Organization Theory & Design

Flow of presentation Devika Shinde P-34 Pradnya Bhalerao C-03 Sukhada Kulkarni P-17 Puja Govekar P-09 Dhanraj Koli P-16 Anandita Singh C-34 Jayashree Prabhu C-43 01/02/10

DEVIKA SHINDE Roll No. – p-34

General introduction to Organizational theories and design

What is Organizational Design Developments in or changes to the structure of an organization Organization Design refers to the process of coordinating the structural elements of an organization in the most appropriate manner

Key elements of organizational designs: Departmentalization Span of Control Work Specialization Chain of Command Authority and Responsibility Centralization vs. Decentralization

Organizational Theories The current state of organization theory is the result of an evolutionary process. Theories have been introduced, evaluated and refined over time ; new insights tend to reflect the limitations of earlier theories.

Classical & Neoclassical Theory Classical organizational theorists (such as Weber, Taylor ) believed that a universally best way to design organizations exists, an approach based on high efficiency. Neoclassical organizational theorists (such as McGregor,Argyris ) their approach emphasizes the need to pay attention to basic human needs to succeed and express oneself.

Differentiation The process by which an organization allocates people and resources to organizational tasks and establishes the task & authority relationships that allows organization to achieve its goal. Process of establishing division of labour.

Example Differentiation at B.A.R. and Grille restaurant.

Organizational Role The basic building block of differentiation. It is the set of task – related behaviors required of a person by his or her position in an organization. Example of B.A.R. and Grille restaurant.

Sub units Function: is a sub-unit composed of group of people, working together, who possess similar skills or use same kind of knowledge, tools or techniques to perform their jobs Support functions Production function Maintenance Adaptive Managerial

Sub-units Division: A sub unit that consists of a collection of functions or departments that share responsibility for producing a particular good or service.

Vertical and horizontal differentiation Hierarchy Vertical differentiation Horizontal differentiation

Balancing differentiation & integration

What is differentiation? The process by which an organization allocates people & resources to organizational tasks & establishes the tasks & authority relationships that allow the organization to achieve its goal.

Challenges of horizontal differentiation Development of subunit orientation Communication gap Production team VS Research team E.g. Xerox computer system, Wal-mart television linkups

What is integration? The process of coordinating various tasks, functions and divisions so that they work together and not at cross-purpose.

7-integrating mechanism Hierarchy of authority Direct contact Liaison role Task force Team Integrating role Integrating department

Hierarchy of authority Simplest device Allocation of authority E.g. Becton Dickinson

Liaison team Marketing Production

Team Force or Team Engineering Marketing R & D Sales Production

Integrating Role or Department Computer Hardware Division Integration Role or Department Application Division Computer Software Division

Differentiation & Integration-key aspects Differentiation Integration A highly complex, highly differentiated organization needs high level of integration An organization that has a relatively simple, clearly defined role structure needs to use only simple integrating mechanism Expensive –in terms of the number of managers employed & the amount of managerial time spent on coordinating organizational activities. Unnecessary investment

Summary Carefully guide the process of differentiation so that it develops the core competencies that give the organization a competitive advantage Carefully integrate the organization by choosing appropriate integration mechanism that allow subunits to cooperate & that build up the organization’ core competencies

Balancing Centralization & Decentralization

What is Centralization? Organizational setup whereby the authority to make important decision is retained by managers at the top of the hierarchy

What is Decentralization? An organizational setup whereby the authority to make important decision about organizational resources and to initiate new projects is delegated to managers at all levels in the hierarchy…

Centralization Advantages Disadvantages Top managers coordinate organizational activities effectively & keep the organization focused on its goal. Top management become overloaded & need to take care of day-to-day activities & cannot focus on long term decision making Lower hierarchy-afraid to make news or express their ideas Hierarchy of authority exists , people are constantly looking to their superiors for help.

Decentralization Advantages Disadvantages Promotes flexible & responsiveness by allowing subordinate to make on the spot decisions Planning & coordination becomes more difficult Motivates to perform the best Personal goals & objectives can be pursed at the expense of organization

Standardization Which is defined by sets of rules and norms, that are considered proper in a given situation

Mutual adjustment. It is a process in which people use their judgment rather than standardized rules to address problems

Balancing standardization & Mutual adjustment Both are very important. But only one can be adopted at a time. Eg: IBM policies tranformation. The real challenge faced, is to design a structure that achieves right balance between the two.

A right balance between the two is very important.

Formalization: Use of written rules and procedures to standardize operations. Formalization and Mutual adjustment: High level of formalization implies centralization of authority, and lower one implies mutual adjustment and dynamic decision making.

Rules: Formal and written statements Norms: standards and styles of behaviour

Socialization Process by which organizational members learn the norms of organization and internalize these unwritten rules of conduct in them. Why is behavior rigid when rules change? 01/02/10

Standardization Vs Mutual adjustment Manager facing the challenge of balancing the need for standardization against need for mutual adjustments

Mechanistic and Organic Organizational Structure `

Mechanistic structure It is designed to induce people to behave in predictable, accountable ways. Decision-making authority centralized. Task associated with role and are coordinated through standardization. Each person knows his responsibility.

Mechanistic structure cont. At the functional level, each function is separate, and communication and cooperation among functions are the responsibility of someone at the top management. Formal written rules and procedures are main means of organizational control. Vertical command structure. Promotion ties to performance Best suited to organization that face stable, unchanging environment.

Organic Structure It promotes flexibility, so people initiate change and can adapt quickly to changing conditions. Decision-making authority decentralized. Roles are loosely defined. High level of integration needed.

Organic Structure cont. Co-ordination is achieved through mutual adjustment as people and functions workout role and responsibility. Informal norms and values. Status conferred by ability not by any formal position in hierarchy. Best suited to organization that face unstable, changing environment. Eg: Sony (Sony’s Magic Touch)

Mechanistic v/s Organic Structure 01/02/10 Mechanistic Organic Individual Specialization Joint Specialization Simple Integration Complex integration Centralization Decentralization Standardization Mutual Adjustment

Mechanistic v/s Organic Structure Individual Specialization Simple Integration Centralization Standardization Joint Specialization Complex integration Decentralization Mutual Adjustment

Contingency Approach to Organizational Design A management approach in which design of an organization's structure is tailored to the sources of uncertainty facing an organization. Organization must design internal structure to control the external environment. Tom burns and G.M. Stalker theory

Tom burns and G.M. Stalker theory They found that organizations need different kinds of structure to control activities when they need to adapt and respond to change in the environment. Eg: Mcdonald (Mcdonald’s Changing Environment)

McDonald Changing Environment Problems faced by McDonald due changing Environment in early 2000s. Consumer taste shifting as health conscious. Environmentalist attacking the packaging. Increase in competition.

Organizational Structure It had Mechanistic structure having standardized operations and formalization. The burger and fries served in London tasted & looked same as in New York.

Solution McDonalds came up with.. McDonalds new approach to production was based on flexibility. Designed menu that would appeal to local customer. This led to shift McDonald from mechanistic to organic structure

Identify the organization structure Rayon mill Used standard well-understood technology Had bureaucratic structure Factory bible explained all procedures A system of hierarchically linked job positions with clear responsibilities Treat problem situations as temporary deviations from the norm Sometimes ask sales dept to slow down so as to not overwhelm the production dept. High-Tech Electronics Firm Creating new industries, such as computers, space technologies, equipment, etc., There was an even more fluid organizational style Jobs allowed to shape themselves People hired for general expertise and brains and then allowed/encouraged to find their own place in the organization to make their contribution As situations changed, people would take on different activities but without changing jobs People continually inquiring into what they should be doing and then acting

Functional structure A design that group people on the basis of their common expertise and experience or because they uses the same resources. 01/02/10

Functional structure Advantages Specialization – each department focuses on its own work Accountability – someone is responsible for the section Clarity – know your and others’ roles Learning- from one another 01/02/10

Functional structure Disadvantages Closed communication could lead to lack of focus. Departments can become resistant to change. Coordination . Customer problem. 01/02/10

Divisional structure Divisional structure is one in which set of relatively autonomous units or divisions are governed by central corporate office, but each operation division has its own functional specialist who provides product and services different from those of other divisions 01/02/10

Types of Divisional structure Product structure Divisions by the product group or category Market structure Divisions by type of customer Geographic structure Global or regional divisions 01/02/10

Divisional Structures Functions according to the specific demands of products, markets, or customers.

Divisional Structures 01/02/10

Divisional Structure I A structure in which functions are grouped together according to the specific demands of products, markets, or customers. The type of divisional structure selected is driven by the specific type of control problem experienced. 01/02/10

I) Product structures A divisional structure in which products are grouped into separate divisions, according to their similarities or differences. 01/02/10

Types of product structures 01/02/10

a) Product Division Structure Characterized by splitting of the manufacturing function into different product lines or divisions. Centralized support functions. Service needs of a number of different product lines. Typically used by organizations whose products are broadly similar and aimed at the same market. E.g. Food processors, furniture makers, personal care products, paper products, etc. 01/02/10

Product Division Structure 4-19 Large Food Processor – E.g. Heinz 01/02/10 Vice President Sales and Marketing Vice President Research and Development Vice President Materials Management CEO Vice President Finance PDM PDM PDM PDM Centralized support functions Divisions

Product Division Structure – Contd. Design decision increases horizontal differentiation within the organization. For each division, there is a separate manufacturing unit that has it’s own hierarchy . Each division is headed by a product division manager (PDM). Each PDM is responsible for the division’s product activities and coordinating with the central support functions. Increases vertical hierarchy in an organization. 01/02/10

b) Multidivisional Structure To manage complex and diverse value creation activities. Support functions are placed in self-contained divisions. Typically used by an organization whose products are very different and that operates in several different industries. E.g. Cars and fast food industries. 01/02/10

Multidivisional Structure. Consumer Products Company. Corporate Managers CEO Divisional Managers Senior VP Marketing Senior VP Finance Senior VP Materials Management Senior VP Research and Development Functional Managers Corporate Headquarters Staff Division B Support functions Division D Support functions Division A Support functions Support functions Division C 4-21 01/02/10

COMPARISON 01/02/10 MULTIDIVISIONAL STRUCTURE PRODUCT DIVISION STRUCTURE Independence of each division – self contained. Divisions shares the services of a set of centralized functions. New level of management – a corporate head quarters staff – adds more control. No such level – control is lesser. Structure is designed to allow a Company to operate in many different businesses. Structure can only be used to control the activities of a Company that is operating in one business or Industry.

ADVANTAGES Increased Organizational Effectiveness. Increased control. Profitable growth. Internal Labour Market. 01/02/10

DISADVANTAGES Managing the Corporate- Divisional relationship. Coordination problems between divisions. Transfer pricing. Bureaucratic costs. Communication Problems. 01/02/10

Product Team Structure Specialists from the support functions are combined into product development teams. Typically used by an organization whose products are very technologically complex. Or whose characteristics change rapidly to suit customer needs. 01/02/10

Product Team Structure. 4-29 01/02/10 Product Division Product Division CEO Functions Product Development Teams Product Division V ice President Research and Development V ice President Sales and Marketing V ice President Manufacturing V ice President Finance Functional specialist V ice President Materials Management PTM Product Team Manager PTM PTM PTM

Product Team Structure…Contd. Each team is a self contained division and is headed by a Product Team Manager (PTM). PTM supervises the operational activities associated with developing and manufacturing the product. Product teams focus on the needs of one product or few related products. Overall functional control – V.P. of the functions. Decision-making and responsibility for each product is decentralized to the team. 01/02/10

Divisional Structure II 01/02/10 Geographic Structure: Used when an organization experiences control problems that are a function of geography. Such a structure organizes divisions according to the requirements of different locations.

Geographic Structure 4-31 01/02/10 Regional Operations Regional Operations Regional Operations Regional Operations CEO Central Support Functions Individual stores

Divisional Structure III Market Structure : When an organization experiences control problems that are a function of the differences in the various customer groups being served. Such a structure aligns functional skills and activities with different customer needs. 01/02/10

Market Structure 01/02/10 Commercial Division Consumer Division Government Division Corporate Division CEO Central Support Functions

Matrix Structure The search for better and faster ways to develop products and meet customer needs led to the matrix structure. A matrix structure groups people and resources in two ways simultaneously: -by function and -by product 01/02/10

01/02/10 Matrix Structure CEO V ice President Engineering V ice President Finance V ice President Purchasing V ice President Sales and Marketing V ice President Research and Development Product A Manager Product B Manager Product C Manager Product D Manager Product Team Two-boss employee

Advantages of a Matrix Structure Uses cross-functional teams. Better communication between functional specialists, opportunity for learning, progress, innovation. Enables organization to maximize its use of skilled professionals, who move from product to product as needed. The dual functional and product focus promotes concern for both cost and quality. 01/02/10

Disadvantages of a Matrix Structure Lacks the advantages of bureaucratic structure – role ambiguity, role conflict Conflict between function and product teams over the use of resources, power. Lack of coordination, stress, uncertainty. Over a time, people experience a vacuum of authority and responsibility. 01/02/10

Multidivisional Matrix Structure A multidivisional matrix structure provides for more integration between corporate and divisional managers, and between divisional managers. This structure makes it easier for top executives from the divisions and from corporate headquarters to coordinate organizational activities. 01/02/10

01/02/10 Multidivisional Matrix Structure CEO Senior Vice President Marketing Senior Vice President Finance Senior Vice President Research and Development Senior Vice President Materials Management Automobile Products Division Personal Computer Division Consumer Electronics Division

Network Structure A recent innovation in organizational architecture is the use of network structures. A network structure is a cluster of different organizations whose actions are coordinated by contracts and agreements rather than through a formal hierarchy. 01/02/10

Network Structure Network structures often result from outsourcing. Outsourcing is the process of moving activities that were previously performed inside the organization to the outside (where they are done by other companies). 01/02/10

Advantages of Network Structure Organization can find a network partner – reduction in production cost. Avoids the high bureaucratic costs of operating a complex organizational structure. Organization acts in organic way. Organization can gain access to low cost foreign sources of inputs and functional expertise. 01/02/10

Disadvantages of Network Structure Outsourcing ?? Coordination problem- different companies perform different parts of the work. Trust among groups, Trust that outsourcing will not leak confidential information of company to it’s competitors. 01/02/10

Boundaryless Organization The boundaryless organization is composed of people who are linked by computers, faxes, computer-aided design systems, and video teleconferencing, and who may rarely or ever see one another face to face. 01/02/10

Bibliography Organizational Theory, design, and Change – Fourth Edition, Gareth R. Jones. 01/02/10

Organization Theory & Design

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Organization Theory & Design