Ch12 Managing Organization Design

Managing Organization Design
Functional Structure of Abercrombie & Fitch
Divisional Structure of the “Limited”
The Nature of Organizational Design
 What is organizational design?
 The overall set of structural elements and
relationships among those elements used to manage
the total organization.
 Organizations change continuously
 For large organization, it can be incomprehensibly
Why Are There Different Types of
 Depending on what the product or service is, the
management has to structure the organization to met the
customer’s needs.
 Two universal (one best way) perspectives of OD
 Bureaucratic model & Behavioral model
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Bureaucracy: Based on a Legitimate and
Formal System of Authority
1. The organization should adopt a distinct division of
Develop a consistent set of rules.
Establish a hierarchy of positions.
Managers should conduct business impersonally to
maintain social distance.
Employment and promotion should be based on
technical expertise, and employees should be protected
from arbitrary dismissal.
Red Tape | Logical!, Rational! Efficient!
Ex: Government, University (form processing)
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Behavioral Model
 A model of organization design
 consistent with the human relations movement and
 stressing attention to developing work groups and
 concern about interpersonal process.
More Effective!
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Character of Org.: System 1 Design
 Leadership process includes no perceived confidence
and trust.
 Motivational process taps only physical, security, and
economic motives.
 Communication process is such that information flows
 Interaction process is closed.
 Decisions occur at the top.
 Goal setting occurs at top.
 Control is centralized.
 Performance goals are low.
System 4 Organization (Based on Behavioral
 Leadership process includes perceived confidence and
 Motivational process taps a full range of motives through
participatory methods.
 Communication flows freely.
 Interaction process is open.
 Decisions occur at all levels.
 Goal setting encourages group participation.
 Control process is dispersed.
 Performance goals are high.
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System 3, System 2
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Situational Influences on OD
 Idea: Optimal design depends on a set of relevant
situational factors.
 Situational factors play a role in determining the best
organization design for any particular circumstance.
 There are four basic situational factors.
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The Basic Situational Factors
 1. Core Technology:
 Most Important Conversion processes used to transform
inputs into outputs.
 2. Environment:
 Organizations in stable environments tend to have different
kind of design from organizations in unstable environments.
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Two Designs Emerged from Stable and
Unstable Environments
 Mechanistic organization:
 Similar to the bureaucratic or system 1 model; most
frequently found in stable environments.
 Organic organization:
 Very flexible and informal model of organization design;
most often found in unstable and unpredictable
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Organizations Characterized by
Two Primary Factors:
 Differentiation:
 The extent to which the organization is broken down into
 Integration:
 The degree to which the various subunits must work
together in a coordinated fashion.
Organizational Size
 The total number of full-time or full-time equivalent
 Impact of style and technology
 Large Vs. Small firms
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Organizational life cycle
 Progression through which organizations evolve as they
grow and mature.
Stages | Birth  Youth  Midlife  Maturity.
 Design issues
Who deals with it?
 Bigger
Mechanistic, Decentralized
Two Strategy Levels
 Corporate-level Strategy (Companywide)
 Specifies actions taken by the firm to gain a competitive
advantage by selecting and managing a group of different
businesses competing in several industries and product
 Vs. Business level strategy
Strategy and Organization Designs
 Organizations can adopt a variety of corporate level strategies.
The chosen strategy affects the organizational design. such as:
 Single-product strategy
 Functional Departmentalization
 Mechanistic Design
 Related diversification
 High coordination (synergy)
 Unrelated Diversification
 Strong Hierarchical reporting system
 Portfolio approach
 Arrange various unit under a
single umbrella
 How much decision making
Design fits Strategy
Business Level Strategy
 Business-level Strategy (Competitive)
 Each business unit in a diversified firm chooses a
business-level strategy as its means of competing in
individual product markets.
 These strategies can affect the design of individual
businesses within the organization as well the overall
organization itself.
 Possible outcomes? Centralized, decentralized.
 Defender Strategy
 Tall, Centralized, Narrow Span, Functional
Departmentalization = Bureaucratic
 Prospecting Strategy~ Opposite!
 Analyzer Strategy~ in the middle!
Competitive Strategy- Focus
Organizational Functions
 Aggressive marketing strategy calls for separate
departments such as advertising, direct sales, and sales
 A production strategy can call for manufacturing in
diverse locations.
 Human resource strategy may call for a lesser degree of
 Develop skills of new managers
Functional: Marketing, Low Debt!
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Basic Forms of Organizational Design
 U-Form or Functional design:
 An organizational arrangement based on the functional
approach to departmentalization.
 H-Form or Conglomerate design:
 An arrangement used by an organization made up of a set
of unrelated businesses.
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Figure 12.1: Functional or U-Form Design for a Small
Manufacturing Company
An organizational arrangement based on the functional approach to
Coordination!, Dependency!,
Advantages similar to Functional Depart.
CEO on top of functional areas
Figure 12.2: Conglomerate (H-Form)
Design at Pearson PLC
An arrangement used by an organization made up of a set of unrelated businesses.
Unrelated diversification (Holding company)
Independent responsibility
Performance Evaluation | Resource Allocation
Complexity | Performance!
M-Form or Divisional Design
 An organizational arrangement based on multiple
businesses in related areas operating within a larger
organizational framework.
 Matrix design: (see Figure 12.4)
 An organizational design based on two overlapping bases of
 Hybrid design:
 The use of two or more common forms of organizational
 Related and unrelated diversification
Figure 12.3: Multidivisional (M-Form) Design at The
Limited, Inc.
based on multiple businesses in related areas operating within an org. framework.
Some Centralization!
Autonomy and Coordination
Market Research | Purchasing
Internal competition
Performance A+
Figure 12.4: A Matrix Organization
two overlapping bases of departmentalization
Functional Departments
Superimposing Product Group
Multiple command structure
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Emerging Issues in Organizational Design
 Team organization:
 Relies almost exclusively on project type teams, with little
or no underlying functional hierarchy.
 Floating within organization
 Split large units to smaller units
 Virtual organization:
 Has little or no formal structure
 Few permanent employee and need-based temporary
employees, facilities, outsourcing ….
 Ex: GRC- Global Research Consortium
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Emerging Issues in Organizational Design
 Learning organization:
 Works to facilitate the lifelong learning and personal
development of all its employees while transforming itself
to respond to changes and demands
 Achieve continuous improvement
 Shell learning center
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International Organizational Design
 International markets create an organization design that
fits unique circumstances:
 Separate international divisions.
 Extension of product departmentalization.
 Extension of the multidivisional structure.
Figure 12.5 : Common Organization Designs
for International Organizations, A
Simple: Levi Strauss
Figure 12.5 : Common Organization Designs
for International Organizations, B
Location departmentalization: Ford
Figure 12.5 : Common Organization Designs
for International Organizations, C
Location departmentalization as an extension of Product departmentalization
Figure 12.5 : Common Organization Designs
for International Organizations, D
Multidivisional Structure: Branches in Various area!