MGMT 445 Chapter 1
Transaction costs are low when
- organizations are exchanging nonspecific goods and services - uncertainty is low - there are many possible exchange partners
How do you measure organizational effectiveness?
Control, innovation, and efficiency
What is the organizational domain determined by?
Core competence, value created, location
Principle of minimum chain of command
An organization should choose the minimum number of hierarchical levels consistent with its goals and the environment in which it operates
If we can get people to specialize then they develop what?
Core competencies
Specific assets
Investments - in skills, machinery, knowledge, and information - that create value in one particular exchange relationship but have no value in any other exchange relationship.
What is innovation?
It measures the ability to be innovative, function smoothly, and respond quickly to changing environment
What is efficiency?
It measures the ability to efficiently convert skills and resources into finished goods and services
What is control?
It measures the ability to obtain, manage, and control resources and external environment
What is benchmarking?
It's a process where you measure your company's success against competitors to discover how to improve your performance
Collusion
a secret agreement among competitors to share information for a deceitful or illegal purpose
What are core competences?
a skill or ability your organization has that gives it a competitive advantage (pepsi = marketing)
Competitive interdependencies
Interdependencies that exist among organizations that compete for scarce inputs and outputs.
Symbiotic interdependencies
Interdependencies that exist between an organization and its suppliers and distributors.
What is the advantage of dividing people into groups?
Specialization of knowledge
Who oversees the design of structure and culture in the organization?
The Chief Operating Officer
Global supply chain management
The coordination of the flow of raw materials, components, semi-finished goods, and finished products around the world
Bureaucratic costs
The costs associated with solving the transaction difficulties between business units and corporate headquarters as a company obtains the benefits from transferring, sharing, and leveraging competencies.
Technological forces
The development of new production techniques and new information-processing equipment influence many aspects of organizations' operations
Specific environment
The forces from outside stakeholder groups that directly affect an organization's ability to secure resources (customers, suppliers, government)
General Environment
The forces that shape the specific environment and affect the ability of all organizations in a particular environment to obtain resources (society, international, environmental forces)
Transaction cost theory
The goal of an organization is to minimize the costs of exchanging resources in the environment and the costs of managing exchanges inside the organization
Organizational domain
The particular range of goods and services that the organization produces and the customers and other stakeholders it serves
What is differentiation?
The process of allocating resources and people (horizontal division of labor such as subunits and departments)
organizational role
The set of task-related behaviors required of a person by his or her position in an organization.
What happens in subunit orientation?
Units get so siloed that all they think about is their own time frame, their own goal, their own perspective (will not exchange info or people)
Hierarchy
a classification of people according to authority and rank
Network
a cluster of different organizations whose actions are coordinated by contracts and agreements rather than through a formal hierarchy of authority
Self-contained division
a division that has all of the functions that they need to actually create a value (there is no corporate function)
Minority ownership
a more formal alliance emerges when organizations buy a minority ownership stake in each other
management by objectives (MBO)
a program that encompasses specific goals, participatively set, for an explicit time period, with feedback on goal progress
Third-party linkage mechanism
a regulatory body that allows organizations to share information and regulate the way they compete
Liaison role
a specific manager is given responsibility for coordinating with managers from other subunits on behalf of is or her subunits ex: A person from each of J&J production, marketing, and research and development departments is given responsibility for coordinating with the other departments
Reputation
a state in which an organization is held in high regard and trusted by other parties because of its fair and honest business practices
Joint venture
a strategic alliance in which two existing companies collaborate to form a third, independent company
Cooptation
a strategy that manages symbiotic interdependencies by neutralizing problematic forces in the specific environment
Function
a subunit composed of a group of people, working together, who possess similar skills or use the same kind of knowledge, tools, or techniques to perform their jobs (chefs are grouped together as the kitchen function)
Division
a subunit that consists of a collection of functions or departments that share responsibility for producing a particular good or service
Resource dependence theory
a theory that argues the goal of an organization is to minimize its dependence on other organizations for the supply of scarce resources
An organization is
a tool used to coordinate actions in order to accomplish a goal and create value
benefits of organic structure
decision making is faster, able to respond to a dynamic environment, better able to change environmental forces, creative process is high, high levels of integration
in a simple organization...
differentiation is low because the division of labor is low: one person performs all tasks
how does VD increase control?
direct face-to-face supervision allows managers to: -monitor performance -motivate -lead by example -train
if the soc is too wide, what happens?
there's not enough supervision to get things done, people are unmotivated and lost
What do top level managers do?
they look at division and functions and see where the organization's core competencies are coming from (what division is making the most money?)
issues with tall hierarchies
-communication problems (info is distorted, decision-making is slow) -motivation is reduced -higher bureaucratic costs (BC) (more managers)
integrating role
A full-time position established specifically to improve communication between divisions.
what are the drawbacks to bureaucracy?
-organization is very tall and centralized -reliance on rules and policies make organizations less responsive to SH needs -obeying authority and rules becomes more important than creating value for the organization -you lose the ability and motivation to think for yourself
what are the benefits of bureuacracy?
-roles, responsibilities, and reporting relationships are clearly defined, reducing role conflict and ambiguity -strict chain of command increases accountability -strict rules, SOPs, and norms control behavior
Keiretsu
A group of organizations, each of which owns shares in the other organizations in the group, that work together to further the group's interests.
there are three determinants of span of control
1. ability of manager to supervise higher numbers of subordinates 2. complexity of subordinates' tasks 3. interrelatedness of subordinates' tasks
how can an organization maintain control while growing without becoming too tall?
1. horizontal differentiation (split into specialized subunits) 2. decentralize authority 3. standardize work activities
What factors increase transaction costs?
Environmental uncertainty, opportunism, exchange of specific assets
Adaptive functions
Functions that allow an organization to adjust to changes in the environment (R&D, market research, long-range planning)
Support functions
Functions that facilitate an organization's control of its relations with its environment and its stakeholders (purchasing, sales and marketing, pr, legal affairs)
Managerial functions
Functions that facilitate the control and coordination of activities within and among departments.
Production functions
Functions that manage and improve the efficiency of an organization's conversion processes so more value is created (production control, quality control)
If you have about 1,000 employees, about how many layers of hierarchy do you have?
about 4 layers
interlocking directorates
an agreement that commits two or more companies to share their resources to develop a new joint business opportunity (long-term contract, networks, minority ownership, or joint venture)
Cartel
an association of firms that explicitly agree to coordinate their activities
in a complex organization...
both the division of labor and differentiation are high (with growth comes complexity)
Structure and culture are used to...
control human behavior
What are the disadvantages of decentralization?
coordination and planning become difficult, loss of control over decision-making, people might serve in their own best interest, unpredictable outcome
Formalization
everyone follows the same process, more predictable outcomes, using written rules, policies
what is the challenge of organizational design?
finding the right blend of both organic and mechanistic structures
Standardization
following rules and norms to make decisions so work activities are predictable and outcomes consistent
Organizational structure
formal system of task and authority relationships that control and coordinate value creation activities
Maintenance functions
functions that enable an organization to keep its departments in operation (personnel, engineering, janitorial services)
how does information technology influence structure?
gets flatter, allows decentralization, increased use of teams
What is integration?
getting people in the company to talk to each other
What are the benefits of decentralization?
gives employees a sense of responsibility, on the spot decision-making (makes people more responsive), more creative problem-solving
What are benefits of centralization?
goals are aligned, everything is clear, the outcome is predictable and consistent, max control over subordinates
characteristics of mechanistic structures
high differentiation, centralized authority, standardization, tall
Dynamism
how much and how quickly environmental forces change over time (laws, competition, customer demand, technology, expansion)
What does specialization allow?
it allows people to develop their individual abilities and knowledge, which are the ultimate source of an organization's core competences
What happens when we differentiate and integrate too much?
it raises bureaucratic costs (managers are expensive)
benefits of mechanistic structures
lots of control, very clearly defined hierarchy, people are generally working independently and are highly specialized, most effective in stable environment (making paper)
characteristics or organic structures
low differentiation, decentralized authority, mutual adjustment, integrated, flat
task force
managers meet in temporary committees to coordinate cross-functional activities
as the division of labor increases in an organization...
managers specialize in some roles and hire people to specialize in others
What is organizational culture shaped by?
mission, vision, philosophy, and reflects values and beliefs
Socialization
onboarding, actively promoting a culture (norms and standards for behavior) to guide conduct
Transactions costs increase when
organizations begin to exchange more specific goods and services, uncertainty increases, the number of possible exchange partners falls
Complexity
raised by government forces, supply chain, customer expectations, wider variety of g/s
Results of poor organizational design
reduced sales and profits, reduced investment in r & d, and reduced innovation
Organizational culture
shared values and norms that control and coordinate human behavior
Control
the ability to coordinate and motivate people to work in the organization's interests
Richness
the availability of resources available to an organization
Transaction costs
the costs of negotiating, monitoring, and governing exchanges between stakeholders
Environmental dynamism
the degree to which forces in the specific and general environments change quickly over time
Authority
the power to hold people accountable for their actions and to make decisions concerning the use of organizational resources
environment
the set of forces surrounding an organization that have the potential to affect the way it operates and its access to scarce resources
environmental complexity
the strength, number and the interconnectedness of the specific and general forces that an organization has to manage
Vertical differentiation
the way an organization designs hierarchy of authority and creates chain of command and reporting relationships
if the soc is too narrow, what happens?
unnecessary micromanagement
Mutual adjustment
using your brain, your experience, your judgment to make a decision
When we are controlling people...
we are making sure that they are coordinating and working togehter
Why do we vertically differentiate?
we have problems coordinating people or keeping people accountable
What are the disadvantages of centralization?
we lose transactions because it takes longer, top management becomes overloaded with day-to-day decision making, employees lack freedom, less creative problem-solving
