chapter 9
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CHAPTER 9. Designing the Contemporary Organization. Learning Objectives slide 1 of 2. Explain why organizational design is important for organizational success. Identify the three major components of organizational design. - PowerPoint PPT PresentationTRANSCRIPT
Pamela S. LewisStephen H. Goodman
Patricia M. Fandt
Slides Prepared byZulema Seguel© Copyright ©2004 by South-Western, a division of Thomson Learning.
All rights reserved.
CH
AP
TE
R 9
Designing the Contemporary Organization
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Learning Objectives slide 1 of 2
1. Explain why organizational design is important for organizational success.
2. Identify the three major components of organizational design.
3. Discuss the four types of organizational structure and the strategic conditions under which each might be appropriate.
4. Describe the factors that affect an organization’s need for coordination and explain how integrating mechanisms can be used to coordinate organizational activities.
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Learning Objectives slide 2 of 2
5. Explain the concept of locus of decision making and the advantages and disadvantages of centralized and decentralized decision making.
6. Describe organic and mechanistic organizational systems and discuss the relationships between these systems and environmental stability.
7. Describe how organizational design will likely change in the future.
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Organizational Design Defined
• A plan for arranging and coordinating the activities of an organization for the purpose of fulfilling its mission and achieving its goals.
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Components of Organizational Design
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Components of Organizational Design
• Overall organizational design is defined by three primary components:
– Organizational structure
– Integrating mechanisms
– Locus of decision making
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Organizational Structure
• Defines the primary reporting relationships that exist within an organization.
• The chain of command and hierarchy of responsibility, authority, and accountability are established through organizational structure.
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Common Forms of Organizational Structure
• Functional structure
• Divisional structure
• Matrix structure
• Network structure
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Functional Structure
• Members of the organization are grouped according to the particular function that they perform within the organization.
• Appropriate when an organization’s greatest source of complexity comes from the diverse tasks that must be performed rather than from its products, geographic markets, or consumer groups.
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Advantages
Facilitates specialization
Cohesive work groups
Improved operational efficiency
Functional Structure: Advantages
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Functional Structure: Disadvantages
Disadvantages
Focus on departmental vs. organizational issues
Difficult to develop generalists needed for top-level management
Only top-level management held accountable for profitability
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Example of a Functional Structure
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• Functional structure
• Divisional structure
• Matrix structure
• Network structure
Common Forms of Organizational Structure
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Divisional Structure
• Members of the organization are grouped on the basis of:
– Common products
– Geographic markets
– Customers served
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Types of Divisional Structure
• Product divisional– Most appropriate for organizations with relatively
diverse product lines that require specialized efforts to achieve high product quality.
• Geographic divisional– Most appropriate for organizations with limited product
lines that either have wide geographic coverage or desire to grow through geographic expansion.
• Customer divisional– Most appropriate for organizations that have separate
customer groups with very specific and distinct needs.
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Product Divisional
• Advantages– Enhanced coordination.– Better assessment of manager performance
and responsibility.– Development of generalist managers.
• Disadvantages– Managers may lack expertise to operate in
wide geographic areas.– Duplication of resources.
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Geographic Divisional• Advantages
– Allows for focus on specific new markets.
– Good structure for growth along geographic lines.
– Adaptable to local needs.• Disadvantages
– Duplication of product or product/technology efforts.
– Coordination and integration are difficult.– May be difficult to manage diverse product
lines.
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Geographic Divisional Structure
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• Functional structure
• Divisional structure
• Matrix structure
• Network structure
Common Forms of Organizational Structure
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Matrix Structure
• A structure in which the tasks of the organization are grouped along two organizational dimensions simultaneously.
• Examples include:
– Product/function
– Product/geographic region
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Matrix Structure: Advantages
Advantages
Can achieve simultaneous objectives
Managers focus on two organizational dimensions, resulting in more specific job skills
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Matrix Structure: Disadvantages
Disadvantages
Complex, leading to difficulties in implementation
Behavioral difficulties from “two bosses”
Time consuming from a planning/coordination perspective
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• Functional structure
• Divisional structure
• Matrix structure
• Network structure
Common Forms of Organizational Structure
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Network Structure
• A contemporary organizational structure that is founded on a set of alliances with other organizations that serve a wide variety of functions.
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Types of Network Structure
• Internal network– A network structure that relies on internally
developed units to provide services to a core organizational unit.
• Stable network– A network structure that utilizes external alliances
selectively as a mechanism for gaining strategic flexibility.
• Dynamic network– A network structure that makes extensive use of
outsourcing through alliances with outside organizations.
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Network Structure: Advantages
Advantages
Maximizes the effectiveness of the core unit
Do more with less resources
Flexibility
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Network Structure: Disadvantages
Disadvantages
Fragmentation makes it difficult to develop control systems
Success is dependent on ability to locate sources
Difficult to develop employee loyalty
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• Overall organizational design is defined by three primary components:
– Organizational structure
– Integrating mechanisms
– Locus of decision making
Components of Organizational Design
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Managing Complexity Through Integration
• Interdependence is the degree to which work groups are interrelated.
• Three primary levels of work group integration:
– Pooled interdependence
– Sequential interdependence
– Reciprocal interdependence
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B
C
D
A
F
E
• Occurs when organizational units have a common resource but no interrelationship with one another.
Pooled Interdependence
Head-quarters
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Sequential Interdependence
• Occurs when organizational units must coordinate the flow of information, resources, and tasks from one unit to another.
A B C
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• Occurs when
information,
resources, and tasks
must be passed back
and forth between
work groups.
Reciprocal Interdependence
A
C
E F
D
B
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Integrating Mechanisms
• Methods for managing the flow of information, resources, and tasks within the organization.
• Three major categories of integrating mechanisms are:– General management systems.– Methods of increasing coordination potential.– Methods of reducing the need for
coordination.
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General Management Systems
• Some coordination of work units may be achieved through the development of general management systems such as:
– The managerial hierarchy
– Rules and procedures
– Plans and goals
• Such mechanisms form the foundation of an organization’s integration system.
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Increasing Coordination Potential
• Two popular mechanisms for increasing coordination potential both vertically and horizontally in the organization are information systems and lateral relationships.
– Information systems facilitate the flow of information up and down the traditional chain of command and across organizational units.
– Lateral relationships exist across work units and serve as mechanisms for exchanging decision-making information.
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Boundary Spanning Coordination
• Lateral relationships that help to integrate and coordinate the activities of the organization.
• Examples include:
– Liaisons
– Committees
– Task forces
– Integrating positions
– Interfunctional work teams
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Reducing the Need for Coordination
• In essence, the organization creates “slack resources” that reduce the interdependence of the work groups.
• As a result, the need for integrating mechanisms is reduced.
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• Overall organizational design is defined by three primary components:
– Organizational structure
– Integrating mechanisms
– Locus of decision making
Components of Organizational Design
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Locus of Decision Making
• Locus of decision making refers to the degree to which decision making is centralized versus decentralized.
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Centralized Decision Making
• Advantage
– Gives top-level management maximum control.
• Disadvantage
– Limits the organization’s ability to respond quickly and effectively to changes in the environment.
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Decentralized Decision Making
• Advantage
– Organizations can respond to environmental change more rapidly and effectively because the decision makers are the people closest to the situation.
• Disadvantage
– Top-level managers lose some control.
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Mechanistic Vs. Organic Systems
• Mechanistic Systems– Highly centralized organizations in which
decision-making authority rests with top-level management.
• Organic Systems– Decentralized organizations that push
decision making to the lowest levels of the organization in an effort to respond more effectively to environmental change.
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The Impact of Environmental Stability
• Stable Environments
– Environments that experience little change.
• Turbulent Environments
– Environments that are characterized by rapid and significant change.
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Organizational Design for a Changing Environment
• Adaptive Organization– An organization that eliminates bureaucracy
which limits employee creativity and brings the decision makers of the organization closer to the customer.
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Implications for Leaders: Organizational Design slide 1 of 2
• Remember that organizational design provides an important mechanism for achieving the strategic and operational goals of the organization.
• Structure their organizations to cope with their source of greatest complexity.
• Consider ways that partnerships between members of the organization, as well as alliances with other organizations, can create synergy and improve organizational performance.
• Utilize advanced information technology to support dispersed operations, people, and partners.
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Implications for Leaders: Organizational Design slide 2 of 2
• Look for ways to increase the integration potential of the organization or to reduce the need for integration.
• Evaluate the advantages and disadvantages associated with centralized versus decentralized decision making, given the specific circumstances of the organization.
• Strive to develop an adaptive and flexible organization that is effective in a dynamic business environment.