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Organization Design

This overview explores the concept of centralization in organizational design, examining the degree to which authority is concentrated within a single entity. It contrasts centralized companies like McDonald's and Wal-Mart with decentralized firms like GE and Procter & Gamble, highlighting the strengths and weaknesses of each approach. The discussion includes coordination theory, types of interdependence in business functions, and practical management strategies. It also addresses bureaucratic and behavioral models, situational influences, and basic organizational structures like functional, divisional, and matrix designs.

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Organization Design

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  1. Organization Design

  2. Centralization • Degree to which authority is concentrated in a single place • Centralized companies • McDonald’s, Wal-Mart • Decentralized companies • GE, Proctor & Gamble, IBM • What are the strengths/weaknesses of each?

  3. Coordination Theory • Parts of a business must work together • Pooled interdependence • Just “staple the results together” • Sequential interdependence • Output of one becomes input of next function • Reciprocal interdependence • Activities flow both ways between functions • E.g. Hotel reservations, front desk, housekeeping • E.g. product development and marketing

  4. How to Manage Coordination Practice • Managerial hierarchy • Put a manager in charge of interdependent functions • Rules and procedures • Liaison roles • Task forces • Integrating departments

  5. Organizational Design • Organizations change • Organizations, especially large ones, can be very complex

  6. Bureaucratic Model Theory • Max Weber • Design based upon formal system of authority • Distinct divisions of labor, staffed with experts • Consistent set of rules for uniform performance • Hierarchy of positions and chain of command • Managers should be impersonal • Employment and advancement based upon technical expertise - Protect employees against arbitrary firing • Examples: Gov’t, universities

  7. Behavioral Model Theory • RensisLikert – major researcher • Created dimension and table (matrix) of processes • System 1 design – bureaucratic model • System 4 design – full behavioral model

  8. System 1 Design • Leadership process includes no perceived confidence and trust. • Motivational process taps only physical, security, and economic motives. • Communication process is such that information flows downward. • Interaction process is closed. • Decisions occur at the top. • Goal setting occurs at top. • Control is centralized. • Performance goals are low.

  9. System 4 Design • Leadership process includes perceived confidence and trust. • Motivational process taps a full range of motives through participatory methods. • Communication flows freely. • Interaction process is open. • Decisions occur at all levels. • Goal setting encourages group participation. • Control process is dispersed. • Performance goals are high.

  10. Situational View Practical Influences • Technology • Unit or small-batch technology • E.g. Brooks’ Brothers (custom suits), Kinkos • Often System 4 Design • Mass production or large-batch • E.g. Ford, Whirlpool, Phillips • Often System 1 Design • Continuous-process • E.g. Shell, Dow • Often System 4 Design • Typically highly automated

  11. Situational View • Environment • Mechanistic organizations • Bureaucratic • Most often stable environment • Well-defined rules and procedures • E.g. A&F, Wendy’s, Aetna • Organic organizations • Unstable, fluid environment • E.g. Motorola, Limited Brands • Characterize according to: • Differentiation – how many subunits • Integration – how much the units have to cooperate

  12. Situational View • Organization size • Large organizations • Have greater specialization • More SOP • More regulations • Greater centralization • E.g. Wal-Mart

  13. Situational View • Organization Life Cycle • Birth, youth, mid-life, maturity • Organization you need changes over time • Becomes more mechanistic over time • More specialized over time • Coordination demands increase

  14. Strategy and Organizational Design • Defenders – tall and centralized, functional • Prospectors – flat, decentralized • Differentiators – structure around the differentiator • Cost Leadership – centralized, functional

  15. Basic FormsFunctional (U-Form) • Organize by basic functions • Operations • Marketing • Finance • HR • R&D • U form (unitary) • Example: Abercrombie & Fitch, WD-40

  16. Basic FormConglomerate (H-Form) • Organization is a set of unrelated businesses • (H stands for holding) • Often along product lines • Examples: • GE • Aircraft engines, appliances, broadcasting, lighting, … • Mitsubishi • LG

  17. Basic FormDivisional (M-Form) • Organize along related product lines • (M stands for multidivisional) • Examples • Walt Disney • Theme parks, movies, merchandise • HP • PCs, printers, medical equipment • Allows for autonomy yet take advantage of shared resources

  18. Basic FormMatrix Design • Organization is a combination of two more basic forms • Examples • Martha Stewart • Product groups and lifestyle (wedding, cooking, etc.) • GM • Major disadvantages • Uncertain reporting relationships • Potential conflicting goals • Coordination required, longer decision making

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