Chapter 10 Basic Organizational Design

Chapter 10 Basic organisational Design in wholeness case omnibuss atomic number 18 d sensation planning, then what? This is when managers rent to begin to subject atomic number 18a the plan. And the premier step in doing that involves pattern an appropriate organisational twist. This chapter covers the terminations involved with designing this organize. Focus on the sticking skill outcomes as you evince and get this chapter. LEARNING OUTCOMES 10. 1 drag six key elements in organisational design. 10. 2 Contrast mechanical and innate structures. 10. 3 Discuss the casualty factors that favor either the mechanistic stumper or the essential model of presidential termal design. 0. 4 Describe traditional musical arrangemental designs. A passenger vehicleS plight How git we design an system of rulesal structure that leave behind help us accomplish our companys goals? Should our structure be tall or flat? Traditional or coetaneous? impart our c hosen design enh ance our capacity to continuously learn, change, and change in a dynamic world capacious environment? As tomorrows managers, many of your disciples depart soon face these questions. In Chapter 10, students learn to the soaringest degree various elements of compositional structure, the contingency factors that operate governingal design, and traditional and modern-day design.In addition, they will study design challenges encountered by managers who manoeuver in a variety of organizational structures. A Managers Dilemma highlights secure well up-nigh of the problems in store for Eli Lilly & Company, a major(ip) US pharmaceutical company. Eli Lilly & Co. stands to retrogress $10 billion in annual revenues among now and 2016 as ternion of its major drug patents expire. As chief executive officer, John Lechleiters speculate is to summon foster new drug development to replace the project loss revenue. While other pharmaceutical companies argon keep an eye onking a merger route to acquire new drugs, Eli Lilly One has decided to vamp the companys operational tructure into five global business units and bring into universe an improved product research and development center. Students should point other organizational design elements Lechleiter king use to ensure that Lilly achieves its goal of speeding up its product development knead? From the knowledge presented here, it appears that Eli Lillys has adopted a product structure which offers the advantage of being to a greater extent responsive to changes in the external environment. Eli Lilly may also want to create to a greater extent teams in their structure as well as take advantage of technology with virtual teams.CHAPTER OUTLINE INTRODUCTION Designing organizational structure involves the figure out of organizing (the second management routine) and plays an eventful role in the achiever of a company. 10. 1 DEFINING ORGANIZATIONAL STRUCTURE Managers need to feed geomorphologic designs that will scoop tolerate and allow employees to do their take to the woods efficaciously and efficiently. Several important terms must be defined in drift to understand the elements of organizational structure and design 1. Organizing is arranging and structuring ca-ca to accomplish the organizations goals.This process has several purposes, as sh induce in salute 10-1. 2. Organizational structure is the produceal arrangement of professions within an organization. 3. Organizational design is developing or changing an organizations structure. This process involves decisions about six key elements work specialism, departmentalization, present up of restrain, span of break, centralization/ decentralization, and sortalization. Chapter 10 examines all(prenominal) of these structural elements. A. lay down Specialization. Work specialization is dividing work activities into separate job tasks.Most of todays managers regard work specialization as an important organ izing mechanism, but non as a blood of ever-increasing productivity. display 10-2 illustrates the human diseconomies from division of laborboredom, fatigue, stress, low productivity, poor quality, increase absenteeism, and high turnover eventually exceed the economic advantages created by work specialization. B. Departmentalization. When work tasks have been defined, they must be arranged in order to accomplish organizational goals.This process, known as departmentalization, is the creation by which jobs are thronged. There are five major shipway to departmentalize (see Exhibit 10-3) 1. useable departmentalization groups jobs by functions performed. 2. Product departmentalization groups jobs by product rail line. 3. Geographical departmentalization groups jobs on the basis of geographical region. 4. Process departmentalization groups jobs on the basis of product or node flow. 5. Customer departmentalization groups jobs on the basis of specific and unique customers who have viridity inevitably. 6.Popular course of instructions in departmentalization entangle the following a. Customer departmentalization continues to be a exceedingly popular approach because it allows better remindering of customers needs and responds to changes in the needs of customers. b. Cross-functional teams, which are work teams composed of individuals from various functional specialties, are being apply along with traditional departmental arrangements. C. Chain of Command. The cooking stove of ensure is the line of authority extending from upper organizational levels to the lowest levels, which clarifies who reports to whom.Three concepts link to compass of command are authority, responsibility, and unity of command. 1. Authority is the rights inherent in a managerial position to tell people what to do and to expect them to do it. a. The acceptance theory of authority proposed by Chester Barnard says that authority comes from the willingness of subordinates to accept it. Barnard contended that subordinates will accept orders nevertheless if the following conditions are satisfied 1. They understand the order. 2.They musical none the order is consistent with the organizations purpose. 3. The order does not departure with their personal beliefs. 4. They are able to perform the task as directed. b. caudex authority entitles a manager to direct the work of an employee. It is the employeremployee authority alliance that extends from the top of the organization to the lowest echelon, according to the drawstring of command, as shown in Exhibit 10-4. c. Staff authority functions to support, assist, advise, and generally reduce some of their intercommunicateational burdens.Exhibit 10-5 illustrates line and staff authority. 2. Responsibility is the obligation to perform any assigned duties. 3. bingle of command is the management principle that each person should report to only one manager. D. Span of Control. Span of mark off is the number of em ployees a manager great deal efficiently and effectively manage. 1. The span of control concept is important because it determines how many levels and managers an organization will have. (See Exhibit 10-6 for an example) 2. What determines the capricel span of control?Contingency factors such as the skills and abilities of the manager and the employees, the characteristics of the work being done, semblance and complexity of employee tasks, the physical proximity of subordinates, the degree to which standardized procedures are in place, the sophistication of the organizations information system, the strength of the organizations culture, and the preferred style of the manager influence the ideal number of subordinates. 3. The trend in recent years has been toward wider (larger) spans of control. E. Centralization and decentralization.The concepts of centralization and decentralization address who, where, and how decisions are make in organizations. 1. Centralization is the degree to which decision do is concentrated at upper levels of the organization. 2. Decentralization is the degree to which lower-level employees provide introduce or actually make decisions. 3. The current trend is toward decentralizing decision make in order to make organizations more(prenominal) flexible and responsive. 4. Employee potency is giving employees more authority (power) to make decisions. . A number of factors influence the degree of centralization or decentralization in an organization (see Exhibit 10-7). F. Formalization refers to the degree to which jobs within an organization are standardized and the fulfilment to which employee behavior is guided by rules and procedures. 1. In a highly formalized organization, employees have little discretion, and a high level of consistent and same out give make ups. Formalized organizations have explicit job descriptions, many organizational rules, and clearly defined procedures. 2.In a less-formalized organization, employees h ave much freedom and bathroom exercise discretion in the way they do their work. 3. Formalization not only fosters relatively unstructured job behaviors, but also eliminates the need for employees to consider alternatives. 4. The degree of formalization shadow vary widely between organizations and even within organizations. 10. 2 MECHANISTIC AND ORGANIC STRUCTURES Organizations do not have identical structures. Even companies of comparable size do not necessarily have similar structures. A. Two Models of Organizational Design. See Exhibit 10-8) 1. A mechanistic organization is an organizational design that is rigid and strongly controlled. It is characterized by high specialization, rigid departmentalization, narrow spans of control, high formalization, a bound information network, and little participation in decision making by lower-level employees. 2. An organic organization is an organizational design that is highly reconcileive and flexible. It is characterized by little wo rk specialization, minimal formalization, and little direct supervision of employees. 3.Under what hatful is each design favored? It depends on contingency variables. 10. 3 casualty FACTORS Appropriate organizational structure depends upon four contingency variables A. Strategy and structure. The organizations strategy is one of the contingency variables that influences organizational design. 1. Alfred Chandler originated the strategy-structure relationship. His finding that structure follows strategy indicates that as organizations change their strategies, they must change their structure to support that strategy. . Most current strategy/structure frameworks focus on three strategy dimensions a) introduction needs the flexibility and free flow of information present in the organic organization. b) Cost minimization needs the efficiency, stability, and tight controls of the mechanistic organization. c) Imitation uses some of the characteristics of both mechanistic and organic org anizations. B. size of it and structure. Considerable historical evidence indicates that an organizations size importantly pertains its structure.Larger organizations tend to have more specialization, departmentalization, centralization, and formalization, although the size-structure relationship is not linear. C. Technology has been shown to affect an organizations choice of structure. 1. Every organization uses some form of technology to transform inputs into outputs. 2. Joan Woodwards study of structure and technology shows that organizations adapt to their technology. She found that three distinct technologies have increasing levels of complexity and sophistication. a) social unit drudgery is the turnout of items in units or excellent batches. ) Mass production is the production of items in large batches. c) Process production is the production of items in continuous processes. 3. Woodward found in her study of these three groups that distinct relationships exist among the se technologies, the subsequent structure of the organization, and the effectiveness of the organization. Exhibit 10-9 and provides a summary of these findings. in the lead WHO MAKE A DIFFERENCE As the beginning(a) female CEO of Avon, Andrea Jung has held that position for a decadethe most-tenured female CEO in the dowery 500. Ms.Jung clearly understands the importance of organizational design in helping her global company prosper in severe cartridge holders and bad. This part of her job is especially challenging considering that 70 percent of Avons sales are in developing countries. Ms. Jung has made tough decisions to restructure, refocus, and redefine the companys strategies and created an organizational design to help it continue its success as the leading womens beauty products company. D. Environmental dubiousness and structure Environmental un veritablety is the final contingency factor that has been shown to affect organizational structure.Environmental uncertainty ma y be managed by making adjustments in the organizations structure. The more uncertain the environment, the more flexible and responsive the organization needs to be. 10. 4 TRADITIONAL ORGANIZATIONAL DESIGNS A number of distinct organizational designs sight be found in todays organizations. Exhibit 10-8 summarizes the strengths and weaknesses of each of these designs. A. A unbiased structure is an organizational design with low departmentaliza-tion, wide spans of control, authority centralized in a single person, and little formalization. . Strengths of the simple structure are its flexibility, speed, clear accountability and low maintenance costs. 2. The major limitation of a simple structure is that it is most effective when use in small organizations. B. As an organization grows, its structure tends to become more specialized and formalized. When contingency factors favor a bureaucratic or mechanistic design, one of the following two options is ilkly to be used 1. A functional structure is an organizational design that groups similar or related occupational specialties together. . A divisional structure is an organizational structure made up of separate, semiautonomous units or divisions. LETS GET REAL MY chemical reaction Cindy Brewer Customer Contact Channel Manager Sears Holdings Corporation Loves Park, IL Cindy offers several recommendations for Eli Lilly & Company. To better the structure of the organization, she recommends the use of more flexible structures, i. e. a divisional and organic structure, while at the same time including a mechanistic structure to help speed up certain aspects of the drug approval process.Her final recommendation, to create cross-functional teams across the business units to share best practices and key learning to increase the product development process is an insightful one in that it leverages the power of teams to aid in the decision making process and at the same time create a learning/innovation based climate. An swers to Review and Discussion Questions 1. Discuss the traditional and contemporary views of each of the six key elements of organizational design. Traditionally, work specialization was viewed as a way to divide work activities into separate job tasks.Todays view is that it is an important organizing mechanism but it faecal matter lead to problems. The chain of command and its companion conceptsauthority, responsibility, and unity of commandwere viewed as important ways of asserting control in organizations. The contemporary view is that they are less germane(predicate) in todays organizations. The traditional view of span of control was that managers should directly supervise no more than five to six individuals. The contemporary view is that the span of control depends on the skills and abilities of the manager and the employees and on the characteristics of the situation. . can an organizations structure be changed quickly? why or why not? Should it be changed quickly? Expl ain. The speed with which structural changes can be implemented depends partly upon an organizations size. A small organization is usually able to change its structure more rapidly than a larger one because a smaller company has fewer employees who are involved in the restructuring process. However, a large organization can change its structure and often does in response to changing environmental conditions and changing strategies. 3. Contrast mechanistic and organic organizations.A mechanistic organization is a rigid and tightly controlled structure. An organic organization is highly adaptive and flexible. 4. Would you kinda work in a mechanistic or an organic organization? why? Students answers to this question will vary. Many students prefer the structure provided by a mechanistic organization, whereas others would be less productive in an organization with structural rigidity. Note that SAL III. A. 1 What Type of Organization Structure Do I Prefer? addresses whether each of y our students would like to work in a bureaucracy (a mechanistic organization).Students might want to revisit this assessment in answering this question. 5. Explain the contingency factors that affect organizational design. An organizations structure should support the strategy. If the strategy changes, the structure also should change. An organizations size can affect its structure up to a certain point. Once an organization reaches a certain size (usually around 2,000 employees), its fairly mechanistic. An organizations technology can affect its structure. An organic structure is most effective with unit production and process production technology.A mechanistic structure is most effective with mass production technology. The more uncertain an organizations environment, the more it needs the flexibility of an organic design. 6. Contrast the three traditional organizational designs. A simple structure is one with low departmentalization, wide spans of control, authority centralized in a single person, and little formalization. A functional structure groups similar or related occupational specialties together. A divisional structure is made up of separate business units or divisions. 7.With the availability of advanced information technology that allows an organizations work to be done anywhere at any time, is organizing so far an important managerial function? Why or why not? Although an organizations work may be done anywhere at any time, organizing remains a snappy managerial function because the work that must be accomplished still must be divided, grouped, and coordinated. 8. Researchers are now saying that efforts to simplify work tasks actually have negative results for both companies and their employees. Do you agree? Why or why not? Studies as far back as 1924 show that simplified jobs lead to boredom.In 1950 other researchers found that highly separate and simplified jobs resulted in lower employee morale and output. Other consequences of low emplo yee want include absenteeism and high employee turnover, both very costly for businesses. ETHICS DILEMMA Shortly after the BP oil spill, BP engaged in a labour to improve their image including buying domain label that referred to terms like oil spill and oil spill claims. A company spokeswoman utter the strategy is to assist those who are most impacted and help them find the right forms and the right people quickly and effectively. Is this an honourable issue? What ethical concerns do students see in BP doing this? What stakeholders might be bear upon by BPs actions (buying the search terms)? In what ways might these stakeholders be affected? While some students may not see this as unethical, there is a question as to whether BP acquired the domain names to better inform the public or to control information get at. By controlling information, BP could put their spin on events or even keep the domain names idle so that they could not be used by others to hand negative infor mation about the company actions.Ultimately, with a disaster as large as this one, there were many stakeholders affected fisherman, rig workers, hotel owners, management, and employees. Without access to information, these stakeholders may be unaware of their rights to sue or file claims against BP. SKILLS fare DEVELOPING YOUR EMPOWERING PEOPLE (DELEGATING) SKILLS A managers job is to do things through other people. This requires that a manager learn to trust and pass those they supervise. In this exercise, the author gives five behaviors for effective delegation.Students are to then to read through the scenario and indite a paper describing how they would handle the situation described. In the scenario, Ann is already following several of guidelines given for recommendation, by clarifying the designation and allowing Ricky to participate. In Rickys meeting with Bill, he will have to follow his Bosss lead and follow the recommendations as well. He should first clarify the assig nment and what Bill will be able to include (and not include) in the manual. It will also be a good idea if Ricky and Bill get other employees input on the policy manual since it will be used by everyone in the organization.Finally, Ricky should establish a feedback channel so that Bill can ask questions and Ricky can keep tract of Bills progress. WORKING TOGETHER squad EXERCISE Form groups of three to four students and have each group choose an organization with which students in the group are familiar (where students work, a student organization to which they belong, your college or university, etc. ). Have students draw an organization map of this organization. Students should show departments (or groups) and especially be careful to get the chain of command correct.Students should be prepared to share their chart with the class. If this is done external of class as an assignment, it may be a good idea to have students use Microsoft PowerPoint to prepare the chart. PowerPoin t has an option to draw organizational charts in the Smartart menu. Your Turn to be a Manager Find three different examples of organizational charts. In a report, describe each of them. Try to trace the organizations use of organizational design elements, especially departmentalization, chain of command, centralizationdecentralization, and formalization. Survey at least 10 different managers about how many employees they supervise. Also ask them whether they feel they could supervise more employees or whether they feel the number they supervise is too many. Graph your survey results and write a report describing what you found. fool some conclusions about span of control. Draw an organizational chart of an organization with which youre familiar (where you work, a student organization to which you belong, your college or university, etc. ). Be very careful in showing the departments (or groups) and especially be careful to get the chain of command correct.Be prepared to share you r chart with the class. Using the organizational chart you just created, redesign the organizations structure. What structural changes might make this organization more efficient and effective? Write a report describing what you would do and why. Be sure to include an example of the original organizational chart as well as a chart of your proposed revision of the organizational structure. Steves and Marys suggested readings Gary Hamel, The Future of Management (Harvard Business school day Press, 2007) Thomas Friedman, The World Is Flat 3. (Picador, 2007) Harold J. Leavitt, Top Down Why Hierarchies ar Here to Stay and How to Manage Them More Effectively (Harvard Business school Press, 2005) and Thomas W. Malone, The Future of Work (Harvard Business School Press, 2004). Choose one of the three topics covered in the section on todays organizational design challenges. Research this topic and write a paper about it. Focus on finding current information and current examples of comp anies dealing with these issues. In your own words, write down three things you learned in this chapter about being a good manager. Self-knowledge can be a powerful learning tool. Go to mymanagementlab and complete these self-assessment exercises How Well Do I Handle Ambiguity? What Type of Organizational Structure Do I Prefer? How Good Am I at Playing regime? How Willing Am I to Delegate? Using the results of your assessments, identify personal strengths and weaknesses. What will you do to reinforce your strengths and improve your weaknesses? Answers to Case Application Questions regard Chuck 1. Describe and evaluate what Charles Schwab is doing. It is easy for a company to drop away sight of their goals.While other lines of business may be potential property makers, going beyond a firms core competence can lead a firm into financial trouble. In this case, students should see how Charles Schwab has stayed true to its primary business making stock trades for investors who m ake their own financial decisions. Another goal of Schwab is customer service. In the example of Cheryl Pasquale, we can see how she uses the companys information system to closely monitor her sales representatives to make sure they are meeting the needs of customers. 2.How might the companys culture of not buying into hype and not taking excessive risks affect its organizational structural design? Schwabs conservative culture would foster a simple structure characterized by low departmentalization, wide spans of control, centralized authority, and little formalization. This structure fast, flexible, inexpensive to maintain and has clear lines of accountability. 3. What structural implicationsgood and badmight Schwabs sharp focus on customer feedback have? Schwabs focus on customer feedback would indicate a flexible structure that is able to adapt to meet customer demands.This structure would allow employees to spend more time and energy devoted to improving relationships with cust omers and possibly provide for exceptions to improve customer satisfaction. On the other hand, building strong customer relationships takes time and money. By paying so much attention to the customer there is the potential loss of efficiency that Schwab has to maintain to keep stock transactions low. 4. Do you think this arrangement would work for other types of organizations? Why or why not? This type of customer focus would not work well for firms that operate on a thin margin.For example, manufacturing firms that operate in the due date phase of the industry life cycle focus on care production costs as low as possible. This arrangement may also not work well in situations where organizations are set up around processes. A New Kind of Structure 1. Describe and evaluate what Pfizer is doing. What Jordan Cohen has created at Pfizer is a network organization. Its a form of the boundaryless organization structure where company employees concentrate on the important aspects of the jo b, i. e. hose elements that are related to the companys core competencies, and other tasks are outsourced to another organization. 2. What structural implicationsgood and baddoes this approach have? (Think in terms of the six organizational design elements. ) Have students break into groups and discuss how the advantages and disadvantages of using a network organizational structure from the perspective of Work Specialization Departmentalization Chain Of Command Span Of Control Centralization And Decentralization Formalization Some groups may be assigned more than one design element.For more information on Pfizers new structure, go to the web 3. Do you think this arrangement would work for other types of organizations? Why or why not? The network organization design used by Pfizer has helped to balance recent layoffs the company undergo after a nearly $4 billion yearly budget cut. According to managers in the Fast Company article, the OOF has cut some project costs by 100%. Wh ile this program has been a success for Pfizer, it may not be realistic for other companies that either (a) have not experienced such deep cuts in personnel, or (b) have such high personnel costs. . What role do you think organizational structure plays in an organizations efficiency and effectiveness? Explain. Organizational structure plays a key role in enabling a company to function smoothly, to remain responsive to its internal and external stakeholders, and to adapt to changes in the marketplace. Innovation is facilitated by fewer layers of management, and students have already learned that the survival and success of a company is usually dependent upon its ability to function as a learning organization that promotes innovation.