Designing Effective Organizations

1. Designing Effective Organizations Chapter Fifteen

2. After reading the material in this chapter, you should be able to: LO15.1 Describe the four characteristics common to all organizations. LO15.2 Explain the difference between closed and open systems. LO15.3 Define seven basic ways organizations are structured

3. After reading the material in this chapter, you should be able to: LO15.4 Discuss Burns and Stalker’s findings regarding mechanistic and organic organizations. LO15.5 Identify when each of the seven organization structures is the right fit. LO15.6 Describe the four generic organizational effectiveness criteria.

4. What is an Organization? • Organization • system of consciously coordinated activities or sources of two or more people.

5. What is an Organization? • Four common denominators • Coordination of effort • Common goal • Division of labor • Hierarchy of authority

6. What is an Organization? • Unity of command principle • each employee should report to a single manager.

7. Question? At Creative Calendars, Inc., each employee reports only to one manager. This reflects: • The division of labor. • Coordination of effort. • A narrow span on control. • The unity of command principle.

8. Organization Charts • Organization chart • a graphic representation of formal authority and division of labor relationships

9. Dimensions of an Organizational Structure

10. Sample Organization Chart for a Hospital

11. Organization Charts • Span of control • the number of people reporting directly to a given manager. • Generally, the narrower the span of control, the closer the supervision and the higher the administrative costs as a result of a higher manager-to-worker ratio.

12. Organization Charts • Staff personnel • Do background research and provide technical advice, and recommendations to line managers. • Line Managers • have authority to make organizational decisions.

13. An Open-System Perspective • Closed System • self-sufficient entity, closed to the surrounding environment. • Open System • depends on constant interaction with the environment for survival

14. The Organization as an Open System

15. OrganizationDesign in a Changing World • Organizational design • The structures of accountability and responsibility used to develop and implement strategies, and the human resource practices and information and business processes that activate those structures

16. Traditional Design • Functional structure • groups people according to the business functions they perform manufacturing, marketing, finance • Divisional structure • groups together activities related to outputs type of product or customer

17. Traditional Design • Matrix structure • combines functional and divisional chains of command to form a grid with two command structures

18. Matrix Structure

19. Principles for Designing a Horizontal Organization • Organize around complete workflow processes • Flatten hierarchy and use teams to manage everything • Appoint process team leaders to manage internal team processes • Let supplier and customer contact drive performance • Provide required expertise from outside the team as needed

20. Designs That Open Boundaries between Organizations • Hollow structure • organization identifies core competencies and outsources other activities such as manufacturing, order taking and shipping • Modular structure • Outsources parts of a product instead of processes

21. Designs That Open Boundaries between Organizations • Virtual organization • organization identifies partners with the needed talents and negotiates an agreement in which the participants typically work in separate facilities, linked by technology as they work toward a common goal

22. Question? Chad has developed a new product to improve gas mileage. He has formed a new venture but must outsource his marketing and distribution. His firm has a _________ organization. • Functional • Divisional • Matrix • Hollow

23. The Contingency Approach to Designing Organizations • Contingency approach to organization design • organizations tend to be more effective when they are structured to fit the demands of the situation

24. Mechanistic versus Organic Organizations • Mechanistic organizations • Rigid bureaucracies with strict rules, narrowly defined tasks, and top-down communication. • Organic organizations • Flexible networks of multitalented individuals who perform a variety of tasks

25. Different Approaches to Decision Making • Centralized decision making • key decisions are made by top management • Decentralized decision making • important decisions are made by middle- and lower-level managers

26. Question? Bankers International (BI) can be described as a rigid bureaucracy with strict rules, narrowly defined tasks and top-down communication. BI can also be described as a(n) __________ organization. • Mechanistic • Organic • Decentralized • Wide-span

27. Getting the Right Fit • A functional structure can save money by grouping together people who need similar materials and equipment • Divisional structures increase employees’ focus on customers and products

28. Getting the Right Fit • A successful matrix structure requires superior managers who communicate extensively, foster commitment and collaboration, manage conflict and negotiate effectively to establish goals and priorities consistent with the organization’s strategy

29. Getting the Right Fit • Horizontal designs improve coordination and communication • Organizations that become hollow, modular, or virtual can generate superior returns by focusing on what they do best

30. Question? Oneal, CEO of Fredhandbag HobbyTown, wants to improve the communication in his firm. He should change to a _________ organization. • Functional • Matrix • Horizontal • Modular

31. Four Dimensions of Organizational Effectiveness Figure 15-4

32. Generic Effectiveness Criteria • Goal accomplishment • most widely used effectiveness criteria • Resource acquisition • organization is effective if it acquires necessary factors of production

33. Question? Sherman, a new manager at Get Well Industries, is interested in learning about the most likely used effectiveness criterion for organizations. Which of these would you recommend to Sherman? • Goal accomplishment • Resource acquisition • Internal processes • Strategic constituencies satisfaction

34. Generic Effectiveness Criteria • Internal processes • focuses on “what the organization must excel at” to effectively meet its financial objectives and customers’ expectations. • Strategic constituencies satisfaction • Strategic constituency: any group of people with a stake in the organization’s operation or success.

35. Strategic Constituencies Satisfaction • Strategic constituency • any group of individuals who have some stake in the organization—for example, resource providers, users of the organization’s products or services, producers of the organization’s output, groups whose cooperation is essential for the organization’s survival, or those whose lives are significantly affected by the organization

36. Mixing Effectiveness Criteria: Practical Guidelines • Goal accomplishment approach is appropriate when goals are clear, consensual, time-bounded, and measurable

37. Mixing Effectiveness Criteria: Practical Guidelines • Resource acquisition approach is appropriate when inputs have a traceable effect on results or output

38. Mixing Effectiveness Criteria: Practical Guidelines • Internal processes approach is appropriate when organizational performance is strongly influenced by specific processes

39. Mixing Effectiveness Criteria: Practical Guidelines • Strategic constituencies approach is appropriate when powerful stakeholders can significantly benefit or harm the organization

40. Video: One Smooth Stone • The corporate event planning industry is very dynamic. What characteristics of One Smooth Stone help it to remain competitive and successful in this industry? • Why won’t the premises of organization theory proposed by theorists like Fayol and Weber work for organizations in a dynamic environment? Why won’t they work with knowledge workers? • How important is it to ensure that the values of outsourcing partners align with One Smooth Stone’s? Why?