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Mgmt 371

Chapter Twelve

Managing Organizational Design

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Much of the slide content was created by Dr, Charlie Cook, Houghton Mifflin, Co.©
The Nature of
Organization Design
 Organization Design
 The overall set of structural elements and the
relationships among those elements used to manage
the total organization.
 A means to implement strategies and plans to achieve
organizational goals.
 Organization Design Concepts
 Organizations are not designed and then left intact.
 Organizations are in a continuous state of change.
 Designs for larger organizations are extremely complex
and have many nuances and variations.

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Universal Perspectives on
Organization Design
 Bureaucratic Model (Max Weber)
 A logical, rational, and efficient organization design
based on a legitimate and formal system of
authority.
 Modeled on Helmuth von Moltke's
development of the General Staff.

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Universal Perspectives on
Organization Design
 Bureaucratic Model (Max Weber)
 Characteristics
 A division of labor with each position filled by an
expert.
 A consistent set of rules that ensure uniformity in
task performance.
 A hierarchy of positions which creates a chain of
command.
 Impersonal management; with the appropriate
social distance between superiors and
subordinates.
 Employment and advancement is based on
technical expertise, and employees are protected
from arbitrary dismissal. 4
Bureaucratic Model
 Advantages
 Efficiency in function due to well-defined
practices and procedures.
 Organizational rules prevent favoritism.
 Recognition of and requirement for
expertise stresses the value of an
organization’s employees.

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Bureaucratic Model
 Disadvantages
 Organizational inflexibility and rigidity due
to rules and procedures.
 Neglects the social and human processes
within the organization.
 Belief in “one best way” to design an
organization does not apply to all
organizations and their environments.

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Rensis Likert:
System 1 and
System 4
Organizations

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Situational Influences on
Organization Design
 Core Technology
 Is the conversion processes used to transform inputs
into outputs.
 Is an organization’s most important technology.

 Joan Woodward
 Initially sought a correlation between organization size
and design; instead, she found a potential relationship
between technology and design:
 As the complexity of technology increases, so do the

number of levels of management.

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Situational Influences on
Organization Design (Woodward)
 Woodward’s Basic Forms of Technology
 Unit or small-batch technology
 Produces custom-made products to customer

specifications, or else produces in small quantities,


similar to Likert’s System 4 organization and organic
organizations.
 Large batch/mass production
 Uses assembly-line production methods to

manufacture large quantities of products; resembles


Likert’s System 1 and mechanistic organizations.
 Continuous process
 Uses continuous-flow processes to convert raw

materials by process or machine into finished


products; resembles Likert’s System 4 and organic
organizations. 9
Situational Influences on Organization
Design (Burns & Stalker)
 Burns and Stalker
 Forms of the organizational environment
 Stable environments that remain constant over time.

 Unstable environments subject to uncertainty and

rapid change.
 Organization Designs
 Mechanistic organizations that are similar to

bureaucratic or System 1 models and ; found most


frequently in stable environments.
 Organic organizations that are flexible and informal

models; usually found in unstable and unpredictable


environments.

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Situational Influences on Organization
Design (Lawrence & Lorsch)
 Lawrence and Lorsch
 Differentiation
 The extent to which the organization is broken
down into subunits.
 Integration
 The degree to which the various subunits must
work together in a coordinated fashion.

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Situational Influences on
Organization Design (cont’d)
 Organizational Size
 Defined as the total number of full-time or full-time
equivalent employees
 Research findings:
Small firms tend to focus on their core
technology.
 Large firms have more job specialization,

standard operating procedures, more rules and


regulations, and are more decentralized.
 Organizational Life Cycle
 A progression through which organizations evolve as
they grow and mature—birth, youth, midlife, maturity
and decline.

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The
Organizational Life Cycle

Birth Youth Maturity Declin


e

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Strategy and
Organization Design
 Structure follows strategy.
 Corporate-Level Strategy
 Single-product strategy
 Related or unrelated diversification
 Portfolio approach to managing strategic
business units

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Strategy and
Organization Design (cont’d)
 Business-Level Strategy
 Defender
 Prospecting
 Analyzer
 Generic Competitive Strategies
 Differentiation
 Cost leadership
 Focus

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Strategy and Organization Design
(cont’d)
 Organizational Functions
 Major functions of the organization influence
an organization’s design.

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Basic Forms of Organization
Design (Functional Design)
 Functional or U-form (Unitary) Design
 Organizational members and units are grouped
into functional departments such as marketing and
production.
 Coordination is required across all departments.
 Design approach resembles functional
departmentalization in its advantages and
disadvantages.

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Functional Design for a Small
Manufacturing Company

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Basic Forms of Organization
Design (Holding Design)
 Conglomerate or H-form (Holding) Design
 Organization consists of a set of unrelated
businesses with a general manager for each
business.
 Holding-company design is similar to product
departmentalization.
 Coordination is based on the allocation of
resources across companies in the portfolio.
 Design has produced only average to weak
financial performance; has been abandoned for
other approaches.

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Conglomerate (H-form) Design at
Samsung

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Basic Forms of Organization
Design (Divisional Design)
 Divisional or M-form (Multidivisional)
Design
 Multiple businesses in related areas operating
within a larger organizational framework.
 Results from a strategy of related diversification.
 Some activities are decentralized down to the
divisional level; others are centralized at the
corporate level.
 M-form design advantages are the opportunities for
coordination and sharing of resources.
 Successful M-form organizations can out perform
U-form and H-form organizations. 21
Multidivisional (M-form) Design
at Limited Brands

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Basic Forms of Organization
Design (Matrix Design)
 Matrix Design
 Two overlapping bases of departmentalization:
 A set of product groups or temporary departments are

superimposed across the functional departments.


 Employees in the matrix belong to their departments
and the project team:
 A multiple command structure in which an employee

reports to both departmental and project managers.


 A matrix design is useful when:
 There is strong environmental pressure.

 There are large amounts of information to be

processed.
 There is pressure for shared resources.

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Basic Forms of Organization
Design (Matrix Design)
 Matrix Design Advantages
 Enhances organizational flexibility.
 Creates high motivation and increased
organizational commitment for team members.
 Gives team members opportunity to learn new skills.
 Provides an efficient way for the organization to use
its human resources.
 Uses team members as bridges to their departments
for the team.
 Useful as a vehicle for decentralization.

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Basic Forms of Organization
Design (Matrix Design)
 Matrix Design Disadvantages
 Employees are uncertain about reporting
relationships.
 Managers may view design as an anarchy in
which they have unlimited freedom.
 The dynamics of group behavior may lead to
slower decision making, one-person domination,
compromise decisions, or a loss of focus.
 More time may be required for coordinating task-
related activities.

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A Matrix Organization

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Basic Forms of Organization
Design (Hybrid Designs)
 Hybrid Designs
 Based on two or more common forms of
organization design—may have a mixture of
related divisions and a single unrelated
division.
 Most organizations use a modified form of
organization design that permits them to have
sufficient flexibility to make adjustments for
strategic purposes.

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Emerging Issues in Organization
Design
 The Team Organization
 Relies almost exclusively on project-type teams,
with little or no underlying functional hierarchy.
 The Virtual Organization
 Has little or no format structure with few
permanent employees, leased facilities, and
outsourced basic support services.
 May conduct its business entirely on-line and
exists only to meet for a specific and present
need.

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Emerging Issues in Organization
Design
 The Learning Organization (Peter Senge)
 Works to facilitate the lifelong learning and
development of its employees while transforming
itself to respond to changing demands and needs.
 According to Peter Senge, the basic rationale for
such organizations is that in situations of rapid
change only those that are flexible, adaptive and
productive will excel.

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Issues in International
Organization Design
 The trend toward internationalization of
business
 How to design a firm to deal most effectively
with international forces and to compete in
global markets:
 Create an international division?
 Establish an international operating group?
 Make international operations an autonomous
subunit?

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Common Organization Designs for
International Organizations

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