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Chapter 13: Chapter 13: Organizational Organizational DesignDesign
Creating Effective Creating Effective OrganizationsOrganizations
What is Organization What is Organization Structure and Design?Structure and Design?
1.1. An authority systemAn authority system
2.2. A communication systemA communication system
3.3. A decision making systemA decision making system
4.4. An activities/work systemAn activities/work system
Key Concepts in Key Concepts in DesignDesign Bureaucracy—Creation of formal rules Bureaucracy—Creation of formal rules
to solve organizational problemsto solve organizational problems Mechanistic versus Organic StructuresMechanistic versus Organic Structures
—the more environmental uncertainty —the more environmental uncertainty the greater the need for an organic the greater the need for an organic structurestructure
Differentiation (division of labor) and Differentiation (division of labor) and Integration (coordinating mechanisms) Integration (coordinating mechanisms)
Span of ControlSpan of Control
Functional Organizational Functional Organizational Structures:Structures: “Typical” Functional “Typical” Functional Organizational StructureOrganizational Structure
General ManagerGeneral Manager
EngineeringEngineering ManufacturingManufacturing MarketingMarketing Finance and Finance and AccountingAccounting PersonnelPersonnel Research andResearch and
DevelopmentDevelopment
Process-Oriented Functional StructureProcess-Oriented Functional Structure
General ManagerGeneral Manager
FoundryFoundryAndAnd
CastingsCastings
MillingMillingAndAnd
GrindingGrinding
ScrewScrewMachiningMachining
FinishingFinishingAnd HeatAnd HeatTreatingTreating
InspectionInspectionLoadingLoading
AndAndShippingShipping
Customer Customer ServiceService
BillingBillingAndAnd
AccountingAccounting
Functional Organizational Functional Organizational Structures: Structures: Strategic Strategic Advantages/DisadvantagesAdvantages/Disadvantages
Strategic AdvantagesStrategic Advantages
Permits Permits centralized centralized control of control of strategic resultsstrategic results
Promotes in-Promotes in-depth functional depth functional expertiseexpertise
Enhances Enhances operating operating efficiency where efficiency where tasks are routine tasks are routine and repetitiveand repetitive
Strategic DisadvantagesStrategic Disadvantages
Poses problems Poses problems of functional of functional coordinationcoordination
Can lead to Can lead to interfunctional interfunctional rivalry, conflict, rivalry, conflict, and empire-and empire-buildingbuilding
May promote May promote overspecializatiooverspecialization/ narrow n/ narrow viewpointsviewpoints
Geographic Organizational Geographic Organizational StructureStructure
Chief Chief ExecutiveExecutive
Corporate StaffCorporate StaffFinance and AccountingFinance and AccountingPersonnelPersonnelMarketing ServicesMarketing ServicesLegalLegalPlanningPlanningResearch and Research and DevelopmentDevelopment
GenerGeneralalManagManagererWesternWesternDistrictDistrict
GenerGeneralalManagManagererSoutherSouthernnDistrictDistrict
GenerGeneralalManagManagererCentralCentralDistrictDistrict District StaffDistrict Staff
PersonnelPersonnelAccounting and Accounting and ControlControl
GenerGeneralalManagManagererEasternEasternDistrictDistrict
GenerGeneralalManagManagererNortherNorthernnDistrictDistrict
EngineerinEngineeringg
ProductioProductionn
MarketiMarketingng
Geographic Organizational Geographic Organizational Structures: Structures: Strategic Strategic Advantages/DisadvantagesAdvantages/Disadvantages
Strategic AdvantagesStrategic Advantages Allows tailoring Allows tailoring
of strategy to of strategy to needs of each needs of each geographic geographic marketmarket
Improves Improves coordination coordination within the within the marketmarket
Takes Takes advantage of advantage of economies of economies of local operationslocal operations
Strategic DisadvantagesStrategic Disadvantages Greater difficulty Greater difficulty
in maintaining in maintaining consistent consistent company image company image across areas across areas
Can result in Can result in duplication of duplication of staff services at staff services at headquarters and headquarters and district levels, district levels, making a relative-making a relative-cost disadvantagecost disadvantage
Divisional Structure--Divisional Structure--Usually done by product or Usually done by product or customer/marketcustomer/marketChief Executive Chief Executive
OfficerOfficerCorporate Staff Corporate Staff Services/FunctionsServices/Functions
Group Vice Group Vice PresidentPresidentSBU ISBU I
R & R & DDFinance and Corporate Finance and Corporate AccountingAccountingMarketing ServicesMarketing ServicesPlanningPlanningPersonnelPersonnelLegal AffairsLegal AffairsPublic Relations and Public Relations and CommunicationsCommunications
Group Vice Group Vice PresidentPresidentSBU IIISBU III
Group Vice Group Vice PresidentPresidentSBU IISBU II
Business Business Units/DivisionsUnits/Divisions
Business Business Units/DivisionsUnits/Divisions
Business Business Units/DivisionsUnits/Divisions
Divisional/SBU Type Divisional/SBU Type Organization Structure: Organization Structure: Advantages/DisadvantagesAdvantages/Disadvantages
Strategic AdvantagesStrategic Advantages Provides a Provides a
strategically strategically relevant way to relevant way to organize large organize large numbers of numbers of different business different business unitsunits
Improves Improves coordination within coordination within business units business units
Helps allocate Helps allocate corporate resources corporate resources to areas with to areas with greatest growth greatest growth opportunitiesopportunities
Strategic DisadvantagesStrategic Disadvantages
Divisions can still Divisions can still be myopic in be myopic in charting their charting their future directionfuture direction
Adds another Adds another layer to top layer to top managementmanagement
Little Little coordination coordination across divisions across divisions
Redundant roles Redundant roles cause increasecause increase
Matrix Organization Matrix Organization StructureStructure
General General ManagerManager
Head of R&D Head of R&D andand
EngineeringEngineering
Engineering/Engineering/R&D R&D
SpecialistsSpecialists
Engineering/Engineering/R&D R&D
SpecialistsSpecialists
Engineering/Engineering/R&D R&D
SpecialistsSpecialists
Engineering/Engineering/R&D R&D
SpecialistsSpecialists
Business/ Business/ Project/ Project/ Venture Venture
Manager 1Manager 1
Business/ Business/ Project/ Project/ Venture Venture
Manager 2Manager 2
Business/ Business/ Project/ Project/ Venture Venture
Manager 3Manager 3
Business/ Business/ Project/ Project/ Venture Venture
Manager 4Manager 4
Head ofHead ofManufactuManufactu
ringring
ProductionProductionSpecialistsSpecialists
ProductionProductionSpecialistsSpecialists
ProductionProductionSpecialistsSpecialists
ProductionProductionSpecialistsSpecialists
Head ofHead ofMarketingMarketing
MarketingMarketingSpecialistsSpecialists
MarketingMarketingSpecialistsSpecialists
MarketingMarketingSpecialistsSpecialists
MarketingMarketingSpecialistsSpecialists
Head ofHead ofFinanceFinance
FinanceFinanceSpecialistsSpecialists
FinanceFinanceSpecialistsSpecialists
FinanceFinanceSpecialistsSpecialists
FinanceFinanceSpecialistsSpecialists
Arrows denote Arrows denote reporting channelsreporting channels
Matrix Organization Matrix Organization Structures: Structures: Strategic Strategic Advantages/DisadvantagesAdvantages/Disadvantages
Strategic AdvantagesStrategic Advantages Gives formal Gives formal
attention to each attention to each dimension of dimension of strategic prioritystrategic priority
Creates checks Creates checks and balances and balances among among competing competing viewpointsviewpoints
Promotes Promotes making trade-off making trade-off decisions .decisions .
Strategic DisadvantagesStrategic Disadvantages Very complex to Very complex to
managemanage Hard to maintain Hard to maintain
“balance” “balance” between the two between the two lines of authoritylines of authority
It is hard to It is hard to move quickly move quickly and decisively and decisively without getting without getting clearance from clearance from other peopleother people
The Network The Network OrganizationOrganization
DistributorsDistributors
BrokersBrokers
SuppliersSuppliers
DesignersDesigners ProducersProducers
Process for Creating Process for Creating an Organization’s an Organization’s StructureStructure1.1. Identify the critical activities needed to Identify the critical activities needed to
carry out the organization’s strategycarry out the organization’s strategy2.2. Understand the relationships between Understand the relationships between
these activities (the degree of these activities (the degree of interdependence)interdependence)
3.3. Group the activities into organizational Group the activities into organizational unitsunits
4.4. Determine the degree of authority and Determine the degree of authority and independence of each of these unitsindependence of each of these units
5.5. Provide for coordination between the Provide for coordination between the various units.various units.
Source: ThompsonSource: Thompson
Signs of Poor Signs of Poor Organization Structure Organization Structure and Designand Design1.1. Poor forecastingPoor forecasting2.2. Not meeting customer needsNot meeting customer needs3.3. Higher than expected costs Higher than expected costs 4.4. Slow response to changes in the Slow response to changes in the
environmentenvironment5.5. Conflict between individuals and/or Conflict between individuals and/or
groupsgroups6.6. Poor communication/coordinationPoor communication/coordination7.7. Poor decision making—Decisions being Poor decision making—Decisions being
made by the wrong people or at the made by the wrong people or at the wrong level in the hierarchy. Inadequate wrong level in the hierarchy. Inadequate information to make good decisions.information to make good decisions.