DESIGNING ADAPTIVE

ORGANIZATIONS
Assistant Prof. Engin Bağış ÖZTÜRK
PERSISTENT PROBLEMS WITH
ORGANIZING
▪ Only %44 of the CEOs agreed that their organizational structure
creates clear accountabilities. (McKinsey Report, 2012)
▪ Standardization vs. local flexibility
▪ Minimizing complexity vs. innovation
▪ Only %46 of the senior executives agreed that ideas and
knowledge freely shared across their organizational structure.
(McKinsey Report, 2012)

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SYMPTOMS OF ORGINIZING
DEFICIENCY
▪ When organizing fails
▪ The absence of collaboration among units increase
▪ Decision making become slow and lacks quality
▪ Organization cannot respond to environment innovatively
▪ Other managerial functions suffer

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ORGANIZING

▪ The deployment of organizational resources to achieve strategic

goals
▪ Division of labor
▪ Unity of direction
▪ Lines of authority (Chain of command)
▪ Coordination

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ORGANIZING - DIVISION OF
LABOR

Work Specialization
Job Design

A B C D E F

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ORGANIZING - UNITY OF
DIRECTION

Grouping
Forming Departments

B D E C A F

Copyright ©2012 by South-Western, a division of Cengage Learning. All

rights reserved.
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ORGANIZING- UNITY OF
COMMAND

D E
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ORGANIZING - CHAIN OF
COMMAND

B F

D E A C
8
CHAIN OF COMMAND

Authority
• the formal and
legitimate right of a
Responsibility
manager to make • The duty to perform the
decisions, issue orders, task or activity an
and allocate resources employee has been
to achieve assigned.
organizationally desired
outcomes

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CHAIN OF COMMAND

Delegation Process

Accountability
Authority
Responsibility
G (subject to reporting and
justifying task outcomes
to those above them in
the chain of command.)

B F
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ORGANIZING

Coordinating (Horizontal aspect)

B F

D E A C

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 ORGANIZATIONAL CHART

President

Vice President Vice President Vice President

Director of HR
of Accounting Production Marketing

Industrial Compensation Marmara

Financial Chief Maintainance Quality Control Aegean Region
Relations and Benefit Region Sales
Analyst Accountant Supervisor Manager Sales Manager
Manager Manager Manager

Accounts Compensation Quality İzmir Sales

Payroll Clerk
Payable Specialist Speacialist Manager

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ORGANIZING STRUCTURE

• Structural Framework
Vertical • Coordinate activities between the
top and bottom of an organization
Structure and are designed primarily for
control of the organization

• Interactional Framework
Horizontal • Refers to communication and
coordination horizontally across
Structure organizational departments

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ORGANIZATIONAL CHART -
VERTICAL STRUCTURE

President

Vice President
of Accounting

Financial Chief
Analyst Accountant

Accounts
Payroll Clerk
Payable 14
 ORGANIZATIONAL CHART -
VERTICAL STRUCTURE

President

Formal
Reporting
Relationships Vice President Supervisor
of Accounting having higher
authority

Subordinate
Chief Acc. is
having lower Financial Chief accountable
authority Analyst Accountant
to whom?

Accounts
Payroll Clerk
Payable 15
 ORGANIZATIONAL CHART -
VERTICAL STRUCTURE

Level 3 President
Hierarchical Levels

Level 2 Vice President

of Accounting

Level 1 Financial Chief

Analyst Accountant

Accounts
Payroll Clerk
Payable 16
ORGANIZATIONAL CHART -
VERTICAL STRUCTURE

President

Vice President Vice President Vice President

Director of HR
of Accounting Production Marketing

Financial Chief Span of

Narrow
Analyst Accountant Control=2

Span of control: The number of

employees reporting to a
Accounts supervisor
Payroll Clerk
Payable 17
ORGANIZATIONAL CHART -
VERTICAL STRUCTURE

President

Vice President Vice President Vice President

Director of HR
of Accounting Production Marketing

Financial Chief
Analyst Accountant
Span of
Wide
Control=4

Accounts
Payroll Clerk
Payable 18
 ORGANIZATIONAL CHART -
VERTICAL STRUCTURE
President
TALL ORGANIZATION

Vice President Vice President Vice President

Director of HR
of Accounting Production Marketing

Industrial Compensation Marmara

Financial Chief Maintainance Quality Control Aegean Region
Relations and Benefit Region Sales
Analyst Accountant Supervisor Manager Sales Manager
Manager Manager Manager

Accounts Compensation Quality İzmir Sales

Payroll Clerk
Payable Specialist Speacialist Manager
FLAT ORGANIZATION

President

Industrial Compensation
Financial Chief Accounts Compensation Maintainance Quality Control Aegean Region
Payroll Clerk Relations and Benefit
Analyst Accountant Paybale Specialist Supervisor Manager Sales Manager
Manager Manager

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 ORGANIZATIONAL CHART -
VERTICAL STRUCTURE
President
ORGANIZATION
CENTRALIZED

Vice President Vice President Vice President

Director of HR
of Accounting Production Marketing

Industrial Compensation Marmara

Financial Chief Maintainance Quality Control Aegean Region
Relations and Benefit Region Sales
Analyst Accountant Supervisor Manager Sales Manager
Manager Manager Manager

Accounts Compensation Quality İzmir Sales

Payroll Clerk
Payable Specialist Speacialist Manager
DECENTRALIZED
ORGANIZATION

President

Industrial Compensation
Financial Chief Accounts Compensation Maintainance Quality Control Aegean Region
Payroll Clerk Relations and Benefit
Analyst Accountant Paybale Specialist Supervisor Manager Sales Manager
Manager Manager

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 ORGANIZATIONAL CHART -
VERTICAL INFORMATION SHARING

President

Upward Downard
Communication Communication
Channel Channel
Vice President
of Accounting

Suggestions,
Unsolved Goals, processes,
Problems and procedures
Financial Chief
Analyst Accountant

Accounts
Payroll Clerk
Paybale 21
VERTICAL STRUCTURE -
DEPARTMENTAL GROUPINGS
▪ Departmental grouping affects employees because they share
a common supervisor and common resources, are jointly
responsible for performance, and tend to identify and
collaborate with one another
▪ Functional grouping
▪ Divisional grouping
▪ Geographic/Customer grouping

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 VERTICAL STRUCTURE -
FUNCTIONAL GROUPING

President

Vice Vice Vice Vice

President of President of President of President of
Accounting HR Production Marketing

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VERTICAL STRUCTURE -
FUNCTIONAL STRUCTURES
Advantages
▪ Allows economies of scale
within functional
departments
▪ Enables in-depth
knowledge and skill
development
▪ Enables organization to
accomplish functional goals
▪ Is best with only one or a
few products
Disadvantages
▪ Slow response time to
environmental changes
▪ May cause decisions to pile
on top; hierarchy overload
▪ Leads to poor horizontal
coordination among
departments
▪ Results in less innovation
▪ Involves restricted view of
organizational goals
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 VERTICAL STRUCTURE -
DIVISIONAL GROUPING

President

Electronics Biothecnology
Division Division

Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President
of Accounting of HR of Production of Marketing of Accounting of HR of Production of Marketing

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VERTICAL STRUCTURE -
DIVISIONAL STRUCTURES
Advantages
▪ Suited to fast change in unstable
environment by allowing units to
adapt to differences in products,
regions, customers
▪ Leads to customer satisfaction
because product responsibility and
contact points are clear
▪ Involves high coordination across
functions
▪ Best in large organizations with
several products
▪ Decentralizes decision making
Disadvantages
▪ Eliminates economies of scale in
functional departments
▪ Leads to poor coordination across
product lines
▪ Eliminates in-depth competence
and technical specialization
▪ Makes integration and
standardization across product
lines difficult
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VERTICAL STRUCTURE -
GEOGRAPHIC/CUSTOMER
GROUPING
President

South North
Aegean Marmara
Anatolia Anatolia
region Region
Region Region

President

KLM- Delta
THY
France Airlines
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VERTICAL STRUCTURE –
GEOGRAPHIC/CUSTOMER
GROUPING
Advantages
▪ Bringing together
employees from different
functional specialties allows
a geographical division to
respond more quickly and
efficiently
▪ The geographical grouping
focuses all worker efforts
solely on the objectives of
their own division,
increasing results.
Disadvantages
▪ It duplicates both activities
and infrastructure sacrificing
economies of scale.
▪ Different divisions might
have to compete with one
another for resources from
the parent company
▪ Also, employee expertise
doesn't necessarily transfer
between regions
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FAILURE OF VERTICAL
STRUCTURE
▪ Lee Iacocca when he took over Chrysler Corporation in the
1980s:
▪ What I found at Chrysler were thirty-five vice presidents, each with his
own turf . . . I couldn’t believe, for example, that the guy running
engineering departments wasn’t in constant touch with his
counterpart in manufacturing. But that’s how it was. Everybody
worked independently. I took one look at that system and I almost
threw up. That’s when I knew I was in really deep trouble . . . Nobody at
Chrysler seemed to understand that interaction among the different
functions in a company is absolutely critical. People in engineering and
manufacturing almost have to be sleeping together. These guys
weren’t even flirting!

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HORIZONTAL STRUCTURE

Vertical Horizontal

E D

G
B C

B F F

D E A C F
D E
G
A C
B
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HOW TO IMPROVE HORIZONTAL
INFORMATION SHARING
▪ Information systems
▪ Direct contact between departments
▪ Full-time integrators
▪ Task forces, or teams

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HOW TO IMPROVE HORIZONTAL
INFORMATION SHARING
▪ Information systems
▪ Computerized technology to feed employees with necesssary
information
▪ For example: Siemens uses an organization-wide information system that
enables 450.000 employees around the world to share knowledge and
collaborate on projects to provide better solutions to customers
▪ Line vs. Staff Authority

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HOW TO IMPROVE HORIZONTAL
INFORMATION SHARING
▪ Direct contact between departments
▪ Liason role
▪ A liaison person is located in one department but has the responsibility
for communicating and achieving coordination with another department.
▪ Liaison roles usually link only two departments

B F

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HOW TO IMPROVE HORIZONTAL
INFORMATION SHARING
▪ Full-time integrators
▪ Generally called project managers, brand managers, or product managers
▪ That person is located outside the departments and has the responsibility for
coordinating several departments
▪ The integrator does not report to one of the functional departments being
coordinated

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HORIZONTAL STRUCTURE -
MATRIX APPROACH
▪ Matrix combines functional and divisional approaches and it is
implemented simultaneously
▪ Necessary conditions
▪ Pressure exists to share scarce resources across product lines
▪ Environmental pressure exists for two or more critical outputs, such
as for in-depth technical knowledge (functional structure) and
frequent new products (divisional structure)
▪ The environmental domain of the organization is both complex and
uncertain.

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HORIZONTAL STRUCTURE -
MATRIX APPROACH

President

Vice President Vice President Vice President

of Accounting Production Marketing

Financial Product Market Project

Analyst Designer 1 Researcher 1 Manager A

Financial Product Market Project

Analyst Designer 2 Researcher 2 Manager B

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HORIZONTAL STRUCTURE -
MATRIX APPROACH
Advantages
▪ Achieves coordination necessary to
meet dual demands from customers
▪ Flexible sharing of human resources
across products
▪ Suited to complex decisions and
frequent changes in unstable
environment
▪ Provides opportunity for both
functional and product skill
development
▪ Best in medium-sized organizations
with multiple products
Disadvantages
▪ Causes participants to experience dual
authority, which can be frustrating and
confusing
▪ Means participants need good
interpersonal skills and extensive
training
▪ Is time consuming; involves frequent
meetings and conflict resolution
sessions
▪ Will not work unless participants
understand it and adopt collegial rather
than vertical type relationships
▪ Requires great effort to maintain power
balance
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HOW TO IMPROVE HORIZONTAL
INFORMATION SHARING
▪ Task forces, and teams
▪ When linkage involves several departments, a more complex device such
as a task force is required
▪ A task force is a temporary committee composed of representatives from
each organizational unit affected by a problem
▪ Teams are not temporary but permanent task forces generally used in
conjuction with a full-time integrator.

C E D

B
A B C

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HORIZONTAL STRUCTURE - TEAM
APPROACH
G

A T

E D N O

B C S P

F R

Y G

X L K H

Z M J I

W İ 39
HORIZONTAL STRUCTURE - TEAM
APPROACH
G

A G

E D
T
K H
N O
B C

F S P

Y R
J I
X L

Z M

W 40
HORIZONTAL STRUCTURE - TEAM
APPROACH
Advantages
▪ Promotes flexibility and rapid response
to changes in customer needs
▪ Directs the attention of everyone
toward the production and delivery of
value to the customer
▪ Each employee has a broader view of
organizational goals
▪ Promotes a focus on teamwork and
collaboration
▪ Improves quality of life for employees
by offering them the opportunity to
share responsibility, make decisions,
and be accountable for outcomes
Disadvantages
▪ Determining core processes is
difficult and time consuming
▪ Requires changes in culture, job
design, management philosophy,
and information and reward systems
▪ Traditional managers may balk when
they have to give up power and
authority
▪ Requires significant training of
employees to work effectively in a
horizontal team environment
▪ Can limit in-depth skill development
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HORIZONTAL STRUCTURE -
VIRTUAL NETWORK APPROACH

Design
(company in
Italy)

Distribution Accounting
(company in (company in
Germany) Egypt)
Company
Core

Manufacturing
HR (company
(Factories in
in UK)
China)

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HORIZONTAL STRUCTURE -
VIRTUAL NETWORK APPROACH
Advantages
▪ Enables even small organizations to
obtain talent and resources
worldwide
▪ Gives a company immediate scale
and reach without huge
investments in factories,
equipment, or distribution facilities
▪ Enables the organization to be
highly flexible and responsive to
changing needs
▪ Reduces administrative overhead
costs
Disadvantages
▪ Managers do not have hands-on
control over many activities and
employees
▪ Requires a great deal of time to
manage relationships and potential
conflicts with contract partners
▪ There is a risk of organizational
failure if a partner fails to deliver or
goes out of business
▪ Employee loyalty and corporate
culture might be weak because
employees feel they can be replaced
by contract services
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ORGANIZATIONAL CHANGE

▪Organizations do not stay constant and they change

▪ When they change their structures also change
▪ Restructuring involves reducing the size of the firm in
terms of number of employees, number of divisions or
units, and number of hierarchical levels in the firm’s
organizational structure
▪ also called downsizing, rightsizing, or delayering

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ORGANIZATIONAL CHANGE

▪Reengineering involves reconfiguring or redesigning work,

jobs, and processes for the purpose of improving cost,
quality, service, and speed
▪ also called process management, process innovation, or
process redesign
▪ Reengineering frequently involves a shift to a horizontal team-
based structure

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FACTORS SHAPING STRUCTURE

▪ Structure Follows Strategy

▪ Business-level Strategies
▪ Cost Leadership
▪ Differentiation

▪ Structure Reflects the Environment

▪ Uncertanity
▪ Stable
▪ Flexible

▪ Structure Fits the Technology

▪ Small-batch and unit production
▪ Large-batch and mass production
▪ Continuous process production
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FACTORS AFFECTING
ORGANIZATION STRUCTURE

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Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved.