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Why does the Organizational Chart Matter?

Why does the Organizational Chart Matter? often determines physical proximity between people determines frequency of communication between people determines reporting relationships influences organizational members’ patterns of identification

JasminFlorian
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Why does the Organizational Chart Matter?

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  1. Why does the Organizational Chart Matter? • often determines physical proximity between people • determines frequency of communication between people • determines reporting relationships • influences organizational members’ patterns of identification • influences how much people know about what other people in the organization do • influences how much technical knowledge people have • influences speed of communication; speed of decision making

  2. ORGANIZATIONAL DESIGN The key idea in designing an organization is to strive for: • an internal coherence among the parts of the design (i.e., structure, culture, incentive systems, etc.) • a “fit” between the overall design and key aspects of the organization’s context. • the nature of the industry environment (e.g., if the environment is changing rapidly, need to design an organization capable of responding quickly). • the goals/strategy of the organization (e.g., if you’re trying to do “relationship banking”, need a structure that is geared around the customer such as customer-based divisions or regional divisions

  3. ORGANIZATIONAL DESIGN (cont’d) • the nature of the organization’s work processes (e.g., need to have a structure that ensures cooperation between interdependent units) • the nature of the employees (e.g., to utilize the expertise of professionals, need to decentralize decisions about how to do the task to the level of the professionals). • organizational size (as organizations grow larger, they need to decentralize; they also tend to become more bureaucratic)

  4. Dimensions of Organizations Contextual dimensions 1. Size (of the social system, i.e., number of people) 2. Technology (nature of the task in the production subsystem) 3. Environment (elements outside the organization affecting it) 4. Goals and strategies (unique purposes of the organization, methods of competition) 5. Stage in the organizational life cycle 6. Type of workers (level of formal education and training of employees) 7. Culture (shared values, beliefs and norms) Structural Dimensions (internal characteristics of the organization) 1. Specialization (degree of division of labor) 2. Complexity (number of activities or subsystems-vertical, horizontal, spatial) 3. Hierarchy of authority (who reports to whom and span of control) 4. Formalization (amount of written documentation) 5. Standardization (degree similar work is done in uniform manner) 6. Centralization (hierarchical level with decision making power) 7. Personnel configuration (deployment, e.g., admin., clerical, and prof. staff ratio)

  5. DIFFERENTIATION INTEGRATION • DIVISION OF LABOR/ • JOB SPECIALIZATION • Creating roles METHODS OF STANDARDIZATION (MINTZBERG) By direct supervision By rules of inputs of outputs by mutual adjustment COMPLEXITY vertical horizontal spatial DEPARTMENTALIZATION Differentiation of values, goals, technologies across departments Integration mechanisms Liaison roles Teams Full-time integrators Task forces Information systems

  6. Division of Labor/Specialization • How are jobs/roles conceived of? • How are responsibilities grouped together? • How much autonomy is given?

  7. Organizational Departmentalization • How are people/roles grouped together in the organization? • by function? • by product type? • by type of customer served? • by geographical region served? • in cross-functional teams? • in a matrix design?

  8. Grouping and Structure CEO Function Activity Grouping Work process Engineering Marketing Manufacturing Knowledge, skills, disciplines CEO Product Output Grouping Service Product Line 3 Product Line 1 Product Line 2 Project Business/profit Center CEO Geography User/Customer Grouping User/customer Market Segment Eastern U.S. Western U.S. Canada CEO Multifocused Grouping (Any Combination) Matrix Hybrid Marketing Manufacturing Product 1 Product 2

  9. Functional Structure President R & D Manufacturing Accounting Marketing Divisional (Product) Structure President Product Group 1 Product Group 2 Product Group 3 R&D Mfg Acct Mkt R&D Mfg Acct Mkt R&D Mfg Acct Mkt

  10. FUNCTIONAL STRUCTURE CONTEXT Environment: Low uncertainty, stable Technology: Routine, low interdependence Size: Small to medium Goals: Internal efficiency, technical specialization and quality STRENGTHS 1. Economies of scale within functions 2. In-depth skill development 3. Able to accomplish functional goals 4. Best in small-to medium-size organizations 5. Best when only one or a few products WEAKNESSES 1. Slow response time to environmental changes 2. Decisions may pile on top.,hierarchy overload 3. Poor interunit coordination 4. Less innovation 5. Restricted view of organization goals

  11. DIVISIONAL STRUCTURE • CONTEXT • Environment: Moderate uncertainty; complex • Technology: Nonroutine, high interdependence among functional departments • Size: Large • Goals: External effectiveness, adaptation, client satisfaction • STRENGTHS • 1. Suited to unstable environment • 2. Leads to client satisfaction because product responsibility and contact • points are clear • 3. Good inter-functional coordination within divisions • 4. Allows units to adapt to differences in products, regions, clients • 5. Allows for decentralization of decision making • 6. Is best for large organizations with multiple products or services • WEAKNESSES • 1. Eliminates functional economies of scale • 2. Leads to poor coordination across product lines • 3. Eliminates in-depth competence and technical specialization • 4. Makes integration and standardization across product lines difficult.

  12. Sun Petroleum Products Company’s Hybrid Structure President Chief Counsel Director Human Resources Vice-President Technology Vice-President, Financial Services Sr. Vice-Pres., Resources & Strategy Director, Public Affairs Vice-President, Fuels Vice-President, Lubricants/ Waxes Vice-President, Chemicals Vice-President, Facilities Vice-President, Raw Materials Six Refineries Marketing Marketing Marketing Director, Planning & Environment Assessment Planning and Economics Planning and Economics Planning and Economics Supply and Distribution Supply and Distribution Supply and Distribution Manufacturing Manufacturing Manufacturing

  13. HYBRID STRUCTURE • CONTEXT • Environment: Moderate to high uncertainty, changing customer demands • Technology: Routine or nonroutine, with interdependencies across both functions and product lines • Size: Large • Goals: External effectiveness and adaptation plus efficiency within some functions • STRENGTHS • 1. Organization can achieve adaptability and coordination in some areas and efficiency in others • 3. Achieves coordination both within and between product lines • WEAKNESSES • 1. Potential for excessive administrative overhead • 2. Conflict between division and corporate departments

  14. MATRIX STRUCTURE President Director of Product Operations Vice-President Design Vice-President Manufacturing Vice-President Marketing Controller Procurement Manager Product Manager A Product Manager B Product Manager C Product Manager D

  15. MATRIX STRUCTURE Context Environment: High uncertainty; fast-changing Technology: Nonroutine, many interdependencies Size: Moderate, a few product lines Goals: Dual-product innovation and technical specialization Strengths 1. Achieves coordination necessary to meet dual demands from environment 2. Flexible sharing of human resources across products 3. Suited to complex decisions and frequent changes in unstable environment 4. Provides opportunity for functional and product skill development 5. Best in medium-size organizations with multiple products Weaknesses 1. Causes participants to experience dual authority, which can be frustrating and confusing. 2. Means participants need good interpersonal skills and extensive training. 3. Is time-consuming-frequent meetings and conflict resolution sessions 4. Will not work unless participants understand it and adopt collegial rather than vertical-type relationships 5. Requires dual pressure from environment to maintain power balance

  16. Top Management Team Process Owner Team 1 Team 2 Team 3 Customer Market Analysis Research Product Planning Testing New Product Development Process Process Owner Team 1 Team 2 Team 3 Customer Analysis Purchasing Material Flow Distrib. Procurement and Logistics Process A Horizontal Structure

  17. STRENGTHS: Flexibility and rapid response to changes in customer needs Directs the attention of everyone toward the production and delivery of value to the customer Each employee has a broader view of organizational goals Promotes a focus on teamwork and collaboration—common commitment to meeting objectives Improves quality of life for employees by offering them the opportunity to share responsibility, make decisions, and be accountable for outcomes WEAKNESSES: Determining core processed to organize around is difficult and time-consuming Requires changes in culture, job design, management philosophy, and information and reward systems Traditional managers may balk when they have to give up power and authority Requires significant training of employees to work effectively in a horizontal team environment Can limit in-depth skill development Strengths and Weaknesses of Horizontal Structure

  18. The Relationship of Structure to Organization’s Need for Efficiency vs. Learning and Innovation Functional Structure Divisional Structure Matrix Structure Horizontal Structure Functional with cross-functional teams, integrators • Horizontal: • Coordination • Change • Learning • Innovation • Flexibility Dominant Structural Approach • Vertical: • Control • Efficiency • Stability • Reliability

  19. INTEGRATION: HOW DO WE COORDINATE THE PARTS • direct supervision? • rules and regulations? • creating so-called self-contained units (SBUs) and relying on the market? • attempting to standardize inputs (e.g., relying on educational or accreditation organizations to certify education and socialization of individuals into the standards of a profession) • mutual adjustment (e.g. relying on the people to coordinate themselves as in self-managed teams, matrices...)

  20. Vertical Linkages Vertical information systems High Add positions to hierarchy Degree of Vertical Coordination and Control Required Rules and plans Hierarchical referral Low Low High Information Capacity of Linkage Mechanism

  21. Horizontal Linkages High Teams Full-time integrators Task forces Degree of Horizontal Coordination Required Liaison roles Direct contact Information Systems Low Low High Costs of Coordination

  22. LOCUS OF DECISION MAKING AUTHORITY (Centralization vs. decentralization) • Where are decisions made within the system? • Who has oversight responsibility?

  23. ADVANTAGES AND DISADVANTAGES OF CENTRALIZATION Centralized Decentralized Advantages Advantages • decisiveness • accountability • control • Made closer to the problem • Faster decisions Disadvantages Disadvantages • Overload at the top leads to slowness • Decisions are only as good as the individual making them. • risk (long-run) • Risk, will the decision makers use the appropriate criteria? • hard to control • unpredictable

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