CREATING EFFECTIVE ORGANIZATIONAL DESIGNS

1. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS STRATEGIC MANAGEMENT BUAD 4980

2. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Organizational Structure • Organizational Structure • The formalized patterns of interactions that link a firm’s tasks, technologies, and people STRATEGIC MANAGEMENT – BUAD 4980 2

3. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Organizational Structure • Organizational structures vary by the size, functional needs and complexity of each firm • As firms grow more complex and diverse, their organizational structure must change to allow the firms to remain effective and efficient STRATEGIC MANAGEMENT – BUAD 4980 3

4. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Organizational Structure • Types of organizational structures • Simple • Functional • Divisional and SBU • Matrix • International STRATEGIC MANAGEMENT – BUAD 4980 4

5. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Organizational Structure STRATEGIC MANAGEMENT – BUAD 4980 5

6. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Simple Structure • Simple Structure • An organizational form in which the owner-manager makes most of the decisions and controls activities, and the staff serve as an extension of the top executive STRATEGIC MANAGEMENT – BUAD 4980 6

7. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Simple Structure • Advantages • Coordination of tasks by direct supervision (usually a single manager / owner) • Highly centralized control, immediate response • Informal policies, procedures and performance review system • Fosters creativity STRATEGIC MANAGEMENT – BUAD 4980 7

8. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Simple Structure • Disadvantages • Informality and individualism may lead to organizational conflict • Employees may act in self-interest, rather than the organization as a whole • Lack of controls may lead to misuse of resources • Retention based on loyalty rather than opportunities for advancement STRATEGIC MANAGEMENT – BUAD 4980 8

9. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Functional Structure • Functional Structure • Organizational form in which the major functions of the firm, such as production, marketing, R&D, and accounting, are grouped internally • Single or related products • Volume-based production • Some vertical integration STRATEGIC MANAGEMENT – BUAD 4980 9

10. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Functional Structure STRATEGIC MANAGEMENT – BUAD 4980 10

11. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Functional Structure • Advantages • Enhanced coordination and control • Centralized decision making • Organizational-level perspective • More efficient use of managerial and technical talent • Facilitates career paths and development in specialized areas STRATEGIC MANAGEMENT – BUAD 4980 11

12. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Functional Structure • Disadvantages • More complicated organizational dynamics and personality conflict • Communication barriers between functional areas • Short-term, functional thinking • Difficult to establish uniform performance standards STRATEGIC MANAGEMENT – BUAD 4980 12

13. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Divisional Structure • Divisional Organizational Structure • An organizational form in which products, projects, or product markets are grouped internally into divisions • Also called multidivisional structure or M-Form • Each division has its own functional structure • Divisions are largely autonomous, with accountability to corporate management STRATEGIC MANAGEMENT – BUAD 4980 13

14. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Divisional Structure STRATEGIC MANAGEMENT – BUAD 4980 14

15. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Divisional Structure • Advantages • Strategic business unit (SBU) structure • Separation of strategic and operating control • Quick response to important changes in external environment • Minimal problems of sharing resources across functional departments • Development of general management talent is enhanced STRATEGIC MANAGEMENT – BUAD 4980 15

16. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Divisional Structure • Disadvantages • Expensive – duplication of resources across divisions • Dysfunctional competition can occur between divisions • Difficult to achieve standardization of company image, values and quality across divisions • Focus on short-term performance STRATEGIC MANAGEMENT – BUAD 4980 16

17. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Strategic Business Unit Structure • Strategic Business Unit (SBU) Structure • Organizational form in which products, projects, or product market divisions are grouped into homogeneous units • Usually found in extensive multi-product, multi-market organizations • Each SBU operates as a profit center STRATEGIC MANAGEMENT – BUAD 4980 17

18. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Strategic Business Unit Structure • Advantages • Facilitates planning and control by corporate management • Individual businesses can react more quickly to important environmental changes • SBU’s are “homogeneous” in nature – more likely to share resources and limit divisional competition within SBU STRATEGIC MANAGEMENT – BUAD 4980 18

19. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Strategic Business Unit Structure • Disadvantages • Difficult to achieve synergies across different SBU’s • Limited incentive to share technologies or expertise across SBU’s • Additional level of management increases overhead expenses • Increases organizational distance between divisional operations and corporate management STRATEGIC MANAGEMENT – BUAD 4980 19

20. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Holding Company Structure • Holding Company Structure • Organizational form in which the divisions have a high degree of autonomy both from other divisions and from corporate headquarters • Also known as a Conglomerate • Portfolio of businesses within the corporation have little in common as a result of unrelated diversification • Small corporate management and staff organization • Autonomous, independent businesses STRATEGIC MANAGEMENT – BUAD 4980 20

21. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Holding Company Structure • Advantages • Lower corporate overhead and fewer managerial levels • Increased motivation for autonomous divisional executives • Quick response capability to environmental changes STRATEGIC MANAGEMENT – BUAD 4980 21

22. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Holding Company Structure • Disadvantages • Lack of corporate control • Dependency by corporate management on expertise of divisional management • Limited staff capabilities or managerial bench strength to support divisions STRATEGIC MANAGEMENT – BUAD 4980 22

23. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Matrix Organizational Structure • Matrix Organizational Structure • Organizational form in which there are multiple lines of authority and some individuals report to at least two managers • Functional departments are combined with product groups on a project by project basis • Can combine geographic market focus and product line focus STRATEGIC MANAGEMENT – BUAD 4980 23

24. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Matrix Organizational Structure STRATEGIC MANAGEMENT – BUAD 4980 24

25. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Matrix Organizational Structure • Advantages • Facilitates the use and sharing of specialized personnel, equipment and facilities • Avoids divisional duplication of specialized resources • Resource sharing and collaboration enable effective response to changing environmental needs • Provides professionals with a broader range of responsibility and experience • Sharing innovative / new technology or systems STRATEGIC MANAGEMENT – BUAD 4980 25

26. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Matrix Organizational Structure • Disadvantages • Uncertainty relating to dual-reporting relationships • Power struggles between key managers and conflict over use of resources • Complicated working relationships • Group decision-making and reliance on teamwork may slow decision time and efficiency STRATEGIC MANAGEMENT – BUAD 4980 26

27. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS International Organizational Structures • Three major contingencies influence structure adopted by firms with international operations • Type of strategy driving the firm’s foreign operations • Product diversity • Extent to which the firm is dependent on foreign sales STRATEGIC MANAGEMENT – BUAD 4980 27

28. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS International Organizational Structures • Structures used to manage international operations • International Division • Geographic-Area Division • Worldwide Functional • Worldwide Product Division • Worldwide Matrix STRATEGIC MANAGEMENT – BUAD 4980 28

29. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS International Organizational Structures • Structures used to manage international operations • International Division – International operations are managed as a separate division from domestic divisions • Geographic-Area Division – Operations in distinct geographical regions are grouped together as divisions • Worldwide Functional – Global markets for multiple products in a common functional form are homogeneous • Worldwide Product Division – Global markets for a single product are homogeneous • Worldwide Matrix – Matrix structure applied to global operations STRATEGIC MANAGEMENT – BUAD 4980 29

30. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Global Start-Ups • Global Start-Up • Business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries STRATEGIC MANAGEMENT – BUAD 4980 30

31. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Global Start-Ups • Criteria for Going Global • Required human resources are globally dispersed • Foreign financing may be less costly, easier to obtain or more appropriately structured • Target customers are located internationally • Entry timing requires immediate global presence to avoid imitation by foreign competitors • The volume necessary to cover development and other fixed costs requires access to global markets STRATEGIC MANAGEMENT – BUAD 4980 31

32. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Corporate Strategy and Organizational Structure • Strategy vs. Structure • The type of strategy the corporation follows usually dictates the appropriate divisional structure • The ability to change strategy may be limited by existing organizational structures • Expense and complexity of changing an in-place organizational structure STRATEGIC MANAGEMENT – BUAD 4980 32

33. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Organizational Structure – Reward and Evaluation Systems STRATEGIC MANAGEMENT – BUAD 4980 33

34. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Organizational Boundaries • Types of Organizational Boundaries • Vertical boundaries between levels in the organization’s hierarchy • Horizontal boundaries between functional areas • External boundaries between the firm and its customers, suppliers, and regulators • Geographic boundaries between locations, cultures and markets STRATEGIC MANAGEMENT – BUAD 4980 34

35. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Organizational Boundaries • Boundaryless Organizational Designs • Organizations in which the boundaries, including vertical, horizontal, external, and geographic boundaries, are permeable STRATEGIC MANAGEMENT – BUAD 4980 35

36. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Boundaryless Organizations • Barrier-Free Organizations • Organizational design in which firms bridge real differences in culture, function, and goals to find common ground that facilitates information sharing and other forms of cooperative behavior • Internal problem solving teams • Emphasis on resource sharing • Getting close to customers and developing customer solution partnerships STRATEGIC MANAGEMENT – BUAD 4980 36

37. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Barrier-Free Organizations – Pros and Cons STRATEGIC MANAGEMENT – BUAD 4980 37

38. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Modular Organizations • Modular Organization • Organization in which non-vital functions are outsourced, which uses the knowledge and expertise of outside suppliers while retaining strategic control • Outsources nonvital functions to “best-in-class” suppliers or producers STRATEGIC MANAGEMENT – BUAD 4980 38

39. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Modular Organizations • Modular Organization Advantages • Lower overall costs • Hire suppliers with more talent and knowledge than exists within the company • Avoid production management issues • Capacity balancing • Inventory control • Technological obsolescence • Focus scarce resources where needed to maintain competitive advantage STRATEGIC MANAGEMENT – BUAD 4980 39

40. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Modular Organizations – Pros & Cons STRATEGIC MANAGEMENT – BUAD 4980 40

41. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Virtual Organizations • Virtual Organization • Continually evolving network of independent companies that are linked together to share skills, costs, and access to one another’s markets • Formal or informal partnerships or alliances • Pool talent and resources that any single organization does not possess, or would be difficult to assemble STRATEGIC MANAGEMENT – BUAD 4980 41

42. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Virtual Organizations – Pros & Cons STRATEGIC MANAGEMENT – BUAD 4980 42

43. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Effective Boundaryless Organizations • Combine different organizational concepts to create effective boundaryless organizations • Outsource parts of the value chain to reduce cost / increase quality • Enter into partnerships or alliances to develop or access technology and to enter new markets • Eliminate barriers within the organization to enhance problem-solving, shorten response time, expand core competencies and improve performance STRATEGIC MANAGEMENT – BUAD 4980 43

44. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Boundaryless Organizations – Success Factors • Common Culture and Shared Values • Shared goals • Mutual objectives • Trust STRATEGIC MANAGEMENT – BUAD 4980 44

45. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Boundaryless Organizations – Success Factors • Horizontal Organizational Structures • Group similar or related business units under common management control • Facilitate sharing resources and support systems to exploit synergies • Consistent training and development • Cross-functional teams and decision-making groups STRATEGIC MANAGEMENT – BUAD 4980 45

46. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Boundaryless Organizations – Success Factors • Horizontal Systems and Processes • Common organizational systems, policies and procedures across functional divisions • Quality, safety, training and human resource systems • Process control systems, JIT, Six-sigma, statistical quality control, Class A practices STRATEGIC MANAGEMENT – BUAD 4980 46

47. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Boundaryless Organizations – Success Factors • Communications and Information Technology • Cross-functional communication systems to enhance decision-making, sharing and avoid costly travel • Common management information and enterprise resource planning systems • Integration of systems to customers and suppliers to increase speed, supply chain efficiency and information accuracy STRATEGIC MANAGEMENT – BUAD 4980 47

48. CREATING EFFECTIVE ORGANIZATIONAL DESIGNS Ambidextrous Organization Designs • Ambidextrous Organizational Designs • Organization designs that attempt to simultaneously pursue modest, incremental innovations as well as more dramatic, breakthrough innovations • Achieve adaptability in approaching volatile markets and alignment of value-creating activities • Requires strong and participative management, clearly championing objectives and vision and regulating resource allocations • Breakthrough teams work independent of traditional functional teams, but share skills and knowledge in a controlled way STRATEGIC MANAGEMENT – BUAD 4980 48