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Organization DesignOrganization Design

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CentralizationCentralization

● Degree to which authority is concentrated in a single place

● Centralized companies– McDonald’s, Wal-Mart

● Decentralized companies– GE, Proctor & Gamble, IBM

● What are the strengths/weaknesses of each?

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CoordinationCoordination

Theory●Parts of a business must work together●Pooled interdependence

– Just “staple the results together”●Sequential interdependence

– Output of one becomes input of next function●Reciprocal interdependence

– Activities flow both ways between functions– E.g. Hotel reservations, front desk,

housekeeping– E.g. product development and marketing

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How to Manage CoordinationHow to Manage Coordination

Practice●Managerial hierarchy

– Put a manager in charge of interdependent functions

●Rules and procedures●Liaison roles●Task forces●Integrating departments

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Organizational DesignOrganizational Design

● Organizations change● Organizations, especially large ones, can be

very complex

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Bureaucratic ModelBureaucratic Model

Theory●Max Weber

– Design based upon formal system of authority

1.Distinct divisions of labor, staffed with experts2.Consistent set of rules for uniform performance3.Hierarchy of positions and chain of command4.Managers should be impersonal5.Employment and advancement based upon technical expertise

- Protect employees against arbitrary firing●Examples: Gov’t, universities

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Behavioral ModelBehavioral Model

Theory●Rensis Likert – major researcher●Created dimension and table (matrix) of processes

– System 1 design – bureaucratic model– System 4 design – full behavioral model

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System 1 DesignSystem 1 Design

● Leadership process includes no perceived confidence and trust.

● Motivational process taps only physical, security, and economic motives.

● Communication process is such that information flows downward.

● Interaction process is closed.● Decisions occur at the top.● Goal setting occurs at top.● Control is centralized.● Performance goals are low.

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System 4 DesignSystem 4 Design

● Leadership process includes perceived confidence and trust.

● Motivational process taps a full range of motives through participatory methods.

● Communication flows freely.● Interaction process is open.● Decisions occur at all levels.● Goal setting encourages group participation.● Control process is dispersed.● Performance goals are high.

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Situational ViewSituational View

Practical Influences● Technology

– Unit or small-batch technology E.g. Brooks’ Brothers (custom suits), Kinkos Often System 4 Design

– Mass production or large-batch E.g. Ford, Whirlpool, Phillips Often System 1 Design

– Continuous-process E.g. Shell, Dow Often System 4 Design Typically highly automated

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Situational ViewSituational View

● Environment– Mechanistic organizations

Bureaucratic Most often stable environment Well-defined rules and procedures E.g. A&F, Wendy’s, Aetna

– Organic organizations Unstable, fluid environment E.g. Motorola, Limited Brands

– Characterize according to: Differentiation – how many subunits Integration – how much the units have to cooperate

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Situational ViewSituational View

● Organization size– Large organizations

Have greater specialization More SOP More regulations Greater centralization E.g. Wal-Mart

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Situational ViewSituational View

● Organization Life Cycle– Birth, youth, mid-life, maturity– Organization you need changes over time

Becomes more mechanistic over time More specialized over time Coordination demands increase

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Strategy and Organizational DesignStrategy and Organizational Design

● Defenders – tall and centralized, functional● Prospectors – flat, decentralized● Differentiators – structure around the differentiator● Cost Leadership – centralized, functional

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Basic FormsBasic FormsFunctional (U-Form)Functional (U-Form)

● Organize by basic functions– Operations– Marketing– Finance– HR– R&D

● U form (unitary)● Example: Abercrombie & Fitch, WD-40

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Basic FormBasic FormConglomerate (H-Form)Conglomerate (H-Form)

● Organization is a set of unrelated businesses– (H stands for holding)– Often along product lines

● Examples:– GE

Aircraft engines, appliances, broadcasting, lighting, …

– Mitsubishi– LG

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Basic FormBasic FormDivisional (M-Form)Divisional (M-Form)

● Organize along related product lines– (M stands for multidivisional)

● Examples– Walt Disney

Theme parks, movies, merchandise– HP

PCs, printers, medical equipment● Allows for autonomy yet take advantage of

shared resources

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Basic FormBasic FormMatrix DesignMatrix Design

● Organization is a combination of two more basic forms

● Examples– Martha Stewart

Product groups and lifestyle (wedding, cooking, etc.)

– GM● Major disadvantages

– Uncertain reporting relationships– Potential conflicting goals– Coordination required, longer decision making