Chapter 12

Limitations of Personal Control

1. Excessive supervision can be demotivating. 2. Subordinates may feel there is a lack of objectivity and procedural justice, and too much favoritism, 3. Managers must devote considerable time and attention to the direct supervision of their subordinates, 4. It starts to break down as an overarching control philosophy when an organization grows in size and complexity.

Arguments for Centralization

1. It can facilitate coordination, 2. It can help ensure that decisions are consistent with organizational objectives, 3. It can avoid duplication of activities by various subunits within the organization, and 4. It can give top level managers the means ti bring about the needed organizational changes.

Arguments for Decentralization

1. Top management has less information to process and more time to focus on critical issues, 2. It is favored by motivational research because people give more to their jobs when they have greater individual freedom and control over their work, 3. It permits greater flexibility and more rapid response to environmental changes, 4. It can result in better decisions because of more local knowledge, and 4. It can increase control through autonomous subunits.

Dimensions of Organizational Structure

1. Vertical differentiation, 2. Horizontal differentiation, and 3. Integrating mechanisms.

Goal

A desired future state that an organization attempts to realize.

Standard

A performance requirement that the organization is meant to attain on an ongoing basis.

Autonomous Subunit

A subunit that has all the resources and decision-making power required to run the operation on a day-to-day basis.

Subgoal

An objective, the achievement of which helps the organization attain or exceed its major goals.

Sources of Organizational Culture

An organization's values, norms, and assumptions shared among employees are shaped by: 1. Founders or important leaders and 2. Landmark events in history

Matrix Structure

An organizational structure in which managers try to achieve tight coordination between functions, particularly R&D, production, and marketing.

Tall Hierarchies

An organizational structure with many layers of management.

Flat Hierarchies

An organizational structure with very few layers of management.

Personal Control

Control by personal contact with and direct supervision of subordinates. Can be very subjective, with the manager assessing how well subordinates are performing by observing and interpreting their behavior.

Bureaucratic Control

Control through a formal system of written rules and procedures. Relies on establishing bureaucratic standards. Almost all organizations use this. Ex: Budgets.

Organizational Controls and Incentives

Controls are an integral part of an enterprise's organizational architecture. They are necessary to ensure that an organization is operating efficiently and effectively, and in a manner that is consistent with its intended strategy. Without adequate controls, control loss occurs and the organization's performance will suffer.

Culture as a Control Mechanism

Culture can be viewed as a control mechanism that mandates expected behaviors, thereby reducing the need for bureaucratic and personal controls. Can be dysfunctional if cultural norms are crazy, like 12 hour work days at Microsoft.

Output Controls

Goals that are set for units or individuals to achieve and monitoring performance against those goals. The performance of unit managers is then judged by their ability to achieve the goals.

Integration and Control Systems: High Integration

If a firm's environment is dynamic and competition centers on product development, a firm requires high integration and presents managers with complex control problems. Such a firm will use: 1. Bureaucratic controls for financial budgets, 2. Output controls will be applied to cross-functional product development teams, and 3. Incentive controls might link functional managers to their output targets, or the team to their output targets.

Integration and Control Systems: Low Integration

If a firm's environment is stable and integration is minimal, it will use: 1. Bureaucratic controls in the form of budgets, 2. Output controls to assess how well a function is performing, 3. Some degree of personal control with the CEO using personal supervision to influence the behavior of department heads, 4. Incentives will be tied to output targets, and 5. Cultural controls, which may reduce the need for personal controls and bureaucratic rules.

Methods to Achieve Coordination

Matrix Structure OR temporary teams to oversee the development and introduction of a new product.

A Typical Control System

Most organizations operate with a hierarchy of goals.

Integrating Mechanisms

Processes and procedures used for coordination subunits.

Strategy and Organization in the Single-Business Enterprise

Single-business enterprises are typically organized along functional lines, but the need for integration between functions will vary depending upon: 1. The business-level strategy of the firm 2. The nature of the environment in which the firm competes.

The Choice between Decentralization and Centralization

Sometimes it makes sense to centralize some decisions and decentralize others. But, 1. Decisions regarding overall firm strategy, major financial expenditures, financial objectives, and legal issues are usually centralized, 2. When the realization of economies of scale is an important factor, there tends to be greater centralization, 3. When local adaptation is important, decentralization is typically favored, and 4. Decentralization is favored in environments characterized by high uncertainty and rapid change.

Centralization

Structure in which decision-making authority is concentrated at a high level in the management hierarchy.

Decentralization

Structure in which the decision making authority is distributed to lower-level managers or other employees

Organizational Structure

The combination of the location of decision-making responsibilities, the formal division of the organization into subunits, and the establishment of integrating mechanisms to coordinate the activities of the subunits.

Incentives Control

The devices used to encourage and reward appropriate employee behavior. Incentives are usually closely tied to the performance metrics used for output controls. Control through incentives is designed to facilitate self-control, where employees regulate their own behavior in a manner consistent with organizational goals in order to maximize their chance of earning incentive-based pay.

Incentives

The devices used to encourage desired employee behavior.

People

The employees of the organization, as well as the strategy used to recruit, compensate, motivate, and retain those individuals; also refers to employees' skills, values, and orientation. Collectively, the people within an organization, the employees, constitute the human capital of an enterprise.

Horizontal Differentiation

The formal division of the organization into subunits.

Vertical Differentiation

The location of decision-making responsibilities within a structure, referring to centralization or decentralization, and number of layers in a hierarchy, referring to whether the organizational structure is tall or flat.

Organizational Processes

The manner in which decisions are made and work is performed within the organization. Ex: Process for allocating resources, Process for evaluating performance of managers, etc.

Controls

The metrics used to measure the performance of subunits and make judgments about how well managers are running them.

Strategy, Environment, and the Need for Integration

The need for integration between functions is typically greater for firms that are competing through product development and innovation. This coordination between R&D, production, and marketing functions ensure that: 1. New products are developed in a timely manner, 2. That they can be efficiently produced and delivered, and 3. That they match consumer demands.

Organizational Culture

The norms and value systems that are shared among the employees of an organization. Organizations are societies of individuals who come together to perform collective tasks, they have their own distinctive patterns of culture and subculture.

Span of Control

The number of direct reports that a manager has. The number a manager can handle depends on: 1. The nature of the work being supervised, 2. The extent to which the performance of subordinates is visible, and 3. The extent of decentralization within the organization.

Functional Structure

The organizational structure is built upon the division of labor within the firm with different functions focusing on different tasks. There might be a production function, an R&D function, a marketing function, etc.

Control

The process through which managers regulate the activities of individuals and units so that they are consistent with the goals and standards of the organization.

Implementing Strategy through Culture

The right culture can help a company execute its strategy; the wrong culture can hinder strategy execution. Firms that exhibit high performance over a prolonged period tend to have strong but adaptive cultures, where most managers care deeply about and value customers, stockholders, and employees. They also strongly value people and processes that create useful change in a firm.

Organizational Architecture

The totality of a firm's organizational arrangements, including its formal organizational structure, control systems, incentive systems, organizational culture, organizational processes, and human capital.

Methods of Control

There are several main ways of achieving control within an organization including: personal controls, bureaucratic controls, output controls, incentive controls, market controls, and control through culture.