BA 210: Organizational Structure

1. 1 BA 210: Organizational Structure

2. 2 Part Two: Organizations and Environment

3. 3 The importance of organizational structure �Your box on the org chart is your world� What is the best way to break broad goals and strategies down into assignable tasks? Jobs (what�s inside each box on the organization chart?) Departments (how are the boxes grouped?) Poor structural choices can have enormous costs: Priorities are set wrong, communication becomes difficult and slow, coordination and motivation suffers.

4. 4 Today�s Roadmap Objective: Understand how organizations are designed and structured Specialization vs. Coordination Elements of organization structure Today: Specialization Jobs Departments Structures: Simple, Functional, Divisional and beyond Next class: Coordination

5. 5 Structure: Fundamental Concepts Organizational Structure: The formal framework by which job tasks are divided, grouped, and coordinated. Work specialization, Departmentalization, Chain of command, Span of control, Centralization / Decentralization, Formalization Two pillars: Specialization and Coordination Dividing the work up vs. Keeping everyone working in sync Organizational Design: Developing or changing the organization�s structure. Overarching types: Mechanistic, organic, learning, etc.

6. 6 Work Specialization, Motivation & Job Design Job design is how you separate large tasks into smaller components and then organize those component tasks into jobs. Historically, huge productivity gains came from simplifying jobs and from economies of specialization (recall Smith�s Division of labor). Human diseconomies arose as jobs were oversimplified. They became boring, stressful, and fatiguing, and were associated with high turnover, absenteeism, and poor quality (i.e., Charlie Chaplin). How do we fix oversimplified jobs? First ideas were to pull back � to reverse simplification by expanding jobs horizontally (Enlargement) or vertically (Enrichment). This worked at times but are crude, piecemeal approaches Real answer: Comprehensively assess the impact of job design on employee productivity, motivation and satisfaction.

7. 7 Hackman and Oldham�s Job Characteristics Model (JCM) The most comprehensive and respected approach to job design The argument: A job�s impact on key outcomes (employee productivity, motivation, and satisfaction) can be assessed by examining five primary job characteristics: Skill Variety - does job require a variety of activities / skills / talents Task Identity - does job lead to a whole, identifiable piece of work Task Significance � � Autonomy - is there substantial freedom, independence, and discretion in scheduling and performing the work Feedback - is clear information received about your performance? These characteristics each contribute to high productivity and satisfaction by making the job more motivating

8. JCM - Job Characteristics Model

9. 9 JCM - Guidelines For Job Redesign

10. 10 Example of job redesign Ms. Max (Maxine) Profit works for you at your growing digital media company. Max has been a hard-working high performer. Her job involves writing direct mail letters to current and potential customers regarding new music (both live and recorded) being marketed by your company. Recently, however, she mentioned that she feels like her job puts her in a straightjacket. She has a lot of ideas but hasn�t had time to put them into practice with the company�s growth. Thinking about the Job Characteristics Model, you decide to try to make her job more motivating by �

11. 11 Grouping jobs - Departmentalization Reversing the specialization process and putting the organization �back together�. Departments are the �boxes� on the organization chart. The box represents the department (also called division, SBU, unit, function, etc.) Inside the box is a person � the dept. manager (supervisor, V.P., �head,� etc.) Exception: The very bottom of the chart shows jobs, not departments (usually) Charts are often abridged (show specific part of the organization only).

12. 12 Preface: What does it mean to be �in a box� in an org chart? In a word, � Your own box is a job that has a set of responsibilities You are going to put those responsibilities first The box is part of a bigger box � your department People identify with their department; they interpret problems, allocate resources, and take action based on that. �Where you stand depends on where you sit.� In other words, the department comes first, even if it hurts someone outside the department Its easy to work with people in your department, and hard otherwise. Communication is easy; priorities and conflict are easy to reconcile; similar perspectives on what�s important; manager�s experience can be applied to all relevant problems.

13. 13 Functional Departmentalization

14. 14 Pros and cons of functional departmentalization Functional Structure - groups similar jobs together with a manager in charge of those Advantages � Efficient Can gain huge economies of scale, little duplication Allows for high specialization and skills in each functional area Disadvantages Doesn�t handle needs of different products, different customers, different regions particularly well. Oriented towards maximum efficiency and thus �one size fits all.� Preoccupation with department rather than organizational goals.

15. 15 The basis for departments can vary:Place Departmentalization

16. 16 Product Departmentalization

17. 17 Customer Departmentalization

18. 18 Pros and cons of alternatives to functional departmentalization Pro: Each specializes around a specific source of complexity in the environment: Places, products, customers So, your organization becomes responsive to that complexity. Con: Duplication occurs and each loses specialization and efficiency in the individual functions The four lawyers example As always, people tend to identify with departmental rather than organizational goals

19. 19 Which type of departmentalization is the right one? Mirror the complexity of your environment If its simple, be efficient (functional) Otherwise, be responsive by specializing around the complexity Functional: If efficiency is paramount and differences across place, product, customer are limited. The default choice. Place: � If environment is simple, but costs of travel / transport are high Product or Customer: If there are major differences across products (design, manufacture, sales process) or customers, respectively.

20. 20 Departmentalization follies You sell to customers that look pretty much the same nationally. Your product line often requires several site visits to close the sale. A single sales rep can have a pretty good handle on the whole line. How do you departmentalize your salespeople? With the internet you find a substantial fraction of your customers would like to buy direct. How do your change your departmentalization? Actually it turns out that selling to the federal government is a unique process, and that�s a growing part of your business. The government doesn�t buy over the internet much. How do you change your departmentalization? Your success leads you to expand the product line. Now no one sales rep to can stay on top of the whole line. How do you change your departmentalization now? What does this do to your efficiency?

21. 21 Grouping departments into whole organizations The three most common approaches: Simple structure Functional structure Divisional structure They are known as �structures.� Why? When managers talk about organizational structure, they usually mean what�s on the organization chart (that is, departmentalization) rather than the full set of organizational design decisions. And you identify such a �structure� by looking at the top two lines of the org chart (I.e., the CEO and his/her reports).

22. 22 First there was the simple structure This is a small organization where everyone reports to �the boss� So it doesn�t make sense to talk about departmentalization by function, place, etc. It�s a powerful design: Low-cost, flexible, adaptive It has two key limitations: Relies on one person. It is as good or bad as that. Only appropriate for very small organizations

23. 23 As the organization grows, it usually moves to a functional structure Functional Structure - groups similar jobs together by having a functional manager report to the head of the organization Marketing, Sales, Finance, Manufacturing, R&D, etc. Advantages � Efficient Can gain huge economies of scale, little duplication Allows for high specialization and skills Disadvantages � � Slow decisions and communication as everything moves up and down the hierarchy (�Silos�). Preoccupation with department rather than organizational goals.

24. 24 The basis of departmentalization can vary across levels in a functional structure

25. 25 The divisional structures copes with yet more size and complexity Divisional Structure: Organizational structure made up of separate, semiautonomous units called �divisions�. Each division produces specific products, operates in specific geographies, or serves specific customers. Each division has has a full complement of functions (e.g., R&D, marketing, sales, production, human resources, finance) Adopted where organizations faces too much complexity for functional structure to cope. Many different products, or many regions (countries) or very different customers (e.g., government, large business, consumer). Pro: Divisions focus and specialize. Each division has business-level competitive strategy, knows its product, region or customer well. Con: Resources duplicated, and divisions find it tough to cooperate with other divisions

26. DivisionalStructures:

27. DivisionalStructures:Choose product, geographic or market structure using same criteria as for deparments:Where is the complexity?

28. 28 Matrix Structure: If there are complex dimensions Matrix Structure � Structure with dual chain of command. Example: Functional / project matrix. Boeing engineers report to the design function, but also to a project manager for the particular airliner (i.e., 767) they design / build Example: Product / region matrix. ABB division managers report to a global product head and to a national sales manager. Each manager you report to retains some authority. Typically the sales / project side is focused on immediate results and the functional / product side on longer-term development. You report to two managers; � satisfy both. Matrixes attempt to have it both ways: For example, the efficiency and scale of the functional organization, and the focus of a project organization. Unless you are really good at this, you get neither.

29. 29 Use of Product Teams in organizational structures: Product Teams Relatively free-standing cross-functional team is formed with members assigned to the team for the duration (i.e., until product hits the market). Team is empowered to bring product to market. Weakening the hierarchy is key to team success. Avoids authority problems seen in the matrix Team use in structures in general: Relatively autonomous teams are increasingly used as complements to functions or divisions in large organizations Promise efficiency of departmentalization, flexibility of teams

30. 30 Black and Decker goes to Product Teams Black and Decker needed to bring new ideas to market faster and lower costs as they are faced with mature markets and overseas competitors. Pull a person or two each out of R&D, marketing, sales, manufacturing, finance and have them assigned full-time to a product team with a broadly-defined goal such as come up with a better cordless drill than anything out there. The team approach met Black and Decker�s needs by cutting through silo-type barriers, yet the overall efficiency of a functional structure is retained once the product is developed.

31. 31 Project Structure: Project Structure - employees assigned to an unending sequential stream of projects All work performed by teams built around project needs Employees do not return to a functional department at the conclusion of a project. They �sit on the beach.� Is fluid and flexible, but it is hard to gain efficiencies of scale and consistency is at risk Common in professional service organizations Leaders (partners) become enormously important �The heart of McKinsey is its partners� Highly skilled people become enormously important

32. 32 Example Consulting firms such as Mckinsey get projects when the partners sell them. These firm�s structures historically have been a series of regional offices that are only loosely coordinated, much like divisions. When a project is sold a project team is formed by asking appropriate, available people to sign up (often but not always full time). Teams might be 5 to 20 people. A person�s career is largely a succession of client projects, interspersed with non-billable projects (i.e., developing a new consulting approach) in between as well as stretches �on the beach� � i.e., not on any specific project.

33. 33 Major Points: Structure Structure: The most important internal choice. Everyone�s world is colored by the box they are in. The Job Characteristics Model says variety, identity, significance, autonomy and feedback lead to motivating jobs. Departmentalization (functional, product, place, customer) choice should match the critical contingency. Divisional structures can handle complexity � at the cost of duplication of resources � compared to functional structures, which are highly efficient. Specialized structures (Matrix, product team, and project structure) address limitations of more common structures.

34. 34 Next Up: Coordination & Design Complete Ch 10 especially � Organizational design decisions, (p. 263-267); Boundaryless and learning organizations (p. 271-274). T123: 4-6, 7-12, 19-21. Remember that T123: 1-3 & 13-17 were assigned last time and 18 can be skipped.