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Basic Challenges to Organizational Design

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Title: 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
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