Chapter 6: Structure and Control

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Chapter 6 Structure and Control

• Structure Follows Strategy (Chandler)
• However, its not that simplestrategy and
  structure are highly integrated
• Organizational Design structure control
  systems
• Coordinate activities of ees to promote
  cooperation
• motivate ees to achieve superior building block
  performance (E, I, Q, CR)

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Bureaucracies

• Businesses operate as bureaucracies (Weber)
• Relational Legal Authority belief in legality
  of rules and authority of those in command
• Specialization division of labor
• Hierarchical structure chain of command
• Coordination and control rules and SOPs
• Standardized employment rules and norms
• Separation of management and ownership (agency)
• Separation of jobs and people no ownership of
  the position by an individual
• Formalization explicit (written) acts,
  decisions, rules

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Organizational Structure

• Building blocks of organizational structure are
• Differentiation - allocation of people to tasks
• vertical - distribution of decision-making
  (levels)
• horizontal - distribution of functions
• Integration - coordination between people or
  functions or divisions or companies.
• Differentiation Integration Bureaucratic
  Costs (time spent in meetings, of managers)

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Organizational Structure

• Vertical differentiation
• Reporting relationships that link people, tasks
  and functions
• appropriate of levels
• appropriate span of control
• determines if a structure is flat or tall
• Tall structures
• impede communication coordination
• raise bureaucratic costs
• distort information (intentional
  non-intentional)
• decreases motivation
• too many middle managers (structure begets
  structure)

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Organizational Structure

• Vertical differentiation
• Centralization
• easier coordination of activities
• decisions fit organizational strategy
• speedy decision making
• Decentralization
• reduces overload for TMT (can focus on strategy)
• ee motivation accountability increase
• fewer managers are needed - flatter structure

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Organizational Structure

• Horizontal differentiation
• The degree to which you separate tasks or skills
  in the organization (specialization or
  functionalization).
• Many organizational forms
• Functional Multi-Divisional Matrix Team
  Network ?
• Mechanistic Organic

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Mechanistic vs. Organic
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Organizational Structure

• Functional structure - groups people on the basis
  of common expertise resources
• Adv learning (transfer of knowledge within
  function)
• monitoring is easier
• processes become more efficient
• greater managerial control
• Dis control becomes a problem as company grows
• communication and coordination (between
  functions)
• measurement (contribution of function)
• loss of strategic focus by TMT

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Functional Structure
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Multi-Divisional Structure

• Product lines or business unit is self-contained
  - corporate HQ established for support control
• Divisional unit operating authority
• HQ strategic authority
• Adv Financial control - easier to monitor
• Strategic control - time for TMT to focus on
  strategy
• Growth - add businesses or products
• Internal efficiency - allows clearer variance
  identification

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Multi-Divisional Structure

• Disadvantages
• Division/Corporate relationship
• Distortion of information - pressure to present
  favorable results
• Interdivisional competition - resources, parent
  attention
• Transfer pricing - VI
• Short-term focus - ROI emphasis
• Bureaucratic costs

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Multi-Divisional Structures
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Matrix Organization

• Based on two forms of horizontal differentiation
  functional and project/product
• Advantages
• ees tend to be highly qualified, professional,
  perform best in autonomous, flexible working
  conditions
• ees can be moved from project to project
• leaves TMT to focus on strategy
• Disadvantages
• high bureaucratic costs
• constant movement of ees means
• two boss role can create conflict

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Matrix Structure
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Team Structure

• Many companies use permanent cross-functional
  teams
• formed at the beginning of product development
  process and continued throughout implementation
• speeds innovation and customer responsiveness
• stronger in highly dynamic industries
• Gore is a good example of a team-based
  organization

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Team Structure
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Network Organizations

• Core group of experts manages the outsourcing
  process closely
• This forms a hub spoke type of organization
  consisting of many contracts
• Could create a control problem with contract
  organizations
• Nike - Esprit

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Network Structure

• .

Mfg.
Mktg.
Core
Dist.
RD
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Organizational Structure

• Integration
• extent to which the organization wants to
  coordinate value creation activities
  (interdependence)
• more differentiation requires more integration
• increasing integration
• Some structures are naturally more integrating
• Interdepartmental liaison
• Task forces x-functional ad hoc teams
• Integrating roles/departments - full time job of
  creating coordination between functions, etc.

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Strategic Control Systems

• Strategic Control
• means of motivating ees to work at
  organizational goals
• Statement of goals
• Set of assumptions or forecasts (environmental)
• Qualitative statement of how business will change
• Specific action steps for implementation
• Set of financial projections
• provide information and feedback (information
  technology)
• Why strategic controls?
• Efficiency - efficient use of resources/productivi
  ty
• Quality - defect free goods, customer complaints,
  returns, sampling
• Innovation - encourage risk taking
• CR - evaluate ees with customer contact

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Strategic Controls

• Types of controls
• Financial - stock price, ROI, profitability, etc.
• Output - efficiency, quality, innovation, CR
• Behavioral - rules and procedures, budgets,
  standardization
• Balanced scorecard approach (Kaplan)
• A way to look out the rear view mirror
  (financial) as well as down the road (strategic
  building blocks)
• Financial
• Customer
• Process
• Employee Development

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Strategic Controls

• Organizational culture
• values and norms that are shared by people/groups
  that control the way they act internally and
  externally.
• Values beliefs about goals and appropriate
  standards for achievement (behaviors).
• Norms expectations about behavior in specific
  situations and toward one another.
• Organizational culture is about behaviors, which
  are very difficult to change. But the good news
  is that they can be changed.

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Organizational Culture

• Levels of culture
• Artifacts
• visible organization structures and processes
• what one sees and hears and feels when
  encountering a new group with unfamiliar culture
  (language, technology, products, clothing,
  semiotics, etc.)
• easy to observe but difficult to decipher - only
  interpretable through experience

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Org Culture

• Levels
• Espoused Values
• individual values (CEO, managers) that the group
  adopts through validation (cognitive
  transformation to shared value)
• conscious and explicit - serve a normative or
  moral function to guide members in certain
  situations and in socializing members.
• Strategies - goals - philosophies

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Org Culture

• Levels
• Basic underlying assumptions
• a solution to a problem that works repeatedly
  becomes taken for granted
• cannot be confronted or debated and are difficult
  (if not impossible) to change.
• can only be changed through re-examination and
  re-evaluation of the cognitive structure.
• this destabilizes our cognitive and interpersonal
  world
• individuals will distort or deny rather than
  adopt - thus culture at this level is a defense
  mechanism
• somajor change means managing at this level.

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Org Culture

• Org socialization - how people learn the culture
• Consists of stories, myths, legends, etc.
• influence of the founder
• organizational structure
• composition of TMT
• Adaptive cultures - encourage and reward
  initiative/innovativeness - easiest to change
• Inert cultures - cautious and conservative, does
  not value initiative may discourage

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Org Culture

• Strong Adaptive Cultures characterized by
• Bias for action - autonomy, risk-taking,
  entrepreneurship (intra)
• Coherent mission - sticks to knitting, close to
  customers
• Structured for flexibility

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Reward Systems

• Individual
• Piecework Commission Bonuses - Promotion
• Group
• group-based bonus - profit sharing ESOP
  gainsharing
• if system induces too much stress, internal
  competitiveness, or job insecurity, results will
  be counterproductive
• positive reinforcement gt negative reinforcement
• but some pressure/anxiety can be productive
• meaningful incentives and career consequences
  successful implementation

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Reward Systems

• Reward systems
• in designing reward systems, jobs need to be
  defined in terms of the results to be
  accomplished, not duties and responsibilities.
• System should track actual achievement vs.
  targeted performance using strategic/financial
  objectives.
• Measures usually are made up of both quantitative
  and qualitative measures.
• MBO PMP etc.

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Reward Systems

• Reward systems
• Generously reward those who reach objectives and
  deny reward to those who dont.
• payoff should be a major piece of total comp.
  and
• should extend to everyone.
• administration is paramount (timely, consistent,
  fair, kiss)
• tightly linked to strategic objectives
• line-of-sight
• Every comp/promo decision will be carefully
  scrutinized by all employees.