Organizational Theory Design and Change Sixth Edition Gareth

Organizational Theory, Design, and Change Sixth Edition Gareth R. Jones Chapter 4 Basic Challenges of Organizational Design Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 1

Learning Objectives 1. Describe the four basic organizational design challenges confronting managers and consultants 2. Discuss the way in which these challenges must be addressed simultaneously if a high-performing organizational structure is to be created Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 2

Learning Objectives (cont. ) 3. Distinguish among the design choices that underlie the creation of either a mechanistic or an organic structure 4. Recognize how to use contingency theory to design a structure that fits an organization’s environment Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 3

Differentiation n The process by which an organization allocates people and resources to organizational tasks n Establishes the task and authority relationships that allow the organization to achieve its goals n Division of labor: the degree of specialization in the organization Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 4

Differentiation (cont. ) n In a simple organization, differentiation is low because the division of labor is low n Individuals typically perform all organizational tasks n In a complex organization, differentiation is high because the division of labor is high Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 5

Figure 4. 1: Design Challenge Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 6

Figure 4. 1: Design Challenge (cont. ) Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 7

Figure 4. 1: Design Challenge (cont. ) Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 8

Figure 4. 1: Design Challenge (cont. ) Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 9

Figure 4. 1: Design Challenge (cont. ) Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 10

Organizational Roles n Set of task-related behaviors required of a person by his or her position in an organization n n As the division of labor increases, managers specialize in some roles and hire people to specialize in others Specialization allows people to develop their individual abilities and knowledge within their specific role n Organizational structure is based on a system of interlocking roles Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 11

Organizational Roles (cont. ) n Authority: the power to hold people accountable for their actions and to make decisions concerning the use of organizational resources n Control: the ability to coordinate and motivate people to work in the organization’s interests Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 12

Subunits: Functions and Divisions n Function: a subunit composed of a group of people, working together, who possess similar skills or use the same kind of knowledge, tools, or techniques to perform their jobs n Division: a subunit that consists of a collection of functions or departments that share responsibility for producing a particular good or service n Organizational complexity: the number of different functions and divisions possessed by an organization n Degree of differentiation Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 13

Function Types n Support functions: facilitate an organization’s control of its relations with its environment and its stakeholders n Purchasing, sales and marketing, public relations, and legal affairs n Production functions: manage and improve the efficiency of an organization’s conversion processes so that more value is created n Production operations, production control, and quality control Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 14

Function Types (cont. ) n Maintenance functions: enable an organization to keep its departments in operation n Personnel, engineering, and janitorial services n Adaptive functions: allow an organization to adjust to changes in the environment n Research and development, market research, and long-range planning Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 15

Function Types (cont. ) n Managerial functions: facilitate the control and coordination of activities within and among departments n Acquisition of, investment in, and control of resources Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 16

Figure 4. 2: Building Blocks of Differentiation Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 17

Vertical and Horizontal Differentiation n Hierarchy: a classification of people according to their relative authority and rank Vertical differentiation: the way an organization designs its hierarchy of authority and creates reporting relationships to link organizational roles and subunits n n Establishes the distribution authority between levels n Horizontal differentiation: the way an organization groups organizational tasks into roles and roles into subunits (functions and divisions) n Roles differentiated according to their main task responsibilities Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 18

Figure 4. 3: Organizational Chart of the B. A. R. and Grille Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 19

Figure 4. 4: Organizational Design Challenges Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 20

Balancing Differentiation and Integration n Horizontal differentiation is supposed to enable people to specialize and become more productive n n Specialization often limits communication between subunits People develop subunit orientation n Subunit orientation: a tendency to view one’s role in the organization strictly from the perspective of the time frame, goals, and interpersonal orientations of one’s subunit Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 21

Balancing Differentiation and Integration (cont. ) n When subunit orientation occurs, communication fails and coordination becomes difficult n Integration: the process of coordinating various tasks, functions, and divisions so that they work together and not at cross-purposes Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 22

Types of Integration Mechanisms n Hierarchy of authority: dictates “who reports to whom” n Direct contact: managers meet face to coordinate activities n Problematic that a manager in one function has no authority over a manager in another n Liaison roles: a specific manager is given responsibility for coordinating with managers from other subunits on behalf of their subunits Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 23

Types of Integration Mechanisms (cont. ) n Task force: managers meet in temporary committees to coordinate cross-functional activities n Task force members responsible for taking coordinating solutions back to their respective functions for further input and approval n Teams: a permanent task force used to deal with ongoing strategic or administrative issues Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 24

Types of Integration Mechanisms (cont. ) n Integrating role: a new, full-time role established to improve communications between divisions n Focused on company-wide integration n Integrating department: a new department intended to coordinate the activities of functions or divisions n Created when many employees enact integrating roles Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 25

Table 4. 1: Types and Examples of Integrating Mechanisms Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 26

Figure 4. 5: Integrating Mechanisms Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 27

Figure 4. 5: Integrating Mechanisms (cont. ) Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 28

Figure 4. 5: Integrating Mechanisms (cont. ) Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 29

Balancing Differentiation and Integration n Managers facing the challenge of deciding how and how much to differentiate and integrate must: n n Carefully guide the process of differentiation so that it develops the core competences that give the organization a competitive advantage Carefully integrate the organization by choosing appropriate integrating mechanisms that allow subunits to cooperate and that build up the organization’s core competences Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 30

Balancing Centralization and Decentralization n Centralized organization: the authority to make important decisions is retained by top level managers n Top managers able to coordinate activities to keep the organization focused on its goals n Decentralized organization: the authority to make important decisions is delegated to managers at all levels in the hierarchy n Promotes flexibility and responsiveness Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 31

Balancing Centralization and Decentralization (cont. ) n Ideal balance entails: n n Enabling middle and lower managers who are at the scene of the action to make important decisions Allowing top managers to focus on longterm strategy making Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 32

Balancing Standardization and Mutual Adjustment n Standardization: conformity to specific models or examples that are considered proper in a given situation n Defined by rules and norms n Mutual adjustment: the process through which people use their judgment rather than standardized rules to address problems, guide decision making, and promote coordination n Formalization: the use of rules and procedures to standardize operations Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 33

Balancing Standardization and Mutual Adjustment (cont. ) n Socialization: Understood Norms n n Rules: formal, written statement that specify the appropriate means for reaching desired goals Norms: standards or styles of behavior that are considered typical for a group of people n n n May arise informally External rules may become internalized norms Socialization: the process by which organizational members learn the norms of an organization and internalize these unwritten rules of conduct Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 34

Standardization versus Mutual Adjustment n Challenge facing managers is: n n To find a way of using rules and norms to standardize behavior, and to allow for mutual adjustment to give managers opportunity to discover new and better ways to achieve goals Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 35

Mechanistic and Organic Organizational Structures n Mechanistic structures: designed to induce people to behave in predictable, accountable ways n n n Decision-making authority is centralized Subordinates are closely supervised Information flows mainly in a vertical direction along a clearly defined path Hierarchy principal integrating mechanism Tasks and roles coordinated primarily through standardization and formal written rules Best suited to organizations that face stable, unchanging environments Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 36

Mechanistic and Organic Organizational Structures (cont. ) n Organic structures: structures that promote flexibility, so people initiate change and can adapt quickly to changing conditions n n n Decision making distributed throughout the hierarchy Coordination is achieved through mutual adjustments Status conferred by ability to provide creative leadership Encourages innovative behavior Suited to dynamic environments Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 37

Figure 4. 6: How the Design Challenges Result in Mechanistic and Organic Structures Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 38

Figure 4. 7: Task and Role Relationships Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 39

Contingency Approach n A management approach in which the design of an organization’s structure is tailored to the sources of uncertainty facing an organization n Organization should design its structure to fit its environment Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 40

Figure 4. 8: Fit Between the Organization and Its Environment Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 41

Lawrence & Lorsch: Differentiation, Integration, and the Environment n Investigated how companies in different industries differentiate and integrate their structures to fit the environment n Three industries that experienced different levels of uncertainty: n n n The plastics industry The food-processing industry The container or can-manufacturing industry Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 42

Table 4. 2: The Effect of Uncertainty on Differentiation and Integration in Three Industries Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 43

Findings: Lawrence and Lorsch n When environment is perceived as more unstable and uncertain: n Effective organizations are less formalized, more decentralized, and rely more on mutual adjustment n When environment is perceived as stable and certain: n Effective organizations have a more centralized, standardized, and formalized structure Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 44

Figure 4. 9: Functional Differentiation and Environmental Demands Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 45

Burns and Stalker n Also found that organizations need different kinds of structure to control their activities based on the environment n n Organic structures are more effective when the environment is unstable and changing Mechanistic structures are more effective in stable environments Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 46

Figure 4. 10: Relationship Between Environmental Uncertainty and Structure Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 4 - 47