MGMT 3004 Ch. 11
Organic Organization
Organizational form characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making.
Simple Structure
Organizational structure in which the founders tend to make all the important strategic decisions as well as run the day-today operations.
Matrix Structure
Organizational structure that combines the functional structure with the M-form.
Multi-Divisional Structure (M-form)
Organizational structure that consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility.
Functional Structure
Organizational structure that groups employees into distinct functional areas based on domain expertise.
Core Rigidity
A former core competency that turned into a liability because the firm has failed to hone, refine, and upgrade the competency as the environment changed.
Organizational Structure
A key building block of organizational design that determines how the work efforts of individuals and teams are orchestrated and how resources are distributed.
Strategic Control-Andreward Systems
A key building block of organizational design; internal-governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees).
Exploitation
Applying current knowledge to enhance firm performance in the short term.
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.
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.
Mechanistic Organization
Organizational form characterized by a high degree of specialization and formalization, and a tall hierarchy that relies on centralized decision making.
Organizational Culture
The collectively shared values and norms of an organization's members; a key building block of organizational design.
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.
Formalization
An element of organizational structure that captures the extent to which employee behavior is steered by explicit and codified rules and procedures.
Specialization
An element of organizational structure that describes the degree to which a task is divided into separate jobs (i.e., the division of labor).
Hierarchy
An element of organizational structure that determines the formal, position-based reporting lines and thus stipulates who reports to whom.
Centralization
An element of organizational structure that refers to the degree to which decision making is concentrated at the top of the organization.
Exlploration
Searching for new knowledge that may enhance future performance.
Span of Control
The number of employees who directly report to a manager.
Strategy Implementation
The part of the strategic management process that concerns the organization, coordination, and integration of how work gets done. It is key to gaining and sustaining competitive advantage.
Organizational Design
The process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization.
LO 11-3 / Define organizational structure and describe its four elements.
■ An organizational structure determines how firms orchestrate employees' work efforts and distribute resources. It defines how firms divide and integrate tasks, delineates the reporting relationships up and down the hierarchy, defines formal communication channels, and prescribes how employees coordinate work efforts. ■ The four building blocks of an organizational structure are specialization, formalization, centralization, and hierarchy (see Exhibit 11.3 ).
LO 11-4 / Compare and contrast mechanistic versus organic organizations.
■ Organic organizations are characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making. ■ Mechanistic organizations are described by a high degree of specialization and formalization, and a tall hierarchy that relies on centralized decision making. ■ The comparative effectiveness of mechanistic versus organic organizational forms depends on the context.
LO 11-6 / Describe the elements of organizational culture, and explain where organizational cultures can come from and how they can be changed.
■ Organizational culture describes the collectively shared values and norms of its members. ■ Values define what is considered important, and norms define appropriate employee attitudes and behaviors. ■ Corporate culture finds its expression in artifacts, which are observable expressions of an organization's culture.
LO 11-1 / Define organizational design and list its three components.
■ Organizational design is the process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization. ■ The key components of organizational design are structure, culture, and control. ■ The goal is to design an organization that allows managers to effectively translate their chosen strategy into a realized one.
LO 11-2 / Explain how organizational inertia can lead established firms to failure.
■ Organizational inertia can lead to the failure of established firms when a tightly coupled system of strategy and structure experiences internal or external shifts. ■ Firm failure happens through a dynamic, four-step process (see Exhibit 11.2 ).
LO 11-7 / Compare and contrast different strategic control-and-reward systems.
■ Strategic control-and-reward systems are internal governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees). ■ Strategic control-and-reward systems allow managers to specify goals, measure progress, and provide performance feedback. ■ In addition to the balanced-scorecard framework, managers can use organizational culture, input controls, and output controls as part of the firm's strategic control-and-reward systems. ■ Input controls define and direct employee behavior through explicit and codified rules and standard operating procedures. ■ Output controls guide employee behavior by defining expected results, but leave the means to those results open to individual employees, groups, or SBUs.
LO 11-5 / Describe different organizational structures and match them with appropriate strategies.
■ To gain and sustain competitive advantage, not only must structure follow strategy, but also the chosen organizational form must match the firm's business strategy. ■ The strategy-structure relationship is dynamic, changing in a predictable pattern—from simple to functional structure, then to multidivisional (M-form) and matrix structure—as firms grow in size and complexity. ■ In a simple structure, the founder tends to make all the important strategic decisions as well as run the day-to-day operations. ■ A functional structure groups employees into distinct functional areas based on domain expertise. Its different variations are matched with different business strategies: cost leadership, differentiation, and integration (see Exhibit 11.6 ). ■ The multidivisional (M-form) structure consists of several distinct SBUs, each with its own profit-and-loss responsibility. Each SBU operates more or less independently from one another, led by a CEO responsible for the business strategy of the unit and its day-to-day operations (see Exhibit 11.7 ). ■ The matrix structure is a mixture of two organizational forms: the M-form and the functional structure (see Exhibit 11.9 ). ■ Exhibits 11.8 and 11.10 show how best to match different corporate and global strategies with respective organizational structures.