CHAPTER
11
Organizational Design:
Structure, Culture, and
Control
Instructor:
Dr.Gehan Shanmuganathan
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
ChapterCase 11
Zappos: An Organization Designed to
Deliver Happiness
• Zappos: Success through customer service
 Customer service all in-house
 No scripts or timed calls
• Flat Organizational Structure = Flexibility
 Job rotation = trained talent
 4 weeks of orientation training
 Including 2 weeks on customer service phones!
11-2
LO 11-1 Define organizational design and list its three components.
LO 11-2 Explain how organizational inertia can lead established firms
to
failure.
LO 11-3 Define organizational structure and describe its four
elements.
LO 11-4 Compare and contrast mechanistic versus organic
organizations.
LO 11-5 Describe different organizational structures and match them
with
appropriate strategies.
LO 11-6 Describe the elements of organizational culture and explain
where
organizational cultures can come from the how they can be
changed.
LO 11-7 Compare and contrast different strategic control and reward
systems.
11-3
How to Organize for Competitive Advantage
• Organizational design

Goal is to translate strategies into realized ones
 Structure
 Processes
 Procedures
• Structure follows strategies
 Structure must be flexible
 Yahoo failed to make changes to their
organizational structure!
11-4
EXHIBIT 11.2
Organizational Inertia
11-5
The Key Elements of Organizational
Structure
• Organizational structure determines
 Work efforts of individuals and teams
 Resource distribution
• Key building blocks
 Specialization
 Formalization
 Centralization
 Hierarchy
11-6
Assembling the Pieces: Mechanistic vs.
Organic Organizations
• Organic organizations
 Low degree of specialization and formalization
 Flat structure
 Decentralized decision making
 Uses virtual team due to information technology

Example: Zappos, W. L. Gore, and many high-tech firms
• Mechanistic organizations
 High degree of specialization and formalization
 Tall hierarchy
 Centralized decision making

Example: McDonald’s
Video on Web 2.0
Changing workplace
11-7
Matching Strategy and Structure
• Simple structure
 Small firms with low complexity
 Top management makes all important strategic
decisions
 Low degree of formalization and specialization
 A basic organizational structure

Examples: small advertising, consulting, accounting, and
law firms
11-8
Functional Structure
• Functional structure
 Groups of employees with distinct functional areas
 The areas of expertise correspond to distinct stages
in the company value chain activities

Example: College of Business Administration, School of
Management…etc.
• Recommended with narrow products/services
 Matches well with business-level strategy
 Cost leadership  Mechanistic organization
 Differentiation  Organic organization
 Integration strategy  Ambidextrous organization
11-9
Multidivisional Structure
• Multidivisional structure
 Consists of several distinct SBUs
 Each SBU is independent and led by a CEO
 Each CEO of SBUs report to the corporate office
 Examples:
Zappos is an SBU under Amazon
 Skype is an SBU under Microsoft
 Paypal is an SBU under eBay

 Companies using M-form structure

GE, Honda
11-10
EXHIBIT 11.7
Typical M-Form Structure
Functional Structure
Matrix Structure
11-11
Matrix Structure
• A combination of functional and M-form
structure
 Creation of dual line of authority and reporting lines
 Each SBU receives support both horizontally and
vertically
 Very versatile
 Enhanced learning from different SBUs
• Shortcomings
 Difficult to implement
 Complexity increases when expanding, especially
globally
 Unclear reporting structure causes confusion and
delays
11-12
Organizational Culture
• Culture must be valuable, rare, inimitable, and
non-substitutable (RBV)
 Causal ambiguity and social complexity
• Organizational culture is an important resource!
 Southwest Airlines

Friendly and energized employees work collaboratively
 Zappos

Deliver WOW through service
11-13
Strategic Control and Reward Systems
• Internal governance mechanisms
 Culture
 Sanctions
• Input controls
 Rules and standard operating procedures
 Budgets
 Behavior guidelines
• Output controls
 Result-oriented
 ROWEs
Dan Pink’s
RSA Video
11-14
ChapterCase 11/ Consider This
• WOW factors became WOW mistakes
• Erroneous price cap not discovered for 6 hours
• Zappos honored the sales placed during the
time with mistaken price$49.95 everything!
• Customers are happy due to the fact that
Zappos handled the situation smoothly
• This is the real WOW!!!
11-15