Basic Challenges to Organizational Design

1. Basic Challenges to Organizational Design Chapter 4

2. Challenges to Organizational Design 1. How to manage differentiation 2. How to balance differentiation & integration 3. How to balance centralization & decentralization 4. How to balance standardization & mutual adjustment.

3. What is Differentiation? • Division of labor or degree of specialization • Establishment of a hierarchy of authority • Allocation of resources & people to tasks • Simple structure differentiation is low • Complex structure differentiation is high.

4. Differentiation • Roles • Functions • Similar skills, roles or shared resources • Divisions • Responsible for producing one G or S • Self-contained divisions • Organization More roles, functions & divisions means more differentiation

5. Challenge #1Managing Differentiation Why differentiate? Control! Develop core competences When employees: • Understand roles/ responsibilities(accountability) • Are coordinated • Are motivated.

6. Core Competences • Skills & abilities unique to an organization that give it a competitive advantage • May be in 1 or more functions • Want to allocate more resources to the functions or divisions where core competences exist. Examples: • McDonalds’ production process • Southwest’s customer service

7. Horizontal The way an organization groups tasks into roles & roles into functions Establishes division of labor Vertical The way an organization designs hierarchy of authority & creates reporting relationships to link roles & functions Establishes distribution of authority Differentiation

8. Challenge #2Balancing Differentiation & Integration • Problem: Specialization (horizontal differentiation) limits communication resulting in loss of coordination & cooperation Subunit orientation • Solution: Integration Increase coordination, communication & cooperation between subunits (overcome subunit orientation).

9. Integrating Mechanisms • Hierarchy (most simple) • Direct face-to-face contact • Liaison roles • Task forces • Cross-functional teams • Integrating roles • Integrating departments (most complex)

10. Keep in Mind… • Differentiating & integrating too much is expensive. Why? • Cost of employing managers & cost of time spent on coordination efforts called: • Bureaucratic Costs

11. Challenge #3Balancing Centralization & Decentralization • Problem: Too much vertical differentiation can mean: inability to make decisions shirking responsibility & risk  slowed decision-making inflexible organization • Solution: • Decentralize authority • How much decision-making authority to delegate to each level of hierarchy?

12. Centralized Authority Advantages: • Maximum control over subordinates • Top-mgmt coordinates everything & keeps organizational members focused on goals Disadvantages: • Top-mgmt becomes overloaded on day-to-day decision-making & has no time to develop long-term strategy • Lack of freedom & initiative to respond to problems as they arise • Lower creativity • Lower motivation.

13. Decentralized Authority Advantages: • Promotes responsibility & responsiveness (on the spot decisions) • Lower level managers can use skills/ competences (keeps them motivated) • Innovation Disadvantages: • Managers can pursue own goals at expense of organizational goals • Coordination & planning are difficult • Loss of control over decision-making process.

14. Challenge #4Balancing Standardization & Mutual Adjustment • Problem: Employees’ over reliance on written rules, policies & SOPs (standardization) inability toadapt to a new, unpredictable situation  no room for creativity in response to customer demand • Solution: Mutual Adjustmentthinking,using judgment, creativity to solve problems

15. Standardization ---Means following rules & norms to make decisions so work activities are predictable • Formalization= using written rules, policies & procedures to standardize operations • No room for mutual adjustment • Typically means centralized authority • Socialization= promoting a culture (norms & standards for behavior) to guide conduct.

16. Summary • Managers need to create a balance so employees will be both creative and responsible!! • In general, people at higher levels of hierarchy in functions that perform complex, unstructured tasks rely more on mutual adjustment or standardization?

17. Mechanistic Organizational Structures High Differentiation- Centralized Authority- Standardization • Designed to induce people to behave in predictable ways • Employees are highly specialized & work separately • Employees closely supervised • Easier to hold employees accountable for work • Hierarchy of authority is clearly defined(most commonly used integrating mechanism).

18. Mechanistic Organizational Structures • Communication is top-down (slow!) • Work process is standardized & predictable • Effective inunchanging, stable environments (low uncertainty) • CONTROL!

19. Organic Organizational Structures Low Differentiation- Decentralized Authority- Mutual Adjustment • Designed to promote flexibility & ability to adapt-To what? • Employees cross-trained, work together; roles loosely defined (joint specialization) • Task forces & teams (face-to-face, lateral communication) are most commonly used integrating mechanisms  highly coordinated

20. Organic Organizational Structures • Problem solving by way of mutual adjustment • Encourages creativity & innovation • Work process is unpredictable • Effective in dynamic, changing environments (high uncertainty).

21. Summary • We design an organizational structure to control uncertainty in environment • Rapidly changing environment more uncertainty requires higher levels of differentiation requires higher levels of integration requires more complex structure demands organic structure • Lower level employees need to be empowered to make on the spot decisions • Rapid communication & information sharing necessary to coordinate activities to meet changing customer demands & develop new products.

22. Growing Pains Page 113 Case for Analysis Where Should Decisions Be Made? Page 115