CHAPTER 13

1. CHAPTER 13 Organizational Design and Environmental Influences

2. Principles of Organizing • Decentralization v. Centralization • Tall v. Flat Structures • Unity of Command

3. Decentralization v. Centralization • Decentralization: the degree to which decision making occurs lower down in an institution • When organizations are highly centralized, employees participate less in decisions

4. Decentralization v. Centralization (cont.) • Degree of centralization may be ascertained by the dollar amount of expenses that an employee can incur without getting prior approval

5. Decentralization v. Centralization (cont.) • Centralized organizations are usually associated with lower levels of satisfaction, motivation, performance, creativity; however, not all agree with thiscontention

6. Decentralization v. Centralization (cont.) • Decentralized organizations have inherent weaknesses • Lack of coordinated direction, tendency to focus on current problems and functions, to ignore opportunities for growth and innovation • Shared resources may pose coordinating and allocating problems

7. Decentralization v. Centralization (cont.) • Internal disputes and conflicts may arise that may not be easily resolved because each department or division operates with relative independence

8. Tall v. Flat Structures • Refers to the number of levels of authority in organizations and to the width of each level • Tall structures have more levels than flat • Span of control: the number of employees who report to a single supervisor

9. Tall v. Flat Structures (cont.) • Ideal span of control depends on nature of organization, however, some argue that at lower levels, where tasks are more nonprogrammed in nature, spans may be greater • Taller organizations allow for closer control of subordinates due to their narrower span of control

10. Tall v. Flat Structures (cont.) • When carried to extremes, flatness can be dysfunctional

11. Unity of Command • Every subordinate should have one, and only one, supervisor • The notion is intended to improve performance by reducing potential conflicts and ambiguities that might arise if a subordinate dealt with several superiors

12. Unity of Command (cont.) • Notion has been challenged by the matrix system • Chain of command is concerned with the flow of information and authority within an organization • Usually refers to top-down communication

13. Unity of Command (cont.) • As information flows through the ranks, managers at each new level must be completely informed • Coordination of effort and integration of activities should be more easily achieved

14. Modern Organizational Designs • Functional Design • Product Design • Hybrid Design • Matrix Design

15. Functional Design • Organizations using this form are organized according to key resources that are essential to the production process • Appropriate when the most important needs of organization are collaboration and expertise within defined set of operations

16. Functional Design (cont.) • Also when environment is stable, and when only one or a few products are produced • Weaknesses: slow in responding to changes in environment, less innovation, restricted view of broader organizational goals, difficulty coordinating resources between functional areas

17. Product Design • Groups personnel and activities according to organizational output • Each product line is provided with its own production, marketing, development resources • Goals are to coordinate with product lines and attend to needs of customers

18. Product Design (cont.) • Good for companies that produce many products • May lead to tremendous losses in economies of scale, and may experience elevated competition

19. Hybrid Design • Used by large organizations to combine advantages of both functional and product designs • Some functions may be highly specialized, others may be self-contained

20. Hybrid Design (cont.) • An organization’s structure is rarely static; structure usually changes and evolves over time as top-level managers attempt to better adapt to the environment

21. Matrix Design • Functional and product managers enjoy equal authority • Dual hierarchies exists • Violates unity of command • “Two-boss system” -- employees have two bosses

22. Matrix Design (cont.) • Disadvantages: frustration and confusion for employees, inadequately trained employees who do not understand system, time consuming to administer due to frequent meetings, duplication of communications, complicates performance evaluations

23. Matrix Design (cont.) • Works best when a collegial and collaborative spirit is adopted in which people work together

24. Dimensions of External Environments • Organizations exists within particular external environments that are composed of various factors that can affect the organization’s functioning. Examples include: • Government • Legal system • Labor pool • Suppliers • Customers • State of existing technology

25. Dimensions of External Environments (cont.) • Robert Duncan suggests that there are three important dimensions for understanding environments: • Simplicity-complexity • Static-dynamic • Environmental uncertainty

26. Simplicity-Complexity • Simple environments contain few factors that affect the organizations and tend to be relatively unvaried. • Complex environments contain many more factors of importance and is more diverse.

27. Static-Dynamic • Environments differ in terms of the rate at which change is occurring or predictability

28. Environmental Uncertainty • The degree of uncertainty that characterizes the environment is related to the descriptive dimensions of simplicity-complexity and static-dynamic. • Duncan states that environmental uncertainty is a consequence of the inability to assign probabilities to factors with a high degree of confidence, and a lack of information concerning both the factors that are important to decision making and the costs associated with poor decision making.

29. The Population Ecology Perspective • In order to survive, organizations seek to find a niche in a highly competitive surrounding • Three stages in the change process • Variation • Selection • retention

30. The Population Ecology Perspective (cont.) • Variation—analogous to the concept of genetic mutation in the theory of evolution • Organizations with unique attributes are always being born • If a new organization possesses adaptive variations, it will succeed • If it doesn’t possess adaptive variations, it will fail

31. The Population Ecology Perspective (cont.) • Selection—only a few organizations can be expected to survive and be reasonably prosperous • Retention—institutionalization of certain adaptive organizational forms • The organization will be a critical part of society, if its outputs are sought by the larger society

32. The Population Ecology Perspective (cont.) • Key determinants of the longevity of these organizations are the extent of change in the environment and the organization’s ability to adapt to such change.

33. The Resource Dependence Model • Says that organizations are highly dependent on their external environments for raw resources and markets. • An organization’s success relies on its ability to manage its environment; it is necessary to reduce or eliminate dependency on the environment

34. The Resource Dependence Model (cont.) • Boundary-spanning positions are created to have an effective relationship with the major elements of its environment.

35. Managing the External Environment • There are two strategies for organizations to change the external environment • Establishing favorable linkages • Controlling environmental domains

36. Establishing Favorable Linkages • Organizations can acquire linkages through: • Mergers and vertical integration • Hiring practices and interlocking directorates • Investing in advertising and public relations

37. Controlling Environmental Domains • Ways of controlling the domains in which an organization operates: • Buy of sell a product line • Form conglomerates • Join with similar organizations that have common goals and interests • Form strategic alliances

38. The Contingency View of Organizational Design • Open systems—organizations must deal with their environments by obtaining and consuming resources • Organizations cannot function as closed systems, or independently from their environments • Goal of contingency view is to explain how differences in the contextual and structural dimensions are related.

39. The Contingency View of Organizational Design (cont.) • Structural dimensions are the internal characteristics of an organization • Specialization • Hierarchy of authority • Complexity • Contextual dimensions are made up of the entire organization and its environment • Size • Customers • Competitors

40. Mechanistic and Organic Systems • Firms in relatively stable or unchanging environments tend to have more highly structured and formal management operations are called mechanistic. • Firms in more unstable environments tend to have a free-flowing, decentralized, and more adaptive internal organization are called organic.

41. Mechanistic and Organic Systems (cont.) • Organic systems are more capable of adapting to change • Mechanistic systems are appropriate to relatively static settings

42. Woodward’s Studies of Technology • Some of the most important research on the impact of technology was conducted by Joan Woodward • Firms were classified into three categories: • Unit production • Mass production • Long-run process production

43. Woodward’s Studies of Technology (cont.) • Unit production—manufacture small orders that are custom-made for the customer • Mass production—manufacture standardized articles that do not require much specialization or varied attention • Long-run process production—mechanization of the entire manufacturing operation; highly controlled process

44. Woodward’s Studies of Technology (cont.) • Based on classification system, certain patterns of results suggested that structuring within firms related to type of technology • Woodward also observed several complex patterns in her results • Example: the amount of verbal communication tended to be lowest in mass production firms, whereas the amount of written communication was greatest.

45. Woodward’s Studies of Technology (cont.) • The financial success of the same firms, as measured by market share, reputation, and the like, showed that successful firms tended to fit the pattern of structural attributes that was most typical for their technology grouping