Why does the Organizational Chart Matter

1
Why does the Organizational Chart Matter?

• often determines physical proximity between
  people
• determines frequency of communication between
  people
• determines reporting relationships
• influences organizational members patterns of
  identification
• influences how much people know about what other
  people in the organization do
• influences how much technical knowledge people
  have
• influences speed of communication speed of
  decision making

2
ORGANIZATIONAL DESIGN
The key idea in designing an organization is to
strive for

• an internal coherence among the parts of the
  design (i.e., structure, culture, incentive
  systems, etc.)
• a fit between the overall design and key
  aspects of the organizations context.
• the nature of the industry environment (e.g., if
  the environment is changing rapidly, need to
  design an organization capable of responding
  quickly).
• the goals/strategy of the organization (e.g., if
  youre trying to do relationship banking, need
  a structure that is geared around the customer
  such as customer-based divisions or regional
  divisions

3
ORGANIZATIONAL DESIGN (contd)

• the nature of the organizations work processes
  (e.g., need to have a structure that ensures
  cooperation between interdependent units)
• the nature of the employees (e.g., to utilize the
  expertise of professionals, need to decentralize
  decisions about how to do the task to the level
  of the professionals).
• organizational size (as organizations grow
  larger, they need to decentralize they also tend
  to become more bureaucratic)

4
Dimensions of Organizations

• Contextual dimensions
• 1. Size (of the social system, i.e., number of
  people)
• 2. Technology (nature of the task in the
  production subsystem)
• 3. Environment (elements outside the
  organization affecting it)
• 4. Goals and strategies (unique purposes of
  the organization, methods of
  competition)
• 5. Stage in the organizational life cycle
• 6. Type of workers (level of formal education
  and training of employees)
• 7. Culture (shared values, beliefs and norms)

Structural Dimensions (internal characteristics
of the organization) 1. Specialization (degree
of division of labor) 2. Complexity (number of
activities or subsystems-vertical, horizontal,
spatial) 3. Hierarchy of authority (who reports
to whom and span of control) 4. Formalization
(amount of written documentation) 5.
Standardization (degree similar work is done in
uniform manner) 6. Centralization (hierarchical
level with decision making power) 7. Personnel
configuration (deployment, e.g., admin.,
clerical, and prof. staff ratio)
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DIFFERENTIATION
INTEGRATION

• DIVISION OF LABOR/
• JOB SPECIALIZATION
• Creating roles

METHODS OF STANDARDIZATION (MINTZBERG)
By direct supervision By rules of inputs of
outputs by mutual adjustment
COMPLEXITY vertical horizontal spatial
DEPARTMENTALIZATION
Differentiation of values, goals, technologies
across departments
Integration mechanisms Liaison roles
Teams Full-time integrators Task forces
Information systems
6
Division of Labor/Specialization

• How are jobs/roles conceived of?
• How are responsibilities grouped together?
• How much autonomy is given?

7
Organizational Departmentalization

• How are people/roles grouped together in the
  organization?
• by function?
• by product type?
• by type of customer served?
• by geographical region served?
• in cross-functional teams?
• in a matrix design?

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Grouping and Structure
CEO
Function
Activity Grouping
Work process
Engineering
Marketing
Manufacturing
Knowledge, skills, disciplines
CEO
Product
Output Grouping
Service
Product Line 3
Product Line 1
Product Line 2
Project
Business/profit Center
CEO
Geography
User/Customer Grouping
User/customer
Market Segment
Eastern U.S.
Western U.S.
Canada
CEO
Multifocused Grouping (Any Combination)
Matrix
Hybrid
Marketing
Manufacturing
Product 1
Product 2
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Functional Structure
President
R D
Manufacturing
Accounting
Marketing
Divisional (Product) Structure
President
Product Group 1
Product Group 2
Product Group 3
RD
Mfg
Acct
Mkt
RD
Mfg
Acct
Mkt
RD
Mfg
Acct
Mkt
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FUNCTIONAL STRUCTURE
CONTEXT
Environment Low uncertainty, stable Technology
Routine, low interdependence Size Small to
medium Goals Internal efficiency, technical
specialization and quality STRENGTHS 1.
Economies of scale within functions 2. In-depth
skill development 3. Able to accomplish
functional goals 4. Best in small-to medium-size
organizations 5. Best when only one or a few
products WEAKNESSES 1. Slow response time to
environmental changes 2. Decisions may pile on
top.,hierarchy overload 3. Poor interunit
coordination 4. Less innovation 5. Restricted
view of organization goals
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DIVISIONAL STRUCTURE
CONTEXT Environment Moderate uncertainty
complex Technology Nonroutine, high
interdependence among functional
departments Size Large Goals External
effectiveness, adaptation, client
satisfaction STRENGTHS 1. Suited to unstable
environment 2. Leads to client satisfaction
because product responsibility and contact
points are clear 3. Good inter-functional
coordination within divisions 4. Allows units to
adapt to differences in products, regions,
clients 5. Allows for decentralization of
decision making 6. Is best for large
organizations with multiple products or
services WEAKNESSES 1. Eliminates functional
economies of scale 2. Leads to poor coordination
across product lines 3. Eliminates in-depth
competence and technical specialization 4. Makes
integration and standardization across product
lines difficult.
12
Sun Petroleum Products Companys Hybrid Structure
President
Chief Counsel
Director Human Resources
Vice-President Technology
Sr. Vice-Pres., Resources Strategy
Vice-President, Financial Services
Director, Public Affairs
Vice-President, Chemicals
Vice-President, Lubricants/ Waxes
Vice-President, Fuels
Vice-President, Facilities
Vice-President, Raw Materials
Six Refineries
Marketing
Marketing
Marketing
Director, Planning Environment Assessment
Planning and Economics
Planning and Economics
Planning and Economics
Supply and Distribution
Supply and Distribution
Supply and Distribution
Manufacturing
Manufacturing
Manufacturing
13
HYBRID STRUCTURE
CONTEXT Environment Moderate to high
uncertainty, changing customer demands Technology
Routine or nonroutine, with interdependencies
across both functions and product lines Size
Large Goals External effectiveness and
adaptation plus efficiency within some
functions STRENGTHS 1. Organization can achieve
adaptability and coordination in some areas and
efficiency in others 3. Achieves coordination
both within and between product
lines WEAKNESSES 1. Potential for excessive
administrative overhead 2. Conflict between
division and corporate departments
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MATRIX STRUCTURE
President
Director of Product Operations
Vice-President Design
Vice-President Manufacturing
Vice-President Marketing
Controller
Procurement Manager
Product Manager A
Product Manager B
Product Manager C
Product Manager D
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MATRIX STRUCTURE
Context
Environment High uncertainty
fast-changing Technology Nonroutine, many
interdependencies Size Moderate, a few product
lines Goals Dual-product innovation and
technical specialization
Strengths
1. Achieves coordination necessary to meet dual
demands from environment 2. Flexible sharing of
human resources across products 3. Suited to
complex decisions and frequent changes in
unstable environment 4. Provides opportunity for
functional and product skill development 5. Best
in medium-size organizations with multiple
products
Weaknesses
1. Causes participants to experience dual
authority, which can be frustrating and
confusing. 2. Means participants need good
interpersonal skills and extensive training. 3.
Is time-consuming-frequent meetings and conflict
resolution sessions 4. Will not work unless
participants understand it and adopt collegial
rather than vertical-type relationships 5.
Requires dual pressure from environment to
maintain power balance
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A Horizontal Structure
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Strengths and Weaknesses of Horizontal Structure

• STRENGTHS
• Flexibility and rapid response to changes in
  customer needs
• Directs the attention of everyone toward the
  production and delivery of value to the customer
• Each employee has a broader view of
  organizational goals
• Promotes a focus on teamwork and
  collaborationcommon commitment to meeting
  objectives
• Improves quality of life for employees by
  offering them the opportunity to share
  responsibility, make decisions, and be
  accountable for outcomes

• WEAKNESSES
• Determining core processed to organize around is
  difficult and time-consuming
• Requires changes in culture, job design,
  management philosophy, and information and reward
  systems
• Traditional managers may balk when they have to
  give up power and authority
• Requires significant training of employees to
  work effectively in a horizontal team environment
• Can limit in-depth skill development

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The Relationship of Structure to Organizations
Need for Efficiency vs. Learning and Innovation
Horizontal Structure
Matrix Structure
Divisional Structure
Functional with cross-functional teams,
integrators
Functional Structure

• Horizontal
• Coordination
• Change
• Learning
• Innovation
• Flexibility

Dominant Structural Approach

• Vertical
• Control
• Efficiency
• Stability
• Reliability

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INTEGRATION HOW DO WE COORDINATE THE PARTS

• direct supervision?
• rules and regulations?
• creating so-called self-contained units (SBUs)
  and relying on the market?
• attempting to standardize inputs (e.g., relying
  on educational or accreditation organizations to
  certify education and socialization of
  individuals into the standards of a profession)
• mutual adjustment (e.g. relying on the people to
  coordinate themselves as in self-managed teams,
  matrices...)

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Vertical Linkages
Vertical information systems
High
Add positions to hierarchy
Degree of Vertical Coordination and Control
Required
Rules and plans
Hierarchical referral
Low
Low
High
Information Capacity of Linkage Mechanism
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Horizontal Linkages
High
Teams
Full-time integrators
Task forces
Degree of Horizontal Coordination Required
Liaison roles
Direct contact
Information Systems
Low
Low
High
Costs of Coordination
22
LOCUS OF DECISION MAKING AUTHORITY (Centralizatio
n vs. decentralization)

• Where are decisions made within the system?
• Who has oversight responsibility?

23
ADVANTAGES AND DISADVANTAGES OF CENTRALIZATION
Centralized
Decentralized
Advantages
Advantages

• decisiveness
• accountability
• control

• Made closer to the problem
• Faster decisions

Disadvantages
Disadvantages

• Overload at the top leads to slowness
• Decisions are only as good as the individual
  making them.
• risk (long-run)

• Risk, will the decision makers use the
  appropriate criteria?
• hard to control
• unpredictable