Chapter 10Designing Adaptive Organizations

Organizing

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Organizing the Vertical Structure

Organizing Structure Defines:

The set of formal tasks assigned to individuals and departments

Formal reporting relationships

The design of the systems to ensure effective coordination

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Organizing Concepts

Work Specialization is the degree to which organizational tasks are subdivided into

individual jobs; also called division of labor

Chain of Command is an unbroken line of authority that links all individuals in the

organization and specifies who reports to whom

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Authority, Responsibility, Accountability, and Delegation

Authority is the formal and legitimate right of a manager to make decisions, issue orders, and allocate resources to achieve organizational outcomes Authority is vested in organizational positions, not people

Authority flows down the vertical hierarchy

Authority is accepted by subordinates

Responsibility

Accountability is the mechanism through which authority and responsibility are aligned; Sarbanes-Oxley Act

Delegation is the process managers use to transfer authority and responsibility down the chain

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10.1 Sample Organization Chart

Line and Staff Authority

Line departments perform primary business tasks Sales Production

Staff departments support line departments Human Resources Accounting Research

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Span of Management

The number of employees reporting to a supervisor

•Tall Organizations have more levels and narrow span

•Flat Organizations have a wide span and fewer levels

Work is stable and routine

Subordinates perform similar work

Subordinates are in one location

Highly trained/require little direction

Rules and procedures are defined

Few planning or nonsupervisory activities

Manager’s preference

Less Supervision/Larger Spans of Control

10.2 Reorganization and Span of Management

Centralization and Decentralization

• Centralization – decision authority is located near the top of the organization

• Decentralization – decision authority is pushed downward to all levels

• Factors that influence centralization versus decentralization:– Change and uncertainty decentralization– Strategic fit– Crisis, Failure Risk centralization

Departmentalization: Functional

• Vertical Functional Approach– Grouping of positions into departments based on

skills, expertise, work activities, and resource use

Departmentalization: Functional (continued)

• Advantages:– Efficient use of resources– Economies of scale– In-depth skill specialization and development– Top manager direction & control

• Disadvantages:– Poor communication across functional departments– Slow response to external changes– Lagging innovation– Decisions concentrated at top of hierarchy, creating

delay

Departmentalization - DivisionalDivisional Structure - Grouping based on organizational

output• Product, Program, or SBU-Based Divisions• Geographic or Customer-Based Divisions

Departmentalization: Divisional (continued)

• Advantages:– Fast response, flexibility in unstable environment– Fosters concern for customer needs– Excellent coordination across functional departments

• Disadvantages:– Duplication of resources across divisions– Less technical depth and specialization– Poor coordination across divisions

10.4 Functional Versus Divisional Structures

10.5 Geographic-Based Global Org. Structure

• Geographic or Customer-Based Divisions - group activities by geography or customer

Departmentalization: Matrix Approach

• Combines functional and divisional approaches• Advantages: Improve coordination and information:

– More efficient use of resources than single hierarchy– Flexibility, adaptability to changing environment– Interdisciplinary cooperation, expertise available to all

divisions• Disadvantages: Dual lines of authority (Two-boss employee)

– Frustration & confusion– High conflict b/w two sides of the matrix– Many meetings, more discussion than action

10.6 Dual-Authority in a Matrix Organization

10.7 Global Matrix Structure

Departmentalization: Team Approach

• Team approach (Cross-functional teams, Permanent teams) - a very widespread trend; Horizontal teams coordinate their work, and work directly with customers to accomplish the organization’s goals.

• Advantages:– Reduced barriers among dept’s, increased compromise (Flexible)– Shorter response time, quicker decisions (Responsive)– Allows managers to delegate authority Better morale, enthusiasm

from employee involvement

• Disadvantages:– Dual loyalties and conflict– Time and resources spent on meetings; – Unplanned decentralization

Departmentalization: Virtual Network Approach

• Extends idea of horizontal coordination and collaboration– Partnerships– Alliances

• Could be a loose interconnected group– i.e. outsourcing

Virtual network structure means that the firm subcontracts most of its major functions to separate companies

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10.8 Network Approach to Departmentalization

Departmentalization: Virtual Network

• Advantages:– Can draw on expertise worldwide– Highly flexible and responsive– Reduced overhead costs

• Disadvantages:– Lack of control– Weak boundaries– Greater demands on managers– Weaker employee loyalty

Risks of Outsourcing [Lee, 2013]

• Intellectual property (trade secret): – Sony (Japanese) outsourced to LG, Samsung (Korean).

LG, Samsung learned the Sony technologies, and now they are selling more TVs than Sony.

• Transportation cost• Supply chain• Quality• Ethics

– Kathie Lee Gifford (1996)– Barbie Doll – Mattel – Lead Paint (2007)

10.9 Structural Advantages and Disadvantages

Organizing for Horizontal Coordination

• Companies need more flexibility than vertical structure can offer– Meet fast-shifting environment– Break down barriers between

departments/divisions/teams– Need integration and coordination

• Lack of coordination and cooperation can cause information problems– Growing global challenge

• Chrysler Case (p. 281)

10.10 Evolution of Organization Structures

Business Process Reengineering (BPR)

Business process reengineering, is the radical redesign of business processes to achieve dramatic improvements in cost, quality, service, and speed

• BPR vs. Downsizing

• BPR vs. TQM

• BPR & Information Systems

Task Forces, Teams, and Project Management

Project Manager – person responsible for coordinating activities of several departments for the completion of a specific project

Project Manager – person responsible for coordinating activities of several departments for the completion of a specific project

Task Force – a temporary team or committee formed to solve a specific short-term problem involving several departments

Cross-functional Team – furthers horizontal coordination by including members across the organization

10.11 Project Manager’s Relationships to Departments

Structure Follows Strategy

Business performance is influenced by structure

Strategic goals should drive structure:

– Differentiation Divisional Structure

– Innovation & Flexibility Horizontal Team Structure

Structure should facilitate strategic goals:

10.12 Factors Affecting Organization Structure (Nader & Tushman, 1997)

10.13 Relationship of Structural Approach to Strategy

• Knowledge, tools, techniques, and activities should match production activities

• Manufacturing firms can be categorized according to:– Small-batch and unit production– Large-batch and mass production– Continuous process production

• The technical complexity of each type of firm differs

Structure Fits the Technology

10.14 Manufacturing Technology and Organization Structure (Woodward, 1965)

• Discuss the fundamental characteristics of organizing, including such concepts as work specialization, chain of command, span of management, and centralization versus decentralization.

• Describe functional and divisional approaches to structure.• Explain the matrix approach to structure and its application to both

domestic and international organizations.• Describe the contemporary team and virtual network structures and

why they are being adopted by organizations.• Explain why organizations need coordination across departments

and hierarchical levels, and describe mechanisms for achieving coordination.

• Identify how structure can be used to achieve an organization’s strategic goals.

• Define production technology (manufacturing, service, and digital) and explain how it influences organization structure.

Review Questions

• Explain briefly Authority in management• Explain briefly Responsibility in management.• Explain briefly Accountability in management.• Delegation sometimes cause more problems. Explain briefly when

delegation become most effective.• In classical management theory, a manager is most effective when

the span of management is less than 7. Does the theory still apply to today’s business environment? Explain briefly why or why not.

• Explain the major difference between Tall Structure and Flat Structure, in term of the span of management.

• Explain the major difference between Tall Structure and Flat Structure, in term of the organizational efficiency.

Review Questions (continued)

• Explain briefly BPR.• Explain briefly the major difference between BPR & Downsizing.• Explain briefly the major difference between BPR & TQM.• Explain briefly why BPR has something to do with Information

Systems.

Review Questions (continued)

• What are advantages & disadvantages of Functional Approach?• What are advantages & disadvantages of Divisional Approach?• What are advantages & disadvantages of Matrix Approach?• What are advantages & disadvantages of Team Approach?• What are advantages & disadvantages of Virtual Network

Approach?

• During WWII, General Patton, General MacArthur were considered most brilliant commanders in the U.S. Army, but General Eisenhower was chosen to be a supreme commander to lead Allied Forces. Explain the major reason, from the managerial perspectives.

Review Questions (continued)

• Explain briefly the risk of outsourcing your business operations in a case of SONY and LG.

• Explain briefly the risk of outsourcing your business operations in terms of supply chain.

• Explain briefly the quality risk of outsourcing your business operations.

• Explain briefly the ethics issue of outsourcing your business operations, using an example of Kathie Lee Gifford case (1996).

• Explain briefly what problem Lee Iacocca, a new CEO of Chrysler found out, in term of organizational structure in early 1980s.

• Explain briefly why Chrysler needed coordination in the 1980s.

Review Questions (continued)