Lecture 3 2015 .pdf

GE2250 Understand Global Project for Business and Engineering Professionals
Instructor: Jiayu Chen Ph.D.
Organizational Structures

© Jiayu Chen, Ph.D. 2
INTRODUCTION
Assignment Policy
• 2 assignments in total
• Deadline: Highlighted in the course outline
Content:
• Summary
• Problem/Resolution
• Your discussion

COURSE STRUCTURE
L4. Project Cost Estimation
and Budgeting
L5. Project Planning,
Control and Crashing
L6. Risk Management for Global Project
Project Management Triangle Strategic Management
L2. Cross-culture Collaboration
L3. Organizational Structures
Culture
Organization
Global Team
New
Challenges
L8. Supply Chain Management
L10. Lean Project Management
L11. Mergers and Acquisitions
L9 Leadership and Team Building
L12 Virtual Environment and
Global Team

INTRODUCTION
“ An organized group of people with a particular purpose,
such as a business or government department.
A social unit of people that is structured and managed to
meet a need or to pursue collective goals. ”
All organizations have a management structure that determines
relationships between the different activities and the
members, and subdivides and assigns roles, responsibilities,
and authority to carry out different tasks.

BUSSINESS ORGANIZATION

All businesses must adopt some legal configuration that defines the rights and
liabilities of participants in the business’s ownership, control, personal liability, life
span, and financial structure.
In making a choice, you will want to take into account the following:
 vision
 control
 structure
 vulnerability
 tax.
 re-invest
 quit strategy

Sole
Proprietorship
A Sole Proprietorship consists of one individual doing
business. Sole Proprietorships are the most numerous form
of business organization in the United States, however they
account for little in the way of aggregate business receipts.
Advantages of a Sole Proprietorship
• Easiest and least expensive form of
ownership to organize.
• Sole proprietors are in complete control,
and within the parameters of the law, may
make decisions as they see fit.
• Profits from the business flow-through
directly to the owner’s personal tax
return.
• The business is easy to dissolve, if
desired.
Disadvantages of a Sole Proprietorship
• Sole proprietors have unlimited liability
and are legally responsible for all debts
against the business.
• May be at a disadvantage in raising funds
and are often limited to using funds from
personal savings or consumer loans.
• May have a hard time attracting high-
caliber employees, or those that are
motivated by the opportunity to own a part
of the business.

Sole
Proprietorship
A Sole Proprietorship consists of one individual doing
business. Sole Proprietorships are the most numerous form
of business organization in the United States, however they
account for little in the way of aggregate business receipts.

A Partnership consists of two or more individuals in business
together. Partnerships may be as small as family operations, or as
large as some of the big legal or accounting firms that may have
dozens of partners. There are different types of partnerships—
general partnership, limited partnership, and limited liability
partnership.
Partnership
Disadvantages of a Partnership
• Partners are jointly and individually
liable for the actions of the other partners.
• Profits must be shared with others.
• Since decisions are shared, disagreements
can occur.
• Some employee benefits are not
deductible from business income on tax
returns.
• The partnership may have a limited life;
it may end upon the withdrawal or death
of a partner.
Advantages of a Partnership
• Partnerships are relatively easy to
establish; however time should be invested
in developing the partnership agreement.
• With more than one owner, the ability to
raise funds may be increased.
• The profits from the business flow directly
through to the partners’ personal tax return.
• Prospective employees may be attracted to
the business if given the incentive to
become a partner.

General Partnership
Partners divide responsibility for
management and liability, as well as
the shares of profit or loss according
to their internal agreement. Equal
shares are assumed unless there is a
written agreement that states
differently.
Limited Partnership (LP)
Partnership with limited liability
“Limited” means that most of the
partners have limited liability as well
as limited input regarding
management decision, which
generally encourages investors for
short term projects, or for investing in
capital assets.
This form of ownership is not often
used for operating retail or service
businesses. Forming a limited
partnership is more complex and
formal than that of a general
partnership.
Joint Venture
Acts like a general partnership, but is
clearly for a limited period of time or
a single project. If the partners in a
joint venture repeat the activity, they
will be recognized as an ongoing
partnership and will have to file as
such, and distribute accumulated
partnership assets upon dissolution of
the entity.

A Corporation is considered by law to be a unique entity,
separate and apart from those who own it. A Corporation can
be taxed; it can be sued; it can enter into contractual
agreements. The owners of a corporation are its
shareholders. The shareholders elect a board of directors to
oversee the major policies and decisions.
Corporations
Advantages of a Corporation
• Shareholders have limited liability for
debts or judgments against the corporation.
• Shareholders can only be held accountable
for their investment in stock of the
company.
• Corporations can raise additional funds
through the sale of stock.
• A Corporation may deduct the cost of
benefits it provides to officers and
employees.
Disadvantages of a Corporation
• The process of incorporation requires
more time and money than other forms of
organization.
• Corporations are monitored by federal,
state and some local agencies, and as a
result may have more paperwork to
comply with regulations.
• Incorporating may result in higher overall
taxes. Dividends paid to shareholders are
not deductible from business income; thus
this income can be taxed twice.

Limited Liability Company (LLC)
The LLC is a relatively new type of hybrid business structure that blends elements of partnership
and corporate structures. It is designed to provide limited (LLC is not a corporation). liability
features of a corporation and the tax efficiencies and operational flexibility of a partnership.
The owners are members, and the duration of the LLC is usually determined when the
organization papers are filed. The time limit can be continued if desired by a vote of the members
at the time of expiration.
LLC’s must not have more than two of the four characteristics that define corporations: (1)
Limited liability to the extent of assets; (2) continuity of life; (3) centralization of management;
and (4) free transferability of ownership interests.

A special purpose entity/vehicle (SPE) is a legal
entity (usually a limited company of some type or,
sometimes, a limited partnership) created to fulfill
narrow, specific or temporary objectives.
SPEs are typically used by companies to isolate the
firm from financial risk. They are also commonly
used to hide debt (inflating profits), hide ownership,
and obscure relationships between different entities
which are in fact related to each other
Public Private Partnership

Accelerating into trouble
*Case written by Berrin Erdogan, Carlene Reynolds, and Talya Bauer to accompany Bauer, T., & Erdogan, B.
(2009). Organizational behavior (1st ed.).New York: Flat World Knowledge.
Based on information from Accelerating into trouble. (2010, February 11). Economist.
Toyota Motor Corporation has often been referred to as the gold
standard of the automotive industry. In the first quarter of 2007,
Toyota overtook General Motors Corporation in sales for the
first time as the top automotive manufacturer in the world.
Toyota Production System (TPS) is built on the principles of
“just-in-time” production. Raw materials and supplies are
delivered to the assembly line exactly at the time they are to be
used. This system has little room for slack resources, emphasizes
the importance of efficiency on the part of employees, and
minimizes wasted resources.
However, late 2009 and early 2010 witnessed Toyota’s recall of
8 million vehicles due to unintended acceleration. How could
this happen to a company known for quality?
http://www.economist.com/node/15498249

Problems with “unintended acceleration” of Toyota’
cars have triggered an escalating crisis and the recall
of a whopping 8m vehicles.
Toyota said it would also recall 440,000 hybrid
vehicles, including the celebrated Prius, to fix a
problem with their brakes.
• 2008 Toyota refuse to acknowledge the problem.
• 2009 It offered an explanation that was greeted
with skepticism
• 2010 Agree to change the pedal
Toyota's problems are its alone, but they
highlight broader failings in Japanese corporate
governance that make large companies
particularly vulnerable to mishandling a crisis in
this way.

• Seniority and hierarchy
• Short-circuit
• Hidden Context
• Dependent insiders
• Decision Flow

Questions you need to think about:
1. Do you think Toyota’s organizational structure and norms are explicitly
formalized in rules, or do the norms seem to be more inherent in the
culture of the organization?
2. What are the pros and cons of Toyota’s structure?
3. What elements of business would you suggest remain the same and what
elements might need revising?
4. What are the most important elements of Toyota’s organizational
structure?

ORGANIZATION STRUCTURES

MANAGEMENT ORGANIZATION STRUCTURE
Authority is the power granted to individuals
(possibly by their position) so that they can make
final decisions.
Responsibility is the obligation incurred by
individuals in their roles in the formal organization to
effectively perform assignments.
Accountability is being answerable for the
satisfactory completion of a specific assignment.
In the discussion of organizational structures, the following definitions will be used:

MANAGEMENT ORGANIZATION STRUCTURE

Classic/Functional Organization

• Easier budgeting and cost control
• Better technical control
- Specialists can be grouped to share knowledge and responsibility.
- Personnel can be used on many different projects.
- All projects will benefit from the most advanced technology (better utilization of scarce personnel).
• Flexibility in the use of manpower.
• Continuity in the functional disciplines - policies, procedures, and lines of responsibility are easily defined and
understandable.
• Admits mass production activities within established specifications.
• Good control over personnel, since each employee has one and only one person to report to.
• Communication channels are vertical and well established.
• Quick reaction capability exists, but may be dependent upon the priorities of the functional managers.
Advantages
• No one individual is directly responsible for the a project
• Coordination becomes complex, and additional lead time is required for approval of decisions.
• Decisions normally favor the strongest functional groups (cannibalism).
• No customer focal point / project. Response to customer needs is slow.
• Difficulty in pinpointing responsibility; this is the result of little or no direct project reporting, very little project-
oriented planning, and no project authority.
• Motivation and innovation are decreased.
• Ideas tend to be functionally oriented with little regard for ongoing projects.
Disadvantages

Pure Product

• Provides complete line authority over the project.
• Participants work directly for the project manager. Unprofitable product lines are easily identified and can be
eliminated.
• Strong communications channels.
• Staffs can maintain expertise on a given project without sharing key personnel.
• Very rapid reaction time is provided.
• Personnel demonstrate loyalty to the project; better morale with product identification.
• A focal point develops for out-of-company customer relations.
• Flexibility in determining schedule, cost, and performance trade-offs.
• Interface management becomes easier as unit size is decreased.
• Upper-level management maintains more free time for executive decision-making.
Advantages
• Cost of maintaining this form in a multiproduct company would be prohibitive due to duplication of effort,
facilities, and personnel.
• A tendency to retain personnel on a project long after they are needed. Upper-level management must balance
workloads as projects start up and are phased out.
• Technology suffers because, without strong functional groups, outlook of the future to improve company’s
capabilities for new programs would be hampered.
• Control of functional specialists requires top-level coordination.
• Lack of opportunities for technical interchange between projects.
• Lack of career continuity and opportunities for project personnel.
Disadvantages

Line-staff organization

Matrix Organization

• The project manager maintains maximum project control (through the line managers) over all resources,
including cost and personnel.
• Policies and procedures can be set up independently for each project, provided that they do not contradict
company policies and procedures.
• The project manager has the authority to commit company resources, provided that scheduling does not cause
conflicts with other projects.
• Rapid responses are possible to changes, conflict resolution, and project needs (as technology or schedule).
• The functional organizations exist primarily as support for the project.
• Each person has a “home” after project completion. People are susceptible to motivation and end-item
identification. Each person can be shown a career path.
- Because key people can be shared, the program cost is minimized.
- People can work on a variety of problems; that is, better people control is possible.
• Conflicts are minimal, and those requiring hierarchical referrals are more easily resolved.
• There is a better balance among time, cost, and performance.
• Rapid development of specialists and generalists occurs.
• Authority and responsibility are shared. Stress is distributed among the team.
Advantages

• Multidimensional information and information flow.
• Dual reporting.
• Continuously changing priorities.
• Management goals different from project goals (two bosses problem).
• Potential for continuous conflict and conflict resolution.
• Difficulty in monitoring and control.
• Company-wide, the organizational structure is not cost-effective because more people than necessary are
required, primarily administrative.
• Each project organization operates independently. Care must be taken that duplication of efforts does not occur.
• More effort and time are needed initially to define policies and procedures, compared to traditional form.
• Functional managers may be biased according to their own set of priorities.
• Balance of power between functional and project organizations must be watched. Balance of time, cost, and
performance must be monitored.
• Although rapid response time is possible for individual problem resolution, the reaction time can become quite
slow.
• Employees and managers are more susceptible to role ambiguity than in traditional form.
Disadvantages

When it is most practical to consider a matrix:
• When complex, short-run products are the organization’s primary output.
• When a complicated design calls for both innovation and timely completion.
• When several kinds of sophisticated skills are needed in designing, building, and testing
the products—skills then need constant updating and development.
• When a rapidly changing marketplace calls for significant changes in products, perhaps
between the time they are conceived and delivered.
Matrix implementation requires:
• Training in matrix operations
• Training in how to maintain open communications
• Training in problem solving
• Compatible reward systems
• Role definitions

Modification of Matrix Organization

What is the advantages and disadvantages of
Matrix Organization V2.0?

Matrix Layering
A company can have a total company matrix, and each division or department can have its
own internalized matrix. In the situation of a matrix within a matrix, all matrices are formal
operations.
Think about global project and global programs!

Matrix structures can be strong, weak or balanced.
The most common differentiator between a strong and weak matrix is where the command
of technology resides: Project managers or line managers.
* Adopt from Jay R. Galbraith, “Matrix Organization Designs.”

Factors that should be considered when choose suitable matrix structure
• Diversity of product lines
• Rate of change of the product lines
• Interdependencies among subunits
• Level of technology
• Presence of economies of scale
• Organizational size

Structuring for the small and medium companies
Organizing the small company for projects involves two major questions:
1. Where should the project manager be placed within the organization?
2. Are the majority of the projects internal or external to the organization?

During the past ten years, large companies have restructured into strategic business units
(SBUs).
An SBU is a grouping of functional units that have the responsibility for profit (or loss)
of part of the organization’s core businesses.
Strategic Business Unit

DIRECTOR
EMPLOYEE
MANAGER MANAGER
EMPLOYEE EMPLOYEE EMPLOYEE EMPLOYEE
Flat Organization (Self-managing teams)

• Organizational Complexity
• Flexibility
• Cost Reduction
• Adaptability
• Innovation
Benefits of flat organization

ORGANIZATIONAL CHANGE

Why Do Organizations Change?
• Workforce Demographics
• Technology
• Globalization
• Market Conditions
• Organizational Growth
• Poor Performance

Dvorak keyboard

Resistance to Change
Disrupted Habits
Personality
Feelings of Uncertainty
Fear of Failure
Personal Impact of Change
Prevalence of Change
Perceived Loss of Power

Why have some companies been able to implement
organizational change in a short period of time while other
companies require years?
The answer is that successful implementation
requires good transitional management.

Transitional management is the art and science of managing the conversion period from
one organizational design to another.
Transitional Management
Teamwork
• Transfer of power.
• Trust.
• Hierarchical consideration.
• Personnel problems.
• Communications.
• Project manager acceptance.
Management
• Policies and procedures.
• Priority scheduling.
• Competition.
• Tools.
• Contradicting demands.
• Theory X–Theory Y.
• Overmanagement costs.

Organizational Culture

Stories of NORDSTROM

Stories of NORDSTROM
Story 1: “in 1975 Nordstrom moved into a new location that had formerly been a tire
store. A customer brought a set of tires into the store to return them. Without a word about
the mix-up, the tires were accepted, and the customer was fully refunded the purchase
price.”
Story 2: “a customer tried on several pairs of shoes but failed to find the right
combination of size and color. As she was about to leave, the clerk called other Nordstrom
stores but could only locate the right pair at Macy’s, a nearby competitor. The clerk had
Macy’s ship the shoes to the customer’s home at Nordstrom’s expense.”
Story 3: “a customer describes wandering into a Portland, Oregon, Nordstrom looking
for an Armani tuxedo for his daughter’s wedding. The sales associate took his
measurements just in case one was found. The next day, the customer got a phone call,
informing him that the tux was available. When pressed, she revealed that using her
connections she found one in New York, had it put on a truck destined to Chicago, and
dispatched someone to meet the truck in Chicago at a rest stop. The next day she shipped
the tux to the customer’s address, and the customer found that the tux had already been
altered for his measurements and was ready to wear. What is even more impressive about
this story is that Nordstrom does not sell Armani tuxedos.”

Culture of empowerment

Organizational culture
refers to a system of shared assumptions, values, and beliefs that show
employees what is appropriate and inappropriate behavior.
ORGANIZATIONAL CULTURE
A company’s success could be attributed to an
organizational culture that was decisive,
customer oriented, empowering, and people
oriented.
Culture is by and large invisible to individuals.
Even though it affects all employee behaviors,
thinking, and behavioral patterns, individuals
tend to become more aware of their
organization’s culture when they have the
opportunity to compare it to other organizations.

*Adapted from Berrin Erdogan, Carlene Reynolds, and Talya Bauer to accompany Bauer, T., & Erdogan, B.
(2009). Organizational behavior (1st ed.).New York: Flat World Knowledge.

Companies that have innovative cultures are flexible and adaptable, and
experiment with new ideas. These companies are characterized by a flat
hierarchy in which titles and other status distinctions tend to be downplayed.
Innovative Cultures
Companies such as W. L. Gore, Genentech Inc., and Google also encourage
their employees to take risks by allowing engineers to devote 20% of their time to
projects of their own choosing.

Aggressive Cultures
Companies with aggressive cultures value competitiveness and outperforming
competitors: By emphasizing this, they may fall short in the area of corporate
social responsibility.
“We are going to cut off Netscape’s air supply.…Everything they
are selling, we are going to give away.”

Outcome-Oriented Cultures
Outcome-oriented cultures as those that emphasize achievement, results, and
action as important values.
In these companies, it is more common to see rewards tied to performance
indicators as opposed to seniority or loyalty.
• Best Buy tallies revenues and other relevant
figures daily by department.
• Employees are trained and mentored to sell
company products effectively, and they learn
how much money their department made
every day.
• Employees are evaluated based on results
and fulfillment of clearly outlined objectives.

Stable Cultures
Stable cultures are predictable, rule-oriented, and bureaucratic. These
organizations aim to coordinate and align individual effort for greatest levels of
efficiency.
• When the environment is stable and
certain, these cultures may help the
organization be effective by
providing stable and constant levels
of output.
• These cultures prevent quick action,
and as a result may be a misfit to a
changing and dynamic environment.

People-Oriented Cultures
People-oriented cultures value fairness, supportiveness, and respect for
individual rights.
In addition to having fair procedures and management styles, these companies
create an atmosphere where work is fun and employees do not feel required to
choose between work and other aspects of their lives.
A greater emphasis on and expectation of treating people with respect and
dignity.

Team-Oriented Cultures
Companies with team-oriented cultures are collaborative and emphasize
cooperation among employees.
In team-oriented organizations, members tend to have more positive
relationships with their coworkers and particularly with their managers.
• Cross-training its employees so that they are
capable of helping each other when needed.
• The company also places emphasis on
training intact work teams.
• Employees participate in twice daily meetings
named “morning overview meetings” (MOM)
and daily afternoon discussions (DAD) where
they collaborate to understand sources of
problems and determine future courses of
action.

Organizations with detail-oriented cultures emphasis on precision and pay
attention to details. Such a culture gives a competitive advantage to companies
in the hospitality industry by helping them differentiate themselves from others.
Detail-Oriented Cultures
• Keeping records of all customer requests, such
as which newspaper the guest prefers or what
type of pillow the customer uses. This
information is put into a computer system and
used to provide better service to returning
customers.
• Any requests hotel employees receive, as well
as overhear, might be entered into the database
to serve customers better.

An organization’s culture is shaped as the organization faces external and
internal challenges and learns how to deal with them.
How Are Cultures Created?

GREATING CULTURE
A company’s culture, particularly during its early years, is inevitably tied to the
personality, background, and values of its founder or founders, as well as their
vision for the future of the organization.
The organizational culture is extremely hard to change, because it is shaped in
the early days of a company’s history.
Founder’s Values

MAINTAINING CULTURE
Industry Demands
Industry characteristics and demands act as a force to create similarities
among organizational cultures.
For example:
Insurance and
Banking
Stable and rule
oriented
Large number of rules and regulations,
bureaucratic structure, stable culture
High-tech
Industry
Innovative Agility, quick response, low authority
Nonprofit People oriented

MAINTAINING CULTURE
Attraction-Selection-Attrition (ASA)
http://youtu.be/nLAiQ_kiPf8
20thcenturyfoxph
The Internship Clip (Red Paddle, Green Paddle)

MAINTAINING CULTURE
New Employee Onboarding
Another way in which an organization’s values, norms, and behavioral patterns
are transmitted to employees is through onboarding.
Onboarding refers to the process through which new employees learn the
attitudes, knowledge, skills, and behaviors required to function effectively within
an organization.
According to one estimate*, 35% of managers who start a new job fail in the new job
and either voluntarily leave or are fired within 1.5 years. Of these, over 60% report not
being able to form effective relationships with colleagues as the primary reason for their
failure.
*Fisher, A. (2005, March 7). Starting a new job? Don’t blow it. Fortune, 151, 48.

Leaders are instrumental in creating and changing an organization’s culture.
There is a direct correspondence between a leader’s style and an
organization’s culture.
Part of the leader’s influence over culture is through role modeling. Leader
behavior, the consistency between organizational policy and leader actions,
and leader role modeling determine the degree to which the organization’s
culture emphasizes ethics.
Leaders also shape culture by their reactions to the actions of others around
them.
MAINTAINING CULTURE
Leadership

MAINTAINING CULTURE
Reward Systems
Whether and how the organization rewards behaviors or results shape the
culture of a organization.
For example:
• Some companies have reward systems that emphasize intangible elements of
performance as well as more easily observable metrics.
- supervisors and peers may evaluate an employee’s performance by assessing the
person’s behaviors as well as the results.
• Some companies reward purely based on goal achievement, there is a focus
on measuring only the results without much regard to the process.
• Some organization uses rankings or ratings. In a company where the reward
system pits members against one another, where employees are ranked
against each other and the lower performers receive long-term or short-term
punishments

CHANGING CULTURE

CHANGING CULTURE
• In the early 1950s, Newell Company’s business consisted solely of
manufactured curtain rods.
• Since the 1960s, the company diversified through acquisitions of
businesses for paintbrushes, writing pens, pots and pans, hairbrushes, and
the like. Over 90% of its growth is attributed to many small acquisitions
and the subsequent restructuring and cost cutting Newell instituted.
• In 1999, Newell acquired Rubbermaid, a U.S.-based manufacturer of
flexible plastic products like trash cans, reheatable and freezable food
containers, and a broad range of other plastic storage containers designed
for home and office use.

CHANGING CULTURE
• Newell compensated business
managers well for performance. They
were paid a bonus based on the
profitability of their particular unit.
• Newell managers could expect a base
salary equal to the industry average
but could earn bonuses ranging from
35% to 100% based on their rank and
unit profitability.
• While Rubbermaid was highly
innovative (over 80% of its growth
came from internal new product
development)
• it had experienced difficulty
controlling costs and was losing
ground against powerful customers
like Wal-Mart.
Outcome Oriented and Competitive Culture Innovative Culture

CHANGING CULTURE
Two CEOs were failed to attempts to turn things around, until Newell
Rubbermaid hired Joseph Galli to run the Company in 2001. He rethought the
strategies of both companies and embraced the idea of changing the culture by
hiring new kinds of people for a new kind of company.
• He cut 3,000 jobs throughout the company and made 141 changes at the
executive level (vice presidents and above).
• He introduced new incentive plans and 6-week leadership boot camps to
align employees around the new company culture and goals.
Under the new leadership, both revenues and profits are up, and in 2010,
Fortune named Newell Rubbermaid the number 7 “Most Admired Company”
in the home equipment and furnishings category.
The changes he implemented were painful at the time, they did seem to put the
company on the right track.

First Assignment !!
"Cisco Business Councils (2007): Unifying a Functional Enterprise
with an Internal Governance System."
Questions that guide you understand the case.

Thank You!

Lecture 3 2015 .pdf

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