ECON 308: Employment Decisions

1. ECON 308: Employment Decisions Chapters 13 Week 12: April 12, 2010

2. Structure of Decision Rights (Ch 13) • BUNDLING TASKS INTO JOBS • Specialized versus Broad Task Assignment • Productive Bundling of Tasks • BUNDLING OF JOBS INTO SUBUNITS • Grouping Jobs by Function • Grouping Jobs by Product or Geography • Trade-offs between Functional and Product or Geographic Subunits • Environment, Strategy, Architecture Matrix Organizations • Mixed Designs • Network Organization • Organizing within Subunits

3. Bundling Tasks into Job Subunits • Example: FinWare Financial Software Distributor Function Service Sales Task 1 Task 2 Individuals Customer Type Task 4 Firms Task 3

4. Methods of grouping jobs • U-form of organization(unitary)(Smokestack) • by functional specialty • Sales • Finance • Engineering • Marketing • Manufacturing • each primary function in one major sub-unit

5. Finware as functional organization

6. Specialized task assignment: Assign by function • Benefits • Comparative Advantage (Different Skill sets) • Sales • Technicians • Lower Cross-Training Costs • Costs • Foregone complementarities(Car door & Latch) • Coordination Costs: ( Insurance sales , underwritting) • Functional Myopia • Reduced Flexibility

7. Incentive Issues • Cost of monitoring • Broad Bundling and compensation (Faculty) • Teaching • Research • Incentive effects • Sales: Commission • Technicians: Customer Satisfaction

8. Bundling of Jobs into Sub-units • Group by Function • Benefits • Coordination within the functional area • Promotes functional expertise • Hiring and reward structure easier to define • Problems • Management must coordinate • Information flows poorly across departments • Difficult to compensate profitability • Wasted time: (Airport Security 4 per flight)

9. Bundling of Jobs into Sub-units • Group by Geography • Benefits • Decentralized decision making authority • Managers compensated on performance of division • Problems • May ignore interdependencies

10. Where Functional Subunits Work Well • Small firms • Homogeneous products • Stable underlying technology

11. Methods of grouping jobs • U-form of organization (unitary) • M-form of organization (multidivisional) • Matrix organization • intersecting lines of authority • functional departments address performance reviews and professional development • product/geographic subunits address customer/client needs

12. Matrix Organizations: Multidemensional Sales Division Service Division Business Products Team Business Sales Department Business Service Department Consumer Products Team Consumer Sales Department Consumer Service Department

13. Chrysler • Original: Functional • Revised: Product teams • Engineers • Finance • Marketing • Assembly line production • Ex. Moon-roof control on cheaper model

14. Case Study: IBM Credit • Valued at $10 billion in 1993 • Reduced the time needed to process credit applications from 6 days to 4 hours • Old task assignment system: Functionally organized • Credit Checkers • Contract preparers • Loan Pricing • Document preparation • Reorganized task assignment: • Case workers

15. IBM Credit’s Old Functional Organization General Manager CreditDepartment ContractsDepartment PricingDepartment DocumentsDepartment

16. IBM Credit’s Revised Organization General Manager Case Worker Case Worker Case Worker Case Worker