BA105: Organizational Behavior

1. BA105: Organizational Behavior Professor Jim Lincoln Week 3: Lecture

2. Business • Face cards!! • Team assignments Thursday! • Appex case on Thursday. Prepare and participate!

3. Organization design II:Session objectives • View functional and product organization as ends of an evolutionary continuum along which a series of designs, including matrix, can be arrayed • Introduce process and network organization designs as the main forms of modern “flat” or “horizontal” organization • Summarize the differences between “old”, mechanistic, vertical organization and “new”, organic, horizontal organization.

4. Product division organization: Organizing around outputs CEO Cars Prefab Houses Electronics HR Mfg Mkt HR Mfg Mkt HR Mfg Mkt

5. Regional division organization CEO North America Europe Asia Pacific HR Mfg Mkt HR Mfg Mkt HR Mfg Mkt

6. Customer-type divisions CEO Home market Education market Corporate market HR Mfg Mkt HR Mfg Mkt HR Mfg Mkt

7. Pluses Low interdependence Easy monitoring of division performance Coordination by accounting standards Easy absorption of acquisitions Top execs freed for strategy Responsiveness to product, customer, & regional concerns Breeds GM skills Good fit to turbulent, heterogeneous environment Good fit to these strategies: Diversification Product/customer/region focus Minuses Poor within-function coordination Breeds weak functions Breeds inbred division cultures Loss of corporate identity High redundancy and cost Excessive management by the numbers Headquarters out of touch Rigid, short-term expectations Excessive scale & sprawl Product organization pros & consAlfred Chandler: Strategy and Structure, 1962Oliver Williamson: Markets and Hierarchies, 1975

8. Hybrid forms • Most large firms are functional/product hybrids: some functions are centralized others are decentralized to the division level • The trend in recent years has been to consolidate divisions & centralize functions

9. Lou Gerstner, CEO of IBM on strategic organizational design “I was wrestling with decentralization because at heart I’m a decentralizer, but as I was looking at mail and customer reports, it became increasingly clear to me that the real issue of effectiveness, of winning in the marketplace, wasfinding ways to make the company work horizontally.” Gerstner has been designing ways to decentralize what he calls, “the things that matter in running a business” but reinforce the things that benefit from size. That means decentralizing some things and centralizing others. “So, while unit managers can expect to define their customers, design their own products, manage most of their costs, and set prices, they’ll be expected to cooperate more on such issues as technology and product announcements, such as the power PC”

10. Hybrid form: Divisional organization with some functions centralized CEO R&D Product Division Z Product Division Y Z Manu- facturing Z Engineering

11. Hybrid form at Levi Strauss

12. Hybrid form: dotted-line relationship between corporate and divisional R&D CEO R&D Product Division Z Product Division Y Z R&D Z Engineering

13. Steps in cross-functional coordination: An evolutionary sequence from functional to product organization • Pure functional organization • Functional org with product-centered culture • Liaison roles (employee transfers) • Cross-functional task forces & teams 5 Integrating roles (product, brand, & account mgrs) 6 Matrix 7 Heavyweight product manager form 8 Fully self-contained product organization

14. A strong product-specific culture helps to coordinate cross-functionally around product Z General Manager Engineer- ing Manu- facturing Marketing Z Eng Z Mfg Z Mkt Product Z culture

15. Temporary or permanent employee transfers help coordinate cross-functionally around product Z General Manager Engineer- ing Manufac- turing Marketing Z engineer Z Mfg Z Mkt

16. Cross-functional teams help coordinate around product Z General Manager Engineer- ing Manufac- turing Marketing Product Z cross- functional team Z Eng Z Mfg Z Mtg

17. Integrating roles: Brand, account, & project managers help coordinate cross-functionally around product Z General Manager Engineer- ing Manufac- turing Marketing Z brand manager Z Eng Z Mfg Z Mkt

18. Matrix General Manager Engineer- ing Manufac- turing Marketing Product Z manager Z Eng Z Mfg Z Mkt

19. “Heavyweight product manager” form General Manager Engineer- ing Manufac- turing Marketing Product Z manager Z Eng Z Mfg Z Mkt

20. Fully self-contained product divisions CEO Product W Product X Product Z Eng Mfg Mkt Eng Mfg Mkt Eng Mfg Mkt

21. Pluses Balances functional and product priorities Product focus with stronger, less redundant, & better deployed functions than in PD form Forces consensus resolution of disputes Forces a corporate-wide perspective on product/market divisions Good fit where technical & production requirements are high but speed and cost are secondary Good fit to large firms that can afford the infrastructure costs small firms can achieve similar results with less structure Minuses Costly in time and management overhead Bureaucratic, cumbersome Slow, requires consensus decision-making Unstable– power tends to shift to one side or the other Source of stress, frustration Complex, nonlinear career paths Matrix organization pros & cons

22. Matrix as culture, not structure Strongly shared commitments to product quality, customer service, and functional expertise (as in Total Quality Mangement) Bartlett and Ghoshal: “Matrix management-- not a structure, a frame of mind.”

23. The problem with the previous designs is that many business processes cut across functions & products General Manager Manufacturing Engineering Marketing Customer service Prod. A New product development Product Manager Prod. B

24. Process Organization: Grouping by interdependence, not similarity Hammer and Champy: Reengineering the Corporation, 1993 • Identify core business processes • Chains of interdependent tasks delivering a product or service to a customer • Create multi-functional teams to run processes • Appoint manager or team as “owner” of each process • Empower teams with authority & information • Move decision-making to point of action; customer contact • Revamp accounting and reward systems to orient new structure to customer satisfaction • Shrink functional departments but preserve specialist expertise • Eliminate activities that add no value

25. Top Management Process Coordinators Team Team New product development process Process Coordinators Team Team Order fulfillment process Process Coordinators Team Team Procurement, logistics process

26. Keep functional skills but dispense with functional groups • “’Create a house Yellow Pages so functional expertise is easy to find even though dispersed. Link experts in a real or electronic network where they can keep each other up to date and can get training and career development help’…’The engineers can have a club. But they can’t work in the same room, and they can’t sit at the same table at the company banquet.’” Thomas A. Stewart: “The search for the organization of tomorrow” Fortune, 5/18/92.

27. IT Services Producers IT Services Suppliers Designers HR Services Core Firm IT Services HR Services HR Services Brokers Designers Producers Designers Marketers Distributors Producers Managers Suppliers Distributors Suppliers Distributors Full Network Organization Full Vertical Integration Networked Firm

28. Network organization • Small, lean, specialized firms • The “organization” is a network • Absence of authority and structure to control and coordinate division of labor • Examples: • Japanese keiretsu • Silicon valley • New York fashion industry • Germany’s mittelstand • Northern Italy’s furniture industry • Ethnic enclaves

29. Managing flat & network organizations • Abandonment of the “Manager as engineer” model (despite “reengineering” termninology) • Less hierarchical command & control • Fewer rules, standards, and procedures • Less detailed and rigid division of labor • No more vertical career • Manager as leader model. Strategies and capabilities are: • Teamwork (coordination through mutual adjustment) • Networking and political • Leadership and cultural • Entrepreneurial

30. Physical proximity facilitates teamwork and networking Legal Manu- facturing Advertising Suppliers Finance Designers

31. New information technology also facilitates teamwork and networking Email TeleconferencingGroupware Knowledge management ERP

32. Thursday • Loose ends in lecture & reading • Prepare the Appex case • Evaluate the cause & effect chains leading to problems • Critique Ghosh’s design solutions • Why so many unintended consequences? • Propose alternatives • Consider nonstructural solutions • Assignment to project teams