Organizational Behaviour Understanding and Managing Life at Work

Learning Objectives (2 of 4) LO 14. 3 Define organizational structure and explain how it corresponds to division of labour. LO 14. 4 Discuss the relative merits of various forms of departmentation. LO 14. 5 Review the more basic and more elaborate means of achieving organizational coordination. Copyright © 2020 Pearson Canada Inc. 14 - 2

Learning Objectives (3 of 4) LO 14. 6 Discuss the nature and consequences of traditional structural characteristics and explain the distinction between organic and mechanistic structures. LO 14. 7 Discuss the emergence of ambidextrous, network, virtual, and modular organizations. Copyright © 2020 Pearson Canada Inc. 14 - 3

Learning Objectives (4 of 4) LO 14. 8 Explain how vertical integration, mergers and acquisitions, strategic alliances, and the establishment of legitimacy reflect strategic responses. Copyright © 2020 Pearson Canada Inc. 14 - 4

What Is Organizational Structure? (1 of 3) • To achieve its goals, an organization has to do two basic things: – Divide labour among its members – Coordinate what has been divided Copyright © 2020 Pearson Canada Inc. 14 - 5

What Is Organizational Structure? (2 of 3) • Organizational structure is the manner in which an organization divides its labour into specific tasks and achieves coordination among these tasks. Copyright © 2020 Pearson Canada Inc. 14 - 6

What Is Organizational Structure? (3 of 3) • Labour must be divided because individuals have physical and intellectual limitations. • There are two basic dimensions to the division of labour: – A vertical dimension – A horizontal dimension • Once labour is divided, it must be coordinated to achieve organizational effectiveness. Copyright © 2020 Pearson Canada Inc. 14 - 7

Vertical Division of Labour (1 of 2) • The vertical division of labour is concerned primarily with apportioning authority for planning and decision making – Who gets to tell whom what to do? • Key themes that underlie the vertical division of labour: – Autonomy and control – Communication Copyright © 2020 Pearson Canada Inc. 14 - 8

The Dimensions of Division of Labour in a Manufacturing Firm Copyright © 2020 Pearson

Autonomy and Control • The domain of decision making and authority is reduced as the number of levels in the hierarchy increases. • Managers have less authority over fewer matters. • A flatter hierarchy pushes authority lower and involves people further down the hierarchy in more decisions. Copyright © 2020 Pearson Canada Inc. 14 - 10

Communication • As labour is progressively divided vertically, timely communication and coordination can become harder to achieve. • As the number of levels in the hierarchy increases, filtering is more likely to occur. Copyright © 2020 Pearson Canada Inc. 14 - 11

Vertical Division of Labour (2 of 2) • Labour must be divided vertically enough to ensure proper control but not so much as to make vertical communication and coordination impossible. • The proper degree of such division will vary across organizations and across their functional units. Copyright © 2020 Pearson Canada Inc. 14 - 12

Horizontal Division of Labour (1 of 3) • The horizontal division of labour groups the basic tasks that must be performed into jobs and then into departments. • Required workflow is the main basis for this division. • Organizations differ in the extent of horizontal division of labour. Copyright © 2020 Pearson Canada Inc. 14 - 13

Horizontal Division of Labour (2 of 3) • The horizontal division of labour suggests some specialization on the part of the workforce. • The increased specialization can promote efficiency. Copyright © 2020 Pearson Canada Inc. 14 - 14

Horizontal Division of Labour (3 of 3) • Key themes that underlie the horizontal

Job Design (1 of 3) • Suppose that an organization offers a product or service that consists of A work, B work, and C work. • What are the different ways in which the organization might structure these tasks? • What are the implications of each structure for the jobs involved and how they are coordinated? Copyright © 2020 Pearson Canada Inc. 14 - 16

Job Design (2 of 3) • There at least three basic ways an organization might structure these tasks: – Form an ABC Department in which all workers do ABC work. – Form an ABC Department in which workers specialize in A work, B work, or C work. – Form a separate A Department, B Department, and C Department. Copyright © 2020 Pearson Canada Inc. 14 - 17

Differentiation (1 of 2) • As organizations engage in increased horizontal division of labour, they usually become more and more differentiated. • Differentiation is the tendency for managers in separate units, functions, or departments to differ in terms of goals, time spans, and interpersonal styles. • Under high differentiation, various organizational units tend to operate more autonomously. Copyright © 2020 Pearson Canada Inc. 14 - 18

Differentiation (2 of 2) • A classic case of differentiation is that which often occurs between marketing managers and those in research and development. • Differentiation is a natural and necessary consequence of the horizontal division of labour and points to the need for coordination. Copyright © 2020 Pearson Canada Inc. 14 - 19

Departmentation • The assignment of jobs to departments is called departmentation. • It represents one of the core aspects of the horizontal division of labour. • A department is simply a grouping of employees with particular responsibilities under a common manager. • There are several methods of departmentation and each has strengths and weaknesses. Copyright © 2020 Pearson Canada Inc. 14 - 20

Methods of Departmentation • Functional departmentation • Product departmentation • Matrix departmentation • Geographic departmentation • Customer departmentation • Hybrid departmentation Copyright © 2020 Pearson Canada Inc. 14 - 21

Functional Departmentation (1 of 3) • Employees with closely related skills and responsibilities (functions) are assigned to the same department. • Employees are grouped according to the kind of resources they contribute to achieving the overall goals of the organization. • What are the advantages and disadvantages of functional departmentation? Copyright © 2020 Pearson Canada Inc. 14 - 22

Functional Departmentation Copyright © 2020 Pearson Canada Inc. 14 - 23

Functional Departmentation: Advantages • Efficiency. • Enhanced communication. • Enhanced career ladders and training opportunities. • Easier to measure and evaluate performance. Copyright © 2020 Pearson Canada Inc. 14 - 24

Functional Departmentation: Disadvantages • A high degree of differentiation between functional departments (silo mentality). • Poor coordination and slow response to organizational problems. • Conflict between departments. • Department empires built at expense of organizational goals. Copyright © 2020 Pearson Canada Inc. 14 - 25

Functional Departmentation (2 of 3) • Functional departmentation works best in small to medium-sized firms that offer relatively few product lines or services. • It can be an effective means of organizing smaller divisions of large corporations. Copyright © 2020 Pearson Canada Inc. 14 - 26

Functional Departmentation (3 of 3) • When the scale gets bigger and the output of the organization gets more complex, most firms gravitate toward product departmentation or its variations. Copyright © 2020 Pearson Canada Inc. 14 - 27

Product Departmentation (1 of 2) • Departments (often called divisions) are formed on the basis of a particular product, product line, or service. • Each of these departments can operate fairly autonomously because it has its own set of functional specialists dedicated to the output of that department. • What are the advantages and disadvantages of product departmentation? Copyright © 2020 Pearson Canada Inc. 14 - 28

Product Departmentation (2 of 2) Copyright © 2020 Pearson Canada Inc. 14 - 29

Product Departmentation: Advantages • Better coordination and communication among functional specialists who work on a particular product line. • Flexibility. • Departments can be evaluated as profit centres. • Serves the customer or client better; more timely response to customers. Copyright © 2020 Pearson Canada Inc. 14 - 30

Product Departmentation: Disadvantages • Professional development might suffer. • Economies of scale might suffer. • Inefficiency might occur. • Departments might work at cross purposes. Copyright © 2020 Pearson Canada Inc. 14 - 31

Matrix Departmentation (1 of 2) • An attempt to capitalize on the strengths of both functional and product departmentation. • Employees remain members of a functional department while also reporting to a product or project manager. • Variations exist but most boil down to what exactly gets crossed with functional areas to form the matrix and the degree of stability of the matrix relationships. Copyright © 2020 Pearson Canada Inc. 14 - 32

Matrix Departmentation (2 of 2) • Besides products, a matrix could be based on geographic regions or projects. • Integrating business in multiple geographic regions is a common stimulus for the matrix design. • What are the advantages and disadvantages of matrix departmentation? Copyright © 2020 Pearson Canada Inc. 14 - 33

Matrix Departmentation Copyright © 2020 Pearson Canada Inc. 14 - 34

Matrix Departmentation: Advantages • Provides balance between the demands of the product or project and the people who do the work. • Very Flexible. • Better communication among the representatives from the various functional areas. Copyright © 2020 Pearson Canada Inc. 14 - 35

Matrix Departmentation: Disadvantages • Conflict between product or project managers and functional managers. • Role conflict and stress because employees must report to a functional manager as well as a product or project manager. • Managers need to be well trained under matrix structures. Copyright © 2020 Pearson Canada Inc. 14 - 36

Other Forms of Departmentation • Several other forms of departmentation: – Geographic departmentation –

Geographic Departmentation (1 of 2) • Relatively self-contained units deliver an organization’s products or services in a specific geographic territory. • What are the advantages and disadvantages of geographic departmentation? Copyright © 2020 Pearson Canada Inc. 14 - 38

Geographic Departmentation (2 of 2) Copyright © 2020 Pearson Canada Inc. 14 - 39

Geographic Departmentation: Advantages and Disadvantages • Shortens communication channels. • Caters to regional tastes. • Some local control to clients and customers. • The disadvantages are similar to those for production departmentation. Copyright © 2020 Pearson Canada Inc. 14 - 40

Customer Departmentation (1 of 2) • Relatively self-contained units deliver an organization’s products or services to specific customer groups. • The goal is to provide better service to each customer through specialization. • What are the advantages and disadvantages of customer departmentation? Copyright © 2020 Pearson Canada Inc. 14 - 41

Customer Departmentation (2 of 2) Copyright © 2020 Pearson Canada Inc. 14 - 42

Customer Departmentation: Advantages and Disadvantages • The advantages and disadvantages parallel those for product

Hybrid Departmentation • A structure based on some mixture of functional, product, geographic, or customer departmentation. • Hybrids attempt to capitalize on the strengths of various structures, while avoiding the weaknesses of others. Copyright © 2020 Pearson Canada Inc. 14 - 44

Basic Methods of Coordinating Divided Labour (1 of 5) • When the tasks that will help the organization achieve its goals have been divided among individuals and departments, they must be coordinated. • Coordination is a process of facilitating timing, communication, and feedback among work tasks. Copyright © 2020 Pearson Canada Inc. 14 - 45

Basic Methods of Coordinating Divided Labour (2 of 5) • Direct Supervision • Standardization of Work Processes • Standardization of Outputs • Standardization of Skills • Mutual Adjustment Copyright © 2020 Pearson Canada Inc. 14 - 46

Direct Supervision • Working through the chain of command, designated supervisors or managers coordinate the work of their subordinates. • A very traditional form of coordination. Copyright © 2020 Pearson Canada Inc. 14 - 47

Standardization of Work Processes • Some jobs are so routine that the technology itself provides a means of coordination. • Little direct supervision is necessary for these jobs to be coordinated. • Work processes can also be standardized by rules and regulations. Copyright © 2020 Pearson Canada Inc. 14 - 48

Standardization of Outputs • Ensuring that the work meets certain physical or economic standards. • Standardization of outputs is often used to coordinate the work of separate product or geographic divisions. • Budgets are a form of standardizing outputs. Copyright © 2020 Pearson Canada Inc. 14 - 49

Standardization of Skills • This is very common in the case of technicians and professionals. • Standardized training ensures that workers in particular specialties have certain skills and know what to expect of each other. Copyright © 2020 Pearson Canada Inc. 14 - 50

Task Forces and Teams (1 of 2) • Task forces are temporary groups set up to solve coordination problems across several departments. • Representatives from each department are included. • When adequate integration is achieved, the task force is disbanded. Copyright © 2020 Pearson Canada Inc. 14 - 51

Task Forces and Teams (2 of 2) • Self-managed and cross-functional teams are also an effective means of achieving coordination. • Cross-functional teams are especially useful in achieving coordination for new product development and introduction. Copyright © 2020 Pearson Canada Inc. 14 - 52

Traditional Structural Characteristics (1 of 2) • How can we summarize the structure of organizations? • There a number of characteristics that summarize the structure of organizations. Copyright © 2020 Pearson Canada Inc. 14 - 53

Traditional Structural Characteristics (2 of 2) • Span of control • Flat versus tall

Span of Control • Span of control is the number of employees supervised by a manager. • The larger the span, the less potential there is for coordination by direct supervision. • As the span increases, the attention that a supervisor can devote to each employee decreases. • Spans at the upper levels of an organization tend to be smaller. Copyright © 2020 Pearson Canada Inc. 14 - 55

Flat Versus Tall • A flat organization has relatively few levels in its hierarchy of authority. • A tall organization has relatively many levels in its hierarchy of authority. • Flatness versus tallness is an index of the vertical division of labour. • Flatness and tallness are associated with the average span of control. Copyright © 2020 Pearson Canada Inc. 14 - 56

Flat and Tall Organizations • Flatter structures tend to push decision-making powers downward in the organization. • Flatter structures generally enhance vertical communication and coordination. Copyright © 2020 Pearson Canada Inc. 14 - 57

Centralization (1 of 3) • Centralization is the extent to which decisionmaking power is localized in a particular part of an organization. • In the most centralized organization, the power for all key decisions rests in a single individual, such as the president. Copyright © 2020 Pearson Canada Inc. 14 - 58

Centralization (2 of 3) • In a more decentralized organization, decisionmaking power is dispersed down through the hierarchy and across departments. • Limitations to individual brainpower often prompt decentralization. Copyright © 2020 Pearson Canada Inc. 14 - 59

Centralization (3 of 3) • The proper degree of centralization should put decision-making power where the best knowledge is located. • This often means decentralizing functions with direct customer contact, while centralizing functions that have a more internal orientation. Copyright © 2020 Pearson Canada Inc. 14 - 60

Complexity (1 of 3) • Complexity is the extent to which an organization divides labour vertically, horizontally, and geographically. • A fairly simple organization will have few management levels (vertical division) and not many separate job titles (horizontal division). • Jobs will be grouped into a small number of departments and work will be performed in only one physical location (geographic division). Copyright © 2020 Pearson Canada Inc. 14 - 61

Complexity (2 of 3) • A very complex organization will be tall, will have a large number of job titles and departments, and might be spread around the world. • The essential characteristic of complexity is variety. Copyright © 2020 Pearson Canada Inc. 14 - 62

Complexity (3 of 3) • As the organization becomes more complex, it has more kinds of people performing more kinds of tasks in more places, whether these places are departments or geographic territories. Copyright © 2020 Pearson Canada Inc. 14 - 63

Size and Structure (1 of 2) • Large organizations are more complex, less centralized, taller, and more formal than small organizations. • Product departmentation is often preferable to functional departmentation as the organization increases in size. Copyright © 2020 Pearson Canada Inc. 14 - 64

Size and Structure (2 of 2) • Organizations with product departmentation should exhibit more complexity and more decentralization than those with functional departmentation. Copyright © 2020 Pearson Canada Inc. 14 - 65

Network and Virtual Organizations (1 of 5) • In a network organization, various functions are coordinated as much by market mechanisms as by managers and formal lines of authority. • Emphasis is placed on who can do what most effectively and economically. • The network members cooperate, share information, and customize their services to meet the needs of the network. Copyright © 2020 Pearson Canada Inc. 14 - 66

Network and Virtual Organizations (2 of 5) • Diffusion of information and innovation are two important outcomes of network forms. • In stable networks, core firms contract out some functions to favoured partners so that they can concentrate on the things that they do best. Copyright © 2020 Pearson Canada Inc. 14 - 67

Types of Network Organizations Copyright © 2020 Pearson Canada Inc. 14 - 68

Network and Virtual Organizations (3 of 5) • In a virtual organization, an alliance of independent companies share skills, costs, and access to one another’s markets. • They consist of a network of continually evolving independent companies. • Each partner contributes only in its area of core competencies. Copyright © 2020 Pearson Canada Inc. 14 - 69

Network and Virtual Organizations (4 of 5) • Network and virtual organizations face some special problems that can result in a loss of their technological edge and organic advantage. • Stable networks can deteriorate when the companies dealing with the core firm devote so much of their effort to this firm that they are isolated from normal market demands. Copyright © 2020 Pearson Canada Inc. 14 - 70

Network and Virtual Organizations (5 of 5) • Virtual organizations lose their organic advantage when they become legalistic, secretive, and too binding of the other partners. • Virtual partners sometimes exploit their loose structure to profit at the expense of the core firm. Copyright © 2020 Pearson Canada Inc. 14 - 71

Modular Organization (1 of 3) • A modular organization is a network organization that performs a few core functions and outsources other activities to specialists and suppliers. • They are like hubs surrounded by networks of suppliers that can be added or removed as needed. • Unlike a virtual organization, the modular organization maintains complete strategic control. Copyright © 2020 Pearson Canada Inc. 14 - 72

Modular Organization (2 of 3) • By outsourcing non-core activities, modular organizations can keep unit costs low and develop new products more rapidly. • It also allows them to use their capital in areas where they have a competitive advantage. • Modular organizations work best when they focus on the right speciality and have good suppliers. Copyright © 2020 Pearson Canada Inc. 14 - 73

Modular Organization (3 of 3) • They require good suppliers who are reliable, loyal, and can be trusted with trade secrets. • They must be careful not to outsource critical technologies. • A lean and streamlined organizational structure with great flexibility. • They are particularly well suited to organizations in rapidly changing environments. Copyright © 2020 Pearson Canada Inc. 14 - 74

Other Forms of Strategic Response (1 of 2) • Variations on organizational structure are not the only strategic response that organizations can make. • Structural variations often accompany other responses that are oriented toward coping with environmental uncertainty or resource dependence. Copyright © 2020 Pearson Canada Inc. 14 - 75

Other Forms of Strategic Response (2 of 2) • Some more elaborate forms of strategic response include: – – Vertical integration Mergers and acquisitions Strategic alliances Establishing legitimacy • Many of these concern relationships between organizations. Copyright © 2020 Pearson Canada Inc. 14 - 76

Vertical Integration • This is a strategy of formally taking control of sources of organizational supply and distribution. • Major oil companies are highly vertically integrated, handling their own exploration, drilling, transport, refining, retail sales, and credit. Copyright © 2020 Pearson Canada Inc. 14 - 77

Mergers and Acquisitions (1 of 2) • A merger is the joining together of two organizations. • An acquisition is the purchase of one organization by another. • Some mergers and acquisitions are stimulated simply by economies of scale. • Other mergers and acquisitions are pursued for purposes of vertical integration. Copyright © 2020 Pearson Canada Inc. 14 - 78

Mergers and Acquisitions (2 of 2) • When they occur in the same industry, they can reduce the uncertainty prompted by competition. • When they occur across different industries, the goal is often to reduce resource dependence on a particular segment of the environment. • A portfolio is created so that if resources become threatened in one part of the environment, the organization can still prosper. Copyright © 2020 Pearson Canada Inc. 14 - 79

Strategic Alliances (1 of 3) • Strategic alliances are actively cooperative relationships between legally separate organizations. • They reduce risk and uncertainty for all parties, and resource interdependence is recognized. • Organizations can engage in strategic alliances with competitors, suppliers, customers, and unions. Copyright © 2020 Pearson Canada Inc. 14 - 80

Strategic Alliances (2 of 3) • Among competitors, a common alliance is a research and development consortium in which companies band together to support basic research that is relevant for their products. • Another is an alliance to pool scarce resources. • Another common alliance between competitors is a joint venture. Copyright © 2020 Pearson Canada Inc. 14 - 81

Strategic Alliances (3 of 3) • In a joint venture, two or more organizations form an alliance in the creation of a new organizational entity. • Organizations form joint ventures to create new products and services and in the case of an international joint venture (IJV), to enter new and foreign markets. Copyright © 2020 Pearson Canada Inc. 14 - 82

Establishing Legitimacy (1 of 2) • One strategic response is to make the organization appear legitimate. • Establishing legitimacy involves taking actions that conform to prevailing norms and expectations. • This will often be strategically correct and it also has the appearance of being strategically correct. Copyright © 2020 Pearson Canada Inc. 14 - 83

Establishing Legitimacy (2 of 2) • Management will appear to be rational and providers of resources will feel comfortable with the organization’s actions. • How can legitimacy be achieved? Copyright © 2020 Pearson Canada Inc. 14 - 84

Strategies for Achieving Legitimacy • The most common way is to imitate management practices that other firms have institutionalized. • Association with higher status individuals or organizations. • Be seen as doing good deeds in the community. • To make very visible responses to social trends and legal legislation. Copyright © 2020 Pearson Canada Inc. 14 - 85