Learning ObjectivesLearning Objectives

1.1. Describe the four basic Describe the four basic organizational design challenges organizational design challenges confronting managers and confronting managers and consultantsconsultants

2.2. Discuss the way in which these Discuss the way in which these challenges must be addressed challenges must be addressed simultaneously if a high-performing simultaneously if a high-performing organizational structure is to be organizational structure is to be createdcreated

Learning Objectives Learning Objectives (cont.)(cont.)

3.3. Distinguish among the design Distinguish among the design choices that underlie the creation choices that underlie the creation of either a mechanistic or an of either a mechanistic or an organic structureorganic structure

4.4. Recognize how to use contingency Recognize how to use contingency theory to design a structure that theory to design a structure that fits an organization’s environmentfits an organization’s environment

DifferentiationDifferentiation

• The process by which an The process by which an organization allocates people and organization allocates people and resources to organizational tasks resources to organizational tasks

• Establishes the task and authority Establishes the task and authority relationships that allow the relationships that allow the organization to achieve its goalsorganization to achieve its goals

• Division of laborDivision of labor: the degree of : the degree of specialization in the organizationspecialization in the organization

Differentiation (cont.)Differentiation (cont.)

• In a simple organization, In a simple organization, differentiation is low because the differentiation is low because the division of labor is low division of labor is low – Individuals typically perform all Individuals typically perform all

organizational tasksorganizational tasks

• In a complex organization, In a complex organization, differentiation is high because the differentiation is high because the division of labor is highdivision of labor is high

Figure 4.1: Design Figure 4.1: Design ChallengeChallenge

Figure 4.1: Design Figure 4.1: Design Challenge (cont.)Challenge (cont.)

Figure 4.1: Design Figure 4.1: Design Challenge (cont.)Challenge (cont.)

Figure 4.1: Design Figure 4.1: Design Challenge (cont.)Challenge (cont.)

Figure 4.1: Design Figure 4.1: Design Challenge (cont.)Challenge (cont.)

Organizational RolesOrganizational Roles

• Set of task-related behaviors Set of task-related behaviors required of a person by his or her required of a person by his or her position in an organizationposition in an organization– As the division of labor increases, As the division of labor increases,

managers specialize in some roles managers specialize in some roles and hire people to specialize in and hire people to specialize in othersothers

– Specialization allows people to Specialization allows people to develop their individual abilities and develop their individual abilities and knowledge within their specific roleknowledge within their specific role

• Organizational structure is based Organizational structure is based on a system of interlocking roleson a system of interlocking roles

Organizational Roles Organizational Roles (cont.)(cont.)

• AuthorityAuthority: the power to hold : the power to hold people accountable for their people accountable for their actions and to make decisions actions and to make decisions concerning the use of concerning the use of organizational resourcesorganizational resources

• ControlControl: the ability to coordinate : the ability to coordinate and motivate people to work in the and motivate people to work in the organization’s interestsorganization’s interests

Subunits: Functions Subunits: Functions and Divisionsand Divisions

• FunctionFunction: a subunit composed of a : a subunit composed of a group of people, working together, group of people, working together, who possess similar skills or use the who possess similar skills or use the same kind of knowledge, tools, or same kind of knowledge, tools, or techniques to perform their jobstechniques to perform their jobs

• DivisionDivision: a subunit that consists of a : a subunit that consists of a collection of functions or departments collection of functions or departments that share responsibility for producing that share responsibility for producing a particular good or servicea particular good or service

• Organizational complexityOrganizational complexity: the : the number of different functions and number of different functions and divisions possessed by an organizationdivisions possessed by an organization

– Degree of differentiationDegree of differentiation

Function TypesFunction Types

• Support functionsSupport functions: facilitate an : facilitate an organization’s control of its organization’s control of its relations with its environment and relations with its environment and its stakeholdersits stakeholders

– Purchasing, sales and marketing, Purchasing, sales and marketing, public relations and legal affairspublic relations and legal affairs

• Production functionsProduction functions: manage : manage and improve the efficiency of an and improve the efficiency of an organization’s conversion organization’s conversion processes so that more value is processes so that more value is createdcreated

– Production operations, production Production operations, production control, and quality controlcontrol, and quality control

Function Types (cont.)Function Types (cont.)• Maintenance functionsMaintenance functions: :

enable an organization to keep enable an organization to keep its departments in operationits departments in operation

– Personnel, engineering and Personnel, engineering and janitorial servicesjanitorial services

• Adaptive functionsAdaptive functions: allow an : allow an organization to adjust to organization to adjust to changes in the environmentchanges in the environment

– Research and development, market Research and development, market research, and long-range planningresearch, and long-range planning

Function Types (cont.)Function Types (cont.)

• Managerial functionsManagerial functions: : facilitate the control and facilitate the control and coordination of activities within coordination of activities within and among departmentsand among departments

– Acquisition of, investment in, and Acquisition of, investment in, and control of resourcescontrol of resources

Figure 4-2: Building Figure 4-2: Building Blocks of Blocks of

DifferentiationDifferentiation

Vertical and Horizontal Vertical and Horizontal DifferentiationDifferentiation

• Vertical differentiationVertical differentiation: the way an : the way an organization designs its hierarchy of organization designs its hierarchy of authority and creates reporting authority and creates reporting relationships to link organizational relationships to link organizational roles and subunitsroles and subunits

– Establishes the distribution authority Establishes the distribution authority between levelsbetween levels

• Horizontal differentiationHorizontal differentiation: the way : the way an organization groups organizational an organization groups organizational tasks into roles and roles into tasks into roles and roles into subunits (functions and divisions)subunits (functions and divisions)

– Roles differentiated according to their Roles differentiated according to their main task responsibilitiesmain task responsibilities

Figure 4-3: Figure 4-3: Organizational Chart of Organizational Chart of

the B.A.R. and Grillethe B.A.R. and Grille

Figure 4.4: Figure 4.4: Organizational Design Organizational Design

ChallengesChallenges

Balancing Differentiation Balancing Differentiation and Integrationand Integration

• Horizontal differentiation is Horizontal differentiation is supposed to enable people to supposed to enable people to specialize and become more specialize and become more productiveproductive– Specialization often limits Specialization often limits

communication between subunitscommunication between subunits– People develop subunit orientationPeople develop subunit orientation

• Subunit orientationSubunit orientation: a tendency to : a tendency to view one’s role in the organization view one’s role in the organization strictly from the perspective of the time strictly from the perspective of the time frame, goals, and interpersonal frame, goals, and interpersonal orientations of one’s subunitorientations of one’s subunit

Balancing Balancing Differentiation and Differentiation and Integration (cont.)Integration (cont.)

• IntegrationIntegration: the process of : the process of coordinating various tasks, coordinating various tasks, functions, and divisions so that functions, and divisions so that they work together and not at they work together and not at cross-purposescross-purposes

Types of Integration Types of Integration MechanismsMechanisms

• Hierarchy of authorityHierarchy of authority: dictates : dictates “who reports to whom”“who reports to whom”

• Direct contactDirect contact: managers meet : managers meet face to face to coordinate activitiesface to face to coordinate activities

– Problematic that a manager in one Problematic that a manager in one function has no authority over a function has no authority over a manager in anothermanager in another

• Liaison rolesLiaison roles: a specific manager : a specific manager is given responsibility for is given responsibility for coordinating with managers from coordinating with managers from other subunits on behalf of their other subunits on behalf of their subunitssubunits

Types of Integration Types of Integration Mechanisms (cont.)Mechanisms (cont.)• Task forceTask force: managers meet in : managers meet in

temporary committees to temporary committees to coordinate cross-functional coordinate cross-functional activitiesactivities

– Task force members responsible for Task force members responsible for taking coordinating solutions back to taking coordinating solutions back to their respective functions for further their respective functions for further input and approvalinput and approval

• TeamsTeams: a permanent task force : a permanent task force used to deal with ongoing used to deal with ongoing strategic or administrative issuesstrategic or administrative issues

Types of Integration Types of Integration Mechanisms (cont.)Mechanisms (cont.)• Integrating roleIntegrating role: a new, full-time : a new, full-time

role established to improve role established to improve communications between divisionscommunications between divisions

– Focused on company-wide Focused on company-wide integrationintegration

• Integrating departmentIntegrating department: a new : a new department intended to department intended to coordinate the activities of coordinate the activities of functions or divisionsfunctions or divisions

– Created when many employees enact Created when many employees enact integrating rolesintegrating roles

Table 4-1: Types and Table 4-1: Types and Examples of Integrating Examples of Integrating

MechanismsMechanisms

Figure 4-5: Integrating Figure 4-5: Integrating MechanismsMechanisms

Figure 4-5: Integrating Figure 4-5: Integrating Mechanisms (cont.)Mechanisms (cont.)

Figure 4-5: Integrating Figure 4-5: Integrating Mechanisms (cont.)Mechanisms (cont.)

Balancing Balancing Differentiation and Differentiation and

IntegrationIntegration• Managers facing the challenge of Managers facing the challenge of deciding how and how much to deciding how and how much to differentiate and integrate must:differentiate and integrate must:

– Carefully guide the process of Carefully guide the process of differentiation so that it develops the differentiation so that it develops the core competences that give the core competences that give the organization a competitive organization a competitive advantageadvantage

– Carefully integrate the organization Carefully integrate the organization by choosing appropriate integrating by choosing appropriate integrating mechanisms that allow subunits to mechanisms that allow subunits to cooperate and that build up the cooperate and that build up the organization’s core competencesorganization’s core competences

Balancing Centralization Balancing Centralization and Decentralizationand Decentralization• CentralizedCentralized organization:organization: the the

authority to make important authority to make important decisions is retained by top level decisions is retained by top level managersmanagers– Top managers able to coordinate Top managers able to coordinate

activities to keep the organization activities to keep the organization focused on its goalsfocused on its goals

• Decentralized organization:Decentralized organization: the the authority to make important authority to make important decisions is delegated to managers decisions is delegated to managers at all levels in the hierarchyat all levels in the hierarchy– Promotes flexibility and Promotes flexibility and

responsivenessresponsiveness

Balancing Centralization Balancing Centralization and Decentralization and Decentralization

(cont.)(cont.)• Ideal balance entails:Ideal balance entails:

– Enabling middle and lower Enabling middle and lower managers who are at the scene of managers who are at the scene of the action to make important the action to make important decisionsdecisions

– Allowing top managers to focus on Allowing top managers to focus on long-term strategy makinglong-term strategy making

Balancing Balancing Standardization and Standardization and Mutual AdjustmentMutual Adjustment• StandardizationStandardization: conformity to : conformity to specific models or examples that are specific models or examples that are considered proper in a given situationconsidered proper in a given situation– Defined by rules and normsDefined by rules and norms

• Mutual adjustmentMutual adjustment: the process : the process through which people use their through which people use their judgment rather than standardized judgment rather than standardized rules to address problems, guide rules to address problems, guide decision making, and promote decision making, and promote coordination coordination

• FormalizationFormalization: the use of rules and : the use of rules and procedures to standardize operationsprocedures to standardize operations

Balancing Balancing Standardization and Standardization and Mutual Adjustment Mutual Adjustment

(cont.)(cont.) • Socialization: Understood NormsSocialization: Understood Norms

– RulesRules: formal, written statement that : formal, written statement that specify the appropriate means for specify the appropriate means for reaching desired goalsreaching desired goals

– NormsNorms: standards or styles of : standards or styles of behavior that are considered typical behavior that are considered typical for a group of peoplefor a group of people• May arise informallyMay arise informally• External rules may become internalized normsExternal rules may become internalized norms

– SocializationSocialization: the process by which : the process by which organizational members learn the organizational members learn the norms of an organization and norms of an organization and internalize these unwritten rules of internalize these unwritten rules of conductconduct

Standardization versus Standardization versus Mutual AdjustmentMutual Adjustment

• Challenge facing managers is:Challenge facing managers is:– To find a way of using rules and norms To find a way of using rules and norms

to standardize behavior, and to standardize behavior, and – to allow for mutual adjustment to give to allow for mutual adjustment to give

managers opportunity to discover new managers opportunity to discover new and better ways to achieve goalsand better ways to achieve goals

Mechanistic and Organic Mechanistic and Organic Organizational Organizational

StructuresStructures• Mechanistic structuresMechanistic structures: structures : structures

that are designed to induce people that are designed to induce people to behave in predictable, to behave in predictable, accountable waysaccountable ways– Emphasis on the vertical command Emphasis on the vertical command

structurestructure– Roles are defined narrowlyRoles are defined narrowly– Promotion is slow and steadyPromotion is slow and steady– Best suited to organizations that face Best suited to organizations that face

stable, unchanging environmentsstable, unchanging environments

Mechanistic and Organic Mechanistic and Organic Organizational Structures Organizational Structures

(cont.)(cont.)• Organic structuresOrganic structures: structures : structures

that promote flexibility, so people that promote flexibility, so people initiate change and can adapt initiate change and can adapt quickly to changing conditionsquickly to changing conditions– Less emphasis on vertical command Less emphasis on vertical command

structurestructure– Roles are defined looselyRoles are defined loosely– Status conferred by ability to Status conferred by ability to

provide creative leadershipprovide creative leadership– Encourages innovative behaviorEncourages innovative behavior– Suited to dynamic environments Suited to dynamic environments

Figure 4-6: Figure 4-6: Mechanistic and Mechanistic and

Organic StructuresOrganic Structures

Figure 4-7: Task and Figure 4-7: Task and Role RelationshipsRole Relationships

Contingency ApproachContingency Approach

• A management approach in which A management approach in which the design of an organization’s the design of an organization’s structure is tailored to the sources of structure is tailored to the sources of uncertainty facing an organizationuncertainty facing an organization

• Organization should design its Organization should design its structure to fit its environmentstructure to fit its environment

Figure 4-8: Fit Between the Figure 4-8: Fit Between the Organization and Its Organization and Its

EnvironmentEnvironment

Lawrence & Lorsch: Lawrence & Lorsch: Differentiation, Integration, Differentiation, Integration,

and the Environmentand the Environment• Investigated how companies in Investigated how companies in

different industries differentiate and different industries differentiate and integrate their structures to fit the integrate their structures to fit the environmentenvironment

– Three industries that experienced Three industries that experienced different levels of uncertainty: different levels of uncertainty: • The plastics industryThe plastics industry• The food-processing industryThe food-processing industry• The container or can-manufacturing The container or can-manufacturing

industryindustry

Findings: Lawrence Findings: Lawrence and Lorschand Lorsch

• When environment is perceived as When environment is perceived as more unstable and uncertain:more unstable and uncertain:– Effective organizations are less Effective organizations are less

formalized, more decentralized and rely formalized, more decentralized and rely more on mutual adjustmentmore on mutual adjustment

• When environment is perceived as When environment is perceived as stable and certain:stable and certain:– Effective organizations have a more Effective organizations have a more

centralized, standardized, and centralized, standardized, and formalized structureformalized structure

Figure 4.9: Functional Figure 4.9: Functional Differentiation and Differentiation and

Environmental DemandsEnvironmental Demands

Burns and StalkerBurns and Stalker

• Also found that organizations need Also found that organizations need different kinds of structure to different kinds of structure to control their activities based on the control their activities based on the environmentenvironment– Organic structures are more effective Organic structures are more effective

when the environment is unstable and when the environment is unstable and changingchanging

– Mechanistic structures are more Mechanistic structures are more effective in stable environmentseffective in stable environments

Table 4-2: The Effect of Table 4-2: The Effect of Uncertainty, Differentiation Uncertainty, Differentiation

and Integrationand Integration

Figure 4-10: Relationship Figure 4-10: Relationship Between Environmental Between Environmental

Uncertainty and StructureUncertainty and Structure