Ch 11- Organizational Design: Structure, Culture, and Control

inertia

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

Socialization

a process whereby employees internalize an organization's values and norms through immersion in its day-to-day operations

Blue Ocean

ambidextrous organization, one that enables managers to balance and harness different activities in trade-off situations

Holacracy

an organizational structure in which decision-making authority is distributed through loose collections or circles of self-organizing teams

How does organizational culture change?

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 primary means of cultural change is for the corporate board of directors to bring in new leadership at the top

Co-opetition

competition and cooperation at the same time

Form structure and matrix

Form <--- Business Strategy | Structure <- corporate structure | Matrix <- global strategy

global expansion framework

Global strategy- Mform 1 or 2 focused on product Transnational strategy- Matrix International strategy- Functional Multidomestic strategy- Mform 1 or 2 focused on geography? MATRIX

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. What's missing, of course, is the conscious strategic decision to change the firm's internal environment to fit with the new external environment, turning four steps leading to the endpoint of inertia (Option A) into the kind of a virtual circle where the firm essentially reboots and reinvents itself (Option B)

ambidexterity

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

organizational structure

A key to determining how the work efforts of individuals and teams are orchestrated and how resources are distributed Key building blocks: 1. Specialization 2. Formalization 3. Centralization 4. Hierarchy

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. Reinforced by their strong preference to recruit, retain, and promote employees who subscribe to the same values. Downside: group think

groupthink

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

Disadvantages of M-form

Adding another layer of corporate hierarchy (increasing bureaucracy, red tape, and sometimes duplication of efforts. It also slows decision making) SBUs frequently end up competing with each other. A high-performing SBU might be rewarded with greater capital budgets and strategic freedoms; low-performing businesses might be spun off. SBUs compete with one another for resources such as capital and manage- rial talent, but they also need to cooperate to share competencies. Co-opetition

ambidextrous organization

An organization able to balance and harness different activities in trade-off situations

exploitation

Applying current knowledge to enhance firm performance in the short term

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)

mechanistic organization

Characterized by a high degree of specialization and formalization and by a tall hierarchy that relies on centralized decision making

organic organization

Characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making. tend to be correlated with a fluid and flexible information flow among employees in both horizontal and vertical directions; faster decision making; and higher employee motivation, retention, satisfaction, and creativity. Typically exhibit a higher rate of entrepreneurial behaviors and innovation. Organic structures allow firms to foster R&D and/or marketing, for example, as a core competency. Firms that pursue a differentiation strategy at the business level frequently have an organic structure

strategic control and reward systems

Internal-governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees). additional control-and-reward systems: organizational culture, input controls, and output controls

Disadvantages of functional structure

Lacks effective communication channels across departments (fix by setting up cross-functional teams where members come from different functional areas to work together on a specific project or product. Each team member reports to two supervisors) Cannot effectively address a higher level of diversification, which often stems from further growth

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. Firms frequently tie employee compensation and rewards to predetermined goals

simple structure

Organizational structure in which the founders tend to make all the important strategic decisions as well as run the day-to-day operations Generally is used by small firms (single product) with low organizational complexity. Flat hierarchies operated in a decentralized fashion. They exhibit a low degree of formalization and specialization

multidivisional structure (M-form)

Organizational structure that consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility. Each SBU is operated more or less independently from one another, and each is led by a CEO (or equivalent general manager) who is responsible for the unit's business strategy and its day-to-day operations. Firms using the M-form organizational structure to support a related-diversification strategy tend to concentrate decision making at the top of the organization. Doing so allows a high level of integration. It also helps corporate headquarters leverage and transfer across different SBUs the core competencies that form the basis for a related diversification (M-form 1: cooperative) Firms using the M-form structure to support an unrelated-diversification strategy often decentralize decision making. Doing so allows general managers to respond to specific circumstances, and leads to a low level of integration at corporate headquarters. (M-form 2: competitive) Multi-product. Massive structure w/ board of directors

functional structure

Organizational structure that groups employees into distinct functional areas based on domain expertise. Focus on business strategy As sales increase, firms generally adopt a functional structure. allows for a higher degree of specialization and deeper domain expertise than a simple structure. Higher specialization also allows for a greater division of labor, which is linked to higher productivity. Centrally coordinated by the CEO, relatively flat structure Break down into cost leadership, differentiation, blue ocean

organizational culture

The collectively shared values and norms of an organization's members; a key building block of organizational design. Values- what is considered important Norms- appropriate employee attitudes and behaviors learn about an organization's culture through socialization Corporate culture finds its expression in artifacts (layout, etc.)

span of control

The number of employees who directly report to a manager

Specialization

describes the degree to which a task is divided into separate jobs (the division of labor) requires a trade-off between breadth and depth of knowledge. High degree of the division of labor increases productivity, but can also have unintended side-effects such as reduced employee job satisfaction due to repetition of tasks. Bigger firms- greater specialization

Hierarchy

determines the formal, position-based reporting lines and thus stipulates who reports to whom Tall structure with narrow span of control or flat structure with wide span of control

Matrix Structure and Global Strategy

international strategy- differentiation strategy- functional organizational structure multidomestic strategy- multidivisional organizational structure global-standardization strategy- cost-leadership strategy- multidomestic strategy Transnational- global matrix

Why does strategy implementation often fail?

managers are unable to make the necessary changes due to the effects on resource allocation and power distribution within an organization

Cost leadership

managers must create a functional structure that contains the organizational elements of a mechanistic structure—one that is centralized, with well-defined lines of authority up and down the hierarchy. Needs to create incentives to foster process innovation in order to drive down cost. Because the firm services the average customer, and thus targets the largest market segment possible, it should focus on leveraging economies of scale to further drive down costs.

Differentiation

managers rely on a functional structure that resembles an organic organization. Decision making tends to be decentralized. Functional structure should be set up to allow the firm to reap economies of scope from its core competencies, such as by leveraging its brand name across different products or its technology across different devices.

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 Budgets

matrix structure

organizational structure that combines the functional structure with the M-form. The firm is organized according to SBUs along a horizontal axis, but also has a second dimension of organizational structure along a vertical axis (geographic area) use a global matrix structure to pursue a transnational strategy In a global matrix structure, the geographic divisions are charged with local responsiveness and learn- ing. At the same time, each SBU is charged with driving down costs through economies of scale and other efficiencies cross-functional teams some firms have replaced the more rigid matrix structure with a network structure.

exploration

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

4 basic organizational structures

simple Functional Multi-divisional Matrix

three key levers that managers have at their disposal when designing their organizations for competitive advantage

structure, culture, and control

Centralization

the degree to which decision making is concentrated at the top of the organization. Centralized decision making often correlates with slow response time and reduced customer satisfaction. Top-down strategic planning takes place in highly centralized organizations. Planned emergence is found in more decentralized organizations.

Formalization

the presence of rules and regulations governing how people in the organization interact. Not bad (sometimes necessary), but high degree of formalization can slow decision making, reduce creativity and innovation, and hinder customer service

organizational design

the process of creating, implementing (number-one reason boards of directors fire CEOs), monitoring, and modifying the structure, processes, and procedures of an organization key components of organizational design are structure, culture, and control. Goal is to design an organization that allows managers to effectively translate their chosen strategy into a realized one.