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Organizational Structure and Design

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Title: Organizational Structure and Design


1
Organizational Structure and Design
2
The importance of organizational structure
  • Your box on the org chart is your world
  • Poor structural choices can have enormous costs
  • Priorities are set wrong, communication becomes
    difficult and slow, coordination and motivation
    suffers.

3
Structure Fundamental Concepts
  • Organizational Structure
  • The formal framework by which job tasks are
    divided, grouped, and coordinated.
  • Two pillars
  • Specialization Dividing the work up
  • Coordination Keeping everyone working in sync

4
Four major kinds of organizational structures
  • Simple structure
  • Functional structure
  • Divisional structure
  • Matrix structure
  • Identify the structure by looking at the top
    two lines of the org chart (CEO and reports).

5
First The simple structure
The Organization Chart
Boss
Marketing Guy
Legal Guy
Money Guy
6
Simple structure
  • Everyone reports to the boss
  • Job definitions are often fairly informal
  • Advantages
  • Low-cost (low overhead), flexible, adaptive
  • Key limitations
  • Relies on the boss - is as good or bad as s/he
    is.
  • Only usable for very small organizations

7
Next the Functional Structure
Boss
Marketing
Sales
Finance
Accountant East
Toy Marketing
Corporate
Accountant West
Food Marketing
Customers
Accountant Central
Clothes Mktg.t
Retailers
8
Functional Structure
  • Functional Structure - groups similar jobs
    together into a series of departments, each
    headed by a manager
  • Functions Marketing, Sales, Finance,
    Manufacturing, etc.
  • Can be expanded to multiple organizational levels
  • Probably the standard concept of an
    organization
  • Departments by product, customer, place
  • Advantages Specialization, efficiency and size
  • Allows for high specialization
  • Little duplication of resources
  • Can achieve huge economies of scale in production
  • Huge organizations become possible with multiple
    levels

9
Which type of departmentalization is the right
one?
  • Mirror the complexity of your environment
  • If its simple, be efficient (functional)
  • Otherwise, be responsive by specializing around
    the complexity
  • Functional
  • If efficiency is paramount and differences across
    place, product, customer are limited. The
    default choice.
  • Place
  • If responding to differences in regions is
    crucial
  • If environment is simple, but costs of travel /
    transport are high
  • Product or Customer
  • If there are major differences across products
    (design, manufacture, sales process) or
    customers, respectively.

10
Departmentalization Examples
  • You sell to customers that look pretty much the
    same nationally. Your product line often
    requires several site visits to close the sale.
    A single sales rep can have a pretty good handle
    on the whole line. How do you departmentalize
    your salespeople?
  • With the internet you find a substantial fraction
    of your customers would like to buy online. How
    do your change your departmentalization?
  • Over time you realize that selling to the
    government agencies requires distinctive skills
    and processes. Its a growing part of your
    business. How do you change your
    departmentalization?
  • Success leads you to expand the product line.
    Now no one sales rep to can stay on top of the
    whole line. How do you change your
    departmentalization now? What does this do to
    your efficiency?

11
The key problem with functional structures in
large orgns Silos
  • As functional organizations grow, the of
    organizational levels increase.
  • You get the Silo effect
  • 1) slow communication and decisions, action is up
    and down the hierarchy not across it.
  • 2) preoccupation with departmental rather than
    organizational goals.
  • AND Throwing it over the wall
  • Doing your job without really involving the
    next group/function
  • The next group first sees the project once your
    group is finished.

12
Pushing the Limits When functional structures
lose effectiveness
  • What if you have a lot of (different) businesses?
  • What if you operate in a lot of countries?
  • What if you have many (different) customers?
  • These situations are difficult to handle with
    functional structures because such structures
    tend to be one-size-fits all.
  • Loyalties are ultimately to the function rather
    than to a specific business, country or customer.

13
Answer The Divisional Structure
  • Divisional Structure Organizational structure
    made up of separate, semiautonomous units called
    divisions.
  • Each division produces specific products,
    operates in specific geographies, or serves
    specific customers.
  • Each division has has a full complement of
    functions (e.g., RD, marketing, sales,
    production, human resources, finance)
  • Adopted where organizations faces too much
    complexity for functional structure to cope.
  • Many different products, or many regions
    (countries) or very different customers (e.g.,
    government, large business, consumer).

14
Divisional Structure
Examples General Electric Johnson Johnson
Divisions just are a group of functional
departments all living underneath one of
the other types of departmentalization
And underneath that, perhaps yet another type of
departmentalization
15
Advantages and Disadvantages of the Divisional
Structure
  • Advantage
  • Each division specializes on a specific product,
    region or customer, and so performs better
  • Leads to more focused, customized (thus
    effective) strategies
  • Leads to higher responsiveness better meets
    customer needs.
  • Disadvantages
  • Resources are duplicated across divisions
  • For example, separate manufacturing plants
    instead of larger, more efficient ones that could
    have produced products for multiple divisions
  • Divisions find it tough to cooperate with other
    divisions
  • Divisions and heads of divisions are often in
    competition with each other
  • Incentives for cooperation is weak the whole
    idea is to focus on your business, not the
    broader welfare of the entire organization

16
Matrix Structure If there are complex
dimensions
2
  • Simultaneously groups people by the function of
    which they are a member and by the product team
    that they are currently working on.
  • Example Boeing engineers report to the design
    function, but also to a project manager for the
    particular airliner (i.e., 767) they design /
    build
  • When is it necessary?
  • Develop new products rapidly
  • Maximize communication and cooperation
  • Innovation Creativity

17
Matrix Design
Can be projects or products
CEO
MKT
ACCT
ENGR
RD
SALES
PROJ A
PROJ B
PROJ C
18
What its like in the matrix
  • Youre Erik, the General manager of the US Relays
    Business Unit for ABB. You are in charge of a
    factory, a sales force, and several engineers who
    usually do product engineering (coming up with
    custom solutions for with specific customers),
    plus staff people (some product marketing,
    finance, HR, etc.). You are a division
  • You are in the matrix. You report to the
    global head of Relays (Steve), and the National
    Sales Manager for the US (Heather).
  • You are worried about this quarter. You were
    expecting to just make your sales goal. You were
    counting on two of your engineers back from a
    project developing a common worldwide
    manufacturing platform a project that is very
    important to the global head of Relays.
  • Now you receive a call. Its Ece, one of the
    engineers
  • After that call, you call Heather, the National
    Sales Manager
  • Then you call Steve, the global head of Relays.

19
The second pillar of structure Coordination
  • Coordination keeps things in sync
  • Coordination occurs
  • Within the job
  • Formalization
  • Vertically Up and down the organization
  • Hierarchy Authority
  • Chain of Command
  • Centralization / Decentralization
  • Horizontally Across departments
  • Integrating Mechanisms

20
Coordinating at the job level Formalization
  • Formalization the degree to which jobs are
    guided by standardized rules and procedures.
    Higher formalization means
  • More explicit job descriptions
  • More clearly defined procedures
  • Less discretion for workers
  • High formalization is appropriate when
  • Jobs are relatively simple and routine
  • Importance of consistency is high
  • Example Department of motor vehicles
  • Low formalization is usually coupled with mutual
    adjustment
  • Mutual adjustment workers agree between
    themselves on an ongoing basis, how to coordinate
    their work
  • Example Jazz band

21
Coordinating Vertically Hierarchy
  • Hierarchy An organizations chain of command
    that defines the relative authority each manager
    has.
  • Authority The power to hold people accountable
    for their actions and to decide how to use of
    organizational resources.
  • Chain of command The continuous line of
    authority from top to bottom of an organization
  • Unity of command - a person should report to only
    one manager
  • Violating unity of command In a family-owned
    manufacturing firm, the owners brother is on the
    board of directors. He frequently visits the
    factory floor and demands that product designs be
    changed.
  • Hierarchy is powerful but inherently limited
  • Managers dont have time or knowledge to make all
    decisions
  • Silos hierarchies lead to vertical
    information flows
  • Reports of the death of hierarchy are greatly
    exaggerated

22
What level in the hierarchy decides? Centralizatio
n and Decentralization
  • Centralization The degree to which decisions are
    made at higher organizational levels
  • Example of centralization Adding a requirement
    that senior managers approve expenditures above a
    certain level.
  • Centralized organizations Command and control
    model
  • Decentralization The degree to which decisions
    are made at lower levels
  • Example of decentralizing Increasing spending
    that can occur without higher level
    authorization.
  • Distinct trend toward decentralization
  • Which level is best placed to decide?
  • Higher levels More experience, knowledge of
    organization and environment as a whole.
  • Lower levels Often have more current knowledge
    of specific features of the environment (for
    example, a specific market or technology).

23
Coordinating Horizontally Integrating Mechanisms
  • What is integration?
  • Coordination across departments
  • What are integrating mechanisms?
  • Structural arrangements to increase coordination
    across horizontal boundaries.
  • For example, a task force charged with
    coordinating a new product introduction
  • Integrating mechanisms are the horizontal
    counterpart to hierarchy
  • Why do we need integration?
  • Hierarchy has limited capability to coordinate
    across departments
  • Integrating mechanisms augment hierarchy

24
What are some integrating mechanisms?
25
Forms of Integrating Mechanisms
26
Black and Decker goes to Product Teams
  • Black and Decker needed to bring new ideas to
    market faster and lower costs as they are faced
    with mature markets and overseas competitors.
  • Use a product team as an integrating mechanism
    between functions.
  • Pull a person or two each out of RD, marketing,
    sales, manufacturing, finance and have them
    assigned full-time to a product team with a
    broadly-defined goal such as come up with a
    better cordless drill than anything out there.
  • The team approach met Black and Deckers needs by
    cutting through silo-type barriers, yet the
    overall efficiency of a functional structure is
    retained once the product is developed.
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