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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

  • Control

    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

  • Summary

    • 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

    • CONTROL!

    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.