Chapter 7 Organizing Designing Organizational Structure Power Point

Chapter 7 Organizing: Designing Organizational Structure Power. Point Presentation by Charlie Cook © Copyright The Mc. Graw-Hill Companies, Inc. , 2004. All rights reserved.

Learning Objectives • After studying the chapter, you should be able to: ØIdentify the factors that influence managers’ choice of an organizational structure. ØExplain how managers group tasks into jobs that are motivating and satisfying for employees. ØDescribe the types of organizational structures managers can design, and explain why they choose one structure over another. ØExplain why there is a need to both centralize and decentralized authority. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 2

Learning Objectives (cont’d) ØExplain why managers must coordinate and integrate between jobs, functions, and divisions as an organization grows. ØExplain why managers who seek new ways to increase efficiency and effectiveness are using strategic alliances and network structures. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 3

Organizational Structure • Organizational Architecture ØThe organizational structure, control systems, culture, and human resource management systems that together determine how efficiently and effectively organizational resources are used. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 4

Designing Organizational Structure • Organizing ØThe process by which managers establish working relationships among employees to achieve goals. • Organizational Structure ØFormal system of task and reporting relationships showing how workers use resources. • Organizational design ØThe process by which managers make specific choices that result in a particular kind of organizational structure. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 5

Factors Affecting Organizational Structure © Copyright 2004 Mc. Graw-Hill. All rights reserved. Figure 7. 1 7– 6

Determinants of Structure • The Organizational Environment ØThe quicker the environment changes, the more problems face managers. ØStructure must be more flexible (i. e. , decentralized authority) when environmental change is rapid. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 7

Determinants of Structure • Strategy ØDifferent strategies require the use of different structures. • A differentiation strategy needs a flexible structure, low cost may need a more formal structure. • Increased vertical integration or diversification also requires a more flexible structure. Chandler: Structure follows strategy Corporate/ Business Entities 欲善其事必先利其器 © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 8

Determinants of Structure • Technology ØThe combination of skills, knowledge, tools, equipment, computers and machines used in the organization. ØMore complex technology makes it harder for managers to regulate the organization. • Organizations utilizing complex technology require a flexible structure to be managed efficiently. • Organizations utilizing routine technology can be more readily managed using a formal structure. • Organizations with high employee interaction requirements need a flexible structure. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 9

Types of Technology shop & ction k r o W • Small Batch Technology tera n i e v i s n e t in ØSmall quantities of one-of-a-kind products are produced by the skills of the workers who work together in small groups. • Appropriate structure is decentralized and flexible. • Mass Production Technology ØAutomated machines that are programmed to make high volumes of standard products. • Formal structure is the best choice for workers who must perform repetitive tasks. dc n a y l b Assem © Copyright 2004 Mc. Graw-Hill. All rights reserved. ess c o r p s tinuou on 7– 10

Determinants of Structure • Human Resources e g d e l w o n K Drucker: revail workers p ØHighly skilled workers whose jobs require working in teams usually need a more flexible structure. ØHigher skilled workers (e. g. , CPA’s and doctors) often have internalized professional norms. • Managers must take into account all four factors (environment, strategy, technology and human resources) when designing the structure of the organization. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 11

Organization Structure Issues • How to group tasks into individual jobs. • How to group jobs into functions and divisions. • Coordinating functions and divisions. • Allocating authority. • Types of integrating mechanisms. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 12

Grouping Tasks Into Jobs: Job Design • Job Design ØThe process by which managers decide how to divide tasks into specific jobs. Enhance specification and • Division of Labor independence ØSplitting the work to be performed into particularly impersonal tasks and assigning tasks to individual workers. Ø The appropriate division of labor results in an effective and efficient workforce. Internal cohesion and • Job Simplification external decoupling ØReducing the tasks each worker performs: too much simplification results in boredom. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 13

Job Design • Job Enlargement Increase the width of task ØIncreasing the number of tasks for a given job by changing the division of labor. ØThe intention is to reduce boredom and fatigue by increasing variety of tasks performed. • Job Enrichment Increase the depth of task ØIncreasing the degree of responsibility a worker has over a job. • Intended to increase worker involvement and selfdiscretion. • Requires a flexible organizational structure to allow employees to act flexibly and creatively. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 14

The Job Characteristics Model Source: Adapted from J. R. Hackman and G. R. Oldham, Work Redesign (Reading, MA: Addison-Wesley, 1980). © Copyright 2004 Mc. Graw-Hill. All rights reserved. Figure 7. 2 7– 15

Job Characteristics Model © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 16

Grouping Jobs into Functions • Functional Structure ØAn organizational structure composed of all the departments that an organization requires to produce its goods or services. ØAdvantages • Encourages learning from others doing similar jobs. • Easy for managers to monitor and evaluate workers. ØDisadvantages • Difficult for departments to communicate with others. • Preoccupation with own department and losing sight of organizational goals. Ego ism & A rrogance © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 17

The Functional Structure of Pier 1 Imports Figure 7. 3 © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 18

Divisional Structures • Divisional Structure ØAn organizational structure composed of separate business units within which are the functions that work together to produce a specific product for a specific customer. • Divisions create smaller, manageable parts of a firm. • Divisions develop a business-level strategy to compete. • Divisions have marketing, finance, and other functions. • Functional managers report to divisional managers who then report to corporate upper management. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 19

Types of Divisional Structures • Product Structure ØCustomers are served by self-contained divisions that handle a specific type of product or service. • Allows functional managers to specialize in one product area. • Division managers become experts in their area. • Removes need for direct supervision of division by corporate managers. • Divisional management improves the use of resources. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 20

Types of Divisional Structures (cont’d) • Geographic Structure ØEach regional or a country or area with customers with differing needs is served by a local selfcontained division producing products that best meet those needs. ØGlobal geographic structure • Different divisions serve each world region when managers find different problems or demands across the globe. • Generally, this structure is adopted when managers are pursuing a multidomestic strategy. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 21

Types of Divisional Structures (cont’d) • Market (Customer) Structure ØEach kind of customer is served by a selfcontained division ØGlobal market (customer) structure • Customers in different regions buy similar products so firms can locate manufacturing facilities and product distribution networks where they decide is best. • Firms pursuing a global strategy will use this type of structure. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 22

Product, Market, and Geographic Structures Figure 7. 4 © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 23

Viacom’s 2001 Product Structure © Copyright 2004 Mc. Graw-Hill. All rights reserved. Figure 7. 5 7– 24

Global Geographic and Global Product Structures © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 25

Matrix Design Structure • Matrix Structure ØAn organizational structure that simultaneously groups people and resources by function and product. • Results in a complex network of superior-subordinate reporting relationships. • The structure is very flexible and can respond rapidly to the need for change. • Each employee has two bosses (functional manager and product manager) and possibly cannot satisfy both. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 26

Matrix Structure © Copyright 2004 Mc. Graw-Hill. All rights reserved. Figure 7. 6 a 7– 27

Product Team Design Structure • Product Team Structure ØThe members are permanently assigned to the team and empowered to bring a product to market. • Avoids problems of two-way communication and the conflicting demands of functional and product team bosses. ØCross-functional team is composed of a group of managers from different departments working together to perform organizational tasks. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 28

Product Team Structure © Copyright 2004 Mc. Graw-Hill. All rights reserved. Figure 7. 6 b 7– 29

Coordinating Functions and Divisions: Allocating Authority • Authority ØThe power to hold people accountable for their actions and to make decisions concerning the use of organizational resources. • Hierarchy of Authority ØAn organization’s chain of command, specifying the relative authority of each manager. • Span of Control: refers to the number of workers a manager manages. Authority vs. responsibility vs. accountability © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 30

Allocating Authority (cont’d) • Span of Control ØThe number of subordinates who report directly to a manager. • Line Manager ØManagers in the direct chain of command who have authority over people and resources lower down. ØPrimarily responsible for the production of goods or services. • Staff Manager ØManagers who are functional-area specialists that give advice to line managers. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 31

The Hierarchy of Authority and Span of Control at Mc. Donald’s Corporation Figure 7. 7 © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 32

Tall and Flat Organizations • Tall structures have many levels of authority and narrow spans of control. ØAs hierarchy levels increase, communication gets difficult, creating delays in the time being taken to implement decisions. ØCommunications can also become garbled as it is repeated through the firm. • Flat structures have fewer levels and wide spans of control. ØStructure results in quick communications but can lead to overworked managers. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 33

Flat Organizations © Copyright 2004 Mc. Graw-Hill. All rights reserved. Figure 7. 8 a 7– 34

Tall Organizations © Copyright 2004 Mc. Graw-Hill. All rights reserved. Figure 7. 8 b 7– 35

The Minimum Chain of Command • Managers should carefully evaluate: ØDo the organization have the right number of middle managers? ØCan the structure be altered to reduce levels? • Centralized and Decentralized of Authority ØDecentralization puts more authority at lower levels and leads to flatter organizations. • Works best in dynamic, highly competitive environments. ØStable environments favor centralization of authority. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 36

Internal coordination Integrating Mechanisms © Copyright 2004 Mc. Graw-Hill. All rights reserved. Figure 7. 9 7– 37

Externally cooperative linkage Strategic Alliances and Network Structures • Strategic Alliance ØAn agreement in which managers pool or share firm’s resources and know-how with a foreign company and the two firms share in the rewards and risks of starting a new venture. • Network Structure: ØA series of strategic alliances that an organization creates with suppliers, manufacturers, and distributors to produce and market a product. ØNetwork structures allow firms to bring resources together in a boundary-less organization. © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 38

Homework 6 • Adam Smith, in his Wealth of Nations (Book 5, Chapter 1, Part 3, Article 2), argued that university teachers should not be paid salaries but rather that they should have to rely on the fees they can collect from the students they teach. What would be the advantages of this systems? What difficulties do you see with this proposal to pay piece rates to faculty? © Copyright 2004 Mc. Graw-Hill. All rights reserved. 7– 39