Organization Structures and Design

Empowerment

• Empowerment requires trust, allowing others to make decisions and use discretion.

• Lack of empowerment can lead to individuals trying to do too much, increasing stress and risking missed deadlines.

• Control anxiety can cause individuals to overwork themselves.

• Synergy, achieved through the collaboration of many, is enhanced by empowerment.

• Empowerment involves working with others and allowing them to utilize their skills.

Empowerment Quick Test

• The test assesses beliefs and behaviors in team situations.

• It contrasts the belief that it's faster to do things alone with the idea that people learn from mistakes.

• It addresses the fear of losing control versus the understanding that many are willing to take on more work.

Building Management Skills and Competencies

• Further reflection on empowerment.

• Self-assessment: Empowering Others.

• Team Exercise: Designing a Network University.

• Solving Career Situations for Organizing.

• Analyzing the Case Study: “Nike: Spreading Out to Win the Race.”

Organization Structures and Designs

Learning Dashboard

• Organizing as a Management Function

• What is organization structure?

  • Formal structures

  • Informal structures

• Traditional Organization Structures

  • Functional structures

  • Divisional structures

  • Matrix structures

• Horizontal Organization Structures

  • Team structures

  • Network structures

  • Boundaryless structures

• Organizational Designs

  • Contingency in organizational design

  • Mechanistic and organic designs

  • Trends in organizational designs

Organizing as a Management Function

• Organizing arranges people and resources to work toward a goal.

• Creating high-performing organizations is challenging.

• There is no one best way to organize; the ideal form depends on circumstances.

• Organizations often reorganize to improve performance.

• Henry Mintzberg emphasizes the importance of understanding how organizations work.

• Changes in job assignments and reporting relationships can cause confusion.

• Critical questions include: "Who's in charge?" "How do the parts connect?" "How should processes and people come together?" "Whose ideas have to flow where?"

• These questions are critical issues about organization structures and how well they meet an organization's performance needs.

Organizing as a Management Function

• Organizing involves arranging people and resources to achieve a goal.

• It creates a division of labor and coordinates results for a common purpose.

• Figure 11.1 illustrates organizing's role in management.

• Managers implement plans by clarifying jobs and relationships.

• Organizing identifies who does what, who is in charge, and how people relate.

• Managers must choose the best organizational form to fit the strategy and situation.

What Is Organization Structure?

• Organization structure is how an organization's parts are arranged.

• It includes tasks, workflows, reporting relationships, and communication channels.

• A good structure allocates tasks and coordinates performance.

• Effective structures help implement strategy.

• Creating good structures is challenging.

Formal Structures

• Organization charts diagram reporting relationships and work positions.

• They show the formal structure, or how the organization is intended to function.

• Organization charts show:

  • Division of work

  • Supervisory relationships

  • Communication channels

  • Major subunits

  • Levels of management

• Organization charts can be outdated or confusing.

• Carol Bartz found Yahoo!'s chart like a "Dilbert cartoon," needing management.

Informal Structures

• Informal structure is the unofficial working relationships among members.

• It shows who interacts with whom, regardless of formal titles.

• Lines cross levels and move from side to side.

• Informal structure includes coffee meetings, exercise groups, and friendship cliques.

• Understanding informal structure is essential.

Informal Structures and the Shadow Organization

• Social network analysis identifies informal structures and social relationships.

• It asks people whom they turn to for help and with whom they communicate regularly.

• Lines drawn between people show relationship frequency and type.

• The result is a social network map showing how work gets done.

• This information updates organization charts and legitimizes informal networks.

• Informal structures allow contacts, stimulate learning, and provide emotional support.

• They can spread rumors, carry inaccurate information, resist change, and divert efforts.

• Massive job losses led to increased eavesdropping and rumors.

• Informal structures can create "in" and "out" groups, affecting engagement.

• Some American managers in Japanese firms felt excluded from the "shadow cabinet."

Traditional Organization Structures

• Performance improves when tasks are divided and people specialize.

• Functional, divisional, and matrix structures are traditional alternatives.

Traditional Organization Structures

• Figure 11.2 shows functional structures in different organizations.

Functional Structures

• Functional structures group those with similar skills and tasks into work units.

• Members share expertise, interests, and responsibilities.

• Figure 11.2 shows functional structures in business firms, banks, and hospitals.

• Manufacturing problems go to the production vice president, marketing problems to the marketing vice president, and so on.

Advantages of Functional Structures

• Functional structures suit organizations with few products or services.

• They work best in stable environments with predictable problems.

• Advantages:

  • Economies of scale

  • Task assignments aligned with expertise

  • High-quality problem solving

  • Skill development within functions

  • Clear career paths

Disadvantages of Functional Structures

• Functional Structures result in difficulties in pinpointing responsibilities for things like cost containment, product or service quality, and innovation.

Functional Chimneys Problem

• The functional chimneys or functional silos problem is a lack of communication, coordination, and problem-solving across functions.

• Functions become formalized in the organization chart and in people's mindsets.

• A sense of purpose is lost, and viewpoints become narrow.

• Yahoo!'s homepage people didn't want to drive traffic to the finance page.

• Managers must correct these problems to avoid harm.

Divisional Structures

• Divisional structures group people working on the same product/process, serving similar customers, or located in the same area.

• These structures are common in complex organizations with diverse operations.

• The goal is to overcome the disadvantages of functional structures, like the functional chimneys problem.

• Toyota changed to a divisional structure in North America, uniting engineering, manufacturing, and sales.

Product Structures

• Product structures group jobs and activities focused on a single product or service.

• They link costs, profits, problems, and successes with a central point of accountability.

• Managers respond to market demands and customer tastes.

• Product structures extend into global operations.

• Fiat used product divisions after taking over Chrysler.

• General Motors is organized around Buick, Cadillac, Chevrolet, and GMC.

• The goal is to focus technology and resources on core auto brands.

Geographical Structures

• Geographical structures group jobs and activities performed in the same location.

• They differentiate products/services in various locations.

• They help global companies focus on unique cultures and requirements.

• United Parcel Service changed from a product structure to geographical divisions (Americas and Europe/Asia).

• Each area handles its own logistics, sales, and business functions.

Customer Structures

• Customer structures group jobs and activities serving the same customers/clients.

• The goal is to best serve the special needs of different customer groups.

• This is common in the consumer products industry.

• 3M Corporation focuses on consumer and office, specialty materials, industrial, health care, electronics and communications, and safety.

• Banks use them to give separate attention to consumer and commercial customers for loans.

• Government agencies use customer structures to serve different client populations.

Process Structures

• A work process is a group of related tasks that creates value for a customer.

• A process structure groups jobs and activities that are part of the same processes.

• Figure 11.3 shows product-purchasing teams and order-fulfillment teams for a mail-order catalog business.

Advantages and Disadvantages of Divisional Structures

• Organizations use divisional structures to avoid the functional chimneys problem.

• Advantages:

  • More flexibility in responding to environmental changes.

  • Improved coordination

  • Clear responsibility

  • Expertise focused

  • Greater ease in changing size

• Disadvantages:

  • Reduced economies of scale

  • Increased costs

  • Unhealthy rivalries

Matrix Structures

• The matrix structure combines functional and divisional structures.

• It gains advantages and minimizes disadvantages of each.

• Permanent teams cut across functions to support specific products, projects, or programs.

• Workers belong to a functional group and a product/project team.

• They report to two bosses.

• Matrix organizations are used in manufacturing, service industries, professional fields, and the nonprofit sector.

• They offer flexibility to deal with regional differences and handle multiple needs.

Advantages and Disadvantages of Matrix Structures

• Benefits:

  • Better communication

  • Improved decision making

  • Increased flexibility

  • Better customer service

  • Better performance accountability

  • Improved strategic management

• Disadvantages:

  • Power struggles

  • Task confusion

  • Time-consuming meetings

  • "Groupitis"

  • Higher costs

Horizontal Organization Structures

• The matrix structure integrates functions.

• Horizontal structures use teams and IT to improve communication and flexibility.

• Teams and technology decrease hierarchy and empower people.

• Younger workers value systems and are driving the movement toward horizontal organizations.

Team Structures

• Team structures use permanent and temporary teams to improve lateral relations.

• Cross-functional teams include members from different work areas.

• Team structures break down functional chimneys.

• Project teams complete specific tasks and disband.

Advantages and Disadvantages of Team Structures

• Advantages:

  • Breaks down barriers

  • Mobilizes talents

  • Improves decisions

  • Boosts morale

• Disadvantages:

  • Conflicting loyalties

  • Time management issues

  • Group process issues
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Network Structures

• Network structures have a core of full-time employees surrounded by outside contractors and partners.

• They lower costs and improve flexibility.

• The organization employs a minimum staff and contracts out as much work as possible.

• Strategic alliances are cooperation agreements with other firms.

• Some are outsourcing alliances; others are supplier alliances.

• Residential colleges turning dormitories over to private businesses are an example.

• Figure 11.6 shows a network structure for a mail-order company.

• The firm is small, structured as a network of outsourcing and partner relationships linked by IT.

• Merchandise is designed, manufactured, packaged, stocked, shipped, and accounted for via contracts.

• The catalog is produced with other firms.

Advantages and Disadvantages of Network Structures

• Network structures are lean and streamlined, helping organizations stay cost-competitive.

• They allow outsourcing and contracting specialized business functions.

• They create interesting jobs within the operating core.

• Disadvantages:

  • Controlling and coordinating networks is complex.

  • The system suffers if one part breaks down.

  • The organization may lose control.

  • Lack of loyalty among contractors.

  • Aggressive outsourcing can be dangerous.

  • Delta Air shut down call centers in India due to communication issues.

Boundaryless Structures

• Boundaryless organizations eliminate internal and external boundaries.

• They combine team and network structures with "temporariness."

• The configuration adjusts to pressures and circumstances.

• Spontaneous teamwork and communication replace formal lines of authority.

• Meetings and information sharing happen continuously.

• People work in teams that form and disband.

• There is little hierarchy but lots of empowerment.

• Knowledge sharing is a goal.

• PricewaterhouseCoopers uses a virtual-learning network.

• The virtual organization operates as a shifting network of alliances using IT and the Internet.

• Alliances are called into action to meet specific needs.

• The mix shifts continuously.

• It is similar to managing relationships online.

Organizational Designs

• Organizational design is choosing and implementing structures.

• The best design matches structure with situational contingencies.

• Choices are framed between mechanistic and organic designs.

Contingency in Organizational Design

• A bureaucracy is based on logic, order, and authority.

• It includes the division of labor, hierarchy, rules, and promotion based on competency.

• Bureaucracies are supposed to be orderly, fair, and efficient.

• They are often associated with "red tape."

• They can be cumbersome and impersonal.

• Management theory considers when a bureaucratic form is a good choice.

• Tom Burns and George Stalker found mechanistic forms thrive in stable environments, while organic forms perform best in dynamic situations.

Mechanistic and Organic Designs

• Mechanistic designs are bureaucratic, with centralized authority and many rules.

• They have a precise division of labor and narrow spans of control.

• Mechanistic designs work best for routine tasks in stable environments.

• Fast-food restaurants are an example.

• Service personnel follow rules and procedures under close supervision.

• These restaurants perform well with standard menus but struggle with changes.

• Organic designs are horizontal, with decentralized authority and fewer rules.

Trends in Organizational Designs

• Complexity, uncertainty, and change are prompting shifts toward horizontal and organic structures.

• New technologies drive these trends by improving information availability.

Fewer Levels of Management

• The chain of command links positions with management levels.

• Organizations tend to get taller as they grow.

• High-performing firms prefer fewer management levels.

• Nucor has a flat, compact structure.

• Span of control influences management levels.

• Narrow spans are characteristic of tall structures.

• Wider spans run with flat structures, reducing overhead costs and empowering workers.

• Procter & Gamble cut management levels to create a simpler organization.

• Organizations are cutting levels and shifting to wider spans of control.

• Managers take responsibility for larger teams with less supervision.

More Delegation and Empowerment

• Managers must decide what work to delegate.

• Delegation is entrusting work to others with the right to make decisions.

• Managers should not delegate without sufficient authority.

• Authority should equal responsibility.

• Delegation involves:

  • Assigning responsibility

  • Granting authority

  • Creating accountability

• Unwillingness to delegate overloads managers and denies opportunities to fully utilize talents.

• Delegation leads to empowerment, allowing others to make decisions and use discretion.

• Empowerment builds performance potential and increases commitment.

• Managers are delegating more and empowering people at all levels.

Decentralization with Centralization

• Centralization concentrates decisions at the top; decentralization disperses them.

• Organizations can decentralize without giving up centralized control.

• High-speed computer networks allow managers to stay informed and allow more decentralization.

• Information systems should sound alarms and allow corrective action.

• Delegation, empowerment, and horizontal structures contribute to decentralization.

• Advances in IT help top managers maintain control.

Reduced Use of Staff

• Staff positions provide expertise to line personnel.

• Line managers make daily operating decisions.

• Staff specialists provide direction and support.

• Problems arise in line-staff distinctions.

• Staff size can grow too large.

• Cutbacks in staff positions are common during downsizing.

• The best solution is a cost-effective staff component that satisfies needs.

• The trend is toward reduced use of staff.

• Organizations are lowering costs and increasing efficiency by employing fewer staff personnel and using smaller staff units.