Chapter 11

Functional structure drawbacks

1. Frequently lacks effective communication channels across departments. 2. Can't effectively address a higher level of diversification, which stems from further growth.

(Organizational Inertia) The pattern for successful firms often follows a particular path:

1. Mastery of, and fit with, the current environment. 2. Success, usually measured by financial measurements. 3. Structures, measures, and systems to accommodate and manage size. 4. A resulting organizational inertia that tends to minimize opportunities and challenges created by shifts in the internal and external environment.

Strategic Management

An integrative management field that combines analysis, formulation, and implementation in the quest for competitive advantage.

Formalization

An organizational element that captures the extent to which employee behavior is steered by explicit and codified rules and procedures.

intrinsic motivation in a task is highest when an employee has:

Autonomy (about what to do) Mastery (how to do it) Purpose (why to do it)

Typical M-Form Structure

Board of Directors Corporate R&D -- President -- Corporate HQ Staff CEO SBU 1-4

Strategic Control and Reward Systems

Internal-governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees). These systems allow managers to specify goals, measure progress, and provide performance feedback.

Exploration

Searching for new knowledge that may enhance a firm's future performance.

Span of Control

The number of levels of hierarchy, in turn, determines the managers' span of control—how many employees directly report to a manager

Organizational Design

The process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization.

Organizational Inertia

A firm's resistance to change the status quo, which can set the stage for the firm's subsequent failure.

Organizational Structure

A key to determining how the work efforts of individuals and teams are orchestrated and how resources are distributed.

Network Structure

A network structure allows the firm to connect centers of excellence, whatever their global location. The firm benefits from communities of practice, which store important organizational learning and expertise.

Ambidextrous Organization

An organization able to balance and harness different activities in trade-off situations. Ambidexterity is a firm's ability to address trade-offs not only at one point but also over time. It encourages managers to balance exploitation with exploration.

How does Organizational culture change?

An organization's culture can turn from a core competency into a core rigidity if a firm relies too long on the competency without honing, refining, and upgrading as the firm and the environment change.

Exploitation

Applying current knowledge to enhance firm performance in the short term.

Artifacts

Artifacts include elements such as the design and layout of physical space (e.g., cubicles or private offices); symbols (e.g., the type of clothing worn by employees); vocabulary; what stories are told (the Zappos pizza-ordering example).

Matrix structure—disadvantages

Creates additional organizational complexity - Can slow decision-making - Performance appraisals more difficult - Increases admin costs Difficult to implement - Employees have trouble reconciling goals - Multiple supervisors

Hierarchy

Determines the formal, position-based reporting lines and thus stipulates who reports to whom. - Can be a tall or flat structure

Input Controls

Mechanisms in a strategic control-and reward system that seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures that are considered prior to the value-creating activities. The use of budgets is key to input controls. Managers set budgets before employees define and undertake the actual business activities. For example, managers decide how much money to allocate to a certain R&D project before the project begins.

Output Controls

Mechanisms in a strategic control-and reward system that seek to guide employee behavior by defining expected results (outputs), but leave the means to those results open to individual employees, groups, or SBUs.

Organizational Culture

Organizational culture describes the collectively shared values and norms of an organization's members. Values define what is considered important. Norms define appropriate employee attitudes and behaviors. Corporate culture finds its expression in artifacts.

Matrix Structure

Organizational structure that combines the functional structure with the M-form.

The key building blocks of an organizational structure are:

Specialization Formalization Centralization Hierarchy

ROWEs

These days, more and more work requires creativity and innovation, especially in highly developed economies. As a consequence, so-called results-only-work-environments (ROWEs) have attracted significant attention. ROWEs are output controls that attempt to tap intrinsic (rather than extrinsic) employee motivation, which is driven by the employee's interest in and the meaning of the work itself.

Can organizational culture be the basis of a firm's competitive advantage?

Yes, if the culture makes a positive contribution to the firm's economic value creation and obeys the VRIO principles. Organizational culture is an especially effective lever for new ventures due to its malleability. Firm founders, early-stage CEOs, and venture capitalists, therefore, should be proactive in attempting to create a culture that supports a firm's economic value creation

Founder Imprinting

A process by which the founder defines and shapes an organization's culture, which can persist for decades after his or her departure.

Groupthink

A situation in which opinions coalesce around a leader without individuals critically evaluating and challenging that leader's opinions and assumptions.

Specialization

An organizational element that describes the degree to which a task is divided into separate jobs (i.e., the division of labor).

Centralization

An organizational element that refers to the degree to which decision making is concentrated at the top of the organization. - Top-down strategic planning takes place in highly centralized organizations. - Planned emergence is found in more decentralized organizations.

M-Form

Organizational structure that consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility.