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 customer’s 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 Authority1. The organization should adopt a distinct

division of labor.2. Develop a consistent set of rules.3. Establish a hierarchy of positions.4. Managers should conduct business

impersonally to maintain social distance.5. Employment and promotion should be based

on technical expertise, and employees should be protected from arbitrary dismissal.

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Red Tape | Logical!, Rational! Efficient!Red Tape | Logical!, Rational! Efficient!

Ex: Government, University (form processing)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.

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More Effective!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.

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12 - 8System 3, System 2System 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.

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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.

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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.

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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 technology

Large Vs. Small firms

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Organizational life cycleProgression through which organizations

evolve as they grow and mature.

Stages | Birth Youth Midlife Maturity. Design issues

Who deals with it? Bigger

Mechanistic, 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 strategy

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Strategy and Organization DesignsOrganizations can adopt a variety of corporate

level strategies. The chosen strategy affects the organizational design. such as:

Single-product strategy Functional Departmentalization Mechanistic Design

Related diversification High coordination (synergy)

Unrelated Diversification Strong Hierarchical reporting system

Portfolio approach Arrange various unit under a

single umbrella How much decision makingDesign fits StrategyDesign 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 Strategy

Tall, Centralized, Narrow Span, Functional Departmentalization = Bureaucratic

Prospecting Strategy~ Opposite!Analyzer Strategy~ in the middle!Competitive Strategy-

FocusCompetitive 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 managers

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Functional: Marketing, Low Debt!

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.

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Figure 12.1: Functional or U-Form Design for a Small Manufacturing Company

An organizational arrangement based on the functional approach to departmentalization. Coordination!, Dependency!,

Advantages similar to Functional Depart.

CEO on top of functional areas

Coordination!, Dependency!,Advantages similar to Functional

Depart.CEO on top of functional areas

Figure 12.2: Conglomerate (H-Form) Design at Pearson PLC

An arrangement used by an organization made up of a set of unrelated businesses.

Unrelated diversification (Holding company)

Independent responsibilityPerformance Evaluation | Resource

AllocationComplexity | Performance!

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 competitionCooperation

Performance A+

Internal competitionCooperation

Performance A+

Some Centralization!Autonomy and CoordinationMarket Research | Purchasing

Some Centralization!Autonomy and CoordinationMarket Research | Purchasing

Figure 12.4: A Matrix Organization

two overlapping bases of departmentalizationMultiple command

structurePage 333

Multiple command structurePage 333

Functional DepartmentsSuperimposing Product Group

Functional 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 organization Split large units to smaller units

Virtual organization: Has little or no formal structure Few permanent employee and need-based

temporary employees, facilities, outsourcing …. Ex: GRC- Global Research Consortium

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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 center

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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, A

Simple: Levi StraussSimple: Levi Strauss

Figure 12.5 : Common Organization Designs for International Organizations, B

Location departmentalization: FordLocation departmentalization: Ford

Figure 12.5 : Common Organization Designs for International Organizations, C

Location departmentalization as an extension of Product departmentalization

Location departmentalization as an extension of Product departmentalization

Figure 12.5 : Common Organization Designs for International Organizations, D

Multidivisional Structure: Branches in Various area!Multidivisional Structure: Branches in Various area!