Chapter 10

1. Chapter 10 Designing Adaptive Organizations

2. Organizing • The deployment of organizational resources to achieve strategic goals • Division of labor • Lines of authority • Coordination • All organizations wrestle with structural design and reorganization • Organizing is important because it follows from strategy • Strategy What to do • Organizing  How to do it

3. Organizing the Vertical Structure Organizing Structure Defines: • The set of formal tasks assigned to individuals and departments • Formal reporting relationships includinglines of authority, decision responsibility, # of hierarchical levels, span of managers’ control • The design of the systems to ensure effective coordination across departments

4. Sample Organization Chart

5. Organizing Concepts Work Specializationis the degree to which organizational tasks are subdivided into individual jobs; also called division of labor Chain of Command is an unbroken line of authority that links all individuals in the organization and specifies who reports to whom: (1) Unity of Command (2) Scalar Principle

6. Authority, Responsibility, Accountability, and Delegation • Authority is the formal and legitimate right of a manager to make decisions, issue orders, and allocate resources to achieve organizational outcomes • Authority is vested in organizational positions, not people • Authority flows down the vertical hierarchy • Authority is accepted by subordinates • Responsibility • Accountabilityis the mechanism through which authority and responsibility are aligned; Sarbanes-Oxley Act • Delegation is the process managers use to transfer authority and responsibility down the chain

7. Line and Staff Authority Line departments perform primary business tasks (primary goal & mission) with line authority to direct & control immediate subordinates (decision-making) • Sales • Production Staff departments support line departments with staff authority to advise, recommend, & counsel (no decision-making) • Human Resources, Labor Relations • Accounting, Finance • Research, Marketing

8. Span of Management (Control) • The # of employees reporting to a supervisor • Tall Organizationshave more levels and narrow span • Flat Organizationshave a wide span and fewer levels: Less supervision/larger spans of control • Work is stable and routine • Subordinates perform similar work • Subordinates are in one location • Highly trained/require little direction • Rules and procedures are defined • Few planning or nonsupervisory activities • Manager’s preference

9. Reorganization and Span of Management

10. Centralization and Decentralization • Centralization– decision authority is located near the top of the organization • Decentralization– decision authority is pushed downward to all levels (Current Trend): • uses workers' skills, relieves top managers, has well-informed people make decisions, and permit rapid response • 3 Factors influencing centralization vs. decentralization: • Change and uncertainty  decentralization • Strategic fit • Crisis  centralization

11. Departmentalization:Functional • Departmentalization: Basis for grouping positions into departments and departments into the total organization • Vertical FunctionalApproach: Grouping of positions into departments based on skills, expertise, work activities, and resource use

12. Departmentalization:Functional (continued) • Advantages: • Efficient use of resources • Economies of scale • In-depth skill specialization and development • Top manager direction & control • Disadvantages: • Poor communication across functional departments • Slow response to external changes • Lagging innovation • Decisions concentrated at top of hierarchy, creating delay

13. Departmentalization -Divisional • Divisional Structure - Grouping based on organizational output • Product, Program, or SBU-Based Divisions • Geographic or Customer-Based Divisions

14. Departmentalization:Divisional(continued) • Advantages: • Fast response, flexibility in unstable environment • Fosters concern for customer needs • Excellent coordination across functional departments • Disadvantages: • Duplication of resources across divisions • Less technical depth and specialization • Poor coordination across divisions

15. 10.5 Geographic-Based Global Org. Structure • Geographic or Customer-Based Divisions - group activities by geography or customer

16. 10.6Dual-Authority in a Matrix Organization

17. Departmentalization:Matrix Approach • Combines functional and divisional approaches • Advantages: Improve coordination and information: • More efficient use of resources than single hierarchy • Flexibility, adaptability to changing environment • Interdisciplinary cooperation, expertise available to all divisions • Disadvantages: Dual lines of authority (Two-boss employee) • Frustration & confusion • High conflict b/w two sides of the matrix • Many meetings, more discussion than action

18. 10.7 Global Matrix Structure

19. Departmentalization:Team Approach • Very widespread trend; • Horizontalteams coordinate their work, and work directly with customers to accomplish the organization’s goals. • Cross-functional teams • Permanent teams: • CIA  NIA • Examples: • Project Team, Task Force Team • Committee • Agency

20. Departmentalization:Team Approach(continued) • Advantages: • Reduced barriers among dept’s, increased compromise (Flexible) • Shorter response time, quicker decisions (Responsive) • Allows managers to delegate authority Better morale, enthusiasm from employee involvement • Disadvantages: • Dual loyalties and conflict • Time and resources spent on meetings; • Unplanned decentralization

21. Departmentalization: Virtual Network Approach (Structure) • The Most Recent Trend • The firm subcontracts most of its major functions to separate companies • Extends idea of horizontal coordination and collaborationbeyond the boundaries of the organization • Partnerships • Alliances • Could be a loose interconnected group • Outsourcing

22. 10.8Network Approach to Departmentalization

23. Departmentalization:Virtual Network • Advantages: • Can draw on expertise worldwide • Highly flexible and responsive • Reduced overhead costs • Disadvantages: • Lack of control • Weak boundaries • Greater demands on managers • Weaker employee loyalty

24. Risks of Outsourcing (Lee, 2014) • Intellectual property (trade secret): • Sony (Japanese) outsourced to LG, Samsung (Korean). LG, Samsung learned the Sony technologies (1970s & 80s); Now Samsung & LG are selling more electronics (TV, Phones) than Sony. • Transportation cost • Supply chain • Quality • Ethics, Trust, Customer Loyalty • Kathie Lee Gifford (1996) • Barbie Doll – Mattel – Lead Paint (2007)

25. Organizing for Horizontal Coordination • Companies need more flexibility than vertical structure can offer • Meet fast-shifting environment • Break down barriers between departments/divisions/teams • Need integration and coordination • Lack of coordination and cooperation can cause information problems • Growing global challenge • Chrysler Case

26. Evolution of Organization Structures

27. Business Process Reengineering (BPR) Business process reengineering, is the radical redesign of business processes to achieve dramatic improvements in cost, quality, service, and speed • BPR vs. Downsizing • BPR vs. TQM • BPR & Information Systems

28. Task Forces, Teams, and Project Management Task Force – a temporary team or committee formed to solve a specific short-term problem involving several departments Project Manager – person responsible for coordinating activities of several departments for the completion of a specific project Cross-functional Team – furthers horizontal coordination by including members across the organization

29. Project Manager’s Relationships to Departments

30. Relational Coordination • Frequent, timely, problem-solving communication carried out through [employee] relationships of shared goals, shared knowledge, and mutual respect.

31. Structure Follows Strategy • Business performance is influenced by structure • Strategic goals should drive structure: • Differentiation  Divisional Structure • Innovation & Flexibility  Horizontal Team Structure • Structure should facilitate strategic goals:

32. Factors Affecting Organization Structure (Nader & Tushman, 1997)

33. Relationship of Structural Approach to Strategy

34. Structure Fits the Technology • Knowledge, tools, techniques, and activities should match production activities • Manufacturing firms can be categorized according to (Woodward, 1965): • Small-batch and unit production • Large-batch and mass production • Continuous process production • The technical complexity of each type of firm differs

35. 10.14 Manufacturing Technology and Organization Structure (Woodward, 1965)

36. Review Questions • Discuss the fundamental characteristics of organizing, including such concepts as work specialization, chain of command, span of management, and centralization versus decentralization. • Describe functional and divisional approaches to structure. • Explain the matrix approach to structure and its application to both domestic and international organizations. • Describe the contemporary team and virtual network structures and why they are being adopted by organizations. •  Explain why organizations need coordination across departments and hierarchical levels, and describe mechanisms for achieving coordination. • Identify how structure can be used to achieve an organization’s strategic goals. • Define production technology (manufacturing, service, and digital) and explain how it influences organization structure.

37. Review Questions (continued) • Explain briefly Authority in management • Explain briefly Responsibility in management. • Explain briefly Accountability in management. • Delegation sometimes cause more problems. Explain briefly when delegation become most effective. • In classical management theory, a manager is most effective when the span of management is less than 7. Does the theory still apply to today’s business environment? Explain briefly why or why not. • Explain the major difference between Tall Structure and Flat Structure, in term of the span of management. • Explain the major difference between Tall Structure and Flat Structure, in term of the organizational efficiency.

38. Review Questions (continued) • Explain briefly BPR. • Explain briefly the major difference between BPR & Downsizing. • Explain briefly the major difference between BPR & TQM. • Explain briefly why BPR has something to do with Information Systems.

39. Review Questions (continued) • What are advantages & disadvantages of Functional Approach? • What are advantages & disadvantages of Divisional Approach? • What are advantages & disadvantages of Matrix Approach? • What are advantages & disadvantages of Team Approach? • What are advantages & disadvantages of Virtual Network Approach? • During WWII, General Patton, General MacArthur were considered most brilliant commanders in the U.S. Army, but General Eisenhower was chosen to be a supreme commander to lead Allied Forces. Explain the major reason, from the managerial perspectives.

40. Review Questions (continued) • Explain briefly the risk of outsourcing your business operations in a case of SONY and LG. • Explain briefly the risk of outsourcing your business operations in terms of supply chain. • Explain briefly the quality risk of outsourcing your business operations. • Explain briefly the ethics issue of outsourcing your business operations, using an example of Kathie Lee Gifford case (1996). • Explain briefly what problem Lee Iacocca, a new CEO of Chrysler found out, in term of organizational structure in early 1980s. • Explain briefly why Chrysler needed coordination in the 1980s.