4 CASE - MKT599

MGT 599 Strategic Management Dr Anastasia M. Luca

Organizing

Organization Design

• Road Map

• Organization Design Definition

• Organization Design Concepts

• Organization Design Types

• Organization Design Principles

Organization Design

• Organization Design: Definitions

– Organization Design means the structural arrangement in an organization.

– Organization have different design or structures

– Organizational design is used to implement strategies

– They determine standards and procedures.

Organization Design

• Organization Design: Main Concepts

– Work Specialization – Departmentalization – Chain of Command – Span of Control – Centralization/Decentr

alization

Organization Design

• Organization Design: Concepts: Work Specialization

– It is also called “Division-of-Labor” – First promoted by Frederick Taylor

in his “Principles of Scientific Management” (1905)

– It organizes jobs with a a very narrow specialization, where each step is executed by a different worker

– Popular in the first half of the century and believed to increase productivity

– An example is the old Ford assembly lines

– Nowadays, job productivity seems to increase as workers enjoy richer and more varied tasks, as well as empowerment

Organization Design

• Organization Design: Concepts: Departmentalization

– It reflects how jobs are grouped, leading to “departments” :

• Functional Product • Product • Geographic • Customer

Organization Design

• Organization Design: Concepts/Departmentaliz ation

• Functional – It organizes based upon

functions: • Production/manufacturing • Sales and Marketing • Finance/Accounting • R&D • Human Resource

Management

Organization Design

• Organization Design/Concepts: Departmentalization: Functional – Functional (by task or type

of job) – Efficient as it groups

people with same expertise and for resource distribution

– Enhances expertise – Narrows scope and focus,

isolating employees by function

– Coordination problems

CEO

Manufacturing R&D Sales/

Marketing

Organization Design

• Organization Design/ Concepts: Departmentalization: Product

– It organizes around products or services

– Functions are within products

CEO

Product 1 Product 2 Product3

Manufacturing R&D Sales/

Marketing Manufacturing R$D

Sales/ Marketing

Manufacturing R&D Sales/

Marketing

Organization Design

• Organization Design: Concepts: Departmentalization: Product

– It may lead to duplication of effort and difficulty of managing across products

Organization Design

• Organization Design: Concepts/ Departmentalization: by Geography – Companies organize by

territories or geographic markets, for instance Western or Eastern divisions

– This is very common especially for the Sales Divisions of Companies, as they need to be close to customers

Organization Design

• Organization Design: Concepts/Department alization: Customer – Organizations can

center functions around customer types:

• Corporate • Government • Individual

Organization Design

• Organization Design: Concepts/Chain of Command – It reflects reporting

hierarchy in an organization

– It shows the authority that expands from the top to the lowest levels in organizations

Organization Design

• Organization Design: /Concepts: Chain of Command

– Several other concepts are related: • Authority, the right of a supervisor to issue orders and

be obeyed by subordinates • Subordinates take the responsibility to carry through

the order • Unity-of-command implies that one employee should

have only one supervisor, to avoid conflicting orders • Matrix management, team, and employee participation

have replaced, to a big extent, this concept

Organization Design

• Organization Design: Concepts/ • Span of Control

– It shows how many subordinates one supervisor manages

– Wide spans-of-control denote a flat organizations

– Narrow spans-of-control depict a tall organization (bureaucracy)

Organization Design

• Organization Design/Concepts: Centralization/Decentraliz ation – The degree to how decision-

making is distributed throughout the company

– In a highly centralized company, decision-making takes place at the top

– In a decentralized company, decision-making also takes place at the lower levels; participative decision-making may be practiced

Organization Design

• Organization Design Types:

– Mechanistic

– Organic

Organization Design

• Organization Design Types:

• The Mechanistic Organization: – Bureaucracy – Chain-of-command – Narrow span-of-control – Centralized decision-

making at the top – Departmentalization (high

specialization) – High level of formalization – Rigid and stable

Organization Design

• Organization Type: • Mechanistic • Frederick Taylor:

– Principles of Scientific Management

Organization Design

• Organization Design Types:

• Organic Organization (Adhocracy) – Contrasts the mechanistic

organization – Broad span-of-control – Low formalization – Low specialization – Decentralization (decision-

making at all levels) – Flexible

Organization Design

• Organization Design Types: Simple Structure

• Low specialization • Low formalization • High centralization • Small Companies

Organization Design

• Organization Design: Classic Bureaucracy – Many organizations need to outgrow simple

structures – Same as the mechanistic organization

– Tall structure – Highly centralized, decision-making at the top – Narrow span-of-control, many layers – Highly formalized: many rules and standards – Highly specialized: simple tasks – Can use functional or divisional structure

Organization Design

• Organization Design: Matrix Structure – A cross between the

functional (overspecialized) and the divisional structures (duplication)

– Experts from functional areas (such as R&D, Accounting, Human Resources)

– Work in different projects – There is a double report (to

both own supervisor and project manager)

Organization Design

• Organization Design: Team – Organization is formed of

teams – Decisions are made by teams – Team members represent the

areas of expertise needed (engineering, marketing, finance, etc).

– Outside members, such as customers and suppliers may join

– Ability to respond to customer needs

– Flexibility

Organization Design

• Organization Design: Virtual Organization, also called Network or Modular

Small core (headquarters) organizations, highly centralized

Opposite bureaucracy Most functions, such as

manufacturing, IT, Finance, etc. are outsourced

Flexibility/network based Project

Hollywood studios Nike, Reebok, Liz

Claiborne

Organization Design

• Organization Design: Boundaryless – General Electric

Jack Welch • No chain of command • Very wide spans of

control • Empowered team

structure rather than departments