Organizational Design Configurations

1
Organizational Design Configurations

• Traditional and Contemporary Designs

2
Traditional Design Configurations

• Simple
• Functional
• Multi-Divisional (Self contained unit)
• Matrix
• Hybrids

3
Factors in Developing the Appropriate Design
Configuration

• Context environmental complexity and change,
  goals and strategies, size, life cycle stages
• Basic structural elements workflow due to core
  technology, complexity of activities,
  coordination needs, types and number of
  products/markets served, geographical dispersion
  of organization
• Caveats limitations of organizational charts

4
Tests of Organizational Design

• Fit Tests
• Market advantage
• Parenting advantage
• People fit
• Feasibility test

• Refinement Tests
• Specialist cultures
• Difficult links
• Redundant hierarchy
• Accountability test
• Flexibility test

Based on Goold and Campbell (2002)
5
Simple Design

• Context Small organization, limited mission and
  goals, technology varies, might be young or old
  in age, simple environment
• Basic structural elements little
  differentiation, fluid tasks, direct supervision
  and mutual adjustment integrate activities,
  simple RPPs, centralized decision making, one or
  few narrow product/service lines, homogeneous
  customer groups, and narrow geographical
  locations (exception online business)

6
Simple Design

• Strengths fast, flexible, personalized and
  informal, close to customers, low cost, tight
  control of business by owner/manager
• Weaknesses does not handle growth well,
  overload of decisions with owner/manager,
  survival threatened by larger and more efficient
  competitors, managerial skills might be lacking
• Example Critter Hut

7
Functional Design

• Context
• Small to medium size
• Narrow and specific goals
• Stable and simple environment
• Tendency toward routine technologies
• Might be young or old in age

8
Functional Design

• Basic structural elements
• Differentiation based on work functions (e.g.,
  production, sales and marketing, administrative
  functions)
• Coordination through hierarchy and supervision
  development of RPPs and systems
• Centralized decision making
• One or few narrow product/service lines with
  relatively homogeneous customer groups
• Minimal to moderate geographical dispersion

9
Functional Form Small Manufacturing Organization
10
Functional Design Strengths

• Efficiency due to division of labor by expertise
  and no duplication of functions
• High technical quality due to functional experts
• Functional departments provide clear supervision,
  training and development in area of expertise,
  and clear performance goals
• Employee satisfaction is usually high due to
  grouping with like-minded colleagues
• Tight control by management

11
Functional Design Weaknesses

• Coordination across functions is difficult
• Functions are cost centers rather than profit
  centers
• Goal sub-optimization department goals replace
  organizational goals in importance
• Slow response to fast-changing environments
• Lower level managers not trained to see the big
  picture so succession planning is difficult
• Special case bureaucracy (e.g., DMV)

12
Divisional (Self-Contained) Designs

• Context
• Moderate to large size
• Multiple goals
• Complex and changing environments
• Multiple core technologies utilized
• Usually mature organizations

13
Divisional (Self-Contained) Designs

• Basic structural elements
• Differentiation based on products, customers, or
  locations
• Both vertically and horizontally complex
• Coordination through multiple means hierarchy,
  extensive RPPs and systems, training, and
  support staff
• Both centralized and decentralized decision
  making
• Multiple and diverse products/services/customers
• Extensive geographical dispersion

14
Divisional Design Product-Based
Staff
Staff
15
Divisional Design Customer-Based
CEO
Staff
Staff
General Interest
Trade/ Professionals
K-12
College
Printing
R D
Sales
16
Divisional Design Geographic
CEO
Staff
Staff
Latin America
Africa and West Indies
Europe
North America
Engineered Products
Chemical Products
Tires
17
Divisional Design Conglomerate or Holding
Company
Berkshire Hathaway, Inc.
Staff
Staff
Acme Brick Company
Helzberg Diamonds
Sees Candies
US Liability Insurance Group
Fruit of the Loom
34 other companies
18
Divisional Design Strengths

• Highly responsive to environmental changes
• Allows growth while retaining control
• Units run as profit centers good output control
• Corporate focuses on strategic issues, while
  division managers focus on operational issues
• Synergies among businesses possible
• Better at training general managers
• Focus better on unique product, customer, and/or
  geographical needs

19
Divisional Designs Weaknesses

• Corporate vs. divisional separation
• Competition for resources among divisions
• Little transfer of competencies or resources
  among divisions, especially among conglomerates
• Transfer pricing problems between divisions
• Duplication of management and administrative
  structures costly!!
• Increasing bureaucracy as control systems
  proliferate from corporate

20
Matrix Design

• Context
• Size and age variations
• Extremely complex and dynamic environment
• Great pressure for coordination across units
• Non-routine technologies
• Great need to share resources that are scarce and
  expensive, especially information
• Great need to have technical competency as well
  as focus on product, customer, or region

21
Matrix Design

• Basic structural elements
• Differentiation based on both work functions and
  customer/product/program/region (high complexity)
• Coordination through dual authority structures
  and direct communication
• Decision making is shared between dual managers
• Demand for high quality products/services
  tailored to customers specific demands
• Possible geographical dispersion of units, which
  makes coordination even more difficult

22
Matrix Design
23
Matrix Design Strengths

• Enhances organizational flexibility
• Involvement creates high motivation and increased
  organizational commitment
• Team members have the opportunity to learn new
  skills
• Provides an efficient way for the organization to
  use its human resources
• Team members serve as bridges to their
  departments for the team
• Useful as a vehicle for decentralization
• Cost, quality, and speed are enhanced

24
Matrix Design Weaknesses

• Stressful and ambiguous for employees
• Managers see matrix as anarchy and political
  contests result
• Dynamics of group behavior may lead to slower
  decision making, one-person domination,
  compromise decisions, or a loss of focus
• More time required for coordinating task-related
  activities, which defeats need for speed
• Managers must have superb interpersonal,
  communication, decision making and conflict
  management skills
• Inherently unstable design

25
Hybrid Structures

• An organizational arrangement based on two or
  more common forms of organization design
• An organization may have a mixture of related
  divisions and a single unrelated division
  functions and divisions horizontal teams of
  cross-functional experts
• Most organizations use a modified form of
  organization design that permits it to have
  sufficient flexibility to make adjustments for
  strategic purposes
• Occurs when organization is undergoing design
  changes

26
Network Designs

• Context
• Size and age variations, but usually small and
  young
• Hyper-turbulent environments
• Great pressure for coordination across units as
  well as innovation
• Non-routine technologies
• Great need to share resources that are scarce and
  expensive, especially information
• Flexibility and speed needed in product/markets

27
Network Designs

• Basic structural elements
• Horizontal differentiation based on information
  flows
• Core knowledge (technology) is protected all
  else may be outsourced
• Coordination through relational contracting,
  mutual adjustment, teams, advanced information
  technology, use of social capital, and trust
• Decision making is decentralized
• Demand for products is uncertain, seasonal,
  custom-made, and rapidly shifting
• Geographical dispersion could be anywhere
  (connection of experts around globe)

28
Examples
Core
Spider Web (no core firm virtual organization)
Generic Network (firm with outsourced functions)
29
Examples
New Company
Core
Second Generation Company
Starburst Organization
30
Examples
Cellular Form
31
Examples
Syndication
Originator
Syndicator
Distributor
Customer
32
Networks Strengths

• Lower costs through outsourcing decreased risk
  if failure occurs
• Broad lines of products and services offered on
  as-needed basis to multiple customers
• Innovative and flexible effective for autonomous
  innovations
• Stability gained through diversifying an building
  relationships
• Can stay small,flexible, responsive, while
  maintaining connections to other organizations
  for growth (good use of social capital)

33
Networks Weaknesses

• Need close interaction with other firms which
  requires cooperation, trust, and discretion
• Hard to build and protect proprietary knowledge
• Not effective for systemic innovations that
  require scale, integration, and market leadership
  to advance
• Takes time to develop efficient and effective
  working relationships and manage potential
  conflicts
• Managerial desire for control might result in
  acquisition and merger where inappropriate
• Information overload from many sources
• Employees may lack skills in technology,
  collaboration, and governance

34
Social Capital

• Knowledge and information that a firm accesses
  using employees and formal and informal ties with
  outside groups
• Social capital is primary way in which firms
  import external knowledge, both explicit
  (codified) and tacit
• Important due to knowledge density, leaner
  organizations, rapid technological changes,
  globalization, and intense competitive pressures

35
Methods of Tapping Social Capital
High
Electronic information exchange (e.g., EDI or
XML)
Strategic alliances and partnerships
Volume of Knowledge Needed
Consultants, contingent experts,
inter- organizational teams, stakeholder networks
Informal social contacts, technical reports,
journals, meetings
Low
Explicit
Tacit
Type of Knowledge
36
Proper Use of Social Capital

• Must be able to absorb new knowledge by
  possessing a certain level of prior knowledge
• Must have processes and methods in place that
  help employees utilize that new knowledge
• Media sensitivity with regard to multiple
  communication technologies

37
Proper Use of Social Capital

• Realize that social capital networks are
  holistic social capital maps need to be drawn
• Continually monitor the validity and value of
  social capital
• Avoid relational inertia that poses liabilities
  rather than assets for the firm
• Protect core internal knowledge
• Forecast future knowledge requirements
  exploitation and exploration of new business
  models

38
Global Designs Considerations

• Forces in the international environment
• Economic and market forces (including labor)
• Transportation and communication advances
• Technological changes and their diffusion
• Political and Legal forces
• Social and demographic forces
• Cultural differences in tastes, lifestyles, time
  orientation, language, etc.

39
Global Designs Considerations

• Reasons to expand internationally
• Protect and maintain markets
• Reduced costs taxes, labor, investments
• Gain access to global resources and markets
• Scale and scope advantage
• Exploit distinctive competence (core knowledge)
  and explore new knowledge

40
Value Creation Through Global Expansion

• Transfer of core
• competencies abroad

• Establishment
• of a global network

• Gaining access to
• global skills and
• resources

• Use of global
• learning to enhance
• core competencies

41
Three factors that affect global strategy

• Pressures for global integration
• Efficiency is a major concern
• Low cost advantage
• Pressures for local responsiveness
• Customization to local tastes is a concern
• Differentiation advantage
• Bureaucratic costs
• Managerial levels and coordination mechanisms

42
Global Strategy and Design
Global Product Structure
Trans- National Model
High
Global Matrix Structure
Development of Globalization Strategy
Global Geographic Structure
International Division
Development of Multi-domestic Strategy
Low
Low
High
43
Global Strategies

• International strategy
• Standard products offered to customer worldwide
• Manufacturing done abroad RD and marketing done
  at home
• Continuous transfer of skills and resources
• Little global learning takes place
• Example Domestic branded products, such as
  food, health, and beauty products

44
Global Strategies

• Multi-domestic strategy
• Highly responsive to local markets by customizing
  products/services to suit needs of customers in
  particular location (country-focused)
• Decentralization of control to foreign business
  units manufacturing, marketing, and RD done
  abroad
• Achieve differentiation advantage within local
  market
• Little global learning occurs throughout the
  organization

45
Global Strategies

• Global Strategy
• Standardized products are manufactured in several
  low cost locations and then offered to global
  markets (focus is on low cost advantage)
• Limited customization (relatively low pressures
  for local responsiveness)
• Global integration is high learning and
  coordination are high priorities (high
  bureaucratic costs)
• Examples cars, TVs, stereos, cameras

46
Global Strategies

• Transnational Strategy
• Simultaneously tries to achieve low cost and
  differentiation advantages
• Value creation achieved by locating functions in
  low cost areas, but also customize to local
  tastes in different markets
• Divisions transfer their core competencies to
  local markets and develop global networks for
  learning across divisions (high bureaucratic
  costs)
• Core competence is often global coordination of
  organizational resources
• Examples Unilever, Philips, Proctor and Gamble

47
Global Designs

• More centralized control from headquarters
  international and global strategy
• More integration and coordination mechanisms
  global strategy and transnational
• See designs on handouts