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Organizational Theory

Design Challenge 1

People in this organization take on new tasks as the need arises and it’s very unclear who is responsible for what and who is supposedto report to whom. This makes it difficult to know whom to call on when the needarises and difficult to coordinate people’s activities so they work together as a team.

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Organizational Theory

Differentiation is the process by which an organization allocates people and resourcesto tasks and establishes the authority relationships that allow the organization to achieve its goals.

In other words, it’s

“how things are divided up.”

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Organizational Theory

Authority is the power to hold peopleaccountable for their actions and to makedecisions concerning the use of resources.

Control is the ability to coordinate andmotivate people to work in an organization’sinterests.

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Organizational Theory

A function is a subunit composed of a group ofpeople who possess similar skills and knowledge to perform their jobs.

marketing dept. maintenance dept.

A division is a subunit that consists of a collection of functions that are related to a particular good or service.

Motorola’s semiconductor division

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Organizational Theory

Vertical differentiation refers to the way an organization designs its hierarchy ofauthority (i.e., reporting relationships).

Horizontal differentiation refers to the way anorganization groups tasks into roles androles into subunits (i.e., functions and divisions).

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Organizational Theory

Design Challenge 2

We can’t get people to communicate and coordinate in this organization. Specifyingtasks and roles is supposed to help coordinate the work process, but here it builds barriers between people and functions.

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Organizational Theory

Although horizontal differentiation enables specialization and increased productivity, it also leads to subunit orientation.

Subunit orientation refers to the tendency toview one’s role in the organization strictly from the perspective of the time frame, goals, and orientation of one’s subunit.

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Organizational Theory

Integration is the process of coordinatingvarious tasks, functions, and divisions so thatthey work together and not against each other.

There are various integrating mechanismsused by managers to coordinate behavior, and they are presented in order of increasingcomplexity:

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Organizational Theory

Integrating Mechanisms

1) Hierarchy of Authority—“who reports to who”

2) Direct Contact—managers meet face to face to coordinate activities

3) Liaison Role—A specific manager is given responsibility for coordinating with managers from other subunits on behalf of their subunit

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Organizational Theory

Integrating Mechanisms

4) Task Force—Managers meet in temporary committees to coordinate cross-functionalactivities

5) Team—Managers meet regularly in permanent committees to coordinateactivities

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Organizational Theory

Integrating Mechanisms

6) Integrating Role—A new role is establishedto coordinate the activities of two or morefunctions or divisions

7) Integrating Department—A new departmentis created to coordinate the activities of functions or divisions

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Organizational Theory

The key issue for managers is finding the level of differentiation that reaps the benefits of specialization while also utilizing the level of integration that keeps subdivisions communicating with each other.

The issue is balance between differentiation and integration.

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Organizational Theory

Design Challenge 3

People in this organization don’t take responsibilityor risks. They are always looking to the boss for

direction and supervision. As a result, decision making is slow and cumbersome, and we miss outon a lot of opportunities to create value.

“Hierarchy is an organization with its face toward the CEO and it’s a– toward the customer.”

-- Kjell Nordstrom and Jonas Ridderstrale, Funky Business

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Organizational Theory

Design Challenge 4

People in this organization pay too muchattention to the rules. Whenever I need somebody to satisfy an unusual customerrequest or need real quick service fromanother function, I can’t get it because noone is willing to bend or break the rules.

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Organizational Theory

All organizations rely, to some degree, on rules to control behavior.

A challenge facing all organizations is theability to design a structure that achieves the right balance between standardization and mutual adjustment (DMP prefers to

use the term discretion).

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Organizational Theory

Standardization is conformity to specificmodels or examples (rules and norms).

Mutual adjustment (discretion) is the process of allowing people to use their judgment rather than standardized rules to address a problem.

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Organizational Theory

Mechanistic structures are designed to inducepeople to behave in predictable ways.

Decision making is centralizedSubordinates are closely supervisedInformation flows downward in the hierarchyTasks are clearly definedIntegrating mechanisms are simpleWork is very standardized

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Organizational Theory

Organic structures promote flexibility, so people initiate change and can adapt quickly to changing conditions.

Decision making is decentralizedRoles are loosely definedIntegrating mechanisms are complexReliance on mutual adjustment (discretion)Information flows freely

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Organizational Theory

Contingency ApproachContingency Approach: design of an : design of an organization’s structure is tailored to the organization’s structure is tailored to the sources of uncertainty facing an sources of uncertainty facing an organizationorganization

Organization should design its structure to fit Organization should design its structure to fit its environmentits environment

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FIGURE 4-10The Relationship Between Environmental Uncertainty and Organizational Structure

Low HighEnvironmental Uncertainty

Mechanistic Structure

Simple structure

Low differentiation

Low integration

Centralized decision making

Standardization

Organic Structure

Complex structure

High differentiation

High integration

Decentralized decision making

Mutual adjustment

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