griffin chap12

CHAPTERCHAPTER

1212

Managing Organization Design

Managing Organization Design

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Learning ObjectivesLearning Objectives

After studying this chapter, you should be able to:– Identify the basic nature of organization design.– Identify the two basic universal perspectives on organization

design.– Identify and explain several situational influences on

organization design.– Discuss how an organization’s strategy and its design are

interrelated.– Describe the basic forms of organization design that

characterize many organizations.– Describe emerging issues in organization design.

After studying this chapter, you should be able to:– Identify the basic nature of organization design.– Identify the two basic universal perspectives on organization

design.– Identify and explain several situational influences on

organization design.– Discuss how an organization’s strategy and its design are

interrelated.– Describe the basic forms of organization design that

characterize many organizations.– Describe emerging issues in organization design.


Chapter OutlineChapter Outline• The Nature of Organization

Design• Universal Perspectives on

Organization Design– Bureaucratic Model– Behavioral Model

• Situational Influences on Organization

– Core Technology– Environment– Organization Size– Organizational Life Cycle

• Strategy and Organization Design– Corporate-Level Strategy– Business-Level Strategy– Organizational Functions

• The Nature of Organization Design

• Universal Perspectives on Organization Design

– Bureaucratic Model– Behavioral Model

• Situational Influences on Organization

– Core Technology– Environment– Organization Size– Organizational Life Cycle

• Strategy and Organization Design– Corporate-Level Strategy– Business-Level Strategy– Organizational Functions

• Basic Forms of Organization Design

– Functional (U-Form) Design– Conglomerate (H-Form) Design– Divisional (M-Form) Design

• Matrix Design– Hybrid Design

• Emerging Issues in Organization Design

– The Team Organization– The Virtual Organization– The Learning Organization– Issues in International

Organization Design

• Basic Forms of Organization Design

– Functional (U-Form) Design– Conglomerate (H-Form) Design– Divisional (M-Form) Design

• Matrix Design– Hybrid Design

• Emerging Issues in Organization Design

– The Team Organization– The Virtual Organization– The Learning Organization– Issues in International

Organization Design


The Nature of Organization The Nature of Organization DesignDesign

• Organization Design– The overall set of structural elements and the relationships

among those elements used to manage the total organization.

– A means to implement strategies and plans to achieve organizational goals.

• Organization Design Concepts– Organizations are not designed and then left intact.

Organizations are in a continuous state of change.– Organization design for larger organizations is extremely

complex and has many nuances and variations.

• Organization Design– The overall set of structural elements and the relationships

among those elements used to manage the total organization.

– A means to implement strategies and plans to achieve organizational goals.

• Organization Design Concepts– Organizations are not designed and then left intact.

Organizations are in a continuous state of change.– Organization design for larger organizations is extremely

complex and has many nuances and variations.


Universal Perspectives onUniversal Perspectives onOrganization DesignOrganization Design

• Bureaucratic Model (Max Weber)– A logical, rational, and efficient organization design based on

a legitimate and formal system of authority.– Characteristics

• Adopt a division of labor with each position filled by an expert.

• Create a consistent set of rules to ensure uniformity in task performance.

• Establish a hierarchy of positions, which creates a chain of command.

• Engage in impersonal management; with appropriate social distance between superiors and subordinates.

• Employment and advancement to be based on technical expertise, and employees protected from arbitrary dismissal.

• Bureaucratic Model (Max Weber)– A logical, rational, and efficient organization design based on

a legitimate and formal system of authority.– Characteristics

• Adopt a division of labor with each position filled by an expert.

• Create a consistent set of rules to ensure uniformity in task performance.

• Establish a hierarchy of positions, which creates a chain of command.

• Engage in impersonal management; with appropriate social distance between superiors and subordinates.

• Employment and advancement to be based on technical expertise, and employees protected from arbitrary dismissal.


Bureaucratic ModelBureaucratic Model

• Advantages– Efficiency in function due to well-defined practices and

procedures.– Organizational rules prevent favoritism.– Recognition of and requirement for expertise stresses the

value of an organization’s employees.

• Disadvantages– Organizational inflexibility and rigidity due to rules and

procedures.– Neglects the social and human processes within the

organization.– Belief in “one best way” to design an organization does not

apply to all organizations and their environments.

• Advantages– Efficiency in function due to well-defined practices and

procedures.– Organizational rules prevent favoritism.– Recognition of and requirement for expertise stresses the

value of an organization’s employees.

• Disadvantages– Organizational inflexibility and rigidity due to rules and

procedures.– Neglects the social and human processes within the

organization.– Belief in “one best way” to design an organization does not

apply to all organizations and their environments.


SystemSystem

11

ExploitativeExploitative

AuthoritativeAuthoritative

Job-centered Job-centered leader leader

behaviorbehavior

SystemSystem

22

BenevolentBenevolent

AuthoritativeAuthoritative

SystemSystem

33

ConsultativeConsultative

SystemSystem

44

ParticipativeParticipative

Employee-Employee-centered leader centered leader

behaviorbehavior

Behavioral Model: Likert SystemBehavioral Model: Likert System

• Renesis Likert– Organizations that pay attention to work groups and

interpersonal processes are more effective than bureaucratic organizations.

• Renesis Likert– Organizations that pay attention to work groups and

interpersonal processes are more effective than bureaucratic organizations.


Situational Influences Situational Influences onon

Organization Design Organization Design

ORGANIZATIONORGANIZATIONDESIGNDESIGN

Organizational

OrganizationalSizeSize

Organizational

Organizational

Life Cycle

Life Cycle

Core Technology

Core Technology

Environment

Environment


Situational Influences onSituational Influences onOrganization Design (cont’d)Organization Design (cont’d)

• Core Technology– Technology is the conversion processes used to transform

inputs into outputs.– A core technology is an organization’s most important

technology.– Joan Woodward initially sought a correlation between

organization size and design; instead, she found a potential relationship between technology and design.

– As the complexity of technology increases, so do the number of levels of management.

• Core Technology– Technology is the conversion processes used to transform

inputs into outputs.– A core technology is an organization’s most important

technology.– Joan Woodward initially sought a correlation between

organization size and design; instead, she found a potential relationship between technology and design.

– As the complexity of technology increases, so do the number of levels of management.



• Woodward’s Basic Forms of Technology– Unit or Small-Batch Technology

• Produce custom-made products to customer specifications, or else produce in small quantities, similar to Likert’s System 4 organization.

– Large Batch/Mass Production• Uses assembly-line production methods to manufacture large

quantities of products; resembles Likert’s System 1.

– Continuous Process• Use continuous-flow processes to

convert raw materials by process or machine into finished products; resembles Likert’s System 4.

• Woodward’s Basic Forms of Technology– Unit or Small-Batch Technology

• Produce custom-made products to customer specifications, or else produce in small quantities, similar to Likert’s System 4 organization.

– Large Batch/Mass Production• Uses assembly-line production methods to manufacture large

quantities of products; resembles Likert’s System 1.

– Continuous Process• Use continuous-flow processes to

convert raw materials by process or machine into finished products; resembles Likert’s System 4.



• Burns and Stalker– Forms of the organizational environment

• Stable environments that remain constant over time.

• Unstable environments subject to uncertainty and rapid change.

– Organization Designs• Mechanistic organizations that are similar to bureaucratic or System 1

models; found most frequently in stable environments.

• Organic organizations that are flexible and informal models; usually found in unstable and unpredictable environments.

• Burns and Stalker– Forms of the organizational environment

• Stable environments that remain constant over time.

• Unstable environments subject to uncertainty and rapid change.

– Organization Designs• Mechanistic organizations that are similar to bureaucratic or System 1

models; found most frequently in stable environments.

• Organic organizations that are flexible and informal models; usually found in unstable and unpredictable environments.



• Lawrence and Lorsch– Differentiation

• The extent to which the organization is broken down into subunits.

– Integration• The degree to which the various subunits must work together in a

coordinated fashion.

• Lawrence and Lorsch– Differentiation

• The extent to which the organization is broken down into subunits.

– Integration• The degree to which the various subunits must work together in a

coordinated fashion.



• Organizational Size– Defined as the total number of full-time or full-time equivalent

employees– Research findings:

• Small firms tend to focus on their core technology.

• Large firms have more job specialization, standard operating procedures, more rules and regulations, and are more decentralized.

• Organizational Life Cycle– A progression through which organizations evolve as they

grow and mature—birth, youth, midlife, and maturity.

• Organizational Size– Defined as the total number of full-time or full-time equivalent

employees– Research findings:

• Small firms tend to focus on their core technology.

• Large firms have more job specialization, standard operating procedures, more rules and regulations, and are more decentralized.

• Organizational Life Cycle– A progression through which organizations evolve as they

grow and mature—birth, youth, midlife, and maturity.


Strategy and Organization DesignStrategy and Organization Design

• Corporate-Level Strategy– Single-product strategy– Related or unrelated diversification– Portfolio approach to managing strategic business units

• Corporate-Level Strategy– Single-product strategy– Related or unrelated diversification– Portfolio approach to managing strategic business units


Strategy and Organization Design Strategy and Organization Design (cont’d)(cont’d)

• Business-Level Strategy– Defender– Prospecting – Analyzer

• Generic Competitive Strategies– Differentiation– Cost leadership– Focus

• Business-Level Strategy– Defender– Prospecting – Analyzer

• Generic Competitive Strategies– Differentiation– Cost leadership– Focus


Strategy and Organization Design Strategy and Organization Design (cont’d)(cont’d)

• Organizational Functions– Major functions of the organization (e.g., marketing, finance,

research and development, and manufacturing) influencean organization’s design.

• Organizational Functions– Major functions of the organization (e.g., marketing, finance,

research and development, and manufacturing) influencean organization’s design.


Basic Forms of Organization Basic Forms of Organization DesignDesign

• Functional or U-form (Unitary) Design– Organizational members and units are grouped into

functional departments such as marketing and production.– Coordination is required across all departments.– Design approach resembles functional departmentalization in

its advantages and disadvantages.

• Functional or U-form (Unitary) Design– Organizational members and units are grouped into

functional departments such as marketing and production.– Coordination is required across all departments.– Design approach resembles functional departmentalization in

its advantages and disadvantages.


Functional or U-Form Design for aFunctional or U-Form Design for aSmall Manufacturing CompanySmall Manufacturing Company

CEO

Vice president,

operations

Vice president,

marketing

Vice president,

finance

Vice president,

human resources

Vice president,

R&D

Scientific

director

Labor relations

director

Plant human

resource manager

Controller

Accounting

supervisor

Regional

sales managers

District

sales managers

Plant

managers

Shift

supervisorsLab manager

Figure 12.1


Basic Forms of Organization Design Basic Forms of Organization Design (cont’d)(cont’d)

• Conglomerate or H-form (Holding) Design– Organization consists of a set of unrelated businesses with

a general manager for each business.– Holding-company design is similar to product

departmentalization.– Coordination is based on the allocation of resources across

companies in the portfolio.– Design has produced only average to weak financial

performance; has been abandoned for other approaches.

• Conglomerate or H-form (Holding) Design– Organization consists of a set of unrelated businesses with

a general manager for each business.– Holding-company design is similar to product

departmentalization.– Coordination is based on the allocation of resources across

companies in the portfolio.– Design has produced only average to weak financial

performance; has been abandoned for other approaches.


Conglomerate (H-Form) Design Conglomerate (H-Form) Design at Pearson PLCat Pearson PLC

CEO

Publishingoperations

Entertainmentoperations

Oil servicesoperations

Fine chinaoperations

Periodicalsoperations

Investmentbankingoperations

Figure 12.2



• Divisional or M-form (Multidivisional) Design– An organizational arrangement based on multiple businesses

in related areas operating within a larger organizational framework.

– The design results from a strategy of related diversification.– Some activities are extremely decentralized down to the

divisional level; others are centralized at the corporate level.– The largest advantages of the M-form design are the

opportunities for coordination and sharing of resources.– Successful M-form organizations can out perform U-form and

H-form organizations.

• Divisional or M-form (Multidivisional) Design– An organizational arrangement based on multiple businesses

in related areas operating within a larger organizational framework.

– The design results from a strategy of related diversification.– Some activities are extremely decentralized down to the

divisional level; others are centralized at the corporate level.– The largest advantages of the M-form design are the

opportunities for coordination and sharing of resources.– Successful M-form organizations can out perform U-form and

H-form organizations.


Multidivisional (M-form) DesignMultidivisional (M-form) Designat The Limited, Inc.at The Limited, Inc.

CEO

Bath &BodyWorks

Structure The Limited ExpressLernerNew York

Victoria’sSecret

Otherchains

Figure 12.3



• Matrix Design– An organizational arrangement based on two overlapping

bases of departmentalization (e.g., functional departmentsand product categories).

– A set of product groups or temporary departments are superimposed across the functional departments.

– Employees in the resulting matrix are members of both their departments and a project team under a project manager.

– The matrix creates a multiple command structure in which an employee reports to both departmental and project managers.

– A matrix design is useful when:• There is strong environmental pressure.

• There are large amounts of information to be processed.

• There is pressure for shared resources.

• Matrix Design– An organizational arrangement based on two overlapping

bases of departmentalization (e.g., functional departmentsand product categories).

– A set of product groups or temporary departments are superimposed across the functional departments.

– Employees in the resulting matrix are members of both their departments and a project team under a project manager.

– The matrix creates a multiple command structure in which an employee reports to both departmental and project managers.

– A matrix design is useful when:• There is strong environmental pressure.

• There are large amounts of information to be processed.

• There is pressure for shared resources.



• Matrix Design Advantages– Enhances organizational flexibility.– Involvement creates high motivation and increased

organizational commitment.– Team members have the opportunity to learn new skills.– Provides an efficient way for the organization to use its

human resources.– Team members serve as bridges to their departments for the

team.– Useful as a vehicle for decentralization.

• Matrix Design Advantages– Enhances organizational flexibility.– Involvement creates high motivation and increased

organizational commitment.– Team members have the opportunity to learn new skills.– Provides an efficient way for the organization to use its

human resources.– Team members serve as bridges to their departments for the

team.– Useful as a vehicle for decentralization.



• Matrix Design Disadvantages– Employees are uncertain about reporting relationships.– Managers may view design as an anarchy in which they have

unlimited freedom.– The dynamics of group behavior may lead to slower decision

making, one-person domination, compromise decisions, or a loss of focus.

– More time may be required for coordinating task-related activities.

• Matrix Design Disadvantages– Employees are uncertain about reporting relationships.– Managers may view design as an anarchy in which they have

unlimited freedom.– The dynamics of group behavior may lead to slower decision

making, one-person domination, compromise decisions, or a loss of focus.

– More time may be required for coordinating task-related activities.


A Matrix OrganizationA Matrix Organization

Employees

CEO

Projectmanager B

Projectmanager C

Vice president,engineering

Vice president,production

Vice president,finance

Vice president,marketing

Projectmanager A

Figure 12.4



• Hybrid Designs– An organizational arrangement based on two or more common

forms of organization design.– An organization may have a mixture of related divisions and a

single unrelated division.– Most organizations use a modified form of organization design

that permits it to have sufficient flexibility to make adjustments for strategic purposes.

• Hybrid Designs– An organizational arrangement based on two or more common

forms of organization design.– An organization may have a mixture of related divisions and a

single unrelated division.– Most organizations use a modified form of organization design

that permits it to have sufficient flexibility to make adjustments for strategic purposes.


Emerging Issues in Organization Emerging Issues in Organization DesignDesign

• The Team Organization– An approach to organizational design that relies almost

exclusively on project-type teams, with little or no underlying functional hierarchy.

• The Virtual Organization– An organizational design that has little or no format structure

with few permanent employees, leased facilities, and outsourced basic support services.

– It may conduct its business entirely on-line and exists only to meet for a specific and present need.

• The Learning Organization– An organization that works to facilitate the lifelong learning

and development of its employees while transforming itself to respond to changing demands and needs.

• The Team Organization– An approach to organizational design that relies almost

exclusively on project-type teams, with little or no underlying functional hierarchy.

• The Virtual Organization– An organizational design that has little or no format structure

with few permanent employees, leased facilities, and outsourced basic support services.

– It may conduct its business entirely on-line and exists only to meet for a specific and present need.

• The Learning Organization– An organization that works to facilitate the lifelong learning

and development of its employees while transforming itself to respond to changing demands and needs.


Issues in InternationalIssues in InternationalOrganization DesignOrganization Design

• The trend toward internationalization of business• How to design a firm to deal most effectively with

international forces and to compete in global markets:– Create an international division?– Establish an international operating group?– Make international operations an autonomous subunit?

• The trend toward internationalization of business• How to design a firm to deal most effectively with

international forces and to compete in global markets:– Create an international division?– Establish an international operating group?– Make international operations an autonomous subunit?


Common Common Organization Organization Designs for Designs for

International International OrganizationsOrganizations

CEO

A. Separate International Division

Production Marketing FinanceInternational

division

B. Location Departmentalization

NorthAmericanoperations

Europeanoperations

Asianoperations

CEO

Figure 12.5a


Common Organization Designs forCommon Organization Designs forInternational Organizations (cont’d)International Organizations (cont’d)

D. Multidivisional Structure

CEO

Subsidiary A(in Germany)

Subsidiary C(in France)

Subsidiary E(in Taiwan)

Subsidiary D(in Japan)

Subsidiary B(in UnitedStates)

C. Product Departmentalization

Productmanager A

CEO

Productmanager B

Productmanager C

AsiaNorthAmerica

Europe

Figure 12.5b


Mintzberg’s StructuresMintzberg’s Structures

According to Henry Mintzberg the structural configuration of an organization can be differentiated by:

– Prime Coordinating Mechanism

– Key Part of Organization

– Type of Decentralization

According to Henry Mintzberg the structural configuration of an organization can be differentiated by:

– Prime Coordinating Mechanism

– Key Part of Organization

– Type of Decentralization



• Prime Coordinating Mechanism

– Direct Supervision

One individual is responsible for the work of others

– Standardization of work processes

The content of the work is specified or programmed – Standardization of skills

Explicitly specifies the kind of training necessary to do the work

– Standardization of outputs

Specifies the results, or output, of the work

– Mutual adjustment

Coordinates activities through informal communications

• Prime Coordinating Mechanism

– Direct Supervision

One individual is responsible for the work of others

– Standardization of work processes

The content of the work is specified or programmed – Standardization of skills

Explicitly specifies the kind of training necessary to do the work

– Standardization of outputs

Specifies the results, or output, of the work

– Mutual adjustment

Coordinates activities through informal communications



• Key Part of Organization

– Strategic apex

Top management and its support staff

– Technostructure

Analysts such as industrial engineers, accountants, planners, and human resource managers

– Operating core

Workers who actually carry out the organization’s tasks

– Middle line

Middle and lower-level management

– Support staff

Units that provide support to the organization outside of the operating workflow (for example, legal counsel, executive dining room staff, and consultants.)

• Key Part of Organization

– Strategic apex

Top management and its support staff

– Technostructure

Analysts such as industrial engineers, accountants, planners, and human resource managers

– Operating core

Workers who actually carry out the organization’s tasks

– Middle line

Middle and lower-level management

– Support staff

Units that provide support to the organization outside of the operating workflow (for example, legal counsel, executive dining room staff, and consultants.)



• Types of Decentralization

– Vertical and horizontal centralization

– Limited horizontal decentralization

– Vertical and horizontal decentralization

– Limited vertical decentralization

– Selective decentralization

• Types of Decentralization

– Vertical and horizontal centralization

– Limited horizontal decentralization

– Vertical and horizontal decentralization

– Limited vertical decentralization

– Selective decentralization


Structural ConfigurationStructural Configuration

The Simple Structure

The simple structure uses direct supervision as its primary

coordinating mechanism, has as its most important part its strategic apex, and employs vertical and horizontal centralization. Relatively small corporations controlled by aggressive entrepreneurs, new government departments, and medium-sized retail stores are all likely to exhibit a simple structure. These organizations tend to be relatively young. The CEO (often the owner) retains much of the decision-making power. The organization is relatively flat and does not emphasize specialization. Many smaller U-form organizations are structured in this fashion. Trilogy Software would be an example of a firm using this approach.

The Simple Structure

The simple structure uses direct supervision as its primary

coordinating mechanism, has as its most important part its strategic apex, and employs vertical and horizontal centralization. Relatively small corporations controlled by aggressive entrepreneurs, new government departments, and medium-sized retail stores are all likely to exhibit a simple structure. These organizations tend to be relatively young. The CEO (often the owner) retains much of the decision-making power. The organization is relatively flat and does not emphasize specialization. Many smaller U-form organizations are structured in this fashion. Trilogy Software would be an example of a firm using this approach.



The Machine Bureaucracy

The machine bureaucracy uses standardization of work processes as

its prime coordinating mechanism; the technostructure is its most important part; and limited horizontal decentralization is established. The machine bureaucracy is quite similar to Burns and Stalker’s mechanistic design discussed in Chapter 12 of Griffin’s Management, Seventh Edition. Examples include McDonald’s and most large branches of the U.S. government. This kind of organization is generally mature in age, and its environment is usually stable and predictable. A high level of task specialization and a rigid pattern of authority are also typical. Spans of management are likely to be narrow, and the organization is usually tall. Large U-form organizations are also likely to fall into this category.

The Machine Bureaucracy

The machine bureaucracy uses standardization of work processes as

its prime coordinating mechanism; the technostructure is its most important part; and limited horizontal decentralization is established. The machine bureaucracy is quite similar to Burns and Stalker’s mechanistic design discussed in Chapter 12 of Griffin’s Management, Seventh Edition. Examples include McDonald’s and most large branches of the U.S. government. This kind of organization is generally mature in age, and its environment is usually stable and predictable. A high level of task specialization and a rigid pattern of authority are also typical. Spans of management are likely to be narrow, and the organization is usually tall. Large U-form organizations are also likely to fall into this category.



The Professional Bureaucracy

The third form of organization design suggested by Mintzberg is the

professional bureaucracy. Examples of this form of organization include universities, general hospitals, and public accounting firms. The professional bureaucracy uses standardization of skills as its prime coordinating mechanism, has the operating core as its most important part, and practices both vertical and horizontal decentralization. It has relatively few middle managers. Further, like some staff managers, its members tend to identify more with their professions than with the organization. Coordination problems are common.

The Professional Bureaucracy

The third form of organization design suggested by Mintzberg is the

professional bureaucracy. Examples of this form of organization include universities, general hospitals, and public accounting firms. The professional bureaucracy uses standardization of skills as its prime coordinating mechanism, has the operating core as its most important part, and practices both vertical and horizontal decentralization. It has relatively few middle managers. Further, like some staff managers, its members tend to identify more with their professions than with the organization. Coordination problems are common.



The Divisionalized Form

The divisionalized form, Mintzberg’s fourth design, exhibits

standardization of output as its prime coordinating mechanism, the middle line as its most important part, and limited vertical decentralization. This design is the same as both the H-form and the M-form described earlier. Limited and Disney are illustrative of this approach. Power is generally decentralized down to middle management—but no further. Hence each division itself is relatively centralized and tends to structure itself as a machine bureaucracy. As might be expected, the primary reason for an organization to adopt this kind of design is market diversity.

The Divisionalized Form

The divisionalized form, Mintzberg’s fourth design, exhibits

standardization of output as its prime coordinating mechanism, the middle line as its most important part, and limited vertical decentralization. This design is the same as both the H-form and the M-form described earlier. Limited and Disney are illustrative of this approach. Power is generally decentralized down to middle management—but no further. Hence each division itself is relatively centralized and tends to structure itself as a machine bureaucracy. As might be expected, the primary reason for an organization to adopt this kind of design is market diversity.



The Adhocracy

The adhocracy uses mutual adjustment as a means of coordination,

has at its most important part the support staff, and maintains selective patterns of decentralization. Most organizations that use a fully-developed matrix design are adhocracies. An adhocracy avoids specialization, formality, and unit of command. Even the term itself, derived from “ad hoc,” suggests a lack of formality. Sun Microsystems is an excellent example of an adhocracy.

The Adhocracy

The adhocracy uses mutual adjustment as a means of coordination,

has at its most important part the support staff, and maintains selective patterns of decentralization. Most organizations that use a fully-developed matrix design are adhocracies. An adhocracy avoids specialization, formality, and unit of command. Even the term itself, derived from “ad hoc,” suggests a lack of formality. Sun Microsystems is an excellent example of an adhocracy.


Mintzberg’s Five DesignsMintzberg’s Five Designs

griffin chap12

Business

prime coordinating

finance vice

organizational

organization

common organization

organization

organizational

core technology