15
ORGANIZATIONAL DESIGN AND STRUCTURE
CHAPTER SCAN
Organizations are essentially structured around tasks. Organizational goals are broken into tasks,
from which jobs are designed. Jobs are then grouped into departments, which are linked to form
organizational structure. This chapter addresses differentiation and integration, six basic design
dimensions, five structural configurations, contextual variables influencing organizational
design, five forces shaping organizations today, and cautions for managers with regard to
structural weaknesses. As the organization develops, the structure of the organization is likely to
change. Organization size affects the centralization of the organization. Technology affects
organizations whether structures are categorized as mechanistic or organic.
LEARNING OBJECTIVES
After reading this chapter, you should be able to do the following:
1.
2.
3.
4.
5.
6.
7.
Define differentiation and integration as organizational design processes.
Discuss six basic design dimensions of an organization.
Briefly describe five structural configurations for organizations.
Describe four contextual variables for an organization.
Explain the four forces reshaping organizations.
Discuss emerging organizational structures.
Identify two cautions about the effect of organizational structures on people.
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KEY TERMS
Chapter 15 introduces the following key terms:
organizational design
organizational structure
contextual variables
differentiation
integration
formalization
centralization
specialization
standardization
complexity
hierarchy of authority
simple structure
machine bureaucracy
professional bureaucracy
divisionalized form
adhocracy
technological interdependence
environment
task environment
environmental uncertainty
mechanistic structure
organic structure
organizational life cycle
THE CHAPTER SUMMARIZED
I.
THINKING AHEAD: Globalization and Change
II.
KEY ORGANIZATIONAL DESIGN PROCESSES
Organizational design is the process of constructing and adjusting an organization's structure to
achieve its goals. Organizational structure is the linking of departments and jobs within an
organization. The contextual variables are a set of characteristics that influence the
organization’s design process, and include size, technology, environment, and strategy and goals.
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A.
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Differentiation
Differentiation is the process of deciding how to divide the work in an organization. It
ensures that all essential tasks are assigned to jobs and will be accomplished. An earlier
study identified four dimensions of differentiation: (1) manager's goal orientation, (2)
time orientation, (3) interpersonal orientation, and (4) formality of structure.
Differentiation consists of horizontal differentiation (the degree of differentiation between
organizational subunits), vertical differentiation (difference in authority and responsibility
in the organizational hierarchy), and spatial differentiation (geographic dispersion of an
organization’s offices, plants, and personnel).
B.
Integration
Integration is the process of coordinating the different parts of an organization. Vertical
linkages integrate activities up and down the organizational chain of command.
Horizontal linkages provide for communication and coordination across jobs and
departments. The flatter the organization, the more necessary horizontal integration
linkages become.
III.
BASIC DESIGN DIMENSIONS
There are five basic design dimensions. Formalization is the degree to which the organization
has official rules, regulations, and procedures. An organization may have a formal structure, but
may operate informally. Centralization is the degree to which decisions are made at the top of
the organization. The quality movement and programs that stress delegating responsibility and
decision making to lower levels result in decentralization. At the same time, reductions in
organizations have altered the middle management tier of the organization by eliminating part of
the central reporting structure. Typically, the larger and longer the organization has been in
existence, the more centralized its structure will be. Specialization is the degree to which jobs
are narrowly defined and depend on unique expertise. Standardization is the extent to which
work activities are accomplished in a routine fashion. Complexity refers to the number of
different types of activities that occur in the organization. The hierarchy of authority is the
degree of vertical differentiation across levels of management.
Organizations that are highly specialized, formalized, and centralized, typically have a tall
hierarchy of authority, are highly bureaucratic, and have a mechanistic structure. The term
bureaucracy has not always had the negative connotation that it carries today. Max Weber coined
the term to mean a complex organization based on hierarchy of authority and adherence to rules.
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IV.
FIVE STRUCTURAL CONFIGURATIONS
Mintzberg proposes five structural configurations for organizations.
A.
Simple Structure
The simple structure is a centralized form of organization that emphasizes the upper
echelon and direct supervision. Most organizations pass through the simple structure in
their formative years. It is the riskiest structure because success is often based on whims.
B.
Machine Bureaucracy
The machine bureaucracy is a moderately decentralized form of organization that
emphasizes the technical staff and standardization of work processes. Its strength is
efficiency of operation in stable, unchanging environments.
C.
Professional Bureaucracy
The professional bureaucracy is a decentralized form of organization that emphasizes
the operating core and standardization of skills. Hospitals and universities are examples
of professional bureaucracies.
D.
Divisionalized Form
A loosely coupled, composite configuration, the divisionalized form is a moderately
decentralized form of organization that emphasizes the middle level and standardization
of outputs.
E.
Adhocracy
Highly open and decentralized, the adhocracy is a selectively decentralized form of
organization that emphasizes the support staff and mutual adjustment among people.
V.
CONTEXTUAL VARIABLES
A.
Size
Size determinations are typically based on number of employees. Generally speaking, the
larger the organization, the more likely it will be formalized, specialized, standardized,
and complex. Additionally, larger organizations typically have a tall structure, with
numerous levels in its hierarchy of authority. Large organizations also reap the efficiency
advantages of economies of scale.
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B.
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Technology
Joan Woodward classified technologies by their complexity. Perrow focused on task
variability and problem analyzability. Technological interdependence is the degree of
interrelatedness of the organization’s various technological elements.
C.
Environment
The organizational environment is considered anything outside the boundaries of the
organization. The task environment includes elements that are specifically related to the
attainment of the organization's goals. Environmental uncertainty refers to the amount
and rate of change in an organization’s environment. Burns and Stalker compared rates of
change and determined that organizations have either mechanistic or organic structures. A
mechanistic structure is an organizational design that emphasizes structured activities,
specialized tasks, and centralized decision making. An organic structure is an
organizational design that emphasizes teamwork, open communication, and decentralized
decision making.
D.
Strategy and Goals
Strategies and goals provide legitimacy to the organization, as well as employee direction,
decision guidelines, and criteria for performance. They also help the organization fit into
its environment.
VI.
FORCES RESHAPING ORGANIZATIONS
A.
Life Cycles in Organizations
The organizational life cycle is comprised of the differing stages of an organization's life
from birth to death. During early life cycle stages, organizations typically have organic
structures. As organizations progress through the stages, they become more mechanistic.
B.
Globalization
As organizations develop globally, they often change their structures to accommodate the
decentralization necessary because of geographic dispersion and cultural and valuerelated differences.
C.
Changes in Information-Processing Technologies
Advances in information technology lead to a flattening of hierarchies of authority,
decreases in centralization, and less specialization and standardization.
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D.
Demands on Organizational Processes
Managers must learn to meet both efficiency and quality goals by combining long-term
thinking with flexible and quick responses.
E.
Emerging Organizational Structures
Emerging structures will increasingly and necessarily be organized around processes.
Three emerging organizational structures include network organizations, virtual
organizations, and circle organizations.
VII.
CAUTIONARY NOTES ABOUT STRUCTURE
Not all structures are advantageous, particularly if they are deficient in some area. If the hierarchy
is overloaded with too much information, decision making is cumbersome and delayed. At the
highest levels, the personality of the chief executive may affect the organization's structure.
VIII.
MANAGERIAL IMPLICATIONS: FITTING PEOPLE AND STRUCTURES
TOGETHER
IX.
LOOKING BACK: The 21st Century Structure Task Force
CHAPTER SUMMARY








Three basic types of differentiation occur in organizations: horizontal, vertical, and spatial.
The greater the complexity of an organization because of its degree of differentiation, the
greater the need for integration.
Formalization, centralization, specialization, standardization, complexity, and hierarchy of
authority are the six basic design dimensions in an organization.
Simple structure, machine bureaucracy, professional bureaucracy, divisionalized form, and
adhocracy are five structural configurations of an organization.
The contextual variables important to organizational design are size, technology,
environment, and strategy and goals.
Life cycles, globalization, changes in information-processing technologies, and demands on
process capabilities are forces reshaping organizations today.
Network organizations, virtual organizations, and the circle organization are emerging
organizational structures.
Organizational structures may be inherently weak, or chief executives may create personalityorganization constellations that adversely affect employees.
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REVIEW QUESTIONS: SUGGESTED ANSWERS
1. Define the processes of differentiation and integration.
Differentiation is the process of deciding how to divide the work in an organization. Integration
coordinates the different parts of an organization.
2. Describe the six basic dimensions of organizational design.
Formalization is the degree to which the organization has official rules, regulations, and
procedures. Centralization is the degree to which decisions are made at the top of the
organization. An organization is specialized if the jobs are narrowly defined and require specific,
unique expertise. If tasks are fairly routine, the organization structure is considered standardized.
If the organization has multiple types of activities occurring, it is a complex organization.
Hierarchy of authority is the degree of vertical differentiation across levels of management.
3. Discuss five structural configurations from the chapter.
The five configurations are from Mintzberg's research. A simple structure is centralized, having
direct supervision and the dominant impact from upper management. Most small organizations
adopt this structure, or early organizations before their growth phase. The machine bureaucracy
has a specialized technical staff with limited decentralization. Professional bureaucracy
organizations are highly skilled, and have vertical and horizontal decentralization in the
organization. Divisionalized forms key on the middle level, and are standardized in their outputs.
Adhocracy organizations emphasize support staff and practice selective decentralization.
4. Discuss the effects of the four contextual variables on the basic design dimensions.
The four variables are size, technology, environment, and strategy and goals. As these elements
change, so will the design of the organization. In general, large organizations are more
formalized, specialized, standardized, and complex than smaller ones. They also have taller
hierarchies and lower centralization. Determining the relationship between technologies and
basic dimensions is more complicated. Thompson suggested that greater technological
interdependence produces greater complexity and the need for more decentralized decision
making. One way of looking at the environment is to use Burns's and Stalker's perspective. If the
environment is complex, an organic structure is better. The relationship between strategy and
goals and the basic design dimensions is summarized in Table 15.5.
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5. Identify four forces that are reshaping organizations today.
Organizational life cycles refer to the differing stages in an organization’s life from birth to
death. Advances in technology and product design continue to shorten organizational life cycles,
creating pressure for both flexibility and efficiency. Increasing globalization forces changes in
differentiation, formalization, specialization, standardization, and centralization. Changes in
information-processing technologies require increased integration and coordination. Demands on
organizational processes require organizations to develop structures compatible with dynamic
stability in order to focus simultaneously on efficiency and quality.
6. Discuss the nature of emerging organizational structures.
One of the key ideas in total quality management is organizing around processes. New structures
will be characterized by this type of organizing, along with an emphasis on self-managed teams.
Emerging organizational structures include network organizations (weblike structures that
contract functions to other organizations), virtual organizations (temporary network
organizations), and circle organizations (an open system, organic structure focused on customer
responsiveness).
7. List four symptoms of structural weakness and five unhealthy personality—organization
combinations.
Symptoms of structural weakness include: (1) delayed decision making because the hierarchy is
overloaded; (2) poor quality decisions because information linkages are not effective; (3) lack of
innovative responses to changing environments because of poor coordination; and (4) conflict
among departments because of a lack of shared strategies and goals.
Five dysfunctional combinations of executive personality and organization are paranoid,
depressive, dramatic, compulsive, and schizoid.
DISCUSSION AND COMMUNICATION QUESTIONS: SUGGESTED ANSWERS
1. How would you describe the organization you work for (or your college) on each of the basic
design dimensions? For example, is it a very formal organization or an informal organization?
Most students will see their organization as formal, particularly university structures.
2. Do the size, technology, and mission of your organization directly affect you? How?
Students typically relate to the size and technology aspects of this question, rather than the
strategy and goals, which are harder to ascertain.
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3. Who are your organization’s competitors? What changes do you see in information technology
where you work?
Students are likely to identify competitors in the local market, and may need to be reminded of
global competition. The geographic range of competition will, of course, vary depending on the
type of industry.
Students will readily identify changes such as increased computerization and the use of e-mail
and the Internet. Some workplaces, of course, may have more advanced technologies.
4. Does your company show any one or more of the four symptoms of structural deficiency
discussed at the end of the chapter?
Students should be prompted to think about why these deficiencies occur, and how they can be
altered.
5. Write a memo classifying and describing the structural configuration of your university based
on the five choices in Table 15.2. Do you need more information than you have to be comfortable
with your classification and description? Where could you get the information?
Students should give specific examples and characteristics of the university to support their
choices.
6. Interview an administrator in your college or university about possible changes in size (Will
the college or university get bigger? smaller?) and technology (Is the college or university
making a significant investment in information technology?). What effects does the administrator
anticipate from these changes? Be prepared to present your results orally to the class.
It would be a good idea to coordinate student interviews in class so that a wide variety of
administrators are approached. Class discussion can then focus on similarities and differences in
the responses and how each administrator’s frame of reference influences his or her perspective
on these issues.
ETHICS QUESTIONS: SUGGESTED ANSWERS
1. For what types of individual behavior is it ethical for an organization to have formal rules and
regulations? For what types of individual behavior is it unethical for an organization to have
formal rules and regulations?
Job related policies are the easiest category. However, there is an increase in the policies that
relate to employees off the job. For example, some organizations will not provide insurance
coverage for smokers.
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2. Should legal limits be set to prevent large companies from engaging in very competitive
behavior to drive small companies out of business?
These laws and regulations exist, although students may be opinionated as to the degree in which
they should exist.
3. As an organization changes its structure over time, how much commitment should it show to
employees who need to be retrained to fit into the new system? Or is it acceptable for the
organization to hire new people to fit the new structure?
Both of these approaches are acceptable; however, it is illegal to exchange older employees for
newer employees as a direct cost saving benefit.
4. Suppose an employee complains about organizational design problems and suggests a
solution. The organization is redesigned accordingly, but that employee's department is
eliminated. Is it ethical for the company to terminate the employee? Should the company always
make room for a person who has a beneficial idea for the organization?
This issue is closely related to the underlying concept of entitlement. Entitlement is the belief
that an organization owes a job to employees who are loyal, committed, and perform well.
Entitlement laws are vastly different from country to country.
CHALLENGES
15.1 HOW DECENTRALIZED IS YOUR COMPANY?
This might be a good challenge for students to complete prior to the discussion on
decentralization. Students can then share their perceptions of their companies as examples during
the discussion.
15.2 MANAGERS OF TODAY AND THE FUTURE
As students complete this challenge, they should also consider how difficult it would be for their
organizations to become more oriented toward the future. What specific steps might their
organizations need to take to make that transition?
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EXPERIENTIAL EXERCISES
15.1 WORDS-IN-SENTENCES COMPANY
The purpose of this exercise is to understand issues of organizational design. Because the
students are given a fairly easy and innocuous assignment, it is not difficult to see how the design
issues of the various groups influence the success of the outcome.
It is better to have several groups, so if the class is smaller, then assign groups to have only six
members. By having several groups, it is possible to compare later which design worked best for
this type of task.
If you can, assign one observer per group so that the debrief will be richer. Using observers to
“float” is highly beneficial to learning. They still have their “home” group, but they freely move
throughout the various groups. This gives them much more insight and ability to give more
meaningful feedback later.
You should give each group the raw material words, preferably on a notecard or a piece of paper,
so that each group gets a notecard. Some possibilities include:
organic and mechanic
Lawrence and Lorsch
task and design
Woodward on technology
Using raw materials related to the concepts of this exercise seems to reinforce the learning.
During the debrief, spend a lot of time on what the groups learned from Production Run #1 to
Production Run #2. If they reorganized, how so and why? Some groups reorganize, but it is
senseless. What information did they get from #1 that led them to the changes in #2? Was the
outcome better?
SOURCE: Dorothy Marcic, Organizational Behavior Experiences and Cases, 4th Ed. (St. Paul:
West, 1995), 303-305.
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15.2 DESIGN AND BUILD A CASTLE
Instructor's Notes
This exercise is intended to give students an opportunity to design an organization and produce a
product. Students are in groups (of 6-8 members) of one of three product-development teams
working within the research and development division of the General Turret and Moat
Corporation. Each of the three teams designs a castle for the company to produce and sell. Given
limited resources, the company cannot put more than one design on the market. Therefore, the
company will have to decide which of the three designs it will use and discard the others.
Students are given 45 minutes to complete the project.
Exercise Schedule
1. (5 minutes) Each group is designated #1, #2, or #3. Members read only one memorandum,
the appropriate one for their group. One (or two for larger groups) observers are selected for
each group. Observers read their materials.
2. (10 minutes) Groups design their organization in order to complete the goal.
3. (15-20 minutes) Each group designs its own castle and draws it on newsprint.
4. (5-10 minutes) “Typical consumers” (may be observers or others) tour building locations and
hear sales pitches. Judges caucus to determine the winner.
5. (10-15 minutes) Groups meet again and write up the central goal statement of the group.
Also, write the organization chart on newsprint with the goal written beneath. These are
posted around the room.
6. (5-15 minutes) Instructor leads a class discussion on how the different memos affected
organization design. Which design seemed most effective for this task?
Option 2
If there is time, have students actually build the castles. To build the castles, you may give
students:
a. Sheets of plain/scratch paper and tape, or
b. Sheets of colored construction paper, staples and tape, or
c. Paper, sheets of cardboard or tagboard, staples and tape, or
d. Paper, staples, tape plus handfuls of shredded paper (from a paper shredder)
Discussion Questions
1. What do you think made one “castle” “win” over the others?
2. How much difference did the “sales pitch” make?
3. Is one group’s organizing structure better than another’s? Are others more useful in different
“Castle Companies” or different situations?
4. Was communication influenced by any particular structure?
5. What other dynamics of your group seemed to be important and influenced your final
product?
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CASTLE BUILDING
MEMORANDUM
TO:
PROJECT TEAM #1
FROM:
Edward Grimsbsy Bullhouse, III
Chief Executive Officer
General Turret and Moat Corporation
SUBJECT:
Development of new castle product
In order to perform effectively and to develop a useful product for our firm, I have
decided that
will serve as manager of product-development team #1. It
is
responsibility to see that the team develops a useful and feasible
product, and I hope that all of you will cooperate with
in this effort.
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CASTLE BUILDING
MEMORANDUM
TO:
PROJECT TEAM #2
FROM:
Edward Grimsbsy Bullhouse, III
Chief Executive Officer
General Turret and Moat Corporation
SUBJECT:
Development of new castle product
In order to perform effectively and to develop a useful product for our firm, I am asking
that you select one of your team to serve as manager of product-development team #2. I trust
that you will also determine and select any committees, task forces, subgroups, etc., that are
needed in order to perform your job.
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CASTLE BUILDING
MEMORANDUM
TO:
PROJECT TEAM #3
FROM:
Edward Grimsbsy Bullhouse, III
Chief Executive Officer
General Turret and Moat Corporation
SUBJECT:
Development of new castle product
In order to perform effectively and to develop a useful product for our firm, I am asking
that each of you put forth your maximum effort. I trust that you will provide us with a
worthwhile product that can contribute to the profits of the firm.
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CASTLE BUILDING
Observer’s Guide
During the course of the building period, observe what is happening within your particular group.
Specifically, you should look for the following things.
1. What was the reaction of the group to the memorandum?
2. What was the basic structure of the group?
3. To what degree did people specialize and work on the same particular part of the overall
task? How did this specialization come about?
4. Who was (were) the leader(s) of the group? How was leadership determined? How effective
was the leadership in helping the group to perform its task?
5. Were there any specific patterns of communication among members of the group, or did
everyone talk with everyone else?
6. How were important decisions made? Did you see conflicts or were decisions made
cooperatively and with compromise?
7. Other general observations
After the session, be prepared to discuss your observation with the entire group.
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ALTERNATIVE EXPERIENTIAL EXERCISE:
THE GLITCH THAT LOST KRISTA
Instructor's Notes:
This excerpt is a true story. The episode is followed by legal and human resource experts who
briefly suggest how to cope with this colorful character.
Many employees are overlooked and treated as if they don't exist. With little attention and
feedback, they become bored and complacent. This management problem may have encouraged
Krista to "play dumb and stay lost." Any time a company undergoes reorganization, it should
include a personal meeting with every employee to explain or discuss the impact on the
employee's job. Despite the fact that the agency did not handle the reorganization appropriately,
it has the right to hold Krista responsible for her actions. She should have received discipline for
being AWOL.
This story demonstrates an often overlooked point. Employees have no obligation to seek out
work. Whether private or public, it is management's obligation and legal right to insist that
employees perform assigned duties in a satisfactory manner. This seems obvious, but many
employers are reluctant to exercise their basic right to tell employees to go back to work when
such situations arise.
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THE GLITCH THAT LOST KRISTA
Elizabeth N. Fried, Outrageous Acts of Behavior, Intermediaries Press, Dublin Ohio,
1990.
Chase was quite pleased. He was instrumental in redesigning the organization and
implementing the communication program. He arranged for small-group meetings so that
employees could understand the need for reorganization. The process took him nearly a month
of continuous meetings, but the response was favorable. The employees cooperated and helped
make the transition very smooth. After six weeks, the first productivity report showed a fifteen
percent decrease in expenses, and morale seemed stable. The agency had plans to administer a
work-climate study after twelve months. Chase was immersed in the glowing productivity report
when his assistant, Suzanne, walked in his office.
"Here they are, fresh off the presses, our first run since the reorganization," Suzanne
chirped.
Chase looked up from his desk puzzled, "What?"
"The performance review reminders," Suzanne responded. "You know, every month we
get a printout for those employees due for their annual performance review. They have little
computer-generated postcards that we send out to the managers."
"Oh, right, right. Go ahead and send them out," Chase said, still preoccupied with his
productivity report.
Several days later he got a call from Gordon Fishman, the information officer.
"Say, Chase," Gordon began, "I just got the computer reminder to give Krista Reed, one
of my former clerks, her performance review. Since we reorganized, Krista doesn't work for me
any more."
Krista was fairly far down in the organization, so her name would not show up on the
major charts. Chase remembered hiring her about three years ago for a simple, routine clerk job.
She was rather plain, not very bright, but quite pleasant. When her performance reviews had
crossed his desk, there was nothing unusual. They were mostly peppered with satisfactories. She
had received only one promotion in three years and tended to blend right into the agency.
"Well, what happened to her?" Chase asked.
"I'm not really sure, but I think she's reporting to Bill Acton in Administration. Try him"
Gordon responded.
Chase looked up Bill's extension. "Say, Bill, this is Chase Vidmar. We have a
performance appraisal due on Krista Reed, and I understand she reports to you now."
"Krista Reed: Nope, not me. I think she was shipped over to Tracy Karras after the
reorganization. Give Tracy a call," Bill suggested.
Chase tapped out Tracy's four-digit extension. "Ms. Karras's office, Jane speaking."
"Hi, Jane, this is Chase Vidmar. Is Tracy available?"
"Sorry, Mr. Vidmar, but Tracy is out of the office at a meeting with one of our vendors."
"Oh,” he paused, "well, maybe you can help me. Does Krista Reed report to your
section?"
"That name doesn't sound familiar, but I'll check. Can you hold?"
"Sure."
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Chase waited while he scanned his own personnel computer runs. There was Krista
Reed's name all right. She still retained Gordon Fishman's budget code, but the section
reassignment code was blank. That's why the performance appraisal reminder defaulted to
Gordon. "Where the hell could she be?" he thought.
Jane returned to the line. "Sorry, Mr. Vidmar, but we don't have her here."
"Thanks, Jane." Chase rang off and sat at his desk bewildered. The agency had over two
thousand people and he wasn't about to send out a missing-rewards memo on Krista. She was
getting her paycheck. That must be a clue.
"Rats," he thought, after he checked with payroll. "My luck, she has her pay directdeposited, with the confirmation mailed to her home. "Her home," he thought, "maybe she's at
home. I'll try there." For an entire week Chase periodically called Krista's number - no answer
or busy. He was getting very frustrated.
Chase usually worked through his lunch, grabbing some junk food from the vending
machine. Today he felt especially hungry for some reason, so he ventured into the employee
cafeteria. He filled his tray from the deli bar and passed through the register.
Seated a few tables from the register was Krista Reed! Chase couldn't believe his eyes.
His surprise almost caused him to set his Coke off balance. He regained control and casually
sauntered over to Krista, who was seated with some other women. There was an available seat
across from her.
"Mind if I join you?" Chase asked politely.
"Sure, no problem," Krista smiled.
"So, Krista, it's been a long time since we've talked. How have you been?"
"Pretty good."
"So where are you working now that we've reorganized?" he asked.
"I'm glad you asked," she responded sincerely. "When everyone got their printout of
where to be reassigned, the section for me was blank. My boss was tied up in meetings that day,
so I didn't get to discuss it with him. Even though the move wasn't scheduled for two weeks, I
wasn't able to get to him because I left that Friday for my two-week vacation. So, when I
returned, everyone was in his or her new offices, and my boss, as you know, was shipped over to
Building G across the complex. My section was split three ways, so I didn't even know which
group to follow and haven't known what to do. I've felt really lost and kind of upset that the
agency has forgotten about me. So I just came to work and visited with friends in the various
break rooms, and then I'd sit through all three lunch sessions. That part has been a lot of fun, but
to tell the truth, I've been getting kinda bored."
"That's terrible, Krista," Chase feigned sympathetically.
"And not only that," she added, "with all these lunches I've eaten over the past several
weeks, I've gained nearly eight pounds!"
Chase was astounded. He knew Krista wasn't a rocket scientist, but how could she spend
over a month occupying her day having one long lunch, just hoping someone might notice?
Incredibly, no one did notice, and Krista appeared deadly serious and wholly sincere. Rather
than embarrass himself and the whole agency for the major snafu, Chase politely suggested to
Krista that she return with him to his office. He reviewed the organizational design study and
determined where Krista should logically be located. Chase contacted the section manager and
notified him that he was sending Krista on up. The he put a change action through to the
computer to ensure that the elusive Krista would once again have a home.
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Discussion Questions:
1. What type of organizational structure is this most likely to have occurred in?
2. What organizational response should have taken place to prevent this situation?
3. Do you believe this could happen in a restructuring company?
EXTRA EXPERIENTIAL EXERCISES
The following alternative exercise to supplement the material in the textbook can be obtained
from:
Marcic, Dorothy, Seltzer, Joseph, & Vaill, Peter. Organizational Behavior: Experiences and
Cases, 6th Ed. South Western College Publishing Company, 2001.
The Four Frames Model: Analyzing a Hospital Department Consolidation. p. 195-199.
Time: 40-50 minutes.
Purpose: To introduce and provide an example of the use of Bolman and Deal's Four
Frames Model.
The Honda Case: Designing for Quality. p. 201-206. Time: 40 minutes or more.
Purpose: To explore a Japanese approach to designing an organization for quality.
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CASE QUESTIONS: SUGGESTED ANSWERS
SOLECTRON CORP.—PROVIDERS OF SUPPLY CHAIN MANAGEMENT
FOR NETWORK ORGANIZATIONS
1. What is a network (or virtual) organization, and how does it differ from more traditional
organization structures?
A network (or virtual) organization performs only certain core functions and outsources the
remaining functions to other companies. Consequently, the network organization is able to
focus on its core competenciesdoing what it does best. The network organization is able to
maintain greater flexibility in responding to environmental demands. A fairly common type
of network (or virtual) organization arrangement is for the network company to focus on
designing and marketing a product, and to contract with other companies for the
manufacturing and/or distribution of the product. Increasingly, network (or virtual)
companies are outsourcing more and more elements of operating and managing the entire
supply chain in order to concentrate on their core competencies.
The network (or virtual) organization differs from more traditional organizations in the
performance of critical organizational functions. In a traditional organization, these critical
functions are performed in-house rather than being outsourced to other companies. Thus,
companies with more traditional structures design them to accomplish differentiation and
integration within the boundaries of the firm itself. In virtual organizations, differentiation
and integration transcend the boundaries of the firms in the partnering alliance.
2. Why have network (or virtual) organizations come into existence? How has Solectron
contributed to the rise of these types of organizations?
Network organizations have come about for at least three major reasons: advancing
technology, environmental uncertainty, and the need to more productively utilize resources.
Advances in information technology have enabled companies to communicate quickly and
easily to virtually any location throughout the world. Companies are now able to exchange
important information with each other on a real-time basis. Thus, suppliers can work very
closely with their customers—almost as though they were actually part of the customer’s
organization. Advances in production technology—such as computer-aided manufacturing—
have provided opportunities for production efficiency and flexibility that did not exist before.
Production flexibility, in particular, has contributed to the rise of network organizations.
Companies now outsource a variety of manufacturing operations to contractors that have the
flexibility to adapt to differing manufacturing requirements.
Environmental uncertainty reflects both the complexity and dynamism of the business
environment. Complex environments produce greater uncertainty for a business than simple
environments do. Changing environments generate more uncertainty than static
environments. In recent years, environmental uncertainty has increased dramatically,
affecting an increasingly broad range of businesses. In part, this increased uncertainty is due
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to the increasing globalization of business and the resulting competitive pressures. In part,
uncertainty has also been fostered by rapid technological advancements in many fields.
In an increasingly uncertain business environment, it is unlikely that a given company can do
everything that it needs to do as well (or as excellently) as it needs or wants. Many companies
are now focusing their efforts on their core competencies. They devote their energies to those
things that they do well, and contract with other companies to do the things that they do not
do as well. In forming alliances with other companies, network organizations seek to
outsource those functions that are not core competencies for themselves but are for other
companies. Thus, each of the partners is pursuing its own core competencies while
complementing the core competencies of the others in the business alliance. Consequently,
costs, quality, and service—all of which are important aspects of improving productivity—
can be addressed effectively. Costs can be decreased while quality and service can be
enhanced.
Solectron has contributed to the rise of network (or virtual) organizations by being a contract
electronics manufacturer that:
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Has considerable expertise in electronics manufacturing technology.
Is extremely flexible in manufacturing capability.
Establishes strong, close working relationships with its customers.
Responds quickly to its customers’ needs, thereby helping them to cope
effectively with an uncertain environment.
Is devoted to exceptional product quality and cost containment.
Provides a variety of supply chain management options for its customers.
Each of these attributes relates to one or more of the forces that have contributed to the rise of
network organizations.
3. What are the key factors in Solectron’s success in facilitating the rise of network (or virtual)
organizations?
One very most important factor in Solectron’s success is its expertise in many different
aspects of supply chain management. Solectron establishes partnerships with its OEM
customers wherein it assumes supply chain responsibility, thereby enabling its customers to
focus their resources on their own core competencies. As indicated in the case, Solectron
aims “to minimize boundaries in the supply chainin an effort to help its customers attain
the fastest time-to-market with the lowest total costs, while helping them ensure the most
efficient allocation of their scarce resources.”
Another important aspect of Solectron’s success is its flexibility. With a broad range of
customers, Solectron needs to be flexible. Because of its careful attention to detail in
designing its production lines at every facility throughout the world, Solectron can shift jobs
or add capacity quickly and seamlessly.
A third important aspect of Solectron’s success is its emphasis on quality. This is evident in
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Solectron’s receipt of over 250 quality and service awards from its customers and in being
the first two-time winner of the Malcolm Baldrige National Quality Award for
Manufacturing.
4. What advantages and disadvantages do you think arise from a network (or virtual)
organization relationship?
Some of the advantages include:
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Each company in the network business alliance focuses on its core
competencies.
Investment risk is spread across the partners.
Resources can be used more wisely, by directing them toward each
organization’s core competencies.
Each company maintains greater flexibility to cope with an uncertain
environment.
Some of the disadvantages include the following:
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Lack of adequate communication and coordination between the network (or
virtual) organization and its partners will undermine the effectiveness of the
alliance.
The network organization, by outsourcing significant functions, increases its
risk because it must rely heavily on other businesses.
The network organization sacrifices some degree of control.