9/28/2015

MANAGEMENT
1st E D I T I O N
Gulati | Mayo | Nohria

Chapter 7

Organizational
Design
ORGANIZATIONAL
PERSPECTIVE
South-Western, a part of Cengage Learning

PowerPoint Presentation by Charlie Cook

Learning Objectives
Understand the role that organizations play in helping a
firm achieve its strategic objectives
Define the various organizational design decisions that
are central to creating an organization that is aligned with
a firms strategic objectives
Explain the different forms of organizational structure
including functional, divisional, matrix, network, and
hybrid and outline the advantages and disadvantages of
each form

South-Western, a part of Cengage Learning

7-2

Learning Objectives
Determine what organizational choices and leadership
approaches correspond to specific life-cycle stages of a
business
Describe how firms are redefining their organizations to
better meet the demands of customers and improve
their operational efficiency

South-Western, a part of Cengage Learning

7-3

9/28/2015

Figure 1.1 - The Pillars of Management

We are here

South-Western, a part of Cengage Learning

14

Organizational Design

The formal systems, levers, and decisions an

organization adopts or employs in pursuit of
its strategy

South-Western, a part of Cengage Learning

7-5

Why organizing is relevant:

Rule of 150
Robin Dunbar suggested a cognitive limit to the
number of people with whom one can maintain
stable social relationships.
Over 150 employees:
Managers no longer know what all the employees
do
Employees no longer know what all the other
employees do.
A need for organization comes up
Multiple ways to organize a company

9/28/2015

Division of Labor
The manner in which work in a firm
is divided among employees
Vertical specialization - How much
an employee creates, executes, and
administers activities in a certain
area of the firm
Horizontal specialization - The
breadth of activities that are
performed in a certain job

South-Western, a part of Cengage Learning

7-7

Division of Labor
Advantages
Creation of highly specialized jobs can help develop
expertise or competency in a certain skill or function
Repetitive and specialized nature of jobs helps in quick
and efficient training of new resources

Disadvantages
Extreme specialization resulting in tedious repetitive
work can lead to low job satisfaction
Due to high levels of job specialization, firms are unable
to prevent turnover
The level of division of labor is related to the expectation
on how long employees will remain with the firm
South-Western, a part of Cengage Learning

7-8

Recap Chapter 1:
Theories of Management
Scientific
management

A focus on how jobs, work, and incentive schemes could

be designed to improve productivity using industrial
engineering methods

Human relations
movement

The belief that organizations must be understood as

systems of interdependent human beings who share a
common interest in the survival and effective functioning
of the firm

Contingent
view

A view of the firm where effective organizational structure

is based on fit or alignment between the organization and
various aspects in its environment

South-Western, a part of Cengage Learning

19

9/28/2015

Coordinating Mechanisms
Organizers
(Scientific
Mgmt)

Those who believe that more control is warranted in

organizational design to ensure that jobs are performed
satisfactorily and efficiently

Greater job standardization

Specific definitions of roles and responsibilities
More hierarchical leadership

Bureaucratic
approach

An extreme form of organizational control in which

systems are highly formalized and are characterized by
extensive rules, procedures, policies, and instructions.

Close personal surveillance of superiors over

subordinates
Not useful in creative environments
South-Western, a part of Cengage Learning

7-10

Coordinating Mechanisms
Behaviorists
(Human
Relations
Mgmt)

Those who support a more open organizational structure

where roles and responsibilities are loosely defined

Clan
approach

A type of organizational control that includes selfsupervising teams that are responsible for a set of tasks

South-Western, a part of Cengage Learning

7-11

Figure 7.1 - Bureaucratic and Clan Approaches to Control

Most fast food restaurants,

many industrial companies

Some start-up, consulting ,

advertising and high tech
companies

Source: Adapted from B. R. Baliga and Alfred M. Jaeger, Multinational Corporations: Control Systems and Delegation Issues, Journal of International Business
Studies, Vol. 15, Fall 1984, pp. 2540

South-Western, a part of Cengage Learning

7-12

9/28/2015

Organizational Structure
Functional
structure

Divisional
structure

Matrix structure

Network
structure

Organizes a firm in terms of the main activities that need to be

performed, such as production, marketing, sales, and accounting

Groups diverse functions into separate divisions

Both divisional and functional managers have equal authority

in the organization

Knowledge workers are organized to work as individual

contributors or to be a part of a work cluster that provides a
certain expertise for the organization

South-Western, a part of Cengage Learning

7-13

Figure 7.2 - Three Functions of an Organization

South-Western, a part of Cengage Learning

7-14

Case study in Organizational Design

A simplified and subjective view of the company

9/28/2015

Hewlett Packard
Founded in 1939 in a garage in Palo Alto, CA
(now Silicon Valley)

HP Functional Organizational structure

Started out with 1 product
Oscillator - sold to Walt Disney

Company grew and organized as a functional

organization with

sales,
manufacturing,
finance and
human resource departments

Figure 7.3 - Functional Organizational Structure

South-Western, a part of Cengage Learning

7-18

9/28/2015

Functional Form
Each functional department conducts its own
budgeting and planning processes
Works well for small businesses and businesses
with a limited number of products or services
Supports:
Easy flow of communication
Straightforward approach to supervision
Reduced level of redundancy

Best suited for competitive situations that require

efficiency of production or functional expertise
South-Western, a part of Cengage Learning

7-19

Hewlett Packard Decision Making

Additional products:
HP 12C calculator
Printers & other products

One of the employees created a new type of

computer
Hewlett Packard was offered the right of first
refusal
Took too long to make a decision

Hewlett Packard and Wozniack

Steven Wozniack decided to work with Steven
Jobs and create Apple Computer instead

9/28/2015

HP Product Growth - Sales Growth

HP - Re-organization to product groups

HP established a division structure, with each product
group becoming a self-sustaining organization
responsible for developing, manufacturing and
marketing its products. For example:

Printers
Plotters
Computers
Servers
Services

Figure 7.4 - Divisional Organizational Structure

South-Western, a part of Cengage Learning

7-24

9/28/2015

Recent Trends in Organizational Design

Silos: A functional or divisional unit that

operates by its own rules and guidelines
and does not openly share information
with other units

South-Western, a part of Cengage Learning

7-25

HP: Impact of Divisional Structure

Same company would get 4 Hewlett Packard
salespeople calling on the same purchasing
manager
receive visits from:

HP printer salesperson
HP plotter salesperson
HP computer salesperson
HP server salesperson

Hewlett Packard re-organization

HP response to customer irritation:
Sell total services and solutions, rather than individual
products

Reorganize into

Large customers
Small customers
Public Sector
etc
Re-organization by customer type
1 sales executive to call on each corporation

9/28/2015

Divisional Form
Can be organized around products, geographies,
or clients
Each division is accountable for its own profit and
loss
Employees feel more loyal towards their division
rather than function
Allows greater accountability
Promotion is based on management capabilities
across divisions rather than functional expertise
All types of divisional forms have their own
advantages and disadvantages
South-Western, a part of Cengage Learning

7-28

Figure 7.5 - Matrix Organizational Structure

South-Western, a part of Cengage Learning

7-29

Matrix Form
Combines the positive elements from different
organizational configurations to:
Cope with strong environmental pressures
Assist complex internal interrelationships
Facilitate sharing and optimization of resources

To facilitate optimized performance, uses:

Technological expertise within functions
Horizontal coordination across the functions

Assigns equal authority to both divisional and

functional managers
South-Western, a part of Cengage Learning

7-30

10

9/28/2015

Proctor and Gamble Matrix structure

South-Western, a part of Cengage Learning

7-31

Figure 7.6 - Network Organizational Structure

South-Western, a part of Cengage Learning

7-32

Network Form
Uses cross-functional teams and technology to
coordinate the work of geographically-dispersed
work groups
Emphasizes on the informal structure of the firm
Informal relationships between clusters of workers and
cross-functional teams dominate the action of the firm

Allows firms to quickly to adapt to changes in the

marketplace or respond to a competitors action

South-Western, a part of Cengage Learning

7-33

11

9/28/2015

Modern Shed

<click screenshot for video>

1. Describe how
Modern Shed
functions as a
modular
organization.
2. What are the
advantages and
disadvantages of
Modern Sheds
organizational
structure?

2015 Cengage Learning

Table 7.1 - Advantages and Disadvantages of Different Organizational Structures

The contingent view describes which type of

organization has the best internal and external fit

South-Western, a part of Cengage Learning

7-35

Organizational Design Levers

Are concerned with how decisions are made

How information should flow through

the organization

Who should make decisions regarding

that information

South-Western, a part of Cengage Learning

7-36

12

9/28/2015

Decision Rights
Rights that include initiating, approving,
implementing, and controlling various types
of strategic or tactical decisions

Differ based on vertical and horizontal

dimensions
Delegation: The process by which managers
transfer decision rights to individual
employees

South-Western, a part of Cengage Learning

7-37

Decision Rights

Centralized
organization

An organizational structure characterized by

formal structures that control employee behavior
by concentrating decisions in a top-down,
hierarchical fashion

Decentralized
organization

An organizational structure where key decisions

are made at all levels of the firm, not mandated
from the top

South-Western, a part of Cengage Learning

7-38

Informal Structures

Contribute in defining an organization

Develop over a period of time
Not listed in the firms bylaws or management
practices
Are affected by organizational changes

South-Western, a part of Cengage Learning

7-39

13

9/28/2015

Mutual Adaptation
The process by which firms impact the nature of their
overarching industrial environment and adapt their
organization in response to evolving contextual factors

Critically important in industries where change

is a constant, such as technology and fashion

Hewlett Packard had been adapting and re-organizing for the last 20-40 years
Still in process no end stage
South-Western, a part of Cengage Learning

7-40

Figure 7.7 - Role of Leadership across Life-Cycle Stages

Source: Adapted from Anthony J. Mayo, Nitin Nohria, and Mark Rennella, Entrepreneurs, Managers, and Leaders: What the Airline Industry Can Teach Us About
Leadership (New York: Palgrave MacMillan, 2009), pp. 120.

South-Western, a part of Cengage Learning

7-41

Organizational Flexibility
Ambidextrous organizations
Maintain efficiency in current strategic operations while
preparing for imminent changes
Create a separate team to work on future opportunities
while the rest of the firm focuses on the primary
business
Advantage - Creates a forum for innovation and creativity

South-Western, a part of Cengage Learning

7-42

14

9/28/2015

Recent Trends in Organizational Design

Cooperation

Coordination

Customercentric model

Connection

Capability
development

South-Western, a part of Cengage Learning

7-43

Key Terms
Behaviorists
Bureaucratic approach
Centralized organization
Clan approach
Decentralized organization
Decision rights
Behaviorists
Bureaucratic approach
Centralized organization
Clan approach
South-Western, a part of Cengage Learning

Decentralized organization
Decision rights
Functional structure
Matrix structure
Mutual adaptation
Network structure
Organizational design
Organizational structure
Organizers
Silos
7-44

15