Organization

Chapter
17
Creating Effective
Organizations
McGraw-Hill/Irwin
Copyright © 2008
by The McGraw-Hill Companies, Inc. All rights reserved.
© 2008The
Ch. 17 Learning Objectives
1. Describe the four characteristics common to all
organizations, and explain the difference between
closed and open systems.
2. Define the term learning organization.
3. Describe horizontal, hourglass, and virtual
organizations.
4. Describe the four generic organizational
effectiveness criteria, and discuss how managers can
prevent organizational decline.
5. Explain what the contingency approach to
17-2
organization design involves.
© 2008 The McGraw-Hill Companies, Inc. All rights reserved.
Ch. 17 Learning Objectives
6. Describe the relationship between differentiation
and integration in effective organizations.
7. Discuss Burns and Stalker’s findings regarding
mechanistic and organic organizations.
8. Define and briefly explain the practical
significance of centralization and
decentralization.
9. Discuss the effective management of
organizational size.
17-3
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Figure 17-1
Characteristics Common to All Organizations
Organization: System of consciously coordinated
activities of two or more people.
Hierarchy of
authority
Division of
labor
Coordination
of effort
Common
goal
17-4
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Figure 17-2
Organization Charts
Example of Hospital's Organization Chart
Board of Directors
Type title here
Strategic Planning
Officer
Chief Executive
Officer
Legal Counsel
President
Cost-Containment
Staff
Executive
Administrative
Director
Director of
Human
Resources
Director of
Admissions
Director of
Patient and
Public
Relations
Director of
Accounting
Executive
Medical
Director
Director of
Nutrition
and Food
Services
Director of
X-Ray and
Laboratory
Services
Director of
Surgery
Director of
Pharmacy
Chief
Physician
Director of
Outpatient
Services
17-5
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Organizational Structure Terms
Span of control
•The number of people reporting directly to a
given manager
Staff Personnel – denoted by dotted lines
•Provide research, advice, and
recommendations to line managers
Line managers – denoted by solid lines
•Have authority to make organizational
decisions
17-6
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Test Your Knowledge
True (A) or False (B)
1. The ideal span of control is 10.
2. Wider spans of control complement
employee empowerment trends.
3. Narrower spans of control save costs and are
administratively efficient.
4. With wider spans of control, inadequate
supervision and less coordination may result
17-7
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Closed Vs. Open Systems
Closed System a
relatively self-sufficient
entity
Open System organism
that must constantly
interact with its
environment to survive
17-8
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Figure 17-3
The Organization as an Open System
Goals and Values
Subsystem
Technical
Subsystem
Inputs
 Material
 Money
Managerial
Subsystem
 Human effort
 Information
Structural
Subsystem
Psychological
Subsystem
Feedback
Outputs
 Products
 Services
 Human
satisfaction
Organizational
survival and
growth
 Social
benefit
17-9
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Learning Organization
Learning
Organization
proactively creates,
acquires, and transfers
knowledge throughout
the organization
17-10
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Profiles of the New-Style and
Old-Style Organizations
New
Old
Dynamic, learning
Stable
Information rich
Information is scarce
Global
Local
Small and large
Large
Product/customer oriented
Functional
Skill oriented
Job oriented
Team oriented
Individual oriented
Involvement oriented
Command/control oriented
Lateral/networked
Hierarchical
Customer oriented
Job requirements oriented
Table 17-1
17-11
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Figure 17-4
The Horizontal Organization
Strategic and Administrative
Process Managers
New product
development
process
teams
Customer
Needs
Order
fulfillment
process
teams
Account
management
process
teams
Customer
Satisfaction
17-12
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Figure 17-4
The Hourglass Organization
17-13
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Figure 17-4
The Virtual Organization
17-14
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Test Your Knowledge
Regardless of the specific type, to
be effective tomorrow’s
organizations will require:
a. Rigidity
b. Short-term thinking
c. Internal focus
d. Flexibility and adaptability
17-15
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Figure 17-5
Ways to Assess Organizational Effectiveness
Goal
Accomplishment
Resource
Acquisition
Internal
Processes
Strategic
Constituencies
Satisfaction
17-16
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Figure 17-6
Identifying Strategic Constituencies
Financial community
Stockholders
Press
Competitors
U.S., Foreign
OPEC
State and Local
Government
Customers
Major Auto Manufacturer
Federal
Government
Auto Dealers
Consumer activists
Congress
Suppliers
Executive Branch
Government regulators
Environmentalists
Employees
Unions
17-17
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Test Your Knowledge
Match the Effectiveness Criteria on the left with the
situation in which it would be most appropriate.
1.
2.
3.
4.
Goal Accomplishment
Resource Acquisition
Internal Processes
Strategic constituencies
a. Team work is important
contributor to success
b. Goals are clear and
measurable
c. Powerful stakeholders can
significantly impact the
organization
d. Inputs are directly related
to accomplishing objectives
17-18
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Early-Warning Signs of Decline
1)
2)
3)
4)
5)
6)
7)
Excess personnel
Tolerance of incompetence
Cumbersome administrative
procedures
Disproportionate staff power
Replacement of substance with
form
Scarcity of clear goals and
decision benchmarks
Fear of embarrassment and
conflict
17-19
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Early-Warning Signs of Decline Cont.
8)
9)
10)
11)
12)
13)
14)
Loss of effective
communication
Outdated organizational
structure
Increased scapegoating by
leaders
Resistance to change
Low morale
Special interest groups are
more vocal
Decreased innovation
17-20
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Figure 17-7
Contingency Approach
Assessing Environmental Uncertainty
Low
Moderate
High
1)
How strong are social,
political, and economic
pressures on the
organization?
Minimal
Moderate
Intense
2)
How frequent are
technological
breakthroughs in the
industry?
Infrequent
Occasional
Frequent
3)
How reliable are resources
and supplies?
Reliable
Occasional,
predictable
shortages
Unreliable
4)
How stable is the demand
for the organization’s
product or service?
Highly stable
Moderately
stable
Unstable
17-21
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Differentiation and Integration are
Opposing Structural Forces
Figure 17-8
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Differentiation
Fragments the organization
through specialization of
labor
Integration
Pulls the organization together
through the coordination of
specialists
17-22
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Characteristics of Mechanistic and
Organic Organizations
Table 17-2
Characteristic
Mechanistic
Organizations
Organic
Organizations
1)
Task definition
and knowledge
required
Narrow; technical
Broad; general
2)
Linkage between
individual’s
contribution and
organization’s
purpose
Vague or indirect
Clear or direct
3)
Task flexibility
Rigid; routine
Flexible; varied
4)
Specification of
techniques,
obligations, and
rights
Specific
General
17-23
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Characteristics of Mechanistic and
Organic Organizations
5)
6)
7)
8)
Table 17-2 cont.
Characteristic
Mechanistic
Organizations
Organic
Organizations
Degree of
hierarchal control
Primary
communication
pattern
High
Low
Top-down
Lateral
Primary decisionmaking style
Emphasis on
obedience and
loyalty
Authoritarian
Democratic;
participative
Low
High
17-24
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Test Your Knowledge
1. Which decision-making approach tends to be
used in mechanistic organizations?
a. Decentralized
b. Centralized
2. Which decision-making approach tends to be
used in unstable and uncertain
environments?
a. Decentralized
b. Centralized
17-25
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The Effect of Technology on Structure
The more the technology
requires interdependence
between individuals and/or
groups, the greater the
need for coordination
“As technology moves from
routine to nonroutine,
subunits adopt less
formalized and centralized
structures”
17-26
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Test Your Knowledge
True (A) or False (B)
1. Larger organizations tended to be less
productive
2. The larger the organization, the less
efficient.
3. Smaller organizations enjoy less
turnover.
17-27
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Relationship Between Strategic Choice and
Organizational Structure
Figure 17-9
Organizational
objectives
Environmental
constraints
Strategic
decisions made
by dominant
coalition
Organizational
Strategies
Organizational
structure
Organizational
effectiveness
 Target markets
 Capital
sources/uses
Decision
maker’s
personal beliefs,
attitudes,
values, and
ethics
 Human
resources
 Technology
 Total quality
management
Corrective action
17-28
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Chapter
17
Supplemental
Slides
17-29
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Video Cases
1154 Lill
One Smooth Stone
17-30
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Management in the Movies
Apollo 13 – “The Launch”
In this scene, Gene Kranz is moving through his
checklist for a go-no-go for launch.
Questions
• What are the different departments involved in making
the launch happen?
• How are these departments organized?
17-31
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The Big Get Bigger
Wal-Mart- Largest US
employer: 1.9 million
workers (approximately the
population of Houston, Texas)
Large Companies (2007):
• Exxon-Mobil (#2) - $39.5
billion in profit
• Ford (#7) – wants to shrink
• Starbucks (#310) – concerned
about increase in stores being
a detriment to the “soul” of
Starbucks
Can an organization get
“too” big?
Is scale an asset or liability?
“Our goal is not just to
be big but to use our
size to be great” ~ Jeff
Immelt, GE Chairman
17-32
Source: The Big Get Bigger, Fortune, April 30, 2007
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The Agony of Victory
Competency Trap
•Focusing on what the org does well
•Problems:
•Competitors learn how to do the same
thing
•Environment changes making the
competency less relevant
17-33
Source: Pfeffer, J. The Agony of Victory (2007, Jan/Feb), Business 2.0,
8. pg. 62
© 2008Vol
The McGraw-Hill
Companies, Inc. All rights reserved.
The Agony of Victory
Avoiding the Competency Trap
•Avoid excessive specialization
•Develop peripheral vision – keep
abreast of market changes
•Have mindset of continuous learning –
relying too much on a strength can
become a weakness
Source: Pfeffer, J. The Agony of Victory (2007, Jan/Feb), Business 2.0, Vol 8. pg. 62
17-34
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5 Stages of Organizational Learning
Stage
What
Organizations
Do
Why They Do It
1. Defensive Deny practices,
outcomes, or
responsibilities
To defend against attacks to their
reputation that in the short term
could affect sales, recruitment,
productivity, and the brand
2.
Adopt a policyCompliance based
compliance
approach as a
cost of doing
business
To mitigate the erosion of economic
value in the medium term because
of ongoing reputation and litigation
risks
17-35
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5 Stages of Organizational Learning
Stage
What
Organizations
Do
Why They Do It
3.
Managerial
Embed the
societal issue in
their core
management
processes
To mitigate the erosion of economic
value in the medium term and to
achieve longer-term gains by
integrating responsible business
practices into their daily operations
4. Strategic
Integrate the
societal issue
into their core
business
strategies
To enhance economic value in the
long term and to gain first mover
advantage by aligning strategy and
process innovations with the
societal issue
17-36
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5 Stages of Organizational Learning
Stage
5. Civil
What
Organizations
Do
Why They Do It
Promote broad
industry
participation in
corporate
responsibility
To enhance long-term economic
value by overcoming any first
mover disadvantages and to realize
gains through collective action
17-37
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Pass it On…
General Mills values learning and
developing its employees
General Mills is also committed to
aiding its community and non-profit
institutions
Putting these values together, they
established a free leadership forums for
community leaders
17-38
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The Evolution of Organizational Metaphors
Closed Systems
Military/Mechanical
Model
Biological Model
Metaphorical
comparison
Precision military
unit/well oiled
machine
Human Body
Assumption
about org.’s
environment
Predictable
Uncertain
Maximum economic
efficiency through
planning and control
Survival through adaptation to
environmental constraints
Org.’s primary
goal
17-39
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The Evolution of Organizational Metaphors
Open Systems
Cognitive Model
Ecosystem Model
Metaphorical
comparison
Human Mind
Natural Ecosystem; Darwin:
survival of the fittest
Assumption
about org.’s
environment
Uncertain and
ambiguous
Primary determinant of
success/failure
Org.’s primary
goal
Growth and survival
through environmental
scanning, interpretation, &
learning
Growth and survival through
opportunistic cooperation and
competition
17-40
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A Supportive Culture for Organizational
Learning
Sensitive topics are freely discussed
Upper-level managers are approachable
Interpersonal interactions are frequent and meaningful
A collective responsibility for solving problems
Full recognition of expertise and appreciation of
existing knowledge
Knowledge is freely shared rather than hoarded
Teaching is highly valued
Everyone is committed to learning from mistakes
17-41
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Conclusion
Questions for discussion
17-42
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