Chapter 07 - Designing Organizational Structure Chapter 07 Designing Organizational Structure CHAPTER CONTENTS Learning Objectives Key Definitions/Terms Chapter Overview Lecture Outline Management in Action Building Management Skills Small Group Breakout Exercise Be the Manager Case in the News 1 Chapter 07 - Designing Organizational Structure LEARNING OBJECTIVES LO 7-1. Identify the factors that influence managers’ choice of an organizational structure. LO 7-2. Explain how managers group tasks into jobs that are motivating and satisfying for employees. LO 7-3. Describe the types of organizational structures managers can design, and explain why they choose one structure over another. LO 7-4. Explain why managers must coordinate jobs, functions, and divisions using the hierarchy of authority and integrating mechanisms. KEY DEFINITIONS/TERMS divisional structure: An organizational structure authority: The power to hold people accountable composed of separate business units within which for their actions and to make decisions concerning are the functions that work together to produce a the use of organizational resources. specific product for a specific customer. boundaryless organization: an organization functional structure: An organizational structure whose members are linked by computers, faxes, composed of all the departments that an computer-aided design systems, and video organization requires to produce its goods or teleconferencing and who rarely, if ever, see one services. another face-to-face. geographic structure: An organizational structure business-to-business (B2B) network: a group of in which each region of a country or area of the organizations that join together and use IT to link world is served by a self-contained division. themselves to potential global suppliers to increase efficiency and effectiveness. hierarchy of authority: An organization’s chain of command, specifying the relative authority of each cross-functional team: A group of managers manager. brought together from different departments to perform organizational tasks. integrating mechanisms: Organizing tools that managers can use to increase communication and decentralizing authority: Giving lower-level coordination among functions and divisions. managers and nonmanagerial employees the right to make important decisions about how to use job design: The process by which managers decide organizational resources. how to divide tasks into specific jobs. 2 Chapter 07 - Designing Organizational Structure job enlargement: Increasing the number of organizational structure: A formal system of task different tasks in a given job by changing the and reporting relationships that coordinates and division of labor. motivates organizational members so that they work together to achieve organizational goals. job enrichment: Increasing the degree of responsibility a worker has over his or her job. outsource: To use outside suppliers and manufacturers to produce goods and services. job simplification: The process of reducing the number of tasks that each worker performs. product structure: An organizational structure in which each product line or business is handled by a knowledge management system: A company- self-contained division. specific virtual information system that allows workers to share their knowledge and expertise and product team structure: An organizational find others to help solve ongoing problems. structure in which employees are permanently assigned to a cross-functional team and report only market structure: An organizational structure in to the product team manager or to one of his or her which each kind of customer is served by a self- direct subordinates. contained division; also called customer structure. span of control: The number of subordinates who matrix structure: An organizational structure that report directly to a manager. simultaneously groups people and resources by function and by product. strategic alliance: An agreement in which managers pool or share their organization’s network structure: A series of strategic alliances resources and know-how with a foreign company that an organization creates with suppliers, and the two organizations share the rewards and manufacturers, and/or distributors to produce and risks of starting a new venture. market a product. task force: A committee of managers from various organizational design: The process by which functions or divisions who meet to solve a specific, managers make specific organizing choices that mutual problem; also called ad hoc committee. result in a particular kind of organizational structure. CHAPTER OVERVIEW To create high performing organizations, managers must design an organizational structure that maximizes the efficient use of resources. This chapter opens by examining the four critical factors that help managers to determine the most appropriate organizational structure. Next, it discusses three components of organizational design: job design, grouping jobs into functions and divisions, and the coordination of functions and divisions. The chapter closes with a discussion of integrating mechanisms and the growing popularity of global strategic alliances and business-to-business network structures. 7-3 Chapter 07 - Designing Organizational Structure LECTURE OUTLINE Management Snapshot (pp. 211-212 of text) Alan Mulally Tranforms Ford How Should Managers Organize to Improve…? With Ford’s performance suffering in 2006, its board of directors realized they needed an outsider to change the way Ford operated, and they recruited Alan Mulally from Boeing to become its new CEO. Mulally discovered that over the years, Ford had developed a tall hierarchy of managers whose main goal was to protect their turf and avoid any direct blame for its plunging car sales. Mulally soon realized that the managers thought the best way to maintain their jobs was to hoard information, rather than share them. Thus values of secrecy and ambiguity reduced the level of coordination and integration between managers. He issued an order that the detailed statement of costs should be shared between divisions. He insisted that each of Ford’s divisional presidents should attend weekly meetings with different subordinates to openly discuss all the problems. Mulally’s goal was to create new rules that it was fine to admit mistakes, share information, and find ways to reduce costs. He also emphasized cooperation within divisions. By 2012, Ford had become the highest performing U.S. carmaker. 7-4 Chapter 07 - Designing Organizational Structure I. Designing Organizational Structure A. Organizing is the process by which managers establish the structure of working relationships among employees to allow them to achieve organizational goals efficiently and effectively. 1. Organizational structure is the formal system of task and job reporting relationships that determines how employees use resources to achieve goals. 2. Organizational design is the process by which managers make specific organizing choices about tasks and job relationships that result in the construction of a particular organizational structure. 3. According to contingency theory, managers design organizational structures to fit the factors or circumstances that are affecting the company and causing them the most uncertainty. B. Four factors are important determinants of the type of organizational structure or culture managers select: 1. The Organizational Environment: The more quickly the external environment is changing and the greater the uncertainty within it, the greater the need to speed decision-making and communication so that resources can be obtained. a. In such situations, managers make organizing decisions that result in more flexible structures and entrepreneurial cultures. Therefore, they are likely to decentralize authority, empower lower- level employees to make decisions, and encourage values and norms that emphasize change and innovation. b. In contrast, if the external environment is relatively stable, uncertainty is low, and resources are readily available, managers make organizing decisions that bring more stability or formality to the organizational structure. They choose values and norms that emphasize obedience and being a team player. Managers in this situation prefer to make decisions with a clearly defined hierarchy of authority, standard operating procedures, and restrictive norms to guide and govern employees’ activities. 7-5 Chapter 07 - Designing Organizational Structure c. In today’s marketplace, increasing competition is putting pressure on managers to find ways to attract customers and increase efficiency and effectiveness. 2. Strategy: Different strategies often call for the use of different organizational structures and cultures. a. A differentiation strategy aimed at increasing quality usually succeeds best in a flexible structure with a culture that values innovation. b. In contrast, a low-cost strategy aimed at driving down costs works best in a more formal structure with more conservative norms, which gives managers greater control. c. At the corporate level, when managers pursue a strategy of vertical integration or diversification, a flexible structure is needed to provide sufficient coordination between different business divisions. d. Managers are also challenged to create organizational structures that allow flexibility on a global level. 3. Technology is the combination of skills, knowledge, machines, and computers that are used in the design, production, and distribution of goods and services.