Managing Organization Design

Functional Structure of Abercrombie & FitchDivisional Structure of the Limited

The Nature of Organizational DesignWhat is organizational design?The overall set of structural elements and relationships among those elements used to manage the total organization.

Organizations change continuouslyFor large organization, it can be incomprehensibly complex

Why Are There Different Types of Organizations?Depending on what the product or service is, the management has to structure the organization to met the customers needs.

Two universal (one best way) perspectives of OD Bureaucratic model & Behavioral model

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Bureaucracy: Based on a Legitimate and Formal System of AuthorityThe organization should adopt a distinct division of labor.Develop a consistent set of rules.Establish a hierarchy of positions.Managers should conduct business impersonally to maintain social distance.Employment and promotion should be based on technical expertise, and employees should be protected from arbitrary dismissal.12 - *Red Tape | Logical!, Rational! Efficient!Ex: Government, University (form processing)

Behavioral ModelA model of organization design consistent with the human relations movement and stressing attention to developing work groups and concern about interpersonal process.

12 - *More Effective!

Character of Org.: System 1 DesignLeadership process includes no perceived confidence and trust.Motivational process taps only physical, security, and economic motives.Communication process is such that information flows downward.Interaction process is closed.Decisions occur at the top.Goal setting occurs at top.Control is centralized.Performance goals are low.

System 4 Organization (Based on Behavioral Model)Leadership process includes perceived confidence and trust.Motivational process taps a full range of motives through participatory methods.Communication flows freely.Interaction process is open.Decisions occur at all levels.Goal setting encourages group participation.Control process is dispersed.Performance goals are high.12 - *

12 - *System 3, System 2

Situational Influences on ODIdea: Optimal design depends on a set of relevant situational factors.Situational factors play a role in determining the best organization design for any particular circumstance.

There are four basic situational factors.12 - *

The Basic Situational Factors1. Core Technology:Most Important Conversion processes used to transform inputs into outputs.2. Environment:Organizations in stable environments tend to have different kind of design from organizations in unstable environments.12 - *

Two Designs Emerged from Stable and Unstable EnvironmentsMechanistic organization:Similar to the bureaucratic or system 1 model; most frequently found in stable environments.Organic organization:Very flexible and informal model of organization design; most often found in unstable and unpredictable environments.12 - *

Organizations Characterized by Two Primary Factors:Differentiation:The extent to which the organization is broken down into subunits.Integration:The degree to which the various subunits must work together in a coordinated fashion.

Organizational SizeThe total number of full-time or full-time equivalent employees.Impact of style and technologyLarge Vs. Small firms

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Organizational life cycle

Progression through which organizations evolve as they grow and mature.

Stages | Birth Youth Midlife Maturity.Design issuesWho deals with it?BiggerMechanistic, Decentralized

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Two Strategy LevelsCorporate-level Strategy (Companywide)Specifies actions taken by the firm to gain a competitive advantage by selecting and managing a group of different businesses competing in several industries and product markets.

Vs. Business level strategy6*

Strategy and Organization DesignsOrganizations can adopt a variety of corporate level strategies. The chosen strategy affects the organizational design. such as:Single-product strategyFunctional DepartmentalizationMechanistic DesignRelated diversificationHigh coordination (synergy)Unrelated DiversificationStrong Hierarchical reporting systemPortfolio approachArrange various unit under a single umbrellaHow much decision making

Design fits Strategy

Business Level StrategyBusiness-level Strategy (Competitive)Each business unit in a diversified firm chooses a business-level strategy as its means of competing in individual product markets.These strategies can affect the design of individual businesses within the organization as well the overall organization itself.Possible outcomes? Centralized, decentralized. Defender StrategyTall, Centralized, Narrow Span, Functional Departmentalization = BureaucraticProspecting Strategy~ Opposite!Analyzer Strategy~ in the middle!

Competitive Strategy- Focus

Organizational FunctionsAggressive marketing strategy calls for separate departments such as advertising, direct sales, and sales promotion.A production strategy can call for manufacturing in diverse locations.Human resource strategy may call for a lesser degree of decentralization.Develop skills of new managers12 - *Functional: Marketing, Low Debt!

Basic Forms of Organizational DesignU-Form or Functional design:An organizational arrangement based on the functional approach to departmentalization.H-Form or Conglomerate design:An arrangement used by an organization made up of a set of unrelated businesses.12 - *

Figure 12.1: Functional or U-Form Design for a Small Manufacturing CompanyAn organizational arrangement based on the functional approach to departmentalization.Coordination!, Dependency!,Advantages similar to Functional Depart.CEO on top of functional areas

Figure 12.2: Conglomerate (H-Form) Design at Pearson PLCAn arrangement used by an organization made up of a set of unrelated businesses.Unrelated diversification (Holding company)Independent responsibilityPerformance Evaluation | Resource AllocationComplexity | Performance!

M-Form or Divisional DesignAn organizational arrangement based on multiple businesses in related areas operating within a larger organizational framework.

Matrix design: (see Figure 12.4)An organizational design based on two overlapping bases of departmentalization.

Hybrid design:The use of two or more common forms of organizational design.Related and unrelated diversification

Figure 12.3: Multidivisional (M-Form) Design at The Limited, Inc.based on multiple businesses in related areas operating within an org. framework.Internal competitionCooperationPerformance A+Some Centralization!Autonomy and CoordinationMarket Research | Purchasing

Figure 12.4: A Matrix Organizationtwo overlapping bases of departmentalizationMultiple command structurePage 333Functional DepartmentsSuperimposing Product Group

Emerging Issues in Organizational DesignTeam organization:Relies almost exclusively on project type teams, with little or no underlying functional hierarchy.Floating within organizationSplit large units to smaller unitsVirtual organization:Has little or no formal structureFew permanent employee and need-based temporary employees, facilities, outsourcing .Ex: GRC- Global Research Consortium12 - *

Emerging Issues in Organizational DesignLearning organization:Works to facilitate the lifelong learning and personal development of all its employees while transforming itself to respond to changes and demands

Achieve continuous improvementShell learning center12 - *

International Organizational DesignInternational markets create an organization design that fits unique circumstances:Separate international divisions.Extension of product departmentalization.Extension of the multidivisional structure.

Figure 12.5 : Common Organization Designs for International Organizations, ASimple: Levi Strauss

Figure 12.5 : Common Organization Designs for International Organizations, BLocation departmentalization: Ford

Figure 12.5 : Common Organization Designs for International Organizations, CLocation departmentalization as an extension of Product departmentalization

Figure 12.5 : Common Organization Designs for International Organizations, DMultidivisional Structure: Branches in Various area!

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