Session 8 Organization Design Options (Handout)

8/19/2019 Session 8 Organization Design Options (Handout)

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Organizational Design Options

Session 8


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The Case for Standard Configuration

• Existence of set of limited set of configuration that are:- significantly alie !ithin their category

- meaningfully different from organizations in othercategories

• E"ery configuration !ould contain:

- a complex clustering of elements that are internallycohesi"e

- !here presence of some elements suggest relia#leoccurrence of others

• The a#o"e #elief is "alid #ased on :

$% &atural selection phenomenon

'% The search for an organizations for internal consistency

(% The propensity for organization to follo! !hat)s infashion


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The Case for Standard Configuration$% &atural Selection *henomena: En"ironment may encourage only fe! organizational forms to sur"i"e

in the same setting To #e cost efficient and competiti"e an organization needs to adopt

structural properties similar to those of other organizations in thesame industry or maret niches+ or that are follo!ing similar strengths

'% ,nternal consistency: Organizations may #e dri"en to!ards a gi"en configuration to

achie"e consistency in their internal characteristics to fit !ith theirsituation

Extensi"e use of di"ision of la#or+ standardization+ and employmentof unsilled la#or to do repetiti"e tas tends to #e associated to!ards

!ith high formalization ,nternal inconsistencies !ill lead to reduction in performance O"ertime organizations de"elop set of structural characteristics that

fit !ell together


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The Case for Standard Configuration

(% Organization to follo! !hat)s in fashion

The influence of other organizational decision

maer

Decision maers lie to thin they are current

and progressi"e ,f current fashion fa"ors adapti"e+ decentralized

organizations+ there !ill #e pressure on the

organization to loo alie

Such imitations also con"eys to strategic

constituencies that management is up to date on

current management practice


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Common Elements in Organizations

• intz#erg argues there are fi"e #asic parts of anorganizations

$% Operating core: employees !ho perform the #asic !orrelated to the production of products and ser"ices

'% The strategic apex: Top le"el managers+ !ho are charged

!ith the o"erall responsi#ility to the organization(% The middle line: anagers !ho connect the operating

core to the strategic apex

.% The technostructure: analyst !ho ha"e the responsi#ility

for affecting certain forms of standardization in theorganization

/% The Support Staff: people !ho fills the staff units !ho pro"ide the direct support ser"ices for the organization


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Common Elements in Organizations 0ny one of fi"e parts can dominate an organization

Depending on !hich part is in control + a gi"enconfiguration is liely to #e used There are fi"e distinct design configuration and each

one is associated !ith domination #y one of the fi"e parts

$% *rofessional 1ureaucracy: control is !ith the operatingcore+ decisions are decentralized

'% Simple structure: Control is !ith strategic apex anddecisions are centralized

(% Di"isional structure: the control is !ith the middle line+

groups of operating autonomous units.% achine 1ureaucracy: control is !ith technostructure+standardization !ill result

/% 0dhocracy : !hen support staff is dominant control !ill #e through mutual ad2ustments


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The Simple Structure The simple structure is not ela#orated

3o! in complexity

3ittle formalization

0uthority centralized in a single person4lat organization

0n organic operating core

0lmost e"ery one reporting to a one personstrategic apex


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The Simple Structure• Strengths: ,t is simple

4ast and flexi#le 5e6uires little cost to maintain &o layers of cum#ersome structure accounta#ility is clear

3ittle amount of goal am#iguity+ #ecause mem#ers are a#le to identify!ith the mission of the organization 4airly easy to see ho! one)s actions contri#ute to organization)s

goals

• Weaknesses:

*redominant !eaness lies in its limited applica#ility 7hen confronted !ith large size+ this structure generally pro"es

inade6uate Concentrate po!er in one person Can easily succum# to the a#use of authority #y the person in po!er

5isiest of structure hinging on the health and !hims of indi"idual


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The Simple Structure• 7hen to se

,f the organization is small and in formati"e years ofde"elopment

- Small size means less repetiti"e !or in the operating core

- Standardization #ecomes less attracti"e

- ,nformal communication is con"enient

- as long as the organization remains small+ one person sho! caneffecti"ely o"ersee all acti"ities+ no!ledgea#le a#out ey

pro#lems+ and carry out all acti"ities ,f the en"ironment is simple and dynamic

- Simple and dynamic en"ironment tends to #e associated !ithsimple structure)s flat organization !ith centralized decisionmaing and organic operating core

- 0 simple en"ironment is comprehended easily #y a singleindi"idual+ and therefore allo!s the indi"idual to control thedecision maing effecti"ely


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The Simple Structure ,f the organization faces hostility or crisis

- 5egardless of size+ !hen sur"i"al is threatened+ top management!ants control

- Since hostility disrupts the standard operating procedures+ theSO*s are liely to #e suspended

,f senior executi"e !ants to hoard po!er or po!er is thrusted upon

him #y his su#ordinates- 0ccording to po!er-control perspecti"e it could #e predicted thatsenior decision maer !ould ha"e strong preference for simplestructure

- 7hile large size typically excludes the possi#ility of permanent

simple structure this configuration should #e used #y medium andsmall size organization

- 5egardless of size+ !hen senior executi"e hoards po!er+ purposely a"oids formalization so as to maximize the impact of hisdiscretion+ that executi"e has designed a simple structure

- *o!er and simple structure are again correlated !henorganizational mem#ers defer po!er to the chief executi"e


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The achine 1ureaucracy• Standardization is the ey concept that underlies all machine

#ureaucracies

• 9a"e highly routine operating tass

• ery formalized rules and and regulations

• Tass are grouped into functional structure

• Centralized authority

• Decision maing follo!s a chain of command• Ela#orate administrati"e structures !ith a sharp distinction #et!een

line and staff acti"ities

• 5ules and regulations permeate the entire structure

• The ey part of this structure is technostructure

• Staff analyst do the standardization

• 0cti"ities such as mareting+ research and de"elopment+manufacturing is grouped under functional executi"es

• These executi"es o"ersee their occupational specialists #ut are in turn

responsi#le to a central head6uarters that act as an o"erall coordinator


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The achine 1ureaucracy• Strengths: *erform standardized acti"ities in a highly

efficient manner

*utting lie executi"es together results in economies ofscale

inimization of duplication of personnel and e6uipment Comforta#le and satisfied employees !ho ha"e the

opportunity to tal the same language + among their peers Can get #y nicely !ith less talented and less costly middleand lo!er le"el managers

The per"asi"eness of rules and regulations su#stitute formanagerial discretion+ standardized operations coupled

!ith high formalization+ allo! decision maing to #ecentralized There is little need for inno"ate and experienced decision

maing #elo! the le"el of senior executi"es


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The achine 1ureaucracy• Specialization creates su#unit conflicts

4unctional unit goals o"erride goals of theorganization

O#sessi"e concern !ith follo!ing rules

7hen cases arise that normally don)t fit the rules+there is no room for modification

The machine #ureaucracy is efficient only as long

as employees confront pro#lems that ha"e #een

pre"iously encountered and for !hich programmed decisions rules ha"e already #een

esta#lished


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The achine 1ureaucracy

• 7hen to use it

ost efficient !hen matched !ith large size+ a

sta#le en"ironment+ and a technology that contains

routine !or that can #e standardized

achine #ureaucracy are found in:- ass production firms

- ser"ice organizations !ith repetiti"e acti"ities

- go"ernment agencies !ith routine !or - organizations that ha"e special safety needs


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The achine 1ureaucracy• ;ey Characteristics:

$% *rime Coordination echanism: Standardizationof !or processes

'% ;ey *arts of Organization: Technostructure

(% ain Design *arameters:

1eha"ior formalization+ "ertical and horizontal 2o# specialization+ functional grouping+ largeoperating unit size+ "ertical centralization+limited horizontal decentralization+ action

planning

.% Contingency factors: large+ regulating+ non-automated technical system+ sta#le en"ironment+external control


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The *rofessional 1ureaucracy 0re created to allo! organizations to allo! highly trained

specialists for operating core+ !hile still achie"ing the efficienciesfrom standardization

Examples+ engineering firms+ hospitals+ uni"ersities+ pu#licaccounting firms+ la! offices

Organization design relies on social specialization+ rather thanfunctional specialization

Specialization is #ased on the possession of indi"idual sills ratherthan di"ision of la#or

The po!er in this design rests !ith the operating core Operating core has autonomy pro"ided through decentralization to

apply their expertise The only other part of professional #ureaucracy that is fully

integrated is the support staff Support staff exists to ser"e the operating core The support staff !ill ha"e decentralized authority+ and their

formalization !ill #e externally imposed


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The *rofessional 1ureaucracy• Strengths: ,t can perform specialized tass+ !ith the same relati"e

efficiency as the machine #ureaucracy !ould ,n po!er-control perspecti"e top management has to gi"e up a

considera#le degree of control

- the professionals need autonomy to do their 2o#

• Weaknesses: Tendency for su#unit conflicts de"elop

- arious professional functions see to pursue their o!n narro!o#2ecti"es

- su#limating the interests of other functions and organization as

a !hole The specialists are compulsi"e in follo!ing the rules

- rules are the maing of professionals themsel"es

- standards of professional conduct and codes of ethical practicesha"e #een socialized into employees during training themsel"es


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The *rofessional 1ureaucracy• 7hen to use it:

3arge size+ a complex and sta#le en"ironment+ aroutine technology internalized through professionalizationOperating core !ill #e dominated #y silled

professionals+ !ho ha"e internalized difficult


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The *rofessional 1ureaucracy• ;ey characteristics:

$% *rime coordinating echanism: Standardization

of sills

'% ;ey parts of the organization: Operating core

(% ain Design *arameters: Training+ horizontal 2o# specialization+ "ertical and horizontal

decentralization

.% Contingency 4actors: Complex+ sta#leen"ironment+ non regulating+ non sophisticated

technical system


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The Di"isional Structure The po!er in the di"isional structure lies !ith middle

management Di"isional structure is usually a set of autonomous units+

each typically a machine #ureaucracy unto itself+coordinated #y a central head6uarters

Since di"isions are autonomous+ it allo!s middlemanagement < di"isional managers < a great deal ofcontrol

Each di"ision is:

- generally autonomous

di"isional managers responsi#le for performance

- holding complete strategic and operating decision maingauthority

- has a central head6uarters that pro"ides support ser"icesto the di"ision


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The Di"isional StructureThe head6uarters ser"e as external o"erseer+

e"aluating and controlling performance

Di"isions represents a set of little

companies that are designed as machine

#ureaucraciesThe di"isions tend to #e organized into

functional groups+ !ith high di"ision of

la#or+ high formalization+ and centralizedauthority


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The Di"isional StructureStrengths:

$% O"ercome su#unit= functional mentality found in machine #ureaucracy #y placing full responsi#ility for product orser"ice in the hands of di"isional manager

'% ,t frees head6uarter staff from #eing concerned !ith theday-to-day operating details+ so that they can payattention to long-term strategic focus

(% 0utonomy and self containing characteristics of thedi"isional structure mae it an excellent "ehicle fortraining and de"eloping general managers

.% 0utonomous units can #e lopped off !ith minimal effecton entire organization

- ineffecti"e performance in one unit has little effect onthe other di"isions

/% 1enefit of large size that allo! the economies of scale in planning+ ac6uisition of capital and spreading of ris


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The Di"isional Structure• 7eanesses:

$% Duplication of functional acti"ities increases

organization)s costs and reduces efficiencies'% 3ac of cooperation among di"isions

(% Conflicts are created as di"isions and head6uarters arguea#out !here to locate support ser"ices

.% The more the di"isions succeed in ha"ing these ser"ices

decentralized to their le"el+ the less dependent they areon head6uarters resulting in less po!er of head6uarter

personnel o"er them

/% &on transfera#ility of personnel from one di"ision toanother !ith di"erse product line

>% Competition among di"isions !ith similar= su#stituta#le product lines

?% The &D9 < not de"eloped here syndrome: 0ninno"ation de"eloped #y one di"ision fails= resisted to #eadopted #y other di"isions


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The Di"isional Structure• 7hen to use:

$% 7hen an organization chooses multi product or multi maret

strategy'% 0s size increases+ it #ecomes more difficult coordinate functional

units and to eep mem#ers attention focused on theorganizational goals

(% The organization technology must #e di"isi#le

- di"isionlization is possi#le only !hen the organization)stechnical system can #e efficiently separated into segments+ onefor each di"ision

.% 7ors #est !hen the en"ironment is neither "ery complex nor"ery dynamic

9igh complex and dynamic en"ironment are associated !ith nonstandardized processes and outputs

Di"isional form is lot lie machine #ureaucracy in its emphasison standardization%

Di"isional form tend to ha"e an en"ironment that is more simplethan complex+ and more sta#le than dynamic


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The Di"isional Structure• ;ey Characteristics:

$% *rime coordination mechanism:standardization of output

'% ;ey part of the organization : middle line

(% ain parameters: maret grouping+ performance control system+ limited"ertical decentralization

.% Contingency factors: di"ersified productsor ser"ice+ large size+ di"isional technicalsystem+ moderate complex and dynamicen"ironment


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The adhocracy• Characterized #y:

$% 9igh horizontal differentiation+ Staffed predominantly #y professionals !ith le"el

of expertise

'% 3o! "ertical differentiation any le"els of administrators !ould restrict

organizations a#ility to adopt &eed for super"ision is less #ecause professionals

ha"e internalized the internalized the #eha"iormanagement !ants

(% 3o! formalization *rofessionalism and formalization are in"ersely

related 4e! rules and regulations


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The adhocracy Those that exist tends to #e loose un!ritten The o#2ecti"e of flexi#ility re6uires a#sence of

formalization

.% Decentralization &ecessary for speed and flexi#ility

Senior management cannot expected to possessthe expertise to mae all the decisions Depends on decentralized teams of professionals

to mae decisions

/% 9igh flexi#ility and responsi"eness


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The adhocracy• Comparison #et!een professional

#ureaucracy and adhocracy regardingformalization

,n professional #ureaucracy+ !hen faced!ith a pro#lem+ immediately classifies into

some standardized program so that the professional can treat it in some uniformmanner

,n adhocracy+ a no"el solution is needed sothat standardization and formalization areinappropriate


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The adhocracy• Design of 0dhocracy: The a#sence of standardization or formalization results in

a#sence of techno structure 0s the middle managers+ the support staff+ and operati"es are

professionals+ the traditional distinction #et!een super"isor andemployee+ line and staff are #lurred

The result is a central pool of expert talent that can #e dra!nfrom to inno"ate+ sol"e uni6ue pro#lems+ and perform flexi#leacti"ities

*o!er flo!s to e"ery one !ith expertise+ regardless of position 0dhocracies are #est conceptualized as groups of terms

- specialists are grouped into flexi#le teams that ha"e fe! rules+regulations+ or standardized routines

- Coordination #et!een teams is through mutual ad2ustments!ithin the team mem#ers

9orizontally differentiated departments are used for clarity+

department mem#ers are deployed into small teams !hich cutacross functional departments to do their tass


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The adhocracy• Strengths:

7hen it is important that organization isadapta#le and creati"e

7hen indi"idual specialists from di"erse

disciplines are re6uired to colla#orate toachie"e a common goal

7hen tass are technical+ non-programmed

and too complex for any one person tohandle


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The adhocracy• 7eanesses :

lacs the ad"antages of standardized !or - Conflict is natural part of adhocracies

- &o clear #oss-su#ordinate relationships

- 0m#iguities o"er authorities and responsi#ilities

- 0cti"ities cannot #e compartmentalized Can create social and psychological stress

- &ot easy to cope up and dismantle !or relationship on acontinuing #asis

- Some employees find difficult to cope up !ith rapid

change+ li"ing in temporary !or systems+ and ha"ing toshare responsi#ilities !ith other team mem#ers ,n contrast to #ureaucracy+ adhocracy is clearly an

inefficient system


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The adhocracy• 7hen to use it: The adhocracy is related !ith the strategies of di"ersity+ change+ and high ris+

- such strategies re6uire flexi#ility The technology !ill #e non-routine

- to respond changing strategies

- relying on expertise of professionals to pro"ide high response

- technology !ill #e complex in that it !ill dra! on talent of di"erse specialists

- this in turn re6uires coordination and integration of di"erse sills

The en"ironment is dynamic and complex- inno"ati"e !or is unpredicta#le is lined !ith dynamic en"ironment

- inno"ati"e !or is sophisticated lins !ith complex en"ironment < one !hich isdifficult to interpret and comprehend

,s preferred in the early years of an organization life cycle

- This is the time !hen organization needs greatest flexi#ility in determining marets anddetermining ho! it is going to achie"e its goals

- ,nno"ation is high in an organization)s formati"e years as it struggles to sur"i"es anagement)s propensity to follo! fashion

- it fits !ell !ith the notion that en"ironments are #ecoming dynamic and complex

- organizations are increasingly #eing staffed #y technical experts and professionals


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The adhocracy• Characteristics:

$% *rime coordinating echanism: utual0d2ustment

'% ;ey parts of an organization: support stafftogether !ith operating staff

(% ain design parameters: liaison de"ices+ organicstructure+ decentralization+ horizontal 2o#specialization+ training+ functional and maretgrouping concurrently

.% Contingency factors: complex and dynamicstructure+ sophisticated technical system+fashiona#le

The Configuration 0s 0 Set Of 1asic *ulls On


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The Configuration 0s 0 Set Of 1asic *ulls On

The Organization

$% The pull is exercised #y the strategic apex to centralize+ to control

#y direct super"ision+ to structure the organization as Simplestructure

'% The pull exercised #y the technostructure+ to coordinate #ystandardization < nota#ly !or process+ the tightest ind < in orderto increase its influence so as to structure the organization as aachine #ureaucracy

(% The pull exercised #y the operators to professionalize+ to coordinate #y the standardization of sills in order to maximize their autonomy+ so to structure the organization as a *rofessional #ureaucracy

.% The pull exercised #y the managers to 1alanize+ to #e gi"enauthority to manage their o!n units+ !ith coordination restricted tothe standardization of outputs to structure the organization as aDi"isionalized form

/% The pull exercised #y support staff as !ell as operators forcolla#oration and inno"ation in decision maing+ to coordinate #ymutual ad2ustments+ to structure the organization as an 0dhocracy


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Summary of 4i"e ConfigurationsCharacteristics Simple

Structureachine1ureaucracy

*rofessional1ureaucracy

Di"isionalStructure

0dhocracy

Specialization

4ormalization

3o!

3o!

9igh@4unctionalA

9igh

9igh@SocialA

3o!

9igh@functionalA

9igh !ithindi"ision

9igh@SocialA

3o!

Centralization 9igh 9igh 3o! 3imited

decentralization

3o!

En"ironment Simple andDynamic

Simple toComplex+Sta#le

Complexand sta#le

oderate Complexanddynamic

BeneralStructuralClassification

Organic echanistic echanistic echanistic Organic

Documents

Session 8 Organization Design Options (Handout)