The contingency factors of organizational design cont
The Contingency Factors of Organizational Design (Cont.)

  • Overview (cont.)

    • Technical process: The system an organization uses to produce its products or services

    • Size: The number of organization members


The Contingency Factors of Organizational Design(Cont.)

Major tools forimplementationTechnical processForms oforganizational design

MissionAchieveorganizationgoals

Externalenvironment

Strategy

Relationships Among the Contingency Factors

Roles of organizational culture and size.


Strategy
Strategy

  • An organization’s strategy describes long-term goals and way of reaching the goals

  • Describes resource allocation

  • Plays a mediating role between the external environment and the tools of organizational design

    • Note the two headed arrows in the drawings

    • Example: Product innovation response


Strategy cont
Strategy (Cont.)

  • Strategy’s mediating role in organizational design

    • “Structure follows strategy”

    • “Strategy follows structure”

    • In both views, the design of the organization is a major tool for carrying out the strategy


Strategy cont1
Strategy (Cont.)

Strategy’s mediating role in organizational design (cont.)

“Structure follows strategy”

Choice of anorganizational form

Reach strategic goals


Strategy cont2
Strategy (Cont.)

Strategy’s mediating role in organizational design (cont.)

“Strategy follows structure”

Organizational design is anenvironment within whichmanagers form strategy.

Prevents developing aneffective strategy

Develop effective strategy


External environment

Managers assess the uncertainty in the external environment when considering design decisions

Can design the organization to increase information about the environment

Or make the organization more flexible in its response to the environment

Information plays a key role because it can reduce risk in a manager's predictions about the future

External Environment


External environment cont

Two elements of when considering design decisionsenvironmental uncertainty

Complexity of the external environment. Ranges from simple to complex

Simple environment has a few similar elements

Complex environment has many different elements

External Environment (Cont.)


External environment cont1
External Environment (Cont.) when considering design decisions

  • Static to dynamic external environment

    • Static external environment is unchanging or slowly changing

    • Dynamic external environment is filled with quickly moving events that could conflict with each other

    • Degree of change creates uncertainty in predicting future states of the environment


External environment cont2

Four possible states of the external environment when considering design decisions

Simple-static: lowest uncertainty

Complex-dynamic: highest uncertainty

Simple-dynamicand complex-static environments are about midway between the other two

Example: Internet commerce has created a complex-dynamic environment for much of the retail industry

External Environment (Cont.)


Technical process
Technical Process when considering design decisions

  • Conversion of inputs to outputs

  • Manufacturing, service, or mental processes

  • Affects peoples’ behavior in many ways

    • Work pace

    • Worker control

    • Degree of routine

    • Predictability

    • Interdependence within the process

  • Various types of technical processes exist


Organization size
Organization Size when considering design decisions

  • As size increases, organizations have

    • More formal written rules and procedures

    • More management levels, unless managers decentralize

    • More complex organizational forms

    • Higher coordination requirements because of complexity

    • Size and technical process: more strongly associated with organizational design in small organizations than in large organizations


Forms of organizational design
Forms of when considering design decisionsOrganizational Design

  • Three major forms: functional, divisional, and matrix

  • Combine functional and divisional designs to get a hybrid design

  • Several variations of the divisional design

  • Several evolving forms of organizational design


Organizational design by function
Organizational Design when considering design decisionsby Function

  • Groups tasks of the organization according to the activities they perform

  • Typically configured into departments such as manufacturing, engineering, accounting, marketing, . . .

  • Functional configurations can vary from one organization to another depending on tasks and goals


Organizational design by function cont
Organizational Design when considering design decisionsby Function (Cont.)

  • Strategy: Focused on a few products or services in well defined markets with few competitors

  • External environment: stable, simple, little uncertainty

  • Technical process: Routine with little interdependence with other parts of the organization

  • Size: Small to medium


Organizational design by function cont1
Organizational Design when considering design decisionsby Function (Cont.)

  • See Figure 17.1 in the text book for an example

  • Each major functional area helps align the company with each sector

  • Marketing, for example, focuses on customers. It does not manufacture products. That is the job of the manufacturing function


Organizational design by function cont2
Organizational Design when considering design decisionsby Function (Cont.)

  • Line and staff

    • Line does the major operating tasks

    • Staff gives support and serve in advisory roles. Emphasizes technical skills within each function

  • Individuals work with others who share common backgrounds and views

  • Homogeneity can lead to narrow views of the function’s contribution to the organization


Organizational design by function cont3
Organizational Design when considering design decisionsby Function (Cont.)

  • Strengths

    • Specialization

    • Brings specialists together

    • Collegial relationships develop among specialists

    • Encourages development of specialized skills and information sharing

    • Clear career paths for specialists


Organizational design by function cont4
Organizational Design when considering design decisionsby Function (Cont.)

  • Weaknesses

    • Does not help managers respond quickly to external changes

    • Emphasis on specialization promotes a tunnel-vision view of the goal of the function

    • Functional design can produce a set of widely accepted behaviors and perceptions with the organization


Organizational design by division
Organizational Design when considering design decisionsby Division

  • Uses decentralization

  • Divisions formed around products, services, locations, customers, programs, or technical process

  • Often evolves from a functional design

  • As the external environment changes, managers may need to diversify its activities to stay competitive

  • A common management reaction to large organization size


Organizational design by division cont
Organizational Design when considering design decisionsby Division (Cont.)

  • Strategy: Focused on different products, services, customers, or operating locations

  • External environment: Complex, fast changing, with moderate to high uncertainty

  • Technical process: Nonroutine and interdependent with others parts of the organization

  • Size: large


Organizational design by division cont1
Organizational Design when considering design decisionsby Division (Cont.)

  • Emphasizes decision-making autonomy throughout the organization

  • Has high interpersonal skill demands because of extensive contacts with people throughout the organization

  • Rewards behavior that goes toward the goal of decentralization: product, customer, service, or location


Organizational design by division cont2
Organizational Design when considering design decisionsby Division (Cont.)

  • Strengths

    • Easily adapts to differences in products, services, clients, location, and the like

    • For example, products and differ in how manufactured and marketed

    • Products, services, and customers are highly visible

    • Often appear in division names


Organizational design by division cont3
Organizational Design when considering design decisionsby Division (Cont.)

  • Weaknesses

    • Loses economies of scale because many functions such as accounting are duplicated within the divisions

    • Technical specialization is more diffuse compared to a functional design

    • Hard to get uniform application of policies and procedures across divisions


Hybrid organizational design
Hybrid when considering design decisionsOrganizational Design

  • Hybrid design uses both functions and divisions

  • Managers use a hybrid design to get the benefits and reduce the weaknesses of the two configurations

  • The divisions decentralize some functions, and the headquarters location centralizes others

  • Centralized functions often are the costly ones


Hybrid organizational design cont
Hybrid when considering design decisionsOrganizational Design (Cont.)

  • People in different parts of the organization fulfill different requirements

  • Functional areas reward technical expertise

  • Functional specialists often support the divisions

  • Divisions do the primary work of the organization


Hybrid organizational design cont1
Hybrid when considering design decisionsOrganizational Design (Cont.)

  • Strategy: Focused on many products or services

  • External environment: Fast changing, moderate to high uncertainty, complex

  • Technical process: Both routine and nonroutine; high interdependence with functions and divisions

  • Size: Large


Hybrid organizational design cont2
Hybrid when considering design decisionsOrganizational Design (Cont.)

  • Strengths

    • Focuses on products, services, and customers

    • Adapts well to complex environments

    • Economies of scale: expensive shared resources are centralized and support all divisions


Hybrid organizational design cont3
Hybrid when considering design decisionsOrganizational Design (Cont.)

  • Weaknesses

    • Focus on division goals can lose total organization view

    • Non-uniform application of organizational policies

    • Potential for high administrative overhead if staff expands without control

    • Potential conflict between division managers and corporate headquarters. Managers want autonomy; headquarters wants control


Matrix organizational design
Matrix when considering design decisionsOrganizational Design

  • Used when two sectors of the external environment demand management attention

  • Typically responding to the customer and technical parts of the environment

    • Customers have special needs

    • Technology changes fast

  • Emerged during the 1950s within the U.S. aerospace industry


Matrix organizational design cont
Matrix when considering design decisionsOrganizational Design (Cont.)

  • Rejects the unity of command principal described in Chapter 1 of the text book

  • Uses multiple authority structures, so that many people report to two managers

  • People from different functional areas work on various projects


Matrix organizational design cont1
Matrix when considering design decisionsOrganizational Design (Cont.)

  • Each person has at least two supervisors or managers. One supervisor is in the functional area and the other is in a project

  • Mixture of people from the functional areas varies according the project needs

  • Multiple reporting relationships are a basic feature of matrix organizations

See text book Figure 17.3 for a simplifiedmatrix organizational design.


Matrix organizational design cont2
Matrix when considering design decisionsOrganizational Design (Cont.)

  • Conditions under which an organization may choose a matrix design

    • Pressures from the external environment for a dual focus

    • High uncertainty within the multiple sectors of the external environment

    • Constraints on human and physical resources


Matrix organizational design cont3
Matrix when considering design decisionsOrganizational Design (Cont.)

  • High conflict potential because of multiple authority relationships

  • Managers need well-developed conflict management skills

  • Demand high levels of coordination, cooperation, and communication

  • Requires high levels of interpersonal skill


Matrix organizational design cont4
Matrix when considering design decisionsOrganizational Design (Cont.)

  • Different matrix uses and forms

    • Within specific functional areas such as marketing. Managers responsible for a brand or group of brands bring all marketing skills together to focus on the products

    • Temporary forms for specific projects

    • Permanent forms for the organization’s on-going work


Matrix organizational design cont5
Matrix when considering design decisionsOrganizational Design (Cont.)

  • Strengths

    • Responsive, flexible, efficient use of costly resources

    • Potentially high levels of human motivation and involvement

    • Managers can respond fast to market changes

    • Shares scarce and expensive resources

    • People get information about a total project, not only about their specialty


Matrix organizational design cont6
Matrix when considering design decisionsOrganizational Design (Cont.)

  • Weaknesses

    • High levels of ambiguity because of multiple authority relationships

    • Ambiguity can encourage power struggles among managers

    • Multiple authority relationships can give opposing demands to people

    • High conflict potential can reach dysfunctional levels and act as significant stressors for people in matrix organizations


Evolving forms of organizational design
Evolving Forms of when considering design decisionsOrganizational Design

  • Several new forms of organizational design

    • Self-managing teams, a team-based approach

    • A process view of organizational design focuses on work processes

    • The virtual organization. This unusual form links widely scattered organizations into a network


Self managing teams
Self-Managing Teams when considering design decisions

  • Customer focus and fast changing environments require decisions at lower levels in an organization

  • Decentralizes decision authority in the teams

  • Decision authority in these teams can focus on customers, processes, and product design


Self managing teams cont
Self-Managing Teams (Cont.) when considering design decisions

  • Often cross-functional membership

  • Helps flatten an organization by removing a layer of management

  • Results in a nimble organization that can respond to fast changing customer needs


A process view of organizational design
A Process View of when considering design decisionsOrganizational Design

  • Discards the view of packaging duties and tasks along functional or divisional lines

  • The organization is a set of interconnected processes that weave across multiple functions

  • Focuses on the results of a process not on people’s skills or functions

  • People have responsibility for all or part of a process with decision authority over those parts


The virtual organization
The Virtual Organization when considering design decisions

  • A temporary network of companies or people that focus on reaching a specific target

  • Information technology links members into a network no matter where they are in the world

  • Enter agreements to get needed skills or resources

  • Little direct control over functions done by other members of the network


The virtual organization cont
The Virtual Organization (Cont.) when considering design decisions

  • Features a need for high trust among members

  • Need conflict management and negotiation skills

  • Interdependent in reaching a mutually desired goal


International aspects of organizational design
International Aspects when considering design decisionsof Organizational Design

  • The international context of organizations increases environmental complexity

  • Varying cultural orientations and laws introduce high uncertainty in the external environment

  • Functional and divisional designs are more congruent with cultures that want to avoid uncertainty and accept hierarchical relationships (Latin American countries and Japan)


International aspects of organizational design cont
International Aspects when considering design decisionsof Organizational Design (Cont.)

  • Matrix organizations do not work well in countries that avoid ambiguity (Belgium, France, and Italy)

  • Self-managing teams work well in countries with socially oriented values (Sweden and Norway)

  • Virtual organizations use communications and computer technology to span national boundaries


Ethical issues and organizational design
Ethical Issues and when considering design decisionsOrganizational Design

  • Lobbying activities can change an organization’s external environment. Both legal and ethical in the United States

  • Bribing government officials is illegal under U.S. law

  • Introducing new technologies can displace workers and cause stress among those who need to learn the technology


Ethical issues and organizational design cont
Ethical Issues and when considering design decisionsOrganizational Design (Cont.)

  • Ethical issues about reducing the size of an organization and increasing its efficiency. A utilitarian analysis looks at the net benefits of management’s actions

  • High conflict and ambiguity of matrix organizations can act as a significant stressor

  • Moving to the alternative forms is large-scale organizational change and stress for many people


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