Organization Structure and Management Systems

1. Organization Structure and Management Systems • Evolution of the corporation • Principles of organizational design • The role of hierarchy: bureaucratic control vs. modular integration • Alternative structural forms • Management systems OUTLINE

2. Evolution of the Modern Corporation Strategic changes The business environment Organizational consequences Early 19th century Local markets Firms specialized & Small firms. Transport slow focused on local Simple manage- Limited mechanization markets ment structures Introduction of Geographical and Functional struct- railroads, telegraph vertical expansion ures. Line/staff industrialization distinction. Accou- nting systems Late 19th century Excess capacity in Product & Development of distribution. Growth multinational multidivisional of financial institut- diversification corporation ions & world trade Early 20th century

3. The Basic Tasks of Organization Achieving high levels of productivity requires SPECIALIZATION Specialization by individuals necessitates COORDINATION ORGANIZATIONAL CHALLENGE: design structure & systems that: • Permit specialization • Facilitate coordination by grouping individuals & link groups with systems of communication, decision making, & control • Deploy incentives to align individual & firm goals For coordination to be effective requires COOPERATION But goals of employees = goals of owners THE AGENCY PROBLEM

4. How Hierarchy Economizes on Coordination (a) Self Organizing Team: 10 interactions (b) Hierarchy: 4 interactions

5. Hierarchy Allows Flexible Adaptation Tightly-coupled,integrated system: Change in any part of the system requires system-wide adaptation Loose-coupled, modular hierarchy: organizing a complex system into sub-systems and components linked by standardized interfaces permits decentralized adaptation

6. Weber’s Principles of Bureaucracy • Rational-legal authority • Specialization of labor • Hierarchical structure • Coordination and control through rules and standard operating procedures • Standardization employment practices • Separation of jobs and people • Formalization of administrative acts, decisions and rules

7. Mechanistic and Organic Forms FEATURE MECHANISTIC ORGANIC Task definition Rigid & highly specialized Flexible; less specialized Coordination Rules & directives Mutual adjustment.l & control imposed from above Cultural control Communication Mainly vertical Horizontal & vertical Commitment To immediate superior To the organization & its & loyalty goals & values Environmental Stable with low tech- Dynamic, ambiguous, context nologival uncertainty technologically uncertainty

8. Designing the Hierarchy: The Basis for Defining Organizational Units and their Relationships Units may be defined on the basis of Common Tasks, Products, Geographical Proximity, or Process Critical issue: Intensity of Coordination—Employees with the greatest interdependence should be grouped into same organizational unit. Additional criteria: Economies of Scale, Economies of Utilization, Learning, Standardization of Control Systems

9. General Motors’ Organization Structure, 1997 Board of Directors Corporate Functions President’sCouncil North American Operations Delphi Automotive Systems GM Acceptance Corporation International Operations Hughes Electronics GM Europe Midsize & Luxury Car Group Small Car Group GM Power Train Group Vehicle Sales, & Marketing Group Development & Technical Cooperation Group Asian & Pacific Operations Latin American, African, & Middle East Operation

10. General Electric’s Organization Structure, 1995 Board of Directors Corporate Staff Functions: Tax, Treasury, Audit. M&A, Legal, Business Public Relations, Government Development Relations, Leadership Development Corporate Executive Office Aircraft Engines Capital Services Lighting NBC Electrical Distribution & Control Motors Appliances Plastics Industrial Power Systems Medical Systems Information Services Transportation Systems Service Divisions Aerospace Environmental GE Licensing/ Marketing Technology Programs Supply Trading &Sales

11. Mobil Corporation, 1997 Board of Directors CEO Executive Office Corporate Center Support Services North America Technology New Exploration Worldwide LNG & IPP Asia/ Pacific Europe & CIS Africa & Middle East South America North America M&R Worldwide Chemicals Shipping

12. The Generic Strategic Planning Cycle Corporate Guidelines Draft Business Plans Discuss with Corporate Revised Business Plans Approval by Board Forecasts/ Scenarios/ Planning Assumptions Corporate Plan Capex Budget Annual Performance Targets Performance Review