Organization Design and Culture

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Organization Design and Culture

• 1.THE NATURE OF ORGANIZATION DESIGN
• 2. UNIVERSAL PERSPECTIVES ON ORGANIZATION DESIGN
• 3. SITUATIONAL INFLUENCES ON ORGANIZATION DESIGN
• 4. COMMON FORMS OF ORGANIZATION DESIGN
• 5. LINKING STRATEGY AND ORGANIZATION DESIGN
• 6. ORGANIZATIONAL CULTURE

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1. THE NATURE OF ORGANIZATION DESIGN

• Organization design is the overall pattern of
  structural components and arrangements used to
  manage the total organization. Thus, organization
  design is a means used to implement strategies
  and plans to achieve organizational goals.
• There are two important points to keep in mind
• organizations are seldom, if ever, designed and
  then left intact. Indeed, most organizations
  change constantly as a result of situations,
  people, and other factors.
• organization design for large organizations is
  complex and has so many associated nuances and
  variations that descriptions of them must be
  considerably simplified in order to be described
  in basic terms.

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2. UNIVERSAL PERSPECTIVES ON ORGANIZATION DESIGN

• The foundation of what we know today about
  organization design comes from two early
  universal perspectives the bureaucratic model
  and the behavioral model.

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The Bureaucratic Model

• Bureaucracy is an organization based on a
  legitimate and formal system of authority (Max
  Weber).
• According to Weber, the ideal bureaucracy
  exhibits five basic characteristics
• the organization should adopt a distinct division
  of labor, and each position should be filled by
  an expert.
• the organization should develop a consistent set
  of rules to ensure that task performance is
  uniform.
• the organization should establish a hierarchy of
  positions or offices so that a chain of command
  from the top of the organization to the bottom is
  created.
• managers should conduct business in an
  impersonal way. They should especially maintain
  an appropriate social distance between themselves
  and their subordinates.
• employment and advancement in the organization
  should be based on technical expertise. As a
  corollary, employees should be protected from
  arbitrary dismissal. As a consequence, employees
  should develop a high level of loyalty to the
  organization.

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The Bureaucratic Model

• has two primary strengths
• Several of its elements (such as division of
  labor, reliance on rules, a hierarchy of
  authority, and employment based on expertise) do,
  in fact, often improve efficiency.
• Because the bureaucratic model was the starting
  point for much of our current thinking about
  organizations, it played a foundational role in
  understanding organization design.
• results in several disadvantages
• Bureaucracies tend to be inflexible and rigid.
• Human and social processes within the bureaucracy
  are neglected.
• Weber's assumptions about loyalty and impersonal
  relations are unrealistic.

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The Behavioral Model

• The behavioral model organization design that
  paralleled the emergence of the human relations
  school of management thought (Rensis Likert's
  System 4 approach).

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Likert developed a Framework that characterized
Organizations in Terms of eight Key Elements

• leadership processes,
• motivational processes,
• communication processes,
• interaction processes,
• decision processes,
• goal-setting processes,
• control processes,
• performance goals.

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Likert believed

• all organizations could be placed on a set of
  dimensions describing each of these eight
  elements. He argued that the basic bureaucratic
  form of organization, which he called a System 1
  design, anchored one end of each dimension.
• A System 4 organization uses a wide array of
  motivational processes and its interaction
  processes are open and extensive.
• In between the System 1 and System 4 extremes lie
  the System 2 and System 3 organizations.
• Likert argued that System 4 should be adopted by
  all organizations. He suggested that managers
  should emphasize supportive relationships,
  establish high performance goals, and practice
  group decision making to achieve the System 4
  state.

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System 1 and System 4 Organizations

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The Behavioral Model

• Strengths
• Emphasis on behavioral processes in
  organizations (Whereas the classical perspective
  treated people like components of a large machine
  and minimized the importance of any one person,
  the behavioral model recognized the individual
  value of an organization's employees. )
• Weaknesses
• Was based on the premise that there is only one
  best way to design organizations

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3. SITUATIONAL INFLUENCES ON ORGANIZATION DESIGN

• The situational view of organization design is
  based on the assumption that the optimal design
  for any given organization depends on a set of
  relevant situational factors
• technology,
• environment,
• size and organizational life cycle.

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Technology

• Technology is the conversion processes used by
  an organization to transform inputs (such as
  materials or information) into outputs (such as
  products or services).

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Three basic forms of technology were identified
by Woodward

• Unit or small-batch technology. The product is
  custom-made to customer specifications, or else
  it is produced in small quantities. Examples of
  organizations using this form of technology
  include a tailor shop like Brooks Brothers
  (custom suits) and a printing shop like Kinko's
  (business cards, company stationery).
• 2. Large-batch or mass-production technology.
  The product is manufactured in assembly-line
  fashion by combining component parts into another
  part or finished product. Examples include
  automobile manufacturers like Subaru and
  washing-machine companies like Whirlpool.
• 3. Continuous-process technology. The product
  is transformed from raw materials to a finished
  good by a series of machine or process
  transformations. The composition of the materials
  themselves is changed. Examples include petroleum
  refineries like Exxon and chemical refineries
  like Dow.

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Woodward's Findings on Technology and
Organization Design
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Environment

• The first widely recognized contemporary analysis
  of potential environmentorganization design
  linkages was provided by Tom Burns and G. M.
  Stalker. Their first step was identifying two
  extreme forms of organizational
  environmentstable (one that remains relatively
  constant over time) and unstable (subject to
  uncertainty and rapid change).
• Next, they studied the designs of a variety of
  organizations functioning in each type of
  environment. They found that organizations
  operating in stable environments tended to have a
  different kind of design from organizations
  operating in unstable environments. The two kinds
  of organization design that emerged
• Mechanistic organization
• A rigid and bureaucratic form of design most
  appropriate for stable environments
• Organic organization
• A fluid and flexible design most appropriate for
  unstable and unpredictable environments

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Mechanistic and Organic Organization
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Environment

• Lawrence and Lorsch suggested that organizations
  could be characterized along two primary
  dimensions
• differentiation, is the extent to which the
  organization is broken down into subunits. A firm
  with many departments is highly differentiated
  one with few departments has a low level of
  differentiation
• integration, is the degree to which the various
  units must work together in a coordinated
  fashion. If each unit competes in a different
  market and has its own production facilities,
  little integration may be needed if the units
  share resources and have a common sales staff,
  more integration will be required.
• Lawrence and Lorsch reasoned that the degree of
  differentiation and integration needed by an
  organization would depend on the stability of the
  environments that its subunits faced.

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Size and Organizational Life Cycle

• organizational size - the
• number of full-time or full-time equivalent
  employees
• organizational life cycle - a natural sequence
  of stages most organizations pass through as they
  grow and mature

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Many Organizations progress through a four-stage
Organizational Life Cycle

• the birth of the organization,
• youth, is characterized by growth and the
  expansion of all organizational resources.
• midlife,
• maturity.
• In general, as an organization passes from one
  stage to the next, it becomes
• bigger, more mechanistic, and more
  decentralized
• more specialized, devotes more attention to
  planning, and takes on an increasingly large
  staff component
• coordination demands increase, formalization
  increases, organizational units become
  geographically more dispersed, and control
  systems become more extensive.

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4. COMMON FORMS OF ORGANIZATION DESIGN

• Functional organization design An arrangement
  based on the functional approach to
  departmentalization, also called the U-form
• U-form design is most commonly used in small
  organizations, because in such organizations it
  is fairly easy for an individual CEO to oversee
  and coordinate the entire organization.
• The members of the organization are grouped into
  functional departments like marketing and
  production. Thus, for the organization to operate
  efficiently, there must be considerable
  coordination across departments. This integration
  and coordination are most commonly the
  responsibility of the chief executive.

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Functional (U-Form) Design for a Small
Manufacturing Company
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The Conglomerate (H-Form) Design

• A conglomerate is an organization made up of a
  set of unrelated businesses. Thus, the H-form
  design is essentially a holding company. In many
  ways, this approach is based loosely on the
  product form of departmentalization. Each
  business ("department") is operated by a general
  manager who is responsible for its profits or
  losses, and each general manager functions
  independently of the others.
• In the H-form arrangement, a corporate staff
  usually evaluates the performance of each
  business, allocates corporate resources across
  companies, and shapes decisions about buying and
  selling businesses.
• The basic shortcoming of the H-form model is the
  complexity associated with diverse and unrelated
  businesses. Managers usually find it difficult to
  compare and integrate activities across a large
  number of diverse operations. Research by Michael
  Porter suggests that many organizations that
  follow this approach reflect only
  average-to-weak financial performance.

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The Conglomerate (H-Form) Design
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The Divisional (M-Form) Design

• An arrangement based on the product approach to
  departmentalization.
• A product form of organization is also used
  but, in contrast to the H-form, the divisions are
  related. Thus, the divisional design, is based on
  multiple businesses in related areas operating
  within a larger organizational framework.
• Some activities are extremely decentralized down
  to the divisional level others are centralized
  at the corporate level.
• The opportunities for coordination and shared
  resources represent one of the biggest advantages
  of the M-form design.
• The basic objective for the M-form organization
  is to strike a balance between internal
  competition and cooperation. Healthy competition
  between divisions for resources can enhance
  effectiveness, but cooperation should also be
  promoted. Research suggests that the M-form
  organization that can achieve and maintain this
  balance will outperform large U-form and all
  H-form organizations.

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The Divisional (M-Form) Design
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The Matrix Designis based upon two overlapping
bases of departmentalization. The foundation of
a matrix is an arrangement of functional
departments. A set of product groups, or
temporary departments, is then superimposed
across the functional departments. Employees in a
matrix are simultaneously members of a functional
department (e.g., engineering) and of a project
team. Figure shows a basic matrix design.
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The Matrix Design

• The matrix form of organization design is most
  often used in one of three situations
• There is strong pressure from the environment
  (intense external competition may dictate the
  sort of strong marketing thrust that is best
  spearheaded by a functional department, but the
  diversity of a company's products may argue for
  product departments).
• Large amounts of information need to be processed
  (creating lateral relations by means of a matrix
  is one effective way to increase the
  organization's capacity to process information).
• There is pressure for shared resources (a company
  with ten product departments may have resources
  for only three marketing specialists. A matrix
  design would allow all the departments to share
  the company's scarce marketing resource).

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The Matrix Design

• Advantages
• Flexibility teams can be created, redefined, and
  dissolved almost continuously, allowing the
  organization to cope readily with uncertainty,
  instability, and change.
• The teams consist of specialists from different
  functional areas, each member assumes a major
  role in decision making. As a consequence, team
  members are likely to be highly motivated and
  committed to the organization.
• Employees have considerable opportunity to learn
  new skills. This opportunity stems from their
  involvement in a variety of projects and from
  their interaction on teams containing experts
  from other areas.
• It provides an efficient way for the organization
  to take full advantage of its human resources.
  Because the same expert can be assigned to
  several different teams, unnecessary duplication
  of personnel is reduced.
• Team members retain membership in their
  functional unit, so they can serve as a bridge
  between the functional unit and the team,
  enhancing cooperation.
• The matrix design gives top management a useful
  vehicle for decentralization. Once the day-to-day
  operations have been delegated, top management
  can devote more attention to such areas as
  long-range planning.

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Disadvantages

• Employees may be uncertain about whom they are
  supposed to report to, especially if they are
  simultaneously assigned to a functional manager
  and to several project managers.
• Groups take longer than individuals to make
  decisions, may be dominated by a strong
  individual, and may compromise unnecessarily.
  They may also get bogged down in discussion and
  not focus on their primary objectives.
• Matrix design is expensive because more managers
  and staff may be needed. More time may also be
  required for coordinating task-related
  activities.

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Hybrid Designs

• Some organizations use a form of design that
  represents a hybrid of two or more of the common
  forms. For example, an organization may have five
  related divisions and one unrelated division,
  making it a cross between an M-form and an H-form
  design.

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5. LINKING STRATEGY AND ORGANIZATION DESIGN

• Another set of factors that affect and are
  affected by organization design is the strategy
  adopted by the organization. This linkage was
  first recognized by Alfred D. Chandler in the
  early 1960s.
• Chandler studied several large American
  organizations such as Du Pont, Sears, and General
  Motors over a period of several years. The
  primary conclusion he reached was that an
  organization's strategy determines its technology
  and environment. And since these influence the
  design of the organization, it follows that
  strategy ultimately affects organization design.

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LINKING STRATEGY AND ORGANIZATION DESIGN

• Henry Mintzberg has provided additional insight
  into the relationship between strategy and
  organization design. In addition to the basic
  relationships identified by Chandler, Mintzberg
  goes on to suggest that an organization's growth
  rate and distribution of power, other factors
  determined by strategy, also affect the design
  the organization adopts.
• Mintzberg argues that organizations can be
  differentiated along three basic dimensions
• their primary coordinating mechanism (the major
  approach used to coordinate organizational
  activities),
• the key part of the organization (the part that
  plays the major role in determining the
  organization's success or failure),
• the type of decentralization employed. Each of
  these dimensions has several different aspects.

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LINKING STRATEGY AND ORGANIZATION DESIGN

• Mintzberg identifies five basic coordinating
  mechanisms that flow from different strategies
• direct supervision. In this approach, one
  individual is responsible for the work of others
• standardization of work processes. Here the
  content of the work is specified or programmed.
• standardization of skills. This approach
  explicitly specifies the kind of training
  necessary to do the work
• standardization of output. This method specifies
  the results, or output, of the work.
• mutual adjustment coordinates activities through
  informal communication.

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LINKING STRATEGY AND ORGANIZATION DESIGN

• There are also five key parts of an
  organization
• the strategic apex, consisting of top management
  and its support staff
• the operative core, composed of workers who
  actually carry out the organization's tasks
• the middle line is made up of middle and
  lower-level management
• analysts such as industrial engineers,
  accountants, planners, and human resource
  managers make up the technostructure
• the support staff consists of units that provide
  support to the organization outside the operating
  work flow (for example, legal counsel, executive
  dining room staff, and consultants

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LINKING STRATEGY AND ORGANIZATION DESIGN

• Mintzberg suggests that there are three types of
  decentralization
• Under vertical decentralization, there is a
  well-defined distribution of power down the chain
  of command, or shared authority between superiors
  and their subordinates.
• Horizontal decentralization is the extent to
  which nonmanagers (including staff) make
  decisions, or share authority between line and
  staff.
• Selective decentralization is the extent to which
  power over different kinds of decisions rests
  with different units within the organization.
  Using the relevant forms of coordinating
  mechanism, key parts, and types of
  decentralization, Mintzberg proposes that the
  strategy that an organization adopts and how far
  the organization has moved to fulfill that
  strategy result in five different forms of
  organization design. These forms are summarized
  in Table.

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Mintzberg's Five Designs
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Forms of Organization Design

• simple structure - a form of organization
  design that uses direct supervision as its
  primary coordinating mechanism, has as its most
  important part its strategic apex, and employs
  vertical and horizontal centralization
• machine bureaucracy - uses standardization of
  work processes as its prime coordinating
  mechanism, the technostructure as its most
  important part, and establishes limited
  horizontal decentralization
• professional bureaucracy - uses standardization
  of skills as its prime coordinating mechanism,
  has the operating core as its most important
  part, and practices both vertical and horizontal
  decentralization
• divisionalized form of organization design -
  exhibits standardization of output as its prime
  coordinating mechanism, the middle line as its
  most important part, and practices limited
  vertical decentralization
• adhocracy - uses mutual adjustment as a means of
  coordination, has as its most important part the
  support staff, and maintains selective patterns
  of decentralization

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ORGANIZATIONAL CULTURE

• Culture is the set of values of an organization
  that helps its members understand what the
  organization stands for, how it does things, and
  what it considers important