ch06 - organisation theory design and change gareth jones
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Designing Organizational Structure:
Specialization and Coordination
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A functional structure is a design that groups people on the basis of their common skills, expertise, or resources they use
Functional structure is the bedrock of horizontal differentiation
An organization groups tasks into functions to increase the effectiveness with which it achieves its goals
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Allows economies of scale within departments
Simplified mechanisms for control Clear definition of responsibilities Enables to accomplish functional
goals Opportunity for focused
competencies
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Slow response to environmental changes
May cause decisions to pile on top
Inability to manage diversityLack of coordination between functions
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Functional structure is appropriate if the organization: ◦ Limits itself to producing a small number of
similar products◦ Produces those products in one or a few
locations◦ Sells them to only one general type of client
or customer
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GAUTAM BANERJEE - General Manager - MaterialsASHOK KUMAR GUPTA - General Manager - Accounts & PlanningR K AGRAWAL - General Manager – ManufacturingR S SUBRAMANIAM - General Manager – Technology, Strategy, Projects & EngineeringJEHANGIR TANKARIWALA - General Manager - Human ResourcesSHRIDHAR PANSHIKAR - National Sales ManagerPURNENDU ROY - Head of R&DP. GOVINDAN - Company Secretary & Head of LegalVALIVETI V PADMANABHAM - Corporate Manager - Information Systems
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Organizations most commonly adopt the divisional structure to solve control problems that arise with too many products, regions, or customers
The type of divisional structure depends on the problem to be solved
Divisional structure creates smaller, more manageable subunits and takes the form
Product structure Geographic structure Market structure
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Ability to concentrate on specific businesses Can respond to fast change in environment Leads to client satisfaction as responsibility and contact
points are clear Ease of measurement of unit performance Decentralizes decision making Scope for management to focus on strategy Clear division of labor between corporate and divisional
managers Profitable growth: when each division is its own profit
center, individual profitability can be encouraged Internal labor market: the most able divisional managers
are promoted to become corporate managers
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Eliminates in-depth competence Conflict between goals of divisions Duplication of functions between divisions Complexity of inter-divisional coordination Managing the corporate-divisional relationship: finding
the balance between centralization and decentralization
Coordination problems between divisions: divisions start competing for resources and rivalry prevents cooperation
Transfer pricing: problems between divisions often revolve around the transfer price
Bureaucratic costs: multidivisional structures are very expensive to operate
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Product structure: a divisional structure in which products are grouped into separate divisions according to their similarities or differences
Organizations need to decide how to coordinate its product activities with support functions
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Product division structure: a structure in which a centralized set of support functions service the needs of a number of different product lines
Each product division uses the services of the central support function
Support function is divided into product-oriented teams who focus on the needs of one particular product division
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Product team structure: specialists from the support functions are created that specialize in the needs of particular kind of product◦ Focus on the needs of one product (or client)
or a few related products Each team is a self-contained division
headed by a product team manager
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Multidivisional structure: structure in which support functions are placed in dependent self-contained divisions with its own set of support functions
Corporate headquarters staff: responsible for overseeing the activities of the managers heading each division
Allows a company to operate in many different businesses
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When the control problems that companies experience are a function of geography, a geographic divisional structure is appropriate
Allows the organization to adjust its structure to align its core competences with the needs of customers in different geographic regions
Allows some functions to be centralized and others decentralized
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A market structure aligns functional skills and activities with the needs of different customer groups
Each customer group has a different marketing focus, and the job of each group is to develop products to suit the needs of its specific customers
Each customer group makes use of centralized support function
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An organizational design that groups people and resources in two ways simultaneously, by function and product
Shows a vertical flow of functional responsibility and a horizontal flow of product responsibility
The members report to two superiors: the product team manager and the functional manager
The team is the building block and principal coordination and integration mechanism
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Prevention of overlap of functions Achieves coordination necessary to meet dual
demands from customers Direct contact instead of bureaucracy Provides opportunity for both functional and product
skill development Development of managerial skill The use of cross-functional teams reduces functional
barriers and subunit orientation Maximizes use of skilled professionals, who move
from product to product as needed The dual functional and product focus promotes
concern for both cost and quality
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Means participants need good interpersonal skills and extensive training
Lack of clarity about responsibilities Difficult to track profitability of products High degree of conflict over priorities Requires great effort to maintain power balance Matrix lacks a control structure that leads employees to
develop stable expectations of one another The lack of a clearly defined hierarchy of authority can also
lead to conflict between functions and product teams over the use of resources
People are likely to experience a vacuum of authority and responsibility
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Network structure: a cluster of different organizations whose actions are coordinated by contracts and agreements rather than through a formal hierarchy of authority
Very complex as companies form agreements with many suppliers, manufacturers, and distributors
Such agreements are necessary as the organization outsources many of the value creation activities involved in production and marketing goods and services
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Concentration on core competence High degree of flexibility Allows quick scale and reach without huge
investments in factories, equipment, etc., Lowering of costs and complexities Opportunity to leverage outsourced skills If a network partner can perform a specific functional
activity reliably, and at a lower cost, production costs are reduced
Avoids the high bureaucratic costs of operating a complex organizational structure
Allows an organization to act in an organic way Network partners can be replaced if they do not
perform up to standards
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Lack of control over many functions Unhealthy dependence on partners Need for high degree of cooperation
and considerable level of mutual adjustment
Over-narrowing of expertise Ability to control a complex value-
creation process is difficult because managers lack the means to effectively coordinate and motivate the various network partners
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Divides an organization into two components:◦ those that are oriented to the customer and/or the
geographical region in which the company is doing business, called the front end
◦ a back end that is organized by product and technology Advantages: focus on more than one
dimension at a time, manage cross-product strategies and coordination
Disadvantages: lack of clarity about how the front end is supposed to work with the back end, high need for collaboration along with the high possibility for conflict
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Hybrid structure: large complex organizations that have many divisions make use of many different structures
Each product division’s manager selects the structure (product, geographic, matrix) that best meets the needs of their particular environment and strategy