Chapter 10
Designing Adaptive Organizations
Organizing
• The deployment of organizational resources to achieve
strategic goals
 Division of labor
 Lines of authority
 Coordination
• All organizations wrestle with structural design and
reorganization
• Organizing is important because it follows from strategy
• Strategy  What to do
• Organizing  How to do it
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Organizing the Vertical Structure
Organizing Structure Defines:
 The set of formal tasks assigned to individuals and
departments
 Formal reporting relationships including
lines of authority, decision responsibility, # of
hierarchical levels, span of managers’ control
 The design of the systems to ensure effective
coordination across departments
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Sample Organization Chart
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Organizing Concepts
Work Specialization is the degree to which
organizational tasks are subdivided into
individual jobs; also called division of labor
Chain of Command is an unbroken line of
authority that links all individuals in the
organization and specifies who reports to whom:
(1) Unity of Command (2) Scalar Principle
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Authority, Responsibility,
Accountability, and Delegation
 Authority is the formal and legitimate right of a manager to
make decisions, issue orders, and allocate resources to
achieve organizational outcomes
 Authority is vested in organizational positions, not people
 Authority flows down the vertical hierarchy
 Authority is accepted by subordinates
 Responsibility
 Accountability is the mechanism through which authority
and responsibility are aligned; Sarbanes-Oxley Act
 Delegation is the process managers use to transfer authority
and responsibility down the chain
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Line and Staff Authority
Line departments perform primary business tasks (primary
goal & mission) with line authority to direct & control
immediate subordinates (decision-making)
 Sales
 Production
Staff departments support line departments with staff
authority to advise, recommend, & counsel (no decisionmaking)
 Human Resources, Labor Relations
 Accounting, Finance
 Research, Marketing
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Span of Management (Control)
• The # of employees reporting to a supervisor
• Tall Organizations have more levels and narrow span
• Flat Organizations have a wide span and fewer levels:
Less supervision/larger spans of control
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–
–
–
–
–
–
Work is stable and routine
Subordinates perform similar work
Subordinates are in one location
Highly trained/require little direction
Rules and procedures are defined
Few planning or nonsupervisory activities
Manager’s preference
Reorganization and Span of Management
Centralization and Decentralization
• Centralization – decision authority is located near the
top of the organization
• Decentralization – decision authority is pushed
downward to all levels (Current Trend):
– uses workers' skills, relieves top managers, has wellinformed people make decisions, and permit rapid
response
• 3 Factors influencing centralization vs. decentralization:
1. Change and uncertainty  decentralization
2. Strategic fit
3. Crisis  centralization
Departmentalization: Functional
• Departmentalization: Basis for grouping positions
into departments and departments into the total
organization
• Vertical Functional Approach: Grouping of positions
into departments based on skills, expertise, work
activities, and resource use
Departmentalization: Functional (continued)
• Advantages:
– Efficient use of resources
– Economies of scale
– In-depth skill specialization and development
– Top manager direction & control
• Disadvantages:
– Poor communication across functional departments
– Slow response to external changes
– Lagging innovation
– Decisions concentrated at top of hierarchy, creating
delay
Departmentalization - Divisional
Divisional Structure - Grouping based on organizational
output
• Product, Program, or SBU-Based Divisions
• Geographic or Customer-Based Divisions
Departmentalization: Divisional (continued)
• Advantages:
– Fast response, flexibility in unstable environment
– Fosters concern for customer needs
– Excellent coordination across functional departments
• Disadvantages:
– Duplication of resources across divisions
– Less technical depth and specialization
– Poor coordination across divisions
10.5 Geographic-Based Global Org. Structure
• Geographic or Customer-Based Divisions
- group activities by geography or customer
10.6 Dual-Authority in a Matrix Organization
Departmentalization: Matrix Approach
• Combines functional and divisional approaches
• Advantages: Improve coordination and information:
– More efficient use of resources than single hierarchy
– Flexibility, adaptability to changing environment
– Interdisciplinary cooperation, expertise available to all
divisions
• Disadvantages: Dual lines of authority (Two-boss employee)
– Frustration & confusion
– High conflict b/w two sides of the matrix
– Many meetings, more discussion than action
10.7 Global Matrix Structure
Departmentalization: Team Approach
• Very widespread trend;
• Horizontal teams coordinate their work, and work
directly with customers to accomplish the organization’s
goals.
• Cross-functional teams
• Permanent teams:
– CIA  NIA
• Examples:
– Project Team, Task Force Team
– Committee
– Agency
Departmentalization: Team Approach
(continued)
• Advantages:
– Reduced barriers among dept’s, increased compromise
(Flexible)
– Shorter response time, quicker decisions (Responsive)
– Allows managers to delegate authority Better morale,
enthusiasm from employee involvement
• Disadvantages:
– Dual loyalties and conflict
– Time and resources spent on meetings;
– Unplanned decentralization
Departmentalization:
Virtual Network
Approach (Structure)
• The Most Recent Trend
• The firm subcontracts most of its major
functions to separate companies
• Extends idea of horizontal coordination and
collaboration beyond the boundaries of the
organization
– Partnerships
– Alliances
• Could be a loose interconnected group
– Outsourcing
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10.8
Network Approach to Departmentalization
Departmentalization: Virtual Network
• Advantages:
– Can draw on expertise worldwide
– Highly flexible and responsive
– Reduced overhead costs
• Disadvantages:
– Lack of control
– Weak boundaries
– Greater demands on managers
– Weaker employee loyalty
Risks of Outsourcing (Lee, 2014)
• Intellectual property (trade secret):
– Sony (Japanese) outsourced to LG, Samsung (Korean).
LG, Samsung learned the Sony technologies (1970s &
80s); Now Samsung & LG are selling more electronics
(TV, Phones) than Sony.
•
•
•
•
Transportation cost
Supply chain
Quality
Ethics, Trust, Customer Loyalty
– Kathie Lee Gifford (1996)
– Barbie Doll – Mattel – Lead Paint (2007)
Organizing for Horizontal Coordination
• Companies need more flexibility than vertical
structure can offer
– Meet fast-shifting environment
– Break down barriers between
departments/divisions/teams
– Need integration and coordination
• Lack of coordination and cooperation can cause
information problems
– Growing global challenge
• Chrysler Case
Evolution of Organization Structures
Business Process Reengineering (BPR)
Business process reengineering, is the
radical redesign of business processes to
achieve dramatic improvements in cost,
quality, service, and speed
• BPR vs. Downsizing
• BPR vs. TQM
• BPR & Information Systems
Task Forces, Teams, and Project Management
Task Force – a temporary team or
committee formed to solve a
specific short-term problem
involving several departments
Cross-functional Team – furthers
horizontal coordination by
including members across the
organization
Project Manager
– person
responsible for
coordinating
activities of
several
departments for
the completion of
a specific project
Project Manager’s Relationships to Departments
Relational Coordination
• Frequent, timely, problem-solving
communication carried out through
[employee] relationships of shared goals,
shared knowledge, and mutual respect.
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Structure Follows Strategy
 Business performance is influenced by
structure
 Strategic goals should drive structure:
–
Differentiation  Divisional Structure
–
Innovation & Flexibility  Horizontal Team
Structure
 Structure should facilitate strategic goals:
Factors Affecting Organization Structure
(Nader & Tushman, 1997)
Relationship of Structural Approach to Strategy
Structure Fits the Technology
• Knowledge, tools, techniques, and activities
should match production activities
• Manufacturing firms can be categorized
according to (Woodward, 1965):
– Small-batch and unit production
– Large-batch and mass production
– Continuous process production
• The technical complexity of each type of firm
differs
10.14
Manufacturing Technology and Organization
Structure (Woodward, 1965)
Review Questions
• Discuss the fundamental characteristics of organizing, including such
concepts as work specialization, chain of command, span of
management, and centralization versus decentralization.
• Describe functional and divisional approaches to structure.
• Explain the matrix approach to structure and its application to both
domestic and international organizations.
• Describe the contemporary team and virtual network structures and
why they are being adopted by organizations.
• Explain why organizations need coordination across departments
and hierarchical levels, and describe mechanisms for achieving
coordination.
• Identify how structure can be used to achieve an organization’s
strategic goals.
• Define production technology (manufacturing, service, and digital)
and explain how it influences organization structure.
Review Questions (continued)
•
•
•
•
Explain briefly Authority in management
Explain briefly Responsibility in management.
Explain briefly Accountability in management.
Delegation sometimes cause more problems. Explain briefly when
delegation become most effective.
• In classical management theory, a manager is most effective when
the span of management is less than 7. Does the theory still apply to
today’s business environment? Explain briefly why or why not.
• Explain the major difference between Tall Structure and Flat
Structure, in term of the span of management.
• Explain the major difference between Tall Structure and Flat
Structure, in term of the organizational efficiency.
Review Questions (continued)
•
•
•
•
Explain briefly BPR.
Explain briefly the major difference between BPR & Downsizing.
Explain briefly the major difference between BPR & TQM.
Explain briefly why BPR has something to do with Information
Systems.
Review Questions (continued)
•
•
•
•
•
What are advantages & disadvantages of Functional Approach?
What are advantages & disadvantages of Divisional Approach?
What are advantages & disadvantages of Matrix Approach?
What are advantages & disadvantages of Team Approach?
What are advantages & disadvantages of Virtual Network
Approach?
• During WWII, General Patton, General MacArthur were
considered most brilliant commanders in the U.S. Army, but
General Eisenhower was chosen to be a supreme commander to
lead Allied Forces. Explain the major reason, from the managerial
perspectives.
Review Questions (continued)
• Explain briefly the risk of outsourcing your business operations in
a case of SONY and LG.
• Explain briefly the risk of outsourcing your business operations in
terms of supply chain.
• Explain briefly the quality risk of outsourcing your business
operations.
• Explain briefly the ethics issue of outsourcing your business
operations, using an example of Kathie Lee Gifford case (1996).
• Explain briefly what problem Lee Iacocca, a new CEO of Chrysler
found out, in term of organizational structure in early 1980s.
• Explain briefly why Chrysler needed coordination in the 1980s.