Caution: coordination is costly and can be wasteful and inefficient
- Distribution of decision rights
Who should make what decisions and how should information flow be organized?
-decision rights (DR) should be allocated based on:
-rights to initiate, approve, implement and control strategic and tactical decisions.
-rights vary vertically – spanning different levels of the organization, and horizontally – spanning different activities on the same level of the organization.
-ideally, DR should be given to those who have the best information relevant to the decision being made, typically, those on the ‘front lines.’
Caution: one may not have enough information on relevant factors or self-interest may often be at odds with those of the firm as a whole.
- Organizational boundaries
What actions must be conducted inside and/or outside the firm?
-extent of vertical and horizontal integration
-make vs. buy decisions
-strategic alliances with other firms
-inside interacts directly with outsiders
Central Concepts of Organizational Structures (less influenced by managers)
-orgs are social systems and productive systems
-relationships are developed based on proximity, liking, friendship, advice and shared backgrounds and interests.
Caution: a manager must be cognizant of and tap into the informal structure to understand the effect of changes and decisions.
-political coalitions exist inside orgs with competing agendas and viewpoints
-political lines are drawn across departments, functions, or division lines
Caution: a manager must assess the political landscape in light of his own power and those with whom he interacts.
- Legitimate basis of authority
-rank and title do count…but…
Caution: there are other sources of authority including one’s expertise, charisma and social status.
Basic Forms of Organizational Structures
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Functional/Hierarchical – division of labor is made in terms of the main activities or functions that need to be performed by the organization, such as production, sales, engineering, and finance and administration. As it grows, it may further divide its presently employed functions; organized according to inputs.
Strengths: when competitive issues and goals of the org stress functional expertise, efficiency and quality; most effective in a stable environment because it promotes economies of scale; in-depth skill development for employees due to functional career ladder; encourages collaboration, efficiency and quality within the function.
Weakness: siloed; inability to respond to environmental changes that require coordination between departments; decisions pile up, response time is slowed; employees have a restricted view of the org’s overall goals; diffuse accountability since profit and loss is calculated for the firm and not by division.
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Divisional – differs from functional by grouping diverse functions into divisions, such as manufacturing, R&D, and marketing are contained within each division; organized according to outputs.
Strengths: when environmental uncertainly is moderate to high; issues and goals are centered on innovation, client satisfaction and maintaining market segment; works best in medium or large org with diverse products, diverse markets and diverse customers in diverse geography.
Weakness: org loses economies of scale, critical mass is lost, coordination is difficult, divisions may work at odds, competence and tech specialization may be weakened.
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Hybrid – in one form, divisional product or project groups may be overlaid on the functional structure so that these groups facilitate coordination across functions. In another form, some key functions such as manufacturing or sales that require economies of scale and specialization may be centralized and located at headquarters, thus superimposing a functional structure on a divisional one. By combining both, it can take advantage of both forms and avoid some weaknesses.
Strengths:
Weakness:
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Matrix – both divisional and functional structures are implemented simultaneously. It enables the org to meet multiple demands. Pressure is felt from function and product or function and region. A balance of power is needed within the org. Because tasks are complex and uncertain, extremely effective linkages are required vertically and horizontally – lots of meetings! Economies of scale are needed because of the shared use of people and equipment.
Strengths: enables the org to meet multiple demands from the environment.
Weakness: lack of jurisdictional clarity, role ambiguity, determining responsibility and authority, many meetings.
Emerging Organizational Structures
Network Structure - Differs from the traditional bureaucratic structure:
- Knowledge workers may act as individual contributors or be part of a cluster based on expertise and may form the building blocks of the organization
- Coordination takes place through cross-functional teams with little supervision but with broad oversight and strategic direction from executive teams
- Hierarchy – relatively permanent through product completion
- Division – forming and disbanding acc to product life-cycle
- Decision rights are pushed down as far as possible to knowledge workers directly, largely through the aid of information technology
- Middle managers are redundant, able to eliminate bureaucracy, flatten the org and increase spans of control
- Blurring the boundaries occurs when the org involves value-added partnerships with vendors and customers, strategic alliances with competitors; etc.
- Customized products for specific customers and just-in-time production means production occurs along the boundaries in real-time interaction with vendors and customers.
- Everyone is expected to deal with the environment
- Renders the ‘formal’ org meaningless because of fluidity, frequent changes, and dependence on internal and external relationships (networks and alliances) among employees
- Few political coalitions are organized along formal lines
- Authority is derived less on formal position and more from expertise and resources
- Suited for volatile environments when innovation is the primary strategic advantage
Main advantage: High adaptability, fast and responsive
Weakness: Resources are often duplicated and accountability can be diffuse and poorly defined.
