organization theory and design Ch03 notes

Chapter 3: Fundamentals of Organization StructureOrganization Structure 3 components:1. Organization structure designates formal reporting relationships, including the number of levels in the hierarchy and the span of control of managers and supervisors2. Organization structure identifies the grouping together of individuals into departments and of departments into the total organization3. Organization structure includes the design of systems to ensure effective communication, coordination, and integration of efforts across departmentsInformation-Processing Perspective on Structure Peter Senge (Learning Org.)Vertical Information Linkages Communication and coordination activities connecting the top and bottom of an organization Organizations may use any variety of structural devices to achieve vertical linkage, such as:o Hierarchical referral If a problem arises that employees dont know how to solve, it can be referred up to the next level in the hierarchy When its solved, the answer is passed back to lower levelso Rules and plans To the extent that problems and decisions are repetitious, a rule or procedure can be established so employees know how to respond without communicating directly with their manager Rules provide a standard info source enabling employees to be coordinated without actually communicating about every tasko Vertical information systems The periodic reports, written info, and computer-based communication distributed to managers Makes communication up and down more efficientHorizontal Information Linkages The amount of communication and coordination that occurs horizontally across organizational departments The following devices are structural alternatives that can improve horizontal coordination and information flowo Information systems Computerized info systems can enable managers or frontline workers throughout the organization to routinely exchange information about problems, opportunities, activities, or decisions Some organizations also encourage employees to use the companys info systems to build relationships all across the organization, aiming to support and enhance ongoing horizontal coordination across projects and geographical boundarieso Direct contact One way to promote direct contact is to create a special liaison role A liaison role is the function of a person located in one department who is responsible for communicating and achieving coordination with another department)o Task forces When linkage involves several departments, a more complex device such as a task force is required A task forceis a temporary committee composed of representatives from each organizational unit affected by a problem Effective for temporary issueso Full-time integrator The creation of a full-time position or department solely for the purpose of coordination Does not report to one of the functional departments being coordinated, they are outside of the departments and has the responsibly for coordinating several departments Can also be responsible for an innovation or change project, such as coordinating design, financing, and marketing of a new product Project manager location in the structure:o Teams Permanent task forces and are often used in conjunction with a full-time integrator When activities among departments require strong coordination over a long period of time, a cross-functional team is often the solution Special project teams may be used when organizations have a large-scale project, a major innovation, or a new product line A virtual team is made up of organizationally or geographically dispersed members who are linked through advanced info and communications technologies. Members frequently use the Internet and collaborative software to work together, rather than meeting face-to-face Ladder of Mechanisms for Horizontal Linkage and Coordination:Organization Design AlternativesRequired Work Activities Departments are created to perform tasks considered strategically important to the company For example, in a typical manufacturing company, work activities fall into a range of functions that help the organization accomplish its goals, such as a HR department to recruit and train employees, a purchasing department to obtain supplies and raw materials, a production department to build products, a sales department to sell products, and so forthReporting Relationships Once required work activities and departments are defined, the next question is how these activities and departments should fit together in the organizational hierarchy Reporting relationships (chain of command) are represented by vertical lines on an organizational chart The chain of command should be an unbroken line of authority that links all the persons in an organization and shows who reports to whomDepartmental Grouping Options Departmental grouping affects employees because they share a common supervisor and common resources, are jointly responsible for performance, and tend to identify and collaborate with one another Functional grouping places together employees who perform similar functions or work processes or who bring similar knowledge and skills to bear Divisional grouping means people are organized according to what the organization produces (i.e. product division 1, product division 2, product division 3) Multifocused (matrix) grouping means an organization embraces two structural grouping alternatives simultaneously Horizontal grouping means employees are organized around core work processes, the end-to-end work, information, and material flows that provide value directly to consumers Virtual network grouping is the most recent approach to departmental groupings. The organization is a loosely connected cluster of separate components departments are separate organizations that are electronically connected for the sharing of info and completion of tasksFunctional, Divisional, Geographic, and Other DesignsFunctional Structure The grouping of activities by a common function from the bottom to top of the organizationStrengthsWeaknesses Allows economies of scale within functional departments Enables in-depth knowledge and skill development Enables organization to accomplish functional goals Is best with only one or a few products Slow response time to environment changes May cause decisions to pile on top, hierarchy overload Leads to poor horizontal coordination among departments Results in less innovation Involves restricted view of organizational goalsFunctional Structure with Horizontal Linkages Organizations compensate for the vertical functional hierarchy by installing horizontal linkages Managers improve horizontal coordination by using info systems, direct contact between departments, full-time integrators, task forces, or teams For example, a horizontal linkage using teams would look like this:Divisional Structure The structuring of the organization according to individual products, services, product groups, major projects, or profit centresStrengths Weaknesses Suited to fast change in unstable environment Leads to customer satisfaction because product responsibility and contact points are clear Involves high coordination across functions Allows units to adapt to differences in products, regions, and customers Best in large organizations with several products Decentralizes decision making Eliminates economies of scale in functional departments Leads to poor coordination across product lines Eliminates in-depth competence and technical specialization Makes integration and standardization across product lines difficultGeographical Structure Each geographic unit includes all functions required to produce and market products or services in that region, frequently used by large nonprofit organizations For multinational corporations, self-contained units are created for different countries and parts of the world Apple Computer reorganized from a functional to a geographic structure to facilitate, manufacture and delivery of Apple computers to customers around the world Note: strengths and weaknesses are similar to divisionalMatrix Structure A strong form of horizontal linkage in which both product and functional structures (horizontal and vertical) are implemented simultaneously A matrix is the correct structure to use when the following conditions are met:1. Pressure exists to share scarce resources across product lines The organization is typically medium sized and has a moderate number of product lines It feels pressure for the shared and flexible use of people and equipment across those lines2. Environmental pressure exists for two or more critical outputs, such as for in-depth technical knowledge (functional structure) and frequent new products (divisional structure) This dual pressure means a balance of power is needed between the functional and product sides of the organization, and a dual-authority structure is needed to maintain that balance3. The environmental domain of the organization is both complex and uncertain, creating high need for interdependence between departments This requires a large amount of coordination and info processing in both vertical and horizontal directions Dual-Authority Structure in a Matrix Organization: Functional matrix is a structure in which functional bosses have primary authority and product or project managers simply coordinate product activities Product matrix is a variation of the matrix structure in which project or product managers have primary authority and functional managers simply assign technical personnel to projects and provide advisory expertiseStrengthsWeaknesses Achieves coordination necessary to meet dual demands from customers Flexible sharing of HR across products Suited to complex decisions and frequent changes in unstable environment Provides opportunity for both functional and product skill development Best in medium-sized organizations with multiple products Causes participants to experience duel authority, which can be frustrating/confusing Means participants need good interpersonal skills and extensive training Time consuming; involves frequent meetings and conflict resolution sessions Wont work unless participants understand it and adopt collegial relationships Requires great effort to maintain power balanceHorizontal Structure A structure that virtually eliminates both vertical hierarchy and departmental boundaries by organizing teams of employees around core work processes; the end-to-end work, information, and material flows that provide value directly to customers Organizations typically shift toward a horizontal structure through a procedure called reengineering Reengineering is redesigning a vertical organization along its horizontal workflows and processes Characteristics include:o Structure is created around cross-functional core processes rather than tasks, function, or geography so that boundaries between departments are eliminatedo Self-directed teams are the basis of organizational design and performanceo Process owners have responsibility for each core process in its entiretyo People on the team are given the skills, tools, motivation, and authority to make decisions central to the teams performanceo Teams have the freedom to think creatively and respond flexibly to new challenges that ariseo Customers drive the horizontal corporation. Effectiveness is measured by end-of-process performance objectives, as well as customer satisfaction, employee satisfaction, and financial contributiono The culture is one of openness, trust, and collaboration, focused on continuous improvementStrengthsWeaknesses Promotes 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 Improves quality of life for employees by offering them the opportunity to share responsibility, make decisions, and be accountable for outcomes Determining core processes 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 developementVirtual Network Structure (Modular Grouping) The firm subcontracts many or most of its major processes to separate companies and coordinates their activities from a small headquarters organization The virtual network organization may be viewed as a central hub surrounded by a network of outside specialists The hub maintains control over processes in which it has world-class or difficult-to-imitate capabilities and then transfers other activities along with the decision making and control over them to other organizations These partner organizations organize and accomplish their work using their own ideas, assets, and toolsStrengthsWeaknesses Enables even small organizations to obtain talent and resources worldwide Gives a company immediate scale and reach without huge investments in factories, equipment, or distribution facilities Enables the organization to be highly flexible and responsive to changing needs Reduces admin overhead costs Managers dont have hands-on control over many activities and employees Requires a great deal of time to manage relationships and potential conflicts with contract partners Risk or organizational failure if a partner fails to deliver or goes out of business Employee loyalty and corporate culture may be weak because employees feel they can be replaced by contract servicesHybrid Structure A structure that combines characteristics of various structural approaches (functional, divisional, geographic, horizontal) tailored to specific strategic needs Tend to be used in rapidly changing environments because they offer the organization greater flexibility One type of hybrid that is often used is to combine characteristics of functional and divisional structures When a corporation grows large and has several products or markets, it typically is organized into self-contained divisions of some type Functions that are important to each product or market are decentralized to the self-contained units However, some functions that are relatively stable and require economies of scale and in-depth specialization are also centralized at headquarters Example One: Sun Petrochemical Products Example Two: Ford Customer Service DivisionApplications of Structural DesignStructural Alignment The most important decision that managers make about structural design is to find the right balance between vertical control and horizontal coordination, depending on the needs of the organization Vertical control is associated with goals of efficiency and stability, while horizontal coordination is associated with learning, innovation, and flexibility Relationship of structure to organizations need for efficiency versus learning is demonstrated belowSymptoms of Structural Deficiency Signs of the organization structure being out of alignment, such as:o Decision making is delayed or lacking in qualityo The organization does not respond innovatively to a changing environmento Employee performance declines and goals are not being meto Too much conflict is evident