Presentation on theme: "Designing Adaptive Organizations"— Presentation transcript:

1 Designing Adaptive Organizations

Chapter 10Designing Adaptive Organizations

2 The deployment of organizational resources to achieve strategic goals

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 ORGANIZING THE

VERTICAL STRUCTURE Exhibit 10.1Organizing is the deployment of organizational

resources to achieve strategic goals It is important because it follows from strategy. Strategy

defines what to do, and organizing defines how to do it. The organizing process leads to the

creation of organization structure, which defines how tasks are divided, resources are deployed,

and departments are coordinated.Copyright ©2012 by South-Western, a division of Cengage

Learning. All rights reserved.

3 Organizing the Vertical Structure

Organizing Structure Defines:The set of formal tasks assigned to individuals and

departmentsFormal reporting relationshipsThe design of the systems to ensure effective

coordinationOrganization structure refers to:Formal tasks assigned to individuals and

departments;Formal reporting relationships including lines of authority, decision responsibility,

number of hierarchical levels and span of managers' control; andDesign of systems for

coordination across departments.Copyright ©2012 by South-Western, a division of Cengage

Learning.
4 Organizing ConceptsWork Specialization is the degree to which organizational tasks are

subdivided into individual jobs; also called division of laborChain of Command is an unbroken

line of authority that links all individuals in the organization and specifies who reports to

whomThe organization chart is the visual representation of an organization's structure that

portrays the characteristics of vertical structure. It delineates the chain of command, indicates

departmental tasks and how they fit together, and provides order and logic for the

organization.There are several important features of the vertical structureWork SpecializationA

fundamental principle is that work can be performed more efficiently if employees are allowed to

specialize. Work specialization, sometimes called division of labor, is the degree to which

organizational tasks are subdivided into separate jobs. Production is efficient because employees

perform small, well-defined tasks.Organizations are moving away from this principle because

too much specialization leads to employees being isolated and doing only a single boring job.

Many companies are enlarging jobs to provide greater challenges or assigning teams to tasks so

employees can rotate among the jobs performed by the team.Chain of CommandThe chain of

command is an unbroken line of authority that links all persons in an organization and shows

who reports to whom. It is associated with two underlying principles. Unity of command means

that each employee is held accountable to only one supervisor. The scalar principle refers to a

clearly defined line of authority in the organization that includes all employees.

5 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 outcomesAuthority is vested in organizational

positions, not peopleAuthority flows down the vertical hierarchyAuthority is accepted by

subordinatesResponsibilityAccountability is the mechanism through which authority and

responsibility are aligned; Sarbanes-Oxley ActDelegation is the process managers use to transfer

authority and responsibility down the chainAuthority, Responsibility, and DelegationThe chain

of command illustrates the authority structure of the organization. Authority is the formal and

legitimate right of a manager to make decisions, issue orders, and allocate resources to achieve

organizational outcomes. Authority is distinguished by three characteristics.Authority is vested

in organizational positions, not people.Authority flows down the vertical hierarchy. Positions at

the top have more formal authority than those at the bottom.Authority is accepted by

subordinates. The acceptance theory of authority argues that a manager has authority only if

subordinates choose to accept the commands.Responsibility is the duty to perform the task or

activity an employee has been assigned. Managers are assigned the authority commensurate with

responsibility.Accountability is the mechanism through which authority and responsibility are

brought into alignment. Those with authority and responsibility are subject to justifying task

outcomes to those above them in the chain of command.Delegation is another concept related to

authority; it is the process managers use to transfer authority and responsibility to positions

below them in the hierarchy. Organizations encourage managers to delegate authority to the

lowest possible level to gain flexibility to meet customer needs and adapt to the

environment.Discussion Question #1: Sandra Holt, manager of Electronics Assembly, asked

Hector Cruz, her senior technician, to handle things in the department while Sandra worked on

the budget. She needed peace and quiet for at least a week to complete her figures. After ten

days, Sandra discovered that Hector had hired a senior secretary, not realizing that Sandra had

promised interviews to two other people. Evaluate Sandra’s approach to delegation.

6 10.1 Sample Organization Chart

7 Line and Staff Authority

Line departments perform primary business tasksSalesProductionStaff departments support line

departmentsHuman ResourcesAccountingResearchLine and Staff AuthorityLine departments

perform tasks that reflect the organization's primary goal and mission. In a software company,

line departments make and sell the product. Line authority means that managers have formal

authority to direct and control immediate subordinates.Staff departments include all those who

provide specialized skills in support of line departments. The finance department of software

firm has staff authority. Staff authority is narrower than line authority and includes the right to

advise, recommend, and counsel in the staff specialists' area of expertise.

8 The number of employees reporting to a supervisor

Span of ManagementThe number of employees reporting to a supervisorTall Organizations have

more levels and narrow spanFlat Organizations have a wide span and fewer levelsSpan of

Management Exhibit 10.2The span of management, or span of control, is the number of

employees reporting to a supervisor. This characteristic of structure determines how closely a

supervisor can monitor subordinates.

9 Less Supervision/Larger Spans of Control

Work is stable and routineSubordinates perform similar workSubordinates are in one

locationHighly trained/require little directionRules and procedures are definedFew planning or

nonsupervisory activitiesManager’s preferenceFactors that determine the span of management

include:Work performed by subordinates is stable and routine; Subordinates perform similar

work tasks; Subordinates are concentrated in a single location; Subordinates are trained and need

little direction in performing tasks; Rules and procedures defining task activities are

available; Support systems and personnel are available for the manager; Little time is required in
nonsupervisory activities such as coordination with other departments or planning; Managers'

personal preferences favor a large span.

10 10.2 Reorganization and Span of Management

The average span of control used in an organization determines whether the structure is tall or

flat.A tall structure has an overall narrow span of management and more levels in the

hierarchy.A flat structure has a wide span, is horizontally dispersed, and has fewer hierarchical

levels.The trend is toward wider spans of control as a way to facilitate delegation.

11 Centralization and Decentralization

Centralization – decision authority is located near the top of the organizationDecentralization –

decision authority is pushed downward to all levelsFactors that influence centralization versus

decentralization: decentralizationChange and uncertainty Strategic fit centralizationCrisis,

Failure Risk Centralization and DecentralizationCentralization and decentralization pertain to the

hierarchical level at which decisions are made.Centralization means decision authority is located

near the top of the organization.With decentralization, decision authority is pushed down the

chain of command to lower organization levels. The trend is toward decentralization, which uses

workers' skills, relieves top managers, has well-informed people make decisions, and permit

rapid response. Factors that influence centralization versus decentralization include:Greater

change and uncertainty in the environment are usually associated with decentralization. The

amount of centralization or decentralization should fit the firm’s strategy. In times of crisis or

risk of company failure, authority may be centralized at the top.Discussion Question #8: Experts

say that organizations are becoming increasingly decentralized, with authority, decision-making

responsibility, and accountability being pushed farther down into the organization. How will this

trend affect what will be asked of you as a new manager?

12 Departmentalization: Functional

Vertical Functional ApproachGrouping of positions into departments based on skills, expertise,

work activities, and resource useDEPARTMENTALIZATION Exhibit 10.3Departmentalization

is the basis for grouping individuals into departments and departments into the total organization.

Managers make choices about how to use the chain of command to group people together to

perform their work. Five approaches to structural design reflect different uses of the chain of

command in departmentalization.Vertical Functional Approach Exhibit 10.4What It IsFunctional

structure is the grouping of positions into departments based on similar skills, expertise, and

resource use. People, facilities, and other resources representing a common organizational

resource are grouped together into a single department.How It WorksThe major departments

under the president are groupings of similar expertise and resources, such as accounting, human

resources, production and marketing. Each of the functional departments is concerned with the

organization as a whole. The functional structure is a strong vertical design. Information flows

up and down the vertical hierarchy, and the chain of command converges at the top.People in a

department communicate primarily with others in the same department to coordinate work and

accomplish tasks or implement decisions. Managers and employees are compatible because of

similar training and expertise.Discussion Question #3: An organizational consultant was heard to

say, “Some aspect of functional structure appears in every organization.” Do you agree?

Explain.Divisional ApproachThe divisional structure occurs when departments are grouped

together based on organizational outputs. Diverse departments are brought together to produce a

single organizational output. The divisional structure is sometimes called a product structure,

program structure, or self-contained unit structure. Most large corporations have separate

divisions that perform different tasks, use different technologies or serve different
customers.Divisions are created as self-contained units with separate functional departments for

each division. For example, separate engineering departments are created within each division,

and each department is similar and focuses on a single product. The primary difference between

divisional and functional structures is that the chain of command from each function converges

lower in the hierarchy. Differences of opinion would be resolved at the divisional level rather

than by the president.Discussion Question #4: The divisional structure is often considered almost

the opposite of a functional structure. Do you agree? Briefly explain the major differences in

these two approaches to departmentalization.

13 Departmentalization: Functional (continued)

Advantages:Efficient use of resourcesEconomies of scaleIn-depth skill specialization and

developmentTop manager direction & controlDisadvantages:Poor communication across

functional departmentsSlow response to external changesLagging innovationDecisions

concentrated at top of hierarchy, creating delay

14 Departmentalization - Divisional

Divisional Structure - Grouping based on organizational outputProduct, Program, or SBU-Based

DivisionsGeographic or Customer-Based Divisions

15 Departmentalization: Divisional (continued)

Advantages:Fast response, flexibility in unstable environmentFosters concern for customer

needsExcellent coordination across functional departmentsDisadvantages:Duplication of

resources across divisionsLess technical depth and specializationPoor coordination across

divisions

16 10.4 Functional Versus Divisional Structures

17 10.5 Geographic-Based Global Org. Structure

Geographic or Customer-Based Divisions - group activities by geography or

customerGeographic- or Customer-Based Divisions Exhibit 10.5Grouping company activities by

geographic region is an alternative for assigning divisional responsibility. In this structure, all

functions in a specific country or region report to the same division manager. The structure

focuses company activities on local market conditions; competitive advantage comes from the

selling a product adapted to a given country.

18 Departmentalization: Matrix Approach

Combines functional and divisional approachesAdvantages: Improve coordination and

information:More efficient use of resources than single hierarchyFlexibility, adaptability to

changing environmentInterdisciplinary cooperation, expertise available to all

divisionsDisadvantages: Dual lines of authority (Two-boss employee)Frustration &

confusionHigh conflict b/w two sides of the matrixMany meetings, more discussion than

actionMatrix Approach Exhibit 10.6, Exhibit 10.7What It IsThe matrix approach combines

aspects of both functional and divisional structures simultaneously in the same part of the

organization. The matrix has dual lines of authority. The functional hierarchy of authority runs

vertically, providing traditional control within functional departments. The divisional hierarchy

runs horizontally, providing coordination across departments. The matrix structure provides a

formal chain of command for both the functional (vertical) and divisional (horizontal)

relationships.How It WorksThe dual lines of authority make the matrix structure unique. The

success of the matrix structure depends on the abilities of people in key matrix roles.Two-boss

employees report to two supervisors simultaneously and must resolve conflicting demands from

the matrix bosses.The matrix boss is the product or functional boss who is responsible for one
side of the matrix.The top leader oversees both the product and functional chains of command

and is responsible for the entire matrix.Discussion Question #5: Some people argue that the

matrix structure should be adopted only as a last resort because the dual chains of command can

create more problems than they solve. Discuss. Do you agree or disagree? Why?

19 10.6 Dual-Authority in a Matrix Organization

20 10.7 Global Matrix Structure

Explain the matrix approach to structure and its application to both domestic and international

organizations.The matrix structure uses functional and divisional chains of command

simultaneously in the same part of the organization. The matrix structure has dual lines of

authority. The functional hierarchy of authority runs vertically, and the divisional hierarchy of

authority runs laterally. The matrix approach to structure provides a formal chain of command

for both the functional and divisional relationships. The matrix structure is typically used when

the organization experiences environmental pressure for both a strong functional

departmentalization and a divisional departmentalization. Global corporations often use the

matrix structure. The problem for global companies is to achieve simultaneous coordination of

various products within each country or region and for each product line. The two lines of

authority typically are geographic and product, and the matrix provides excellent simultaneous

coordination. It is an organizational structure that deliberately violates Fayol’s principle of unity

of command.

21 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)Better morale, enthusiasm from employee

involvementAllows managers to delegate authority Disadvantages:Dual loyalties and

conflictTime and resources spent on meetings;Unplanned decentralizationTeam ApproachWhat

It IsThe team approach is probably the most widespread trend in departmentalization. The

vertical chain of command is a powerful means of control, but passing all decisions up the

hierarchy takes too long and keeps responsibility at the top. Managers can delegate authority,

push responsibility to lower levels, and be more flexible and responsive in the competitive global

environment.How It WorksCross-functional teams consist of employees from various functional

departments, responsible to meet as a team and resolve mutual problems. Team members report

to their functional departments, but also to the team. These teams provide needed horizontal

coordination to complement existing functional or divisional structures.Permanent teams are

groups of employees brought together in a way similar to a formal department. Emphasis is on

horizontal communication and information sharing because representatives from all functions

coordinate to complete a specific task. Authority is pushed down to lower levels, and front-line

employees are given the freedom to make decisions and take action on their own.With a team-

based structure, the entire organization is made up of horizontal teams that coordinate activities

and work with customers to accomplish the organization’s goals.Discussion Question #2: Most

organizations have been making greater use of teams in recent years. What factors might account

for this trend?

22 Departmentalization: Virtual Network Approach

Extends idea of horizontal coordination and collaborationPartnershipsAlliancesCould be a loose

interconnected groupi.e. outsourcingVirtual network structure means that the firm subcontracts
most of its major functions to separate companiesThe Virtual Network ApproachWhat It IsThe

most recent approach to departmentalization extends the idea of horizontal coordination beyond

the boundaries of the organization. Outsourcing, which means farming out certain activities, has

become a significant trend. Partnerships, and alliances and other collaborative forms are now a

leading approach to accomplishing strategic goals.Some organizations take this networking

approach to the extreme to create a new kind of structure. The virtual network structure

disaggregates major functions to separate companies that are brokered by a small headquarters

organization.How It Works Exhibit 10.8The organization may be viewed as a central hub

surrounded by a network of outsider specialists. Services such as accounting are outsourced to

separate organizations that are connected electronically to the central office. Networked

computer systems, collaborative software, and the Internet enable organizations to exchange data

and information rapidly and seamlessly. Networks allow a company to concentrate on what it

does best and contract out other activities to companies with distinctive competence in those

areas.In similar networking approach called the modular approach, a manufacturing firm uses

outside suppliers to provide large chunks of a product, which are then assembled into a final

product by a few workers.Describe the contemporary team and virtual network structures and

why they are being adopted by organizations.The implementation of team concepts has been a

widespread trend in departmentalization. The vertical chain of command is a powerful means of

control, but moving decisions through the hierarchy takes much time and keeps responsibility at

the top. The trend is to delegate authority, push responsibility to the lowest possible levels, and

create participative teams that engage the commitment of workers. This approach enables

organizations to be more flexible and responsive in a competitive global environment. The

dynamic network organization is another approach to departmentalization. Using the network

structure, the organization divides major functions into separate companies that are brokered by a

small headquarters organization. The network approach is revolutionary because it is difficult to

answer the question, “Where is the organization?” This organizational approach is especially

powerful for international operations.Discussion Question #6: What is the virtual network

approach to structure? Is the use of authority and responsibility different compared with other

forms of departmentalization? Explain.

23 10.8 Network Approach to Departmentalization

24 Departmentalization: Virtual Network

Advantages:Can draw on expertise worldwideHighly flexible and responsiveReduced overhead

costsDisadvantages:Lack of controlWeak boundariesGreater demands on managersWeaker

employee loyaltyTeam ApproachWhat It IsThe team approach is probably the most widespread

trend in departmentalization. The vertical chain of command is a powerful means of control, but

passing all decisions up the hierarchy takes too long and keeps responsibility at the top.

Managers can delegate authority, push responsibility to lower levels, and be more flexible and

responsive in the competitive global environment.How It WorksCross-functional teams consist

of employees from various functional departments, responsible to meet as a team and resolve

mutual problems. Team members report to their functional departments, but also to the team.

These teams provide needed horizontal coordination to complement existing functional or

divisional structures.Permanent teams are groups of employees brought together in a way similar

to a formal department. Emphasis is on horizontal communication and information sharing

because representatives from all functions coordinate to complete a specific task. Authority is

pushed down to lower levels, and front-line employees are given the freedom to make decisions

and take action on their own.With a team-based structure, the entire organization is made up of
horizontal teams that coordinate activities and work with customers to accomplish the

organization’s goals.Discussion Question #2: Most organizations have been making greater use

of teams in recent years. What factors might account for this trend?

25 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 costSupply chainQualityEthicsKathie Lee Gifford (1996)Barbie Doll –

Mattel – Lead Paint (2007)Lead Paint Prompts Mattel to Recall 967,000 Toys

26 10.9 Structural Advantages and Disadvantages

Advantages and Disadvantages of Each Structure Exhibit 10.9Functional ApproachGrouping

employees by common task permits efficient resource use and economies of scale. Departments

enhance in-depth skill specialization and development, and centralized decision making at the

top provides unified direction.Disadvantages include barriers that exist across departments

resulting in poor communication and coordination and slow response to changes. Innovation and

change require involvement of several departments, and decisions pile up at the top of the

hierarchy creating delayDivisional ApproachThe organization is flexible and responsive to

change because each unit is small and tuned in to its environment. Concern for customer's needs

is high and coordination across functional departments is better because employees are grouped

and committed to a product.Coordination across divisions is often poor. The organization loses

efficiency and economies of scale, and there may be a lack of technical depth and

specialization.Matrix ApproachThe matrix can by highly effective in a complex, rapidly

changing environment in which flexibility and adaptability are important. Conflict and frequent

meetings allow new issues to be raised and resolved. The matrix makes efficient use of human
resources because specialists can be transferred from one division to another.Frustration and

confusion arising from the dual chain of command can be a significant problem, as can high

conflict between the two sides of the matrix, and time lost in meetings. Mangers spend a great

deal of time coordinating meetings, taking time away from core work activitiesTeam

ApproachThe team approach reduces barriers across departments, increases cooperation and

compromise, and enables the firm to quickly adapt to requests and changes. Another advantage is

better morale and enthusiasm as a result of increased employee involvement.Disadvantages

include dual loyalties and conflict, time and resources spent on meetings, and too much

decentralization. Team members can often lose sight of the big picture of the

organization.Virtual Network ApproachThe biggest advantages are flexibility and

competitiveness on a global scale, drawing on resources and expertise worldwide. The virtual

network structure is the leanest of all because little supervision is required. There may only be

two or three levels of hierarchy, if that many, compared with ten or more in traditional

firms.Lack of hands-on control is a significant disadvantage. Each partner in the network acts in

its own self-interest. Weak and ambiguous boundaries create higher uncertainty and greater

demands on managers for defining shared goals, coordinating activities, managing relationships,

and keeping people focused. Employee loyalty can weaken; employees may feel concerned that

they can be replaced by contract services.

27 Organizing for Horizontal Coordination

Companies need more flexibility than vertical structure can offerMeet fast-shifting

environmentBreak down barriers between departments/divisions/teamsNeed integration and

coordinationLack of coordination and cooperation can cause information problemsGrowing

global challengeChrysler Case (p. 281)ORGANIZING FOR HORIZONTAL

COORDINATIONThe Need for Coordination Exhibit 10.10As organizations grow and evolve,

new positions and departments are added, and senior managers have to find a way to tie all of

these departments together. Coordination refers to the quality of collaboration across

departments. It is required whether there is a functional, divisional, or team

structure.Coordination problems are amplified in the global arena because units differ not only

by goals and work activities but by distance, time, culture, and language. Coordination is the

outcome of information and cooperation. Managers can design systems and structures to promote

horizontal coordination.Explain why organizations need coordination across departments and

hierarchical levels, and describe mechanisms for achieving coordination.Coordination refers to

the quality of collaboration across departments. It is required whether there is a function,

divisional, or team structure. Coordination problems are amplified in the global arena, because

units differ not only by goals and work activities but by distance, time, culture, and language.

Coordination is the outcome of information and cooperation; managers can design systems and

structures to promote horizontal coordination. The vertical structure is flattened, with perhaps

only a few senior executives in traditional support functions such as finance or human resources.

A task force is a temporary team or committee designed to solve a short-term problem involving

several departments. Task force members represent their departments and share information that

enables coordination. Companies also set up cross-functional teams for coordination. Companies

also use project managers, responsible for coordinating the activities of several departments on a

full-time basis for the completion of a specific project. Reengineering is the radical redesign of

business processes to achieve dramatic improvements in cost, quality, service, and speed.

Because the focus of reengineering is on process rather than function, reengineering generally

leads to a shift away from a strong vertical structure.

28 10.10 Evolution of Organization Structures

29 Business Process Reengineering (BPR)

Business process reengineering, is the radical redesign of business processes to achieve dramatic

improvements in cost, quality, service, and speedBPR vs. DownsizingBPR vs. TQMBPR &

Information Systems

30 Task Forces, Teams, and Project Management

Task Force – a temporary team or committee formed to solve a specific short-term problem

involving several departmentsProject Manager – person responsible for coordinating activities of

several departments for the completion of a specific projectCross-functional Team – furthers

horizontal coordination by including members across the organization

31 10.11 Project Manager’s Relationships to Departments

32 Structure Follows Strategy

Business performance is influenced by structureStrategic goals should drive structure: Divisional

StructureDifferentiation Innovation & Horizontal Team StructureFlexibility Structure should

facilitate strategic goals:FACTORS SHAPING STRUCTUREStructure Follows Strategy Exhibit

10.12, Exhibit 10.13Porter’s strategies of differentiation and cost leadership typically require

different structural approaches. The divisional structure promotes differentiation because each

division can focus on specific products and customers.A simplified continuum illustrates how

structural approaches are associated with strategic goals. The terms mechanistic and organic

refer to organizations where efficiency is the goal in a stable environment (mechanistic), and

organizations where innovation is the goal in a rapidly-changing environment (organic),

respectively.The pure functional structure is appropriate for achieving internal efficiency goals,
but it does not enable the organization to be flexible or innovative. A horizontal team structure is

appropriate when the primary goal is innovation and flexibility. The firm can differentiate itself

and respond quickly to change.Other forms of structure represent intermediate steps on the firm’s

path to efficiency or innovation. The functional structure with cross-functional teams and project

teams provides greater coordination and flexibility than the pure functional structure. The

divisional structure promotes differentiation because each division can focus on specific products

and customers.

33 10.12 Factors Affecting Organization Structure (Nader & Tushman, 1997)

Source: David A. Nadler and Michael L. Tushman, with Mark B. Nadler. Competing by Design:

The Power of Organizational Architecture (New YorK: Oxford University Press, 1997), p.

54.Research Question: “How do managers know whether to design a structure that emphasizes

the formal, vertical hierarchy or one with an emphasis on horizontal communication and

collaboration?”Nader & Tushman (1997) illustrates that forces affecting organization structure

come from both outside and inside the organization.External strategic needs, such as

environmental conditions, strategic direction, and organizational goals, create top-down pressure

for designing the organization in such a way as to fit the environment and accomplish strategic

goals.Structural decisions also take into consideration pressures from the bottom-up – that is

from the technology and work processes that are performed to produce the organization’s

products and services.

34 10.13 Relationship of Structural Approach to Strategy

A simplified continuum illustrates how structural approaches are associated with strategic

goals.The terms mechanistic and organic refer to organizations where efficiency is the goal in a

stable environment (mechanistic),and organizations where innovation is the goal in a rapidly-

changing environment (organic), respectively.A mechanistic, vertical structure is appropriate for

a cost leadership strategy, which typically occurs in a stable environment.An organic, horizontal

approach is needed for a differentiation strategy and when the organization needs flexibility to

cope with an uncertain environment.Identify how structure can be used to achieve an

organization’s strategic goals.Structure depends on a variety of contingencies. The right structure

is “designed to fit” the contingency factors of strategy, environment, and technology. These three

areas are changing for organizations, creating a need for stronger horizontal coordination. Two

strategies proposed by Porter are differentiation and cost leadership; these strategies require

different structural approaches. The pure functional structure is appropriate for achieving internal

efficiency goals. The vertical functional structure uses task specialization and a chain of

command. It does not enable the organization to be flexible or innovative. Horizontal teams are

appropriate when the primary goal is innovation and flexibility. The firm can differentiate itself

and respond quickly to change. Other forms of structure represent intermediate steps on the

firm’s path to efficiency or innovation. The functional structure with cross-functional teams and

project teams provides greater coordination and flexibility than the pure functional structure. The

divisional structure promotes differentiation because each division can focus on specific products

and customers.

35 Structure Fits the Technology

Knowledge, tools, techniques, and activities should match production activitiesManufacturing

firms can be categorized according to:Small-batch and unit productionLarge-batch and mass

productionContinuous process productionThe technical complexity of each type of firm

differsStructure Fits the TechnologyTechnology includes the knowledge, tools, techniques, and

activities used to transform organizational inputs into outputs.Woodward’s Manufacturing

Technology Exhibit 10.14Small-batch and unit production. Small-batch production firms

produce goods in batches of one or a few product products designed to customer specification.

Examples include custom clothing, special-order machine tools, space capsules, satellites, and

submarines.Large-batch and mass production. Mass production technology is distinguished by

standardized production runs in which a large volume of products is produced and all customers

receive identical products. Examples include automobiles, tobacco products, and

textiles.Continuous process production. In continuous process production, the entire work flow is

mechanized in a sophisticated and complex form of production technology. The process runs

continuously and therefore has no starting or stopping. Examples include chemical plants,

distilleries, petroleum refineries, and nuclear power plants.NEW MANAGER SELF-TEST:

AUTHORITY ROLE MODELSOrganizations’ structures are based on authority. New

managers’ expectations about authority are often based on experiences with their first authority

figures and role models—Mom and Dad. This exercise helps students understand their authority

role models, and hence their expectations for authority when they become managers.

Authoritarian expectations typically would fit in a traditional structure with fixed rules and a

clear hierarchy of authority (mechanistic organization characteristics). Flexible authority

expectations typically would fit with horizontal organizing such as managing teams, projects,

and reengineering (organic organization characteristics). Permissive expectations may be

insufficient to enforce accountability under any structure.Service TechnologyService

organizations include consulting companies, law firms, brokerage houses, airlines, hotels,

advertising companies, amusement parks, and educational organizations. Service technology also

characterizes departments such as legal, human resources, finance, and market research in large

corporations. Service technology involves:Intangible output. Services are perishable and, unlike
physical products, cannot be stored in inventory.Direct contact with customers. Employees and

customers interact directly to provide and purchase the service. Production and consumption are

simultaneous.Digital TechnologyDigital technology is characterized by use of the Internet and

other digital processes to conduct or support business online. Like service firms, organizations

based on digital technology tend to be flexible and decentralized. Digital technology is driving

the move toward horizontal forms that link customers, suppliers, and partners into the

organizational network. It encourages boundarylessness, where information and work activities

flow freely among various organizational participants.

36 10.14 Manufacturing Technology and Organization Structure (Woodward, 1965)

Joan Woodward, Industrial Organizations: Theory & Practice (London: Oxford University Press,

1965).Define production technology (manufacturing, service, and digital) and explain how it

influences organization structure.Technology includes the knowledge, tools, techniques, and

activities used to transform organizational inputs into outputs. Joan Woodward described three

types of manufacturing technology.Small-batch and unit production. Small-batch production

firms produce goods in batches of one or a few product products designed to customer

specification. Examples include custom clothing, special-order machine tools, space capsules,

satellites, and submarines.Large-batch and mass production. Mass production technology is

distinguished by standardized production runs in which a large volume of products is produced

and all customers receive identical products. Examples include automobiles, tobacco products,

and textiles.Continuous process production. In continuous process production, the entire work

flow is mechanized in a sophisticated and complex form of production technology. The process

runs continuously and therefore has no starting or stopping. Examples include chemical plants,

distilleries, petroleum refineries, and nuclear power plants.Service organizations include

consulting companies, law firms, brokerage houses, airlines, hotels, advertising companies,

amusement parks, and educational organizations. Service technology also characterizes

departments such as legal, human resources, finance, and market research in large corporations.

Service technology involves:intangible output—services are perishable and, unlike physical

products, cannot be stored in inventory; anddirect contact with customers—employees and

customers interact directly to provide and purchase the service. Production and consumption are

simultaneous.Digital technology is characterized by use of the Internet and other digital

processes to conduct or support business online. Like service firms, organizations based on

digital technology tend to be flexible and decentralized. Digital technology is driving the move

toward horizontal forms that link customers, suppliers, and partners into the organizational

network. It encourages boundarylessness, where information and work activities flow freely

among various organizational participants.

37 Review QuestionsDiscuss 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.

38 Review Questions (continued)

Explain briefly Authority in managementExplain 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.

39 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.

40 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.

41 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.