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. Differentiation • Division of labor or degree of specialization • Establishment of task & authority relationships • Allocation of resources & people to tasks • Simple organization differentiation is low • Complex organization differentiation is high

4. Challenge #1Managing Differentiation • Roles • Functions • Support Adaptive • Production Managerial • Maintenance • Divisions • Responsible for producing one G or S • Self-contained divisions • Organization

5. Control When individuals: • 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 subunits Establishes division of labor Vertical The way an organization designs hierarchy of authority & creates reporting relationships to link roles & subunits Establishes distribution of authority Differentiation

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

9. Integrating MechanismsPage 96 • Hierarchy (most simple) • Direct face-to-face contact • Liaison roles • Task forces • Teams • Integrating roles • Integrating departments (most complex)

10. Keep in Mind… • Differentiating and 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: Hierarchy of authority can mean: inability to make decisions shirking responsibility & risk  slowed decision-making  inflexible organization • Solution: • Decentralize authority • The challenge is to decide 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 become overloaded on day-to-day decision-making & have no time to develop long-term strategy • Lack of freedom & initiative to respond to problems as they arise.

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 or innovation in response to customer demand • Solution: Mutual Adjustmentusing judgment, creativity to solve problems

15. Standardization ---Means following rules & norms to make decisions so work activities are predictable • Formalization= written rules & procedures to standardize operations • No room for mutual adjustment • Typically means centralized authority • Socialization= understood norms or generally agreed upon 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 StructuresPage 115 • 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 • Work process is standardized(rules, SOPs,policies) & predictable • Effective in unchanging, stable environments(low uncertainty) • Authority (D/M) is centralized • CONTROL!

19. Organic Organizational Structures • 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) are most commonly used integrating mechanisms (high integration needed to coordinate).

20. Organic Organizational Structures • Authority (DM) is decentralized • 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 external 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