Organization Structure and Management Systems OUTLINE Evolution of

Organization Structure and Management Systems OUTLINE • Evolution of the corporation • Principles of organizational design • The role of hierarchy: bureaucratic control vs. modular integration • Alternative structural forms • Management systems

Evolution of the Modern Corporation The business environment Strategic changes Organizational consequences Early 19 th century Local markets Transport slow Limited mechanization Firms specialized & focused on local markets Small firms. Simple management structures Late 19 th century Introduction of railroads, telegraph industrialization Geographical and vertical expansion Functional structures. Line/staff separation. Accounting systems Early 20 th century Excess capacity in distribution. Growth of financial institutions & world trade Product & multinational diversification Development of multidivisional corporation

General Motors’ Organization Structure, 1921 Board of Directors President GM Acceptance Corporation Financial Staff Chevrolet Division Sheridan Division GM Truck Division Canadian Division Samson Tractor Division Executive Committee Legal Department Oldsmobile Division General Advisory Staff Buick Division Oakland Division Cadillac Division Intercompany Parts Division Source: A. P. Sloan, My Years with General Motors, Orbit Publishing, 1972, p. 57. GM Export Company Scripps Booth Corp.

The Basic Tasks of Organization Achieving high levels of productivity requires SPECIALIZATION Specialization by individuals necessitates COORDINATION For coordination to be effective requires COOPERATION But goals of employees == goals of owners THE AGENCY PROBLEM THE ORGANIZATIONAL CHALLENGE: to design structure & systems that: § Permit specialization § Facilitate coordination by grouping individuals & link groups with systems of communication, decision making, & control § Create incentives to align individual & firm goals

Hierarchy Economizes on Coordination (a) Self Organizing Team: (b) Hierarchy: 10 interactions 4 interactions

Hierarchy of Loosely-Coupled Modules Allows Flexible Adaptation Tightly-coupled, integrated system: Change in any part of the system requires system-wide adaptation Loose-coupled, modular hierarchy: partiallyautonomous modules linked by standardized interfaces permits decentralized adaptation and innovation

Weber’s Principles of Bureaucracy • • Rational-legal authority Specialization of labor Hierarchical structure Coordination and control through rules and standard operating procedures • Standardization employment practices • Separation of jobs and people • Formalization of administrative acts, decisions and rules

Mechanistic and Organic Forms FEATURE MECHANISTIC ORGANIC Task definition Rigid & highly specialized Flexible; less specialized Coordination & control Mutual adjustment. l Cultural control Rules & directives imposed from the top Communication Mainly vertical Horizontal & vertical Commitment & loyalty To immediate superior To the organization & its goals & values Environmental context Stable with low technological uncertainty Dynamic, ambiguous, technologically uncertain

Designing the Hierarchy: The Basis for Defining Organizational Units and their Relationships Units may be defined on the basis of Common Tasks, Products, Geographical Proximity, or Process/Function Critical issue: Intensity of Coordination—Employees with the greatest interdependence should be grouped into same organizational unit. Additional criteria: Economies of Scale, Economies of Utilization, Learning, Standardization of Control Systems

General Motors’ Organization Structure, 1997 Board of Directors President’s Council North American Operations Delphi Automotive Systems GM Acceptance Corporation Corporate Functions International Operations Hughes Electronics GM Europe Midsize & Luxury Car Group Small Car Group GM Power Train Group Vehicle Sales, & Marketing Group Development & Technical Cooperation Group Asian & Pacific Operations Latin American, African, & Middle East Operation

Corporate Executive Office Chairman & CEO Service Divisions GE Aircraft Engines GE Transportation GE Power Systems Finance GE Industrial Systems GE Medical Systems GE Lighting Corporate Staff Business R&D Development GE Plastics GE Specialty Materials Human Legal Resources GE Appliances GE Supply NBC 26 businesses organized into 5 segments: Consumer Mid-market Specialized Specialty Services Financing Insurance General Electric’s Organization Structure, 2002 GE Capital Equipment Management

Mobil Corporation, 1997 Board of Directors CEO Executive Office Corporate Center North America Asia/ Pacific Support Services New Exploration Europe & CIS Shipping Africa & Middle East Worldwide LNG & IPP Technology South America North America M&R Worldwide Chemicals

Royal Dutch/Shell Group, 1994: A Matrix Structure

The Generic Strategic Planning Cycle Corporate Guidelines Draft Discuss Revised Business with Business Plans Corporate Plans Forecasts/ Scenarios/ Approval by Board Corporate Planning assumptions Plan Capex Performance Review Annual Performance Targets Budget