Organization Theory and Design 3rd Edition Solution
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CHAPTER FOUR
FUNDAMENTALS OF
ORGANIZATION STRUCTURE
Purpose of This Chapter
This chapter
introduces basic concepts of organization structure. Definitions of
organizational structure and structure can help organizations achieve their
goals are discussed. Strategies for grouping organizational activities into
functional, divisional, matrix, horizontal, or hybrid structures are shown. Symptoms
of misalignment are discussed. Some of the topics covered in this chapter are
illustrated in the GM España case.
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A
LOOK INSIDE
Opel
España
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Opel España is the
Spanish subsidiary of the global auto giant General Motors. The increasingly
consumer expectation as well as demanding business environment is leading the
car industry to adopt various new production models to fit individual needs
and high quality at reasonable prices. As a result, Opel España has spent
considerable time and effort tailoring its physical plant, equipment,
organizational structure and management systems to meet these challenges and
to allow continued growth and profitability. Its organizational design is
centered around teamwork practices designed to build empowerment, involvement
and motivation of employees, from top management to the shop floor. This
teamwork approach extends into the manufacturing process.
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Organization Structure
The definition of
organization structure includes three key components pertaining to both
vertical and horizontal aspects of organizing.
1.
It designates formal
reporting relationships, including the number of levels in the hierarchy and
the span of control of managers and supervisors;
2.
it identifies the
grouping together of individuals into departments and of departments into the
total organization;
3.
it includes the design
of systems to ensure effective communication, coordination, and integration of
effort across departments.
The first two elements
are the structural framework, which include the vertical hierarchy. The third
element refers to the pattern of interactions among organizational employees.
Organization structure represented visually in organization
charts
The concept of an
organization chart, showing what positions exist, how they are grouped and who
reports to whom, has been around for centuries. It is the visual representation
of underlying activities and processes.
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COUNTERPOINT
4.1
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The purpose of an
organization chart is to provide a common frame of reference that, in
general, asserts and reinforces a hierarchical relationship of domination
between top management, middle management and workers at the base. The chart
is not only a technical guideline to encourage people to work together but
powerful political symbol whose acceptance implied deference to its demands.
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COUNTERPOINT
4.2
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Decentralized
structures can improve organizational flexibility and productivity.
Employee’s experience of this type of structure, however, may be mixed.
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Information-Processing Perspective on Structure
An emphasis on control
is associated with specialized tasks, a hierarchy of authority, rules and
regulations, formal reporting systems, few teams or task forces and centralized
decision making, which means problems and decisions are funnelled to top levels
of the hierarchy for resolution. An emphasis on learning is associated with
shared tasks, a relaxed hierarchy, few rules, face-to-face communication, many
teams and task forces and informal, decentralized decision making, which means
decision-making authority is pushed down to lower organizational levels.
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BOOKMARK
4
The
Future of Work
by Thomas W. Malone
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Malone suggests in
his book that organizations are experiencing tremendous change. He says,
highly centralized vertical hierarchies will essentially be a thing of the past
as organizations move to flexible decentralized forms of organizing based on
horizontal work processes. Malone also listed a number of key points about
the future of work. For example, information technology is the key driver of
the transformation, managers will move from command-and-control to
coordinate-and-cultivate, and every organization needs standards.
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COUNTERPOINT
4.3
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The division of
labour is associated with control in the name of efficiency, and not
necessarily with the delivery of enhanced efficiency or effectiveness. Highly
centralized vertical hierarchies are likely to produce delayed decisions that
are based on a distance and limited understanding of the specific
circumstances at a lower level.
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Vertical Information Linkages
Linkage is defined as
the extent of communication and coordination among organizational
elements. Vertical linkages are used to coordinate activities between the top and bottom of
an organization and are designed primarily for control of the organization.
Hierarchical Referral: This vertical device is illustrated by the vertical lines in
Exhibit 4.1. The lines of the organization chart act both up and down the chain
as the communication channel.
Rules and Plans: For repetitious problems and decisions, a rule or procedure can
be established so employees know how to respond without communicating on each
separate issue. Rules provide a standard information course enabling employees
to be coordinated without actually communicating about every task. A plan also
provides standing information for employees. The budget is a good example.
Vertical information systems: This strategy to increase vertical information capacity
includes periodic reports, written information and computer-based
communications distributed to managers.
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IN
PRACTICE
Oracle
Corporation
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Larry Ellion,
co-founder of Oracle and CEO for over a quarter-century, strongly believes in
tight vertical control. Although many managers are not happy with the
stronger top-down control, Ellison and other top managers have continued to
focus on the use of vertical information system. The company’s new
super-suite of software applications that combines the best features of
products from Oracle is, however, suffered lengthy delays.
Point
to Discuss: while the top-down
control structure has its advantages, students are suggested to use this
example to list several possible underline issues inherent in complete
vertical structure. students can also refer to Counterpoint 4.3 for their
discussion.
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Horizontal Information Linkages
Horizontal
communication overcomes barriers between departments and provides opportunities
for coordination among employees to achieve unity of effort and organizational
objectives. Horizontal linkage refers to the amount of communication and coordination
horizontally across organizational departments. Horizontal linkage mechanisms
often are not drawn on the organization chart, but they invariably form some
elements of organization structure.
Information systems: Cross-functional information systems enable employees to
routinely exchange information. It is a significant method of providing
horizontal linkage in contemporary organizations.
Direct contact: Higher level horizontal linkage is direct contact between
managers or employees affected by a problem. One way to promote direct contact
is to create a special liaison role. A liaison person is located in one
department but has the responsibility for communicating and achieving
coordination with another department. Another approach is to locate people
close together so they will have more direct contact on a regular basis.
Task forces:
it is a temporary committee composed of representatives from each department
affected by a problem, the group links several departments to solve common
problems. Take forces can be an effective horizontal linkage device for
temporary issues, and it is often disbanded after tasks are accomplished.
Full-time integrator: Usually with a title such as product manager, project manager,
or brand manager, this full-time position outside the affected departments is
created to achieve coordination between two or more departments. The integrator
does not have formal authority over team members (because that rests with
managers of the functional departments), but nevertheless the integrator has
responsibility for the entire product (or project or brand).
Teams: project teams tend
to be the strongest horizontal linkage mechanism. Teams are permanent task
forces and are often used in conjunction with a full-time integrator. A virtual team is made up of organizationally or
geographically dispersed members who are linked through advanced information
and communications technologies.
Organization Design Alternatives
Required Work Activities
Departments are
created to perform strategically important tasks. As organizations grow larger,
their organizational structure often becomes more complex as more and more
different functions are added.
Reporting Relationships
Hierarchical reporting
relationships, often called the chain of command, are represented by vertical
lines on an organization flow chart. The chain of command is typically an
unbroken line of authority that links all people in an organization and shows
who reports to whom.
Departmental Grouping Options
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. Options for departmental grouping including the following:
Functional grouping places together employees who perform similar functions or work
processes or who bring similar knowledge and skills together.
Divisional grouping means people are organized according to what the organization
produces. In many large organizations, some product or service lines have
entirely separate identities from that of the parent company.
Multi-focused grouping means an organization embraces two structural grouping
alternatives simultaneously. These structural forms are often called matrix or
hybrid.
Horizontal grouping means employees are organized around core work processes, the
end-to-end work, information and material flows that provide value directly to
customers or support strategic development. Horizontal groupings are often
implemented in addition to traditional vertical working relationships.
Virtual network grouping is one of the more recent approaches to departmental grouping.
With this grouping, the organization is a loosely connected cluster of separate
components. Departments can be spread all over the world rather than located
together in one geographical location.
Functional, Divisional, and Geographical Designs
Functional grouping
and divisional grouping are the two most common approaches to structural
design.
Functional Structure
Functional structure
consolidates human knowledge and skills with respect to specific activities in
order to provide depth of expertise. This structure can be effective if there
is low need for horizontal coordination between functional departments. The
functional structure is centralized as it forces decisions all the way to the
top before a problem affecting several functions can be resolved. Strengths
include economies of scale within functional departments and weaknesses include
a slow response time to environmental changes. The following table summarizes
the strengths and weaknesses of the functional structure.
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Strengths
and Weaknesses of Functional Organization Structure
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Strengths
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Weaknesses
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1.
Allows economies of scales within functional departments
2.
Enables in-depth knowledge and skill development
3.
Enables organization to accomplish functional goals
4.
Is best with only one or few products
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1.
Slow response time to environmental changes
2.
May cause decisions to pile on top, hierarchy overload
3.
Leads to poor horizontal coordination
4.
Results in less innovation
5.
Involves restricted view of organizational goals
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IN
PRACTICE
The
Real Hotel Company PLC
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The Real Hotel
Company is a British-headquartered company with its main business operating
budget to mid-range hotels. Despite a number of attempts to sell out and even
a near bankruptcy in 2001, the business never produced satisfactory results.
When Michael Praeger took over in early 2007, he slimmed down the management
structure, eliminating the geographic divisions in favour of functional
divisions. The new structure seemed to be more manageable. Unfortunately, the
efforts proved too little, and the company was forced to call in the
administrators in 2009.
Point
to Discuss: Was Praeger’s
strategy flawed, or did the global economic situation mean that the
turnaround never had much chance of success?
Although the company
had a manageable portfolio of properties and a simple functional management
structure. The newly adapted functional structure has a number of major
weaknesses. For example, one key weakness of the functional structure is a
slow response to environmental changes that require coordination across
departments. In this case, the serious recession during 2008 has caused
significant changes in terms of the hotel industry’s environment and
customers’ needs accordingly.
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Functional Structure with Horizontal Linkages
Functional structure
with horizontal linkages reflects a shift toward flatter and more horizontal
structures. Horizontal coordination can be improved with information systems,
direct contact between departments, full-time integrators or project managers
task forces, or teams. Horizontal linkages overcome some of the disadvantages
of the functional structure.
Divisional Structure
Divisional structure,
sometimes called product structure or strategic business units. With this structure, divisions can be
organized according to individual products, service, product groups, major
projects or programmes, divisions, business or profit centers. the distinctive
feature of a divisional structure is that grouping is based on organizational
outputs. Decision-making is decentralized. Strengths include a design suited to fast
change in an unstable environment and. Weaknesses include the elimination of
economies of scale and problems with cross-unit communication. The following
table summarizes the strengths and weaknesses of the divisional structure.
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Strengths
and Weaknesses of Divisional Organization Structure
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Strengths
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Weaknesses
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1.
Suited to fast
change in unstable environment
2.
Leads to customer
satisfaction because product responsibility and contact points are clear
3.
Involves high
coordination across functions
4.
Allow units to adapt
to differences in products, regions, customers
5.
Best in large
organizations with several products
6.
Decentralizes
decision making
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1.
Eliminates economies
of scales in functional departments
2.
Leads to poor
coordination across product lines
3.
Eliminates in-depth
competence and technical specialization
4.
Makes integration
and standardization across product lines difficult
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IN
PRACTICE
Microsoft
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Microsoft was
co-founded in 1975 and built into the most profitable technology company in
the world. In 2002 Microsoft’s structure was changed from a functional to a
divisional structure in order to better respond to environmental changes.
However, even though managers of the new divisions were ‘charged up’ by their
new sense of responsibility and authority, Microsoft continues to lose ground
to their competitors. Microsoft has found it difficult to break away from its
reliance on the Windows PC platform and finds difficulty getting traction in
product areas where others have already built a reputation and market
dominance.
Point
to Discuss: It is clear that,
although corporate structure is important and needs to fit with the company’s
competitive needs, it is only one determinant of success.
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Geographical Structure
Geographical structure
often groups the organization’s users or customers together by geographical
area. Each geographic unit includes all functions required to produce and
market products or services in that region. Strengths and weaknesses are
similar to divisional structure. The organization can adapt to specific needs
of its own region, and employees identify with regional goals. Horizontal
coordination within a region is emphasized rather than linkages across regions.
Matrix Structure
Recall the
multi-focused option for grouping departments that was introduced earlier in
the chapter. Sometimes, a matrix structure is developed in order to give equal
emphasis and attention to product and function, or product and geography. In
principle, it enables two objectives to be pursued simultaneously. The matrix
can be used when both technical expertise and product innovation and change are
important. When the structure needs to be multi-focused for simultaneous
emphasis on both product and function or product and geography, the matrix
structure can be considered. In principle, a dual-authority structure can help
ensure a balance between vertical and horizontal aspects of organizations.
Conditions for the Matrix
Matrix structure
combines product and functional designs with its unique purposeful violation of
unity of command. Three conditions are necessary for the matrix: 1) condition
1: pressure exists to share scarce resources across product lines; 2) condition
2: environmental pressure exists for two or more critical factors such as
in-depth technical knowledge (functional structure) and frequent new products
(division structure); and 3) condition 3: the environment is both complex and
uncertain.
The matrix formalizes
horizontal teams alone with the traditional vertical hierarchy and tries to
give equal balance to both. However, the matrix may shift one way or the other.
Consequently, two variations of matrix structure have evolved – the functional
matrix and the product matrix. The functional matrix gives functional bosses primary
authority, while project or product managers simply coordinate product
activities. The product matrix gives the project or product managers primary authority,
while the functional managers simply offer advisory expertise as needed for
projects.
Strengths and Weaknesses
The matrix structure
is best when environmental change is high and when goals reflect a dual
requirement for both product and functional goals. Weaknesses include the fact
that dual authority, particularly in the balanced matrix, can be frustrating
and confusing to employees. The following table summarizes the strengths and
weaknesses of the matrix structure.
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Strengths
and Weaknesses of Matrix Organization Structure
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Strengths
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Weaknesses
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1. Achieves
coordination necessary to meet dual demands from customers
2. Flexible
sharing of human resources across products
3. Suited to
complex decisions and frequent changes in unstable environment
4. Provides
opportunity for both functional and product skill development
5. Best in
mudium-sized organizations with multiple products
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1. Causes
participants to experience dual authority, which can be frustrating and
confusing
2. Means
participants need good interpersonal skills and extensive training
3. Is time
consuming; involves frequent meetings and conflict resolution sessions
4. Will not
work unless participants understand it and adopt collegial rather than
vertical type relationships
5. Requires
great effort to maintain power balance
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IN
PRACTICE
CNH
Global NV
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CNH is the world’s
largest company in its market segment. Based on the company’s ‘multi-brank,
multi-channel’ strategy, the company puts in place matrix structure to
support the interactivity between the product and geographic managers. CNH
has been largely successful in its efforts, despite facing challenging market
conditions at times.
Point
to Discuss: the case of CNH
illustrates an example of a successful matrix design. Students are suggested
to consider the advantages of a dual-authority structure. For example, its
ability to assist communication and coordination to cope with rapid
environmental change and enables an equal balance between product and
functional managers. At the same time, students should also look at the
disadvantages of the matrix. For example, employees sometimes experience
dual-authority, reporting to two bosses and facing conflicting demands. This
can be confusing, especially if roles and responsibilities are not clearly
defined by top managers.
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Horizontal Structure
A horizontal structure organizes employees around core
processes. Organizations shift to a horizontal structure as a consequence of an
intervention like total quality management or a procedure called
reengineering. Reengineering,
or business process reengineering, involves the redesign of a vertical organization along its
horizontal workflows and processes. A process refers to a group of related tasks that
transform inputs into outputs. The horizontal structure organizes employees
around core processes by bringing together people who work on a common process
so they can easily communicate and coordinate their efforts. The traditional
vertical hierarchy with departmental boundaries is eliminated.
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COUNTERPOINT
4.4
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It would be
misleading to suggest that organizational structure changes can be easily or
smoothly introduced or that they are always welcomed by customers or
employees.
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Characteristics
An organization with a
horizontal structure often has the following characteristics.
·
Structure created
around cross-functional core processes rather than tasks, functions, or
geography. Thus, boundaries between departments are obliterated.
·
Self-directed teams
are the basis of organizational design and performance
·
Process owners have
responsibility for each core process in its entirety
·
Team members are given
the skills, tools, motivation and authority to make decisions central to the
team’s performance
·
Teams have the freedom
to think creatively and respond flexibly to new challenges that arise
·
Customers drive the
horizontal corporation with effectiveness measured by performance objectives.
·
The culture is open,
trustful and collaborative, with a focus on continuous improvement.
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IN
PRACTICE
Avaya Ireland
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Avaya Ireland had a
dual advantage of location (Ireland is one of the main European centres for
the computer industry), and growing demand for its product sector. Despite
this positive market position, the company did achieve satisfactory
performance during 1980s and early 1990s. Furthermore, the company was run by
a rigid functional hierarchy structure, with poor cross-functional
communication. Realized the need for a significant change, top managers
replaced the hierarchy structure with cross-functional team focused on core
product, from conception, through production to end-user support. Benefiting
from innovation and high customer service, the company has now moved strongly
into the related high growth area of new products.
Point
to Discuss: students can relate
this case to counterpoint 3.4 and discuss the advantage of organizational
structure change. Furthermore, students can also discuss the strengths and
weaknesses of horizontal structure.
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Strengths and Weaknesses
The most significant
strength of the horizontal structure is that it can dramatically improve
flexibility and responsiveness. Weaknesses include that the horizontal
structure can harm rather than help organizational performance unless managers
determine which core processes are critical for bringing value to customers.
The following table summarizes the strengths and weaknesses of the horizontal
structure.
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Strengths
and Weaknesses of Horizontal Organization Structure
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Strengths
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Weaknesses
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1. Promotes flexibility
and rapid response to changes in customer needs
2. Directs the
attention of everyone toward the production and
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