Organization Structure and Management Systems

1
Organization Structure and Management Systems
OUTLINE

• Evolution of the corporation
• Principles of organizational design
• The role of hierarchy bureaucratic
• control vs. modular integration
• Alternative structural forms
• Management systems

2
Evolution of the Modern Corporation
Strategic changes
The business environment
Organizational consequences
Early 19th century
Local markets Firms specialized Small
firms. Transport slow focused on local Simple
manage- Limited mechanization markets ment
structures
Introduction of Geographical and Functional
struct- railroads, telegraph vertical
expansion ures. Line/staff industrialization d
istinction. Accou- nting systems
Late 19th century
Excess capacity in Product Development of
distribution. Growth multinational multidivision
al of financial institut- diversification
corporation ions world trade
Early 20th century
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The Basic Tasks of Organization
Achieving high levels of productivity requires
SPECIALIZATION
Specialization by individuals necessitates
COORDINATION
For coordination to be effective requires
COOPERATION
But goals of employees goals of owners THE
AGENCY PROBLEM

• ORGANIZATIONAL CHALLENGE design structure
  systems that
• Permit specialization
• Facilitate coordination by grouping individuals
  link groups with systems of communication,
  decision making, control
• Deploy incentives to align individual firm
  goals

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How Hierarchy Economizes on Coordination
(a) Self Organizing Team 10 interactions
(b) Hierarchy 4 interactions
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Hierarchy Allows Flexible Adaptation
Tightly-coupled, integrated system Change in
any part of the system requires system-wide
adaptation
Loose-coupled, modular hierarchy organizing a
complex system into sub-systems and components
linked by standardized interfaces permits
decentralized adaptation
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Webers Principles of Bureaucracy

• Rational-legal authority
• Specialization of labor
• Hierarchical structure
• Coordination and control through rules and
  standard operating procedures
• Standardization employment practices
• Separation of jobs and people
• Formalization of administrative acts, decisions
  and rules

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Mechanistic and Organic Forms
FEATURE MECHANISTIC ORGANIC Task
definition Rigid highly specialized
Flexible less specialized Coordination Rules
directives Mutual adjustment.l control
imposed from above Cultural control
Communication Mainly vertical
Horizontal vertical Commitment To immediate
superior To the organization its
loyalty goals values Environmental
Stable with low tech- Dynamic, ambiguous,
context nologival uncertainty
technologically uncertainty
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Designing the Hierarchy The Basis for Defining
Organizational Units and their Relationships
Units may be defined on the basis of Common
Tasks, Products, Geographical Proximity, or
Process
Critical issue Intensity of CoordinationEmployee
s with the greatest interdependence should be
grouped into same organizational unit.
Additional criteria Economies of Scale,
Economies of Utilization, Learning,
Standardization of Control Systems
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General Motors Organization Structure, 1997
Board of Directors
Corporate Functions
Presidents Council
North American Operations
Delphi Automotive Systems
International Operations
GM Acceptance Corporation
Hughes Electronics
GM Europe
Midsize Luxury Car Group
Small Car Group
GM Power Train Group
Vehicle Sales, Marketing Group
Development Technical Cooperation Group
Asian Pacific Operations
Latin American, African, Middle East Operation
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General Electrics Organization Structure, 1995
Board of Directors
Corporate Staff Functions Tax, Treasury, Audit.
MA, Legal, Business Public Relations, Government
Development Relations, Leadership Development
Corporate Executive Office
Lighting
NBC
Motors
Aircraft Engines
Capital Services
Electrical Distribution Control
Appliances
Transportation Systems
Industrial Power Systems
Medical Systems
Information Services
Plastics
Service Divisions Aerospace Environmental
GE Licensing/ Marketing
Technology Programs Supply
Trading Sales
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Mobil Corporation, 1997
Board of Directors
CEO Executive Office
Support Services
Corporate Center
North America
Technology
New Exploration
Worldwide LNG IPP
Europe CIS
Africa Middle East
Asia/ Pacific
South America
North America MR
Worldwide Chemicals
Shipping
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The Generic Strategic Planning Cycle
Corporate Guidelines
Draft Business Plans
Discuss with Corporate
Revised Business Plans
Approval by Board
Forecasts/ Scenarios/ Planning Assumptions
Corporate Plan
Capex Budget
Annual Performance Targets
Performance Review