Organization Structure and Management Systems

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Organization Structure and Management Systems
OUTLINE

• Evolution of the corporation
• Principles of organizational design
• The role of hierarchy bureaucratic
• control vs. modular integration
• Alternative structural forms
• Management systems

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Evolution of the Modern Corporation
Strategic changes
The business environment
Organizational consequences
Early 19th century
Local markets Firms specialized Small
firms. Transport slow focused on local Simple
manage- Limited mechanization markets ment
structures
Introduction of Geographical and Functional
struct- railroads, telegraph vertical
expansion ures. Line/staff industrialization s
eparation. Accou- nting systems
Late 19th century
Excess capacity in Product Development of
distribution. Growth multinational multidivision
al of financial institut- diversification
corporation ions world trade
Early 20th century
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General Motors Organization Structure, 1921
Board of Directors
President
Executive Committee
Financial Staff
Legal Department
General Advisory Staff
GM Acceptance Corporation
Chevrolet Division
Sheridan Division
Canadian Division
Oldsmobile Division
GM Export Company
Cadillac Division
Buick Division
GM Truck Division
Inter-company Parts Division
Oakland Division
Samson Tractor Division
Scripps Booth Corp.
Source A.P. Sloan, My Years with General Motors,
Orbit Publishing, 1972, p. 57.
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The Basic Tasks of Organization
Achieving high levels of productivity requires
SPECIALIZATION
Specialization by individuals necessitates
COORDINATION
For coordination to be effective requires
COOPERATION
But goals of employees goals of owners
THE AGENCY PROBLEM

• THE ORGANIZATIONAL CHALLENGE
• To design structure systems that
• Permit specialization
• Facilitate coordination by grouping individuals
  link groups with systems of communication,
  decision making, control
• Create incentives to align individual firm
  goals

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Hierarchy Economizes on Coordination
(a) Self Organizing Team 10 interactions
(b) Hierarchy 4 interactions
But what about effectiveness of
coordination? --Depends upon the organizations
task
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Hierarchy of Loosely-Coupled Modules Allows
Flexible Adaptation
Tightly-coupled, integrated system Change in
any part of the system requires system-wide
adaptation
Loose-coupled, modular hierarchy
partially-autonomous modules linked by
standardized interfaces permits decentralized
adaptation and innovation
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Webers Principles of Bureaucracy

• Rational-legal authority
• Specialization of labor
• Hierarchical structure
• Coordination and control through rules and
  standard operating procedures
• Standardization employment practices
• Separation of jobs and people
• Formalization of administrative acts, decisions
  and rules

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Mechanistic and Organic Forms

• FEATURE MECHANISTIC ORGANIC
• Task definition Rigid highly
  Flexible less
• specialized specialized
• Coordination Rules directives Mutual
  adjustment.l
• control imposed from the top Cultural
  control
• Communication Mainly vertical
  Horizontal vertical
• Commitment To immediate superior To the
  organization its
• loyalty goals values
• Environmental Stable with low tech-
  Dynamic, ambiguous,
• context nological uncertainty high
  technological
• uncertainty

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Designing the Hierarchy The Basis for Defining
Organizational Units and their Relationships
Units may be defined on the basis of Common
Tasks, Products, Geographical Proximity, or
Process/Function
Critical issue Intensity of CoordinationEmployee
s with the greatest interdependence should be
grouped into same organizational unit.
Additional criteria Economies of Scale,
Economies of Utilization, Learning,
Standardization of Control Systems
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General Motors Organization Structure, 1997
Board of Directors
Corporate Functions
Presidents Council
North American Operations
Delphi Automotive Systems
International Operations
GM Acceptance Corporation
Hughes Electronics
GM Europe
Midsize Luxury Car Group
Small Car Group
GM Power Train Group
Vehicle Sales, Marketing Group
Development Technical Cooperation Group
Asian Pacific Operations
Latin American, African, Middle East Operation
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Corporate Executive Office Chairman CEO
Corporate Staff Finance Business
RD Human Legal Development Resources
Service Divisions
GE Appliances
GE Supply
GE Aircraft Engines
GE Trans- portation
GE Industrial Systems
GE Plastics
GE Power Systems
GE Medical Systems
GE Lighting
GE Specialty Materials
NBC
GE Capital
26 businesses organized into 5 segments
Consumer Mid-market Specialized
Specialty Equipment Services Financing
Financing Insurance Management
General Electrics Organization Structure, 2002
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Mobil Corporation, 1997
Board of Directors
CEO Executive Office
Support Services
Corporate Center
North America
Technology
New Exploration
Worldwide LNG IPP
Europe CIS
Africa Middle East
Asia/ Pacific
South America
North America MR
Worldwide Chemicals
Shipping
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Royal Dutch/Shell Group, 1994 A Matrix Structure

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The Generic Strategic Planning Cycle
Corporate Guidelines
Draft Business Plans
Discuss with Corporate
Revised Business Plans
Approval by Board
Forecasts/ Scenarios/ Planning assumptions
Corporate Plan
Capex Budget
Annual Performance Targets
Performance Review