Module 12: Organization Development and Change - Restructuring Organizations
Restructuring Organizations
Organization structure describes how work is divided into subunits and coordinated for task completion.
Organization structures should align with:
Environment
Organization size
Technology
Organization strategy
Contingencies Influencing Structural Choices:
Environment
Organization size
Organization strategy
Technology
The Functional Structure
Organization is divided into functional units (marketing, operations, R&D, HR, finance).
Based on specialization, line and staff relations, span of control, authority, and responsibility.
Staffed by specialists within those functions.
Advantages of Functional Structure
Promotes technical specialization and development.
Supports flexible deployment and reduces duplication of scarce resources.
Enhances career development for specialists within departments.
Facilitates communication and performance due to shared expertise between superiors and subordinates.
Supports the development of common processes.
Disadvantages of Functional Structure
Emphasizes routine tasks, encouraging short time horizons.
Fosters narrow perspectives by managers, not broader business metrics.
Processes cut across functions, which can make coordination and scheduling difficult (the “whitespace” problem).
Obscures accountability for overall outcomes; managers and employees may not have a line of sight to the business.
Difficulty developing general management capability
Contingencies for Functional Structure
Stable and certain environment.
Small- to medium-size.
Routine technology, interdependence within functions.
Goals of efficiency and technical quality.
The Divisional Structure
Also known as product or self-contained-unit structure.
Groups organizational activities based on products, services, customers, or geography.
Resources and functions are set up as a division led by a product or division manager.
Requires a relatively large organization to support resource duplication.
Adapts well to uncertain conditions.
Coordinates technical interdependencies across functions; suited for product or service specialization and innovation.
Frequently used for global expansion.
Advantages of Divisional Structure
Recognizes sources of interdepartmental dependencies, reducing complexity.
Fosters an orientation toward divisional outcomes and clients.
Allows diversification and expansion of skills and training.
Ensures accountability by departmental managers, promoting delegation of authority and responsibility.
Heightens departmental cohesion and involvement in work.
Disadvantages of Divisional Structure
May use skills and resources inefficiently; coordination, sharing, and learning across divisions is difficult.
Limits career advancement by specialists to movements out of their departments.
Impedes specialists’ exposure to others within the same specialties; hard to create common processes.
Puts multiple-role demands on people, creating stress.
Line of sight is to the business and may promote divisional objectives over organizational objectives.
Contingencies for Divisional Structure
Unstable and uncertain environments.
Large-size.
Technological interdependence across functions.
Goals of product specialization and innovation.
The Matrix Structure
Aims to maximize the strengths and minimize the weaknesses of both functional and divisional structures.
Evolved in the aerospace industry due to changing customer demands and technological conditions.
Focuses on lateral relationships between specialized functions to develop a flexible system of resources and procedures.
Used widely in manufacturing, service, nonprofit, governmental, and professional organizations.
Contains three critical roles:
Top manager: heads and balances dual chains of command.
Matrix bosses: functional and product/program vice presidents who share subordinates.
“Two-boss” managers: report to two different matrix leaders and manage workers deployed to specific products or programs.
The Process Structure
Forms multidisciplinary teams around core processes (product development, order fulfillment, sales generation, customer support).
Eliminates hierarchical and departmental boundaries.
Characteristics of Process-Based Structures
Processes drive structure: organized around key processes.
Work adds value: simplifies and enriches work processes to increase efficiency.
Teams are fundamental: the key organizing feature.
Customers define performance: primary goal is customer satisfaction.
Teams are rewarded for performance: appraisal systems measure team performance against customer satisfaction and other goals.
Teams are tightly linked to suppliers and customers: direct relationships with vendors and customers.
Team members are well informed and trained: can work with customer and market data, financial information, and personnel/policy matters.
Advantages of Process-Based Structure
Clear line of sight focuses resources on customer satisfaction.
Improves speed and efficiency.
Responds rapidly to environmental change and customer requests.
Strong cross-functional collaboration and integration.
Develops broad knowledge and increases the ability to see total work flow.
Enhances employee involvement.
Lowers costs due to less overhead structure.
Disadvantages of Process-Based Structure
Changing to this structure can threaten middle managers and staff specialists.
Must balance competing demands for fluidity and efficiency.
Can be difficult to supervise multiple functions; requires changes in command-and-control mindsets.
Duplicates scarce resources; sharing learnings can be difficult.
Requires new skills and knowledge to manage lateral relationships and teams.
May take longer to make decisions in teams and result in internal focus.
Can be ineffective if wrong processes are identified.
Contingencies for Process-Based Structure
Uncertain and changing environments.
Moderate- to large-size.
No routine and highly interdependent technologies.
Customer-oriented goals.
The Customer-Centric Structure
Focuses subunits on creating solutions and satisfying key customers or customer groups.
Highlights differences between product-focused and customer-centric organizations.
Develops the best solution for the customer through customized bundles of products, services, support, and education.
Core structures focus attention and resources on customers with market-facing units organized around large individual customers or customer segment teams.
Supported by sophisticated customer relationship management processes and integrating mechanisms.
Advantages of Customer-Centric Structure
Presents one integrated face to the customer.
Generates a deep understanding of customer requirements.
Enables the organization to customize and tailor solutions for customers.
Builds a robust customer response capability.
Disadvantages of Customer-Centric Structure
Customer teams can be too inwardly focused.
Sharing learnings and developing functional skills is difficult.
Managing lateral relations between customer-facing and back office units is difficult because some processes are split apart.
Developing common processes in the front and back is problematic.
Clarifying the marketing function is problematic.
Contingencies for Customer-Centric Structure
Highly complex and uncertain environments.
Large organizations.
Goals of customer focus and solutions orientation.
Highly uncertain technologies.
The Network Structure
Manages relationships among multiple organizations or units, each specializing in a function or task.
Organizations are called shamrock organizations and virtual, modular, or cellular corporations.
Types of Networks
Internal market network: subunits act as independent profit centers, trading services/resources internally and externally (e.g., Asea Brown Boveri (ABB)).
Vertical market network: multiple organizations linked to a focal organization that coordinates resource movement (e.g., Nike).
Intermarket network: alliances among organizations in different markets (e.g., Japanese keiretsu, Korean chaebol, Mexican grupos).
Opportunity network: temporary constellation of organizations brought together for a single purpose (e.g., Li & Fung).
Characteristics of Network Structures
Vertical disaggregation: business functions (production, marketing, distribution) are broken into separate organizations.
Brokers: broker organizations or “process orchestrators” locate and assemble member organizations.
Coordinating mechanisms: rely on informal relationships, contracts, and market mechanisms rather than hierarchical arrangements.
Contingencies for Network Structure
Highly complex and uncertain environments.
Multiple competencies and flexible responses are needed.
Applies to organizations of all sizes.
Deals with complex tasks or problems involving high interdependencies across organizations.
Fits with goals emphasizing organization specialization and innovation.
Downsizing
Interventions aimed at reducing the size of the organization.
Decreasing employees through layoffs, attrition, redeployment, or early retirement.
Reducing units or managerial levels through divestiture, outsourcing, reorganization, or delayering.
Often involves layoffs and the rise of the contingent workforce.
Conditions Leading to Downsizing
Mergers and acquisitions (redundant jobs are eliminated).
Organization decline (loss of revenues, market share, technological and industrial change).
Implementation of new organizational structures (e.g., network-based structures).
Beliefs and social pressures that smaller is better.
Application Stages for Downsizing
Clarify the organization’s strategy: relate downsizing to strategic objectives.
Assess downsizing options and make relevant choices: workforce reduction, organization redesign, and systemic change.
Implement the changes: use implementation methods for reducing the size of the organization.
Address the needs of survivors and those who leave: support both remaining and departing employees.
Follow through with growth plans: implement renewal and growth processes.
Results of Downsizing
Negative productivity and employee consequences.
Increased stress and illness, loss of self-esteem, reduced trust and loyalty, and marriage and family disruptions.
Negative effects on financial performance (temporary initial improvements are not sustained).
Reengineering
Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in performance.
Transforms how organizations produce and deliver goods and services.
Applied in manufacturing, service industries, business firms, not-for-profits, government agencies, and diverse global settings.
Requires revolutionary change in how work structures are designed.
Leverages information technology to enable significant change in large-scale business processes.
Identifies and assesses core business processes and redesigns work to account for key task interdependencies.
Application Stages for Reengineering
Prepare the organization: clarify and assess the organization’s competitive environment, strategy, and objectives.
Fundamentally rethink how work gets done:
Identify and analyze core business processes (essential for strategic success; assign costs).
Define performance objectives (set challenging goals for speed, quality, cost, or other measures).
Design new processes (begin and end with customer needs, simplify, use the “best of what is”, attend to technical and social aspects, do not be constrained by past practice).
Restructure the organization around the new business processes.
Characteristics of Reengineered Organizations
Work units change from functional departments to process teams.
Jobs change from simple tasks to multidimensional work.
People’s roles change from controlled to empowered.
The focus of performance measures and compensation shifts from activities to results.
Organization structures change from hierarchical to flat.
Managers change from supervisors to coaches; executives change from score-keepers to leaders.
Results from Reengineering
Vary widely.
Performance improvements are associated with changes in structure, skills, information systems, roles, incentives, and shared values.