MGMT Chapter 6

Scalar Principle

A classical management rule requiring subordinates at every level to follow the chain of command in communication (Fayol)

Unity of command:

Individual participating in the operation reports to only one supervisor.

differentiation:

the extent to which the organization is broken down into subunits. A firm with many subunits is highly differentiated.

Organizational size:

the total number of full-time or full-time equivalent employees.

Pooled interdependence:

-represents the lowest level of interdependence. units operate with little interaction, the output of the units is pooled at the organizational level. Ex. Old Navy. Each store is considered a department by the parent organization, each has its own operating budget, staff, etc. The profits or losses from each store are "added up" at the organizational level. The stores do not interact on a day to day basis.

Chain of command (Establishing reporting):

A clear and distinct line of authority among the positions in an organization. Made up of: -unity of command: suggests that each person within an organization must have a clear reporting relationship to one and only one boss. - Scalar principle: suggests that there must be a clear and unbroken line of authority that extends from the lowest to the highest position. "The buck stops here" --> someone in the organization must ultimately be responsible for every decision.

Work Teams:

Alternative to job specialization where a group is given responsibility for designing the work system to be used in performing an interrelated set of tasks. The group decides how jobs will be allocated. The group monitors and controls its own performance and has autonomy over work scheduling.

Job enlargement:

An alternative to job specialization that was developed to increase the total number of tasks workers perform. All workers perform a wide variety of tasks, which presumably reduces the level of job dissatisfaction. Ex. Maytag: the assembly line used to create washing machine water pumps was changed from 6 workers ,passing from one worker to another, to 4 workers, where each worker assembled a complete pump. Disadvantages: 1. training costs increase 2. unions have argued that pay should increase because the worker is doing more tasks. 3. in many cases the work remains boring and routine after job enlargment.

Situational view of organizational Design

Based on the assumption that the optimal design for any given organization depends on a set of relevant situational factors. Situational factors play a role in determining the best organization design for any particular circumstance. Four Basic situational factors: -technology -environment -size -organizational life cycle

H-Form Design Example (conglomerate)

Ex. Samsung serves as a supplier to Apple. GE, Tenneco, Honeywell. 1. CEO 2. Semiconductors, telecommunications, Appliances, Media The H stand for holding, as in holding company. Used by an organization made up of a set of unrelated businesses. Thus, the H form is a holding company that results from unrelated diversification. Loosely based on the product form of departmentalization. Each business or set of businesses is operated by a general manager who is responsible for its profits/losses and each general manager functions independently of the others. Corporate staff usually Evaluates performance of each business, allocates corporate resources across companies and shapes decisions about buying and selling businesses. Disadvantages: complexity associated with holding diverse and unrelated businesses. Managers find it difficult to compare and integrate activities across a large number of diverse operations. Only achieves average or weak financial performance. Many are abandoning this approach for others.

Learning Organization Examples:

Organizations that adopt this approach work to integrate continuous improvement with continuous employee learning and development. Specifically, a learning organization is one that works to facilitate the lifelong learning and personal development of all employees while continuously transforming itself to respond to changing demands and needs. Goals: improved quality, continuous improvement and performance measurement. -always upgrading employee talent, skill and knowledge. each employee learns one new thing a day, applies it to work, and consistently improves the organization. 1. Starbucks (culture) 2. Salesforce.com (performance) 3. Cisco (collaboration) Ex. Shell oil purchased an executive conference center that has classrooms and instructinonal technology.

Team based organization:

Relies almost exclusively on project-type teams, with little or no underlying functional hierarchy. People float from project to project as necessitated by their skills and the demands for projects. Ex. Cypress Semiconductor. T. J. Rodgers refuses to allow the organization to grow too large so that it cannot function this way. Whenever a unit grows too large, he splits it into smaller units. All units within the organization are small. This allows them to change directions, explore new ideas, and try new methods without dealing with a rigid bureaucratic organizational context. Apple computer and Xerox are moving toward thsi.

Sequential interdependence:

The output of one unit becomes the input for another. Moderate level of interdependence. Ex. Nissan. One plant assembles engines and ships them to a final assembly site at another plant. The plants are interdependent in that the final assembly plant must have the engines from engine assembly before it can perform its primary function of producing finished automobiles. BUT the level of interdependence is one way.

Departmentalization:

The process of grouping jobs according to some logical arrangements. -by function -by product -by customer -by location When organizations are small, the owner-manager can oversee the everyone who works there. When the organization grows, new managerial positions are created to help oversee.

Centralization:

The process of systematically retaining power and authority in the hands of higher-level managers. -decision making power and authority are retained at high level positions. -EX. McDonalds and Walmart.

Liaison role:

coordinates interdependent units by acting as a common point of contact. -this individual may not have formal authority over the group, but may facilitate the flow of information between units. Ex. Two engineering groups working on component systems for a large project might intersect through a liaison. The liaison maintains familiarity with each group as well as with the overall project. She answers questions and serves to integrate the activities of the group.

Task Force:

created when the need for coordination is acute. When interdependence is complex, a single liaison may not be enough. Instead, a task force is created by drawing one representative from each group. Ex. a college overhauling its degree requirements might establish a task force made up of representatives from each department affected by the change. Each member retains his/her regular departmental affiliation and duties but also serves on the special task force. After new requirements are agreed on, the task force is dissolved.

Lawrence and Lorsch:

Extended the idea of the environment to the US. They agreed that environmental factors influence organization design, but believed this influence varies between different units of the organization. -Each organizational unit has a unique environment and responds by developing unique attributes. -suggested that organizations could be characterized along two primary dimensions: -differentiation -integration

Authority:

Power that has been legitimized by the organization. When distributing authority, managers must address delegation and decentralization.

The Great Business Divide

Product managers view common bases of departmentalization differently than head of marketing or head of finance would.

Structural Coordination:

-Management Hierarchy -Task Forces -Rules and Procedures -Integrating Departments -Managerial Liaison Roles -Electronic Coordination

Establishing Reporting Relationships:

-Unity of command -Scalar Principle -Span of control

Five alternatives to Job specialization:

-job rotation -job enlargement -job enrichment -job characteristics approach -work teams

Negatives of specialization:

1. workers may become bored or dissatisfied.

Organizational life cycle:

Although no clear patter explains changes in size, many organizations progress through a four-stage organizational life cycle. 1. The birth of the organization 2. Youth: characterized by growth and expansion of organizational resources. Ex netflix and starbucks. 3. Midlife: a period of gradual growth evolving eventually into stability. Ex. Halliburton and Chevron 4. Maturity: a period of stability, perhaps eventually evolving into decline. Ex. Ford and Boeing -A key challenge for managers is to avoid allowing a mature organizations decline. They must be alert for opportunities to reenergize their organization with new products and new markets. -As an organization passes from one stage to the next, it becomes bigger, more decentralized, and more mechanistic. It also becomes more specialized, devotes more attention to planning and takes on increasingly large staff component. Finally, coordination demands increase, formalization increases, organizational units become more geographically dispersed, and control systems become more extensive. -Size and design are clearly linked, and this link is dynamic because of the organizational life cycle.

Customer Departmentalization:

Grouping activities to respond to and interact with specific customers or customer groups. Ex. leading activities in most banks are usually tailored to meet the needs of different kinds of customers (business, consumer, mortgage, and loans) Advantage: the organization is able to use skilled specialists to deal with unique customers. It takes one set of skills to evaluate an individual's balance sheet and lend $5,000,000 and another set of skills to to examine an individual's creditworthiness and lend $40,000 for a new car. However, a fairly large administrative staff is required to integrate the activities of the various departments. Coordination is necessary to make sure that the organization does not overcommit itself in any one area.

Location Departmentalization:

Grouping jobs on the basis of defined geographic sites or areas. These regions could be different hemispheres, or a few blocks. Ex. transportation companies, police departments and the Federal Reserve Bank. Advantage: allows the organization to respond easily to unique customer and environmental characteristics in various regions. Disadvantage: a larger administrative staff may be required if the organization must keep track of units in scattered locations.

Virtual Organizational Example:

Little or no formal structure. Typically only has handful of permanent employees and a very small staff and administrative headquarters facility. As the needs of the organization change, the managers bring in temporary workers, lease facilities and outsource basic support services to meet the demands of each situation. Ex. TLG Research Inc was founded as a virtual organization focused on marketing research for auto, aviation, marine and industrial markets for equipment and replacement parts. Currently consists of an in-house project management staff of ten people and a virtual network of industry professionals. Also has global business and research sources in Europe, Latin America and Asia to which it renders for consulting and research services. -Jobs.com matches job seekers to job openings. -It allows an individual to search for a job by location, salary range, field and level of experience. -It allows the candidates to submit a resume online and a recruiter to receive resumes from candidates. *No products are created. They match individuals.

Tall Organization:

More layers in the organizational hierarchy. -more expensive because of the larger amount of managers involved. -fosters more communication problems.

Job specialization:

The first building block. the degree to which the overall task of the organization is broken down and divided into smaller component parts. Ex. Walt Disney did everything in the beginning-drawing, voicing, marketing etc. As the business grew, he hired employees to perform functions. -Leads to specialization.

Reciprocal interdependence:

When activities flow both ways between units. Most complex. Ex. Marriott Hotel. Reservations department, front desk check in, and housekeeping are all reciprocally interdependent. Reservations has to provide front desk with information about how many guests to expect each day and housekeeping needs to know which rooms require priority cleaning. If one unit does not correctly do the job, all other units are affected.

Span of Management or span of control (establishing reporting):

The number of people who report to a particular manager. -determining how many people will report to each manager -crucial factor in structuring organizations but that there are no universal, cut and dried prescriptions for an idea span.

Span of Control

The number of subordinates reporting to a supervisor (Graicunas)

Delegation:

The process by which a manager assigns a portion of his or her total workload to others. -the establishment of a pattern of authority between a superior and one or more subordinates. Three steps: 1. Manager assigns responsibility or gives the subordinate a job to do. Ex. placing them in charge of a task force. 2. The individual is given the authority to do the job. Ex. the employee is given authority to needed to obtain information from confidential files. 3. The manager establishes the subordinate's accountability, or the subordinate accepts an obligation to carry out the task assigned by the manager. Ex. CEO of Autozone will sign off for each unit has certified his/her own results as being accurate. This helps them avoid accounting scandals.

Coordination

The process of linking the activities of the various departments of the organization. -departments and work groups are interdependent. They depend on one another for information and resources to perform their respective activities. The greater interdependence, the greater coordination.

The leading way

leading a firm toward a more flat organization.

Hierarchy:

place one manager in charge of interdependent departments or units. Ex. Walmart distribution centers, major activities include receiving and unloading bulk shipments from railroad car and loading other shipments onto trucks for distribution. The two groups (receiving and shipping) are interdependent in that they share the loading docks to and some equipment. To ensure coordination and minimize conflict, one manager is in charge of the whole operation

Mechanistic Organization:

similar to the bureaucratic model. Most frequently found in stable environments. Free from uncertainty, orgnizations structured their activities in rather predictable ways by means of rules, specialized jobs and centralized authority. Ex. Abercrombie and Fitch. Each store has prescribed methods for store design and merchandise ordering processes. Little or no deviation from those methods are allowed.

Job Rotation:

systematically moving employees from one job to another. Ex. an employee might unload trucks on Monday, carry inventory on Tuesday, verify invoices on Wednesday, etc. The jobs do not change, but workers move from job to job. -has not been successful in enhancing employee satisfaction. Workers may be satisfied at first, but the satisfaction begins to wane. -Most often used a training skill to increase employee flexibility. Ex. TSA moves security agents multiple times a day. Disney rotates its pool lifeguards multiple times per day.

Job Enrichment:

-A more comprehensive approach that assumes increasing the range and variety of tasks is not sufficient by itself to improve motivation. An alternative to job specialization that attempts to increase both the number of tasks a worker does and the control the worker has over the job. -Managers remove some controls from the job, delegate more authority to employees, and structure the work in complete, natural units. -Managers continually assign new and challenging tasks, increasing employee's opportunity for growth and advancement. Disadvantages: 1. work systems need to be analyzed before enrichment, but this rarely happens. Managers rarely ask for employee preferences when enriching jobs.

Job Characteristics Approach:

-Takes into account work systems and employee preferences. An alternative to job specialization that suggests that jobs should be diagnosed and improved along five core dimensions, taking into account both the work systems and employee preferences. 1. skill variety: the number of things a person does in a job 2. Task identity: the extent to which the worker does a complete or identifiable portion of the total job. 3. Task significance: the perceived importance of the task 4. Autonomy: the degree of control the worker has over how the work is performed 5. Feedback: the extent to which the worker knows how well the job is being performed. - these dimensions lead to: 1. higher motivation 2. higher quality performance 3. higher satisfaction 4. lower absenteeism and turnover Ex. Southwestern Division of Prudential Insurance uses this approach in its claim division -not the final answer.

Determinants of centralization and decentralization:

-the external environment. (the greater perplexity and uncertainty, the more decentralized. -the history of the organization: firms have a tendancy to do what they have done in the past. -the nature of decisions being made. (the costlier/risker the decision, the more likely they are to centralize.) -IBM has moved toward decentralization to speed up the company's ability to make decisions, introduce new products and respond to customers. -Toyota recently promised to provide more autonomy to country managers. -Royal Dutch shell previously operated in a decentralized manner but is now operating in a centralized manner. CEO, peter Voser said "fewer people will make strategic decisions" -Yahoo initiated a change to become more centralized -Best Buy created authority for its chief officer with the "At your service" feature.

Joan Woodward

-the link between tech and organization design was first recognized by Joan Woodward. Woodward concluded there was no relationship between the size of an organization and its design. -discovered three basic forms of technology: **unit small batch and mass production organizations tend to have more bureaucracy

Matrix Design Example:

1. CEO 2. Vice Presidents of various areas. 3. Project Managers for A, B, and C. Based on two overlapping bases of departmentalization. The foundation of a matrix. is a set of functional departments. A set of product groups, or temporary departments, is then super-imposed across the functional departments. Employees in a matrix are simultaneously members of a functional department (such as engineering) and of a project team. -At the top of the organization are functional units headed by vie presidents of engineering, production, finance, and marketing. Each of these managers has several subordinates. Along the side of the organization are a number of positions called project manager. Each project manager heads a project with a group composed of representatives or workers from the functional departments. Multiple command structure. Individuals report to project managers and functional superiors. Project teams may work on the creation of a new product. A person may be a part of several projects as well as a functional group. Most often used in: 1. when there is strong pressure from the environment. Ex. intense external competition. 2. when large amounts of information need to be processed. Ex. capacity for processing information. 3. When there is pressure for shared resources. Ex. the company with ten product departments would allow all the departments to share the company's scarce marketing resources. Six primary advantages: 1. Enhance flexibility because teams can be created, redefined and dissolved. 2. team members are likely to be highly motivated and committed to the organization. 3. Employees have considerable opportunity to learn new skills. 4. Provides the opportunity to take full advantage of human resources 5. Enhances cooperation 6. Managers are able to focus more on long term planning. Disadvantages: 1. Employees may be uncertain about reporting relationships 2. Some managers see the matrix as a form of anarchy in which hey have unlimited freedom. 3. dynamics of group behavior-takes longer to make decisions, may be dominated by one person, and may compromise too much. 4. More time is required for coordinating task related activities. Ex. Ford used this for the Ford Focus model. Martha Stewart uses this for her lifestyle business. Her organization had media and merchandising groups layered with specific experts in cooking, crafts, and weddings. **Employees often have two bosses: Vice presidents as well as project managers.

U-Form Design Example:

1. CEO 2. Vice presidents of various departments 3. Plant Managers 4. Shift Supervisors Based on the functional approach to departmentalization. The unity form. The members and units are grouped into functional departments such as marketing and production. -There must be considerable coordination across all departments. This coordination is most commonly the responsibility of the CEO and senior management. none of the functional areas can survive without the others. Ex. marketing needs products from operations to sell and funds from finance to pay for advertising. Ex. WD-40, McIlhenny. Advantages: allows the organization to staff all important positions with functional experts, and it facilitates coordination and integration. Disadvantage: promotes a functional rather than organizational focus and tends to promote centralization. -most commonly used in small organizations because an individual CEO can easily and coordinate the entire organization. As an organization grows, the CEO finds staying on top of all functions increasingly difficult.

Three basic forms of technology:

1. Unit or small batch: custom made or customer specific and produced in small quantities. Ex. Tailor, print shop, photography studio. 2. Large batch or mass production technology: the product is manufactured in assembly line fashion. Ex. manufacturers like Subaru, Whirlpool, or Philips. 3. Continuous-process technology: raw materials are transformed to a finished product by a series of machine or process transformations. The composition of the materials themselves are changed. Ex. petroleum refineries like Exxon mobile and Shell and chemical refineries such as Dow chemical and Hoechst AG.

Benefits of specialization:

1. workers performing small, simple tasks will become very proficient. 2. Transfer time between tasks decreases. No stopping and starting. 3. The more narrowly defined a job is, the easier it is to develop equipment to assist with the job. 4. When an employee who specializes is absent or resigns, the manager can train a new employee for a relatively low cost. **although specialization is thought of in terms of operating jobs, it has been extended to managerial and professional levels.

The Future of Organization Design:

Current Trends in Organizational Design: -Team based organization -Virtual organizations (do not exist physically. They exist logically. Sometimes occurs across companies) -Learning organizations (focus on knowledge.

M-Form Design:

Ex. Hilton Hotels, Walt Disney company (theme parks, movies, merchandise) and HP (computers, printers, scanners, electronic medical equipment) 1. CEO 2. Various types of hotels Becoming increasingly popular, a product form of organization is also used; in contrast to the H form approach, however, the divisions are related. The M stands for multidivisional. Based on multiple businesses in related areas operating within a larger organizational framework. This design results from a strategy of related diversification. -Some strategies are extremely decentralized down to the divisional level; others are centralized at the corporate level. -opportunities for coordination and shared resourced represent one of the biggest advantages of M form design. Hilton's market research and purchasing departments are centralize. This, a site selector can visit a city and look for possible locations for different Hilton brands, and a buyer can purchase bed linens for multiple Hilton brands from the same supplier. -optimizes internal competition and cooperation. Healthy competition for resources among divisions can enhance effectiveness but cooperation should also be promoted Research suggests that the M form organization that can achieve and maintain this balance will outperform large U form and H form organizations.

Functional Departmentalization:

Grouping jobs involving the same or similar activities. (Ex. finance, production, marketing etc.) -the most common base for departmentalization Three advantages: 1. each department can be staffed by experts in that area. 2. Supervision is facilitated because an individual manager needs to be familiar with only a relatively narrow set of skills. 3. Coordinating activities inside each department is easier. Disadvantages: 1. decision making is slower and bureaucratic. 2. employees may concentrate too narrowly on their tasks and lose sight of the organization as a whole. 3. Accountability and performance become increasingly difficult to monitor. Ex. determining whether a new product fails because of production deficiencies or poor marketing campaign.

Tom Burns and G. M. Stalker/organization environments:

Identified two extreme forms of organizational environment: stable (which remains constant over time) and unstable (subject to uncertainty or rapid change). -Organizations in stable environments tended to have a different kind of design than organizations in unstable environments. -The two kinds of design that emerged were called mechanistic and organic organization.

Flat Organization:

Less layers in the organizational hierarchy. -more efficient than a tall organization. Ex. Sears's flat organization led to higher levels of employee productivity and morale. -improved communication technologies suh as email and text allow managers to stay in touch with a larger number of subordinates than was possible a few years ago. -manager has more administrative and supervisory responsibility -experts agree that businesses can function effectively with fewer layers of organization than they currently have. Ex. Franklin mint reduced its management layers from 6 to 4 which increased the CEO's span of management from 6 to 12. Cadbury eliminated a layer of management by separating the CEO and the company's operating unit heads to speed up decision making.

Bureaucracy:

Max Weber, a German sociologist views bureaucracy as logical, rational and efficient. a model of organization design based on a legitimate and formal system of authority. -the one "best way" to do things. According to Weber, there are 5 basic characteristics: 1. The org should adopt a distinct division of labor, and each position should be filled by an expert. 2. The org should develop a consistent set of rules to ensure that task performance is uniform. 3. the org should establish a hierarchy of positions or offices that creates a chain of command from top to bottom. 4. Managers should conduct business in an impersonal way and maintain an appropriate social distance between themselves and their subordinates. 5. Employment and advancement in the org should be based on technical expertise, and employees should be protected from arbitrary dismissal. Ex. government agencies and universities, large labor unions. Advantages: improves efficiency, prevent favoritism, make procedures clear to everyone. Disadvantage: inflexible and rigid. making exceptions is often difficult. neglects social processes.

Product Departmentalization:

grouping activities around product or product groups. -Most larger businesses adopt this form of departmentalization for grouping activities at the business or corporate level. Advantages: 1. all activities associated with one product can be easily integrated and coordinated. 2. The speed and effectiveness of decision making are enhanced. 3. the performance of individual products can be assessed easily and objectively, improving the accountability of departments for the results of their activities. Disadvantages: 1. managers in each department may focus on their own product to the exclusion of the rest of the organization. Ex. a marketing manager may see his/her primary duty as helping the group rather than helping the overall organization. 2. administrative costs rise because each department must have its own functional specialists for areas such as market research and financial analysis.

Organic Organization:

most often found in unstable environments. Uncertainty dictates a higher level of flexibility Ex. Motorola and Apple both face rapid technological change and use organic designs.

Integrating departments:

occasionally used for coordination. Similar to task forces, but more permanent. Has permanent as well as temporary members. Has more authority than a task force and may be given a budget.

Electronic Coordination:

tech makes it easier to communicate, which enhances coordination. Ex. electronic scheduling, electronic local networks, Ex. Bechtel requires its contractors, suppliers and subcontractors to use a new web-based communication system. This saves them thousands of dollars for every big construction project.

Integration:

the degree to which the various subunits must work together in a coordinated fashion. Ex. If each unit competes in a different market and has its own production facilities, they may need little integration. Lawrence and Lorsch reasoned that the degree of differentiation and integration needed by an organization depends on the stability of the environment that its subunits face.

Organizational structure and design:

the overall set of elements that can be used to configure an organization. elements: job specialization departmentalization reporting relationships distribution of authority coordination

Organization structure and design:

the overall set of structural elements that can be used to configure the total organization. A means to implement strategies and plans to achieve organizational goals.

decentralization:

the process of systematically delegating power and authority throughout the organization to middle and lower level managers. -one end of a continuum anchored at the other end by centralization. -decision making power and authority are delegated as far down the chain of command as possible. Ex. GE and Johnson & Johnson

A hybrid Design Example:

**H form and M form. An organization may have 5 related divisions and one unrelated decision. Few Companies use a design in its pure form; most firms have one basic organization design as a foundation for managing the business but maintain sufficient flexibility so that temporary or permanent modifications can be made for strategic purposes. 1. Corporate Members, Market Professionals, Academia and others. 2. Board of directors 3. Accreditation council and Standards council 4. Candidacy committee and Self Study Handbook committee 5. Governance committee, strategic issues committee, executive committee, membership committee, and finance & audit committee. **You move from department to department, minimizing disturbance to existing customers and projects.

Interdependence:

-pooled -sequential -reciprocal

technology:

consists of the conversion processes used to transform inputs into outputs. Most important technologies are called core technology. Could be operational or service sectors. Ex. Investment firm, Fidelity uses technology to transform investment dollars to income and union carbide uses natural resources to manufacture chemical products. -the link between tech and organization design was first recognized by Joan Woodward. Woodward concluded there was no relationship between the size of an organization and its design.

Environment:

environmental elements and organization design are specifically linked in a number of ways.

Rules and regulations:

handles routine activites. Ex. Walmart. An outgoing struck shipment has priority over an incoming rail shipment. -not affective when coordination problems are complex or unusual.