Creating Effective

Organizational Designs
Kelompok 2
Ali Gamal Rurry Elsa Lorenza
Alvian Rahman Haidar Ali Rizqi
M. Oktama Aulia A. Ghilman Alfatih
Joreinhard Rotuah M. Ardhito Daniswara
Rai Sudah Prabawa Setio Budi
 • Tr a d itio n a l fo r ms o f
o r g a n iz a tio n a l s tru c tu r e

Outline • Bo u n d a r y le s s

presentasi
O r g a n iz a tio n a l D e s ig n

• Cr e a tin g A mb id ex tro u s
O r g a n iz a tio n a l D e s ig n s
Boeing 787
Dreamliner
Composite skin
Less fuel about 20%
Challenge??
• Coordination and integration of the work of the
suppliers.
• “We gave work to people that had never really done
this kind of technology before and we didn’t provide the
oversight that was necessary,” said Jim Albaught.
• Ended up buying some of the suppliers but couldn’t
deliver on schedule.
Central Concepts of Chapter
• Successfulorganizations create permeable boundaries among
the internal activities as well as between the organization and
its external customers, suppliers, and alliance partners.
• Outsourcing can create challenges.
• Typical managers are faced with 2 vital problems :
1. Type of organizational structure
2. What kind of mechanics, processes, and techniques?
 Patterns of
growth of
large
corporations:
Strategy-Structure
Relationship
•SIMPLE STRUCTURE
Simple Structure
• The oldest, yet the most common organizational form
• Have single or narrow product line
• The owner-manager = Decision maker
Simple structure
• Advantage

1. Highly Informal
2. Direct supervision
3. Highly centralized decision making
4. Little specialization of tasks
5. Few rules and regulations
6. May foster creativity
7. Informal evaluation and reward system
Simple structure
• Disadvantage

1. May foster individualism

2. Informality can cause confusion and conflict
3. Lack of regulation can cause misuse of organizational
resources
•FUNCTIONAL
STRUCTURE
Functional Structure
• Organizational form in which the major funcions of the firm such as
production, marketing, R&D, and accounting, are grouped internally.
Function Structure
Functional structure provides for a high level
centralization that helps to ensure integration and
control over the related product- market activities
or multiple primary activities (from inbound logistics
to operations to marketing, sales, and service) in
the value chain.
Functional structure
• Advantage

1. Pooling of specialist enhances coordination and control

2. Centralized decision making enhances an
organizational perspective across functions
3. Efficient use of managerial and technical talent
4. Facilitates career paths and proffesional development
in specialized areas.
Functional Structure
• Disadvantages

1. Differences in functional area orientation impede

communication and coordination
2. Tendency for specialists to develop short-term perspective
and narrow functional orientation
3. Functional area conflicts may overburden top-level decision
makers
4. Difficult to establish uniform performance standards
•DIVISIONAL STRUCTURE
Divisional structure
•A divisional structure encompasses a set of relatively
autonomous units governed by a central corporate office
• theoperating divisions are relatively independent and
consist of products and services that are different from
those of the other divisions
• Divisionalexecutives play a key
role: they help to determine the product-market and
financial objectives for the division
as well as their division’s contribution to overall corporate
performance
Divisional structure
• General Motors was among the earliest firms to adopt
the divisional organizational structure.13 In the 1920s the
company formed five major product divisions (Cadillac,
Buick, Oldsmobile, Pontiac, and Chevrolet) as well as
several industrial divisions
• Since then, many firms have discovered that as they
diversified into new product-market activities, functional
structures—with their emphasis on single functional
departments—were unable to manage the increased
complexity of the entire business
Divisional structure
Advantages
1. The focus on a division’s products and markets—by the
divisional
executives—provides the corporation with an enhanced
ability to respond quickly to important changes.
2. Since there are functional departments within each division
of the corporation, the problems associated with sharing
resources across functional departments are
minimized.
Divisional structure
Disadvantages
1. It can be very expensive; there can be increased costs
due to the duplication of personnel, operations, and
investment since each division must staff multiple
functional departments.
2. There also can be dysfunctional competition among
divisions since each division tends to become concerned
solely about its own operations.
Divisional structure
There are two variations of the divisional structure form:
the strategic business unit (SBU) and holding company
structures.
 Divisional structure : Stategic
Business Unit (SBU)
• With an SBU structure, divisions with similar products,
markets, and/or technologies are grouped into homogeneous
units to achieve some synergies.
• For example, ConAgra, a $13 billion food producer, has put
its diverse businesses into three primary SBUs: food service
(restaurants), retail (grocery stores), and agricultural products.
Advantages
• TheSBU structure makes the task of planning and control
by the corporate office more manageable.
• Also,with greater decentralization of authority, individual
businesses can react more quickly to important changes in
the environment than if all divisions had to report directly
to the corporate office.
Disadvantages
• Since the divisions are grouped into SBUs, it may become
difficult to
achieve synergies across SBUs.

• If
divisions in different SBUs have potential sources of
synergy, it may become difficult for them to be realized.
Divisional structure :Holding
Company
• holding company structure is appropriate when the
businesses in a corporation’s portfolio do not have much in
common. Thus, the potential for synergies is limited.
• Companies such as Berkshire Hathaway and Loews use a
holding company structure to implement their unrelated
diversification strategies. Since there are few similarities
across the businesses, the corporate offices in these companies
provide a great deal of autonomy to operating divisions and
rely on financial controls and incentive programs to obtain
high levels of performance from the individual businesses.
Advantages
• Theholding company structure has the cost savings
associated with fewer personnel and the lower overhead
resulting from a small corporate office and fewer
hierarchical levels.
Disadvantages
• Major problems could arise if key divisional executives leave
the firm, because the corporate office has very little “bench
strength”— additional managerial talent ready to quickly fill
key positions.
• If problems arise in a division, it may become very difficult to
turn around individual businesses because of limited
staff support in the corporate office.
•MATRIX STRUCTURE
Matrix Structure
 Matrix Structure
Advantages Disadvantages
• Increases market responsiveness through • Dual-reporting relationships can result in
collaboration and synergies among uncertain regarding accountability
professional colleagues
• Intense power struggles may lead to
• Allows more efficient utilization of increase levels of conflict
resources
• Working relationships may be more
• Improve flexibility, coordination, and complicated and human resources
communication duplicated
• Increase professional development • Excessive reliance on group processes
through a broader range of and teamwork may impede timely
responsibility decision making
•International Operations
• Implicationsfor
Organizational
Structure
International Operations: Implications for
Organizational Structure
• As firms expand into foreign markets, they generally follow a pattern of
change in structure that parallels the changes in their strategies
• Three major contingencies that influence the chosen structure are
(1) the type of strategy that is driving a firm’s foreign operations,
(2) product diversity, and
(3) the extent to which a firm is dependent on foreign sales.
• The
primary types of structures used to manage a firm’s international
operations are:
• International division
• Geographic-area division
• Worldwide functional
• Worldwide product division
• Worldwide matrix
Manage their operations within the
constraints and demands of their
geographic market
managers view the marketplace as
homogeneous and devote relatively little
attention to local market, political, and
economic factors
market diversity becomes
large
 Global Start-Ups: A Recent Phenomenon
• LogitechInc., a leading producer of personal computer accessories,
Founded in 1982 by a Swiss national and two Italians, headquartered
both in California and Switzerland, was global from day one

What exactly is a global start-up?

Under what conditions should a company start out as a global start-up?
What does it take to succeed as a global start-up?
What is global start up ?
•A global start-up has been defined as a business
organization that, from inception, seeks to derive
significant competitive advantage from the use of
resources and the sale of outputs in multiple countries.
Conditions which makes company should going
global from the beginning
1. The required human resources are globally dispersed
2. Foreign financing may be easier to obtain and more suitable
3. Target customers in many specialized industries are located in other
parts of the world
4. Gradual move from domestic markets to foreign markets is no longer
possible
Successful management of a global start-
up
• Internalize few activities and outsource the rest.
• Successfully
handle the inevitable communication
problems and cultural conflicts
• Keep the communication and coordination costs low
How an Organization’s Structure Can Influence
Strategy Formulation
• Discussionsof the relationship between strategy and
structure usually strongly imply that structure follows
strategy
• However, an existing structure can influence strategy
formulation. Once a firm’s structure is in place, it is very
difficult and expensive to change strategy
• An organization’s structure can also have an important
influence on how it competes in the marketplace. It can
also strongly influence a firm’s strategy, day-to-day
operations, and performance.
 •Boundaryless
Organizational Design
 Boundaryless Organizational Design
• Organizations in which the boundaries, including vertical, horizontal, external,
and geographic boundaries, are permeable.
• Three approaches to making boundaries more permeable, that help to
facilitate the widespread sharing of knowledge and information :
The barrier-free type : making all organizational boundaries—internal and external—more
permeable. Teams are a central building block.

The modular and virtual types : focus on the need to create seamless relationships with
external organizations such as customers or suppliers. The modular type emphasizes the
outsourcing of noncore activities. The virtual (or network) type focuses on alliances among
independent entities formed to exploit specific market opportunities.
 A Barrier-Free Type Organization
 Enablesa firm to bridge real differences in culture, function, and goals to find
common ground that facilitates information sharing and other forms of cooperative
behavior.
 Eliminating
the multiple boundaries that stifle productivity and innovation can
enhance the potential of the entire organization.
 Creating Permeable Internal
Boundaries
• Develop among its employees the skill level needed to work in a more democratic
organization.
• From investments in high-potential individuals to investments in leveraging the talents of all
individuals.
• Teams can be an important aspect of barrier-free structures;
First, teams substitute peer-based control for hierarchical control of work activities.
Second, teams frequently develop more creative solutions to problems.
Third, by substituting peer control for hierarchical control, teams permit the removal of
layers of hierarchy and absorption of administrative tasks previously performed by specialists.
Developing Effective Relationships with External
Constituencies
• In barrier-free organizations, managers must also create flexible,
porous organizational boundaries and establish communication
flows and mutually beneficial relationships with internal (e.g.,
employees) and external (e.g., customers) constituencies.
• Create successful relationships with additional constituency—
competitors—with whom some organizations have benefited as
they developed cooperative relationships.
• By joining and actively participating in the Business Roundtable—
an organization consisting of CEOs of leading U.S. corporations
 Potential Downsides
Barnes identified several reasons for the debacle:
1. limited personal credibility—he was viewed as an “outsider”.
2. a lack of commitment to the team—everyone involved was
forced to be on the team.
3. Poor communications—nobody was told why the team was
important.
4. limited autonomy—line managers refused to give up control over
team members.
5. Misaligned incentives—the culture rewarded individual
performance over team performance.
•Modular Organization
(Outsourcing)
Modular Organization
(Outsourcing)
• an organization in which nonvital functions are outsourced, which
uses the knowledge and expertise of outside suppliers while
retaining strategic control.
• The organization becomes a central hub surrounded by network of
outside suppliers and specialists, and parts like manufacturing and
service units may be modular (can be taken away).
• The advantages of outsourcing nonvital functions in modular
company: can decrease overall cost and stimulate new product
development, can focus to other resource areas that holds more
competitive advantages, can tap into the knowledge and expertise
of its specialized supply-chain partners
Strategic Risks of Outsourcing
• Loss of critical skills, too much outsourcing can result in a
firm “giving away” too much skill and control to suppliers
• Lossof cross-functional skills, refers to the skills
acquired through the interaction of individuals in various
departments within a company
• Loss
of control over supplier, may give suppliers too
much power overthe manufacturer.
•The Virtual Organization
The Virtual Organization
•a continually evolving network of independent companies
that are linked together to share skills, costs, and access
to one another’s markets.
• Unlike the modular type, in which the focal firm maintains
full strategic control, the virtual organization is
characterized by participating firms that give up part of
their control and accept interdependent destinies.
• Benefit:
increases storage capacity, enhance the capacity
or competitive advantage of participating firms
Challenges and Risks of Virtual
Organization
• Virtualorganization demands that managers build
relationships with other companies, negotiate win-win
deals for all parties, find the right partners with
compatible goals and value, and right degree of
freedom and control
• Managers must be clear about the strategic objectives
while forming alliances
• Strategic plan is needed and must address the
diminished operational control and overwhelming need
for trust and common vision among the partners
•Boundaryless
OrGanizations
• Making Them Work
Boundaryless Organizations:
Making Them Work
• Designing an organization that :
1. Simultaneously supports the requirements of an
organization’s strategy
2. Is consistent with the demands of the environment
3. Can be effectively implemented by the people around
the manager.
-> A tall order for any manager!
Boundaryless Organizations:
Making Them Work
• Themost effective solution is usually a combination of
organizational types. That is :
• Outsourcemany parts of its value chain -> reduce costs
and increase quality
• Engagesimultaneous multiple alliances -> 1) take
advantage of technological developments; or 2)
penetrate new markets
• Break down barriers within the organization to enhance
flexibility!
Boundaryless Organizations:
Making Them Work
• Twoissues managers need to be aware of as they work
to design an effective boundaryless organization.
• First,
need to develop mechanisms to ensure effective
coordination and integration.
• Second, need to be aware of the benefits and costs of
developing strong and long-term relationships with both
internal and external stakeholders.
Facilitating Coordination and
Integration
• Achieving the coordination and integration involves much
more than just creating a new structure.
• Teams = key building blocks of the new organizational forms,
and teamwork requires new and flexible approaches to
coordination and integration.
• Douglas K. Smith, coauthor of The Wisdom of Teams, pointed
out :
“A completely diverse group must agree on a goal, put the
notion of individual accountability aside and figure out how
to work with each other. Most of all, they must learn that if
the team fails, it’s everyone’s fault.”
Facilitating Coordination and
Integration
• Managers must select a mix and balance of tools and
techniques to facilitate the effective coordination and
integration of key activities. Some of the factors that must be
considered include:
a. Common culture and shared values.
b. Horizontal organizational structures.
c. Horizontal systems and processes.
d. Communications and information technologies.
e. Human resource practices.
a. Common culture and shared
values.
• Shared goals, mutual objectives, and a high degree of trust
are essential to the success of boundaryless organizations.
• In the environments of the new organizational architectures,
common cultures, shared values, and carefully aligned
incentives are less expensive to implement and are a more
effective means of strategic control than rules, boundaries,
and formal procedures.
• Tony Hsieh, the founder of Zappos, echoes this need for a
shared culture and values as he describes his role this way. “I
think of myself less as a leader and more of being an
architect of an environment that enables employees to
come up with their own ideas.”
b. Horizontal Organizational
Structures
• These structures, which ‘groups’ control, facilitate sharing
resources and infrastructures to exploit synergies among
operating units and to create a common purpose.
• Consistent similar structures training across business units
facilitates job rotation and cross training and enhances
understanding of common problems and opportunities.
• Cross-functional teams and inter-divisional committees
and task groups represent important opportunities to
improve understanding and foster cooperation among
operating units.
c. Horizontal Systems and
Processes
• Organizational systems, policies, and procedures are the
traditional mechanisms for achieving integration among
functional units
• Beginning with basic business processes in the context of “A
collection of activities that takes one or more kinds of input
and creates an output that is of value to the customer,”
Michael Hammer and James Champy’s (1993).
• Successful reengineering lowers costs, reduces inventories and
cycle times, improves quality, speeds response times, and
enhances organizational flexibility.
•Creating Ambidextrous
Organizational Designs
• The concept of ambidexterity incorporate two challenges.
• First,
managers must explore new opportunities and adjust to volatile
markets.
• Second, managers must also effectively exploit the value of their
existing assets and competencies.
• Ambidextrous organization achieves both adaptability and alignment.
• Adaptabilityrelates to maintaining organization/products in the
volatile market (may innovate the values).
• Alignmentis the sense of integrating and coordinating activities based
on the new value created.
•A research by Charles O’Reilly and Michael Tushman investigated 35
attempts to launch breakthrough innovations undertaken by 15
business units in nine different industries.
• Companiesstructured their breakthrough projects in one of four
primary ways:
Seven were carried out within existing functional organizational structures. The
projects were completely integrated into the regular organizational and
management structure.
Nine were organized as cross-functional teams. The groups operated within the
established organization but outside of the existing management structure.
Four were organized as unsupported teams. Here, they became independent units
set up outside the established organization and management hierarchy.
Fifteen were conducted within ambidextrous organizations. Here, the
breakthrough efforts were organized within structurally independent units, each
having its own processes, structures, and cultures. However, they were integrated
into the existing senior management structure.
Research Conclusion
The ambidextrous organizational designs were more effective
than the other three designs on both dimensions: launching
breakthrough products or services (i.e., adaptation) and improving
the performance of the existing business (i.e., alignment).
•Thank
• Any Questions?