org structure FOR UNDERSTANDING THE WORLD BETTER
- 1. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-1 Exercise 1 • You are a CEO of a start up organization. You have to develop the organization structure. What factors you will have to consider to design this structure?..
- 2. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-2 Organization structure Organization structure – – the pattern the pattern of jobs and groups of jobs in an of jobs and groups of jobs in an organization. organization.
- 3. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-4 Organization design Organization design – – management management decisions and actions that result in a decisions and actions that result in a specific organization structure. specific organization structure.
- 4. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-5 Organizational Design Decisions 1. Decide how to divide the overall task into successively smaller jobs 2. Decide the bases by which to group the jobs 3. Decide the appropriate size of the group reporting to each superior 4. Distribute authority among the jobs
- 5. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-6 Division of Labor: Departmentalization: Span of Control: High High Low Low Homogeneous Homogeneous Heterogeneous Heterogeneous Many Few Few Authority: Low Low High High Specialization Specialization Basis Basis Number Number Delegation Delegation The Four Key Design Decisions
- 6. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-7 Division of Labor • Division of labor – concerns the extent to which jobs are specialized • It is the process of dividing work into relatively specialized jobs to achieve advantages of specialization
- 7. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-8 Division of Labor Occurs in Three Different Ways: 1. Personal specialties • e.g., accountants, software engineers, graphic designers, scientists, etc. 2. Natural sequence of work • e.g., dividing work in a manufacturing plant into fabricating and assembly (horizontal specialization) 3. Vertical plane • e.g., hierarchy of authority from lowest-level manager to highest-level manager
- 8. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-15 Departmentalization Departmentalization – – process in process in which an organization is which an organization is structurally divided by combining structurally divided by combining jobs in departments according to jobs in departments according to some shared characteristic or some shared characteristic or basis. basis.
- 9. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-16 Functional Geographic Product Customer Departmentalization Bases
- 10. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-17 Departmental Bases: Functional Departmentalization • Jobs are combined according to the functions of the organization • The principal advantage is efficiency • By having departments of specialists, management creates efficient units • A major disadvantage is that organizational goals may be sacrificed in favor of departmental goals
- 11. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-18 Engineering Engineering Reliability Reliability Finance Finance Manufacturing Manufacturing Distribution Distribution Human Human Resources Resources Public Public Relations Relations Purchasing Purchasing OBM Company OBM Company Functional Departmentalization Structure
- 12. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-19 Departmental Bases: Geographic Departmentalization • Establish groups according to geographic area • The logic is that all activities in a given region should be assigned to a manager • Advantageous in large organizations because physical separation of activities makes centralized coordination difficult • Provides a training ground for managerial personnel
- 13. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-20 North West South Central OBM Company East Geographic Departmentalization Structure
- 14. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-21 Departmental Bases: Product Departmentalization • All jobs associated with producing and selling a product or product line will be placed under the direction of one manager • Product becomes the preferred basis as a firm grows by increasing the number of products it markets • Concentrating authority, responsibility, and accountability in a specific product department allows top management to coordinate actions
- 15. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-22 OBM Co. OBM Co. Healthcare Healthcare Consumer Consumer care care Pharma Pharma Agriculture Agriculture products products Specialty Specialty Chemicals Chemicals Product Departmentalization Structure
- 16. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-23 Departmental Bases: Customer Departmentalization • The importance of customer satisfaction has stimulated firms to search for creative ways to serve people better • Organizations with customer-based departments are better able to satisfy customer-identified needs than organizations that base departments on non-customer factors
- 17. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-24 Luxury travelers Business travelers Budget travelers Corporate Services OBM Hotels Tours & cruises Customer Departmentalization Structure
- 18. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-25 Span of Control (1 of 2) • Number of individuals who report to a specific manager • Narrow span • Wide span • The frequency and intensity of actual relationships is the critical consideration in determining the manager’s span of control
- 19. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-26 Span of Control (2 of 2) • If we shift our attention from potential to actual relationships as the bases for determining optimum span of control, three factors appear to be important: Key Factors Key Factors Required Contact Required Contact Degree of Degree of Specialization Specialization Frequency of Frequency of Communication Communication
- 20. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-27 Dimensions of Structure • Formalization – the extent to which expectations regarding the means and ends of work are specified, written, and enforced • Centralization – the location of decision-making authority in the hierarchy • Complexity – the direct outgrowth of dividing work and creating departments
- 21. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-28 Organization Design Models The Mechanistic Model • Emphasizes importance of achieving high levels of production and efficiency through: • Extensive use of rules and procedures • Centralized authority • High specialization of labor The Organic Model • Emphasizes importance of achieving high levels of production and efficiency through: • Limited use of rules and procedures • Decentralized authority • Relatively low degrees of specialization
- 22. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-32 The Simple Organization Structure Fast, flexible, inexpensive, clear accountability Low formalization & high centralization Too risky – every thing depends on one person.
- 23. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-33 The Bureaucracy • High routine operating tasks achieved through specialization, very formalized rules and regulations, tasks that are grouped into functional departments, centralized authority, narrow span of control and decision making that follows through the chain of command. • Performs standardised tasks with efficient manner. • Economies of scale, minimum duplication of personnel, speaks “same language”. • Less people costly. • Rules substitute decision making except at senior level, No need for innovation at the lower levels. • No decisions beyond rules; avoidance / upward delegation for new issues. • Narrow departmental goals over ride the organizational objectives.
- 24. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-34 Organization Design Models: The Matrix Model • Matrix organization – attempts to maximize the strengths and minimize the weaknesses of both the functional and product bases • Superimpose a horizontal structure of authority, influence, and communication on the vertical structure • Facilitates the utilization of highly specialized staff and equipment
- 25. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-35 Automobiles Automobiles Trucks Trucks LCVs LCVs Design Design HR Finance Purchase HR Finance Purchase Functions Functions Business Business Example of the Matrix Organization Model
- 26. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-36 Advantages of Matrix Organization • Efficient use of resources • Flexibility in conditions of change and uncertainty • Technical excellence • Freeing top management for long-range planning • Improving motivation and commitment • Providing opportunities for personal development
- 27. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-45 Boundaryless Organizations • Organizations in which: • the hierarchy and chain of command are minimized • rigidly structured departments are eliminated • Implemented to reduce barriers between people and constituencies
- 28. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-46 Networked organizations • Informal networks • Silos are not the issue: clustering – degree of highly knit groups. • Shared consciousness / Path length: Ease of Sharing of big picture, information, two way communication. – measure of distance – number of links separating the organizational units (ease of interactions, information sharing) • Small world networks – high clustering and short path length. • Small world networks are difficult to create – traditional organizations discourage connectivity; favours strict operational alignment within a specific function/unit, less focus on fostering links between the units. • Organization does not have to be flat to be networked. (e.g. General McChrystal’s special forces command in Afghanistan; Team of Teams by Gen. McChrystal).
- 29. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-47 Holacracy: • A holacracy is a governance structure characterized by a distribution of power among self-organizing groups, rather than the top-down authority in the typical hierarchical corporate culture model. A holacracy provides a flat management structure that distributes authority. • Organization structure is the hierarchy of self regulating teams (circles). • Democratic governance. • Multiple roles for individuals, defined by each team through collective discussion. • Work is structured in various self organizing circles (teams). Each circle is assigned a clear purpose and accountability by broader circle. • Each circle is empowered to self organize to achieve the objectives. • 2 roles – lead link and rep link ensures the alignment with the organizational mission and strategy by participating in the activities of the inner and broader circle.
- 30. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved. 16-48 Holacracy: • Integrative decision making to incorporates updates, changes in roles , self organizing mechanism of the circle through involvement of all. • High empowerment of individual team members to perform their respective roles with blanket authority, unless the action is restricted through governance policy or involves spending assets of the organization. • Claimed benefits: Improves agility, efficiency, transparency and accountability, individual initiative, provides mechanism to address concerns, reduces burden on the leadership through distributive authority. • Criticism: Decisions are funnelled through hierarchy of circles, may focus on administrative rigour instead of the voice of the customer. Major initiatives can slowed down due to lack of decisiveness.