3
1
Organizational Structure
Four Key Design Issues
Organizational Design
Delegation of Authority
Arrangement of roles and reporting
relationships that govern worker behaviour.
1) Divides up work in the organization
(centralization and decentralization) and 2)
provision of coordination and control
Mehanistic Design
Departmentalization
Span of control
This is what the company looks like. It has
to do with the arrangement of the
organization (under departmentalization different designs) but also includes division
of labour, and allocation of authority
Organistic Design
2
1.High division of labour
2.Low delegation of authority
3.Departments with great
uniformity of work activity
4.Narrow spans of control
1.Less job specialization
2.High delegation of authority
3.Low uniformity amongst work
unit employees
4.Wide spans of control for mgrs
Mechanistic because it is like a
machine very proceduralized (Do
and Do Nots). It is contained.
In addition:
5.Few work rules
6.Interpersonal/informal
coordination
7.Empowered for planning and
work schedules
Organistic because it is not
contained. Employees in such
units are expected to grow.
Similar to system 1 vs system 4 control in Module 5

Management decision pertaining to transfer
of work activities/goals to employees (giving
a piece of the job)

Necessary aspect of superior /subordinate
relations, it is the process by which authority
is distributed downwards in the org

When done broadly across org, transfers into
employee empowerment

Simple structures with high delegation make
up many of the most effectively managed
companies
4

Management decision pertaining to
subdivision of work (degree of job
specialization in terms of tasks and
methods)

Can create economies of scale
through task specialization.
Employees develop expertise through
repetition.

Above is primary source of increasing
marginal productivity of task units

Technological advances (comm. &
control) overcome coordination
problems as work unit size increases
Five Principles of Delegation
1. Authority must accompany responsibility
2. All decisions should be delegated to lowest
possible level
3. Practice management by exception (fire &
forget unless necessary)
4. ensure employee understanding is
complete (they know what and how)
Benefits:






Division of Labour
Development of competitive work climates
Increased employee creativity
Lowered costs through smaller staffs
Employee role in DM
Rapid employee skill /mgmt development
Intrinsic reward for employees
Two Aspects:

Type of work performed (research
scientist, computer programmer)

Work method or process (accounting,
production, marketing)
Span of Control
Departmentalization
Note: Very large firms may
blend all forms in their design.
Matrix



5
Defn: How work activities are grouped together
Logical grouping of work activities to create divisions,
branches, units etc within company
Four Forms of Departmentalism
(organizational Design)
Different from Division of Labour in that this determines
how the company is "chunked", whereas Division of Labour
determines how specialized jobs are within those chunks .
Product
Functional
What we make (product or service).
Computer production & field service.
Adopted by companies with diverse
product lines
Territorial
What we do.
(sales, prod, PR, Q&A)
Where we are. Single manager control
activities within region
Advantages

Advantages






Logical reflection of firms functions
Based on specialization which is efficient
Common language within divisions
Minimal duplication of effort
Training simplified
Tight control & Chain of Command reinforced
Advantages
 Work tailored to region and customs
 Good training for managers as assigned
to new areas
 Good career development (field ops to
HQ)
 Work units that are highly responsive to
customer needs
Disadvantages






Overspecialization leads to narrow view
within departments
Limited Manager Development (functional area)
Reliant on good coord between departs
Employees ID with departments > firm
Managers lack strategic view
CEO may be overburdened
Disadvantages

Duplication of effort in departments
serving different regions
 Managers must be cross functional,
able to deal with production,
marketing, etc






Better able to meet customer needs
and manage a set of products
Management tailored to product
Quicker response to product issues
Deep understanding of product/mkts
Friendly competition to maximize
profit
Performance measurement easier
More DM at division vs HQ level
Disadvantages



Duplication of effort at divisions
Finding/trg division heads difficult
Division 'joint ventures' difficult due
to disagreement (mindset like
independent companies)
When product divisions multiple in the firm,
severe coordination and communications
problems can arise
Complex Projects: Creates a need for a specialized
mgmt position - project manager. Employees selected
from functional departments to work on a project team.
May have one or more project managers, and
functional managers. Therefore violates the unity of
command principle
Advantages





Combines strength of divisional and product
designs
Blends marketing, mgmt, and technical
expertise in project areas
Mgr PD in technical and product knowledge
who can comm effectively with marketing,
production, personnel from other areas
Self contained department can attend to
product, project, & customer needs
Focus on specific products and their
development without creating permanent units
Disadvantages

Confusing design, no clear chain of command.
The project manager is concerned over project
while functional manager is concerned with
dept details. Can lead to politics/loss of focus
 Requires excellent planning, resource
allocation
 Project managers must be very good. May
require extensive training
 May lead to cost overruns (overhire of
technical and support staff
Example Matrix Organization
Advantage of functional
and product type designs
CEO
Medical Products Division
Project mgr must be
familiar with production,
mkting and engineering
Industrial Products Division
Defence Products Division
Production Manager
Marketing Manager
Engineering Manager
NDT Project
Manager
Production Employees
Marketing Employees
Engineering Employees
BMI Project
Manager
Production Employees
Marketing Employees
Engineering Employees
Employees may be confused
due to more than one boss
Organizational Structure
Decisions regarding these 4
Components lead to this.
Span of control
3 (cont'd)


 Number of employees who report to a single
manager

Structure results from decisions regarding Division of labour, Delegation,
Departmentalism & Span of control.
Has a significant effect on company performance, employee behaviour, and job
satisfaction
Two basic components (centralization/decentralization & Coordination)
 Influenced by the number and intensity of
Note:
Employees begin
to experience
confusion about
work expectations
and performance
if span too wide
interpersonal relationships between superior
and subordinate. Legal firm vs production line
for example.
Centralization
 Communications and computer technology has
6 Centralization/Decentralization
De-centralization
allowed spans to become bigger (ex. email)


Three Factors Affecting:

1 Required Contact
3 Ability to Communicate
Self directed teams need flexible
coordination and face to face
contact. Some work will require
more contact than others.
Managers who can communicate
clearly and concisely can manage
a wider span. Increased by
technology. Geography no longer
a barrier.


2 Degree of Specialization
Managers lower in the chain may
have wider span if oversee many
doing similar tasks. Higher
managers oversee people doing
highly specialized jobs. Therefore
span of control tends to narrow
further up the hierarchy.
The retention of authority to make
decisions by top mgmt
Employees follow uniform
procedures and policies
formulated/enforced by higher
mgmt
Requires higher number of
managers/ administrators due to
admin and policing (control comes
at a price - higher costs)
High formalization exhibited - this
tends to decrease job satisfaction
(Especially for those employees
dealing with customers/suppliers
who would like more control)
Proceduralization - Standardization
exhibited
Some companies
combine the two:
Decentralize - products,
services, markets.
Centralize - HR, finance,
IS, purchasing etc.





Process of pushing authority down the
hierarchy
Decisions made as close to problem as poss.
Contemporary thought favours this approach
Outsourcing is ultimate end point of process
(OS like a strategic alliance when supplier
has comp advantage firm cannot match)
Goes against mgr instincts seeking more
control, but benefits often outweigh costs
Why?



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Shareholder demands for higher returns
Increasing global true low cost competition
Repeat buyers demanding high quality products/service
Technological advances allowing it to take place
7 Strength/Weakness of Decentralization



Accommodates change/rapid growth
High project, product awareness
High task focus & control over time, money and
human resources
 Customers know who does what and personnel
have higher response to customer needs
 Con-current tasks can be coordinated across
functional departments
+
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Innovation often restricted to projects
Difficult to allocate pooled resources (computer analysis)
Coord problems in joint functions such as purchasing
Deterioration of broad mgr skills /potential for loss of
technically skilled employees
 Jurisdiction/priority disputes
 Possible neglect of high level coordination to ensure
organizational effectiveness
How much coordination? (Lawrence & Lorsch)
Vertical Coordination

Dependent on amount of information that must be processed during task execution.

The firm’s environment determines information load. Direct correlation between environmental turbulence
and need for coordination. If tasks clear then low information processing requirement, if uncertain tasks
then higher need for coord.


Strengthens the link between levels to decrease uncertainty.


Generally firms operating in ‘stable’ environments were more centralized, and had greater standardization
and formalization.
Higher loads will require sophisticated means (computers, email,)
9


8 Coordination & Control

Rules and regulations not enough to ensure coordination and goal
accomplishment. Managers must exercise Coordination & Control.
Coordination: set of mechanisms used to link the actions of subunits to
achieve a pattern of desired outcomes. Purpose is to reduce uncertainty
for employees and subunits about what they are supposed to do.
Coordination
Information
processing ability
must be developed in
both vertical and
horizontal dimensions


Control: Control is the set of mechanisms used to keep action and
outcomes within prescribed limits. (work standards, evaluation,
interventions)
Teams/Task forces. More group DM thru Task Forces composed of people from
different subunits attack problems that span hierarchical levels.
Variation of above is Collateral Org – parallel org dedicated to performance
improvement and not burdened with normal admin stuff. Can focus on leadership
in change rather than mgmt and status quo.
Direct Supervision. Costly, not ver effective. Basically rules and regs.
Work process standardization. Work is so routine little direct supervision
necessary. Workers do not have to interact. Harder to implement self directed
teams since hard to think outside the box when your nailed in it.
Standardization of outputs. Direct supervision is minimal and process not
standardized, this can do the job instead. Results determine process.
Performance Appraisal. Not often recognized as a vertical coord tool. Goal
setting, feedback, communications assist in coord (PDR)
MIS. Knowledge is power. Mgmt knowledge is Mgmt power.
Horizontal Coordination
Strengthens the link between work units to decrease uncertainty. If this is working well,
fewer problems sent up the chain.

Mg
mt
Unit
Mg
mt
Unit
Coordination
between units
and management
Wor
k
Unit
Wor
k
Unit
Control. Moves process
towards goal. Work stds
(plans), evaluates progress to
plans, interventions.
H
Wor
k
Unit
V
Wor
k
Unit
Wor
k
Unit



Control
Direct Contact. Simple, least costly method. Basically managers of work units
talking to each other. DM is down to level of workflow integration reducing
pressure on the hierarchy. Use is a direct function of amount of interdepartmental
work experience of mgrs. Decay over time due to mgrs leaving px. (like us with
SETS)
Liaison Roles. Formally establish a px for someone to ‘coordiante’. This
boundary spanning manager would require good political skills.
Cross Functional Teams. If twoabove do not work, dedicate team, made up of
people from affected departments, to deal with issues.
Permanent Teams. Idea of service line managers that meet to discuss issues.
Results Control



Example is MBO used to gain output control in firm.
MBO has mgrs set SMART goals, monitor progress towards them, and
receive rewaqrds based on results.
Focus is on results in that mgrs can pick their own methods for reaching
MBO Cycle form
defined targets
Module 4
1. Information
2. Jointly plan goals,
3. Define the
service outcomes,
strategy,
communications and
training
gathering & analysis
by manager and
worker/team
Analyze: Plan: Define: Articulate: Agree:
Informal: Formal
7. Formal
review of goals
and rewards to
be obtained
Results
Control
Process
10
6. Informal review
(goal achievement,
methods, probable
rewards) Ammend





employees jobs
(methods, content,
authority, responsibility)
4. Articulate Goal
(SMART) (difficulty,
clarity, number,
feedback)
5. Reach mutual
agreement about program
(goals, work methods,
measurement)
goals and methods
Process control
if nec
“Standardization of task performance”
Mgrs see it as means of achieving efficiency,
workers view it is unnecessary formalization
Can be internal (self imposed by self directed
teams) or external (imposed by management)
Benefits of internal:
 Meaningful work standards
 Effective performance measurement
 Specification of worker T & D needs
 Clear team basis for performance/merit based
reward distribution
 Linking of workers to customers
 Sound basis for corrective action
External can be very counter productive (only
useable in stable environments. Problems with
external:
 Lack of patience. Most solutions found at
worker level, if mgr imposed, workers become
impatient
 Across board cuts. EPC may lead to poor cost
containment
 Ambiguity. Reports generated become focus
rather than results. Reports do not mean
anything.
 Vague expectations. May be so focused on
MBO steps:
 Members of work unit establish goals and plans for achieving them
(analyze/plan)
 Discussion of work unit goals to ensure everyone understands them
 Employees in work unit establish their own action plans to achieve their goals.
Mgr meets one on one to ensure goals are SMART
 Boss/worker establish criteria for determining success
 Superior conducts formal and informal feedback concerning individual and group
goals
Note: The system is documented with all goals set down on paper. Goals are
Coordinating
characteristics
(MBO
relies
on): moreOver-emphasis
on goal setting
cascaded down
the hierarchy,
they
become
specific and quantified
at
can
produce
problems

Superior
subordinate
meetings
to:
lower levels. MBO most common form of results oriented control. Captializes
(Negatives):
 Establish
goalsaspects of specifying outcomes.
of impt
motivational
 Tunnel vision about results
 Periodically review activities and results
may lead to inadequate attn
 Resolve conflicts and take corrective
to process
action
 Could degenerate into a
 Three critical properties
paper chase (red tape). More
 Knowledge of what is expected (the plan)
likely when connected to
 Knowledge of results (feedback)
external process control
 Function of superior. This must clearly
 Superiors fall into a
be to provide work (not personality)
punishment or reward (do or
based feedback
die) mentality
Note: Besides focusing on output control, MBO

Collaboration suffers if
shapes
firm culture
throughv.s
emphasis
on value
1.
Organizational
structure
organizational
design
workers have too many goals
of goal
setting, and
maintenance
high standards,
2.
Mechanistic
organisticofdesigns
or aredepartmentalism,
worried about span
andDesign
long term
results
(and not
taking shortcuts)
3.
issues
of division
of labour,
delegation of authority,
accomplishing specific ones
of control
MBO
can be more effective if
4. Effective delegation of authority
connected
with product/service
5. Four basic organizational designs
quality standards
6. Rationale for centralizing/decentralizing
7. Cost benefit of decentralization
8. Organizational coordination vs control
9. Methods for improved horizontal/vertical coordination
10. Process oriented/results oriented control systems
11. Why elimination of manufacturing approach in customer service requires
strengthened employee commitment
12. Why service quality improvements require building organizational structure and
processes to support service delivery
13. Assess whether service quality is a major component of competitive advantage
14. Why service quality training is an investment
15. How excellent service needs trained empowered employees
Inter-organizational
Designs
Conglomerat
es
 Holding company
 Companies have entirely
different strategies/operate
in diverse industry
 (unrelated diversification)
 Japan called Keiretsu and
dominate economy (led to
problems when cheaper
better products avail, but
kept buying off each other)
 Companies:
 Not related
 Own each other
Strategic
Alliances
 American and Japanese
doing this with European
companies to penetrate EU
 Done to:
 Economies of scale in
production or marketing
 Fill gaps in
technical/mechanical
expertise
 Drawbacks:
 Require exhaustive coord
 Deciding what is shared,
what is propriety
 Cultural/language barriers
***Note: Emergent designs for highly competitive firms is no longer functional, product, territorial
or matrix. But rather delayered, technologically sophisticated, and highly customer oriented.
Horizontal firm relies less on traditional departments with
functional expertise. Instead functional experts are dispersed
amongst work teams that perform core processes. Benefits:
Reduced cycle time. Documents pass through less layers.
Downsizing only temporary (cost reduction), this is better since it
represents an productivity increase.
Creating a Horizontal Design
ID Strategic
Objectives
Analyze
benefits
Cut unnec
staff
Eliminate unnec
tasks
Set POs fo each
process
Create
teams
Trg, PER, pay etc to
support
Define nec
processes
Organize on
processes
Determine
‘ownership’
Empower employees
Responsive
Organization
Tom Peters – success is directly
proportional to the knowledge a
corporation can bring to bear, how
fast it can bring it to bear, and the
rate at which it accumulates
Product division
structures, matrix
knowledge.
designs, vertical/horizontal
coordination mechanisms are some
tools to help. In addition companies
can: and Delayer:
Simplify
 Get lean: reassign supporting staff, put
them where the rubber meets the road, at
work units not at HQ (Walmart 358 000 but
450 in HQ)
 Widen spans of control: spans of 100-200
employee are common
 Stop micro managing: empower the work
force, let them deal with customers and if
necessary adapt co policy ‘on the spot’.
 Team based work systems: due to smaller
HQ teams will be self governing:
 Recruiting, hiring, performance evaluation,
termination
 Budgeting
 Capital acquisition projects
 Quality
control,
solving Coord
Responsive
orgs are
customerproblem
driven and delayered.
achieved
through tech-based
communications.
Emphasis
on

Developing
numerical
stds
for
productivity
revenue growth, cost containment secondary.
and quality
 Suggesting new products and prototype
devadapt this way put more emphasis on functions of
Firms that
business
(new product
sales/warranty
 Working
withdevelopment,
other teams
from sales,
fulfillment, product quality, customer service) as oopposed to
marketing,
prod development
the functions
of an organization
(payroll, marketing,
production, finance, HR,). New way reflects more our end
objectives and allows us the keep our eye on the ball.
Boundaryless
Organization
Rigid hierarchies
with strong vertical
division lines
creates walls
between
departments.
Boundaryless org: use of self directed teams (lean
corporate staff), wide management spans, comms,
customer responsiveness, outsourcing, strategic
alliances to make boundaries more flexible.
Hirschorn & Gilmore argue that altering authority,
task, political and identity boundaries will accomplish
this.
 Authority Boundary. Even in self managed team
environment the boss/ subordiante relationship
exists (issuance of orders). Mgrs must knock down
the walls, be open to criticism (even from
subordiantes), take workers advice. It is assumed
that problem solving ability is dispersed throughout
the firm (mgmt does not have a monopoly on
brains). Getting rid of this boundary is hard as
sometimes a chain of command is necessary.
 Task boundary. Idea is to take ownership for tasks
despite what department may traditionally own it.
All for one and one for all approach. Threat is in
cost containment. Strategy OK when pursuing long
term gains, think of T & D as investment vice
expense. Otherwise that department is assisting
others needs will be cut back.
 Political boundary. Inter-department conflict
inherent . Use accommodation and conflict
resolution to assist. Use performance measurement
systems that looks at both internal and external
customer satisfaction. (indicators of increase) Use
incentives to encourage collaboration. Link rewards
Customer Service
Organizational Designs and Service Driven Firms
Avoid Manufacturing Efficiency
Why target service?
Differences Between Service & Products
Easier and quicker

Only produced when demanded

Delivered unsupervised

Provided when/where customer chooses

Labour intensive

Intangible, harder to measure

Often provided in presence of customer who
participates in the delivery process
Customers demand
better quality
Strengthen Brand
Loyalty
Recognition that customers actively involved opens
opportunities to cement relationship. Chances of proce war
effect diminished in industries where service co-produced
with customer. They do not want to establish another
relationship either. Emotional aspect. Customer want to trust
suppliers. If give them reason to they will come back.
Customers hate
poor service
Do consider:
Easier and quicker than differentiating products. Rivals copy
products, hard and costly to set yourself apart. Search for
competitive advantage (CA) by differing services.


Global competition means the easy days are over. TQM is no longer
the discriminator (everyone is using it). It has become a rule of
competition. Go after competitive advantage through more services.
Do not consider:

Erect entry barriers. Good service sets you apart, customers will be
reluctant to leave even if it makes sense to do so. Trick is to market
this way, if you market cheapest price you're telling customers to
pursue that (you may not always be lowest, you're telling em to go.
Standardization of service outputs -goes against
differences between product/service. Ie. How can
you do this if customer may be co-producer (msg:
"we want your business and for you to be involved,
as long as we do it our way".)
Above assumes adoption of manufacturing paradigm. Fails
because cost containment and not customer needs is really
driving force. Goods service continuum tells us to consider
whether we are pure goods, bundled goods & services or
pure service and react accordingly.
Lowers/erases profits. Ability to resolve problems on the spot
affects decision to repurchase. 95% will rebuy if complaint quickly
handled. If takes even a little time -70%. Even a 5% increase in
customer retention can raise profit 25-85%.
Recognize these differences. Idea is to have "one stop programme" where trained personnel can make decisions that are backed up (right or
wrong), eliminating need for transferring customers to different people in the company. Why? Because when the customer encounters any
aspect of the firm and forms an opinion about that company's quality of service and/or product it is what Albrecht calls a Moment of Truth.
Needs/expectations of customer as they see them.
Where/how customers interact with firm.
Inverse relationship between production efficiency ( in
marketing) and sales opportunities. In following case
only clerical skill required for mail contact, but also
limited chance of sales. Other extreme Face-Face
customization requires highly skilled diagnostic ability
but allows for a relationship to be built.
Three factors for CA through service enhancement
High
Customer Friendly Systems.
Convenience of customer vice convenience of company. Physical facilities, policies,
methods, and comm. Process all say "this apparatus is here to meet your needs".
A Strategy For Service
Directs the attn of people toward priorities of the customer. Reflected in personnel
priorities. Becomes a rallying cry like Kehler (Service.People,Profits)
Customer Oriented Front Line
Mgrs must support employees who support the customer.
Face/face
customizatin
Sales
opportunities
Phoning
Mail
Employee Skill Requirements
Low
High
Four Organizing Principles of Service Quality
1. Classify firm's services
2. Organize to improve service.
12
Use the client-customer spectrum below. Idea is to match service
strategy to offerings. Some firms find their offerings are actually routine
when maybe they should not be. You must provide an adequate level of
service and be willing to put $ into training if necessary.
Occurs in firms that are willing to subordinate control
processes to service enhancement and seek employee
empowerment.

Service Spectrum
Types of server
interactions
Client
requirement
Example
High
Unique
Face to face,
customization or
loose
specifications
Unique solutions
to technical or
complex
problems
Product liability
class action suit
Mixed
Face to face,
tight
specifications
Routine
On site
technology
Mail contact
Experience
based solutions
to more routine
problems
Routine driver
speeding
violation
Generic
solutions to
common
problems
Software
completed tax
calculation
Extent of employee training in service quality
14 15 16 17

Big Picture





Low




Coordinated effort to support training, resources, and
authority for total service quality
Customer needs ahead of production efficiency
Shift of IS, incentives, trg & dev, career planning, and
management trg form bottom line to top line emphasis
Putting service first:
o Service training for employees
o Delayering
o IS to measure customer satisfaction
o Incentives to spur sales to repeat customers
Above become investments, big question-How much
value in what we are doing will add to customer service?
Sustained customer loyalty to the service/product mix erects entry
barrier (reduces attractiveness of competitors products and allows
higher profit margin, i.e people will pay a premium for good
service)
3. Empower employees
Give all employees the authority to make on the
spot decisions to meet (or exceed) customer
needs. This requires training investment.
4. Abandon Manufacturing assumptions.
Do not associate cost cutting moves (voice mail)
with sound business practices under this model.
Remember the question - what value does this
bring to customer service. Maintenance of the aim
-1st principle of war.
Select employees based on their value for quality service. What you think and believe (about service) is
more important than who you are - may lead to diverse workforce.
Revise job descriptions to emphasize teamwork, then coach them to do so. Customer is center of effort.
Give teams real time data on unit quality, costs, and productivity performance. Decentralize & simplify IS.
Adjust incentive systems to pay for performance. Develop appraisal systems that stress service
behaviours.
Bonus pay adjustment of mgrs pay based on unit performance. Teach team the relationship of service to
market share and profit (cause and effect)
Move managers to where service is being delivered. Interact with customers and model good service
work. Mangers are not 'checking work' they are checking service.
If customers are the starting point to
revenue growth, then employees who
create and deliver that excellent
service must be valued as much
as the customers! Train, support,
and reward employees that are achieving
the aim.
Creating A Service Driven Organization
Steps
1)
Service Audit
2)
Company Wide Strategy
3)
4)
5)
Employee Training
Implement
Make Permanent
How well are we doing?
What are we doing right?
What are we doing wrong?
What are the customers expectations?
How do we compare to our competition?
Mission statement; Why should the customer choose us?
All aspects of firm culture should support the answer.
"Wall to Wall" employees as valued as customers (
standardizing service mix frustrates employee efforts and
may lead to higher turnover). There is a link btw customer
satisfaction, employee morale, and service quality training.
(At Ryder trucks, turnover and workman's comp claims
dropped substantially after receiving trg in service quality)
By expanding the discretion of frontline employees. A
project organization should temporarily be set up fo
manage implementation. (lasts as long as it takes and
headed by a steering committee). Service Labs sessions to develop service mission and identify areas for
improvement. Implementation includes measurements of
success/improvements.
Can take as long as five years. Cultural change through
changing incentive programs, employee behaviour, firm
values, training. Signs of success:
 Employees understand desired behaviour
 Employees trained as they are oriented
 Measurement of service reaches all aspects of firm
 Pay component based on measured service excellence
 Recruiting and hiring reflect excellent service skills
 Older employees reflect values to new employees
 Rivals take notice