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Chapter Twelve
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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
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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
rapid change.
Organization Designs
Mechanistic organizations that are similar to
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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,
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The
Organizational Life Cycle
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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
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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