Elements of Organisational Design and Structure

1
Lecture 6

• Elements of Organisational Design and Structure

2
Objectives

• State what is meant by organisation design and
  structure
• Outline the elements of organisation structure
• Identify types of organisational structure
• Explain current views on the link between
  strategy and organisational structure
• Discuss the reasons for and the types of changes
  in organisational design and structure

3
Topics

• The terminology of organisational design
• Strategic organisational design and structure
• Types of organisational structure
• Strategic organisational design

4
Defining Organisational Structure and Design

• Organisational structure
• the formal framework by which job tasks are
  divided, grouped and coordinated
• Organisational design
• the process of developing or changing an
  organisational structure

5
Elements of Organisational Structure

• Four elements
• Assignment of tasks and responsibilities to
  individuals and units (job design)
• Clustering these to form a hierarchy
  (departmentalisation)
• Mechanisms for vertical coordination
• Mechanisms for horizontal coordination

6
Approaches to job Design

• Four main approaches
• Job simplification
• Job rotation
• Job enlargement
• Job enrichment

7
Job simplification
Worker 1
Worker 2
Worker 3
Task 3
Task 1
Task 2
8
Job rotation
Worker 3
Worker 2
Worker 1
Task 3
Task 1
Task 2
9
Job enlargement
Worker 1
Worker 2
Worker 3
Task1,2,3
Task 1,2,3
Task 1,2,3
10
Approaches to job Design

• Job enrichment
• Process of upgrading the job-task in order to
  increase significantly potential for growth,
  achievement, responsibility and recognition.
• It increase job depth (how much individuals plan
  and control their work).
• Showing the value of job content as a motivator

11
Managing Diversity Alternative Work Schedules
Balancing work and personal life
Flexitime core hours to be worked, more at
employee discretion
Job sharing two or more people sharing a
full-time job
Compressed work week longer hours worked per
day, shorter working week
12
The Second Element Departmentalisation

• Clustering individuals into units, and units into
  departments and larger units, to facilitate
  achieving organisational goals.
• How should jobs be grouped?
• By function (by task)
• By division (product or service or market served)
• Hybrid
• Matrix

13
The Third Element Vertical Coordination

• Linking of activities at the top of the
  organisation with those at the middle and lower
  levels to achieve organisational goals.
• Formalisation
• It is the degree of standardisation (rules, job
  descriptions, procedure)
• Extent of formalisation tends to grow with age
  size.
• Span of management (control)
• number of subordinates who report directly to a
  specific manager
• Tall structure structure with many hierarchical
  levels and narrow spans of control
• Flat structure structure with few hierarchical
  levels and wide spans of control

14
Contrasting spans of control

• 64

highest
1
1
4
8
64
16
512
256
4096
1024
lowest
Assuming span of 8 Operatives 4096 Managers
level 1-4585
4096
Assuming span of 4 Operatives 4096 Managers
Level 1-61365
15
Methods of Vertical Coordination

• Centralisation
• Decentralisation
• Factors tilt the scale from centralisations end
  of the continuum toward decentralisation
• Large organisational size
• Geographic dispersion
• Technological complexity
• Environmental uncertainty

16
From Centralisation to Decentralisation
Extent to which power and authority will be
retained at upper levels. Influenced by
Large size larger organisations likely to be
more decentralised.
Geographic dispersion more dispersed likely to
be decentralised, to enable control at a number
of sites.
Environmental uncertainty with rapid change,
need for more employees to be involved in
responding to challenges.
Technological complexity with more complex
technology, need to devolve authority to lower
levels.
17
The Fourth ElementMethods of Horizontal
Coordination

• Horizontal coordination
• Linking of activities across departments at
  similar levels
• Need for information processing across the
  organisation
• Promotes innovation through dissemination of
  ideas information

18
Type of Organisational structure

• Traditional designs
• Functional structure
• Division structure
• Hybrid structure
• Contemporary designs
• Matrix structure
• networked structure
• Team based structure

19
Functional structure

• Structure in which positions are grouped
  according to their main functional (or
  specialised) area.

CEO
Manager, Administration
Manager, Distribution
Manager, Manufacturing
20
Division Structure

• It is also named business level structure
• Structure in which positions are grouped
  according to similarity of products, services or
  markets.
• ex PSA international structure consists of PSA
  India, PSA China, PSA Korea, PSA Japan, PSA SEA
  Japan, and PSA Marine

21
Division Structure based on product
CEO, Alpha Industries
Chief General Manager Copier products
Chief General Manager Photographic products
Chief General Manager Computer Storage products
Chief General Manager Industrial imaging
products
Chief General Manager Scanner products
Chief General Manager Marine electronic products
22
Division Structure A.P.Moller
Source Greve, M, Hansen, M W
Schaumburg-muller, H 2007, Container shipping and
economic development a
case study of A.P. Moller - Maersk in south east
asia , Copenhagen Business School
23
Division Structure A.P.Moller

• Container business includes three main
  independent business units
• Maersk Line and Safmarine
• APM terminal
• Maersk Logistics
• They are evaluated as a separate profit and loss
  centre.

24

• Maersk Line and Maersk Logistics are each further
  divided into 17 geographical areas
• Overall strategy for the business is developed at
  corporate headquarters in Copenhagen with
  feedback from both regional and country levels
• Strategic planning occurs at the regional level
  and execution at the country level.
• Each area operates according to a functional
  structure with such functions as line and
  operations, logistics, integrated sales, service
  delivery, HR, finance, information systems and
  other container business

25
Hybrid structure

• Structure adopting both functional and
  divisional structures at the same management
  levels (normally functional at one level,
  divisional at another level).
• Example textbook p.296.

26
Matrix structure (dual chain of command)

• Structure superimposing a horizontal set of
  divisional reporting relationships onto a
  hierarchical functional structure.
• Appropriate when
• Need for a strong focus on both functional
  divisional dimensions.
• Need to quickly process information coordinate
  activities.
• There is pressure for shared resources.

27
Matrix structure
28
Team based structure

• An organisational structure in which the entire
  organisation is made of work groups or teams.
  More autonomous power is given.
• Ex Australian travel business, flight centre
• 7 employees---family
• 7 families---village
• Villages---tribe
• Tribes---country.
• This structure allows 7000 employees to function
  with only 4-5 levels

29
Team based structure

• Ex the production side of the brewery company,
  Lion Nathans brewery (New Zealand), is organised
  around a number of teams that reports directly
  to management. Teams are of 12-14 individuals
  taking responsibilities for production, wastage,
  continuous improvement, quality assurance,
  training and a range of safety measures.

30
Boundaryless organisationNetworked structure

• An organisational structure that outsource major
  business functions and concentrates on what it
  does best.
• The nature of activities in a network
  organisation is changed from performing the
  activities to coordinating activities carried out
  by other organisations.
• Rationale for networked organisation?

31
Networked structure

• Example Nike, Reebok and Benetton use the
  network structure in their operation function by
  subcontracting manufacturing to other companies
  in low-cost locations around the world. They
  provide subcontractors the production planning,
  materials requirements, bills of labor and
  standard prices and costs and technical
  assistance to ensure the quality up to the
  companies standard.

32
Networked Structure
Packagers
Suppliers
Designers
Corporate Headquarters
Distributors
Manufacturers
Promotion /Advertising agency
33
Organisational Design Decision strategy and
structure

• Strategy structure which comes first?
• Structure follows strategy? Or strategy comes
  from structure?
• Strategy structure are closely linked with each
  other.
• Mismatches in strategy/structure lead to
  difficulties.
• Attempting to carry out a new strategy with an
  old structure is senseless.
• ex the functional structure of the Eastman
  Kodak company did not permit specific strategies
  needed for its multiple business, the CEO
  restructured the companys organisation to
  operate as strategic business units, then all
  units could develop specific strategies. This
  resulted in an export growth of 23.

34
Strategy and Structure

• In examining an organisation, two questions have
  to be answered
• Is the current structure the most appropriate
  means of organising to meet goals?
• If not, then what organisational changes are
  required?

35
Strategic Organisational Design

• While strategy and organisation structure are
  linked, the effectiveness of any structural type
  is influenced by some factors such as
• Contingency factors technology, size,
  environment.
• Need to promote innovation roles,
  differentiation, transfer processes.

36

• Contingency factors
• Technology
• Size
• Environment

Organisational goals (efficiency effectiveness)

• Organisation structure
• Functional
• Divisional
• Hybrid
• Matrix

Strategy

• Structural methods for
• promoting innovation
• Roles
• Reservations
• Differentiation
• Transfer processes

Major components influencing the design of
effective organisation structure
37
Size and structure
Size effects on structure
With growth more departments, shift from
functional to divisional form
With growth more staff positions to assist
senior management
With growth tendency to decentralise (enabled
by formalisation)
With growth additional rules regulations
(formalisation)
38
Environmental uncertainty and structure

• The evidence on the environment-structure
  relationship helps to explain why so many
  managers are restructuring their organisations to
  be lean, fast and flexible (more organic).
  Environmental forces include
• Global competition
• Accelerated product innovation by competitors
• Increased demands from customers for higher
  quality and faster deliveries

39
Environment and structure

• Stable environments, mechanistic
• narrow tasks
• prescribed tasks
• hierarchical control
• decision-making levels
• communication vertical
• instructions by superiors
• loyalty to organisation
• obedience to superiors

• Unstable/uncertain environments, organic
• general tasks, subject to continuous negotiation
• network control
• decision making rests with those with knowledge
• communication across between levels
• supervision is information advice
• commitment to organisational goals, possession of
  expertise

• Lawrence Lorsch Balance of differentiation
  integration

40
Matching Structure Strategy

• Managers must match strategy structure to
  achieve effectiveness, e.g.

Niche Differentiation (focus) narrow target
market Functional structure
Cost leadership Organisational efficiency,
lower prices Functional structure
Market differentiation advertising, prestige
pricing market segmentation Matrix structure
Innovative differentiation complex product or
service innovations Divisional or hybrid structure
41
Strategy and structure activity and discussion

• Restructuring of the Singapore port authority
• If a small entrepreneurial freight forwarding
  company was pursuing a differentiation strategy,
  it would need a structure that supports a high
  degree of creativity and innovation, and most
  probably one that is able to respond quickly to a
  changing environment. What type of structure will
  you suggest?
• Case study when structures just dont work