UGBA105: UGBA105: Organizational BehaviorOrganizational Behavior

Professor Jim LincolnProfessor Jim Lincoln

Week 3: Lecture on Week 3: Lecture on

Organizational DesignOrganizational Design

Walter A. Haas School of BusinessUniversity of California, Berkeley

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Organization design: Organization design: Session objectivesSession objectives

• Discuss organization design as case of “manager as engineer” perspective

• Contrast vertical (mechanistic) and horizontal (organic) models of design

• Examine grouping & linking as strategic design decisions

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What exactly What exactly should should

structure do?structure do?

• Increase efficiency

• Allow for flexibility

• Channel individual behavior in desired directions

• Empower people to accomplish tasks

• Enable cooperation• Fit the informal org,

strategy, environment

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What shouldn’t structure do?What shouldn’t structure do?• Create unmanageable

coordination problems

• Balkanize the organization into warring fiefdoms

• Disempower and demotivate people

• Become a weapon in organizational politics

• Become sacred and ceremonial

• Breed “bureaucratic personalities”

• Cause inertia

• Mire the organization in “red tape”

• Divert or smother informal ways of accomplishing tasks

• Provide a safe haven for the incompetent or unmotivated

5Source: S. Adams, Dogbert’s Big Book of Business, DILBERT reprinted by permission of United Features Syndicate, Inc.

It’s easy to rationalize restructuringsIt’s easy to rationalize restructurings

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Two models of structureTwo models of structure

• Mechanistic or vertical• Organic or horizontal

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THE MECHANISTIC or VERTICAL MODEL:THE MECHANISTIC or VERTICAL MODEL: I. SCIENTIFIC MANAGEMENT :I. SCIENTIFIC MANAGEMENT :

“Systems so perfect that no one will need to be good”“Systems so perfect that no one will need to be good”Frederick W. Taylor: The Principles of Scientific Management, 1911. Frank B. Gilbreth: Motion Study, a Method for Increasing the Efficiency of the Workman.

New York, D. Van Nostrand Company, 1911.

Which always brings to mind….

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THE VERTICAL (MECHANISTIC) MODEL:THE VERTICAL (MECHANISTIC) MODEL: II. CLASSICAL ADMINISTRATIVE THEORYII. CLASSICAL ADMINISTRATIVE THEORY

• Horizontal structuring (grouping)– Narrow division of labor – Employees grouped by task similarity

• Vertical structuring (linking)– Coordinate by hierarchy of authority

• Unity of command• Scalar chain• Span of control

• Decision-making– Routinize decisions with rules & SOP’s– Delegate routine decisions; manage exceptions

Henry Fayol: General and Industrial Management, 1949L. Gulick and L. Urwick: Papers on the Science of Administration, 1937J. Mooney: The Principles of Organization, 1947Max Weber: Essays in Sociology. 1948.

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Principles of Vertical Structuring

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CEO

“A”

Principles of vertical organization: Unity of command, scalar chain, span of control

CEO

“A”

Case 1Case 2

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Market-ing

Market-ing

Engineering

Engineering

Manu-facturing

Manu-facturing

Human Resources

Human Resources

Manage-ment

Manage-ment

What’s good about hierarchy as a What’s good about hierarchy as a coordination mode?coordination mode?

Account-ing

Account-ing

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As opposed to.. As opposed to..

Market-ing

Market-ing

Human resources

Human resources

Engin-eering

Engin-eering

Account-ing

Account-ing

Manu-facturing

Manu-facturing

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The horizontal (organic) modelThe horizontal (organic) model• Broad division of labor

– Teams as unit of work • Flat hierarchy

– Communicate laterally– Coordinate with networks, leadership,

and culture • Few formal rules & SOP’s

– Employees make discretionary decisions at point of action

• Focus on outputs & processes– Less on inputs

• Horizontal (zig-zag) career paths

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““One best way” vs. congruence One best way” vs. congruence (or contingency)(or contingency)

• The vertical model theory was presented as the “one best way”

• The horizontal model was first presented as a “contingent” design– But lately it is presented as the “one best way”

• When should managers use one or the other?

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Let’s return to the basics:Let’s return to the basics:Strategic grouping and linking Strategic grouping and linking

Dividing and coordinating people, Dividing and coordinating people, activities, and resources so as to maximize activities, and resources so as to maximize

efficiency, flexibility, and successefficiency, flexibility, and success

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Dimensions to group on Dimensions to group on

• Inputs

– Function, tasks, disciplines, or skills:

• Outputs

– Product, customer, market, region

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R&DEngineer-

ingManu-

facturing

General Manager

Human resources

Sales

ProductA

Product

B

Product C

Functional groupingFunctional grouping

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CEO

CarsPrefabHouses Electronics

HR Mfg Mkt HR Mfg Mkt HR Mfg Mkt

Product groupingProduct grouping

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CEO

North America

Europe Asia Pacific

HR Mfg Mkt HR Mfg Mkt HR Mfg Mkt

Regional groupingRegional grouping

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CEO

Product Group A

Product Group A

Product Group B

Product Group B

Product Group C

Product Group C LegalLegal FinanceFinance R&DR&D Acctg.Acctg.

Mkt

Distribution

Sales

Manufact.

Mkt

Distribution

Sales

Manufact.

Mkt

Distribution

Sales

Manufact.

A hybrid formA hybrid form

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Finance Professors

Lyons, Odean, Stanton

Undergrad Program

MBA Program

PhD Program

Undergrad

MBA

PhD

ProfessorLyons

ProfessorOdean

ProfessorStanton

Are Haas professors organized by function or product?Are Haas professors organized by function or product?

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What’s this? What’s this?

Marketing R&D EngineeringManu-facturing Sales

Cars

Prefab houses

Electronics

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The function - product matrix at the The function - product matrix at the Haas School Haas School

Accounting Finance Marketing OBIR EAP

Under- grad

MBA

PhD

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Product Z

Engineer-ing

Manufac-turing

Marketing

General Manager

Z Eng

Z Mfg

Z Mkt

Coordinating by hierarchy in a matrixCoordinating by hierarchy in a matrix

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Engineer-ing

Manufac-turing

Marketing

General Manager

Z Eng

ZMfg

Z Mkt

Alternatives to hierarchy:Alternatives to hierarchy:(1) leadership(1) leadership

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Engineer-ing

Manufac-turing

Marketing

General Manager

Z Mfg

Z Mtg

ProductZ cross-functional team

Alternatives to hierarchy: Alternatives to hierarchy: (2) cross-functional teams(2) cross-functional teams

Z Eng

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Engineer-ing

Manu-facturing

Marketing

General Manager

Z Eng

Z Mfg

Z Mkt

Product Z culture

Alternatives to hierarchy:Alternatives to hierarchy:(3) culture (3) culture

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Process organization: Process organization: Grouping by interdependenceGrouping by interdependence

General Manager

Marketing Manufacturing Engineering

Product

Manager

Prod. B

Prod. A

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Process organization: Process organization: Grouping by interdependenceGrouping by interdependence

Hammer and Champy: Hammer and Champy: Reengineering the CorporationReengineering the Corporation, 1993, 1993

• Identify core business processes

• Assign & empower teams as “owners” of processes

• Shrink functional groups but preserve specialist expertise

• Revamp accounting & reward systems

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Keep functional expertise but Keep functional expertise but dispense with functional groupsdispense with functional groups

“’Create a house Yellow Pages so functional expertise is easy to find even though dispersed. Link experts in a real or electronic network where they can keep each other up to date and can get training and career development help’…’The engineers can have a club. But they can’t work in the same room, and they can’t sit at the same table at the company banquet.’”

Thomas A. Stewart: “The search for the organization of tomorrow” Fortune, 5/18/92.

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Top Management

TeamTeamProcessCoordinators

TeamTeamProcessCoordinators

TeamTeamProcessCoordinators

New product development process

Order fulfillment process

Procurement, logistics process

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Network organizationNetwork organization

• Small, lean, & focused firms

• Rely on entrepreneurial, leadership, and networking skills to create and coordinate a division of labor – Examples:

• Silicon valley

• New York fashion industry

• Japanese keiretsu

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Designers

Core FirmProducers

DistributorsSuppliers

Managers

Suppliers Distributors

ITServices

Producers

Producers

Designers

Distributors

Suppliers

Brokers

Full Vertical Integration

Full Network Organization

Networked Firm

HR Services

IT Services

HR Services

Designers Marketers

HR Services

IT Services

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TakeawaysTakeaways

• Finding the right division of labor isn’t easy– Different ways of slicing the organization have

their trade-offs– Congruence with strategy, environment and

people is key

• There’s no one right way to coordinate– Apply multiple solutions – Again, congruence is key