Organization Theory & Design

General introduction to Organizational theories and design

1. Learning
organization

2. FLow oF presentation
•Devika Shinde P-34
•Pradnya Bhalerao C-03
•SukhadaKulkarni P-17
•Puja Govekar P-09
•DhanrajKoli P-16
•Anandita Singh C-34
•Jayashree Prabhu C-43
01/02/10 2

3. DeViKa sHinDe
roLL no. – p-34

4. generaL
introDuction
to
organization
aL tHeories
anD Design

5. wHat is organizationaL
Design
•Developments in or changes to the structure
of an organization
•Organization Design refers to the process of
coordinating the structural elements of an
organization in the most appropriate manner

6. Key eLements oF
organizationaL Designs:
DepartmentalizationSpan of Control
Work
Specialization
Chain
of Command
Authority and
Responsibility
Centralization vs.
Decentralization

7. organizationaL tHeories
The current state of organization theory is the
result of an evolutionary process. Theories
have been introduced, evaluated and refined
over time ; new insights tend to reflect the
limitations of earlier theories.

8. cLassicaL & neocLassicaL
tHeory
•Classical organizational theorists (such as Weber,
Taylor ) believed that a universally best way to
design organizations exists, an approach based on
high efficiency.
•Neoclassical organizational theorists (such as
McGregor,Argyris ) their approach emphasizes
the need to pay attention to basic human needs to
succeed and express oneself.

9. DiFFerentiation

10. DiFFerentiation
•The process by which an organization
allocates people and resources to
organizational tasks and establishes the task &
authority relationships that allows organization
to achieve its goal.
•Process of establishing division of labour.

11. exampLe
•Differentiation at B.A.R. and Grille restaurant.

12. organizationaL roLe
•The basic building block of differentiation.
•It is the set of task – related behaviors required
of a person by his or her position in an
organization.
•Example of B.A.R. and Grille restaurant.

13. contD…..
•Authority
•Control

14. sub units
•Function: is a sub-unit composed of group of
people, working together, who possess similar
skills or use same kind of knowledge, tools or
techniques to perform their jobs
–Support functions
–Production function
–Maintenance
–Adaptive
–Managerial

15. sub-units
•Division: A sub unit that consists of a
collection of functions or departments that
share responsibility for producing a particular
good or service.

16. VerticaL anD HorizontaL
DiFFerentiation
•Hierarchy
•Vertical differentiation
•Horizontal differentiation

17. PRADNYA BHALERAO
01/02/10 17

18. baLancing
DiFFerentiation &
integration

19. wHat is DiFFerentiation?
The process by which an organization
allocates people & resources to organizational
tasks & establishes the tasks & authority
relationships that allow the organization to
achieve its goal.

20. cHaLLenges oF HorizontaL
DiFFerentiation
•Development of subunit orientation
•Communication gap
Production team VS Research team
E.g. Xerox computer system,
Wal-mart television linkups

21. wHat is integration?
•The process of coordinating various tasks,
functions and divisions so that they work
together and not at cross-purpose.

22. 7-integrating mecHanism
1)Hierarchy of authority
2)Direct contact
3)Liaison role
4)Task force
5)Team
6)Integrating role
7)Integrating department

23. HierarcHy oF autHority
•Simplest device
•Allocation of authority
•E.g. Becton Dickinson

24. Liaison team
Marketin
g
Productio
n

25. team Force or team
Engineerin
g
Marketin
g
R & D
Sales
Productio
n

26. integrating roLe or
Department
Computer
Hardwar
e
Division
Integration
Role or
Departmen
t
Application
Division
Computer
Software
Division

27. DiFFerentiation & integration-
Key aspects
Differentiation Integration
A highly complex, highly
differentiated organization
needs high level of integration
An organization that has a
relatively simple, clearly
defined role structure needs to
use only simple integrating
mechanism
Expensive –in terms of the number of managers employed & the
amount of managerial time spent on coordinating organizational
activities.
Unnecessary investment

28. summary
•Carefully guide the process of differentiation
so that it develops the core competencies that
give the organization a competitive advantage

•Carefully integrate the organization by
choosing appropriate integration mechanism
that allow subunits to cooperate & that build
up the organization’ core competencies

29. Balancing Centralization &
Decentralization

30. wHat is centraLization?
•Organizational setup whereby the authority to
make important decision is retained by
managers at the top of the hierarchy

31. wHat is DecentraLization?
•An organizational setup whereby the authority
to make important decision about
organizational resources and to initiate new
projects is delegated to managers at all levels
in the hierarchy…

32. centraLization
Advantages Disadvantages
Top managers coordinate organizational
activities effectively & keep the
organization focused on its goal.
Top management become overloaded &
need to take care of day-to-day activities
& cannot focus on long term decision
making
Lower hierarchy-afraid to make news or
express their ideas
Hierarchy of authority exists , people are
constantly looking to their superiors for
help.

33. DecentraLization
Advantages Disadvantages
Promotes flexible & responsiveness by
allowing subordinate to make on the spot
decisions
Planning & coordination becomes more
difficult
Motivates to perform the best Personal goals & objectives can be pursed
at the expense of organization

34. suKHaDa
p17

35. stanDarDization
Which is defined by sets of rules and norms, that
are considered proper in a given situation

36. mutuaL aDjustment.
It is a process in which people use their
judgment rather than standardized rules to
address problems

37. baLancing stanDarDization &
mutuaL aDjustment
•Both are very important.
•But only one can be adopted at a time.
•Eg: IBM policies tranformation.
•The real challenge faced, is to design a
structure that achieves right balance between
the two.

38. A right balance between the two is very
important.

39. •Formalization: Use of written rules and procedures to
standardize operations.
•Formalization and Mutual adjustment: High level of
formalization implies centralization of authority, and lower one implies
mutual adjustment and dynamic decision making.

40. •Rules: Formal and written statements
•Norms: standards and styles of behaviour

41. sociaLization
•Process by which organizational members
learn the norms of organization and internalize
these unwritten rules of conduct in them.
•Why is behavior rigid when rules change?
01/02/10 41

42. stanDarDization Vs
mutuaL aDjustment
Manager facing the challenge of balancing
the need for standardization
against need for mutual adjustments

43. puja a. goViKar
roLL no. p-9

44. mecHanistic anD organic
organizationaL
structure`

45. mecHanistic structure
•It is designed to induce people to behave in
predictable, accountable ways.
•Decision-making authority centralized.
•Task associated with role and are coordinated
through standardization.
•Each person knows his responsibility.

46. mecHanistic structure
cont.
•At the functional level, each function is separate, and
communication and cooperation among functions are
the responsibility of someone at the top management.
•Formal written rules and procedures are main means
of organizational control.
•Vertical command structure.
•Promotion ties to performance
•Best suited to organization that face stable,
unchanging environment.

47. organic structure
•It promotes flexibility, so people initiate
change and can adapt quickly to changing
conditions.
•Decision-making authority decentralized.
•Roles are loosely defined.
•High level of integration needed.

48. organic structure cont.
•Co-ordination is achieved through mutual
adjustment as people and functions workout
role and responsibility.
•Informal norms and values.
•Status conferred by ability not by any formal
position in hierarchy.
•Best suited to organization that face unstable,
changing environment.
•Eg: Sony (Sony’s Magic Touch)

49. mecHanistic V/s organic
structure
Mechanistic Organic
Individual Specialization Joint Specialization
Simple Integration Complex integration
Centralization Decentralization
Standardization Mutual Adjustment
01/02/10 49

50. mecHanistic V/s organic
structure
•Individual
Specialization
•Simple Integration
•Centralization
•Standardization
•Joint Specialization
•Complex integration
•Decentralization
•Mutual Adjustment

51. contingency approacH to
organizationaL Design
•A management approach in which design of an
organization's structure is tailored to the
sources of uncertainty facing an organization.
•Organization must design internal structure to
control the external environment.
•Tom burns and G.M. Stalker theory

52. tom burns anD g.m. staLKer
tHeory
•They found that organizations need different
kinds of structure to control activities when
they need to adapt and respond to change in
the environment.
•Eg: Mcdonald (Mcdonald’s Changing
Environment)

53. mcDonaLD cHanging
enVironment
•Problems faced by McDonald due changing
Environment in early 2000s.
•Consumer taste shifting as health conscious.
•Environmentalist attacking the packaging.
•Increase in competition.

54. organizationaL structure
•It had Mechanistic structure having
standardized operations and formalization.
•The burger and fries served in London tasted
& looked same as in New York.

55. soLution mcDonaLDs came up
witH..
•McDonalds new approach to production was
based on flexibility.
•Designed menu that would appeal to local
customer.
•This led to shift McDonald from mechanistic
to organic structure

56. iDentiFy tHe organization
structure
Rayon mill
•Used standard well-understood
technology
•Had bureaucratic structure
•Factory bible explained all
procedures
•A system of hierarchically linked job
positions with clear responsibilities
•Treat problem situations as temporary
deviations from the norm
•Sometimes ask sales dept to slow
down so as to not overwhelm the
production dept.
High-Tech Electronics Firm
•Creating new industries, such as
computers, space technologies,
equipment, etc.,
•There was an even more fluid
organizational style
•Jobs allowed to shape themselves
•People hired for general expertise and
brains and then allowed/encouraged
to find their own place in the
organization to make their
contribution
•As situations changed, people would
take on different activities but without
changing jobs
•People continually inquiring into
what they should be doing and then
acting

57. DHanraj
p16

58. FunctionaL structure
A design that group people on the basis of their
common expertise and experience or because
they uses the same resources.
01/02/10 58

59. FunctionaL structure
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60. FunctionaL structure
Advantages
•Specialization – each department focuses on its own work
•Accountability – someone is responsible for the section
•Clarity – know your and others’ roles
•Learning- from one another
01/02/10 60

61. FunctionaL structure
Disadvantages
•Closed communication could lead to lack
of focus.
•Departments can become resistant
to change.
•Coordination .
•Customer problem.
01/02/10 61

62. controL probLems
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63. continue
01/02/10 63

64. DiVisionaL structure
•Divisional structure is one in which set of
relatively autonomous units or divisions are
governed by central corporate office, but each
operation division has its own functional
specialist who provides product and services
different from those of other divisions
01/02/10 64

65. types oF DiVisionaL
structure
•Product structure
–Divisions by the product group or category
•Market structure
–Divisions by type of customer
•Geographic structure
–Global or regional divisions
01/02/10 65

66. ananDita
c 34

67. DiVisionaL structures
Functions according to the specific
demands of products, markets, or
customers.

68. DiVisionaL structures
01/02/10 68

69. DiVisionaL structure i
•
structure in which functions are
grouped together according to
the specific demands of products,
markets, or customers.
•
he type of divisional structure
selected is driven by the specific
type of control problem
experienced.
01/02/10 69

70. i) proDuct structures
A divisional structure in which products
are grouped into separate divisions,
according to their similarities or
differences.
01/02/10 70

71. types oF proDuct
structures
01/02/10 71

72. a) proDuct DiVision
structure
•Characterized by splitting of the
manufacturing function into different product
lines or divisions.
•Centralized support functions.
•Service needs of a number of different
product lines.
•Typically used by organizations whose
products are broadly similar and aimed at the
same market.
•E.g. Food processors, furniture makers,
personal care products, paper products, etc.
01/02/10 72

73. Product Division Structure
4-19
Large Food Processor – E.g. Heinz
Vice
President
Sales and
Marketing
Vice
President
Research and
Development
Vice
President
Materials
Management
CEO
Vice
President
Finance
PDM PDM PDM PDM
Centralized support functions
Divisions01/02/10 73

74. proDuct DiVision
structure – contD.
•Design decision increases horizontal
differentiation within the organization.
•For each division, there is a separate
manufacturing unit that has it’s own hierarchy .
•Each division is headed by a product division
manager (PDM).
•Each PDM is responsible for the division’s
product activities and coordinating with the
central support functions.
•Increases vertical hierarchy in an organization.
01/02/10 74

75. b) muLtiDiVisionaL
structure
•To manage complex and diverse value
creation activities.
•Support functions are placed in self-
contained divisions.
•Typically used by an organization whose
products are very different and that
operates in several different industries.
•E.g. Cars and fast food industries.
01/02/10 75

76. Multidivisional Structure.
Consumer Products Company.
Corporate
Managers
CEO
Divisional
Managers
Senior VP
Marketing
Senior VP
Finance
Senior VP
Materials
Management
Senior VP
Research and
Development
Functional
Managers
Corporate Headquarters Staff
Division B
Support functions
Division D
Support functions
Division A
Support functions Support functions
Division C
4-21
01/02/10 76

77. comparison
MULTIDIVISIONAL
STRUCTURE
PRODUCT DIVISION
STRUCTURE
Independence of each division – self
contained.
Divisions shares the services of a set
of centralized functions.
New level of management – a
corporate head quarters staff – adds
more control.
No such level – control is lesser.
Structure is designed to allow a
Company to operate in many
different businesses.
Structure can only be used to
control the activities of a Company
that is operating in one business or
Industry.
01/02/10 77

78. aDVantages
•Increased Organizational Effectiveness.
•Increased control.
•Profitable growth.
•Internal Labour Market.
01/02/10 78

79. DisaDVantages
•Managing the Corporate- Divisional
relationship.
•Coordination problems between divisions.
•Transfer pricing.
•Bureaucratic costs.
•Communication Problems.
01/02/10 79

80. proDuct team structure
•Specialists from the support functions are combined
into product development teams.
• Typically used by an organization whose products are
very technologically complex.
• Or whose characteristics change rapidly to suit
customer needs.
01/02/10 80

81. Product Team
Structure.
Product
Division
Product
Division
CEO
Functions
Product
Development
Teams
Product
Division
Vice President
Research and
Development
Vice President
Sales and
Marketing
Vice President
Manufacturing
Vice President
Finance
Functional specialist
Vice President
Materials
Management
PTMProduct Team Manager
PTM PTM PTM
4-29
01/02/10 81

82. proDuct team structure…
contD.
•Each team is a self contained division and is headed
by a Product Team Manager (PTM).
•PTM supervises the operational activities associated
with developing and manufacturing the product.
•Product teams focus on the needs of one product or
few related products.
•Overall functional control – V.P. of the functions.
•Decision-making and responsibility for each product
is decentralized to the team.
01/02/10 82

83. DiVisionaL structure ii
01/02/10
Geographic Structure:
• Used when an organization experiences
control problems that are a function of
geography.
• Such a structure organizes divisions
according to the requirements of different
locations.
83

84. Geographic
Structure
Regional
Operations
Regional
Operations
Regional
Operations
Regional
Operations
CEO
Central Support
Functions
Individual
stores
4-31
01/02/10 84

85. DiVisionaL structure iii
Market Structure :
•When an organization experiences control
problems that are a function of the differences
in the various customer groups being served.
•Such a structure aligns functional skills and
activities with different customer needs.
01/02/10 85

86. Market Structure
Commercial
Division
Consumer
Division
Government
Division
Corporate
Division
CEO
Central Support Functions
01/02/10 86

87. jayasHree
c43

88. matrix
structure

89. matrix structure
•The search for better and faster ways to
develop products and meet customer needs
led to the matrix structure.
•A matrix structure groups people and
resources in two ways simultaneously:
-by function and
-by product
01/02/10 89

90. 01/02/10
Matrix Structure
CEO
Vice President
Engineering
Vice President
Finance
Vice President
Purchasing
Vice President
Sales and
Marketing
Vice President
Research and
Development
Product A
Manager
Product B
Manager
Product C
Manager
Product D
Manager
Product Team
Two-boss employee
90

91. aDVantages oF a matrix
structure
1.Uses cross-functional teams.
2.Better communication between functional
specialists, opportunity for learning, progress,
innovation.
3.Enables organization to maximize its use of
skilled professionals, who move from product to
product as needed.
4.The dual functional and product focus promotes
concern for both cost and quality.
01/02/10 91

92. DisaDVantages oF a matrix
structure
1.Lacks the advantages of bureaucratic
structure – role ambiguity, role conflict
2.Conflict between function and product teams
over the use of resources, power.
3.Lack of coordination, stress, uncertainty.
4.Over a time, people experience a vacuum of
authority and responsibility.
01/02/10 92

93. muLtiDiVisionaL matrix
structure
•A multidivisional matrix structure provides for
more integration between corporate and
divisional managers, and between divisional
managers.
•This structure makes it easier for top
executives from the divisions and from
corporate headquarters to coordinate
organizational activities.
01/02/10 93

94. 01/02/10
Multidivisional Matrix Structure
CEO
Senior Vice
President
Marketing
Senior Vice
President
Finance
Senior Vice
President
Research and
Development
Senior Vice
President
Materials
Management
Automobile
Products
Division
Personal
Computer
Division
Consumer
Electronics
Division
94

95. networK structure
•A recent innovation in organizational
architecture is the use of network structures.
•A network structure is a cluster of different
organizations whose actions are
coordinated by contracts and agreements
rather than through a formal hierarchy.
01/02/10 95

96. networK
structure
Network structures often
result from outsourcing.
Outsourcing is the process of moving
activities that were previously performed
inside the organization to the outside
(where they are done by other companies).
01/02/10 96

97. aDVantages oF networK
structure
1.Organization can find a network partner –
reduction in production cost.
2.Avoids the high bureaucratic costs of
operating a complex organizational structure.
3.Organization acts in organic way.
4.Organization can gain access to low cost
foreign sources of inputs and functional
expertise.
01/02/10 97

98. DisaDVantages oF networK
structure
1.Outsourcing ??
2.Coordination problem- different companies
perform different parts of the work.
3.Trust among groups, Trust that outsourcing
will not leak confidential information of
company to it’s competitors.
01/02/10 98

99. bounDaryLess
organization
•The boundaryless organization is composed of
people who are linked by computers, faxes,
computer-aided design systems, and video
teleconferencing, and who may rarely or ever
see one another face to face.
01/02/10 99

100. concLusion
01/02/10 100

101. bibLiograpHy
•Organizational Theory, design, and Change –
Fourth Edition, Gareth R. Jones.
01/02/10 101

102. 01/02/10 102