MANAGING ORGANIZATIONS

Session 6: Impact of Size on Structure

PGP 2010-12 Section B

Term 1:June-September 2010

Sourav MukherjiAssociate Professor of Organization & StrategyIndian Institute of Management Bangalore, India

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Within the context of organizational structure, size refers to the total number of employees

Size can be measured ina variety of other ways

• Some other common measures of organization size are

• revenue

Some issues to consider whendealing with ‘total number’

• Full time employees versus part time workers

• Seasonality of business

DEFINING SIZE OF ORGANIZATION

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• revenue• total assets• geographical spread• ……

• Most of these measures mightbe correct to use in specific context

• Number of employees show a high correlation with other measures of size

• Seasonality of business• retailers often employtemporary workers duringfestival seasons

• Nature of industry• a steel plant with 2000 employees is ‘mini’ whilea parlor with 25 employeesis reasonably ‘large’

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• Economies of scale• Global reach• Bureaucratic• Managers

• Responsive, flexible• Regional reach• Lesser hierarchy• Entrepreneurial

LARGE SMALL

SMALL IS BEAUTIFUL BUT BIGGER IS BETTER

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Several reasons why organizations like to grow bigger in size

• Growth increases likelihood of future survival• Growth provides opportunity for executive advancement• Growth enables organizations to serve end to end needs of customers• Growth accepted as a sign of organizational health

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Increased Size

Greater specialization within units

Greater differentiation between units

More levels In

hierarchy

Needs for Needs for

Relationshipsmediated byother

INCREASE IN SIZE LEADS TO INCREASE IN BUREAUCRATIZATION

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Needs for intraunit

coordination

Needs for interunit

coordination

Larger unit size

Greater formalization

More planningand controlsystems

Increased bureaucratization of structure

other contingencyfactors like• technology• environment

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When size is small , Structure = function ( modal Technology)But, with increase in size, Structure = function (Size)

• multiple modal technology• impact of technology confined to unit level, other departments need to have standardization and formalization

While ‘size’ can be a primary variable, it might itself be influenced by‘technology’ and / or ‘industry

SIZE CAN REDUCE THE IMPACT OF OTHER VARIABLES

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‘technology’ and / or ‘industry

Industry

Technology

Size Structure• mass manufacturing• retailer• designer boutique

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Crisis of Autonomy

Crisis of Control

Crisis of Red Tape

Large

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Growth through DELEGATION

• Senior mgmt focus on strategy

Growth through COORDINATION

• Complex structure of line & staff functions

• Control systems• Rules &

regulations

Growth through COLLABORATION

• Matrix-like structures

• Task forces and liaison roles

• Culture control

Sizeof firm

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4

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Crisis of Leadership

STRUCTURAL CRISES WITH GROWTH

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Age of firm MatureYoungSmall

Growth through CREATIVITY

• High centralization

• Simple structure• Informal systems& communication

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Growth throughDIRECTION

• Functionalstructure

• Formal systems, processes &communication

2 focus on strategy• Operational

autonomy to lower mgmt

firm

7APEX CORPORATION

Why did Shikhar Ghosh make so many structural changes in Apex Corporation ?Were all the changes in structure necessary ? What did he achieve or fail to achieve with so many changes ? As a new CEO, what were the key challenges that he faced? How else could he have dealt with those challenges?

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have dealt with those challenges?

8RESTRUCTURING AS A SELF-REENFORCING LOOP

Actual environmentalturbulence

Consultants’rhetoric

Perception of environmental turbulence by

senior management

Organizationalrestructuring

Cognitive orderfor senior

management

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Businesspress

accounts

Source: “Some Unanticipated Consequences of Organizational Restructuring”W McKinley & A G Scherer, Academy of Management Review, 2000, Volume 25, No. 4, 735-752

9IMPACT OF ACQUISITION ON ORGANIZATIONAL STRUCTURE

If you were the CEO of EDS, how would you go about Apex acquisition ?

• Is the target being acquired under distress or is it being acquired becauseit is a great company and its acquisition would enrich the acquirer in terms of skills, capabilities, products and customers ?

• If the target is under distress such as running into losses, it will beeasier to bring about changes in structures and processes. Employees wouldbe more receptive to changes, because they have not being doing well

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be more receptive to changes, because they have not being doing well

• If the target has been doing well, they would like to retain their identity and their ways of doing things. Therefore it is better to start with financial acquisition and bringing about integration in products and markets ratherchanging internal structures and processes

• In either case, target would be apprehensive and there is need to address apprehensions through communication and confidence building measures such as investment made by Bharat Forge.