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BA 5201Organization and Management

Patterns of strategic organizational design

Instructor: Çağrı Topal

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Organizational designGrouping of individuals or tasks into

work units, departments, and divisions

Critical role in integrationFunctional: grouping according to

the nature of the work or functionsOutput: grouping according to

outcomes or products, markets, and geography

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Functional design

Grouping employees on the basis of functions or equipments

Based on specialized knowledge, skills, information, and equipment

Assigning partial responsibilityBest suited for organizations of

small- or medium-size, single-product or few-closely related-product, low-interdependence and routine technology, and fairly stable environment

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Functional design-strengths

Workers can develop refined expertise and skills

Communication and thus coordination is facilitated within functions

Newly hired employees can be easily socialized to acquire functional and interactional skills

Economies of scale is more likely to emerge

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Functional design-weaknesses

It is difficult to coordinate the activities of different functions

A narrow functional view of the organization may emerge

Coordination may be pushed up the hierarchy, wasting top managerial resources

It is likely that innovation will be inhibited

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Output design

Including groupings of products or services, markets, and geographical regions

Based on output, its type or market, or geography where it is sold

Involving semi-autonomous departments or divisions

Suitable for uncertain environments and non-routine interdependent technologies

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Output design-strengths

Adaptation to environmental demands in general is easier

Output rather than department orientation makes coordination easier

The need for centralized coordination is less

It is easier to identify and track responsibility for efficiency and profitability

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Output design-weaknesses

Product, market, or geographical biases are likely to occur

The potential for economies of scale is considerably reduced

The ability to share information and resources across divisions is low

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Mixed designs: hybrid

Combining both functional and output groupings

Gaining economies of scaleFunctional departments serving the

entire companyOutput divisions responding to product,

market, or geographical requirementsSuitable for uncertain environmentsPossibility of lack of a common vision

shared by both functional headquarters units and divisional units

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Mixed designs: matrix

Overlapping existence of functional and output groups

Functional resources allocated among output groups of products, projects, or programs

Proper technical advice and expertise at the proper location and at the desired time

When functional resources in short supply

Responsive and flexibleSuitable for complex\dynamic

environments, and non-routine\highly interdependent tasks

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Mixed designs: matrix-problemsPossibility of domination of one

group over other groupsViolation of the unity of command

principle and high mediation needInherent potential for conflictDifficulty in responding to very fast

circumstances

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Evolving designs: virtual

Core organization and critical functions

Non-critical functions perfomed by partners or temporary workers

Linkages kept if productiveFlexibility

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Evolving designs: virtual-problemsLess control over outside partnersDisplacing labor to other nationsDestabilizing jobsSocio-economic stratification

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Evolving designs: federal

Extension of product-based designA small central organization and a

number of loosely affiliated subsidiaries

Financial controls by the central organization

The Japanese keiretsu and the Korean chaebol

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Evolving designs: federal-keiretsuMajor banks and trading companies

at the coreMember companies as independent

entities tied together through cross holding of shares, overlapping boards of directors, and formal or informal agreements

Cooperation to ensure individual companies’ viability and competitiveness

Problem of inflexibility

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Evolving designs: federal-chaebolFormed with the cooperation and

support of the governmentFamily-basedCross-ownership and long-standing

family tiesFeatures of family control and

management, paternalistic leadership, centralized planning and control, entrepreneurial orientation, close ties with the government, and strong ties to schools