ORGANIZATIONAL DESIGN

INTRODUCTION
Process of developing a social architecture for the organization to achieve its purpose Congruency among
Strategy Structure Work People Culture

Gives an understanding of how various pieces fit together

CHARACTERISTICS
Functionally efficient Economically viable User friendly Environmentally aligned Aesthetically appealing Growth promoting Change responsive

DETERMINANTS
Organization goals Social customs Beliefs & values of founders Environmental constraints Technology Size of the organization

COMPONENTS
Work specialization Departmentalization
Functional Product Process Geographical Customer

Chain of command Span of control Centralization vs decentralization Formalization

TYPES
Traditional designs
Simple structure Functional structure Divisional structure

Contemporary designs
Team Matrix Project Autonomous internal units Boundary less organization Learning organization

BASIC CHALLENGES
Differentiation Differentiation vs integration Centralization vs decentralization Standardization vs mutual adjustment

DIFFERENTIATION
Process by which an organization allocates people & resources to organizational tasks Establishes task authority relationships to achieve organizational goals Division of labor or degree of specialization Simple vs complex organization

ORGANIZATIONAL ROLES
Set of task related behaviors required of a person by his or her position in an organization

Clear organization roles facilitate accountability towards use of resources System of interlocking roles which promotes authority and hence control

SUBUNITS: FUNCTIONS & DIVISIONS

People with similar and related roles grouped Function - group of people, working together, who possess similar skills or use same kind of tools, technology or knowledge to perform their jobs Division a subunit that consists of a collection of functions or departments that share responsibility for producing a particular good or service

TYPES OF FUNCTIONS
Support legal affairs, sales, marketing Production operations, quality control Maintenance personnel Adaptive R&D, marketing research Managerial - investments

VERTICAL & HORIZONTAL DIFFERENTIATION

Vertical way an organization creates reporting relationships to link organizational roles and subunits Establishes hierarchy Horizontal way an organization groups tasks into roles and roles into subunits Establishes division of labor

DIFFERENTIATION VS INTEGRATION
Horizontal differentiation results in subunit orientation Use of advanced forms of IT to promote coordination, cooperation and communication among subunits Managers must achieve an appropriate balance between differentiation and integration

INTEGRATION MECHANISMS
Process of coordinating various tasks, functions and divisions so they work together not at cross purposes Hierarchy of authority Direct contact Liaison role Task force Team Integrating role Integrating department

CENTRALIZATION VS DECENTRALIZATION
Vertical differentiation results in decline of responsibility and risk taking People do not take advantage of emerging new opportunities Decision making gets slower Organization becomes inflexible unable to change and adapt to new developments Problem of delegating decision making authority persists

CENTRALIZATION
Top managers coordinate and organization focused on its goals Top managers get overloaded operational decision making keep

with

Little time to spend on long term strategic decision making

DECENTRALIZATION
Promotes flexibility and responsiveness Managers assume greater responsibility Take potentially successful risks More motivated to display their personal competencies Planning and coordination becomes very difficult Managers might pursue their own functional goals and objectives

STANDARDIZATION VS MUTUAL ADJUSTMENT

Employees tend to follow written & unwritten guidelines too rigidly without adaptation Stifles creativity and innovation lack of responsiveness to unusual circumstances Standardization conformity to specific models or examples that are considered proper in a given situation Mutual adjustment compromise that emerges when decision making and coordination are evolutionary processes and people use judgment rather than standardized rules Formalization vs socialization

MECHANISTIC STRUCTURES
Individual specialization clear definition of roles Simple integrating mechanisms hierarchy Centralization - communication mostly vertical Standardization used for organizational control Highly status conscious promotions slow, steady and hierarchical

 Best suited for organizations with stable environment No room for creativity and innovation Work process is predictable

Designed to induce people to behave in predictable, accountable ways

ORGANIC STRUCTURES
Joint specialization work together to find the best way of performing a task Complex integrating mechanisms task forces and teams Decentralization delegation of authority to all levels Most communication is lateral Mutual adjustment informal rules and norms emerge from the interactions

 Promote flexibility people initiate change Develop personal competence, expertise and innovation Status conferred by the ability to provide creative leadership Facilitates quick decision making

CONTINGENCY APPROACH
Choice of structure depends on the particular situation an organization faces Design should be tailored to meet the uncertainty Structure should be designed to meet all contingencies Fit between the structure and the external environment

ORGANIZATIONAL DESIGN IN A CHANGING GLOBAL ENVIRONMENT

VALUE CREATION CYCLE

Ability to obtain scarce resources Create an organizational strategy Invest resources to develop core competences Gain competitive advantage Increase in ability to obtain scarce resources

SOURCE OF CORE COMPETENCES

Specialized resources functional & organizational Functional resources skills possessed by functional personnel Organizational resources skills of top management team, possession of valuable resources Coordination ability ability to coordinate functional and organizational resources to create maximal value

GLOBAL EXPANSION & CORE COMPETENCES

Transfer of core competences abroad Establishment of global network Gain access to global resources and skills

Using global learning to enhance core competences

LEVELS OF STRATEGY
Functional level Business level Corporate level Global level

FUNCTIONAL LEVEL STRATEGY

Plan of action to strengthen functional & organizational resources as well as coordination abilities Investment in R&D Innovative approaches to marketing Training & Development to technical & human resources Scan & understand changes in the environment

COMPETITIVE ADVANTAGE @ FUNCTIONAL LEVEL

Perform functional activities at a lower cost than rivals so as to lower prices of goods Perform functional activities in a way that allows differentiation of products by attaching unique qualities, so it can charge higher or premium prices

LOW COST & DIFFERENTIATION STRATEGIES

Manufacturing
Development of skill in flexible manufacturing technology Increase in product quality & reliability

Human resource management

Reduction of turnover & absenteeism Hiring of highly skilled personnel Development of innovative training programs

Materials management
Use of JIT inventory systems Long term relationships with suppliers & customers Provide high quality inputs Enable efficient distribution and disposal of outputs

 Sales & marketing

Increased demand & lower production costs Targeting of customer groups Tailoring products to customers Promoting brand names

Research & development

Improved efficiency of manufacturing technology Creation of new product Improvement of exiting products

STRUCTURE & CULTURE

Flat decentralized structure and small teams Use of incentive pay systems Work environment promoting creativity & innovation Strong property rights to employees job tenure, share in profits Use of mutual adjustment & socialization Room for each function to develop core competence

BUSINESS LEVEL STRATEGY

Plan to combine functional core competences in order to position the organization so that it has competitive advantage in its domain Responsibility of top management team Select the domain for competing in Position the organization such as to manage the specific & general environment and enlarge its domain

LOW COST & DIFFERENTIATION STRATEGIES

Low cost Focused low cost Differentiation Focused differentiation

BUSINESS LEVEL STRATEGY & STRUCTURE

DIFFERENTIATION STRATEGY Deal with different products & customer groups Rapidly changing environment Frequent new product development Complex structure Decentralized decision making High differentiation High integration Organic structure Matrix, product team structure LOW COST STRATEGY Limited products & customer groups Almost stable environment New product only if constant demand assured Simple structure Centralized decision making Low differentiation Low integration Mechanistic structure Product, market, geographic or functional structure

BUSINESS STRATEGY & CULTURE

Subunit orientation to be prevented Low cost strategy
Values of economy & frugality Top managers with few trappings of luxury Functions to develop goals that reflect values of economy

Differentiation strategy
Values that promote innovation & responsiveness to customers Product development & marketing at centre stage Values of quality, excellence & uniqueness

CORPORATE LEVEL STRATEGY

Plan to use and develop core competences so that the organization can not only protect and enlarge its existing domain but can also expand into new domains Search for new domains to create value from the use of its low cost or differentiation strategies Responsibility of corporate level managers

STRATEGIES
Vertical integration

Related diversification

Unrelated diversification

CORPORATE STRATEGY & STRUCTURE

Vertical integration Use of multi divisional structure Self contained operating divisions supported by corporate head quarters Related diversification Lateral communication between divisions Vertical communication between divisions & corporate headquarters Coordination problem is intense Divisions fight for resource Large corporate headquarters staff

 Unrelated diversification
Use of conglomerate structure Each unrelated business is a self contained division Small corporate headquarters staff Low bureaucratic costs

CORPORATE STRATEGY & CULTURE

Norms & values that emphasize cooperation between divisions Common corporate language Conglomerate structure no necessity for cooperation

GLOBAL EXPANSION STRATEGY

Choosing the best strategy to expand into overseas markets to obtain scarce resources and develop core competencies Multidomestic strategy International strategy Global strategy Transnational strategy

 Allocation of authority & responsibility between managers at home & abroad Selection of organizational structure that allows best use of resources Selection of right kinds of integration & control mechanisms and organizational culture

MULTIDOMESTIC STRATEGY
Oriented towards local responsiveness Decentralized control to subsidiaries and divisions in each country Customized products to serve local markets ROI, growth in market share and operation costs performance evaluation Forming of world regions No high integrating mechanisms needed Duplication of specialist activities across countries raises overall costs

INTERNATIONAL STRATEGY
R&D and marketing centralized Other value creation functions decentralized to national units Global product group structure Product group headquarters coordination & organization Reduced transaction costs Loss of control, conflict and lack of cooperation

GLOBAL STRATEGY
Manufacturing & value chain activities at a global location which promotes efficiency High level of integrating mechanism Centralized control Product group structure Product group HQ coordination, choice of location for other activities

TRANSNATIONAL STRATEGY
Achieve both local responsiveness and reduced cost Global matrix structure Decentralized control to overseas managers High level of integration

ORGANIZATIONAL DESIGN & TECHNOLOGY

TECHNOLOGY
Combination of skills, knowledge, abilities, techniques, materials, machines, computers, tools and other equipment that people use to convert or change raw materials into valuable goods and services Technology at three levels
Individual Functional or departmental Organizational mass production & craftswork

TECHNOLOGY & ORGANIZATIONAL EFFECTIVENESS

Input stage
Handle relationships with suppliers HR techniques to manage labor resources Use of techniques to obtain efficient capital

Conversion stage
Use of best technology to add greatest value to the input at least cost of organizational resources

Output stage
Effective disposal of goods & services Competence in quality control, marketing & selling

THEORIES OF TECHNOLOGY
Theory on technical complexity Theory on routine & complex tasks Theory on task interdependence Used by managers to
Choose the technology that will most effectively perform value creation Design a structure that allows the organization to operate effectively

TECHNICAL COMPLEXITY THEORY : JOAN WOODWARD

Programmed technology
Technology specified in advance Tasks can be standardized Work process made more predictable

Technical complexity
Extent to which production process can be programmed so that it can be controlled and made predictable

Three types of production technology

Small batch & unit technology Large batch & mass production technology Continuous process technology

SMALL BATCH & UNIT TECHNOLOGY

Make customized or low quantities of products Lowest on technical complexity Peoples skills & knowledge more important than machines Conversion process flexible to suit the orders of customers Suited to make new or complex products Relatively expensive to operate Fashion designers, jewelry, furniture

LARGE BATCH & MASS PRODUCTION

Increased level of technical complexity with more use of machines and equipments Massive volumes of standardized products Tasks specified and programmed in advance Production process highly controllable Less production costs and hence lower prices

CONTINUOUS PROCESS TECHNOLOGY

Height of technical complexity Conversion process entirely automated & mechanized Employees to manage exceptions and breakdowns Production rarely stops Lowest production costs Oil refineries, chemical industries

TECHNICAL COMPLEXITY & ORGANIZATIONAL STRUCTURE

STRUCTURAL CHARACTERISTICS Levels in the hierarchy Span of control of CEO SMALL BATCH 3 4 LARGE BATCH 4 7 CONTINUOUS PROCESS 6 10

Span of control of first line supervisor

Ratio of managers to non managers Shape of organization

23
1 to 23 Relatively flat with narrow span of control Organic High

48
1 to 16 Relatively tall with wide span of control Mechanistic Medium

15
1 to 8 Very tall with very narrow span of control Organic Low

Type of structure Cost of operation

TECHNOLOGICAL IMPERATIVE
Argument structure that technology determines

Strategic choices on type of products, type of markets influence choice of structure for large organizations

Technology influences choice of structure for small organizations and departments

ROUTINE & COMPLEX TASKS: CHARLES PERROW

Complexity of tasks influence the complexity of technology involved to perform them Task variability
Number of exceptions new or unexpected situations that a person encounters while performing a task

Task analyzability
Degree to which search and information gathering activity is required to solve a problem

TECHNOLOGY TYPES
Routine manufacturing Crafts work Engineering production Non routine research

ROUTINE MANUFACTURING
Low task variability with high task analyzability Few exceptions with little search behavior Mass production settings Standard procedures Low cost advantages Fast food restaurants

CRAFTSWROK
Low task variability and low task analyzability Adapt existing procedures to new situations Find new techniques to handle existing problems more effectively Furniture, fashion designers, jewelry

ENGINEERING PRODUCTION
High task variability with high task analyzability Too many exceptions but finding a solution is easy Well established standard procedures to handle exceptions effectively Solving a problem is just identifying and applying the right technique Architects

NON ROUTINE RESEARCH

High task variability analyzability and low task

Most complex and least routine High tech R&D activities Organizations top management team

ORGANIZATIONAL STRUCTURE
STRUCTURAL CHARACTERISTIC Standardization Mutual adjustment High Low ROUTINE TASKS Low High COMPLEX TASKS

Specialization
Formalization Hierarchy of authority Decision making Overall structure

Individual
High Tall Centralized Mechanistic

Joint
Low Flat Decentralized Organic

TASK INTERDEPENDENCE: JAMES D.THOMPSON

Manner in which different organizational tasks are related to one another Low task interdependence individual specialization High task interdependence joint specialization Pooled interdependence & mediating technology Sequential interdependence & long linked technology Reciprocal interdependence & intensive technology

MEDIATING TECHNOLOGY
Each part of the organization contributes separately to the performance of the organization Mediating technology work process activities performed independently of one another Franchisee operations, banking operations High level of standardization Relatively inexpensive to operate

LONG LINKED TECHNOLOGY

Actions of one person or department directly affect the actions of the next Long linked technology work process activities performed in series Mass production technology Errors get magnified easily hence high level of coordination mandated Programming of conversion process Use of slack resources Use of vertical integration

INTENSIVE TECHNOLOGY
Activities of all people and all departments fully depend on one another Technical complexity declines Work process becomes more complex Sequencing of tasks not possible High level of coordination Relatively expensive Mutual adjustment and flat structure Self managed teams Specialism producing narrow range of products

MASS PRODUCTION TO ADVANCED MANUFACTURING

Use of dedicated machines, fixed workers and standardized procedures Stockpiling of resources to meet exceptions Fixed automation with high technical complexity, routine tasks & sequential interdependence Expensive and difficult to produce new products to suit changing customer preferences

ADVANCED MANUFACTURING TECHNOLOGY

Innovations in materials technology and knowledge that change the work process of traditional mass production organizations Allows customization and hence increased demand Allows incorporation of changes quickly Flexible, lean and computer aided production

INNOVATIONS IN MATERIAL TECHNOLOGY

Technology that comprises machinery, other equipments and computers CAD advanced manufacturing technique that simplifies the design process CAMM pull approach JIT inventory system Flexible manufacturing technology Computer integrated manufacturing