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Organization Design

Organization Design. Centralization. Degree to which authority is concentrated in a single place Centralized companies McDonald’s, Wal-Mart Decentralized companies GE, Proctor & Gamble, IBM What are the strengths/weaknesses of each?. Coordination. Theory

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Organization Design

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  1. Organization Design

  2. Centralization • Degree to which authority is concentrated in a single place • Centralized companies • McDonald’s, Wal-Mart • Decentralized companies • GE, Proctor & Gamble, IBM • What are the strengths/weaknesses of each?

  3. Coordination Theory • Parts of a business must work together • Pooled interdependence • Just “staple the results together” • Sequential interdependence • Output of one becomes input of next function • Reciprocal interdependence • Activities flow both ways between functions • E.g. Hotel reservations, front desk, housekeeping • E.g. product development and marketing

  4. How to Manage Coordination Practice • Managerial hierarchy • Put a manager in charge of interdependent functions • Rules and procedures • Liaison roles • Task forces • Integrating departments

  5. Organizational Design • Organizations change • Organizations, especially large ones, can be very complex

  6. Bureaucratic Model Theory • Max Weber • Design based upon formal system of authority • Distinct divisions of labor, staffed with experts • Consistent set of rules for uniform performance • Hierarchy of positions and chain of command • Managers should be impersonal • Employment and advancement based upon technical expertise - Protect employees against arbitrary firing • Examples: Gov’t, universities

  7. Behavioral Model Theory • RensisLikert – major researcher • Created dimension and table (matrix) of processes • System 1 design – bureaucratic model • System 4 design – full behavioral model

  8. System 1 Design • Leadership process includes no perceived confidence and trust. • Motivational process taps only physical, security, and economic motives. • Communication process is such that information flows downward. • Interaction process is closed. • Decisions occur at the top. • Goal setting occurs at top. • Control is centralized. • Performance goals are low.

  9. System 4 Design • Leadership process includes perceived confidence and trust. • Motivational process taps a full range of motives through participatory methods. • Communication flows freely. • Interaction process is open. • Decisions occur at all levels. • Goal setting encourages group participation. • Control process is dispersed. • Performance goals are high.

  10. Situational View Practical Influences • Technology • Unit or small-batch technology • E.g. Brooks’ Brothers (custom suits), Kinkos • Often System 4 Design • Mass production or large-batch • E.g. Ford, Whirlpool, Phillips • Often System 1 Design • Continuous-process • E.g. Shell, Dow • Often System 4 Design • Typically highly automated

  11. Situational View • Environment • Mechanistic organizations • Bureaucratic • Most often stable environment • Well-defined rules and procedures • E.g. A&F, Wendy’s, Aetna • Organic organizations • Unstable, fluid environment • E.g. Motorola, Limited Brands • Characterize according to: • Differentiation – how many subunits • Integration – how much the units have to cooperate

  12. Situational View • Organization size • Large organizations • Have greater specialization • More SOP • More regulations • Greater centralization • E.g. Wal-Mart

  13. Situational View • Organization Life Cycle • Birth, youth, mid-life, maturity • Organization you need changes over time • Becomes more mechanistic over time • More specialized over time • Coordination demands increase

  14. Strategy and Organizational Design • Defenders – tall and centralized, functional • Prospectors – flat, decentralized • Differentiators – structure around the differentiator • Cost Leadership – centralized, functional

  15. Basic FormsFunctional (U-Form) • Organize by basic functions • Operations • Marketing • Finance • HR • R&D • U form (unitary) • Example: Abercrombie & Fitch, WD-40

  16. Basic FormConglomerate (H-Form) • Organization is a set of unrelated businesses • (H stands for holding) • Often along product lines • Examples: • GE • Aircraft engines, appliances, broadcasting, lighting, … • Mitsubishi • LG

  17. Basic FormDivisional (M-Form) • Organize along related product lines • (M stands for multidivisional) • Examples • Walt Disney • Theme parks, movies, merchandise • HP • PCs, printers, medical equipment • Allows for autonomy yet take advantage of shared resources

  18. Basic FormMatrix Design • Organization is a combination of two more basic forms • Examples • Martha Stewart • Product groups and lifestyle (wedding, cooking, etc.) • GM • Major disadvantages • Uncertain reporting relationships • Potential conflicting goals • Coordination required, longer decision making

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