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Why does the Organizational Chart Matter? often determines physical proximity between people determines frequency of communication between people determines reporting relationships influences organizational members’ patterns of identification

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why does the organizational chart matter
Why does the Organizational Chart Matter?
  • often determines physical proximity between people
  • determines frequency of communication between people
  • determines reporting relationships
  • influences organizational members’ patterns of identification
  • influences how much people know about what other people in the organization do
  • influences how much technical knowledge people have
  • influences speed of communication; speed of decision making
organizational design
ORGANIZATIONAL DESIGN

The key idea in designing an organization is to strive for:

  • an internal coherence among the parts of the design (i.e., structure, culture, incentive systems, etc.)
  • a “fit” between the overall design and key aspects of the organization’s context.
    • the nature of the industry environment (e.g., if the environment is changing rapidly, need to design an organization capable of responding quickly).
    • the goals/strategy of the organization (e.g., if you’re trying to do “relationship banking”, need a structure that is geared around the customer such as customer-based divisions or regional divisions
organizational design cont d
ORGANIZATIONAL DESIGN (cont’d)
  • the nature of the organization’s work processes (e.g., need to have a structure that ensures cooperation between interdependent units)
  • the nature of the employees (e.g., to utilize the expertise of professionals, need to decentralize decisions about how to do the task to the level of the professionals).
  • organizational size (as organizations grow larger, they need to decentralize; they also tend to become more bureaucratic)
slide4

Dimensions of Organizations

Contextual dimensions

1. Size (of the social system, i.e., number of people)

2. Technology (nature of the task in the production subsystem)

3. Environment (elements outside the organization affecting it)

4. Goals and strategies (unique purposes of the organization, methods of competition)

5. Stage in the organizational life cycle

6. Type of workers (level of formal education and training of employees)

7. Culture (shared values, beliefs and norms)

Structural Dimensions (internal characteristics of the organization)

1. Specialization (degree of division of labor)

2. Complexity (number of activities or subsystems-vertical, horizontal, spatial)

3. Hierarchy of authority (who reports to whom and span of control)

4. Formalization (amount of written documentation)

5. Standardization (degree similar work is done in uniform manner)

6. Centralization (hierarchical level with decision making power)

7. Personnel configuration (deployment, e.g., admin., clerical, and prof. staff ratio)

slide5

DIFFERENTIATION

INTEGRATION

  • DIVISION OF LABOR/
  • JOB SPECIALIZATION
  • Creating roles

METHODS OF STANDARDIZATION

(MINTZBERG)

By direct supervision

By rules

of inputs

of outputs

by mutual adjustment

COMPLEXITY

vertical

horizontal

spatial

DEPARTMENTALIZATION

Differentiation of values,

goals, technologies across

departments

Integration mechanisms

Liaison roles

Teams

Full-time integrators

Task forces

Information systems

division of labor specialization
Division of Labor/Specialization
  • How are jobs/roles conceived of?
  • How are responsibilities grouped together?
  • How much autonomy is given?
organizational departmentalization
Organizational Departmentalization
  • How are people/roles grouped together in the organization?
    • by function?
    • by product type?
    • by type of customer served?
    • by geographical region served?
    • in cross-functional teams?
    • in a matrix design?
slide8

Grouping and Structure

CEO

Function

Activity

Grouping

Work process

Engineering

Marketing

Manufacturing

Knowledge, skills,

disciplines

CEO

Product

Output

Grouping

Service

Product

Line 3

Product

Line 1

Product

Line 2

Project

Business/profit

Center

CEO

Geography

User/Customer

Grouping

User/customer

Market Segment

Eastern

U.S.

Western

U.S.

Canada

CEO

Multifocused

Grouping

(Any Combination)

Matrix

Hybrid

Marketing

Manufacturing

Product 1

Product 2

slide9

Functional Structure

President

R & D

Manufacturing

Accounting

Marketing

Divisional (Product) Structure

President

Product

Group 1

Product

Group 2

Product

Group 3

R&D

Mfg

Acct

Mkt

R&D

Mfg

Acct

Mkt

R&D

Mfg

Acct

Mkt

slide10

FUNCTIONAL STRUCTURE

CONTEXT

Environment: Low uncertainty, stable

Technology: Routine, low interdependence

Size: Small to medium

Goals: Internal efficiency, technical specialization and quality

STRENGTHS

1. Economies of scale within functions

2. In-depth skill development

3. Able to accomplish functional goals

4. Best in small-to medium-size organizations

5. Best when only one or a few products

WEAKNESSES

1. Slow response time to environmental changes

2. Decisions may pile on top.,hierarchy overload

3. Poor interunit coordination

4. Less innovation

5. Restricted view of organization goals

slide11

DIVISIONAL STRUCTURE

  • CONTEXT
    • Environment: Moderate uncertainty; complex
    • Technology: Nonroutine, high interdependence among functional departments
    • Size: Large
    • Goals: External effectiveness, adaptation, client satisfaction
  • STRENGTHS
    • 1. Suited to unstable environment
    • 2. Leads to client satisfaction because product responsibility and contact
    • points are clear
    • 3. Good inter-functional coordination within divisions
    • 4. Allows units to adapt to differences in products, regions, clients
    • 5. Allows for decentralization of decision making
    • 6. Is best for large organizations with multiple products or services
  • WEAKNESSES
    • 1. Eliminates functional economies of scale
    • 2. Leads to poor coordination across product lines
    • 3. Eliminates in-depth competence and technical specialization
    • 4. Makes integration and standardization across product lines difficult.
slide12

Sun Petroleum Products Company’s Hybrid Structure

President

Chief

Counsel

Director

Human

Resources

Vice-President

Technology

Vice-President,

Financial

Services

Sr. Vice-Pres.,

Resources &

Strategy

Director,

Public

Affairs

Vice-President,

Fuels

Vice-President,

Lubricants/

Waxes

Vice-President,

Chemicals

Vice-President,

Facilities

Vice-President,

Raw

Materials

Six

Refineries

Marketing

Marketing

Marketing

Director,

Planning &

Environment

Assessment

Planning and

Economics

Planning and

Economics

Planning and

Economics

Supply and

Distribution

Supply and

Distribution

Supply and

Distribution

Manufacturing

Manufacturing

Manufacturing

slide13

HYBRID STRUCTURE

  • CONTEXT
    • Environment: Moderate to high uncertainty, changing customer demands
    • Technology: Routine or nonroutine, with interdependencies across both functions and product lines
    • Size: Large
    • Goals: External effectiveness and adaptation plus efficiency within some functions
  • STRENGTHS
    • 1. Organization can achieve adaptability and coordination in some areas and efficiency in others
    • 3. Achieves coordination both within and between product lines
  • WEAKNESSES
    • 1. Potential for excessive administrative overhead
    • 2. Conflict between division and corporate departments
slide14

MATRIX STRUCTURE

President

Director of

Product

Operations

Vice-President

Design

Vice-President

Manufacturing

Vice-President

Marketing

Controller

Procurement

Manager

Product

Manager A

Product

Manager B

Product

Manager C

Product

Manager D

slide15

MATRIX STRUCTURE

Context

Environment: High uncertainty; fast-changing

Technology: Nonroutine, many interdependencies

Size: Moderate, a few product lines

Goals: Dual-product innovation and technical specialization

Strengths

1. Achieves coordination necessary to meet dual demands from environment

2. Flexible sharing of human resources across products

3. Suited to complex decisions and frequent changes in unstable environment

4. Provides opportunity for functional and product skill development

5. Best in medium-size organizations with multiple products

Weaknesses

1. Causes participants to experience dual authority, which can be frustrating and confusing.

2. Means participants need good interpersonal skills and extensive training.

3. Is time-consuming-frequent meetings and conflict resolution sessions

4. Will not work unless participants understand it and adopt collegial rather than vertical-type relationships

5. Requires dual pressure from environment to maintain power balance

a horizontal structure

Top

Management

Team

Process

Owner

Team

1

Team

2

Team

3

Customer

Market

Analysis

Research

Product

Planning

Testing

New Product Development Process

Process

Owner

Team

1

Team

2

Team

3

Customer

Analysis

Purchasing

Material

Flow

Distrib.

Procurement and Logistics Process

A Horizontal Structure
strengths and weaknesses of horizontal structure
STRENGTHS:

Flexibility and rapid response to changes in customer needs

Directs the attention of everyone toward the production and delivery of value to the customer

Each employee has a broader view of organizational goals

Promotes a focus on teamwork and collaboration—common commitment to meeting objectives

Improves quality of life for employees by offering them the opportunity to share responsibility, make decisions, and be accountable for outcomes

WEAKNESSES:

Determining core processed to organize around is difficult and time-consuming

Requires changes in culture, job design, management philosophy, and information and reward systems

Traditional managers may balk when they have to give up power and authority

Requires significant training of employees to work effectively in a horizontal team environment

Can limit in-depth skill development

Strengths and Weaknesses of Horizontal Structure
the relationship of structure to organization s need for efficiency vs learning and innovation
The Relationship of Structure to Organization’s Need for Efficiency vs. Learning and Innovation

Functional

Structure

Divisional

Structure

Matrix

Structure

Horizontal

Structure

Functional with

cross-functional

teams, integrators

  • Horizontal:
  • Coordination
  • Change
  • Learning
  • Innovation
  • Flexibility

Dominant

Structural

Approach

  • Vertical:
  • Control
  • Efficiency
  • Stability
  • Reliability
integration how do we coordinate the parts
INTEGRATION: HOW DO WE COORDINATE THE PARTS
  • direct supervision?
  • rules and regulations?
  • creating so-called self-contained units (SBUs) and relying on the market?
  • attempting to standardize inputs (e.g., relying on educational or accreditation organizations to certify education and socialization of individuals into the standards of a profession)
  • mutual adjustment (e.g. relying on the people to coordinate themselves as in self-managed teams, matrices...)
slide20

Vertical Linkages

Vertical information

systems

High

Add positions to hierarchy

Degree of Vertical Coordination

and Control Required

Rules and plans

Hierarchical referral

Low

Low

High

Information Capacity of Linkage Mechanism

slide21

Horizontal Linkages

High

Teams

Full-time integrators

Task forces

Degree of Horizontal

Coordination Required

Liaison roles

Direct contact

Information Systems

Low

Low

High

Costs of Coordination

locus of decision making authority centralization vs decentralization
LOCUS OF DECISION MAKING AUTHORITY (Centralization vs. decentralization)
  • Where are decisions made within the system?
  • Who has oversight responsibility?
slide23

ADVANTAGES AND DISADVANTAGES

OF CENTRALIZATION

Centralized

Decentralized

Advantages

Advantages

  • decisiveness
  • accountability
  • control
  • Made closer to the problem
  • Faster decisions

Disadvantages

Disadvantages

  • Overload at the top leads to slowness
  • Decisions are only as good as the individual making them.
  • risk (long-run)
  • Risk, will the decision makers use the appropriate criteria?
  • hard to control
  • unpredictable