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Copy of The basic challenges of Organizational Design

Strategy & Organization course: Session 2 Pre-master IB Part II

Romnick Pascua

on 23 January 2014

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Transcript of Copy of The basic challenges of Organizational Design

The basic challenges of organizational design
Strategy & Organization session 2

Jean-Paul Stienen
Joyce Vaes
Learning Objectives
Describe the four basic organizational design challenges confronting managers and consultants.

Discuss the way in which these challenges must be addressed simultaneously if a high-performing organizational strucuture is to be created.

Distinguish among the design choices that underlie the creation of either a mechanistic or an organic structure.

Recognize how to use contingency theory to design a structure that fits an organization’s environment.

Design Challenge 1:
Vertical and Horizontal Differentiation

People in this organization take on new tasks as the need arises, and it’s very unclear who is responsible for what, and who is supposed to report to whom. This makes it difficult to know who to call on when the need arises and difficult to coordinate people’s activities so they work together as a team.

Problem statement
"An organization must manage differentiation, the process of creating and controlling the division of labour."
When does differentiation occur in an organization? Distinguish between vertical and horizontal differentiation.
Vertical differentiation: hierarchy of authority with reporting relationships established to connect organizational roles and subunits.

Horizontal differentiation: groups roles according to task responsibilities, establishes division of labour, and forms subunits.

1. Support functions

2. Production functions

3. Maintenance functions

4. Adaptive functions

5. Managerial functions

Organizational Insight 4.1: The B.A.R. and Grille Restaurant (see page 116)
In the B.A.R. and Grille example two people started the restaurant and performed all the tasks; through growth, they hired 22 people. The owners opened two more restaurants, which increased differentiation. Finally, there were working 150 individuals in the organization everyone having its own role and function.

Given this background information we would now like to look at the following three specific questions that are interesting to answer with regard to the B.A.R. and Grille case.

Q: How did Bob and Amanda manage the increasingly complex activities?

Q: What roles did the B.A.R. and Grille develop?

Q. When did the restaurant differentiate into divisions?
Design Challenge 2:
Balancing Differentiation and Integration
Differentiation, by creating subunit orientations, make communication and coordination difficult.

Integration or coordinating tasks, functions, and divisions, improves coordination and communication.
When does an organization needs to use complex integrating mechanisms? And why?
There are seven integrating mechanisms ranging from simplest to complex. We summarized them below but they are mixed up. It is your task to find the right order.
__ Task force

__ Direct contact

__ Team

__ Integrating role

__ Hierarchy of authority

__ Liaison role

__ Integrating department

1. Hierarchy of authority
2. Direct contact
3. Liaison role
4. Task force
5. Team
6. Integrating role
7. Integrating department
In order of increasing complexity
Organizational Insight 4.2: Integration at a Movie Studio (see page 124)

Competition from companies that specialize in special effects have changed how movie studios operate. This insight shows how a movie studio was able to remain competitive by becoming more organic. Specifically, they built a state-of-the art office complex that better allowed coordination and cooperation between different departments.
Q. How did Becton Dickson improve
communication and coordination?
Q. What was the level of differentiation and integration at the B.A.R. and Grille?
Design Challenge 3:
Centralization versus Decentralization of Authority

People in this organization don’t take responsibility or risks. They are always looking to the boss for direction and supervision. As a result, decision making is slow and cumbersome, and we miss out on a lot of opportunities to create value.

Problem statement
Which drawing would fit the organization structure of this company?

Centralized authority: when the authority to make important decisions is retained by managers at the top of the hierarchy.

Decentralized authority: when the authority to make important decisions about organizational resources and to initiate new projects is delegated to managers at all levels in the hierarchy.
What are the advantages and disadvantages of centralization?

What are the advantages and disadvantages of decentralization?

+ Centralization keeps a company focused on goals

- Managers become involved in day-to-day decisions and lose sight of strategic or long-term decision making.

+Decentralization offers flexibility and responsiveness, making managers accountable risk-takers.

+The chance to demonstrate skills and competences motivates managers.

- Decentralization makes planning and coordination difficult

- The company may lose control of decision making.

Problem statement

We can’t get people to communicate and coordinate in this organization. Specifying tasks and roles is supposed to help coordinate the work process, but here it builds barriers between people and functions.

Design challenge 4:
Balancing Standardization and Mutual Adjustment

Problem statement

People in this organization pay too much attention to the rules. Whenever I need somebody to satisfy an unusual customer request or need real quick service from another function, I can’t get it because no one is willing to bend or break the rules.

Standardization is the process of following rules and standard operating procedures (SOPs).

Mutual adjustment allows for judgment rather than rules to solve problems.
Formalization: Written Rules

The use of written rules and procedures to standardize operations is known as formalization.
Socialization: Understood Norms
Socialization means learning norms and unwritten rules.
Q: Are those companies highly centralized
or decentralized?

Q: What companies use formalization extensively?

Focus on New Information Technology: Amazon.com, Part 3 ( see page 130)
Design choices were driven by the need to ensure that Amazon’s software effectively linked customers to the Web site. Customer service was the most important element.

Q. How did Jeff Bezos structure Amazon.com?
Q. How does Amazon.com coordinate and motivate employees?

Mechanistic and Organic Organizational Structures
Simple structure
Complex structure
Low differentiation
High differentiation
Low integration
High intergration
Centralized decision making
Decentralized decision making
Mutual adjustment
Mechanistic Structure
Organic Structure
Environmental Uncertainty
Contingency theory
an organization must design its internal structure to control the external environment
Companies with a mechanistic structure tend to fare best in a stable environment.

Those with an organic structure tend to fare best in an unstable, changing environment.
Case for analysis How McDonald’s Responded to a Changing Environment (see page 140)

Q. What pressures and forces from the environment led McDonald’s to change the balance between centralizing and decentralizing authority?
Q. What went initially wrong in de reorganization of McDonald’s?
Q. In the end what modifications were made to turn the organizational design into a succes?
Thank you for your participation!

We have one final case for you...
TJ Pets Wares.com
As organizations grow, they differentiate into five functional roles:
Full transcript