Lecture 11 & 12

Factors Affecting Organizational Structure

Factors Influencing Organizational Structure & Design

• Internal Factors– Informational & Control Processes– Organizational Size and Life cycle– Workplace Technology & Design

• External Factors

– Global Organizational Design– Impact of environment

Informational & Control Processes

Information Technology• Today most successful organizations are generally

those that most effectively apply information technology (IT).

• IT systems have evolved to a variety of applications to meet organization’s information needs operations applications are applied to well-defined tasks at lower organization levels and help improve efficiency.

• These include: – Transaction processing systems, – Data warehousing– Data mining.

Information for Decision-making • Advanced computer-based systems are also used

for better decision-making, coordination, and control of the organization.

• Decision-making systems include management information systems– Reporting systems or decision support systems (middle of the

organization). – Executive information systems (typically used by upper levels of

the organization).

Information for Control• At the organization level of control, an innovation called the

balanced scorecard provides managers with a balanced view of the organization by integrating traditional financial measurements, customers, internal business processes, and learning and growth.

• Managers also use strategy maps to see the cause-effect relationships among these critical success factors.

• At the department level, managers use behavior control or outcome control. – Behavior control involves close monitoring of employee activities,

whereas outcome control measures and rewards results. – Most managers use a combination of behavior and outcome control,

with a greater emphasis on outcome control because it leads to better performance and higher motivation.

Strengthening Internal Coordination• Today, all the various computer-based systems have

begun to merge into an overall IT system that adds strategic value by enabling close coordination internally and with outside parties.

• Intranets, Web 2.0 tools, knowledge management systems, and enterprise resource planning are used primarily to support greater internal coordination and flexibility.

Strengthening External Coordination• The integrated enterprise uses advanced IT to

enable close coordination among a company and its suppliers, partners, and customers. – Systems that support and strengthen external

relationships include extranets and supply chain management systems, customer relationship systems, and e-business.

• To establish an e-business, companies can choose among an in-house division, a spin-off, or a strategic partnership. Each has strengths and weaknesses.

Impact on Organization Design• Advanced IT is having a significant impact on organization

design, and some experts suggest that it will eventually replace traditional hierarchy as a primary means of coordination and control.

• Technology has enabled creation of the network organization structure, in which a company subcontracts most of its major functions to separate companies.

• In addition, most other organizations are also rapidly evolving toward greater interorganizational collaboration.

• Other specific implications of advanced IT for organization design include smaller organizations, decentralized organization structures, and improved internal and external coordination.

Organization Size and Life Cycle

Organization Size• Organizations experience many pressures to grow.• In some industries large size is crucial to become economically healthy. • Size enables economies of scale, provides a wide variety of

opportunities for employees, and allows companies to invest in expensive and risky projects.

• However, large organizations have a hard time adapting to rapid changes in the environment. – Large organizations are typically standardized, mechanistically run, and

complex. • Small organizations typically have a flatter structure and an organic,

free-flowing management. – They can respond more quickly to environmental changes and are more

suited to encouraging innovation and entrepreneurship.• Managers in large or growing firms try to find mechanisms to make

their organizations more flexible and responsive .

Organizations life-cycle • Organizations evolve through distinct life-cycle stages as

they grow and mature. • Organization structure, internal systems, and management

issues are different for each stage of development. • Growth creates crises and revolutions along the way

toward large size. • A major task of managers is to guide the organization

through the entrepreneurial, collectivity, formalization, and elaboration stages of development.

Stages of Life Cycle• Entrepreneurial – Organization is born, emphasis is on creating products & services,

founders are entrepreneurs, it is informal & non bureaucratic, control is based on owner personal supervision. Crisis (need for leadership)

• Collectivity– If the leadership crisis is resolved, strong leadership is obtained

and organization begins to develop clear goals and directions. Establish departments, hierarchy, job assignments and division of labor. Crisis (need for delegation)

Stages of Life Cycle (cont.)• Formalization: – It involves the installation of rules, procedures, and control

systems. Communication is less frequent and more formal. Engineers, human resource specialists, and other staff may be added. Top management becomes concerned with issues like strategy and planning and leaves the operation to middle managers. Crisis (too much red tape)

• Elaboration:– The solution to the red tape crisis is a new sense of

collaboration and teamwork. Managers develop skills for confronting problems and working together. Bureaucracy may have reached its limits. Crisis (need for revitalization)

Organizational Size and Bureaucracy

• As organizations progress through the life cycle and grow larger and more complex, they generally take on bureaucratic characteristics, such as rules, division of labor, written records, hierarchy of authority, and impersonal procedures.

• Bureaucracy is a logical form of organizing that lets firms use resources efficiently.

• However, in many large corporate and government organizations, bureaucracy has come under attack with attempts to decentralize authority, flatten organization structure, reduce rules and written records, and create a small-company mindset.

Organizational Size and Bureaucracy (Cont.)• These organizations are willing to trade economies

of scale for responsive, adaptive organizations. • Many organizations are subdividing to gain small-

company advantages. • Another approach to overcoming the problems of

bureaucracy is to use temporary systems, enabling the organization to glide smoothly between a highly formalized, hierarchical style that is effective during times of stability and a more flexible, loosely structured one needed to respond to unexpected or volatile environmental conditions.

Other Forms of Control• All organizations, large and small, need systems for control. • Managers can choose among three overall control strategies:

bureaucratic, market and clan. • Bureaucratic control relies on standard rules and the rational-

legal authority of managers. • Market control is used where product or service outputs can

be priced and competition exists.• Clan control, and more recently self-control, are associated

with uncertain and rapidly changing organization processes. They rely on commitment, tradition, and shared values for control.

• Managers may use a combination of control approaches to meet the organization's needs.

Organizational Decline• Many organizations have stopped growing, and some are

declining. • Organizations go through stages of decline, and it is the

responsibility of managers to detect the signs of decline, implement necessary action, and reverse course.

• One of the most difficult decisions pertains to downsizing the workforce.

• To smooth the downsizing process, managers can communicate with employees and provide as much information as possible, provide assistance to displaced workers, and remember to address the emotional needs of those who remain with the organization.