• Organizing: the process by which managers establish working relationships among employees to achieve goals. – Organizational Structure: formal system of task & reporting relationships showing how workers use resources. – Organizational design: managers make specific choices resulting in a given organizational structure.• Successful organizational design depends on the organization’s unique situation.
Factors Affecting Organizational Design Environment Determine design Determine design Strategy or organizational Technology or organizational structure structure Human Resources
Characteristics of a formal organization• Well defined rules and regulation• Arbitrary structure• Determined objectives and policies• Status symbol• Limitation on the activities of the individual• Strict observance of the principle of co-ordination• Messages are communicated through scalar chain
Key characteristics of the informal organization:• evolving constantly• grass roots• dynamic and responsive• excellent at motivation• requires insider knowledge to be seen• treats people as individuals• flat and fluid• cohered by trust and reciprocity• difficult to pin down• collective decision making• essential for situations that change quickly or are not yet fully understood
Reasons for informal organization:• Informal standards: personal goals and interests of workers differ from official organizational goals.• Informal communication: changes of communication routes within an enterprise due to personal relations between coworkers.• Informal group: certain groups of coworkers have the same interests, or (for example) the same origin.• Informal leaders: due to general popularity, certain members of the organization win more influence than originally intended.• Different interests and preferences of coworkers.• Different status of coworkers.• Difficult work requirements.• Unpleasant conditions of work.
Determinants of StructureThe environment: The quicker the environmentchanges, the more problems face managers. • Structure must be more flexible when environmental change is rapid. – Usually need to decentralize authority.Strategy: Different strategies require the use ofdifferent structures. • A differentiation strategy needs a flexible structure, low cost may need a more formal structure. • Increased vertical integration or diversification also requires a more flexible structure.
Determinants of Structure– Technology: The combination of skills, knowledge, tools, equipment, computers and machines used in the organization. • More complex technology makes it harder for managers to regulate the organization. Technology can be measured by: – Task Variety: new problems a manager encounters. – Task Analyzability: programmed solutions available to a manager to solve problems. • High task variety and low analyzability present many unique problems to managers. – Flexible structure works best in these conditions. • Low task variety and high analyzability allow managers to rely on established procedures.
Technology & PeopleSmall Batch Technology: produces small quantitiesof one-of-a-kind products. • Based on the skills of the workers who need a flexible structure.Mass Production Technology: automated machinesmake high volumes of standard products. • Workers perform repetitive tasks so a formal structure works well.Continuous Process Technology: totally mechanizedsystems of automatic machines. • Workers must watch for unexpected problems and react quickly. A flexible structure is needed here.
Determinants of StructureHuman Resources: the final factor affectingorganizational structure. • Higher skilled workers who need to work in teams usually need a more flexible structure. • Higher skilled workers often have professional norms (CPA’s, physicians).Managers must take into account all fourfactors (environment, strategy, technologyand human resources) when designing thestructure of the organization.
Job Design• Job Design: group tasks into specific jobs. • Results in a division of labor between workers that is effective and efficient. – Job simplification: reduction of the tasks each worker performs. • Too much and boredom results. – Job enlargement: increase tasks for a given job to reduce boredom. – Job enrichment: increases the degree of responsibility a worker has over a job. • can lead to increased worker involvement.
Job Characteristics Model Skill Variety Skill Variety Meaningfulness Task Identity Meaningfulness Task Identity of work of workTask SignificanceTask Significance Responsibility Responsibility High: High: Autonomy for Work for Work Autonomy Outcomes Motivation Motivation Outcomes Performance Performance Satisfaction Satisfaction Knowledge of Knowledge of Feedback Feedback results of results of work work
Job Characteristics ModelJobs have five characteristics describing extent of: – Skill variety: employee uses a wide range of skills – Task identity: worker involved in all tasks of job from beginning to end of the production process – Task significance: worker feels the task is meaningful to organization. – Autonomy: employee has freedom to schedule tasks and carry them out. – Feedback: worker gets direct information about how well the job is done.These affect the motivation, satisfaction andperformance of employees.
Grouping Jobs into Functions• Once tasks are grouped into jobs, managers must decide how to group jobs together. – Function: people working together with similar skills, tools or techniques to perform their jobs. • Functional structure consists of departments such as marketing, production, and finance. Pros – Workers can learn from others doing similar tasks. Pros – Easy for managers to monitor and evaluate workers. – Hard for one department to communicate with others. Cons Cons – Managers can become preoccupied with their department and forget the firm
A Sample of Pier 1’s Functional Structure C la r k J o h n s o n C E O E x e c . V .P . S e n io r V . P . S e n io r V . P . F in a n c e & A d m in . S to re s L o g is t ic s V .P . T a x V . P . C o n t r o lle r V .P . D is t r ib u t io n V .P . M IS D ir e c t o r C o r p . P la n n in g D ir e c t o r T r a n s p o r t a t io n
Divisional Structures• A division is a collection of functions working together to produce a product. • Divisions create smaller, manageable parts of a firm. Divisions develop a business-level strategy to compete. A division has marketing, finance, and other functions. Functional managers report to divisional managers who then report to corporate management. – Product structure: divisions created according to the type of product or service. – Geographic structure: divisions based on the area of a country or world served. – Market structure: divisions based on the types of customers served.
Product Structure CEO C o r p o r a tio n C o rp o ra te M a n a g e rsW a s h in g M a c h in e L ig h tin g T e le v is io n D iv is io n D iv is io n D iv is io n
Geographic Structure CEO C o r p o r a tio n C o rp o ra te M a n a g e rsN o rth e rn W e s te rn S o u th e rn E a s te rn R e g io n R e g io n R e g io n R e g io n
Market Structure CEO C o r p o r a tio n C o rp o ra te M a n a g e rsL a r g e B u s in e s s S m a ll B u s in e s s E d u c a tio n a l In d iv id u a l C u s to m e rs C u s to m e rs In s titu tio n s C u s to m e rs
Global Structures• When managers find different problems or demands across the globe, global solutions are needed. – Global geographic structure: different divisions serve each world region. • For customer needs that vary between regions. – Global product structure: Customers in different regions buy similar products so firms keep most functional work at home and set up a division to market product abroad.
Matrix & Product Teams– Matrix structure: managers group people by function and product teams simultaneously. • Results in a complex network of reporting relationships. • Very flexible and can respond rapidly to change. • Each employee has two bosses which can cause problems. – Functional manager gives different directions than product manager and employee cannot satisfy both.– Product Team Structure: no 2-way reporting and the members are permanently assigned to the team and empowered to bring a product to market.
The advantages of a matrix include:• The advantages of a matrix include:• Individuals can be chosen according to the needs of the project.• The use of a project team that is dynamic and able to view problems in a different way as specialists have been brought together in a new environment.• Project managers are directly responsible for completing the project within a specific deadline and budget.
The disadvantages are• A conflict of loyalty between line managers and project managers over the allocation of resources.• Projects can be difficult to monitor if teams have a lot of independence.• Costs can be increased if more managers (i.e. project managers) are created through the use of project teams.
Product Team Structure CEO Func. Managers Sales Design ProductionManufacturing Manufacturing Manufacturing = Product Team Manager = Team member
Hybrid Structures• Many large organizations have divisional structures where each manager can select the best structure for that particular division. – One division may use a functional structure, one geographic, and so on.• This ability to break a large organization into many smaller ones makes it much easier to manage.
Coordinating Functions•To ensure sufficient coordination between functions, managers delegate authority. – Authority: the power vested in the manager to make decisions and use resources. – Hierarchy of authority: describes the relative authority each manager has from top to bottom. • Span of Control: refers to the number of workers a manager manages. • Line authority: managers in the direct chain of command for production of goods or services. Example: Sales • Staff authority: managers in positions that give advice to line managers. Example: Legal
Tall & Flat Organizations– Tall structures have many levels of authority relative to the organization’s size. • As levels in the hierarchy increase, communication gets difficult. • The extra levels result in more time being taken to implement decisions. • Communications can also become garbled as it is repeated through the firm.– Flat structures have few levels but wide spans of control. • Results in quick communications but can lead to overworked managers.
Minimum Chain of Command – Managers should carefully evaluate: • Do they have the right number of middle managers? • Can the structure be altered to reduce levels?• Centralized v. Decentralized – Decentralized operations puts more authority at lower levels and leads to flat organizations. • Workers must be able to reach decisions. • Divisions and functions can begin to lose sight of organizational goals and focus only on their small area.
Integrating Mechanisms– Direct contact: get managers from different divisions or functions together to solve mutual problems.– Liaison Roles: one manager in each area is responsible for communication with other areas.– Task Forces: temporary committees formed across divisions to solve a specific problem.– Cross-functional teams: works much like a permanent task force that deals with recurring problems.– Matrix structure: already contains many integrating mechanisms.
Strategic Alliances• Strategic alliance: a formal agreement committing two or more firms to exchange resources to produce a good.• Network Structure: a whole series of strategic alliances. – Created between suppliers, manufacturers, and distributors. • Toyota and Honda use many such alliances. – Network structures allow firms to bring resources together in a boundary-less organization.