case study
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3-StDesign1-Sp22withclassnotes.pptxClass 3: The Strategic Design Lens
Objectives
Introduce the basic concepts and approaches of the strategic design perspective on organizations
Provide overview of fundamental principles of organizational design at all levels of the organization
Identify topics for organizational analyses
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3 Perspectives on Organizations
Strategic Design Lens
Sees organizations as social systems designed to achieve strategic goals
Political Lens
Sees organizations as arenas for conflict and competition
Cultural Lens
Sees organizations as places where there are social and personal identities carried by people
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Strategic Design begins with …
identifying the strategy
After Identifying the Strategy… 3 Building Blocks of Strategic Design
Grouping Structure
Linking Mechanisms
Resource Alignments
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Grouping
Drawing boundaries around clusters of tasks or activities to define jobs, departments, processes
Differentiation
Grouping Structures
Functional
Divisional – Product
Divisional – Market
Divisional – Geographic
Matrix
Front Back
Dell’s Functional Structure
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Dell groups all employees who perform tasks related to assembling personal computers into the manufacturing function and all employees who handle Dell’s telephone sales into the sales function. Engineers responsible for designing Dell’s computers are grouped into the product development function, and employees responsible for obtaining supplies of hard discs, chips, and other inputs are grouped into the materials management function. The functional structure suited the needs of Dell’s growing company, especially as it battled with Compaq, now a part of HP, and Gateway for control of the personal computer market—a battle in which it is currently winning hands down.
The Functional Structure
Advantages
Coordination
Communication
Skill improvement
Motivation
Controlling
Disadvantages
Limited growth under existing structure
Limits to number of products and services
Coordination difficulties at larger size
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The first issue in organizational design is to choose a division of labor or way to group different jobs together to best meet the needs of the organization’s environment, technology, and human resources. Most organizations group jobs together by function and thereby develop a functional structure.
A function is a group of people working together who possess similar skills or use the same kind of knowledge, tools, or techniques to perform their jobs.
A functional structure is an organizational structure composed of all the job specializations that an organization requires to produce its goods or services.
The Exhibit on the next slide illustrates the functional structure of Dell.
The advantages of a functional structure are a result of the division of labor and specialization. The advantages can be categorized as coordination advantages and motivation advantages. The disadvantages occur as a result of growth in size. As the firm grows, coordination becomes more difficult.
Divisional Structures
Product
Market
Geographic
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If an organization grows, it often employs a second grouping by division and adopts a more complex form. A division is a group of functions created to specialize in making and selling a particular kind of good or service.
When an organization groups people and functions so that it can produce a wide variety of different products, it uses a product structure. Each product division contains the functions necessary to service the specific goods or products. A product structure is illustrated on the next slide.
A market structure groups functions into divisions to respond to the needs of particular types of customers.
A geographic structure groups functions by location. If it adopts a global geographic structure, an organization locates different divisions in each of the world regions in which it operates.
Using a divisional structure solves the problems created by functional structures when an organization is larger in size.
Product Structure
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When an organization chooses to group people and functions so that it can produce a wide variety of different products, it moves to a product structure. Each product division contains the functions necessary to service the specific goods or products. Figure 16.3(a) shows the product structure used by a company like General Electric, which has many separate product-oriented divisions—for example, divisions responsible for producing light bulbs, aerospace products, and appliances. Each of these divisions has its own set of functions (such as accounting, marketing, and research and development).
Market Structure
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Sometimes the most pressing problem facing an organization is to deliver products to customers in a way that best meets customer needs. To accomplish this goal, an organization is likely to choose a market structure and group functions into divisions to respond to the needs of particular types of customers. (See Exhibit 16.3B.) For example, companies such as Staples and Office Max serve individual customers, but they also have large accounts with small-business customers and accounts with large companies and government agencies.
Geographic Structure
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When organizations expand rapidly both at home and abroad, functional structures can become problematic because managers in one central location may find it increasingly difficult to deal with the different issues facing different regions. In these cases, a geographic structure, in which divisions are broken down by location, is often chosen (see Exhibit 16.3C). To achieve Federal Express’s corporate mission of providing next-day mail service, CEO Fred Smith chose a geographic structure with regional divisions.
The Divisional Structure
Advantages
As size and complexity of organization increases, it facilitates
Coordination
Communication
Motivation
Autonomy
Disadvantages
Increased costs
Duplication of functions
Miscommunication across divisions
Competition for resources
Conflict
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This slide lists the advantages and disadvantages of divisional structures. Although the divisional structure has the advantages of solving the disadvantages of the functional structure for larger firms, it can cost more, be less efficient, be subject to miscommunication, and create conflict and competition between divisions.
The Matrix Structure
Complex network of reporting relationships among product teams and functions
People and resources grouped by
Function
Product
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In a matrix structure, managers group people and resources in two ways simultaneously: by function and by product. Employees are grouped by functions to allow them to learn from one another and become more skilled. Employees are also grouped into product teams in which members of different functions work together to develop a specific product.
Each person reports to two bosses: a functional boss and the boss of their product team. Exhibit 16.4 illustrates a matrix structure.
A company typically uses a matrix structure for three reasons:
It needs to develop products very rapidly.
It needs to maximize communication and cooperation between team members.
Innovation and creativity are the key to the organization’s continuing success.
A Matrix Structure
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Exhibit 16.4 illustrates a matrix structure. The vertical lines show the functions of an organization, and the horizontal lines show the product teams responsible for developing or manufacturing the organization’s products. At the intersection of the lines are employees who report to both a functional boss and a product boss. The members of the teams are each developing a specific product. One team in Figure 16.4 is working on the Alpha computer workstation for small businesses; another team is working on the Beta workstation designed for large corporate customers.
The Matrix Structure
Advantages
Coordination
Fast new product development
Communication
Cooperation
Innovation
Creativity
Autonomy
Disadvantages
Role conflict
Role ambiguity
Stress
Unclear individual contributions to team performance
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Members of product teams are generally highly qualified and skilled employees with advanced degrees and expertise in their fields. The matrix structure provides a work setting giving employees freedom and autonomy. These jobs enjoy a high motivating potential score.
There are several properties that can cause job dissatisfaction. Two bosses can make conflicting demands on an employee. The loose system of reporting relationships can make employees vulnerable to role ambiguity. Role conflict and ambiguity result in stress.
The matrix structure is associated with the most complex coordination and motivational issues.
The Front/Back Structure
Front end faces the customer
Front end grouped by market (geography or customer)
Front end includes marketing, sales, distribution, customer service
Back end organized by product
Back end includes product development, production, logistics
A Wide Span of Control
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This Exhibit illustrates a wide span of control.
A Narrow Span of Control
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This Exhibit illustrates a narrow span of control.
Linking
Creating links across organizational boundaries
Integration
Examples of Linking Mechanisms
Liaisons
Cross-functional teams
Permanent
Temporary
IT systems
Formal reporting structures & systems
Using a Team to Increase Coordination
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This Exhibit shows how a team can increase coordination between functions.
A Cross-Functional Team Structure
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This Exhibit shows an example of a cross-functional team structure formed to facilitate mutual adjustment.
Alignment
Positioning elements of the organization (such as rewards and incentives) to provide access to the resources and the incentives to do the tasks assigned
Examples of Resource Alignments
Performance measurement systems
Rewards & incentives
Resource allocation
Financial
Human
Capital
Human resource development
Training & development
Dynacorp Case
What is the strategy or the strategic direction of Dynacorp?
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Strategic Objectives
Customer-centric
Recognize market trends/Quicker product development/Faster to market
To be the leader again
Lower costs
Dynacorp’s CEO has identified the main problems as…
High costs
Slow product cycles
Need to create more value for the customer
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Dynacorp Case
What design option would you choose?
First choice
Second choice
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Grouping Structures
Functional
Divisional – Product
Divisional – Market
Divisional – Geographic
Matrix
Front Back
Product division
Strategic Objective: Costs
-duplication of resources
+P&L responsibility to 1 person
+better problem solving
+more efficient communication
+their own best competitor
Strategic Objective: Faster to market
+less time for decision making
+better problem solving
+more efficient communication
+their own best competitor
Strategic Objective: Customer value
-be their own best competitor
+more reliable customer service for certain products
+focused customer service on certain products
+resources focused on product line(s)
Front Back
Strategic Objective: Costs
-delays in product development
-sales incentives go to more negative overall costs
+upselling potential
Strategic Objective: Faster to market
+Closer links between front and back
+Links between manufacturing & engineering at back end
Strategic Objective: Customer value
-customer service not as aware of product development
+customer service focused on all products to customers
Remain Functional
Need new linkages and resource alignments
Training
IT system
Incentives
Human capital added
Dynacorp Case Discussion
Which of the problems of the current design does the proposed design address?
What problems would it not address?
Are there any new problems that will be created?
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Dynacorp Case Discussion
What linking and alignment mechanisms would you propose to make the grouping arrangement more effective?
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Take-Aways from Dynacorp
Changing the grouping structure can be disruptive
Dynacorp needs to weigh the advantages of a new structure vs. the possibilities of using linking and alignment to strengthen the existing system
If Dynacorp chooses a new structure, its success will also depend on designing effective linking and alignment mechanisms
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Team Projects
Criteria for Organizational Analysis Projects
The initiative must already be underway, but not in existence for too long a period of time (less than 1 year)
The initiative must involve a reorganization or change in the structure (for ex., different reporting relationships or new departments)
At least 6 individuals who are involved in the initiative must be individually interviewed (in person, via Zoom or Skype or other video format following health guidelines)
You can choose to do this individually or within a group
Groups must be @5 people
Examples of Organizational Analyses
ProMedica
Reorganization of purchasing function to centralize it
ProMedica
Introduction of a new department-acute health care delivery at home
UT Dept. of Environmental Health
Combination of 2 departments to create a new group
Flower Hospital
Reorganization of the nursing structure/changing roles
Dimensions Credit Union
New C-suite level added with new reporting relationships
Organizational Analysis Projects
Discussion Questions
Introductions
Why are you interested in this topic?
What thoughts do each of you have about a specific organizational change initiative that you could study?
What ideas do each of you have about an organization where you could study this topic/initiative?
