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

Mechanistic vs. Organic Organizations

Mechanistic: -much specialization and formulation -tall hierarchies -centralized decision making Organic: -Little specialization and formalization -Flat organizational structure -Decentralized decision making

Strategic Management

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

Organizational Culture

describes the collectively shared values and norms of an organization's members. o Values define what is considered important o Norms define appropriate employee attitudes and behaviors Expressed through artifacts: -symbols -events -vocabulary, etc.

Founder imprinting

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

Groupthink

situation in which opinions coalesce around a leader without individuals crucially evaluating and challenging that leader opinions and assumptions

The key components and goals of organizational design are

structure culture control the goal of organizational design is to to design an organization that allows managers to effectively translate their chosen strategy into a realized one

Organizational structure building bliocks

-specialization -Formalization -Centralization -Hierarchy

Organizational Intertia

A firm's resistance to change the status quo, which can set the stage for the firm's subsequent failure -often the result of success in a particular market during a particular time; it becomes difficult to argue with success

Open innovation

A framework for R&D that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas and inventions, but also from external ones.

Building blocks- Specialization

Describes the degree to which a task is divided into separate jobs (division of labor) - larger firms: high degree of specialization -smaller ventures: low degree of specialization ** can give broader view of company ** increases productivity -can reduce job satisfaction due to repetition

Organization for innovation

Firms have been shifting from closed innovation (products developed internally) to open innovation Closed Innovation: -costly and time consuming -not-invented-here syndrome Open innovation: -need to enhance absorptive capacity --ability to understand, evaluate, and integrate external technology

Matrix Structure

Leverages SBU (M-form) benefits: -Domain expertise -Economies of scale -Efficient processing of information And functional structure benefits: -Responsiveness -Decentralized focus

Based on an optimal mix of coss, skills and PESTEL Factors...

MNEs are organized as global collaboration networks that perform business functions throughout the world.

How is multidivisional structure organized

Organized along such dimensions as product line, geography, or type of customers Each strategic business unti(SBU): -has profit-and-loss (P&L) responsibility -Operated independently -Led by a unique CEO who is: --responsible for SBU strategy --responsible for day-to-day operations

Organizational Design

The process of creating, implementing, monitoring, and modifying the structure, processes and procedures of an organization Implementation transforms strategy into action and business models These transformations often require organiztional changes

Simple structure

Used by small firms with low organizational complexity The founders usually play major role --Strategic decisions + day-to-day operations. Professional managers and sophisticated systems are not usually in place.

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 Seeks to define & direct employee behavior through: --Explicit, codified rules --Standard operating procedures Considered before employees make business decisions Example: a budget --Managers allocate money to R&D projects before they begin

How does organizational culture change?

o An organization's culture can be one of its strongest assets, but also its greatest liability o 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 environment changes

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 Guides employee behavior by: Defining expected results (outputs), but Intrinsic vs Extrinsic motivation

organizational inertia unusual patterns

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

Typical Fucntional (U-Form) Structure

Disadvantages: Suboptimal communication across departments Cannot effectively address greater diversification

Where Do Organizational Cultures Come From?

Founder imprinting Examples: Steve Jobs, Walt Disney, Michael Dell, Oprah Winfrey, Martha Stewart, Bill Gates Beware of groupthink --When individuals don't challenge a leader's opinion Firm's values -Specially when they are linked to a reward system

The Multidivisional (M-form) Structure - Related diversification

Related diversification: Cooperative M-Form -centralized decision making -integrated at corporate headquarters -co-opetition among SBUs

Apple vs sony on digit music business

Sony launched portable music players, owns substantial record company, could produce stylish electronics. Yet, Apple dominated the business...why? Apple succeeded by combining IPod with rights management regime (that is merge hardware and content) Sony was not organized to jointly explore those options (organized into distinct divisions)

Building Blocks-Hierarchy - span of control

The number of employees who directly report to a manager -narrow span of control - tall organization -wide span of control - flat organization

Building Blocks-Centralization

an organizational element that refers to the degree to which design 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

Building Blocks-Hierarchy

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

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

o Can organizational culture be the basis of a firm's competitive advantage? § By combining theory and empirical evidence, we can see that organizational culture can help a firm gain and sustain competitive advantage if the culture makes a positive contribution to the firm's economic value creation and obeys the VIRO 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

Activities necessary to implement strategic choices (organizational design and competitive advantage)

-Collect Information -Circulate information to appropriate people -bring people together to make decisions -carry out decisions

Typical functional structure layout

A functional structure allows for an efficient top-down and bottom-up communication chain between the CEO and the functional departments, and thus relies on a relatively flat structure A functional structure works when a firm has narrow focus and small geographic footprint Strategy & Structure: Single business .. dominate business

Polycentric Innovation

A strategy in which MNEs now draw on multiple, equally important innovation hubs throughout the world characteristic of Globalization 3.0

Optimal structure permits the firm to create the most value

Ability to organize in pursuit of strategic goals is a critical capability of the firm

The Multidivisional (M-form) Structure - disadvantages

Adds layer of hierarchy --Bureaucracy, duplication of efforts --slower decision making SBUs compete --Politics and turf wars over resources

Mechanistic vs. Organic Organizations key points

Although at first glance organic organizations may appear to be more attractive than mechanistic ones, their relative effectiveness depends on context -- McDonalds with its over 36,000 restaurants would not be successful with an organic structure -- A mechanistic structure would not allow Zappos or W.L. Gore to develop and hone their respective core competencies in customer service and product innovation. Key point: to gain and sustain competitive advantage, structure must follow strategy. --Moreover, the chosen organizational form must match the firm's business strategy.

Functional structure and business strategy: Blue Ocean

Ambidextrous Organization à 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

The Multidivisional (M-form) Structure - Unrelated diversification

Competitive M-Form Decentralized decision making Low level of integration at corporate headquarters Competition among SBUs for resources

Disadvantages of the Matrix Structure

Difficult to implement --Organizational complexity --Administrative costs --Unclear reporting structures Accountability can be undermined --Employees can have trouble reconciling goals --Principal-agent problems -Slower decision-making

Strategic Control & Reward Systems

Internal-governance mechanisms Put in place to align the incentives of: --Principals (shareholders) --Agents (employees) Allow managers to: --Specify goals --Measure progress --Provide performance feedback

Because of the stages of globalization

Many MNEs now are replacing the one-way innovation flow from western economies to developing markets with polycentric innovation strategy

Typical M Form Structrue

Organizational structure that consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility SBU 2 is organized using a functional structure, while SBU 4 is organized using a matrix structure. The CEO of each SBU must determine which organizational structure is most appropriate to implement the SBU's business strategy In some instances, spinning out SBUs to make them independent companies is beneficial ... the BCG Growth-share matrix helps corporations executives when making these types of decisions

So, does strategy come first and then we built an organizational structure to carry the strategy or does structure follow strategy?

Structure follows strategy!!!! Chandler observed the top managers of large firms (GM, Sears, DuPont, Standard Oil) structured their firms to best allow them to pursue their chosen business strategy

Organizational structure

a key to determining how the work efforts of individuals and teams are orchestrated and how resources are distributed defines how jobs and tasks are divided and integrated, delineates the reporting relationships up and down the hierarchy, defines formal communication channels, and prescribes how individuals and teams coordinate their work efforts The choice of organizational structure depends on the business strategy of the firm: Organizations structure is about -how critical tasks are divided up -how managers and employees make decisions -routines and information flows that support operations

Building blocks- Formalization

an organizational element that captures the extent to which employee behavior is steered by explicit and codified rules and procedures Consistent and predictable results slow decision making reduced innovation hindered customer service

Strategic Control and Reward Systems

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

Multidivisional structure

organizational structure that combines the functional structure with the M-form The idea behind the matrix structure is to combine the benefits of the M-form (domain expertise, economies of scale, and the efficient processing of information) with those of the functional structure (responsiveness and decentralized focus)

Functional structure

organizational structure that groups employees into distinct functional areas based on domain expertise Employees are grouped into functional areas. ---Based on domain expertise ---Often correspond to distinct activities in the value chain (R&D, manufacturing, sales, HR, etc.) Leaders of functional areas report to the CEO

Structure can be defined as

the design of organization through which the enterprise is administered.. structured follows strategy -implies to implement a strategy successfully, organizational design must be flexible enough to accommodate the formulated strategy and future growth expansion