Organizational Design

1
Organizational Design

• Basic Design Elements
• Fall 2005

2
Outline of Design Issues

• What is organizational design?
• What does a good design achieve for
  organizations?
• What are the basic building blocks of design?
• Traditional design configurations
• Contemporary design considerations
• Network designs
• Global designs

3
What is organizational design?

• Process of developing an overall social structure
  for the organization using basic design concepts
• Configuration of design concepts that fits with
  environment, strategy, goals, technology, size,
  life cycle stage
• Source of competitive advantage may be
  difficult to copy

4
What does a good design achieve for the
organization?

• First, think about symptoms of poor
  organizational design

How do you know the design is not working well?
5
What does a good design achieve for the
organization?

• Clarifies relationships, information flows, and
  work flows
• Little duplication of effort efficiency
• Neither over-control nor under-control of
  activities and information
• Focuses concerted effort on most important goals
  and market domains

6
What does a good design achieve for the
organization?

• Employees understand how the pieces of
  organization fit together and who is responsible
• Decisions are made at appropriate levels
• Stability and comfort with the system less
  conflict, better morale, less frustration
• Adaptable such that major re-organizations are
  not necessary every year

7
What are the basic building blocks of design?

• Technology and workflow
• Differentiation of activities
• Integration or coordination of activities
• Locus of decision making
• Control mechanisms
• Informal organization

8
Technology and Workflow

• Physical objects and artifacts used in producing
  goods (tools, equipment)
• Activities and processes that convert inputs into
  outputs (chain of value creation activities)
• Knowledge needed to develop and apply tools and
  equipment in the process of converting inputs
  into outputs
• Occurs at various levels in the organization
• Core
• Unit level

9
Organization as Core Technology and Unit-Level
Technology
ENVIRONMENT
Raw Materials Resources
Products
Output
Transformation
Input
Organization
Services
Production Maintenance Adaptation Management
Boundary Spanning
Boundary Spanning
Subsystems
10
Models of Technology Woodwards Manufacturing
Technology

• Unit production or small batch (e.g., custom made
  yachts, art)
• Mass production or large batch (e.g.,
  automobiles, printing)
• Continuous process production (e.g., drugs,
  chemicals, nuclear power)

Technical complexity increases from unit to
continuous processing and basic structural
variables varied with technology utilized
11
Models of Technology Thompson

• Technology
• Type
• Mediating
• Long linked
• Intensive

• Task
• Interdependence
• Pooled
• Sequential
• Reciprocal

12
Task Interdependence
Pooled
Sequential
Reciprocal
13
Models of Technology Thompson

• Pooled
• Sequential
• Reciprocal

Main Type of Coordination
Task Interdependence

• Standardization
• Planning and
• Scheduling
• Mutual adjustment

14
Perrows Classification of Departmental Technology
Task Variability
Low
High
High
Routine Technology
Engineering Technology
Task Analyzability
Non-Routine Technology
Craft Technology
Low
15
Service Technologies

• General Characteristics
• Simultaneous production and consumption of goods
• Intangible products
• Cannot be stored in inventory
• Vary on degree of labor intensity (in relation to
  capital intensity) involved
• Vary on degree of customization and interaction
  with customers
• Examples investment banking, therapy,
  education, musical concerts, air travel, discount
  retailing

16
Service Technologies
Labor Intensity (relative to capital)
Low
High
Low
Service Factories
Mass Services
Degree of Customization and Interaction with
Customers
Professional Services
Service Shops
High
17
Types of Service Technologies

• Service Factories low labor intensity, low
  degree of customization and interaction with
  customers (e.g., airlines, trucking, hotels,
  cruises)
• Challenges marketing, making service warm given
  standardization, attention to physical
  surroundings

18
Types of Service Technologies

• Service Shops low labor intensity and high
  degree of customization and customer interaction
  (e.g., hospitals, auto repair, some boutique
  retailers)
• Challenges capital investment decisions,
  keeping up with technological advances,
  scheduling service delivery, loyalty of personnel

19
Types of Service Technologies

• Mass Service high labor intensity, low degree
  of customization and interaction with customers
  (e.g., large retailers, public schools,
  commercial banking)
• Challenges scheduling, methods of control,
  managing growth, geographical dispersion decisions

20
Types of Service Technologies

• Professional Services high labor intensity and
  high degree of customization and customer
  interaction (e.g., law firms, consulting,
  architectural design, accounting firms)
• Challenges employee loyalty, human resource
  costs, managing careers, managerial and
  professional control and conflict, hiring and
  training issues

21
Organigraphs Workflow Maps

• Maps that show how interactions among people,
  information, and products occur
• Elements sets (roles), chains (connections),
  hubs (coordination centers), webs (interconnected
  nodes with no centers)
• Imagining different ways to structure
  interdependencies and to see potential new
  competitive opportunities

From Mintzberg and Van der Heyden, 1999
22
Managing Workflows
Web Managers Link and Energize
Hub Managers Coordinate
Chain Managers Control
Set Managers Allocate
23
Organigraph of Distributor of Electric Components
24
Organigraph of Frontec
25
Organigraph of Doctors Without Borders
26
Technology and Workflow Summary

• Technological Imperative Technology is the most
  important determinant of design
• Routine-ness (or non-routine-ness) of technology
  is related to uncertainty which determines design
  decisions
• Example The more variability and exceptional
  events encountered in workflow activities, the
  more organic the structure of the organization
  should be (i.e., decentralized, flexible, less
  formal)

27
Technology and Workflow Summary

• Interdependence among employees in workflow makes
  uncertainty greater and thus increases
  coordination needs
• Social, cultural, and economic forces moderate
  the technological imperative technology can
  have unpredictable effects (example tele-work
  instant messaging surveillance technologies)

28
Differentiation of Activities

• Division of labor allocation of tasks/roles to
  positions
• Departmentalization allocation of positions
  into units with a common boss usually based on
  some workflow logic
• Horizontal vs. vertical differentiation
• Larger size, more market domains served, and more
  complex environments, the greater the
  differentiation needs

29
Integration or Coordination of Activities

• Integration of differentiated activities
• Methods
• Hierarchy
• Rules, procedures, and schedules
• Direct contact (mutual adjustment)
• Liaison roles
• Task forces
• Teams
• Integration roles and units

More differentiation, the greater the need for
integration
30
Locus of Decision Making

• Centralization
• Tight control at top management levels
• Advantages? Disadvantages?
• Decentralization
• Looser control at top management levels
• Lower level managers given more responsibility
  and accountability (empowerment)
• Advantages? Disadvantages?

31
Control Mechanisms

• Mechanisms in place to obtain reliable and
  consistent behavior desired by management
• Methods
• Standardization through rules, policies, and
  procedures (RPPs)
• Reward systems
• Direct supervision
• Standardization through socialization and
  training
• Output control
• Direct communication
• Reliance on judgment and experience

32
Informal Organization

• System of informal relationships that arise when
  people work together
• Enables but also constrains interactions
• Organizational network analysis (ONA) can uncover
  the informal social system
• Mapping software to determine who knows who and
  who knows what
• Asks simple questions to employees and tracks
  responses (e.g., With whom do you discuss ideas,
  innovations, and better ways of getting things
  done?)