Designing Effective Organizations

Chapter Fifteen

Copyright © 2010 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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After reading the material in this chapter, you should be able to:

• Describe the four characteristics common to all organizations.

• Explain the difference between closed and open systems.

• Define seven basic ways organizations are structured

• Discuss Burns and Stalker’s findings regarding mechanistic and organic organizations.

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After reading the material in this chapter, you should be able to:

• Identify when each of the organization structures is the right fit.

• Describe the four generic organizational effectiveness criteria.

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What is an Organization?

• Organization - system of consciously coordinated activities of

two or more people.

What is an Organization?

• Four common denominators- Coordination of effort- Common goal- Division of labor- Hierarchy of authority

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Designing Effective Teams

See an article from Administrative Science Quarterly on designing effective teams

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What is an Organization?

• Unity of command principle - each employee should report to a single

manager.

Question?

At Creative Calendars, Inc., each employee reports only to one manager. This reflects:

A.The division of labor.B.Coordination of effort.C.A narrow span on control.D.The unity of command principle.

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Organization Charts

• Organization chart - boxes-and-lines illustration showing chain of

formal authority and division of labor.

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Sample Organization Chart for a Hospital

Figure 15-1

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Organization Charts

• Division of labor• Span of control

- the number of people reporting directly to a given manager.

Organization Charts

• Staff personnel - provide research, advice, and

recommendations to line managers.

• Line Managers - have authority to make organizational

decisions.

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An Open-System Perspective

• Closed System - self-sufficient entity, closed to the surrounding

environment.

• Open System - organism that must constantly interact with its

environment to survive

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The Organization as an Open System

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Traditional Design

• Functional structure - groups people according to the business

functions they perform manufacturing, marketing, finance

• Divisional structure - groups together activities related to outputs

type of product or customer

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Traditional Design

• Matrix structure - combines functional and divisional chains of

command to form a grid with two command structures

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Matrix Structure

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Principles for Designing a Horizontal Organization

• Organize around complete workflow processes• Flatten hierarchy• Appoint process team leaders to manage internal

team processes• Let supplier and customer contact drive

performance• Provide required expertise from outside the team

as needed

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Opening Boundaries between Organizations

• Hollow organization - organization identifies core competencies and

outsources other activities such as manufacturing, order taking and shipping

- modular

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Opening Boundaries between Organizations

• Virtual organization - organization identifies partners with the

needed talents and negotiates an agreement in which the participants typically work in separate facilities, linked by technology as they work toward a common goal

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Question?

Chad has developed a new product to improve gas mileage. He has formed a new venture but must outsource his marketing and distribution. His firm has a _________ organization.

A.Functional B.DivisionalC.MatrixD.Hollow

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How to ManageGeographically Dispersed Employees

• Hire carefully• Communicate regularly• Practice “management by wandering around”

• Conduct regular audits• Use technology as a tool, not a weapon• Achieve a workable balance between online and live training

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The Contingency Approach to Designing Organizations

• Contingency approach to organization design

- creating an effective organization-environment fit.

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Mechanistic versus Organic Organizations

• Mechanistic organizations - Rigid bureaucracies with strict rules, narrowly

defined tasks, and top-down communication.

• Organic organizations - Flexible networks of multitalented individuals

who perform a variety of tasks

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Different Approaches to Decision Making

• Centralized decision making - top managers make all key decisions

• Decentralized decision making - lower-level managers are empowered to make

important decisions

Question?

Bankers International (BI) can be described as a rigid bureaucracy with strict rules, narrowly defined tasks and top-down communication. BI can also be described as a(n) __________ organization.

A.MechanisticB.OrganicC.DecentralizedD.Wide-span

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Getting the Right Fit

• A functional structure can save money by grouping together people who need similar materials and equipment

• Divisional structures increase employees’ focus on customers and products

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Getting the Right Fit

• A successful matrix structure requires superior managers who communicate extensively, foster commitment and collaboration, manage conflict and negotiate effectively to establish goals and priorities consistent with the organization’s strategy

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Getting the Right Fit

• Horizontal designs improve coordination and communication

• Organizations that become hollow, modular, or virtual can generate superior returns by focusing on what they do best

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Question?

Oneal, CEO of Fredhandbag HobbyTown, wants to improve the communication in his firm. He should change to a _________ organization.

A.FunctionalB.MatrixC.HorizontalD.Modular

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Four Dimensions of Organizational Effectiveness

Figure 15-4

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Generic Effectiveness Criteria

• Goal accomplishment - most widely used effectiveness criteria

• Resource acquisition - organization is effective if it acquires

necessary factors of production

Question?

Sherman, a new manager at Get Well Industries, is interested in learning about the most likely used effectiveness criterion for organizations. Which of these would you recommend to Sherman?

A.Goal accomplishmentB.Resource acquisitionC.Internal processesD.Strategic constituencies satisfaction

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Generic Effectiveness Criteria

• Internal processes - healthy system if information flows smoothly

and if employee loyalty, commitment, job satisfaction prevail

• Strategic constituencies satisfaction- Strategic constituency: any group of people

with a stake in the organization’s operation or success.

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Mixing Effectiveness Criteria: Practical Guidelines

• Goal accomplishment approach is appropriate when goals are clear, consensual, time-bounded, and measurable

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Mixing Effectiveness Criteria: Practical Guidelines

• Resource acquisition approach is appropriate when inputs have a traceable effect on results or output

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Mixing Effectiveness Criteria: Practical Guidelines

• Internal processes is appropriate when organizational performance is strongly influenced by specific processes

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Mixing Effectiveness Criteria: Practical Guidelines

• Strategic constituencies approach is appropriate when powerful stakeholders can significantly benefit or harm the organization

Supplemental Slides

• Slides 40-45 contain extra non-text examples to integrate and enhance instructor lectures

- Slide 40: The Big Get Bigger- Slide 41-42: The Agony of Victory- Slide 43: Management in the Movies Apollo 13- Slide 44-45: Video discussion slides

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The Big Get Bigger

• Wal-Mart- Largest US employer: 1.9 million workers (approximately the population of Houston, Texas)

• Large Companies (2007):- Exxon-Mobil (#2) - $39.5

billion in profit- Ford (#7) – wants to shrink- Starbucks (#310) –

concerned about increase in stores being a detriment to the “soul” of Starbucks

• Can an organization get “too” big?

• Is scale an asset or liability?

• “Our goal is not just to be big but to use our size to be great” ~ Jeff Immelt, GE Chairman

Source: The Big Get Bigger, Fortune, April 30, 2007

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The Agony of Victory

• Competency Trap- Focusing on what the org does well- Problems:

• Competitors learn how to do the same thing

• Environment changes making the competency less relevant

Source: Pfeffer, J. The Agony of Victory (2007, Jan/Feb), Business 2.0, Vol 8. pg. 62

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The Agony of Victory

• Avoiding the Competency Trap- Avoid excessive specialization- Develop peripheral vision – keep abreast of market changes

- Have mindset of continuous learning – relying too much on a strength can become a weakness

Source: Pfeffer, J. The Agony of Victory (2007, Jan/Feb), Business 2.0, Vol 8. pg. 62

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Management in the MoviesApollo 13 – “The Launch”

• In this scene, Gene Kranz is moving through his checklist for a go-no-go for launch.

• Questions- What are the different departments involved in

making the launch happen?- How are these departments organized?

Video: 1154 Lill

• Jennifer Velarde admits that the customer customized aspect of 1154 Lill Studio was discovered by accident. Do you think there are many small business born from accidental circumstance?

• Would including the customer in the creative process work with any type of clothing or fashion product? Why or why not?

• What would the pros and cons of international expansion be for 1154 Lill Studio? What would you recommend they do?

• Are there suggestions you can think of that would make this a more efficient operation?

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Video: One Smooth Stone

• The corporate event planning industry is very dynamic. What characteristics of One Smooth Stone help it to remain competitive and successful in this industry?

• Why won’t the premises of organization theory proposed by theorists like Fayol and Weber work for organizations in a dynamic environment? Why won’t they work with knowledge workers?

• How important is it to ensure that the values of outsourcing partners align with One Smooth Stone’s? Why?

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