Strategic Management

Chapter 10

Organisational Structure and Design

What do managers do when they organise?

Organising = arranging and structuring work to accomplish the organisation’s goals – that is creating the organisation’s structure

Organisational Structure: the formal arrangement of jobs within an organisation

Organisational Design: changing or developing an organisation’s structure

Defining Organisation Structure and Design

Need structural design that o Best supports and facilitates employeeso Achieves efficiencyo Is flexible

Organising is a process through which managers design the organisation’s structure

The 6 Elements of Organisational Structure

Work Specialisation: dividing work activities into separate job tasks– Increased efficiency versus human diseconomies

Henry Ford Production Line is a form of work specialisation and this method worked up until around the 1960s

Human diseconomies: boredom, fatigue, stress, increased absenteeism

– An entire job is not done by an individual but is broken down into steps

– Managers have found that unlike in work specialisation, by giving employees a broader scope their productivity increased.

Departmentalisation: grouping like jobs back together– Functional Departmentalisation

Grouping jobs by function performed Can be used by all types of organisations Functions change to reflect objectives and work activities

– Product Departmentalisation Grouping jobs by product line

– Geographical Departmentalisation

Grouping jobs on the basis of their geographical region Can be useful if an organisation’s customers are scattered

over a large geographical area– Process Departmentalisation

Grouping jobs on the basis of product of customer flow– Customer Departmentalisation

Grouping jobs on the basis of specific and unique customers who have common needs

– E.g. a law firm might segment its staff on the basis of corporate or individual client

– Departmentalisation trend towards customer departmentalisation

– Cross-functional team: work teams composed of individuals from various functional specialities who work together

Chain of command: line of authority from top to bottom of organisation clarifying who reports to whom

– Helps employees determine with whom they should discuss problems

– Three concepts linked to chain of command: Authority

– Rights inherent in managerial position to tell others what to do and to expect them to be done

Responsibility– Obligation to perform assigned duties

Unity of command (Fayol’s 14 Principles of Management)– Idea that each person should report only to one

manager– Without unity of command conflicting demands and

priorities from multiple bosses can create problems (Thee concepts are considerably less relevant today

because of IT and employee empowerment) Span of Control – number of employees that a manager manages

– Depending on skills and abilities of manager and employees and work characteristics

– The traditional view = directly supervise no more that 5-6 subordinates

– Determines the number of levels of managers that exist– The Positives of wider spans of control =

More efficient Reduce costs Speed up decision making Increased flexibility Get closer to the customers Empower employees However, at a point they can reduce effectiveness

– Trend towards larger spans of control The more training and experience employees have, the less

direct supervision they need

– Companies are investing highly in training programs Centralisation-decentralisation: where decision making is concentrated

– Employee empowerment: giving employees more authority (power) to make decisions

– Centralisation: the degree to which decision making is concentrated at upper levels of the organisation

Little or no input from lower-level employees– Decentralisation: the degree to which lower-level employees

provide input or actually make decisions– An organisation is never completely centralised or decentralised– Trend towards decentralized decision making

Formalisation: extent to which employees’ jobs are standardised and controlled

– The extent to which an employee is guided by rules and regulations

– Many of today’s organisation’s are less reliant on strict rules to guide and regulate employee behaviour

What are the Factors that affect the type of organisational structure manager’s design?

Organisations are either more mechanistic or organic depending ono Mechanistic organisation: an organisational design that is rigid and

tightly controlled Characterised by:

High specialisation Rigid departmentalisation Narrow spans of control High formalisation Limited IT network Little decision-making participation by lower-level

employees Reinforces hierarchy Creates tall organisational structures with many layers and

levels Efficiency machines and rely heavily on rules Large corporations and government agencies

o Organic Organisation Flexible Highly adaptive Allows it to change rapidly

Contingency factorso Strategy:

An organisation’s structure should help it achieve its goals Structure should follow strategy

Alfred Chandler’s study into changes in corporate strategy leading to changes in an organisation’s structure

As organisation’s grow their strategies become more elaborate and ambitious and structure must change to support the strategy

3 Dimensions of Strategy-Structure Framework Innovation Strategy

o Reflects organisation’s pursuit of innovationso Requires more organic design

Cost Minimisation Strategyo Reflects organisation’s pursuit of tightly

controlled costso Requires more mechanistic design

Imitator Strategy o Reflects an organisation’ seeking to minimise

risk and maximise profit by copying market leaders

Uses structural characteristics of organic and mechanistic

o Size: Large organisations tend to be more mechanistic More…

Specialisation Departmentalisation Centralisation

However, past a certain point (around 2000 employees), size has less influence on structure

o Technology Woodward’s production technologies

Studied the extent to which structural design elements were related to organisational success

Organisations need to adapt their structure to their technology

The more routine the technology the more mechanistic the structure can be

o Unit production The production of items in units or

small batches Organic

o Mass production Described large-batch or mass-

production manufacturing Mechanistic

o Process Production Continuous process producers such as

oil and chemical refineries Organic

o Degree of environmental uncertainty

More uncertainty, more organic structure Environmental uncertainty is reduced through the

adjustments in the organisation’s structure The greater the uncertainty the higher the need for a

flexible, organic structure

What are the common types of Organisational Designs?

Traditionalo Simple

Low departmentalisation Wide spans of control Centralised authority Little formalisation

Most commonly used by small businesses Fast, flexible, inexpensive to maintain Not appropriate as organisation grows and relying

on one person is riskyo Functional

An organisational design that groups similar or related occupational specialities together

Cost saving advantages from specialisation Employees are grouped with others who have

similar tasks Functional specialists become insulated and

unaware of what other units are doing Pursuing functional goals can lead to manager losing

sight of what is best overall for the organisation Many medium sized organisation use this design E.g. HR, finance, operations etc..

o Divisional An organisation made up of separate, semi-autonomous

units or divisions Focuses on results – division managers are

responsible for what happens to their products and services

Duplication of activities and resources increases cost and reduces efficiency

Contemporaryo Team

An organisational structure in which the entire organisation is made up of work groups or teams

Advantages Employees are empowered Employees are more involved Reduces barriers among functional areas

Disadvantages

No clear chain of command Pressure on team to perform

o Matrix Matrix is a structure that assigns specialists from different

functional areas to work on projects, but who returns to their areas when the project is completed.

Creates a dual chain of command (unlike a unity of command)

o Employees have 2 managers – a product manager and a functional manager

o Both managers need to Communicate regularly Coordinate work demands Resolve conflicts together

Project is a structure in which employees continuously work on projects

As one project is completed employees move on to the next

No formal department that employees return to on completion of a project

No departmentalisation or rigid organisational hierarchy

Managers serve as mentors, facilitators, and coaches Advantages:

Fluid and flexible design that can respond to environmental changes

Faster decision making Disadvantages

Complexity of assigning people to projects Task and personality conflicts

o Boundaryless A structure that is not defined or limited to artificial

horizontal, vertical or external boundaries Remains flexible and unstructured

Can respond quickly to fast-moving marketplace Eliminates chain of command Replace departments with empowered teams

Virtual o An organisation that consists of small core

full-time employees and that hires outside specialists temporarily as needed to work on projects

Networko Uses its own employees to do some work

activities and networks of outside suppliers to provide other needed product components or work processes

o Sometimes known as Modular organisation

Allows organisations to concentrate on what they do best

And to contract out other activities to companies that can do those activities best

Advantages: Highly flexible Draws on talent wherever it is found

Disadvantages: Lack of control Communication difficulties

Design Challenges Managers Face Today

Keeping employees connectedo Finding a way to keep widely dispersed and mobile employees

connected to the organisation Organisational design issues in relation to sustainability

o The size of the organisation affects the implementation of sustainability operations

A large company needs more elaborate strategies, policies and structures

o Need to engage employees to be able to successfully implement and integrate sustainable practices

Building a learning organisationo Learning organisation: an organisation that has developed the

capacity to continuously learn, adapt and changeo It describes an organisational mindseto Revolves around…

Organisational Design Information Sharing

Share information and collaborateo Requires minimal structure and physical

barrierso Teams are an important feature and

empowered employees Share information OPENLY, ACCURATELY, TIMELY

MANNER Leadership

Creating a shared vision for the future and keeping employees working towards that vision

Culture Create a sense of community

Managing global structural issueso Relevant because of the global nature of modern businesso Structures and strategies worldwide are similar (the behaviour

within them is unique though)

o Have to consider the cultural implications of certain design elements

E.g. Formalisation (rules and bureaucratic mechanisms) may be more important in less economically developed countries because they have lower levels of professional education and skills.