Professional Documents
Culture Documents
a. Hierarchy
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Functions
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The Classic: Functional Hierarchy
CEO
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b. Divisions & Modularity
CEO
Modularize the overall structure
– a firm of any reasonable size is too large for a single
person to effectively manage … you have to break it
Division 1 Division 2 Division 3
President President President
into divisions
How? Put the most closely related steps
R&D R&D R&D in the business process together, to
reduce coordination costs
– by definition, modularity achieves this, so it is a good
Sales Sales Sales
rule of thumb
– but balance that against economies of scale
Production Production Production
» some (support) functions corporate-wide
» others organized at the division
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c. Coordination Mechanisms
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Internal Market Mechanisms
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More Coordination Mechanisms
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Still More Coordination Mechanisms
Integration problems are the most challenging coordination problems
– multiple pieces of specific knowledge must be combined to make a decision … who do you
decentralize to?
– example: Apple’s laptop computer design process
Individuals from different areas must work together (lateral coordination
mechanisms)
– cross-functional teams CEO
– matrix structures
– informal networks R&D Sales Production
B A
A B
B A
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Lateral Coordination Mechanisms
Below is a matrix structure Each person has 2 bosses, violating
Each person is assigned to a the single decision maker principle
function, & to a division Performance evaluation is complex
Cross functional teams are The structure can be highly political
similar, though less formal – political & teamwork skills are valuable
CEO
R&D Sales Production
EVP EVP EVP
Division 1
A B C
President
Division 2
D E F President
Division 3
G H I President
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Network Structures
Organizations also use informal “network” structures
– either overlaid on formal structure, or made more explicit
– often serve a similar purpose to lateral coordination mechanisms
– but are more fluid / less permanent
Network structures are essentially a form of internal market
– the “asset” is “capital”
– less transactional, more relationship-based Industry
Consortium
– more political Team 1
Customer
R&D
Team 3
Team 2
Production
Supplier
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Bureaucracy
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d. Key Ideas
Hierarchy
Functional specialization
Modularity
Simple coordination problems
– variety of coordination mechanisms
Integration problems
– lateral coordination mechanisms
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Effects of IT Technology
Effects of Information Technology
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a. IT & Decision Making
Decentralizing?
– facilitates product complexity, time-based competition, etc.
– better collection & use of specific knowledge in real-time
– lower-level employees have more info, better analysis tools
– facilitates ad hoc communication & groups
Centralizing?
– fewer layers, geography less important
– central monitoring & direction is easier
– much knowledge becomes general, not specific
– more can be standardized …
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b. IT & Job Design
A Dismal View
– “A new era of production has begun … brought about by the
combination of the computer and the self-regulating machine.
– “This results in a system of almost unlimited productive capacity
which requires progressively less human labor.”
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Examples
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A More Positive View of IT
Jobs
– IT often empowers even low skilled workers
– places even greater value on skilled workers
Firms
– speeds up product cycles
– facilitates customization & complexity
– opens up new customers & products never before possible, or even conceivable
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Example: Boeing Aircraft Development
1962: Boeing 727 1994: Boeing 777
131 passengers, 100,000 parts 305 passengers, »100,000 parts
81 month development 52 month development
5,000 engineers many fewer engineers
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How to Explain the 2 Faces of IT?
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