UGBA105: Organizational Behavior

1. UGBA105: Organizational Behavior Professor Jim Lincoln Week 2: Lecture Organization design: From vertical (mechanistic) to horizontal (organic)

2. Organization design: Session objectives • Introduce organization design as “manager as engineer” perspective • Understand the legacy of classical design theory • Discuss strategic grouping and linking • View structure from the congruence perspective • Contrast hierarchy with other coordination modes • Consider process and network organization as horizontal “organic” forms

3. Manager as engineer: Trained technician who uses a professional body of knowledge to create formal systems that plot strategy, make decisions, incent people, and coordinate units in maximally efficient ways. Manager as leader: Individual who leverages highly personal resources (energy, stamina, charisma, vision, warmth, charm, gregariousness, toughness, daring, know-how) to inspire, empower, and channel the actions of others. The Two Faces of Management

4. Informal Organization Input Environment Resources History Output Systems Unit Individual Formal Organization Tasks Strategy People The Congruence Model

5. What is the formal organization? • Formal structure • Grouping (or division of labor or differentiation) • Divide work and group people doing similar tasks into distinct jobs and work units • Linking (or coordination or integration) • Devise mechanisms of control and coordination to direct activity and create an integrated whole • Formal control & information systems (rules, procedures, measurement) • Accounting & finance • Inventory and process control • Human resource

6. Why do managers like to change structure? Source: S. Adams, Dogbert’s Big Book of Business, DILBERT reprinted by permission of United Features Syndicate, Inc.

7. Increase efficiency Allow for flexibility Channel individual behavior in desired directions Empower people to accomplish tasks Enable teamwork Fit the informal org, strategy, environment What should structure do?

8. Create unmanageable coordination problems Balkanize the organization into warring fiefdoms Disempower and demotivate people Be a weapon in organizational politics Become sacred and ceremonial Breed “bureaucratic personalities” Cause inertia Mire the organization in “red tape” Divert or smother other ways of doing things Provide a safe haven for the incompetent or unmotivated What shouldn’t structure do?

9. THE VERTICAL (MECHANISTIC) MODEL: SCIENTIFIC MANAGEMENT :“Systems so perfect that no one will need to be good” Frederick W. Taylor: The Principles of Scientific Management, 1911. Frank B. Gilbreth: Motion Study, a Method for Increasing the Efficiency of the Workman. New York, D. Van Nostrand Company, 1911. Which always brings to mind….

10. THE VERTICAL (MECHANISTIC) MODEL:CLASSICAL ADMINISTRATIVE THEORY Henry Fayol: General and Industrial Management, 1949 L. Gulick and L. Urwick: Papers on the Science of Administration, 1937 J. Mooney: The Principles of Organization, 1947 • Horizontal structuring (grouping) • Specialization (divide tasks) • Unity of direction (group similar tasks in departments) • Vertical structuring (linking) • Unity of command • Scalar chain • Span of control • Authority • Fit to responsibility • Decision-making • Delegate routine decisions; manage exceptions

11. Horizontal and Vertical Structuring

12. Strategic grouping:Dividing people, activities, and resources so as to maximize efficiency, flexibility, and success

13. Dimensions to group on • Inputs • Function, tasks, disciplines, or skills: • Outputs • Product, customer, market, region

14. Functional grouping General Manager Human resources R&D Engineer- ing Manu- facturing Sales Product A Product B Product C

15. Product grouping CEO Cars Prefab Houses Electronics HR Mfg Mkt HR Mfg Mkt HR Mfg Mkt

16. Regional grouping CEO North America Europe Asia Pacific HR Mfg Mkt HR Mfg Mkt HR Mfg Mkt

17. Are Haas professors organized by function or product? Undergrad Program Undergrad Professor Lyons Finance Professors Lyons, Odean, Stanton MBA Program MBA Professor Odean PhD Program PhD Professor Stanton

18. Matrix

19. The discipline – degree program matrix at Haas

20. Hybrid forms • Most large firms are functional/product hybrids • Trend in U. S. in recent years is to centralize functions & consolidate divisions • Trend in Japan is to decentralize

21. Hybrid form at Levi Strauss

22. Vertical structuring: The linking (coordination) problem • The hierarchical chain of command • Must organizations be hierarchical? • “The iron law of oligarchy” (Robert Michels, 1915) • And alternatives to it

23. What’s good about hierarchy? Market- ing Account- ing Manu- facturing Manage- ment Engineer ing Human Resources

24. The 180◦ alternative: mutual adjustment Market- ing Human resources Manu- facturing Account- ing Engin- eering

25. A formal org alternative: rules & standards Market- ing Manu- facturing Human resources Account- ing Engin- eering

26. The choice depends on the level of task interdependence Coordination Need? Coordination Method? 1. Pooled Interdependence Regional HQ Hotel A Hotel B Hotel C 2. Sequential Interdependence Product Development Manufacturing Sales 3. Reciprocal Interdependence Aircraft Scheduling Operations Maintenance Interdependence

27. Principles of hierarchy: Unity of command, Scalar chain, Span of control CEO Case 2 Case 1 CEO “A” Herbert Simon: “The proverbs of administration.” Public Administration Review 6 (1946):53-67. “A”

28. What principle of vertical structuring does matrix violate? General Manager Engineer- ing Manufac- turing Marketing Product Z manager Z Eng Z Mfg Z Mkt

29. Steps in cross-functional coordination:An evolutionary sequence Pure functional organization Functional org with product-centered culture Liaison roles / employee transfers Cross-functional task forces & teams Integrating roles Matrix “Heavyweight” product manager form Fully self-contained product organization

30. 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

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

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

33. Integrating roles: brand, account, & project managers rely on leadership skills to coordinate cross-functionally around product Z General Manager Engineer- ing Manufac- turing Marketing Z Mfg Z Mkt Z Eng

34. Full matrix: What’s the cross-functional coordination device? General Manager Engineer- ing Manufac- turing Marketing Product Z manager Z Eng Z Mfg Z Mkt

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

36. Fully self-contained product division form CEO Product W Product X Product Z Eng Mfg Mkt Eng Mfg Mkt Eng Mfg Mkt

37. Good Simplicity of design Efficient use of specialists Deepens specialist skill Good fit to function-based strategy Bad Breeds “silos” Pushes coordination up Conflict among groups Poor general mgt skills Poor fit to diversification strategy Functional organization goods and bads

38. Functional organization General Manager Human resources R&D Engineer- ing Manu- facturing Sales Product A Product B Product C

39. Good Low interdependence Develops general mgr skills Fits a turbulent environment Fits these strategies: Product diversification Product/customer/region focus Bad Breeds weak functions Poor w/in function coordination Isolated divisions High redundancy & cost Headquarters out of touch Short-termism Excessive scale Product organization goods and bads

40. Product organization CEO Product W Product X Product Z Eng Mfg Mkt Eng Mfg Mkt Eng Mfg Mkt

41. Good Balances functional & product priorities Forces consensus decision making Forces a corporate-wide perspective Fits where quality & service requirements are high but time and cost pressures are low Bad Costly in time and management Unstable Stressful, conflict-prone Nonlinear career paths (?) Matrix organization goods and bads

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

43. Matrix as culture, not structure Strongly shared commitments to product quality, customer service, and functional expertise (as in Total Quality Management) Bartlett and Ghoshal: “Matrix management-- not a structure, a frame of mind.”Harvard Business Review, 1990.

44. 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

45. Process organization: Grouping by interdependence, not similarity Hammer and Champy: Reengineering the Corporation, 1993 • Identify core business processes • Create and empower multi-functional teams • Revamp accounting & reward systems • Shrink functional groups but preserve specialist expertise • Eliminate low-value added activities

46. 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.

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

48. 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

49. 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

50. Managing process & network organizations • Abandonment of the “manager as engineer” (vertical, mechanistic) model • Less hierarchical command & control • Fewer rules, standards, and procedures • Less detailed and rigid division of labor • No more vertical career • Embrace of “manager as leader” (horizontal, organic) model • Teamwork (coordination through mutual adjustment) • Networking and political maneuvering • Leadership and culture • Entrepreneurial