Management, Hitt, Black, Porter, Vahdi Boydaş, Mensur Boydaş

PowerPoint slides by

Susan A. Peterson, Scottsdale Community College

PowerPoint slides by

Susan A. Peterson, Scottsdale Community College

Chapter 7:Organizational Structure and Design

Chapter 7:Organizational Structure and Design

m a n a g e m e n t 2eH i t t / B l a c k / P o r t e r

m a n a g e m e n t 2eH i t t / B l a c k / P o r t e r

© 2008 Prentice-Hall Business Publishing 2

Learning ObjectivesLearning Objectives

After studying this chapter, you should be able to:

Explain the concepts of organizational structure and design

Explain the concepts of differentiation and integration and their role in organizational structure and design

Describe the concepts of formalization, informalization, centralization, and decentralization and discuss their interrelationships

After studying this chapter, you should be able to:

Explain the concepts of organizational structure and design

Explain the concepts of differentiation and integration and their role in organizational structure and design

Describe the concepts of formalization, informalization, centralization, and decentralization and discuss their interrelationships


Learning ObjectivesLearning Objectives

Identify the common structures used by organizations and describe their strengths and weaknesses of each of these structures

Understand how network structures help firms manage their value chain activities and contribute to achieving a competitive advantage

Describe how environmental factors and the organization’s strategy influence organizational structure

Explain the types of organizational structure important for firms to use when operating in international markets

Identify the common structures used by organizations and describe their strengths and weaknesses of each of these structures

Understand how network structures help firms manage their value chain activities and contribute to achieving a competitive advantage

Describe how environmental factors and the organization’s strategy influence organizational structure

Explain the types of organizational structure important for firms to use when operating in international markets


Principles of Organizational StructurePrinciples of Organizational Structure

Organizational structure

The sum of ways an organization divides its labor into distinct, coordinated tasks

Organizational structure

The sum of ways an organization divides its labor into distinct, coordinated tasks

Organizational design

Assessing the organization’s strategy and environmental demands

Determining the appropriate organizational structure

Organizational design

Assessing the organization’s strategy and environmental demands

Determining the appropriate organizational structure


Principles of Organizational StructurePrinciples of Organizational Structure

Organizational charts

Illustration of relationships

- Units

- Lines of authority among supervisors and subordinates

Illustrated by use of labeled boxes and connecting lines

Organizational charts

Illustration of relationships

- Units

- Lines of authority among supervisors and subordinates

Illustrated by use of labeled boxes and connecting lines


Suncor Energy Organizational StructureSuncor Energy Organizational Structure

CEOCEO

ExecutiveVice-President

Oil Sands


Oil Sands

ExecutiveVice-PresidentMarketing and

Refining

ExecutiveVice-PresidentMarketing and

Refining


Natural Gas andAlternative

Energy


Natural Gas andAlternative

Energy

SeniorVice-President

Major Projects

SeniorVice-President

Major Projects

Adapted from Exhibit 7.1


DifferentiationDifferentiation

Differentiation

Division of tasks into subtasks that are performed by individuals with specialized skills

Two types of differentiation:

- Task differentiation

- Cognitive differentiation

Differentiation

Division of tasks into subtasks that are performed by individuals with specialized skills

Two types of differentiation:

- Task differentiation

- Cognitive differentiation


IntegrationIntegration

Integration

The extent to which various parts of the organization interact, coordinate and cooperate with each other

Driving forces of integration include:

- Interdependence: degree to which each unit or each person depends on other units or people to accomplish a required task

- Uncertainty: the extent to which future input, process, and output factors cannot be forecast accurately

Integration

The extent to which various parts of the organization interact, coordinate and cooperate with each other

Driving forces of integration include:

- Interdependence: degree to which each unit or each person depends on other units or people to accomplish a required task

- Uncertainty: the extent to which future input, process, and output factors cannot be forecast accurately


Lev

el o

f A

pp

rop

riat

enes

sL

evel

of

Ap

pro

pri

aten

ess

HighHigh

LowLow Level of UncertaintyLevel of Interdependence

Level of UncertaintyLevel of Interdependence

LowLow HighHigh

Appropriateness of Rules, Goals, ValuesAppropriateness of Rules, Goals, Values



FormalizationFormalization

Formalization

The official and defined structures and systems in decision making, communication, and control in an organization- Line of authority- Unity of command- Span of control

Formalization

The official and defined structures and systems in decision making, communication, and control in an organization- Line of authority- Unity of command- Span of control


Line of AuthorityLine of Authority

A line of authority specifies who reports to whom

A line of authority specifies who reports to whom

CEOCEO

Vice PresidentMarketing


Vice PresidentManufacturingVice PresidentManufacturing

Vice PresidentHuman

Resources

Vice PresidentHuman

Resources

Brand Manager


Unity of CommandUnity of Command

CEOCEO




Vice PresidentHuman

Resources

Vice PresidentHuman

Resources

Brand Manager

An employee should have only one boss

An employee should have only one boss


Span of ControlSpan of Control

CEOCEO




Vice PresidentHuman

Resources

Vice PresidentHuman

Resources

The number of employees reporting to a given supervisor

The number of employees reporting to a given supervisor


Factors that Influence the Span of ControlFactors that Influence the Span of Control

Technology

Ability ofManagement

Degree ofEmployee

Empowerment Abilitiesof

Employees

Amountof

Coordination

GeographicProximity ofSupervisedEmployees

JobSimilarity

JobComplexity

Span ofControl



Tall Organizational StructuresTall Organizational Structures

Levels = 4Span of Control = 3Total Employees = 40




Flat Organizational StructuresFlat Organizational Structures





InformalizationInformalization

Informal organization

Unofficial but influential means of communication, decision making, and control

The Japanese and the Chinese rely more heavily on informalization

- Nemawasi: informal decision making that occurs outside of meetings in Japan

- Guanxi: informal, reciprocal business relationships in China

Informal organization

Unofficial but influential means of communication, decision making, and control

The Japanese and the Chinese rely more heavily on informalization

- Nemawasi: informal decision making that occurs outside of meetings in Japan

- Guanxi: informal, reciprocal business relationships in China


Centralization and DecentralizationCentralization and Decentralization

Centralized organizations

Restrict decision making to fewer individuals, usually at the top of the organization

Centralized organizations

Restrict decision making to fewer individuals, usually at the top of the organization

Decentralized organizations

Tend to push decision-making authority down to the lowest level possible

Decentralized organizations

Tend to push decision-making authority down to the lowest level possible


Combinations of Formal/Informal and Centralized/DecentralizedCombinations of Formal/Informal and Centralized/Decentralized

U.S. MilitaryU.S. MilitaryPhilips

ElectronicsPhilips

Electronics

MitsubishiMitsubishi Club MedClub Med

CentralizedCentralized DecentralizedDecentralized

FormalFormal

InformalInformal



Functional StructureFunctional Structure

CEOCEO



Vice PresidentSales

Vice PresidentSales


Vice PresidentHuman

Resources

Vice PresidentHuman

Resources

MarketResearch

Advertising

Promotion

East region

South region

West Region

Purchasing

Operations

Logistics

Recruiting

Training

Compensation



Functional StructureFunctional Structure

Strengths

Small- to medium-sized firms with limited product diversification

Specialization of functional knowledge

Less duplication of functional resources

Facilitates coordination within functional areas

Strengths

Small- to medium-sized firms with limited product diversification

Specialization of functional knowledge

Less duplication of functional resources

Facilitates coordination within functional areas

Weaknesses

Weak coordination across functional groups

Restricted view of overall organizational goals

Limits customer attention

Slower response to market changes

Burdens chief executives with decisions

Weaknesses

Weak coordination across functional groups

Restricted view of overall organizational goals

Limits customer attention

Slower response to market changes

Burdens chief executives with decisions


Product StructureProduct Structure

CEOCEO

Vice PresidentProduct A


Vice PresidentProduct B


Vice PresidentProduct C

Vice PresidentProduct C

Vice PresidentProduct D

Vice PresidentProduct D

Marketing

Operations

Sales

Marketing

Operations

Sales

Marketing

Operations

Sales

Marketing

Operations

Sales



Product StructureProduct Structure

Strengths

More focus on products and customers

Easier to evaluate performance of the product

Product responsiveness to market changes

Less burden on the top executive in making operating decisions

Strengths

More focus on products and customers

Easier to evaluate performance of the product

Product responsiveness to market changes

Less burden on the top executive in making operating decisions

Weaknesses

Duplication and lack of economies of scale

Problems for customers purchasing across multiple product groups

Conflicts between product group and corporate objectives

Conflict between product groups

Weaknesses

Duplication and lack of economies of scale

Problems for customers purchasing across multiple product groups

Conflicts between product group and corporate objectives

Conflict between product groups


Division StructureDivision Structure

CEOCEO

Vice PresidentMedical Systems Vice President

Medical SystemsVice President

BioscienceVice President

BioscienceVice President

ClinicalVice President

Clinical

Anesthesia

Hypodermic

Infusion

Labware

Cell Biology

Immunology

Vacutainer

Diagnostics

Consulting



Division StructureDivision Structure

Strengths

Reduced functional duplication

Customer focus can increase

Cross-product coordination is eased

Cross-regional coordination is often eased

Strengths

Reduced functional duplication

Customer focus can increase

Cross-product coordination is eased

Cross-regional coordination is often eased

Weaknesses

Most appropriate only for diversified, large companies with many products and product families

May inhibit cross-division coordination

Coordination difficulties between division and corporate objectives

Weaknesses

Most appropriate only for diversified, large companies with many products and product families

May inhibit cross-division coordination

Coordination difficulties between division and corporate objectives


Customer StructureCustomer Structure

CEOCEO

Vice PresidentRetail

Vice PresidentRetail

Vice PresidentIndustrial

Vice PresidentIndustrial

Vice PresidentMilitary

Vice PresidentMilitary

Small

Midsize

Domestic

International

Army

Navy



Customer StructureCustomer Structure

Strengths

In-depth understanding of specific customers

Responsiveness to changes in customer preferences and needs

Responsiveness to moves by competitors to better serve customers

Strengths

In-depth understanding of specific customers

Responsiveness to changes in customer preferences and needs

Responsiveness to moves by competitors to better serve customers

Weaknesses

Duplication of functional resources in each customer unit

Coordination between customer units and corporate objectives

Failure to leverage technology or other strengths in one unit across other units

Weaknesses

Duplication of functional resources in each customer unit

Coordination between customer units and corporate objectives

Failure to leverage technology or other strengths in one unit across other units


Geographical/Regional StructureGeographical/Regional Structure

CEOCEO

Vice PresidentNorth AmericaVice PresidentNorth America

Vice PresidentEurope

Vice PresidentEurope

Vice PresidentSoutheast AsiaVice PresidentSoutheast Asia

Vice PresidentLatin America

Vice PresidentAfrica



Geographical/Regional StructureGeographical/Regional Structure

Strengths:

Facilitates local responsiveness

Develops in-depth knowledge of specific regions/countries

Creates accountability by region

Facilitates cross-functional coordination within regions

Strengths:

Facilitates local responsiveness

Develops in-depth knowledge of specific regions/countries

Creates accountability by region

Facilitates cross-functional coordination within regions

Weaknesses:

Often creates cross-regional coordination difficulties

Can inhibit ability to capture global scale economies

Duplicates resources and functions across regions

Weaknesses:

Often creates cross-regional coordination difficulties

Can inhibit ability to capture global scale economies

Duplicates resources and functions across regions


Matrix StructureMatrix Structure

Adapted from Exhibit 7.11: Matrix Structure

CEOCEO

HealthHealth BeautyBeauty CleaningCleaning FoodFood

NANA

APAP

EMEAEMEA

LALA



Matrix StructureMatrix Structure

Strengths

Information flow

Decision quality

Suited to a changing and complicated business environment

Flexible use of human resources

Strengths

Information flow

Decision quality

Suited to a changing and complicated business environment

Flexible use of human resources

Weaknesses

Complexity of performance evaluations

Inhibited ability to respond to changing conditions

Diffused accountability

Conflicts between differing perspectives and objectives

Weaknesses

Complexity of performance evaluations

Inhibited ability to respond to changing conditions

Diffused accountability

Conflicts between differing perspectives and objectives


Mixed (or Hybrid) StructureMixed (or Hybrid) Structure

CEOCEO

Vice PresidentFinance

Vice PresidentFinance

Vice PresidentHuman

Resources

Vice PresidentHuman

Resources

Vice PresidentOperations

Vice PresidentOperations



Marketing

Accounting

Treasury

Recruiting

Training

Compensation

Purchasing

Manufacturing

Logistics

Retail

Industrial


Education

Government



Mixed (or Hybrid) Structure (cont.)Mixed (or Hybrid) Structure (cont.)

CEOCEO

Vice PresidentNorth America

Vice PresidentNorth America

Vice PresidentLatin AmericaVice PresidentLatin America

Vice PresidentAsia/Pacific

Vice PresidentAsia/Pacific

Vice PresidentEMEA

Vice PresidentEMEA

Marketing

Operations

Sales

Marketing

Operations

Sales

Marketing

Operations

Sales

Marketing

Operations

Sales



Networked StructuresNetworked Structures

Formal or informal relationships among units or organizations (along the firm’s value chain)

Formal or informal relationships among units or organizations (along the firm’s value chain)

Low-networked: - Quantity and magnitude of

externally networked activities is limited

High-networked: - Larger quantity and

magnitude of externally networked activities

Low-networked: - Quantity and magnitude of

externally networked activities is limited

High-networked: - Larger quantity and

magnitude of externally networked activities


Outsourced to EDS

Outsourced StructureOutsourced Structure

Primary Activities

SupportActivities



Network StructureNetwork Structure

Adapted from Exhibit 7.14: Network StructureAdapted from Exhibit 7.14


Environment ComplexityEnvironment Complexity

Breadth and depth of differences and similarities in an organization’s external environmentBreadth and depth of differences and similarities in an organization’s external environment

Geography

Suppliers

Competitors

Technology

Customers

Products

EnvironmentalComplexity

Dimensions ofEnvironmentalComplexity

Dimensions ofEnvironmentalComplexity


Organizational UncertaintyOrganizational Uncertainty

Low uncertainty

Low demands placed on structure to

facilitate extent or speedof coordination

Low uncertainty

Low demands placed on structure to

facilitate extent or speedof coordination

Moderate uncertainty

Low demands placed on structure for broad coordination, high for speed of coordination

Moderate uncertainty

Low demands placed on structure for broad coordination, high for speed of coordination

High uncertainty

High demands placed on structure to

facilitate both extent and speed of coordination

High uncertainty

High demands placed on structure to

facilitate both extent and speed of coordination

Moderate Uncertainty

High demands placed on structure to facilitate

extent or speed of coordination, low demand

on speed

Moderate Uncertainty

High demands placed on structure to facilitate

extent or speed of coordination, low demand

on speed

Adapted from Exhibit 7.15: Matrix of Organizational Uncertainty

Static DynamicStatic Dynamic

Simple

Complex

Simple

Complex



International Strategy and StructureInternational Strategy and Structure

GeographicStructure

MatrixStructure

WorldwideProduct Division

InternationalDivision

Adapted from Exhibit 7.15: Matrix of Organizational Uncertainty

Low InternationalProduct Diversity

High InternationalProduct Diversity

HighForeignSales

LowForeignSales


Management, Hitt, Black, Porter, Vahdi Boydaş, Mensur Boydaş

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Transcript of Management, Hitt, Black, Porter, Vahdi Boydaş, Mensur Boydaş