Chapter Seven Designing Organizational Structure: Overview of The Chapter

CHAPTER SEVEN DESIGNING ORGANIZATIONAL STRUCTURE
OVERVIEW OF THE CHAPTER To create high performing organizations, managers must design an organizational architecture 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 their organization. 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 networ structures. LEARNING OBJECTIVES "dentify the factors that influence managers# choice of an organizational structure. $%&!' (. )xplain how managers group tas s into jobs that are motivating and satisfying for employees. $%&(' *. +escribe the types of organizational structures managers can design, and explain why they choose one structure over another. $%&*' ,. )xplain why managers must coordinate and integrate between jobs, functions, and divisions as an organization grows.$%&,'
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LECTURE OUTLINE MANAGEMENT SNAPSHOT: MICROSOFT CENTRALIZES TO MEET GOOGLES CHALLENGE -icrosoft has been wor ing hard to compete with .ahoo and especially /oogle, which are developing innovative 0eb-based software products to attract broadband users. 1ecause -icrosoft#s managers realize their decision ma ing is slowed by its decentralized structure, they have decided to reorganize. 2even business units are being consolidated into three principal divisions, each of which will be headed by a manager with proven product innovation s ills. The objective is to reduce infighting and miscommunication that was slowing product development between the seven units. "n the new structure, the three divisional heads will yield enormous power. 3lso, an additional layer is being added to the company#s hierarchy, thus presenting the danger of increased bureaucracy.
Jones and George, Essentials of Contemporary Management, Third Edition
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I. DESIGNING ORGANIZATIONAL STRUCTURE (LO1) Organizing is the process by which managers establish the structure of wor ing relationships among employees to allow them to achieve organizational goals efficiently and effectively. Organiza i!na" # r$% $r& is the formal system of tas and reporting relationships that determines how employees use resources to achieve goals. Organiza i!na" '&#ign is the process by which managers ma e specific organizing choices that result in the construction of a particular organizational structure.
3ccording to %!n ing&n%( )&!r(, managers design organizational structures to fit the factors or circumstances that are affecting the company and causing them the greatest uncertainty. Thus, there is no one best way to design an organization. 4our factors are important determinants of organizational structure. They are: !' the nature of the organizational environment, (' the type of strategy the organization pursues, *' the technology the organization uses, and ,' the characteristics of the organization#s human resources.
The Organizational Environ ent
The more 5uic ly the external environment is changing and the greater the uncertainty within it, the greater the need to speed decision-ma ing and communication so that scarce resources can be obtained. "n such situations, the manager#s goal is to ma e organizing decisions that result in greater flexibility. Therefore, they are li ely to decentralize authority and empower lower-level employees. "n contrast, if the external environment is relatively stable, uncertainty is low, and resources are readily available, managers ma e organizing decisions that bring more stability or formality to the organization#s structure. "n today#s mar etplace, change is rapid and competition is intense. Therefore, most managers are see ing ways to structure organizations that allow people and departments to behave flexibly.
Strateg!
+ifferent strategies often call for the use of different organizational structures. 3 differentiation strategy aimed at increasing 5uality usually succeeds best in a flexible structure. 3 low-cost strategy aimed at driving down costs wor s best in a more formal structure, which gives managers greater control.
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3t 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. -anagers are also challenged to create organizational structures that allow flexibility on a global level.
Te"hnolog! T&%)n!"!g( is the combination of s ills, nowledge, tools, machines, computers, and e5uipment that are used in the design, production, and distribution of goods and services.
The more complicated the technology, the greater the need for a more flexible structure that allows managers to respond 5uic ly to unexpected situations. "f technology is routine, a formal structure is more appropriate because tas s are simple and procedures for performing tas s can be outlined in advance. Two factors determine how complicated or nonroutine technology is, according to researcher 6harles 7errow. They are task variety and task analy a!ility" Nonroutine technologies are characterized by high tas variety and low tas analyzability. 8outine technologies are characterized by low tas variety and high tas analyzability. The more that a technology is based upon the s ills, nowledge, and abilities of people wor ing together on an ongoing basis, as opposed to automated machines that can be programmed in advance, the more complex the technology is.
#$ an Re%o$r"e%
The more highly s illed a wor force and the more people are re5uired to wor together in groups or teams to perform tas s, the more li ely an organization is to use a flexible, decentralized structure. 4lexible structures, characterized by decentralized authority and empowered employees, are well suited to the needs of highly s illed people. The way an organization#s structure wor s depends upon the organizing choices that managers ma e about four issues: !' how to group tas s into individual jobs, (' 9ow to group jobs into functions and divisions, *' how to allocate authority in the organization among jobs, functions, and divisions, and ,' how to coordinate or integrate jobs, functions, and divisions.
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II. GROU&ING TAS'S INTO (O)S* (O) DESIGN (LO+) The first step in organizational design is *!+ '&#ign, J!+ '&#ign is the process by which managers decide how to divide into specific jobs the tas s that have to be performed.
The result of the job design process is a 'i-i#i!n !. "a+!r among employees. )stablishing an appropriate division of labor among employees is vital to increasing efficiency and effectiveness. 0hen deciding how to assign tas s to individual jobs, managers must be careful not to oversimplify jobs. J!+ #i/0"i.i%a i!n is the process of reducing the number of tas s that each wor er performs. Too much job simplification may reduce efficiency rather than increase it, if wor ers become bored and unhappy.
(o, Enlarge ent an- (o, Enri"h ent
J!+ &n"arg&/&n is increasing the number of different tas s in a given job by changing the division of labor. 1y increasing the range of tas s performed by a wor er, managers hope to reduce boredom and increase motivation to perform at a high level. (o, enri"h ent is increasing the degree of responsibility a wor er has over his or her job by !' empowering wor ers to experiment to find new or better ways of doing the job, (' encouraging wor ers to develop new s ills, *' allowing wor ers to decide how to do the wor and giving them the responsibility for deciding how to respond to unexpected situations, and ,' allowing wor ers to monitor and measure their own performance. 1y enriching an employee#s job, managers are expecting that employee#s level of involvement in their wor to increase, thereby increasing productivity. -anagers who ma e design choices such as these are li ely to increase the degree to which wor ers behave flexibly rather than mechanically. Narrow, specialized jobs lead people to behave in predictable ways. "n contrast, wor ers who perform a variety of tas s are encouraged to discover new ways to perform their jobs and are more li ely to act flexibly and creatively.
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The (o, Chara"teri%ti"% .o-el :. 8. 9ac man and /. 8. &ldham#s J!+ C)ara% &ri# i%# M!'&" explains how managers can ma e jobs more interesting and motivating. 3ccording to 9ac man and &ldham, every job has five characteristics that determine how motivating the job is. They are:
S1i"" -ari& (, which examines the extent to which a job re5uires an employee to use a wide range of different s ills, abilities, or nowledge. Ta#1 i'&n i (2 which examines the extent to which a job re5uires a wor er to perform all the tas s from the beginning to the end of the production process. Ta#1 #igni.i%an%&, which examines the degree to which a wor er feels his or her job is meaningful because of its effect on people outside of the organization. A$ !n!/(, which examines the degree to which a job gives an employee the freedom and discretion needed to schedule different tas s and decide how to carry them out. F&&'+a%1, which is the extent to which a wor er receives clear and direct information regarding how well he or she has performed the job.
The five job characteristics affect an employee#s motivation by impacting three critical psychological states. They are: !' feeling that one#s wor is meaningful, (' feeling responsible for wor outcomes, and *' feeling responsible for nowing how those outcomes affect others. III. GROU&ING (O)S INTO /UNCTIONS AND DI0ISIONS (LO1) The next organizing decision is how to group jobs together to best match the needs of the organization#s environment, strategy, technology, and human resources. -ost topmanagement teams group jobs into departments and develop a functional structure. 3s the organization grows, managers design a divisional structure or a more complex matrix or product team structure.
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/$n"tional Str$"t$re 3 .$n% i!n is a group of people wor ing together who possess similar s ills or use the same nowledge, tools, or techni5ues to perform their jobs. 3 .$n% i!na" # r$% $r& is a structure composed of all the departments that an organization re5uires to produce its goods or services. The advantages of grouping jobs according to function are: 0hen people who perform similar jobs are grouped together, they can learn from observing one another. 0hen people who perform similar jobs are grouped together, it is easier for managers to monitor and evaluate their performance. The functional structure allows managers to create the set of functions they need to scan and monitor the tas and general environments.
3s an organization grows, the functional structure may become less efficient and effective for the following reasons: -anagers in different functions may find it more difficult to communicate and coordinate with one another. 4unctional managers may become so preoccupied with supervising their own specific departments that they lose sight of organizational goals.
Divi%ional Str$"t$re%* &ro-$"t2 .ar3et2 an- Geogra4hi" 3s the problems associated with growth and diversification increase over time, most managers of large organizations choose a di-i#i!na" # r$% $r& and create a series of business units, each of which produces a specific ind of product for a specific ind of customer. There are three different forms of divisional structure: 0r!'$% # r$% $r&2 g&!gra0)i% # r$% $r&2 an' /ar1& # r$% $r&. &rodu't (tru'ture 0hen using a product structure managers place each distinct product line in its own selfcontained division and give divisional managers the responsibility for division business-level structure. )ach division is self-contained because it has a complete set of all the functions that it needs to produce goods or services. 3dvantages of using a product structure are:
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"t allows functional managers to specialize in only one product area, so they build expertise. )ach division#s managers can become experts in their industry. "t frees corporate managers from the need to supervise directly each division#s day-today activities. The extra layer of management $the divisional management layer' can improve the use of organizational resources. "t puts divisional managers close to their customers and lets them respond 5uic ly and appropriately.
Manag&/&n In#ig) : G"a3!S/i )4"in&# N&5 Pr!'$% S r$% $r& 8ecently, many of the large pharmaceutical companies have merged in an effort to increase their research productivity. /laxo2mith;line is an example of such a merger. 3fter the merger, one of the company#s largest challenges was to determine the best way to combine the talents of scientists and researchers from both organizations so that they could 5uic ly innovate new products. <nderstanding the problems associated with its large size, /laxo managers decided to group researchers into eight small product divisions that each focuses upon a specific cluster of diseases, such as heart disease or viral infections. To date, /laxo2mith;line#s new product structure has wor ed well. The number of new drugs moving into clinical trials has doubled and many other new drugs have been developed. "n addition, increased collaboration resulting from the new structure has boosted company morale and decreased turnover. Geographi' (tru'ture 0hen organizations expand rapidly both at home and abroad, functional structures can create problems. "n such cases, a g&!gra0)i% # r$% $r&, in which divisions are bro en down by geographical location, is often chosen. -anagers are most li ely to do this when customer needs vary widely by country or world region.
-anagers are most li ely to use a glo!al geographi' stru'ture when pursuing a multidomestic strategy, since customer needs vary widely by country or world region. "n contrast, managers are most li ely to use a glo!al produ't stru'ture when pursuing a global strategy, since customers abroad are willing to buy the same ind of product, or slight variations thereof.
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Market (tru'ture (ometimes managers group fun'tions a''ording to the type of 'ustomer !uying the produ't, in order to tailor an organi ation*s produ'ts to ea'h 'ustomer*s uni+ue demands" , /ar1& # r$% $r& -also 'alled %$# !/&r # r$% $r&. is an organi ational stru'ture in /hi'h ea'h kind of 'ustomer is served !y a self-'ontained division" 0t allo/s managers to !e responsive to the needs of 'ustomers and allo/s them to make de'isions in response to 'ustomers* 'hanging needs" Managing G"!+a""(: N!1ia2 D!5 an' )& LEGO C!/0an( R&-a/0 T)&ir G"!+a" S r$% $r&# ! Rai#& P&r.!r/an%& This case describes three different strategies used by three different 6)&s to reorganize their company. %ego#s leadership made the decision to combine its central, northern, and southern )uropean divisions into a single unit in order to encourage cooperation and sharing of information and to eliminate costly duplication of activities. "n contrast, +ow 6hemical 6ompany decided to split its /lobal 6hemical +ivision into three separate and self-contained units = the plastics, chemicals and intermediates, and performance chemical groups. +ow#s objective was to provide managers with the focus re5uired to effectively meet a variety of customer needs. 4inally, No ia decided to create two new global divisions for the purpose of 5uic ly developing innovative wireless communications products. No ia#s 6)& realized that its lac of such products represented a wea ness in the company#s product line. No ia#s goal was to obtain a significant share of the lucrative wireless technology mar et to help boost its corporate performance.
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.atri5 an- &ro-$"t Tea De%ign%
0hen the environment is dynamic, changing rapidly, and uncertainty is high, even a divisional structure may not provide enough flexibility. Ma ri3 an' 0r!'$% &a/ '&#ign# are the most flexible type of organization structures. Matri2 (tru'ture3 "n a /a ri3 # r$% $r&, managers group people in two ways simultaneously: by function and by product. The result is a complex networ of reporting relationships that ma es the matrix structure very flexible. )ach person in a product team reports to two bosses: !' a functional boss, who assigns individuals to a team and evaluates their performance, and (' the boss of the product team, who evaluates their performance on the team. 7roduct teams are empowered and team members are responsible for ma ing important decisions, to eep the matrix structure flexible. -atrix structures have been successfully used for years at high-tech companies where new product development ta es place fre5uently and the need to innovate 5uic ly is vital to the organization#s survival.
&rodu't Team (tru'ture3 The dual reporting relationships of a matrix structure have always been difficult for managers and employees to deal with. To avoid these problems, managers have devised another way of organizing people and resources: a 0r!'$% &a/ # r$% $r&.
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The product team structure differs from a matrix in that: !' it does away with dual reporting relationships and two-boss managers, and (' functional employees are permanently assigned to a cross-functional team. 3 %r!##6.$n% i!na" &a/ is a group of managers brought together from different departments to perform organizational tas s. They report only to the product team manager. "ncreasingly, organizations are ma ing empowered cross-functional teams an essential part of their organizational architecture to help them gain a competitive advantage in fast-changing organizational environments.
#!,ri- Str$"t$re 3 large organization that has many divisions and simultaneously uses many different structures has a hy!rid stru'ture. 4or example, most large organizations use product division structures to create self-contained divisions. Then, each division manager selects the structure that best meets the needs of their particular environment, strategy, etc.
III. COORDINATING /UNCTIONS AND DI0ISIONS (LO6) 0hen organizing, the manager#s next tas is to ensure that there is sufficient coordination among functions and divisions. Allo"ating A$thorit! To coordinate the activities of people, functions, and divisions and to allow them to wor together managers must develop a clear hierarchy of authority. A$ )!ri ( is the power vested in a manager to ma e decisions and use resources to achieve organizational goals by virtue of his or her position in an organization. The )i&rar%)( !. a$ )!ri ( is an organization#s chain of command. )very manager, at every level of the hierarchy, supervises one or more subordinates. The term #0an !. %!n r!" refers to the number of subordinates who report directly to a manager.
3 "in& /anag&r is someone who is in the direct line or chain of command and has formal authority over people and resources below him. 3 # a.. /anag&r is a manager responsible for managing a specialist function. -anagers at each level of the hierarchy confer upon managers below them in the chain of command the authority to ma e decisions. 1y accepting this authority, those lowerlevel managers then become responsible for their decisions and are accountable for how well they ma e them.
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Tall an- /lat Organization%
3s an organization grows in size, its hierarchy of authority normally lengthens, ma ing the organizational structure taller. 3 a"" !rganiza i!n has many levels of authority relative to company size. 3 ."a !rganiza i!n has fewer levels relative to company size. 3s a hierarchy becomes taller, effective communication becomes difficult and expenses rise. Chain o7 Co an-
The .ini $
The principle of the /ini/$/ %)ain !. %!//an' states that top managers should always construct a hierarchy with the fewest levels of authority necessary to efficiently and effectively use organizational resources. To ward off the problems associated with tall organizations, top managers must be sure that they are employing the right number of middle and first-line managers. )ffective managers constantly scrutinize their hierarchies to see if the number of levels can be reduced.
Centralization an- De"entralization o7 A$thorit!
3nother way that managers eep the organizational hierarchy flat is to decentralize authority to lower-level managers and non-managerial employees. 3dvantages of decentralization include fewer communication problems, a need for fewer managers, and an improved ability of employees to recognize and respond to customer needs. 3nother advantage is that the organization continues to behave in a flexible as it grows and becomes taller. 9owever, too much decentralization has disadvantages, including managers who may begin to pursue their own goals at the expense of organizational goals and a lac of communication among functions or divisions that may prevent possible synergies.
Top managers must see a balance between centralization and decentralization of authority that best responds to the four contingencies that they face. "f in a stable environment, then there is no need to decentralize authority. "n uncertain, changing environments, however, top managers must empower employees and allow teams to ma e important strategic decisions.
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Managing G"!+a""(: P"&3$# U#&# S&".6Manag&' T&a/# ! D&%&n ra"iz& A$ )!ri ( 7lexus, an electronics ma er located in Neenah, 0isconsin, wanted to find a way to compete with low-cost manufacturers abroad. The solution they identified and implemented lies in the company#s development of a new manufacturing technology called >low-high,# which allows the production of low volumes of many different inds of products in a highly efficient manner. To ma e this new technology effective, however, wor activities had to be reorganized by decentralizing control and empowering wor teams. 3n organizational structure was designed that is based upon the creation of four >focused factories#, in which control over production decisions is given to the wor ers who perform all the operations involved in ma ing a product. 0or ers are cross-trained so that they can perform any particular operation in their >factory#. The ability of wor teams to ma e rapid decisions is vital, since every minute that a production line is not moving increases production costs tremendously. +ecentralization has helped to reduce the amount of time that the production line is idle. T!4e% o7 Integrating .e"hani% %
-anagers can use various in &gra ing /&%)ani#/# to increase communication and coordination among functions and divisions. The greater the complexity of an organization#s structure, the greater is the need to increase communication and coordination among functions and divisions. 2ix integrating mechanisms are available to managers to increase coordination and communication. %isted in increasing complexity, they are: 'ir&% %!n a% 2 "iai#!n r!"&#2 a#1 .!r%&#2 %r!##6.$n% i!na" &a/#2 in &gra ing r!"&# an' '&0ar /&n #2 an' /a ri3 # r$% $r&#,
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6ire't Conta't: +irect contact creates a context within which managers from different functions or divisions can wor together to solve mutual problems. 9owever, if managers of e5ual authority have differing views, a problem is created, since no mechanism exists to resolve the conflict apart from the authority of top management. The need to solve everyday conflicts, however, wastes top management#s time and slows decision-ma ing. 7iaison 8oles: 0hen the volume of contacts between two functions increases, one way to improve coordination is to give one manager in each function or division the responsibility for coordinating with the other. The responsibility for coordination is a part of the liaison#s full time job. <sually an informal relationship forms between the people involved, greatly easing strains between functions.
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Task 9or'es3 "f two or more functions share common problems and direct contact and liaison roles do not provide sufficient coordination, a tas force may be appropriate. &ne manager from each relevant function or division is assigned to a tas force that meets to solve the specific, mutual problem. -embers are responsible for reporting bac to their own departments on issues addressed and solutions recommended. Tas forces are often called ad ho' 'ommittees because they are temporary. &nce the problem is resolved, the tas force is disbanded. Cross-9un'tional Teams3 To address recurring problems effectively, managers are increasingly using permanent integrating mechanisms such as cross-functional teams. 3n example of a cross functional team is a new product development committee that is responsible for the choice, design, manufacturing, and mar eting of a new product. The more complex an organization, the more important cross-functional teams become. 0ntegrating 8oles3 3n integrating role is a role whose only function is to increase coordination and integration among functions or divisions to achieve performance gains from synergies. <sually, senior managers who can envision how to use the resources of the functions or divisions to obtain new synergies are chosen to perform such roles. &nce again, the more complex an organization, the more important integrating roles become. Matri2 (tru'ture: -anagers often use a matrix structure when they must be able to respond 5uic ly to the tas and general environments. 1ecause the matrix structure contains many of integrating mechanisms already discussed, it offers maximum flexibility, communication, and coordination among functions and divisions.
I0. STRATEGIC ALLIANCES2 )+) NET8OR' STRUCTURES2 an- IT 8ecently, increasing globalization and the use of new "T has brought about innovations in organizational architecture: # ra &gi% a""ian%&# an' +$#in&##6 !6+$#in&## n& 5!r1 # r$% $r&#.
3 # ra &gi% a""ian%& is a formal agreement that commits two or more companies to exchange or share their resources in order to produce and mar et a product. 2trategic alliances are usually formed because the companies involved have similar interests and believe that they can benefit by cooperating with each other.
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3 n& 5!r1 # r$% $r& is a series of global strategic alliances that one or several organizations create with suppliers, manufacturers, and?or distributors to produce and mar et a product. Networ structures allow an organization to manage its global value chain in order to find new ways to reduce costs and increase the 5uality of products, without incurring the high costs of hiring managers to complete these tas s.
E )i%# in A% i!n: O. S)!&# an' S5&a #)!0# 3s the production of all inds of goods and services are increasingly outsourced to poor regions of the world, the behavior of companies that outsource production to subcontractors in these countries has come under scrutiny. Ni e, the largest and most profitable shoe company in the world, was one of the first to experience public bac lash when critics revealed how wor ers in poor countries were being treated. 3s a result, 6)& 7hil ;night reevaluated Ni e#s labor practices and announced that all factories producing its products would be independently monitored and inspected. 3fter its competitor, 8eebo , announced its intention to raise wages by (@A, Ni e raised its wages (B percent so that wor ers earned C(* a month rather than C!D. 3didas, a )uropean shoema er, faced similar accusations. 2imilar crises in the clothing, electronics, and toy industries have forced manufacturers within each to reevaluate their foreign labor practices, also.
The ability of managers to produce and distribute products using a networ structure instead of creating a complex organization structure has led to the popularity of the idea of a ,o$n-ar!le%% organization. 2uch an organization is composed of people lin ed by "T =computers, faxes, computer-aided design systems, and videoteleconferencing, who may rarely, if ever, see each other face-to-face. %arge consulting companies utilize their employees in this way. 6onsultants are connected by laptop to the organization#s 3no9le-ge anage ent %!%te , its company-specific information system that systematizes the nowledge of its employees and provides them with access to other employees who have the expertise to solve the problems they encounter as they perform their jobs. The push to lower costs has led to the development of ele"troni" ,$%ine%%:to ,$%ine%% net9or3% in which most or all of the companies in an industry use the same software platform to lin to each other and establish industry specifications and standards and solicit bids from thousands of potential suppliers worldwide. 2uppliers also use the same software platform so electronic bidding, auctions, and transactions are possible between buyers and sellers around the world.
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To maximize efficiency and effectiveness, managers must carefully assess the relative benefits of performing a functional activity in-house versus outsourcing. "t still is not clear how 1(1 networ s and other forms of electronic alliances between companies will develop in the future. 0. SU..AR; AND RE0IE8
LECTURE ENHANCERS Le"t$re Enhan"er <.1 STRATEGIC ALLIANCES2 NET8OR' ORGANIZATIONS2 AND ET#ICAL RES&ONSI)ILIT; 2trategic alliances span a range of configurations, from preferred vendors to the modern boundaryless organization. &rganizations have evolved through $a' preferred vendors, $b' licensing agreements, $c' original e5uipment manufacturers, $d' contractual alliances, $e' partnerships and joint ventures, and finally $f' boundaryless organizations. This continuum reflects a gradual but progressive movement towards the removal of boundaries, resulting in increased interaction between individuals and organizations. "n the process, organizations have evolved toward greater flexibility. The trend is to remove barriers among people, organizational units, and organizations. "n the process, organizations have become leaner, flatter, and more focused on their specific contribution to the value chain. "n essence, organizations have become li e nodes in a networ of complex relationships. "n addition to creating economic opportunities, strategic alliances also hold disadvantages. The most evident ones are the splitting of profits and the sharing of nowledge. 1ecause firms involved in a strategic alliance of any configuration tend to specialize in the specific area of competence that maximizes their contribution to the value chain, expertise and information becomes fragmented. This poses another challenge and potential threat, since a firm could possibly lose a critical competence in an activity that has been outsourced or it could become dependent on its strategic partners. 9ence, strategic alliances often connect organizations to each other in a very intense way. The relationship between strategic partners involves not only traditional business contracts, but also social contracts that must be honored if the alliances are to succeed. 3ll firms must trust each other and accept the norms of the relationship.
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9erein lies the challenge of maintaining ethical standards. 2ocial contacts among companies are difficult to monitor when a company is operating in a continually evolving networ . Traditional bureaucratic approaches will not wor , and for this reason, clan control is relied upon. 3s is the case of contracts between employee and employer, companies must rely upon finding partners that share their values. The challenge is to create a cross-organizational culture in which the values and interests of the partners coincide. "n the real world, we find few mechanisms to control the behavior of strategic partners, so we must rely on mutual trust based on the partners# good character and reputation. -any cases exemplify the ethical gaps that can occur because of the decentralized control in networ organizations. &ne well-documented case involves the financial services industry. "t appears that 4leet 1an was benefiting from redlining practices by extending lines of credit to second-mortgage companies, encouraging those companies to ma e high interest mortgages in poor areas heavily populated by minorities, and then purchasing the mortgages from these companies. "n this way, 4leet was able to benefit from these 5uestionable loans while shifting ethical responsibility to the independent mortgage companies. 3 well-publicized case is that of Ni e, whose partners produced shoes using child labor. 3 less publicized case is that of 2outheast 3sia#s Ebeer girlsF. 1eer and li5uor distributors hired small armies of attractive women to greet male customers at bars and restaurants and promote the distributors# brands. There was a dar er side of this mar eting because the girls were pressured by customers to go home with them, and if they refused, were sometimes raped. 3 number of the beer girls are now 9"G positive. The distributors either deny there was a problem or refuse to ta e responsibility for it. The brewers, who typically are foreign exporters, claimed Emar eting efforts conducted overseas are really not something the brewer participates in or has any nowledge ofF. -any other cases such as these can be cited in which fragmentation of the stages of the production or mar eting function resulted in fragmentation of ethical responsibility. 0hile the networ structure resulted in greater cost effectiveness, it also spread responsibility for and oversight of ethical conduct to several organizations, which led to ethical lapses.
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"s there anything that can be done to maintain an ethical climate within a networ or are these sad cases of corporate irresponsibility inevitableH This 5uestion raises the issues of power, influence, and choice of networ s for decision-ma ers. -any feel that decision- ma ers have strategic choice, and they retain the freedom of choice when they enter into networ s. "t is therefore, the responsibility of managers to ensure that ethical responsibility is not lost in a decentralized networ . -anagers can maintain a climate of ethical responsibility by choosing partners who share their ethical values, by using their power and influence to bloc unethical conduct, and by creating an environment that includes an ethical dimension and a monitoring system that scans the ethical dimension as closely as the comic dimension.
,dapted from :(trategi' ,llian'es, ;et/ork <rgani ations, and Ethi'al 8esponsi!ility=, !y ,nthony J" 6a!ou!, ,dvan'ed Management Journal )7, ,utumn 2552, p" $5-$1"
Le"t$re Enhan"er <.+ ORGANIZING /OR CUSTO.ER SER0ICE Traditional formal organization structure can stifle an organization#s ability to deliver exemplary customer service. To meet the needs of customers, a more fluid approach is needed. 3n example of this is the customer-supplier relationship developed by +igital )5uipment 6orporation, which attempts to build lasting partnerships with its customers by anticipating not only the day-to-day re5uirements of customers, but also by helping them plan for the unexpected.
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3n example of this occurred at *:*@ a.m. :anuary ,, !IDD when an electrical fire in 6hase 1an #s main production site in -anhattan wiped out the fifty-story building#s power, including all computer systems. This was the first day of the ban ing new year and 6hase expected to process well over its daily average money transfer volume. 0hen 6hase purchased its e5uipment, +igital assisted in planning for the everyday and bac up operations crucial to the ban #s relationship with its customers. They also supported a secondary site which was fully operational and configured to meet the bac up processing re5uirements of the main production facility. The situation for 6hase was potentially threatening. "f on-line systems failed to process even one day#s worth of transactions, the ban could be subject to serious penalties. Two +igital field service crews were on the scene before dawnJone downtown and another at one of the ban #s contingency sites. 2imultaneously, a +igital team from manufacturing, sales, and field service banded together, coordinating overnight delivery of additional parts and peripherals. That same day, the operational site was fully operational, enabling 6hase to successfully complete IB percent of its business volume. +igital continuously wor ed with ban personnel until the main production site was bac in business. 4or 6hase customers, it was business as usual. Le"t$re Enhan"er <.1 /LE=I)LE DESIGN E=TENDS TO T#E 8OR'&LACE 1usinesses, having become convinced of the value of teamwor , are starting to redesign offices to accommodate the teams. 1raun "nc., a small appliance manufacturer and a /illette 6o. subsidiary, recently celebrated its move from a traditional office building in %ynnfield, -ass. to a two-story, *D,@@@-s5uare-foot site where employees meet at oases furnished with cafe-style tables and chairs, computer terminals for "nternet browsing, and a5uariums stoc ed with exotic fish. E0e wanted to change the rules and create a more open environment that would encourage communication and collaborationF, said president 1ruce 6leverly. E0e had already restructured our business by creating cross-functional teams that allow our finance, logistics, sales, and mar eting people to wor together based on specific products. 0e needed an environment that reflected our new approachF. 1raun is hardly alone. &ver the last decade, "nternational 1usiness -achines 6orp., 6hrysler 6orp., 3TKT 6o., and 4ord -otor 6orp. have all redesigned their office spaces with an eye toward flexibility and open communication.
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Not surprising, the office-furniture industry has capitalized on the trend, aggressively mar eting flexible furnishings for the flexible wor space. &ne example: 7ersonal 9arbor, a 2teelcase "nc. product that helps companies build their own collaborative office spaces with cabinets on wheels, screens with dual functions, and other portable furnishings. To be sure, the much-maligned cubicle of +ilbert fame still exists. 1ut at 1raun, the standard cubicle now includes stylish glass openings that allow employees to see beyond their own gray walls and reflect light from the ban s of windows that line the office. 1raun#s 6leverly described the impetus for creating the new, open office: 0ith company sales expected to reach the CB@@ million mar next year, the firm needed more space, giving it a ready-made opportunity to move to a more open floor plan. 2o 1raun hired architects :ung K 1rennan "nc. to draw up plans for renovation of some additional leased space. <nder the architects# direction, contractors tore down walls, connected two floors by way of a spiral staircase and created a meeting place in the lobby with the loo and feel of a living room. 3dditionally, the new floor plan encouraged socializing by developing islands where the company#s !L@ employees could meet in small groups. The company still uses offices, but windows lessen the isolation that previously characterized the executives# old offices. 3nd strategically placed meeting places ma e it possible for people to gather for impromptu or planned discussions throughout the day. :im 1arter, a 1raun product manager, says the new office has encouraged brainstorming and reduced the amount of time it ta es to gather information. E"t#s easier to connect with the people you need and share ideas. .ou just wal out the office doorF, he said. MANAGEMENT IN ACTION Note% 7or To4i"% 7or Di%"$%%ion an- A"tion Di%"$%%ion* 1" >ould a fle2i!le or a more formal stru'ture !e most appropriate for ea'h of these organi ations3 -a. a large department store -!. a ?ig 9ive a''ountan'y firm -'. a !iote'hnology 'ompany@ E2plain your reasoning" -7<1.
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3 large department store should utilize a formal structure. The retail business is a relatively stable environment. 8esources are readily available, and uncertainty is low. %ess coordination and communication among people and functions is needed to obtain resources. "n a department store, most important decisions can and should be made by top managers within a clearly defined hierarchy of authority. )mployees do not need to decide which products to sell, or how the store will mar et itself. )mployee activities should be governed by extensive rules and standard operating procedures. 3 1ig 4ive accountancy firm should utilize a more flexible structure. -ost of these firms are expanding globally, and global expansion is facilitated by a flexible structure that allows for more autonomy at lower levels in the organization. 3lso, primarily professionals staff an accounting firm. 4lexible structures are best suited to the needs of highly s illed people. -ost accountants have learned professional honesty and integrity in their training, and would li ely resent close supervision, a distinct feature of a formal structure. 3 biotechnology firm should also implement a flexible structure, due to the ever-changing and developing environment in which it operates. 3 flexible structure ma es it easier to speed decision ma ing and communication, and ma es it easier to obtain resources. "n addition to the environment, technology is also a factor. The more complicated the technology, the greater the need for a more flexible structure. 1iotechnology firms have incredibly complicated s ills, nowledge, tools, machines, and computers that they use to conduct research and develop products. -any of their human resources are s illed, as scientists or doctors, and do not re5uire close management supervision. (. Asing the Bo! 'hara'teristi's model, dis'uss ho/ a manager 'an enlarge or enri'hed a su!ordinate*s Bo!" -7<2. 3 university has many different departments and positions, so a typical job may not be easy to identify. 2ince a secretary would be found in most departments, that will be used as an example. 3 secretary of a department may have duties li e typing, answering the telephone, ta ing messages, accepting pac ages, and mailing out information. The s ill variety may be sufficient if the secretary feels that a wide range of s ills, abilities, and nowledge are being used. Tas identity may not be very high for a secretary, since most tas s, such as typing a letter or sending out department information, probably don#t re5uire much process. "ncreased tas identity can be gained by having the secretary give input concerning the type of information the department sends out, or having the secretary contribute to the content of this information. 2ecretaries can often feel that they have tas significance when faculty or staff than them for completing a tas and therefore show them that their wor is important.
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#" Co/ might a salesperson*s Bo! or a se'retary*s Bo! !e enlarged or enri'hed to make it more motivating@ -7<2. 3llowing them to schedule their various activities and be responsible for reporting to management on their progress could enrich a salesperson#s job. 3 salesperson could also be charged with the tas of finding new ways to approach customers or close a sale that ma e repeat business more li ely. -anagement might encourage their sales force to develop new s ills, such as mar eting techni5ues and nowledge that can be applied to their current jobs. 3 wor shop for salespeople could be arranged to help figure out ways to respond to unexpected situations, with various wor shop members offering suggestions and solutions. /iving him or her the opportunity to handle new responsibilities could enrich a secretary#s job. 3 manager could encourage a secretary to develop new s ills or extend the opportunity to decide how to do the wor , for example, developing a new way of organizing files or documents. 3llowing a secretary to monitor and measure their own performance might also give him or her a feeling of job involvement, and encourage flexibility rather than rigidity in the wor setting. $" >hen and under /hat 'onditions might managers 'hange from a fun'tional to -a. produ't -!. geographi', or -'. market stru'ture@ -7<#. 3 functional structure is a structure that is composed of all the necessary departments that an organization re5uires to produce its goods or services. 3 functional structure might be changed to a product structure if growth and diversification in an organization become a problem over time. -anagers might create divisions according to the type of product or service they provide if they decide to diversify into new industries or to expand their range of products. 1y placing each distinct line or business in its own self-contained division and giving the divisional managers the responsibility for devising the right business-level strategy, the division will be in a better position to compete effectively in that industry or mar et. 3 geographic structure may be adopted when organizations are expanding rapidly both at home and abroad, and managers find it increasingly difficult to manage, from one central location, the problems and issues that may arise in each region of the country or area of the world. 0hen shifting to this structure, management brea s down divisions by geographic location, giving managers the flexibility they need to best meet the needs of regional customers.
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3 mar et structure is appropriate when an organization needs to group functions according to the type of customer buying the product. This structure allows managers to be more responsive to the needs of their customers and allows them to act flexibly to ma e decisions that are needed to 5uic ly respond to changing customer needs. This structure is beneficial in organizations where the time factor is critical. %" Co/ do matri2 stru'ture and produ't team stru'ture differ@ >hy is produ't team stru'ture more /idely used@ -7<#. "n a matrix structure, managers group people and resources in two ways simultaneously: by function and by product team. "n developing this structure, managers build a networ of reporting relationships among product teams and functions. )ach person in a product team reports to both a functional and a product team boss $ nown as two boss managers.' -atrix structure ma es the most use of human resources because people are only part of the team when their s ills are needed, and leave the team after they have completed their assignment. 3 product team structure is different from a matrix structure in that $!' it does away with dual reporting relationships and two boss managersM and $(' in a product team structure, employees are permanently assigned to cross-functional team, and the team is empowered to bring a new or redesigned product to mar et. -embers of a cross-functional team report only to the product team manager or one of his?her direct subordinates.
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The product team structure is more widely used today because dual reporting relationships that characterize the matrix structure are difficult for managers and employees to handle. &ften, the two bosses ma e conflicting demands, leaving employees confused and frustrated. 4unctional and product team bosses may come into conflict over who is in charge of which team members for how long, since members are not permanently assigned to a crossfunctional team in a matrix structure, li e they are in a product team structure. 3 product team structure is used because it allows flexibility with a structure that is easier to operate. A"tion )" Compare the pros and 'ons of using a net/ork stru'ture to perform organi ational a'tivities, as opposed to performing all a'tivities :in house= or /ithin one organi ational hierar'hy" -7<$. 3 networ structure is a series of global strategic alliances that one or several organizations create with suppliers, manufacturers, and?or distributors to produce and mar et a product. Networ structures allow an organization to create and manage a global value chain in order to find new ways to reduce costs and increase the 5uality of products without incurring the high costs of operating a complex organizational structure. The disadvantages of using a networ structure include limited control over the processes used by foreign suppliers, which may result disturbing conse5uences for the organization. The ethical problems created for Ni e by its foreign suppliers is an example. 7" >hat are the advantages and disadvantages of !usiness-to-!usiness net/orks@ -7<$. The advantage of a business-to-business networ is that further cost reductions can be achieved through the standardization of certain manufacturing specifications and operational transactions at the industry-wide level. 7otential disadvantages may include difficulty in maintaining any competitive advantage or distinctive competency based upon operational efficiencies, since large portions of the operations function has been standardized across all competitors. 3lso, accusations of oligopoly could emerge, since competitors are wor ing together in an effort to lower costs. 1" 9ind a manager and identify the kind of organi ational stru'ture that his or her organi ation uses to 'oordinate its people and resour'es" >hy is the organi ation using that stru'ture@ >ould a different kind of stru'ture !e more appropriate@ >hi'h one@ -7<#.
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+r. -iller is the director of a survey research institute affiliated with a large university. The institute uses a functional structure, or one that encompasses all the necessary departments that it needs to produce its goods and services. +epartments include sampling, interviewing, data collection, data processing, data programming, and accounting. +epartments are arranged so that everyone possesses similar s ills and uses the same ind of nowledge, tools, and techni5ues to perform their jobs. This structure is used so that people can learn from observing one another and can become more specialized and perform at a higher level. "t also is easier for managers, or study directors, to monitor and evaluate the performance of their subordinates. 3lso, it allows study directors to most efficiently scan and monitor the environment. &ccasionally, a different structure is used when it is deemed appropriate. "n some research organizations, it is necessary to adopt a product structure. This occurs when a department accepts a project that is different from what is normally done by the organization. 0hen this occurs, one team will be responsible for all aspects of one study, from data collection, to sampling, to evaluation, to data processing. This allows the team to concentrate on one project or subject area. 4" >ith the same or another manager, dis'uss the distri!ution of authority in the organi ation" 6oes the manager think that de'entrali ing authority and empo/ering employees is appropriate"-7<#. +r. -iller#s department is structured hierarchically. +r. -iller is the director of the department, and study directors report directly to her. <nder the study directors, the divisions are similar in terms of authority. )ach division has a person in charge of that division, with subordinates reporting to them. 2tudy directors have line authority, that is, they are in the direct chain of command and are directly responsible for ma ing the decisions about the research. 9eads of the departments have staff authority, and are responsible for giving the best possible advice to the study directors about how resources and s ills should be utilized. +r. -iller explained that authority was decentralized, though final reports and communications needed to be approved by the director. )mployees are somewhat empowered in that they are responsible for monitoring some of their own wor , and they receive feedbac on their performance. +r. -iller did not thin that more responsibility needed to be given to employees in addition to what they already have, since many grants and contracts are for national clients, who prefer to deal directly with the director and the study directors. 33621 standards: !, *, I, !@, !(, !*
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NOTES /OR )UILDING .ANAGE.ENT S'ILLS (LO 12 +2 12 6) Un-er%tan-ing Organizing Think of an organi ation /ith /hi'h you are familiar or perhaps one in /hi'h you have /orked, su'h as a store, restaurant, offi'e, 'hur'h, or s'hool" Then ans/er the follo/ing +uestions" 1" >hi'h 'ontingen'ies are most important in e2plaining ho/ the organi ation is organi ed@ 6o you think it is organi ed in the right /ay@ 3 large university will be used as an example of an organization. The environment is important in explaining why a university is usually operated under a formal structure. 9istorically, universities have served the purpose of providing higher education, with ade5uate faculty and support staff. The environment was not subject to a high level of uncertainty, and resources were readily available. -ost universities adopted the same strategy, perhaps differentiating some programs, but most were comparable in services and courses offered. Technology has emerged as a new standard, though computers are becoming increasingly prevalent in all aspects of teaching and administration. 9uman resources is less of a factor because the range is typically great, from professors, to custodial staff, to administrative staff. This formal, functional structure may not be the most appropriate for universities that hope to succeed in the coming years. 2tudents are re5uiring more from schools, funding is scarce, and many schools need to learn to do more with less. 3 more flexible structure, at least in some departments, may help universities respond to the changing academic environment. 2" Asing the Bo! 'hara'teristi's model, ho/ motivating do you think the Bo! of a typi'al employee in this organi ation is@ 1ased upon the :ob 6haracteristics -odel, the job of a professor should be extremely motivating since s ill variety, tas significance, tas identity, autonomy and feedbac are high. 9owever, this may not be the case for a member of the university#s administrative staff, such a secretary of a department. 2 ill variety may be sufficient if the secretary feels that she uses a wide range of s ills, abilities, and nowledge. 9owever, tas identity may be low, since there is little opportunity to complete a job from start to finish. #" Can you think of any /ays in /hi'h a typi'al Bo! 'ould !e enlarged or enri'hed@
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3 secretary of a department may have duties such as typing, answering the telephone, ta ing messages, accepting pac ages, and sending out information. 9aving the secretary provide input concerning what type of information the department sends out or as ing her to contribute to the content of this information can increase tas identity. 2ecretaries can often feel that they have tas significance when faculty or other staff members than them for completing a tas and therefore show them that their wor is important. $" >hat kind of organi ation stru'ture does the organi ation use@ 0f it is part of a 'hain, /hat kind of stru'ture does the entire organi ation use@ >hat other stru'tures might allo/ the organi ation to operate more effe'tively@ 9or e2ample, /ould the move to a produ't team stru'ture lead to greater effi'ien'y or effe'tiveness@ >hy or /hy not@ 3 university is usually composed of different schools, for example, arts and sciences, engineering, business, and so on. 0ithin each school, there are usually deans and faculty, both senior and associate. &verall, the structure is functional in that departments are made up of people who possess similar s ills or use the same ind of nowledge, tools, or techni5ues to perform their jobs. There are other structures in a university, also. The fact that universities are divided into graduate and undergraduate programs is indicative of a mar et structure, in that the schools are divided according to the type of student on which they focus. 2ome universities are also divided into more than one campus, which ma es a geographic structure appropriate. This allows schools to focus on the area in which a school is, as is the case when there is an urban and a suburban campus. 2tudents at each of the two schools often have uni5ue needs and issues. 3 product structure would not lead to more organizational effectiveness in this context because all the divisions or schools in the university should be striving to deliver the same product, which is a 5uality education. "n terms of type of degree, a university could be labeled a product structure in that each faculty member tends to specialize in one school, and they can become experts in their respective fields. %" Co/ many levels are there in the organi ation*s hierar'hy@ 0s authority 'entrali ed or de'entrali ed@ 6es'ri!e the span of 'ontrol of the top manager and of middle or first-line managers"
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There are many levels in a university#s hierarchy. The president of the university must report to a board of trustees, and deans of schools must report to both university president and the board. 2enior faculty must report to the head of their department, and the heads of departments must report to deans of schools. 3ssociate faculty need to report to senior faculty in their department, as well as the head of the department. /raduate students who wor for the university must report to their advisors and department faculty. 3uthority tends to be centralized at the very top of each division, but becomes more decentralized as you move down the hierarchy. The president of the university cannot ma e all the decisions about which courses will be offered or which faculty will be hired, but some decisions about budget allocations and strategy are too monumental to be delegated to specific departments. The president has a large span of control, or many subordinates that he or she directly manages. The heads of departments, which can be viewed as middle managers, have large spans of control as well. 3 professor, which may be viewed as a first line manager, would have a small span of control, perhaps only over a few graduate students. )" 0s the distri!ution of authority appropriate for the organi ation and its a'tivities@ >ould it !e possi!le to flatten the hierar'hy !y de'entrali ing authority and empo/ering employees@ The functional structure of a large university is appropriate because divisions li e athletics, food service, maintenance and other operation divisions should be separate from the academic departments such as psychology, mathematics, education, and so forth. 3uthority is decentralized within each department so that the head of the department does not have to ma e every day-to-day decisions, but is still informed of the activities that are being carried out. 0ithin a very large university, sometimes the hierarchy is too formally structured in a way that ma es it difficult to get things done. "n some cases, a student may need the signature of a head of a department in order to add or drop a class. "f the department head is very busy, it may be difficult for a student to fulfill this re5uirement, possibly causing him or her time and money. "f authority was decentralized to faculty for this re5uirement, it would be easier for the student to fulfill it.
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2ometimes it is difficult to decentralize authority and empower employees in a situation where those with authority are unwilling to relin5uish it to others. This can happen in a university as well as in any organization. 3lso, if departments or divisions are given too much decision ma ing authority, there is the danger that they will begin to pursue their own goals at the expense of the university#s goals. 3n example might be a department who wants to concentrate heavily on research at the expense of teaching. This may not be in line with the strategy of the university as a primarily educational, rather than a research, institution. 7" >hat are the prin'ipal integrating me'hanisms used in the organi ation@ 6o they provide suffi'ient 'oordination among people and fun'tions@ Co/ might they !e improved@ 4aculty and departmental meetings are held in which everyone meets to discuss relevant issues and to update one another on the status of their teaching and?or research activities. +ifferent committees are also formed in which representatives of each division meet to address problems or issues that concern everyone. These committees serve as tas forces within the academic system. These tools are used so that divisions can increase communication and coordination within themselves, and their departments. The existing integrating mechanisms may not be providing sufficient coordination between people and functions. These mechanisms could be improved by having cross-departmental meetings. "n today#s universities, many students are re5uesting inter-departmental learning. The boundaries between fields are becoming blurred, and students want to be able to ta e classes from and specialize in many different fields in order to be successful in their careers. <niversities that continue to operate as if each department exists within a vacuum will find that students will loo elsewhere for education that ta es more of an integrative approach. The environment is changing in that students need to now more and have more diversified experiences.
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-ore direct contact with faculty from different divisions, and more cross-functional or crossdepartmental teams or committees could promote communication and integration within the academic departments. "n addition, liaisons from the Ereal-worldF could be established in order to connect the academic setting with the realities of the wor ing environment. 4aculty could meet with these liaisons to establish internships and job opportunities. 1" ;o/ that you have analy ed the /ay this organi ation is organi ed, /hat advi'e /ould you give to its managers to help them improve the /ay it operates@ The advice that would be most helpful would be to be flexible. 6ertain functions need to remain separate, but departments and schools would do well to try to integrate more and become less strict with re5uirements to ta e certain classes in certain schools. 2tudents should be allowed and encouraged to build their own curriculum so that they receive the relevant training that they need to succeed in today#s world. The job opportunities that exist today re5uire people who have many different s ills and wide nowledge bases. The environment is very unstable in many industries, and employers are loo ing for students who possess initiative and creativity. 3llowing for more flexibility within our education systems can promote this while providing 5uality education. 33621 2tandards: !, *, I, !@, !( .anaging Ethi"all! (LO 12 +) 1" >hat ethi'al rules should managers use to de'ide /hi'h employees to terminate /hen redesigning their hierar'hy@ 0hen redesigning the hierarchy re5uires downsizing, managers must be certain that the :ustice -odel guides their decision ma ing. This model states that an ethical decision is one that is rendered in a fair, impartial, and e5uitable way and prohibits discrimination between people based on observable appearances or behaviors. 6learly, the strongest performers should be retained since they ma e the greatest contribution to the company#s bottom line. 8etaining employees based on factors unrelated to job performance, such as friendship or subservient behavior, undermines the organization#s ability to compete effectively, thereby negatively impacting all sta eholders.
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2" (ome people argue that employees /ho have /orked for an organi ation for many years have a 'laim on the organi ation at least as strong as its shareholders" >hat do you think of the ethi's of this position@ Can employees 'laim to o/n their Bo!s if they have 'ontri!uted signifi'antly to its past su''ess@ Co/ does a so'ially responsi!le organi ation !ehave in this situation@ The highest performers should be retained because they ma e the greatest contribution to the company#s bottom line, not because their performance has provided them with >ownership# of their jobs. 0hen downsizing long time employees whose job performance has been mediocre or marginal, the highly ethical and socially responsible organization might provide free job outplacement counseling, generous severance pay, or other services that will help the employee adjust to their new situation. 33621 2tandards: !, *, L NOTES /OR S.ALL GROU& )REA'OUT E=ERCISE (LO 12 +2 12 6) )o,>% A44lian"e% Dou are a team of lo'al 'onsultants that ?o! has 'alled in to advise him as he makes this 'ru'ial 'hoi'e" >hi'h stru'ture do you re'ommend@ >hy@ 2ince 1ob#s strategy is to widen his product range and compete directly with the chains, he needs to implement a structure that is more flexible than the functional structure that is currently in place. The current divisions of sales, purchasing and accounting, and repair will not ade5uately accommodate the new product line of consumer electronics. The best strategy would be to implement a product structure with separate functions for each of his two lines of business. 3 product structure would be the most appropriate because the consumer electronics business is much less predictable and stable than the appliances business. 3 product structure will give divisional managers $appliances and consumer electronics' the responsibility for devising the right business-level strategy to allow the two divisions to compete with the chain stores. This structure will also allow functional managers to specialize in only one product area, and each manager can become experts in their product industry. This structure also liberates 1ob from direct responsibility for all day-to-day operations. "n terms of customer service, a product structure will enable 1ob#s 3ppliances to retain their good reputation. 7roduct divisional managers are closer to their customers and can respond more appropriately to the changing environment. 33621 2tandards: !, *, I
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NOTES /OR )E T#E .ANAGER (LO 1) 1" 6is'uss /ays in /hi'h you 'an improve the /ay the 'urrent fun'tional stru'ture operates to speed /e!site development" /iven the project-oriented nature of the firm, the matrix structure would wor well. 3 product team structure with cross-functional roles would expedite the process of website development. 2" 6is'uss the pros and 'ons of moving to a -a. multidivisional, -!. matri2, and -'. produ'tteam stru'ture to redu'e /e!site development time" 3 multidivisional structure would help the company organize wor ers into smaller, more manageable units, which would presumably wor faster. 0ith a matrix structure, employees from different functional areas would learn from each other and become more s illed and productive. The product team structure would allow employees to wor cross-functionally but would do away with the dual reporting relationship of the matrix structure, which can be problematic. #" >hi'h of these stru'tures do you think is most appropriate and /hy@ The product team structure appears to be the best alternative. 1ecause they report to two bosses, employees often find the matrix structure frustrating and confusing. 3 divisional structure does not lend itself to the company#s project orientation. 33621 2tandards: !, *, I BUSINESS WEE4 CASES IN THE NEWS Ca#& S(n!0#i#: In7or ation Te"hnolog!* Sto44ing the S4ra9l at #& 8andy -ott, the new 6"& at 9ewlett-7ac ard, has embar ed upon a C!billion, three-year project to ma eover that company#s internal "T systems. 9e wants to replace the company#s DB loosely connected data centers around the world with six cutting edge facilities to be located in 3ustin, 3tlanta, and 9ouston. -ott is pushing for sweeping changes in the way his company operates. 9e plans to slash thousands of smaller projects in 9-7#s decentralized organization and ta e a much more centralized approach to management by focusing on only a handful of corporate initiatives. The goal is to integrate all of 9-7#s data so that everyone in the organization is wor ing from the same set of information, thereby providing executives with the tools needed to ma e better decisions. "f -ott is successful, 9-7#s annual spending on technology will eventually be cut in half and thousands will be laid off.
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7$&# i!n#: 1" 0n /hat is 8andy Mott trying to 'hange C-&*s stru'ture and the /ay it /orks@ 9-7#s "T staff has long resisted centralized control. They have grown accustomed to having the freedom to purchase their own e5uipment and ma e their own decisions concerning projects to be pursued. <nder -ott, they most li ely will have to adjust to less freedom regarding decision ma ing and a more centralized chain of command from which they will be expected to ta e directions. 2" >hat impa't /ill his 'hanges pro!a!ly have on C-&*s 'ulture@ Typically, decentralized organizations are usually 5uite flexible while centralized organizations are more rigid with less room for autonomy, individual creativity, and personal ownership of projects. These are some of the changes in culture that 9-7 probably should expect. #" Co/ /ill the 'hanges he has made affe't C-&*s 'ompetitive advantage and performan'e@ &ne of -ott#s objectives is to create a single customer management database, much li e a 68- system. 2uch a system will allow managers in the organization#s various departments to approach and service customers as a unified team and share information regarding best practices, thus enhancing overall responsiveness to customers. 33621 2tandards: !, *, I, !@, !( Cha4ter < 0i-eo Ca%e Tea"hing Note G&n&ra" M! !r# G"!+a" R&#&ar%) N& 5!r1 Tea"hing O,?e"tive: To see how a large, traditional organization changed the structure of its research and development function to focus on innovation and globalization 0i-eo S$ ar!: /-#s top managers realized that the organization was too self-contained and that to increase its competitiveness, they needed to change the company#s business model. They restructured /- to create a global team environment for research and development. 1y building an extensive networ of engineers that allows it to tap into 8K+ expertise around the globe, /- aims to reach the level of innovation re5uired to differentiate itself from its competitors.
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@$e%tion%* 1" Co/ does te'hnology influen'e organi ational stru'ture at GM@ >hat other fa'tors should managers at GM 'onsider /hen sele'ting a stru'ture@ /lobal competition has forced /- to increase its focus on innovation, and thus advanced technology. 3ccommodating this need re5uired a more flexible structure that would allow /- to leverage the technical capabilities of researchers worldwide. -anagement realized that it needed the input of the best researchers, both inside and outside of /-, no matter where they were located. The new structure is composed of global teams of employees who comfortably interact with team members from a variety of cultures and settings. Technology, human resources, strategy, and the level of turbulence in the external environment should be considered by managers see ing to design the best organizational structure for their company. 2" >hat organi ational stru'tures do you e+uate /ith GM*s old model of resear'h@ >hi'h stru'tures do you e+uate /ith the ne/ model@ /-#s old research model was probably built around a traditional, functional structure in which all employees with technology bac grounds and s ills were clustered into a single unit within the organization and wor ed together in a single location. The new business model is probably hybrid, using a geographic structure that encompasses virtual product teams. #" >hat must GM managers 'onsider as they move from the old stru'ture to the ne/ stru'ture@ 3 major change in organizational structure generally re5uires a shift in organizational culture, for which employees must be prepared. The new structure will force a change in how decision ma ing occurs within the organization and how employees relate and communicate with each other.
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Chapter Seven Designing Organizational Structure: Overview of The Chapter

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CHAPTER SEVEN DESIGNING ORGANIZATIONAL STRUCTURE

Jones and George, Essentials of Contemporary Management, Third Edition