10 creating effective organizational designs professor john coy
TRANSCRIPT
10
Creating Effective Organizational Designs
Professor John Coy
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Learning Objectives
• After reading this chapter, you should have a good understanding of:
- The importance of organizational structure and the concept of the “boundaryless” organization in implementing strategies.
- The growth patterns of major corporations and the relationship between a firm’s strategy and its structure.
- Each of the traditional types of organizational structure: simple, functional, divisional, and matrix
- The relative advantages and disadvantages of traditional organizational structure
- The implications of a firm’s international operations for organizational structure
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Learning Objectives
• After reading this chapter, you should have a good understanding of:
- Why there is no “one best way” to design strategic reward and evaluation systems, and the important contingent roles of business- and corporate-level strategies.
- The different types of boundaryless organizations—barrier-free, modular, and virtual—and their relative advantages and disadvantages
- The need for creating ambidextrous organizational designs that enable firms to explore new opportunities and effectively integrate existing operations
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Traditional Forms of Organizational Structure
• Organizational structure refers to formalized patterns of interactions that link a firm’s
- Tasks- Technologies- People
• Structure provides a means of balancing two conflicting forces
- Need for the division of tasks into meaningful groupings- Need to integrate the groupings for efficiency and
effectiveness
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Question
Most organizations begin very small and ______.A) grow to become a medium sized organization
B) continually grow
C) remain small
D) often decrease in size
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Dominant Growth Patterns of Large Corporations
Adapted from Exhibit 10.1 Dominant Growth Patterns of Large CorporationsSource: Adapted from J. R. Galbraith and R. K. Kazanjian, Strategy Implementation: The Role of Structure and Process, 2nd ed. (St. Paul, MN: West Publishing Company, 1986), p. 139.
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Patterns of Growth of Large Corporations
• Simple Structure• Simple structure is the oldest and most common
organizational form- Staff serve as an extension of the top executive’s
personality- Highly informal- Coordination of tasks by direct supervision- Decision making is highly centralized- Little specialization of tasks, few rules and regulations,
informal evaluation and reward system
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Patterns of Growth of Large Corporations
• Functional Structure
Adapted from Exhibit 10.2 Functional Organizational Structure
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Patterns of Growth of Large Corporations
• Functional Structure- Found where there is a single or closely related product or
service, high production volume, and some vertical integration
• Advantages- Enhanced coordination and control- Centralized decision making- Enhanced organizational-level perspective- More efficient use of managerial and technical talent- Facilitated career paths and development in specialized
areas
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Patterns of Growth of Large Corporations
• Disadvantages- Impeded communication and coordination due to
differences in values and orientations- May lead to short-term thinking (functions vs. organization
as a whole)- Difficult to establish uniform performance standards
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Divisional Structure
Adapted from Exhibit 10.3 Divisional Organizational Structure
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Divisional Structure
• Organized around products, projects, or markets• Each division includes its own functional specialists
typically organized into departments• Divisions are relatively autonomous and consist of
products and services that are different from those of other divisions
• Division executives help determine product-market and financial objectives
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Divisional Structure
• Advantages- Strategic business unit (SBU) structure- Separation of strategic and operating control- Quick response to important changes in external
environment- Minimal problems of sharing resources across functional
departments- Development of general management talent is enhanced
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Divisional Structure
• Disadvantages- Can be very expensive- Can be dysfunctional competition among divisions- Can be a sense of a “zero-sum” game that discourages
sharing ideas and resources among divisions- Differences in image and quality may occur across
divisions- Can focus on short-term performance
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Divisional Structure
• Strategic business unit (SBU) structure- Divisions with similar products, markets, and/or
technologies are grouped into homogenous SBUs• Task of planning and control at corporate office is more
manageable• May become difficult to achieve synergies across SBUs
- Appropriate when the businesses in a corporation’s portfolio do not have much in common
• Lower expenses and overhead, fewer levels in the hierarchy• Inherent lack of control and dependence of CEO-level
executives on divisional executives
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Matrix Structure
Adapted from Exhibit 10.4 Matrix Organizational Structure
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Matrix Structure
• A combination of the functional and divisional structures
• Individuals who work in a matrix organization become responsible to two managers
- The project manager- The functional area manager
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Matrix Structure
• Advantages- Facilitates the use of specialized personnel, equipment and
facilities- Provides professionals with a broader range of
responsibility and experience• Disadvantages
- Can cause uncertainty and lead to intense power struggles- Working relationships become more complicated- Decisions may take longer
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International Operations: Implications for Organizational Structure
• Three major contingencies influence structure adopted by firms with international operations
- Type of strategy driving the firm’s foreign operations- Product diversity- Extent to which the firm is dependent on foreign sales
• Structures used to manage international operations- International division- Geographic-area division- Worldwide functional- Worldwide product division- Worldwide matrix
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Example
• Nike culture used to encourage local managers to focus on market share rather than profitability.
• This lead to Wall Street to comment on the lack of managerial control at Nike.
• Nike decided to implement a matrix structure to resolve this issue.
• This matrix structure clearly stated local managers’ responsibilities by region and product.
• Nike headquarters establishes which products to focus on and how to do it under the new matrix structure.
Source: “The New Nike,” Business Week. September 20, 2004
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Question
Does the relationship between strategy and structure imply that structure follows strategy?
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Relationships between Rewards & Evaluation Systems and Business-level and Corporate-level Strategies
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Boundaryless Organizational Designs
• Boundaries that place limits on organizations- Vertical boundaries between levels in the organization’s
hierarchy- Horizontal boundaries between functional areas- External boundaries between the firm and its customers,
suppliers, and regulators- Geographic boundaries between locations, cultures and
markets
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Making Boundaries More Permeable
• First approach• Permeable internal boundaries
- Higher level of trust and shared interests- Shift in philosophy from executive development of
organizational development- Greater use of teams- Flexible, porous organizational boundaries- Communication flows and mutually beneficial relationships
with internal and external constituencies
Barrier-free type Barrier-free type of organizationof organization
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Pros and Cons of Barrier-Free Structures
Adapted from Exhibit 10.7 Pros and Cons of Barrier-Free Structures
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Making Boundaries More Permeable
• Second approach • Outsources nonvital functions, tapping
into knowledge and expertise of “best in class” suppliers but retains strategic control
• Three advantages- Decrease overall costs, leverage capital- Enables company to focus scarce resources on areas where
it holds competitive advantage- Adds critical skills and accelerates organizational learning
Modular type of Modular type of organizationorganization
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Pros and Cons of Modular Structures
Adapted from Exhibit 10.8 Pros and Cons of Modular Structures
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Making Boundaries More Permeable
• Third approach• Continually evolving network of
independent companies linked together to share skills, costs, and access to one another’s markets
- Suppliers- Customers- Competitors
• Each gains from resulting individual and organizational learning
• May not be permanent
Virtual type of Virtual type of organizationorganization
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Pros and Cons of Virtual Structures
Source: R. E. Miles and C. C. Snow, “Organizations: New Concepts for New Forms,” California Management Review,” Spring 1986, pp. 62-73; R. E. Miles and C. C. Snow, “Causes of Failure in Network Organizations,” California Management Review, Summer 1999, pp. 53-72; and H. Bahrami, “The Emerging Flexible Organization: Perspectives from Silicon Valley,” California Management Review, Summer 1991, pp. 33-52.
Adapted from Exhibit 10.9 Pros and Cons of Virtual Structures
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Boundaryless Organizations: Making Them Work
• Factors facilitating effective coordination and integration of key activities
- Common culture and shared values- Horizontal organization structures- Horizontal systems and processes- Communications and information technologies- Human resource practices
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Creating Ambidextrous Organizational Designs
• Two contradictory challenges faced by firms- Adaptability- Alignment
• Ambidextrous organizations - Aligned and efficient in how they manage in today’s
business- Flexible enough to changes in the environment so they
will prosper tomorrow
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Creating Effective Organizational Designs
Professor John Coy