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Unit II

Organization design:
Organization design can be defined narrowly, as the process of reshaping organization structure and roles, or it can more effectively be defined as the alignment of structure, process, rewards, metrics and talent with the strategy of the business. Jay Galbraith and Amy Kates have made the case persuasively (building on years of work by Galbraith) that attention to all of these organizational elements is necessary to create new capabilities to compete in a given market. This systemic view, often referred to as the "star model" approach, is more likely to lead to better performance. Organization design may involve strategic decisions, but is properly viewed as a path to effective strategy execution. The design process nearly always entails making trade-offs of one set of structural benefits against another. Many companies fall into the trap of making repeated changes in organization structure, with little benefit to the business. This often occurs because changes in structure are relatively easy to execute while creating the impression that something substantial is happening. This often leads to cynicism and confusion within the organization. More powerful change happens when there are clear design objectives driven by a new business strategy or forces in the market that require a different approach to organizing resources. The organization design process is often defined in phases. Phase one is the definition of a business case, including a clear picture of strategy and design objectives. This step is typically followed by "strategic grouping" decisions, which will define the fundamental architecture of the organization - essentially deciding which major roles will report at the top of the organization. The classic options for strategic grouping are to organize by:
• • • • • •

Behavior Function Product or category Customer or market Geography Matrix

Each of the basic building block options for strategic grouping brings a set of benefits and drawbacks. Such generic pros and cons, however, are not the basis for choosing the best strategic grouping. An analysis must be done completed relative to a specific business strategy. Subsequent phases of organization design include operational design of processes, roles, measures and reward systems, followed by staffing and other implementation tasks. The field is somewhat specialized in nature and many large and small consulting firms offer organization design assistance to executives. Some companies attempt to establish internal staff resources aimed at supporting organization design initiatives. There is a substantial body of literature in the field, arguably starting with the work of Peter Drucker in his examination of General Motors decades ago. Other key thinkers built on Drucker's thinking, including Galbraith (1973), Nadler, et al. (1992) and Lawrence & Lorsch (1967).

Organization design can be considered a subset of the broader field of organization effectiveness and organization development, both of which may entail more behaviorally focused solutions to effectiveness, such as leadership behaviors, team effectiveness and the like. Many organizational experts argue for an integrated approach to these disciplines, including effective talent management practices.

Characteristics of effective organizational design


An effective organizational system need not be complex. On the contrary, simplicity in design is an extremely desirable quality. Consider the task of communicating information about the operation of a system and the allocation of its inputs. The task is not difficult when components are few and the relationships among them are straightforward. However, the problems of communication multiply with each successive stage of complexity. The proper method for maintaining simplicity is to use precise definitions and to outline the specific task for each subsystem. Total systems often become complex because of the sheer size and nature of operations, but effectiveness and efficiency may still be achieved if each subsystem maintains its simplicity.


Conditions change and managers should be prepared to adjust operations accordingly. There are two ways to adjust to a changing operating environment: to design new systems or to modify operating systems. An existing system should not be modified to accommodate a change in objectives, but every system should be sufficiently flexible to integrate changes that may occur either in the environment or in the nature of the inputs. For example, a company should not use the same system to build missiles as it uses to build airplanes, nor the same system to sell insurance as the one originally designed to sell magazines. However, it should be possible to modify an existing system to produce different sizes, varieties, or types of the same product or service. A practical system must be well designed but it cannot be entirely rigid. There will always be minor variations from the general plan, and a system should be able to adapt to such changes without excessive confusion. The advantages associated with having a flexible system will become more apparent when we consider the difficulty of administering change.


System reliability is an important factor in organizations. Reliability is the consistency with which operations are maintained, and may vary from zero output (a complete breakdown or work stoppage) to a constant or predictable output. The typical system operates somewhere between these two extremes. The characteristics of reliability can be designed into the system by carefully selecting and arranging the operating components; the system is no more reliable than its weakest segment. When the requirements for a particular component — such as an operator having unique skills — are critical, it may be worthwhile to maintain a standby operator. In all situations, provisions should be made for quick repair or replacement when failure occurs. One valid approach to the reliabilitymaintenance relationship is to use a form of construction that permits repair by replacing a complete

two things can happen:(1) the system will be modified gradually by the people who are using it. it is common practice to replace an entire section of the network rather than try to find the faulty component. will not function properly unless it is accepted by the people who operate it. Unplanned alterations in an elaborate system can nullify advantages associated with using the system. there must be some degree of trade-off between effectiveness and efficiency. It is often dysfunctional and expensive to develop much greater capacity for one segment of a system than for some other part. For example. The grouping of employees in various departments and the managerial hierarchy influences the way employees interact with each other on the job. it will not work properly. as another example. no matter how well designed. It is important to have a clear map of managerial responsibility and accountability to keep the company running smoothly. setting forth reporting relationships and lines of authority reaching from the executive level to the front line. there can be no trade-off. The ideal leadership structure depends on the industry a company is in and the personalities of business owners. for example. Importants of Organisational Design: Company Leadership Organizational design influences the leadership structure of a company. or (2) the system will be used ineffectively and ultimately fail. An organization designed to make extensive use of telecommuters will result in a company in which workplace relationships are often formed and strengthened solely through online interactions. the postal service may keep on schedule with mail deliveries but only by hiring a large number of additional workers. while others find themselves with an unnecessarily high level of supervision. When a system's objectives include achieving a particular task at the lowest possible cost. Reliability is not as critical an issue when prompt repair and recovery can be instituted. In some television sets. Organizational design can influence the degree to which front-line employees are allowed to solve complex problems on their own rather than involving a manager. inventories may be controlled by using a comprehensive system of storekeeping. If the participants do not believe it will benefit them.unit. or think it is not a good system. In this case. Building in redundancy or providing for every contingency usually neutralizes the operating efficiency of the system. When a system's objective is to perform a certain mission regardless of cost. However. for example. employees in different areas of the company can become misguided or confused. • Economy An effective system is not necessarily an economical (efficient) system. Company Culture The leadership structure put in place by organizational-design choices can have a direct and lasting effect on company culture. • Acceptability Any system. the efficiency of the postal system would be reduced. In another example. are pressured into using it. . are opposed to it. If a system is not accepted. if the cost of the storekeeping were greater than the potential savings from this degree of control. Without clear lines of authority. the system would not be efficient.

Departmentalization It is the basis by which jobs are grouped together. for example. looking for opportunities to adapt and develop new competitive advantages. . It is broken down into steps. Individual employees specialize in doing part of an activity rather than the entire activity. As shown in the Figure 2-1. II. and a different person completes each step. Organizational Design is a process that involves decisions about the following six key elements: I. A company that locates all employees in a small office. can add large numbers of freelancers with a small increase in the number of managers. rework managerial hierarchies and redesign job descriptions for existing employees. Adaptability Organizational design choices can develop distinct competitive advantages. it depends on the goals each of them wants to achieve. For instance every organization has its own specific way of classifying and grouping work activities. Functional Departmentalization. Companies with taller organizational structures and complicated bureaucracies can find it difficult to adapt to changing market conditions. A company using freelancing telecommuters. Savvy business owners continually monitor changes in their industries and markets. Components of the Organizational Design Six Key Elements in Organizational Design Organizational design is engaged when managers develop or change an organization's structure. The main idea of this organizational design is that an entire job is not done by one individual. There are five common forms of departmentalization: 1. Work Specialization Describes the degree to which tasks in an organization are divided into separate jobs. it groups jobs by functions performed. It can be used in all kinds of organizations. Organizational designs built to easily accommodate new managers and employees at different levels of the organization can add new positions without making significant structural changes. must acquire new office space or expand their current office to take on new employees. all of which can increase efficiency or productivity in response to outside pressures.Future Growth Organizational design choices made in the early stages of a business can either help or hinder growth plans. such as a growing use of lean business models or outsourcing in the industry. Companies with less complex organizational structures can find it easier to shift employees around. on the other hand.

It groups jobs by product line. Each manager is responsible of an area within the organization depending of his/her specialization Figure 2: Product Departmentalization example Source: Bombardier Annual Report Different aspects on this type of departmentalization: Positive Aspects Negative Aspects .Figure 2-1Functional Departmentalization example 2. Product Departmentalization. Different aspects on this type of departmentalization: Positive Aspects • Efficiencies from putting together similar specialties and people with common skills. knowledge. and orientations Coordination within functional area In-depth specialization • • Negative Aspects Poor communication across functional areas Limited view of organizational goals • • 3.

Figure 2-3: Geographical Departmentalization example Different aspects on this type of departmentalization: Positive Aspects • More effective and efficient handling of specific regional issues that arise Serve needs of unique geographic markets better • • Negative Aspects Duplication of functions Can feel isolated from other organizational areas • 5. It groups on the basis of product or customer flow. It groups jobs on the basis of territory or geography. Geographical Departmentalization.• • Allows specialization in particular products and services Managers can become experts in their industry Closer to customers • • Duplication of functions Limited view of organizational goals • 4. Process Departmentalization. .

There are three important concepts attached to this theory: • Authority: Refers to the rights inherent in a managerial position to tell people what to do and to expect them to do it.Figure 2-4: Process Departmentalization example Different aspects on this type of departmentalization: Positive Aspects More efficient flow of work activities Negative Aspects Can only be used with certain types of products 6. It groups jobs on the basis of common customers Figure 2-5: Customer Departmentalization example Different aspects on this type of departmentalization: Positive Aspects • Customers' needs and problems can be met by specialists • • Negative Aspects Duplication of functions Limited view of organizational goals III. . Customer Departmentalization. Chain of command It is defined as a continuous line of authority that extends from upper organizational levels to the lowest levels and clarifies who reports to whom.

Formalization It refers to the degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures. Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions • VI. Decisions are relatively minor. I am going to define and discuss each design in order to give an understanding of the organizational design concept. Types of Organizational Designs Organizational designs fall into two categories. uncertain. Organization is facing a crisis or the risk of company failure. Lower-level managers do not want to have say in decisions Decisions are significant. Span of Control It is important to a large degree because it determines the number of levels and managers an organization has. Lower-level managers are capable and experienced at making decisions. and divisional structure. determines the number of employees a manager can efficiently and effectively manage. Corporate culture is open to allowing managers to have a say in what happens. • • • • Environment is complex. boundaryless organization. project structure. and the learning organization. . Lower-level managers want a voice in decisions. Company is large. Effective implementation of company strategies depends on managers retaining say over what happens. Also. matrix structure.• • Responsibility: The obligation to perform any assigned duties. Traditional designs include simple structure. Contemporary designs would include team structure. V. traditional and contemporary. Company is geographically dispersed. IV. functional structure. Unity of command: The management principle that each person should report to only one manager. Centralization and Decentralization More Centralization • • More Decentralization • • • • • • • Environment is stable Lower-level managers are not as capable or experienced at making decisions as upper-level managers.

it is highly centralized and relies on standardization. As an organization becomes differentiated. listed from simplest to most complex. more complex integrating mechanisms coordinate activities. centralized authority. adaptive. The first design challenge is to determine the level of vertical and horizontal differentiation. Vertical differentiation designs a hierarchy of authority and establishes reporting relationships to connect subunits. maintenance. Often employees work in all parts of the business and don’t just focus on one job creating little if any departmentalization. they differentiate into five functional roles: support. production. Simple Structure A simple structure is defined as a design with low departmentalization. Task force 5. an organization is decentralized and relies on mutual adjustment. The fourth design challenge is balancing standardization and mutual adjustment. Horizontal differentiation groups people into subunits. with two or more functions grouped into a division. This type of design is very common in small start up businesses. The following seven integrating mechanisms. Liaison role 4. Mutual adjustment relies on judgment rather than formalized rules for problem solving. When the company begins to expand then the structure tends to become more complex and grows out of the simple structure. Each role has a horizontal and a vertical dimension. . and managerial. Team 6. Hierarchy of authority 2. Direct contact 3. In this type of design there are usually no standardized policies and procedures. As organizations grow. Socialization is the process of learning and internalizing norms. Standardization is facilitated through formalization. but unnecessary mechanisms are costly. Functional Structure A functional structure is defined as a design that groups similar or related occupational specialties together. If an organization desires predictability. and little formalization.I. Traditional Designs 1. It is the functional approach to departmentalization applied to the entire organization. 2. In an organization. norms. Distributing decision-making authority influences employee behavior. and informal behavioral expectations. Integrating role 7. For innovation. those with similar skills are grouped into functions. each with advantages and disadvantages. written rules. Integrating department The integrating mechanism must facilitate communication and coordination for effectiveness. are reviewed: 1. Standardization results in predictable behavior. BASIC CHALLENGES OF ORGANIZATIONAL DESIGN Differentiation is the process of dividing labor. The third design challenge is the balance between centralization and decentralization. For example in a business with few employees the owner tends to be the manager and controls all of the functions of the business. wide spans of control. individuals are assigned specific responsibilities. The second design challenge is balancing differentiation and integration. Centralization results in predictability whereas decentralization fosters innovation.

The relationships between managers and waiters ensure effective customer service.1: The B. changing environment requiring flexibility. Two or more functions are grouped into a division. Two people started the restaurant and performed all the tasks.A. An organic structure is appropriate in an uncertain. Organizational Roles Every position in an organization requires certain behaviors. called organizational roles. Amanda took control of the dining room and Bob managed the kitchen. Larger organizations have many divisions. In reality. division of labor is low with few coordination problems. chefs form the kitchen function. As division of labor increases. (Fig. Clearly defined roles and authority relationships give organizations the control to facilitate goal achievement. most organizations are a combination of the two. The owners opened two more restaurants. managers specialize in some roles and hire employees to specialize in others to develop core competences. the manager has authority. Initially they performed all tasks. They hired people to perform specific tasks such as bartending and a manager to oversee maintenance. through growth. Growth makes the organization complex with high division of labor and high differentiation. and training. (Fig. Differentiation The first design challenge determines how to control and coordinate value creation. 4.1) As organizations grow. Bob and Amanda opened two other restaurants and centralized support functions such as purchasing.R. The contingency approach tailors organizational structure to the sources of uncertainty. but as business increased. each restaurant division consists of the dining room and kitchen. 4. and the number of functions and divisions indicates an organization’s complexity—the extent of differentiation. stable environment. they hired 22 people. which increased differentiation. Because a restaurant manager holds waiters responsible for behavior. and Grille Restaurant Growth increases division of labor and differentiation.A mechanistic structure is appropriate in a predictable. the process of creating and controlling the division of labor. Task-related behaviors. marketing. Q: How did Bob and Amanda manage the increasingly complex activities? A. they differentiate into five functional roles: . Subunits: Functions and Divisions Those with similar skills or shared resources are grouped into functions.1) Notes____________________________________________________________________________________ ________________________________________________________________________________________ ____________________________________________________________________________ Organizational Insight 4. determine relationships. In a simple organization. An organization must manage differentiation.

2) Organizational roles are vertically differentiated according to the hierarchy of authority. Notes____________________________________________________________________________________ ________________________________________________________________________________________ ____________________________________________________________________________ Organizational Design Challenges The first design challenge is selecting the levels of horizontal and vertical differentiation to reach organizational goals. Maintenance functions keep an organization in operation. and created task and functional relationships. and janitorial services. Roles are horizontally differentiated according to tasks. engineering. 2. The B. and long-range planning. They include production operations. When did the restaurant differentiate into divisions? A.A. Production functions improve organizational efficiency. cashiers. creating a division of labor and grouping into subunits. (Fig.R. and quality control. Vertical differentiation provides control over activities. Busboys and waiters are grouped into functions. and Grille differentiated into divisions as additional restaurants were added. Support functions handle a company’s relationship with its environment and its stakeholders. and cleaning staff performed maintenance roles.A.A. Vertical differentiation creates reporting relationships to connect organizational roles and subunits. The accountant. Notes____________________________________________________________________________________ ________________________________________________________________________________________ ____________________________________________________________________________ Differentiation at the B. 5. waiters report to managers.1. Lower levels report to higher levels. a support role.R. Bob and Amanda ensured good customer service. 4. Vertical and Horizontal Differentiation Each role at the restaurant has a vertical and horizontal dimension. Adaptive functions include research and development. 4. market research. and public relations and legal affairs. sales and marketing. middle managers use resources to meet goals. and Grille develop? A: The services manager handled advertising and bought supplies. each with its own set of five basic functions to offer a competitive advantage. balancing . Adaptive functions allow for organizational responses to changes in the environment. Large companies have self-contained divisions. Managers at all levels have roles: top managers formulate strategy. Other design challenges include: balancing differentiation and integration. Managerial functions expedite departmental control and coordination. Maintenance functions include personnel.R. and lower-level managers direct workers. Support functions include purchasing. Dividing labor between the kitchen and dining room facilitated production. The three restaurant divisions had centralized support functions. a managerial role. an adaptive role. production control. 3. Q. and Grille Q: What roles did the B.

they built a state-of-the art office complex that better allowed coordination and cooperation between different departments. Specifically. Liaison role requires a manager to coordinate with other subunit managers. Integration or coordinating tasks. 2. and divisions. Managers should analyze each person’s role and relationships between roles. Integrating roles coordinate two or more functions or divisions. emerge as an organization becomes complex. 4. improves coordination and communication. include: 1. Integration and Integrating Mechanisms Subunit orientations make communication and coordination difficult. 6. Notes____________________________________________________________________________________ ________________________________________________________________________________________ ____________________________________________________________________________ • Refer to Discussion question 3 here to show how integrating mechanisms facilitate communication and coordination.centralization and decentralization. Teams require different functional managers to coordinate activities. 7. 5. balancing standardization and mutual adjustment. and coordinating the formal and informal organizations. subunit orientations. 4.2: Integration at a Movie Studio Competition from companies that specialize in special effects have changed how movie studios operate. Hierarchy of authority specifies reporting relationships. from simplest to complex. ____________________________________________________________ ____________________________________________________________ __________________________________________ Organizational Insight 4. . (Table 4. This insight shows how a movie studio was able to remain competitive by becoming more organic.1) The seven integrating mechanisms. Managers should analyze relationships between departments to make sure the division of labor creates value. Task forces create a temporary cross-functional committee. perceiving one’s role as a subunit member. Horizontal differentiation creates subunits to facilitate specialization. however. Managerial Implications: Differentiation Managers should draw an organizational chart to identify the distribution of authority and division of labor. Integrating departments coordinate functions or divisions.2 Balancing Differentiation and Integration The second design challenge is to balance differentiation and integration. 3. functions. Direct contact requires managers from different functions to meet to coordinate activities.

authority is centralized. which is only part-time. As companies become large and complex. differentiation was low. Centralization keeps a company focused on goals. Q. Centralization versus Decentralization of Authority When top managers make decisions. More integration is needed as the organization grows. Q. . When lower-level managers make decisions. managers must develop core competences and select integrating mechanisms that foster subunit cooperation.A. What was the level of differentiation and integration at the B. Differentiation versus Integration Managers must fit integration to the level of differentiation. decentralization makes planning and coordination difficult. and the company may lose control of decision making. Initially. Decentralization offers flexibility and responsiveness. In balancing integration and differentiation. so the owners ran the restaurant with little integration. and Grille? A. Q. a full-time position to improve communication between divisions. Notes_____________________________________________________________________________ _________________________________________________________________________________ _______________________________________________________________________ 4. making managers accountable risk-takers. How can Amgen improve communication and coordination? A.Q. communication barriers increase. but managers become involved in day-to-day decisions and lose sight of strategic or long-term decision making. What are the advantages and disadvantages of centralization? A. This differs from a liaison role. Yet.3 Balancing Centralization and Decentralization The third design challenge determines how much decision-making authority to centralize and decentralize. One criticism of the hierarchy of authority is that employees are risk-averse and give tough problems to supervisors. but excessive differentiation or integration increases costs (more managers) and time spent coordinating activities. An organization with many integrating roles can establish an integrating department. this slows decision making and leads to missed opportunities. Amgen needs to integrate its teams into a hierarchy of authority to provide control so that teams coordinate with functions. authority is decentralized. The chance to demonstrate skills and competences motivates managers.R. What are some advantages and disadvantages of decentralization? A. An organization can create an integrating role.

United Way suffered from the perception that donations were used for overhead and not for the needy. Should United Way centralize or decentralize? A. Q. . Waste Management Inc. The decentralized management style was blamed because there was little involvement from top managers.3: Centralize or Decentralize? Decentralization can be a disadvantage. The distribution of authority controls how workers behave. Chemical Waste Management. Managers must select a balance between centralization and decentralization. gave its subsidiary. Q. and managers were accused of mislabeling containers to avoid disposal costs. the army discourages risk-taking and maximizes control. was interested only in the profits. complete authority to make operating decisions. a disposer of hazardous waste. The optimal balance occurs when middle managers make some decisions. Waste Management Inc. and top managers make strategic decisions.Notes_____________________________________________________________________________ __________________________________________________________________________ ______________________________________________________________________________ Organizational Insight 4. Consultants felt that the best way to save money and increase efficiency was to reduce the number of local organizations and centralize business functions. Pollution-monitoring equipment was turned off to save disposal costs. The failure to control decision making and the pressure to increase profits led employees to deliberately mishandle waste. What problems did Waste Management incur due to its balance of decentralization and centralization? A. United Way had not found the right balance between centralization and decentralization. so the structure is highly centralized.

Q. Standardization is the process of following rules and standard operating procedures (SOPs). and Federal Express use formalization. Standardization versus Mutual Adjustment It is challenging to balance control through standardization with employee problem solving for mutual adjustment. there is no room for mutual adjustment. Evaluating the balance of authority is ongoing. . but others. Q. such as task forces and teams. increase mutual adjustment. like accounting. and mutual adjustment provides flexibility for responding creatively. Are those companies highly centralized or decentralized? A. Formalization: Written Rules The use of written rules and procedures to standardize operations is known as formalization. require risk taking. The military. 4. Companies with a high level of mutual adjustment are highly decentralized. If formalization and standardization are extensive. Socialization means learning norms and unwritten rules. internalized standards of behavior. so they decentralize authority. What types of companies decentralize authority? A. Mutual adjustment allows for judgment rather than rules to solve problems. like R&D. Highly formalized companies are generally highly centralized. Standardization makes actions predictable. When production workers select a work rate and “ratebusters” violate the norm by working too fast. managers hesitate to suggest changes. UPS. Complex. Notes_____________________________________________________________________________ _________________________________________________________________________________ _______________________________________________________________________ Socialization: Understood Norms Rules are formal statements that specify methods for goal attainment. What companies use formalization extensively? A. they face reprisals. Some functions. Integrating mechanisms. uncertain tasks rely on mutual adjustment. and others reduce it. Some norms promote effectiveness. High-tech companies encourage innovation and risk-taking.4 Balancing Standardization and Mutual Adjustment The fourth design difficulty balances standardization and mutual adjustment. Employees are held accountable for following rules. Even if rules change. If the norm is to make no changes. require standardization. and norms are informal. An appropriate balance between standardization and mutual adjustment promotes creative and responsible behavior.Q. behavior is unchanged because rules become internalized norms.

Managers should list their principal tasks and responsibilities and be aware of the informal norms and values that influence group members.Notes_____________________________________________________________________________ _________________________________________________________________________________ _______________________________________________________________________ • Refer to Discussion question 4 here to emphasize the role of goals and the environment in balancing centralization vs. Employees receive company stock as a motivator. 4. information systems were For efficient book distribution and coordinate and motivate employees? A. How does Amazon. Socialization is the vehicle for coordinating and motivating employees. which empowered employees to meet customers’ needs. How did Jeff Bezos structure Amazon. The desire for good customer service led to a decentralized structure. _______________________________________ _______________________________________ _______________________________________ _________________________________ Focus on New Information Technology: Amazon. Q. decentralization and standardization vs. Managerial Implications: Challenges The Design Managers should create a map of the principal integrating mechanisms and determine which levels in the hierarchy have responsibility for specific A. mutual adjustment. Q. They learn organizational roles from members of their functions and the norm of providing excellent customer service. Customer service was the most important element. but mutual adjustment improved customer responsiveness. Part 3 Design choices were driven by the need to ensure that Amazon’s software effectively linked customers to the Web site.5 Mechanistic and Organic Organizational Structures .

4. The primary integrating mechanism is the hierarchy. In this case. Organic structures encourage flexibility and decentralize decision making. This is also a good illustration of how the people and the structure are intertwined. but in reality. Status is based on leadership ability. (Fig. Employees perform many tasks and work with people from various functions. This rigid structure is appropriate in stable. What is the major integrating mechanism? A. Promotion is slow and one’s career path outlined. 4. Roles are loosely defined. unchanging environments. part of the success of the organic structure was due to a policy of promoting from within the highest performing salespeople.4: Trader Joe’s Organic Structure This case illustrates how a shift to a more organic structure helped an upscale supermarket chain. This structure requires complex integrating mechanisms. 4. Notes_____________________________________________________________________________ _________________________________________________________________________________ _______________________________________________________________________ The Contingency Approach to Organizational Design Contingencies shape organizational design. (Fig. Standardization and formal rules facilitate control and coordination. . not a formal position in the hierarchy. Organic structures respond quickly to change. useful for understanding the effect of structure on behavior. What integrating mechanisms are used? A. Mechanistic and organic structures are ideals. (Fig. such as task forces and teams.7b) Q. Emphasis on the hierarchy makes the informal organization aware of status.7a) Q. Notes____________________________________________________________________________________ ________________________________________________________________________________________ ____________________________________________________________________________ Organizational Insight 4. organizations mix both structures.6) Mechanistic structures influence people to behave in a predictable manner. Decision making is highly centralized and roles are clearly defined. The company also created a system in which employees felt like they owned the company. The contingency approach customizes structure to the sources of uncertainty.Design choices produce mechanistic and organic structures.

Burns and Stalker on Organic versus Mechanistic Structures and the Environment Burns and Stalker found that companies with organic structures were more effective in unstable and changing environments. A flat. and the Environment The number and size of an organization’s functions reflect the need to manage exchanges with environmental forces. Why does differentiation occur in an organization? Distinguish between vertical and horizontal differentiation. Burns and Stalker proposed that structure be designed to match the dynamism of the environment. Notes____________________________________________________________________________________ ________________________________________________________________________________________ ____________________________________________________________________________ DISCUSSION QUESTIONS AND ANSWERS 1. 2. uncertain environments. 4.Lawrence and Lorsch on Differentiation. Horizontal differentiation groups roles according to task responsibilities. Integration. decentralized structure increases communication. establishes division of labor. In complex. Each department creates its own response to environmental issues. Effective companies match levels of integration with levels of differentiation. and customer responsiveness. and forms subunits. and standardization are more effective. Highly differentiated companies have complex integrating mechanisms. and centralized authority is more effective. they establish a division of labor. and sales departments. certain environments. A stable environment makes complex decision making unnecessary. Vertical differentiation is a hierarchy of authority with reporting relationships established to connect organizational roles and subunits. (Fig. informal and decentralized organizations using mutual adjustment are more effective. information sharing. 4. Q. Differentiation occurs because as organizations grow and become more complex. (2) differences in subunit or functional orientations. unstable environments.9) Lawrence and Lorsch analyzed three industries with three levels of uncertainty—plastics. . and (3) differences in integrating mechanisms. centralization. Complex organizations must control and coordinate activities to achieve goals. (Table 4. Companies with mechanistic structures were more effective in a stable environment. R&D. food processing. formalization. 3. In unstable. To be effective. an organization must adapt its structure to match its environment. transactions are managed easily.2) Research findings: 1. attitudes vary significantly. and container manufacturing. They selected companies and measured: (1) differentiation in production. In stable. Burns and Stalker strengthen this conclusion. Why is an organic structure more effective in a dynamic environment? A.

To encourage risk-taking. Units required to integrate their activities closely should be grouped together. the structure is centralized with control through standardization. To discourage risk-taking. Outline the major roles and functions. vice presidents. the task of grouping becomes more difficult. Most organizations adopt both a mechanistic and organic structure and simply lean more toward one. use complex integrating mechanisms to facilitate communication and coordination. when units are similar in nature and function but are also relatively . marketing. Two guidelines may be followed in grouping activities: 1. For example. but still decentralize some decisions. unchanging environment. the hierarchy has several layers. Draw an organizational chart of your business school or college. (b) an organic structure. How differentiated is it? Do you think the distribution of authority and division of labor are appropriate? Answers will vary. the structure is decentralized with control through mutual adjustment. a mechanistic structure is preferable. uncertain environment. so integrating roles promote communication and coordination. (They can reinforce each other's common concern and the arrangement will simplify the coordinating task of a common manager). but remains flexible. faced with uncertainties on the battlefield. leading to poor communication and coordination. uncertain environment. Centralization and standardization promote predictability. 4. b. decentralization and mutual adjustment promote innovation. subunit orientations emerge. and information systems. it needs an organic structure.[4] When units neither have similar orientations nor share their activities. An organization can have rules and centralized decision making. there are five functions and specializations within each function. The hierarchy from top to bottom is president. whereas decentralization and mutual adjustment fit a changing. and department heads from each of the functional departments—finance. Horizontally. An organization prefers an organic structure to foster innovation in a changing. An organization prefers a mechanistic structure to encourage predictable behavior in a stable environment. Under what conditions is an organization likely to prefer (a) a mechanistic structure. 2. Under department heads are faculty members. What factors determine the balance between centralization and decentralization and between standardization and mutual adjustment? The balance depends on organizational goals and the environment. A mechanistic structure is preferred when formalized rules must be followed. or if a project requires cross-functional coordination. c. division managers never meet. Complex and highly differentiated organizations. A balance between mechanistic and organic structures results in a competitive advantage. such as those with several divisions. accounting. The military has a mechanistic structure. then student assistants and workers. If technology doesn’t change and the tasks are simple. management. Units that have similar orientations and tasks should be grouped together. or (c) elements of both? a. 5. Differentiation and Integration A basic consideration in the design of organizations is dividing work into reasonable tasks (differentiation) while giving simultaneous attention to coordinating these activities and unifying their results into a meaningful whole (integration). If technology changes and a company has skilled workers. (The common manager can coordinate them through the formal hierarchy). When does an organization need to use complex integrating mechanisms? Why? As organizations become differentiated. Centralization and standardization fit a stable. dean of the business school. In large organizations. 3. Vertically.2.

the availability of men and machines. Task differentiation is differentiation by what employees do. the easier it is to set boundaries. the time schedule for design and operation. Rules are applies when is a highly level of uncertainty and low-levels of interdependence. Cognitive differentiation is the extent to which people in different units within an organisation think about different things. Differentiation is the extent to which tasks are divided into subtasks and performed by individuals with specialised skills. the manager must base his decision on the most appropriate way to group activities according to his past experience.[4] A difficult task associated with system-subsystem determination is to establish proper boundaries of operations. Other factors such as the influence of the environment. As interdependence and uncertainty grows goals and then values are more effective mechanisms. or think about similar things differently. Integration and coordination can be achieved through a variety of mechanism.independent. and the particular biases of the designers must be considered when establishing boundaries. the cost of alternative designs. Integration is the extent to which various parts of an organisation cooperate and interact with each other. throughput and output factors cannot be forecast accurately. . Interdependence is the degree to which one unit or person depends on another to accomplish a task. including rules. The more specific and distinct the goals of the operation. goals and values. Uncertainty is the extent to which future input.