ORGANIZATION STRUCTURE

ACME OMEGA
Assume that you know everything that went inside Acme and Omega
(as per the case facts), if you were Mr. Mehta, to whom will you give
the final order for developing the integrated banking software for
Secure Bank? Analyze the pros and cons of giving the order to Acme
and to Omega and provide reasons why you would choose one over
the other. What are the assumptions that you are making?
What organization factors do you think contributed to the
performance of Acme and Omega, in the past and during the
prototype? What lessons can one draw between organization
structure and performance from this case
OMEGA
Highly collaborative organization
Entrepreneurial set up
Not much hierarchy
Delivery on time
Design shortcoming
Lacking structure and processes
Too Decentralized
ACME
* Highly structured
* Functional silos
* Rules memos
* CEO ultimate authority
* no design shortcoming
* well- defined struture
* documentation
 ACME OMEGA
Quality *** *****
Cost ***** ***
Flexibility ***** ***
Delivery ***** *****
 EPILOGUE
When the IT team at Secure Bank ran their own tests, they discovered several
bugs in the code that Acme had sent. It became obvious to them that Acme
had violated several standard software engineering processes. Omegas code
was a delight to work with and delivered all the functionalities.

Jay had anticipated that Acme would not do well in this evaluation and
requested for one more chance. He argued that design change was not within
the scope of the contract and given their track record, they would always do
a better job of development once the design was frozen.
It was difficult for Mehta to discount Jays argument and they decided to give
both Acme and Omega another module for prototyping. Since there were no
more design changes this time, Acme could deliver a bug-free module on
time as did Omega.

However, because Acmes price was 20% lower than that of Omega, the final
order was given to Acme.
 Deep Roy, the CEO of Omega, was quite unhappy about losing the
final order, despite performing so well during the prototyping
exercises.

Do you have any advice for him regarding his organization structure or
his business model?
MAIN ELEMENTS OF ORG. DESIGN
COMPLEXITY
--- horizontal, vertical and spatial complexity
--- vertical: span of control, no. of layers, promotion
FORMALIZATION
--- rule bound : integration
CENTRALIZATION
--- routine, non-routine decisions
 ADAM SMITH
Specialization
10000 pins by 10 persons in a day if specialization allowed
Else u are lucky if more than 10 pins are made in a day
Division of labor vs Specialization
Specialization occurs at various levels
Task, department, Process, Global level
 FREDRICK TAYLOR
So, Frederick Taylor said I am repeating myself, there must be one best way of doing anything. Even if you
want to pick up a glass of water,
there must be one best way of doing things. There must be one best way of picking up that glass, either by
your right hand or maybe by your left hand.
But how will you figure out what is the one best way of doing things in an industrial environment?
That's were Frederick W. Taylor said that it is the job of the manager.
It is actually the job of the manager to understand that if I have to lift a load from place A to place B, then
what is the speed at which the person should walk?
So, Taylor actually would go to the factory shop floor and he would sit with a stopwatch and he would start
doing experiments.
He would ask people to lift different weights and keep on walking from place A to place B.
Frederick Taylor was probably the first engineer in the industrial setup or the industrial engineer.
He introduced this notion of scientific analysis, more like an empirical analysis,
Unless and until the work is repetitive, you will never be able to figure out what is the one best way of doing
those things.
Taylor said that it is the task of the manager to lay down these as rules and regulations, so that when the
worker comes in, he or she does not need to decide what is the best way of doing a the job. How am I
supposed to do this?
Industrial setup in very early 1900s, worker was probably not a very educated, knowledgeable person.
what Taylor was trying to do was, he was separating the thinking part from the doing part.
 STORY OF FORD MOTORS
Henry Ford. Now of Ford Motor Company.
prior to Henry Ford, cars were manufactured one at a time and that is a mode which we call as
a craft mode of manufacturing.
they were very expensiv; very high-end skilled people and limited in supply.
So, Ford standardized the entire design of the car.
He himself was a smart engineer, breakdown the manufacturing process of the car
into smaller and smaller bits.
It was so tiny bits that those particular activities could be allocated to people who were not that
skilled in nature. They could be actually trained.
So what effectively he was doing was he was deskilling the whole activity.
He said that I will tell you how to manufacture a car. I will lay down the entire process, the one
best way of doing things, and as laborers, as workers, you just have to come and keep on
following instructions.
cost of manufacturing the car became much lower.
very important innovations : application of assembly linebringing in an assembly line to the
factory shop floor in a car manufacturing set up.
For example, Ford's black Model T, which debuted in 1908, nearly had 50 percent of the American
market share by 1914.
Every working-class American could probably afford a car because Ford was giving them
something which was reliable and which was, also, not that highly priced.
 STORY OF GENERAL MOTORS
Alfred Sloan realized that customers have different aspirations.
And, hence, what he did was, he created almost five subunits.
Five mini-Fords inside the General Motors Company.
These were Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillacwith Cadillac being the most
expensive, the luxurious car and Chevrolet being at the lowest rate.
So, the General Motors organization structure looked very different from the Ford Motor
Company.
General Motors organization structure- a product-based structure.
General Managers post was a very powerful position in General Motors.
General Motors was more decentralized
Somewhere around 1920s, General Motors started overtaking Ford in terms of market share. And,
it is remarkable that for the next 70 years, General Motors was almost the undisputed number
one in car industry world over.
Henry Ford brought about a lot of managerial innovations,lot of operational innovations, and, as
well as, engineering, remarkable amount of applications of engineering to the whole
manufacturing process
Sloans innovations were much more about organization structure
 FUNCTIONAL STRUCTURE
in a functional structure, people are grouped together by the input
skills or competencies that they bring to the organization.
If you have financial and commercial knowledge, you will probably
belong to the finance department
If you are very good in communication and constantly thinking of
customers, you will probably in the marketing department.
And if you are focused on operations, understand the engineering
behind production, then you will be assigned the manufacturing
department.
By functional, we mean grouped together by inputs.
leverages specialization.leverages the competence of the people
Communication happens through hierarchy- bureaucratic
Not responsive to changes
Similar products
 The Functional
Structure of Pier 1
Imports

Figure 7.3
Copyright 2004 McGraw-Hill. All rights reserved. 716
 DIVISIONAL STRUCTURE
Here the primary identity of the department is byproducts.
No Specialization or super-specialize but product specialization
No functional silos.
primary identity is product
Highly responsive to customer needs but not efficient
Decentralized
output-based structure
So output-based grouping can be product structure, geography
structure, customer structure or industry verticals structure.
development of T skills important
 Divisional Structures
Divisional Structure
An organizational structure composed of separate business units within
which are the functions that work together to produce a specific
product for a specific customer.
Divisions create smaller, manageable parts of a firm.
Divisions develop a business-level strategy to compete.
Divisions have marketing, finance, and other functions.
Functional managers report to divisional managers who then report to
corporate upper management.

Copyright 2004 McGraw-Hill. All rights reserved. 728

 Types of Divisional Structures
Product Structure
Customers are served by self-contained divisions that handle a specific
type of product or service.
Allows functional managers to specialize in one product area.
Division managers become experts in their area.
Removes need for direct supervision of division by corporate managers.
Divisional management improves the use of resources.

Copyright 2004 McGraw-Hill. All rights reserved. 729

 Viacoms 2001
Product Structure

Copyright 2004 McGraw-Hill. All rights reserved. 740

Figure 7.5
 Global Geographic and Global Product Structures

Copyright 2004 McGraw-Hill. All rights reserved. 745

Product, Market,
and Geographic
Structures

Figure 7.4
Copyright 2004 McGraw-Hill. All rights reserved. 748
Television, refrigerator, washing machine
Sales, purchase, production decentralized
Finance, HR, legal centralized
Problem with customer- free delivery; discount
Then sales centralized
Competitor in the market Refrigerator sales same
Sales target achievement of TV, WM problem
Again decentralization ??
New sales person recruitment for TV at higher commission
Separate recruitment of HR head for TV division
 Coordinating Functions and Divisions:
Allocating Authority
Authority
The power to hold people accountable for their actions and to make
decisions concerning the use of organizational resources.
Hierarchy of Authority
An organizations chain of command, specifying the relative authority
of each manager.
Span of Control: refers to the number of workers a manager manages.

Authority vs. responsibility vs. accountability

Copyright 2004 McGraw-Hill. All rights reserved. 760

 Allocating Authority (contd)
Span of Control
The number of subordinates who report directly to a manager.
Line Manager
Managers in the direct chain of command who have authority over
people and resources lower down.
Primarily responsible for the production of goods or services.
Staff Manager
Managers who are functional-area specialists that give advice to line
managers.

Copyright 2004 McGraw-Hill. All rights reserved. 761

 The Hierarchy of
Authority and Span of
Control at McDonalds
Corporation

Figure 7.7

Copyright 2004 McGraw-Hill. All rights reserved. 762

 Tall and Flat Organizations
Tall structures have many levels of authority and narrow spans
of control.
As hierarchy levels increase, communication gets difficult, creating
delays in the time being taken to implement decisions.
Communications can also become garbled as it is repeated through
the firm.
Flat structures have fewer levels and wide spans of control.
Structure results in quick communications but can lead to overworked
managers.

Copyright 2004 McGraw-Hill. All rights reserved. 763

 Flat Organizations

Figure 7.8a
Copyright 2004 McGraw-Hill. All rights reserved. 764
 Tall Organizations

Figure 7.8b
Copyright 2004 McGraw-Hill. All rights reserved. 765
 The Minimum Chain of Command
Managers should carefully evaluate:
Do the organization have the right number of middle managers?
Can the structure be altered to reduce levels?
Centralized and Decentralized of Authority
Decentralization puts more authority at lower levels and leads to flatter
organizations.
Works best in dynamic, highly competitive environments.
Stable environments favor centralization of authority.

Copyright 2004 McGraw-Hill. All rights reserved. 766

Internal coordination
Integrating Mechanisms

Figure 7.9
Copyright 2004 McGraw-Hill. All rights reserved. 767