Organizational Design Copyright 2005 by SouthWestern a division

Learning Objectives • Describe the two fundamentals of organizing. • Explain the five aspects of an organization’s vertical design. • Describe four types of horizontal design. • Describe two methods of integration. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 2

Fundamentals of Organizing • The organization chart is a diagram that illustrates the reporting lines between units and people within the organization. • The organization chart conveys four kinds of information: – The boxes represent different units. – The titles in each box show the work performed by that person. – Reporting relationships are shown by the lines connecting superiors and subordinates. – Levels of the organization are indicated by the number of vertical layers in the chart Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 3

Organization Chart for Home Depot Chairman of Board and CEO Executive Vice President, Chief Financial Officer Executive Vice President, Marketing Vice President, Investor Relations Executive Vice President, International Technology Executive Vice President, Legal Executive Vice President, Human Resources Senior Vice President, Real Estate President, Mexico Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Executive Vice President, Operations Executive Vice President, Merchandising Senior Vice President, Operations Senior Vice President, Customer Service President, Atlantic President, Western 4

Fundamental Concepts of Organizing • Differentiation means that the organization is composed of units that work on specialized task using different work methods and requiring employees with unique competencies. – Division of labor means that the work of the organization is divided into smaller tasks. – Specialization is the process of identifying particular tasks and assigning them to departments, teams, or divisions. • Integration means that the various units must be put back together so that work is coordinated. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 5

Five Elements of Vertical Design (1) • • Hierarchy is a pyramid showing relationships among levels. Span of control refers to the number of employees directly reporting to a person. – Factors influencing span of control include: 1. The competence of both the manager and the employee. 2. The similarity or dissimilarity of tasks being supervised. 3. The incidence of new problems in the manager’s department. 4. The extent of clear operating standards and rules. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 6

Five Elements of Vertical Design (2) • Authority, Responsibility, and Accountability – Authority is the right to make a decision. – Responsibility is an employee’s duty to perform the assigned task. – Accountability is the manager’s expectation that the employee will accept credit or blame for his work. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 7

Five Elements of Vertical Design (3) • Delegation is the process of giving authority to a person (or group or team) to make decisions and act in certain situations. • Practices useful in effective delegation include: – Establish goals and standard – Ensure clarity – Involvement – Expect completed work – Provide training – Timely feedback Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 8

Five Elements of Vertical Design (4) • Centralization and Decentralization – Centralization is the concentration of authority at the top of an organization or department. – Decentralization is the delegation of authority to lower level employees or departments. • Key factors affecting decision to centralization or decentralization. – – – Cost of decisions Uniformity of policy Competency levels Control mechanisms Environmental influences Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 9

Horizontal Organizational Design • • Functional Design Product Design Geographical Design Network Design Copyright

Functional Design (1) • Function design means grouping managers and employees according to their areas of expertise and the resources they use to perform their jobs. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 11

Functional Design (3) Potential Benefits • Supports skill specialization • Reduces duplication of resources & increases coordination • Enhances career development & training within functional area • Allows superiors and subordinates to share common expertise • Promotes high-quality technical decision making Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Potential Pitfalls • Inadequate communication • Conflicts over product priorities • Difficulties with interunit coordination • Focus on departmental rather than organizational issues and goals • Develops managers who are experts in a narrow field 12

Harley-Davidson Organization Chart CEO General Counsel Controller Owners Groups (HOGS) Manufacturing Strategic Planning Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Merchandise Engineering Human Resources 13

Product Design (1) • Product design means that all functions that contribute to a product are organized under one manager. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 14

Product Design (2) Potential Benefits Potential Pitfalls • Permits fast changes in a product line • Allows greater product line visibility • Fosters a concern for customer demand • Clearly defines responsibilities for each product line • Develops managers who can think across functional lines • Not allowing efficient utilization of skills and resources • Not fostering coordination of activities across product • Encourages politics and conflicts in resource allocation across product lines • Limits career mobility for personnel outside their own product lines Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 15

General Dynamics Organization Chart Chairman & Chief Executive Officer Information Systems & Technology Land Systems Combat Systems Armament Systems Marine Systems Aerospace Ordnance & Tactical Systems Bath Iron Works Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Aviation Services Electric Boat 16

Geographical Design (1) • Geographical design organizes activities around location. Copyright © 2005 by

Geographical Design (2) Potential Benefits • Has facilities and the equipment used for production and/or distribution all in one place, saving time and costs • Able to develop expertise in solving problems unique to one location • Gaining an understanding of customers’ problems and desires • Getting production closer to raw materials and suppliers Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved Potential Pitfalls • Duplication of functions, to varying degrees, at each regional or individual unit location • Conflict between each location's goals and the organization's goals • Adds levels of management and extensive use of rules and regulations to coordinate and ensure uniformity of quality among locations 18

Starbucks Organization Chart CEO President Executive VP, Legal Executive VP, Supply Chain & Coffee Partner Resources Chief Financial Officer Senior VP, Coffee President, Japan President, Europe, Middle East, Africa President, North America VP, Southwest VP, South Central VP, Northwest President, International United Kingdom Australia Thailand Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 19

Network Design (1) • Network design subcontracts some or many of its operations to other firms and coordinates them to accomplish specific goals. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 20

Network Design (2) Potential Benefits Potential Pitfalls • Ability to gain special knowledge and skills of others without having to hire employees • Brings together people with different insights • Allows managers the flexibility to work with a wide variety of different suppliers, customers, and other organizations • Other organizations may fail to live up to established deadlines • Managers must constantly monitor the quality of work provided by other organizations • Employees in the outsourced organization may not commit to the same values and sense of time urgency to which employees in the networked organization are 21 committed Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved

Dream. Works SKG Network Design Legal Computer Hardware/ Software Marketing Makeup Artists Costume Designers Spielberg (Films) Katzenberg (Animation) Talent Scouts Future Games Technicians Agents Actors Geffen (Music) Media Relations Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 22

Organic Versus Mechanistic Organizations Organic Mechanistic • • Tasks tend to be interdependent. Tasks are continually adjusted and redefined through interaction and as situations change. Generalized roles are accepted. • • Tasks are highly specialized. Tasks tend to remain rigidly defined unless changed by top management. • Network structure of control, authority, and communication. Communication and decision making are both vertical and horizontal, depending on information and expertise reside. Communication emphasizes the form of mutual influence and advice among all levels. • Specific roles are prescribed for each employee. Hierarchical structure of control, authority, and communication. Communication and decision making are primarily vertical, top-town. • • Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved • • Communication emphasizes directions and decisions issued by superiors. 23

Integration through Technology • Technology interdependence is the degree of coordination required between individuals and units to transform information and raw materials into goods and services. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 24

Three Types of Technological Interdependence Input Output Sequential interdependence Input Output Input Pooled interdependence Input Output Reciprocal interdependence Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 25