Organization Structure and Management Systems

1. Organization Structure and Management Systems • Evolution of the corporation • Principles of organizational design • The role of hierarchy: bureaucratic control vs. modular integration • Alternative structural forms • Management systems OUTLINE

2. Evolution of the Modern Corporation Strategic changes The business environment Organizational consequences Early 19th century Local markets Firms specialized & Small firms. Transport slow focused on local Simple manage- Limited mechanization markets ment structures Introduction of Geographical and Functional struct- railroads, telegraph vertical expansion ures. Line/staff industrialization separation. Accou- nting systems Late 19th century Excess capacity in Product & Development of distribution. Growth multinational multidivisional of financial institut- diversification corporation ions & world trade Early 20th century

3. General Motors’ Organization Structure, 1921 Board of Directors President Executive Committee GM Acceptance Corporation Legal Department General Advisory Staff Financial Staff Chevrolet Division Sheridan Division Canadian Division Oldsmobile Division Buick Division Cadillac Division GM Export Company GM Truck Division Samson Tractor Division Oakland Division Inter-company Parts Division Scripps Booth Corp. Source: A.P. Sloan, My Years with General Motors, Orbit Publishing, 1972, p. 57.

4. The Basic Tasks of Organization Achieving high levels of productivity requires SPECIALIZATION Specialization by individuals necessitates COORDINATION THE ORGANIZATIONAL CHALLENGE: to design structure & systems that: • Permit specialization • Facilitate coordination by grouping individuals & link groups with systems of communication, decision making, & control • Create incentives to align individual & firm goals For coordination to be effective requires COOPERATION But goals of employees == goals of owners THE AGENCY PROBLEM

5. Hierarchy Economizes on Coordination (a) Self Organizing Team: 10 interactions (b) Hierarchy: 4 interactions

6. Hierarchy of Loosely-Coupled Modules Allows Flexible Adaptation Tightly-coupled,integrated system: Change in any part of the system requires system-wide adaptation Loose-coupled, modular hierarchy: partially-autonomous modules linked by standardized interfaces permits decentralized adaptation and innovation

7. Weber’s Principles of Bureaucracy • Rational-legal authority • Specialization of labor • Hierarchical structure • Coordination and control through rules and standard operating procedures • Standardization employment practices • Separation of jobs and people • Formalization of administrative acts, decisions and rules

8. Mechanistic and Organic Forms FEATURE MECHANISTIC ORGANIC Task definition Rigid & highly specialized Flexible; less specialized Coordination Rules & directives Mutual adjustment.l & control imposed from the top Cultural control Communication Mainly vertical Horizontal & vertical Commitment To immediate superior To the organization & its & loyalty goals & values Environmental Stable with low tech- Dynamic, ambiguous, context nological uncertainty technologically uncertain

9. Designing the Hierarchy: The Basis for Defining Organizational Units and their Relationships Units may be defined on the basis of Common Tasks, Products, Geographical Proximity, or Process/Function Critical issue: Intensity of Coordination—Employees with the greatest interdependence should be grouped into same organizational unit. Additional criteria: Economies of Scale, Economies of Utilization, Learning, Standardization of Control Systems

10. General Motors’ Organization Structure, 1997 Board of Directors Corporate Functions President’sCouncil North American Operations Delphi Automotive Systems GM Acceptance Corporation International Operations Hughes Electronics GM Europe Midsize & Luxury Car Group Small Car Group GM Power Train Group Vehicle Sales, & Marketing Group Development & Technical Cooperation Group Asian & Pacific Operations Latin American, African, & Middle East Operation

11. Corporate Executive Office Chairman & CEO Corporate Staff Finance Business R&D Human Legal Development Resources Service Divisions GE Appliances GE Supply GE Aircraft Engines GE Trans- portation GE Industrial Systems GE Plastics GE Lighting GE Specialty Materials NBC GE Capital GE Power Systems GE Medical Systems 26 businesses organized into 5 segments: Consumer Mid-market Specialized Specialty Equipment Services Financing Financing Insurance Management General Electric’s Organization Structure, 2002

12. Mobil Corporation, 1997 Board of Directors CEO Executive Office Corporate Center Support Services North America Technology New Exploration Worldwide LNG & IPP Asia/ Pacific Europe & CIS Africa & Middle East South America North America M&R Worldwide Chemicals Shipping

13. Royal Dutch/Shell Group, 1994: A Matrix Structure

14. The Generic Strategic Planning Cycle Corporate Guidelines Draft Business Plans Discuss with Corporate Revised Business Plans Approval by Board Forecasts/ Scenarios/ Planning assumptions Corporate Plan Capex Budget Annual Performance Targets Performance Review