Week 6 The Process of Organization

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Week 6The Process of Organization
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Week 6/1Fundamentals of Organizing and
Contingency Approach to Organizational Design
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Organizing
Comes after the Planning activities by creating a
Unified System to support the established
Strategies and Goals.
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Organizing
The Unified System is represented by an
Organization Chart, with Structural elements
including

• Allocation of duties, tasks, and
  responsibilities between departments and
  individuals
• Reporting relationships
• Number of levels

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Organizing

• Organizational charts show only the formal
  structure.

• An incomplete picture because of hidden and
  informal arrangements and underlying
  behavioral processes, and natural
  organizational evolution
• Two basic goals of organizational design
• - Get information to decision makers
• - Coordinate the interdependent parts of an
  organization

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Organization and Environment

• Besides Burns and Stalkers suggestion, there
  are strong evidences that the nature of the
  organizations environment influences the way
  an Organization is organized and managed.
• In a stable environment, the organization tends
  to be more mechanistic, whereas in an
  innovative/changing environment, the
  organization tends to be organic.

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Organic vs. Mechanistic Organization
Low
High
Mechanistic Structure
Organic Structure

• Change Unlikely
• High Formalization
• Narrow Span of Control
• Tall Structure
• Centralized Authority in few top people
• Rigid Rules
• Many Specialists

• Change Likely
• Low Formalization
• Wide Span of Control
• Flat Structure
• Decentralized and Diffused Authority throughout
  Organization
• Considerable Flexibility
• Many Generalists

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Structure and Span of Control
Narrower Span of Control
Wider Span of Control
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Contingency Approach to Organizational Design
Fitting the Organization to the Task It is
logical that the Structuring of a firm must fit
the demands of the task. Thus, the Contingency
approach must be used to organize a firm.
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Contingency Approach to Organizational Design

• Need to consider following Contingency Factors
• External environment competitors, customers,
  suppliers, government, political etc
• Human Capital Skills/Mindsets, HRM policies,
  including Motivation/Compensation
  structure/Career Development Policies, Union and
  Labour Law
• Size The number of employees
• Manufacturing / Service / Business Processes
  (Technology) The system of producing goods and
  services by the organization and the way it
  conducts its business
• Strategy The plan for reaching organizational
  goals

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Contingency Approach to Organizational Design
A
B
EXTERNAL ENVIRONMENT, HUMAN CAPITAL, SIZE,
PROCESSES, STRATEGY
C
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Framework for Organizational Design
The Star Model - By Jay R. Galbraith
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Example of an Orgnanization Chart that addresses
the Frameworks 5 elements
Strategy (Direction) R D will have a team of
4 research chemists to research 3 new products a
year.
R D

• 2 3 4
• Research Chemists

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Example of an Orgnanization Chart that addresses
the Frameworks 5 elements
Strategy (Direction) Operations will
manufacture 20 of the companys products that
yield 80 of revenue. The remaining 80 of
products that yield only 20 revenue will be
out-sourced. It will be run by One Operations
Manager assisted by 2 assistant operation
managers and 12 supervisors on 3 shifts.
Operations
A/OM
A/OM
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Example of an Orgnanization Chart that addresses
the Frameworks 5 elements
Strategy (Direction) Marketing will be managed
by one Marketing Manager with Two sales-reps in
each of the three geographical territories
Asia, Europe and USA, and will call on all
existing customers weekly, and make 10 new cold
calls every fortnight.
Marketing
Asia
Europe
USA
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Example of an Orgnanization Chart that addresses
the Frameworks 5 elements
Structure (Power) Finance and Human Resource
departments will have Staff authority, while RD,
Operations and Marketing will have Line
authority. All will report directly to the
General Manager. The six sales reps will report
to the Marketing Manager directly.
General Manager
Human Resource
Finance
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Example of an Orgnanization Chart that addresses
the Frameworks 5 elements
Process (Information) All orders will go
through Sales Reps. No Cash will be collected.
Upon due date, Accounts clerk from Finance dept.
will follow-up payment with customers directly.
If theres a payment dispute, responsible Sales
Rep. Should clarify with customer and report
outcome to Finance Manager.
A/C Clerk
Customers Customers Customers
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Example of an Orgnanization Chart that addresses
the Frameworks 5 elements
Rewards (Motivation) Finance will base on
Marketing Managers monthly sales report of Sales
Reps and pay monthly bonus to individual Sales
Rep based on the Bonus Scheme proposed by the HR
and Marketing manager. HR will publish name and
photo of Sales-Rep of the month in the monthly
company bulletin, and keep track of Sales Reps
performance and provide a sound and attractive
career development plan for outstanding
employees, based on the quarterly assessment
report proposed by the respective department
heads.
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Example of an Orgnanization Chart that addresses
the Frameworks 5 elements
People (Skills/Mindset) Company has an average
of 20 of orders from Japan, and current
employees handling this sector of sales speak
poor Japanese, and do not understand Japanese
culture, causing frequent frictions and
misunderstanding. Must hire a new Japanese
Assistant Sales Manager to look after the
Japanese customers.
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Example of an Orgnanization Chart that addresses
the Frameworks 5 elements
People (Skills/Mindset) Company has an average
of 20 of orders from Japan, and current
employees handling this sector of sales speak
poor Japanese, and do not understand Japanese
culture, causing frequent frictions and
misunderstanding. Must hire a new Japanese
Assistant Sales Manager to look after the
Japanese customers.
Asst. SM Japan
Orders
Customers
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Six Organization Shapers
New competition shift power to buyers design
around customer!
Increase customizable product and service variety
in response to buyer power
Customers expect fast delivery. Speed is a force
of decentrali- zation for decision-making
Design with staff to handle the Internet
communication
Organization
Organize by functions,
products, geography, customer segments, channels
and processes
Environment changes fast, requiring management
to relearn and re-decide often. So need to design
to cater to change
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Organization Design and Executive Leadership
Organization Design decisions significantly
affect the Executives unit. By choosing who
decides and by designing the processes
influencing how things are decided, the Executive
shapes every decision made in the unit.
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Organization Design and Executive Leadership
The leader becomes less of a decision maker and
more of a decision shaper.
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Unique Organization design
Organization designs that facilitate variety,
change, speed, and integration are sources of
competitive advantage. They are Unique,
comprising intricate blends of many different
design policies and are difficult to imitate by
competitors.
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Departmentalization
Activities Are Grouped together and Given to
Managers As
Sections
Units
Divisions
BY
Function or Specialty, Product Line, Customer
Segment, Marketing Channels, Geographical Area,
Work Flow Process Customer Segment and Marketing
Channels are sometimes lumped as one and referred
to simply as Market
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Departmentalization

• Three Major Forms of Departmentalization
  (Organizational Design)
• Functional by functions
• Divisional by Products, Customers, Channels,
  Geographical Territories, and Process
• Matrix one or more forms of departmentalization
  are imposed on the top of an existing one.
• Hybrid departmentalization combines Functional
  and Divisional designs

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Functional Departmentalization
General Manager
Finance
Human Resource
RD
Operations
Marketing
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Products Departmentalization
( Divisional )
CEO
Finance
Human Resource
Printers
Scanners
Computers
RD
Ops
Marketing
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Customers Departmentalization
( Divisional )
CEO
Finance
Human Resource
Students Acc.
Individual Acc.
Corporate Acc.
RD
Ops
Marketing
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Channels Departmentalization
( Divisional )
CEO
Finance
Human Resource
Pharmacies
Retail Stores
Dept. Stores
Sales
Marketing
Sourcing
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Geographic Departmentalization
( Divisional )
CEO
Finance
Human Resource
International
Europe
Asia
Sales
Marketing
Sourcing
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Process Departmentalization
( Divisional )
General Manager
Finance
Human Resource
New Prod. Dev.
Order Processing
Customer Maint.
New Product Teams
Product Teams
Customer Teams
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Matrix Departmentalization

• Functions?
• Products?
• Customers?
• Channels?
• Geographic?
• Process?

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Matrix Departmentalization
Begins with a Functional Departmentalization
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Matrix Departmentalization
President
Product Departments are then superimposed
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Matrix Departmentalization
Director Ford
Director Chrysler
Three Product Groups are superimposed
Director GM
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Matrix Departmentalization
President
Reps.from each Functional Dept. are assigned to
each Product Group
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Matrix Departmentalization
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Hybrid Firms
Products
Functions
Customers
Hybrid Firms
Marketing Channels
Process
Geographic
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Hybrid Departmentalization
Hybrid structure comprises the Functional
structure and some of the Divisional Structures
(i.e. Products, Customers, Channels, Geographic,
Process)
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Hybrid Departmentalization
VP Europe
VP United States
VP Asia Pacific
VP Middle East
This Hybrid structure example comprises the
Functional structure and Geographic structure
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Hybrid Departmentalization
and Products structure)
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Hybrid Departmentalization
and Marketing Channels structure)
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Hybrid Departmentalization
A Functional, Geographic, Products and Channels
Hybrid structure
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Evolving Forms

• Mini Units
• Self-Managing Teams
• The Virtual Organization

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Mini Units

• Similar to Self-managing Teams in many ways,
  but usually larger in size and more permanent
• Within Mini Units, there could also be smaller
  Self-managing Teams
• Mini Units run like an independent company, but
  a Self-managing Team has authority only within
  the job scope assigned to the Team for a
  specific period until the project ends

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Self-Managing Teams

• Customer Focus
• Decisions Authority at Team levels
• Often cross-functional membership
• Helps flatten an organization by removing one
  or more layers of management
• Results in a nimble organization that can
  respond to fast changing environment and
  customer needs

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Virtual Organizations

• A temporary network of companies or people that
  focus on a project or projects
• Information technology links members into a
  global network
• Enter into agreements to get needed skills or
  resources
• Little direct control over functions done by
  other members of the network
• Based primarily on mutual trust

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Virtual Organizations
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Flaws of the Original Star Model
Today, in many industries, this Model of
organization design is flawed, because the
success formula it generates does not last long.
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Flaws of the Original Star Model

• The original Star Model only aligns
  all Functional sequences to avoid conflicts.
• The success formulas it generates are quickly
  copied or even surpassed by high- speed
  competitors.
• Every advantage is temporary.
• Alignment around a focused strategy that yields
  an unsustainable advantage renders an
  Organization vulnerable

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Designing Reconfigurable Organization
Since the External Environment continually
changes, Competitive Advantages do not last,
neither do Organizations. Thus, using the
Contingency Approach alone is not enough. The
solution is to gain Competitive Advantage from a
string of short-term advantages delivered through
a Re-configurable Organization
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Designing Reconfigurable Organization

• To yield a series of short-term temporary
  advantages
• Requirement
• Form teams and networks across organizational
  departments
• Use prices, markets, and marketlike devices to
  coordinate the multiple profit centres
• Form partnerships to secure capabilities it lacks

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Designing Reconfigurable Organization

• Sequence of Advantages

• Homes
• Cross-unit Teams

• Company Fit
• Specialists and Generalists
• Cross-unit Career and Hiring

• Pay for Skills
• One-time Rewards
• Monthly Perf. Bonus
• Nimble Systems

• Common Processes
• Cross-unit Goal Setting
• Data-centric Databases

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Designing Reconfigurable Organization
Read the case story of the example company (a
manufacturer of consumer baking products) of a
Reconfigurable Organization in your handout, and
study the Fully Reconfigurable Organization
Chart (Figure 6.4)
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End of LectureThank You