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Basic Challenges to Organizational Design. Chapter 4. Challenges to Organizational Design ***. 1. How to manage differentiation 2. How to balance differentiation & integration 3. How to balance centralization & decentralization 4. How to balance standardization & mutual adjustment.

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challenges to organizational design
Challenges to Organizational Design***

1. How to manage differentiation

2. How to balance differentiation & integration

3. How to balance centralization & decentralization

4. How to balance standardization & mutual adjustment.

  • Division of labor or degree of specialization
  • Establishment of task & authority relationships
  • Allocation of resources & people to tasks
    • Simple organization differentiation is low
    • Complex organization differentiation is high
challenge 1 managing differentiation
Challenge #1Managing Differentiation
  • Roles
  • Functions
      • Support Adaptive
      • Production Managerial
      • Maintenance
  • Divisions
      • Responsible for producing one G or S
      • Self-contained divisions
  • Organization

When individuals:

  • Understand roles/ responsibilities(accountability)
  • Are coordinated
  • Are motivated.
core competences
Core Competences
  • Skills & abilities unique to an organization that give it a competitive advantage
  • May be in 1 or more functions
  • Want to allocate more resources to the functions or divisions where core competences exist.


      • McDonalds’ production process
      • Southwest’s customer service

The way an organization groups tasks into roles & roles into subunits

Establishes division of labor


The way an organization designs hierarchy of authority & creates reporting relationships to link roles & subunits

Establishes distribution of authority

challenge 2 balancing differentiation integration
Challenge #2Balancing Differentiation & Integration
  • Problem: Specialization (HD) limits communication resulting in loss of coordination & cooperation Subunit orientation
  • Solution: Integration Increase coordination, communication & cooperation between subunits.
integrating mechanisms page 96
Integrating MechanismsPage 96
  • Hierarchy (most simple)
  • Direct face-to-face contact
  • Liaison roles
  • Task forces
  • Teams
  • Integrating roles
  • Integrating departments (most complex)
keep in mind
Keep in Mind…
  • Differentiating and integrating too much is expensive. Why?
  • Cost of employing managers & cost of time spent on coordination efforts called:
          • Bureaucratic Costs
challenge 3 balancing centralization decentralization
Challenge #3Balancing Centralization & Decentralization
  • Problem: Hierarchy of authority can mean: inability to make decisions shirking responsibility & risk  slowed decision-making  inflexible organization
  • Solution:
    • Decentralize authority
    • The challenge is to decide how much decision-making authority to delegate to each level of hierarchy.
centralized authority
Centralized Authority


  • Maximum control over subordinates
  • Top-mgmt coordinates everything & keeps organizational members focused on goals


  • Top-mgmt become overloaded on day-to-day decision-making & have no time to develop long-term strategy
  • Lack of freedom & initiative to respond to problems as they arise.
decentralized authority
Decentralized Authority


  • Promotes responsibility & responsiveness (on the spot decisions)
  • Lower level managers can use skills/ competences (keeps them motivated)
  • Innovation


  • Managers can pursue own goals at expense of organizational goals
  • Coordination & planning are difficult
  • Loss of control over decision-making process.
challenge 4 balancing standardization mutual adjustment
Challenge #4Balancing Standardization & Mutual Adjustment
  • Problem: Employees’ over reliance on written rules, policies & SOPs (standardization) inability toadapt to a new, unpredictable situation  no room for creativity or innovation in response to customer demand
  • Solution: Mutual Adjustmentusing judgment, creativity to solve problems

---Means following rules & norms to make decisions so work activities are predictable

  • Formalization= written rules & procedures to standardize operations
      • No room for mutual adjustment
      • Typically means centralized authority
  • Socialization= understood norms or generally agreed upon standards for behavior to guide conduct
  • Managers need to create a balance so employees will be both creative and responsible!!
  • In general, people at higher levels of hierarchy in functions that perform complex, unstructured tasks rely more on mutual adjustment or standardization?
mechanistic organizational structures page 115
Mechanistic Organizational StructuresPage 115
  • Designed to induce people to behave in predictable ways
  • Employees are highly specialized, & work separately
  • Employees closely supervised
  • Easier to hold employees accountable for work
  • Hierarchy of authority is clearly defined(most commonly used integrating mechanism).
mechanistic organizational structures
Mechanistic Organizational Structures
  • Communication is top-down
  • Work process is standardized(rules, SOPs,policies) & predictable
  • Effective in unchanging, stable environments(low uncertainty)
  • Authority (D/M) is centralized
organic organizational structures
Organic Organizational Structures
  • Designed to promote flexibility & ability to adapt

To what?

  • Employees cross-trained, work together; roles loosely defined (joint specialization)
  • Task forces & teams (face-to-face) are most commonly used integrating mechanisms (high integration needed to coordinate).
organic organizational structures1
Organic Organizational Structures
  • Authority (DM) is decentralized
  • Problem solving by way of mutual adjustment
  • Encourages creativity & innovation
  • Work process is unpredictable
  • Effective in dynamic, changing environments(high uncertainty).
  • We design an organizational structure to control uncertainty in external environment
  • Rapidly changing environment more uncertainty requires higher levels of differentiation requires higher levels of integration requires more complex structure demands organic structure
      • Lower level employees need to be empowered to make on the spot decisions
      • Rapid communication & information sharing necessary to coordinate activities to meet changing customer demands & develop new products.