Organizational Structure Chapter 9

Ref. Contemporary Management, 3rd ed Gareth R. Jones Jennifer M. George McGraw-hill

Six Learning Objectives

Identify the factors that influence managers choice of an organizational structure. Explain how managers group tasks into jobs that are motivating and satisfying for employees. Describe the types of organizational structures managers can design, and explain why they choose one structure over another.

Learning objectives
Explain why there is a need to both centralize and decentralize authority.
Explain why managers must coordinate and integrate between jobs, functions, and divisions as an organization grows. Explain why managers who seek new ways to increase efficiency and effectiveness are using strategic alliances and network structures.

Case study: Lucent Technologies

Economic recession in early 2000
Falling sales Managers of many companies examined whether they should change their way of organizing Different companies have identified different solutions:

Case study: Lucent Technologies

For some companies, a simpler and more efficient way of organizing was appropriate.
For some other companies, restructure was necessary to differentiate products For still other companies, solving problems of communication and coordination at global level.

Case study: Lucent Technologies

Lucent Technologies makes internet routers and other communication equipment. Lucent was severely affected by all of the three problems mentioned.
Stock plunged to less than $7 a share from more than $70 What is the reason?

Case study: Lucent Technologies

Wrong kind of router was backed one based on capacity rather than speed But speed turned out to be what customers wanted. Nortel networks, one competitor, had developed fast optical or light based routers, having 45% market Lucent had only 15% market

Case study: Lucent Technologies

Richard McGinn, former CEO, was forced to resign.
Due to poor decision making

11 different business divisions were set up.

Each division was for a particular product and market.

Case study: Lucent Technologies

Lapses identified are: Highly complex way of organizing Communications and coordination problems were enormous. Managers of one division did not know what others were doing. Incompatible products were being developed.

Case study: Lucent Technologies

New technology was not being shared across divisions Trying to sell the range of products globally became a nightmare as all the 11 business units were handling their own global sales. In October, 2000 McGinn was forced to leave.

Case study: Lucent Technologies

His successor, Henry Schacht
focused on efficiency and effectiveness reorganized 11 different units into just 5 Expected/anticipated outcome
Managers would be
more accountable better able to communicate able to avoid the problems noted earlier.

Case study: Lucent Technologies

Hundreds of millions of dollars were spent to restructure Over 15,000 employees were laid off.

In 2001, keeping even 5 divisions appeared to be luxurious because of mounting losses. Only option remaining is further reduction of costs

Case study: Lucent Technologies

The CEO decided to
Focus on its resources to
speed up the new product development process lay off another 20,000 employees

Thus a total of about half of the total employees were laid off as a result of restructuring.

Steps taken are

Combine the 5 units into 2 divisions

Case study: Lucent Technologies

First, an Integrated Network Solutions Division which
would handle all its land-line products such as routers, switches, and data software

Second, a Mobility Solutions Division which

would handle the companys wireless products.

Case study: Lucent Technologies

Managers hope:
New structure would
perform more flexibly and organically allow to respond faster and more efficiently to rapidly changing IT environment save billions of dollars be a much more efficient method of organizing be easier to coordinate and manage global sales

Case study: Lucent Technologies

Managing global sales was vital for the company to achieve a turnaround. In 2001, it began to
reorganize activities and Move towards its new product division structure

Case study: Lucent Technologies

Suspicion still remains whether
these changes would be enough to turnaround its fortunes and Lucent would survive in its battle with Nortel and Cisco

Organizational architecture
To create high performing organizations human and other resources must be properly organized and controlled. To organize and control managers must
Design an organizational architecture that makes the best use of resources to produce the goods and services customers want.

Organizational architecture
What is organizational architecture?
The combination of
Organizational structure Control systems Culture Human resource management system

Organizational architecture determines how efficiently and effectively resources are used.

Org structure an element of org architecture

Organizational structure
is a formal system of task and job reporting relationships, coordinates and motivates organizational members so that they work together to achieve organizational goals.

Organizational structure an element of org architecture

Manager adopts a process of organizational design by which they make specific organizing choices about tasks and job relationships that result in a particular kind of organizational structure. However, there is no best way to design an organization.

Organizational structure an element of org architecture

In some situations,
stable, mechanistic structures may be most appropriate

while in others
flexible, organic structures might be the most effective.

Control System an element of org architecture

Control system of an organization provides a process by which managers monitor and regulate how efficiently and effectively an organization is performing the activities necessary to achieve organizational goals.
Through control system manager keeps an organization on track and anticipates events that might occur.

Control System an element of org architecture

Thus control is concerned with
keeping employees motivated, focused on the important problems confronting the organization, and working together to take the advantage of opportunities that will help an organization perform more highly over time.

Culture an element of org architecture

Organizational culture is the set of shared values, norms, standards for behavior and expectations that influence the ways in which individuals, groups, and teams interact with each other and cooperate to achieve organizational goals.

Human resource management (HRM) system an element of org architecture HRM system
includes the activities managers engage in to attract and retain employees, ensures that they perform at a high level and contribute to the accomplishment of organizational goals, has five major components: recruitment and selection, training and development, performance appraisal and feedback, pay and benefits, and labor relations.

Organizational structure
Organizing is the process by which managers
establish the structure of working relationships among employees allow them to achieve organizational goals efficiently and effectively.

Designing Organizational structure

Organizational structure
A formal system of task and job reporting relationships It coordinates and motivates organizational members so that they work together to achieve organizational goals.

Designing Organizational structure

Organizational design is the process by which
managers make specific organizing choices about tasks and job relationships that result in a particular kind of organizational structure However, there is no best way to design an organization.

Designing Organizational structure

As already mentioned, for some situations, stable, mechanistic structures may be most appropriate while for others flexible, organic structures might be the most effective. There are four important factors that determine the type of organizational structure

Designing Organizational structure

The four factors are The nature of organizational environment The type of strategy the organization pursues The technology (including IT) the organization uses and The characteristics of the organizations human resources

Designing Organizational structure

Figure below shows the factors affecting organizational structure

Organizational environment as a factor

The external environment can change more quickly and there can be greater uncertainty within it. Under such conditions,
the problems faced by managers to gain scare resources become greater and managers typically make organizing choices that bring flexibility to the organizational structure to speed up decision making and communication.

Organizational environment as a factor

This results in an organic organizational structure for which
Authority is likely to be decentralized and Lower level employees are empowered to make important decisions.

In contrast, if the environment is stable,

resources are readily available, uncertainty is low and Less coordination and communication among people and functions are needed to obtain resources.

Organizational environment as a factor

Thus in stable condition, managers can make organizing choices that bring more stability or formality to the organizational structure. They prefer to make decisions within a clearly defined hierarchy of authority and use extensive rules and standard operating procedures to govern activities This results in a more mechanistic structure.

Organizational environment as a factor

What about todays marketplace?
There is increasing competition both at home and abroad. Managers are under pressure to
attract customers increase efficiency and effectiveness

Consequently, organizational structure

embraces empowerment and self-managed teams and allows to behave flexibly.

Strategy as a factor
Different strategies often call for the use of different organizational structures
For a differentiation strategy,
flexible structure is suitable to increase the value the customers perceive in organizations goods and services managers can develop new and innovative products quickly as it requires extensive cooperation among functions or departments.

Strategy as a factor
In contrast, for a low-cost strategy, a more formal structure is necessary This structure gives managers greater control over
the expenditures and actions of the organizations various departments.

For an expansion of the scope of organizational activities (response strategy) by vertical integration or diversification, flexible structure is suitable.

Technology as a factor
What is technology?
Combination of skills, knowledge, tools, machines, computers, and equipment that are used in the design, production, and distribution of goods and services.