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
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
2
Organizing the Vertical
Structure
Organizing Structure Defines:
 The set of formal tasks assigned to individuals and
departments
 Formal reporting relationships
 The design of the systems to ensure effective
coordination
Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.
3
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
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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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10.1 Sample Organization Chart
Line and Staff Authority
Line departments perform primary business
tasks
 Sales
 Production
Staff departments support line departments
 Human Resources
 Accounting
 Research
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Span of Management
The number 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
 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
10.2 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
• Factors that influence centralization versus
decentralization:
– Change and uncertainty  decentralization
– Strategic fit
– Crisis, Failure Risk  centralization
Departmentalization: Functional
• 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
10.4 Functional Versus Divisional Structures
10.5 Geographic-Based Global Org. Structure
• Geographic or Customer-Based Divisions
- group activities by geography or customer
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
10.6 Dual-Authority in a Matrix Organization
10.7 Global Matrix Structure
Departmentalization: Team Approach
• Team approach (Cross-functional teams, Permanent teams) - a
very widespread trend; Horizontal teams coordinate their work, and
work directly with customers to accomplish the organization’s goals.
• 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
• Extends idea of horizontal coordination and
collaboration
– Partnerships
– Alliances
• Could be a loose interconnected group
– i.e. outsourcing
Virtual network structure means that the firm
subcontracts most of its major functions to
separate companies
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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, 2013]
• Intellectual property (trade secret):
– Sony (Japanese) outsourced to LG, Samsung (Korean).
LG, Samsung learned the Sony technologies, and now
they are selling more TVs than Sony.
•
•
•
•
Transportation cost
Supply chain
Quality
Ethics
– Kathie Lee Gifford (1996)
– Barbie Doll – Mattel – Lead Paint (2007)
10.9 Structural Advantages and Disadvantages
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 (p. 281)
10.10 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
10.11 Project Manager’s Relationships to
Departments
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:
10.12
Factors Affecting Organization Structure
(Nader & Tushman, 1997)
10.13
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:
– 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.