Session 3:

Establishing the Structure

of Business
What does organizational design have to do with
business success?
Reading:
Karakowsky & Guriel, Chapter 4

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Learning Objectives
1. Identify four broad trends in the changing nature of
organizational design.
2. Discuss the relevance of metaphors used to describe
organizations.
3. Identify the elements of organizational structure.
4. Explain the concept of reengineering.
5. Describe the notion of the virtual organization.
6. Discuss the phenomenon of downsizing and its
rationale, methods, and objectives.

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 The Changing Nature of
Organizations
Traditional Modern
Bureaucracy Organizations
Tall/hierarchical Flat
Rigid, rule-oriented Fluid
Buffered from the Integrated
environment
Narrow market Global
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Modern Organizations
1. Flat
 increase decision-making speed.
 react faster to environmental changes.
 allow more responsibility to employees.
 provide lower-level employees more
decision-making power.

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Modern Organizations
2. Fluid
 adaptable to change.
 suitable in dynamic environments.
 a trait of organic structures.

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Modern Organizations
3. Integrated
 Cross-functional teams
 Self-managing teams
 Information sharing
 Alliances outside the organization

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Modern Organizations
4. Global
 Greater competition.
 Better access to new markets.
 Increased networking opportunities.

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 Types of organizations
 Public/governmental
 Private/nongovernmental
organization
 Private organization

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 What is an organization?
 Social
 Interactive with their environment
 Goal-oriented
 Structure-based

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 Organizations as systems
 Closed systems
 Open systems
Organizations as open systems:

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Four Elements of Organizational
Structure
 Work specialization
 Centralization
 Span of control
 Formalization

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 Work specialization
 Functional specialization
 Social specialization

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 Centralization
 Centralization
 Decentralization

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Span of control

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 Formalization
 Standardized work
 Rule-oriented

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Mechanistic vs. Organic

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 Think Pair Share:
What type of structure do you
think is suitable for Facebook?
 Refer to the article: Facebook, when your
friends are worth a billion! (page 36)

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 Think Pair Share:
Suggested Answer
Facebook: Organic
 Work specialization wide
 Centralization decentralized
 Span of control wide
 Formalization low

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 Contingency Theory
 Strategy
 Organizational Size
 Technology
 Environment

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 Reengineering
 The fundamental rethinking and
radical redesigning of business
processes to achieve dramatic
improvements in measures of
performance (cost, quality, service,
speed).

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 Virtual organization
 Outsourcing
 Networking
 Shedding Noncore Functions

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 Virtual organization
What are the benefits and risks?
Benefits:
1. Cost savings are significant.
2. Great alternative for entrepreneurs.
3. Fast way to develop and market new
products.
4. Fast and flexible.

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 Virtual organization
What are the benefits and risks?
Risks:
1. Losing control.
2. Lack of employee loyalty.
3. Potential sacrifice of competitive learning
opportunities.

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 Downsizing
 the planned reduction in the breadth of an
organization’s operations.

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 Methods of Downsizing
1. Across the board cutbacks.
2. Early retirement and voluntary severance.
3. Delayering by cutting a level or levels of
the organization.
4. Contracting out work.
5. Dropping product lines.

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 Potential Risks of Downsizing
 Efficient departments are hurt.
 Loss of corporate memory.
 Not guided by strategic plan.
 Loss of control over outsourced work.
 Pain is not shared.

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 Why Downsizing Can Fail?
 Lack of strategic planning.
 Lack of involvement of employees.
 Removal of corporate memory.

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Why do managers then downsize?
 Constraining forces
 Cloning forces
 Learning forces

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 Think Pair Share:
 Refer to this online article on Mattel and the
drop in sales of Barbie dolls. Do you think
Mattel should downsize its operations, why
or why not?
 http://online.wsj.com/news/articles/SB1000142405270
2303973704579354322827442090

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 Concept Application:
Pixar: No Mickey Mouse Organization!
Questions:

1. Do you think that Pixar most closely resembles an

organic or a mechanistic structure? Why?

2. Describe the nature of Pixar’s “contingencies” and

explain how they influence the
suitability of Pixar’s structure.

3. How could Pixar be redesigned as a virtual organization?

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Questions and Answers?

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