Basic Challenges to Organizational Design

1
Basic Challenges to Organizational Design

• Chapter 4

2
Challenges to Organizational Design

• 1. How to manage differentiation
• 2. How to balance differentiation integration
• 3. How to balance centralization
  decentralization
• 4. How to balance standardization mutual
  adjustment.

3
What is Differentiation?

• Division of labor or degree of specialization
• Establishment of a hierarchy of authority
• Allocation of resources people to tasks
• Simple structure? differentiation is low
• Complex structure? differentiation is high.

4
Differentiation

• Roles
• Functions
• Similar skills, roles or shared resources
• Divisions
• Responsible for producing one G or S
• Self-contained divisions
• Organization
• More roles, functions divisions means
• more differentiation

5
Challenge 1Managing Differentiation

• Why differentiate?
• ?Control!
• ?Develop core competences
• When employees
• Understand roles/ responsibilities
  (accountability)
• Are coordinated
• Are motivated.

6
Core Competences

• Skills abilities unique to an organization that
  give it a competitive advantage
• May be in 1 or more functions
• Want to allocate more resources to the functions
  or divisions where core competences exist.
• Examples
• McDonalds production process
• Southwests customer service

7
Differentiation

• Horizontal
• The way an organization groups tasks into roles
  roles into functions
• Establishes division of labor

• Vertical
• The way an organization designs hierarchy of
  authority creates reporting relationships to
  link roles functions
• Establishes distribution of authority

8
Challenge 2Balancing Differentiation
Integration

• Problem Specialization (horizontal
  differentiation) limits communication resulting
  in loss of coordination cooperation? Subunit
  orientation
• Solution Integration? Increase coordination,
  communication cooperation between subunits
  (overcome subunit orientation).

9
Integrating Mechanisms

• Hierarchy (most simple)
• Direct face-to-face contact
• Liaison roles
• Task forces
• Cross-functional teams
• Integrating roles
• Integrating departments (most complex)

10
Keep in Mind

• Differentiating integrating too much is
  expensive. Why?
• Cost of employing managers cost of time spent
  on coordination efforts called
• Bureaucratic Costs

11
Challenge 3Balancing Centralization
Decentralization

• Problem Too much vertical differentiation can
  mean inability to make decisions? shirking
  responsibility risk ? slowed decision-making ?
  inflexible organization
• Solution
• Decentralize authority
• How much decision-making authority to delegate to
  each level of hierarchy?

12
Centralized Authority

• Advantages
• Maximum control over subordinates
• Top-mgmt coordinates everything keeps
  organizational members focused on goals
• Disadvantages
• Top-mgmt becomes overloaded on day-to-day
  decision-making has no time to develop
  long-term strategy
• Lack of freedom initiative to respond to
  problems as they arise
• Lower creativity
• Lower motivation.

13
Decentralized Authority

• Advantages
• Promotes responsibility responsiveness (on the
  spot decisions)
• Lower level managers can use skills/ competences
  (keeps them motivated)
• Innovation
• Disadvantages
• Managers can pursue own goals at expense of
  organizational goals
• Coordination planning are difficult
• Loss of control over decision-making process.

14
Challenge 4Balancing Standardization Mutual
Adjustment

• Problem Employees over reliance on written
  rules, policies SOPs (standardization) ?
  inability to adapt to a new, unpredictable
  situation ? no room for creativity in response to
  customer demand
• Solution Mutual Adjustment? thinking, using
  judgment, creativity to solve problems

15
Standardization

• ---Means following rules norms to make
  decisions so work activities are predictable
• Formalization using written rules, policies
  procedures to standardize operations
• No room for mutual adjustment
• Typically means centralized authority
• Socialization promoting a culture (norms
  standards for behavior) to guide conduct.

16
Summary

• Managers need to create a balance so employees
  will be both creative and responsible!!
• In general, people at higher levels of hierarchy
  in functions that perform complex, unstructured
  tasks rely more on mutual adjustment or
  standardization?

17
Mechanistic Organizational Structures

• High Differentiation- Centralized Authority-
  Standardization
• Designed to induce people to behave in
  predictable ways
• Employees are highly specialized work
  separately
• Employees closely supervised
• Easier to hold employees accountable for work
• Hierarchy of authority is clearly defined (most
  commonly
• used integrating mechanism).

18
Mechanistic Organizational Structures

• Communication is top-down (slow!)
• Work process is standardized predictable
• Effective in unchanging, stable environments
• (low uncertainty)
• CONTROL!

19
Organic Organizational Structures

• Low Differentiation- Decentralized Authority-
  Mutual Adjustment
• Designed to promote flexibility ability to
  adapt-To what?
• Employees cross-trained, work together roles
  loosely defined (joint specialization)
• Task forces teams (face-to-face, lateral
  communication) are most commonly used integrating
  mechanisms ? highly coordinated

20
Organic Organizational Structures

• Problem solving by way of mutual adjustment
• Encourages creativity innovation
• Work process is unpredictable
• Effective in dynamic, changing environments
• (high uncertainty).

21
Summary

• We design an organizational structure to control
  uncertainty in environment
• Rapidly changing environment? more uncertainty?
  requires higher levels of differentiation?
  requires higher levels of integration? requires
  more complex structure ?demands organic structure
• Lower level employees need to be empowered to
  make on the spot decisions
• Rapid communication information sharing
  necessary to coordinate activities to meet
  changing customer demands develop new products.

22
Growing Pains

• Page 113
• Case for Analysis
• Where Should Decisions Be Made?
• Page 115