Strategic Approach to Management Structure, Job Design and Work System

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Lect BHUMIKA ACHHNANI- TNRCMS

Objectives
Objectives of this chapter is to understand why an organization creates a hierarchy of managerial positions and how a change in external environment may compel it to change its management structure.

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Origin of Structure: mp!oyee in" #omogeneity

Organization is an assembly of people formed with the purpose creating more wealth out of limited wealth;
But its members are not homogeneous in terms of skill, competencies and personal preference for jobs and tasks; otal organizational business related activities are divided into a number of similar activities. !mployees are placed in such well defined activities that they like. "uch allotment gives higher productivity and creates more satisfied work place. "pecialized activities could be interdependent in terms of their time se#uence. here is need for a coordinator for managing such 03/14/14 Lect BHUMIKA ACHHNANI- TNRCMS 3 inter$ dependency

Specia!i$ed %unctions and &eed for 'oordinator

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&' 'anage r (fan) 'anage r (light bulb) 'anage r (inverter )

*roduction

marketing

production

marketing

*roduction

marketing

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Lect BHUMIKA ACHHNANI- TNRCMS

Specia!i$ed Job A!!ocation: (ntegrator and #ierarchy

%oordination is risky because human behavior is not predictable
+obs are structured according to risks of the job;

here is limit to how many employees a manager can supervise and coordinate
, big organization will need many coordinators

*resence of integrator alone may not be sufficient for coordinated activities in different dept and functions
power to demand output must be different for different coordinators; 03/14/14 Lect BHUMIKA ACHHNANI- TNRCMS
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 ,part from interdependency among departments, there is need for sharing of resources
One needs levels above the coordinator to allocate and arbitrate use of common resources e.g. finance, manpower, marketing network;

here is trade off between integration and fragmentation or specialization

'ore number of levels adds to cost of coordination; ,ll organization would like to have fewer layers but this may depend on the managerial 03/14/14 Lect BHUMIKA ACHHNANI- TNRCMS 6 skill. his could be the source of

Structure and (nterna! )abor Market

!conomy and price relations of goods.
!xample- *rice of sunflower and price of sunflower oil. *rice of crude and price of petrol and diesel.

,n organizational structure is an internal market for trading of skill, expertise and decision risks of different values;
!xample- +obs in higher positions are more risky as they involve decisions under higher levels of uncertainty.
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 , layer is created to recognize the accumulation of certain expertise and decision making skill in lower layer. his layer is a recognition of scarcity value of the expertise; .f those skills are available in plenty outside then there would be no need for the layer; .f due to technological change the risk in decision making goes down then there is no need for the layer. his means delayering can be prompted by change in external labor market as well as change in technology.
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 *rofessional orientation and reduction in uncertainty in decision.

!xample- "cientists and technologist showed high commitment to contract and rules. hey do not demand to much power. his means organizations of scientists and technologists could be run with fewer layers of positions.

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#eight of #ierarchy
+ob variety
'ore diversified business would have tall structure

/eed for sharing of resources

*rofit centre oriented business would have flat structure

*ower needs of the coordinators

*rofessional oriented employees are comfortable in a flat structure.
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echnology of coordination
,vailability of . could bring down the height of hierarchy;

Organizational structure show high degree of isomorphism;

end to duplicate structure of successful organizations;

!mployee preference for power depend on national culture of the employees and the culture of the company
.t can be changed only through extensive learning process.

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 "ource of inter$organizational difference in operating cost and in productivity depend on top management expertise to run it with fewer managers in managerial hierarchy.

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Simp!e Organi$ation
.n a simple single product firm the number of task are few. ,ll workers do very mechanical job. 0isk of product and performance integration and control are low. ,s such number of layers are few. #* (mp!ication: One does everything from procurement, production and selling. 1ighly integrated task. /o specialization
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St !ct! e "# $ S%$&& St$ t-!' C"%'$()

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*roduction

*urchase and "ales

2inance

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#* (mp!ications
*ecruitment: 'ostly at production level. + , D : 'ostly through in$house with some input from off campus mode. -erformance Appraisa!: job related skill, skill in risk taking. 'ompensation: +ob based

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.ro/th in Simp!e Structure

3olume of business increases.
*roductivity and cost advantage are the drivers;

2unctional specialization increases;

4ith increasing separation of functional activity, uncertainty in activity integration increases /eed for employee with experience and expertise in more than one function increases16 03/14/14 Lect BHUMIKA ACHHNANI- TNRCMS

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Lect BHUMIKA ACHHNANI- TNRCMS

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 Better innovation within functions; 10 .mplications *ecruitment: 2unctional recruitment both at entry as well at higher level. + , D: 2unctional 5 6; 6evelopment of &eneral 'anagement skill; -erformance Appraisa!: 2unctional oriented and rank based. end to develop narrow perspective about organization.
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Advantage of %unctiona! Diversity "pecialization and cost advantage;

Structure and 0terna! Market

, structure need not always come only from the need of sharing of owned resources. Market kno/!edge could be powerful asset for certain businesses. .n such companies, a structure may emerge more for efficient sharing of this market knowledge.
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A %e/ Statistics on 'ompany Approach +o/ards Market

public sector ,d !xpenditure 7.789
(9 of sales)

*rivate sector 7.:;9

0 5 6 expenditure 7.<=9 7.:9 ,d. expenditure of a few 2'%& co.

.n <778$> 1industan lever spent ?79 of their sales turnover on product promotion. .n <778$>, %olgate *almolive spending on product advertisement went up by ;;9 when their sales grew by ?;9.
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1uyer 1ehavior
%or industria! products Based on proven product performance Source of !earning .nformation generated through own investment; %or househo!d goods Based on public image and opinion. Source of !earning *ublicly available information, community knowledge
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'onc!usion: @ 2or an 2'%& company, management of market resource and market image are critical for continued success.

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Structure of %M'. 'ompanies

*roduct development, modification and adaptation happen in fast pace. his means fund and expertise must be moved very fast from one business to another. 2aced with very volatile market, most such companies try to minimize their business risk by going into diversified businesses. Why diversify2
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%M'. 'ompanies and Diversities

hree kinds of market driven diversities are #uite common; @ *roduct 6iversity; ,rea 6iversity; echnological 6iversity

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#* (mp!ications
Because each product is a business all by itself so there has to be a position with over all responsibility of all products. 1owever because products are related there is considerable common skill and expertise for which there has to be certain common facilities and services which will be independent of products e.g. purchase, materials, finance. !tc. #* -ractice- Because the products are related one could have same 10 practices across products but for support service areas the 03/14/14 Lect BHUMIKA ACHHNANI- TNRCMS 26 policies could be different.

 Support %unctions: /eeds people with

exposure in product areas as well as in external market. here must be transfer from production to support. here is need for people with exposure in industry because of industry oriented suppliers and customers. his may demand lateral induction. Appraisa! and re/ard: 'anagerial appraisal in product groups could be based on product performance based performance while those in support area could be more behavior based.

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#* (mp!ications
Because the products are all unrelated, the support services could be part of the corresponding product divisions. !ach such division should be headed by a &'. 2or the total business could be one %&' for coordinating fund transfer across product groups and also for certain common services. #* -ractice: *roduct wise separate hr practice. But certain areas could be common e.g. compensation at entry stage. 4hy A
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Diversity a!ong re!ated industry: back/ard or for/ard integration

%ompanies with diversified product port$ folio may decide to go for backward integration. "uch backward integration creates more common facility and production. 6ue to increasing number of independent functions the number of hierarchy would further increase. 1ierarchy also engineer development of more effective internal market.
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 &ote: 2orward and backward integration strategy is more common in extractive and mineral intensive industries

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Lect BHUMIKA ACHHNANI- TNRCMS 32

Area as /e!! as -roduct Diversity

.ntegration should be done on the basis of product or area depending on the level of variation of business across products and across area.

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#* (mp!ications
%ar and two wheeler business is very much dependent on dealer relations and contract. he nature of contracts may vary from region to region because of varying cost and availability of land. Because area wise expertise is uni#ue, manpower policy may vary across areas. 0ecruitment may be from local market.
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 'anpower transfer across regions could be minimal here could be differential bonus because of different performance of different areas.

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BHUMIKA ACHHNANI- TNRCMS 37 A e$ 6e'e(-e(t Lect M$ /et I(te+ $t*"( $(- 6e&$)e *(+

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When -roduct *e!ated 3ariations are #igher than Area *e!ated 3ariations
4hen market characteristics of different areas are very similar but production and marketing costs for different products are widely different. %ompany structure is designed along product line not along area or country line.

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#* (mp!ications
10 is recruited and developed along clear product lines. hough there can be common support functions yet within support function manpower allocation could be along product lines and product related specialization.

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 1ousehold goods going into many different countries re#uire local adaptation of product packaging and sometime the content also. 0amp!e: +ooth paste, shampoo, /ashing soap package in different countries cou!d be very different4 his appropriate packaging technology development re#uire simultaneous sharing of expertise and inputs from engineering and product marketing managers.
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+echno!ogica! Diversity and Matri0 Structure for Mu!ti" focused 1usiness

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-otentia! -rob!em Areas /ith Matri0 Structure

0eporting relationship and authority over career
2unctional specialist may have great difficulty to work under country heads because of different concerns and specializations. 'ay re#uire extensive developmental program to make it a success.

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5ey )earning
, flat structure could be a source of competitive advantage but making it work may re#uire extensive development in the area of 10. , diversified business can protect a company from excessive market risk. 1owever, such diversity re#uire an appropriate structure depending on the kind of diversity one is pursuing. "ome of the common diversities are *roduct diversity; ,rea diversity; echnological diversity.
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1,/C DOB

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