Organizations are

! social entities that

! are goal‐directed,
! are designed as deliberately structured and coordinated
activity systems, and
! are linked to the external environment.
! The key element of an organization is NOT a building or a set
of policies or procedures; organizations are made up of people
and their relationships with one another.

Organizing is the process by which managers establish working

relationships among employees to achieve goals.
Grouping jobs into functions and divisions:
! Functional Structure
! Divisional Structure
o Geographic Structure
o Market Structure
! Product Structure
! Matrix Structure
! Hybrid Structure
Functional Structure:
An organizational structure composed of all the departments that
an organization requires to produce its goods or services.
+ Encourages learning from - Difficult for departments to
others doing similar jobs. communicate with others.
+ Easy for managers to monitor - Preoccupation with own
and evaluate workers. department and losing sight of
+ for medium/small firms organizational goals.
+ in stable environment, few
rivals, low technology

Example: Fraport, WMF

Divisional Structure:
Separate business units within which are the functions that
work together to produce a specific product for a specific
customer.
+ Quick response to important - Can be dysfunctional
changes in external competition among divisions.
environment. (small groups) - Can be very expensive.
+ Minimal problems of sharing - Can focus on short‐term
resources across functional performance.
departments. - Duplication
Example: Haniel
Geographic Structure:
Each region, country or area with customers with differing needs is
served by a local self‐contained division producing products that
best meet those needs.
+ multi-domestic strategy

Example: Nestle
Market (Customer) Structure:
Each kind of customer is served by a self‐contained division.
+ global strategy

Example: Software has business unit, private unit,…; Deutsche

Bank
Product Structure:
Self‐ contained divisions that handle a specific type of product/
service.
+ for fundamental different Products

Example: Microsoft, Audi,…

Product Team Structure:
The members are permanently assigned to a cross‐functional team that is
empowered to bring a product to market.
Matrix Structure:
An organizational structure that simultaneously groups people and
resources by function and product.
+ Fast responses, flexible - complex
structure - Can lead to interpersonal
+ in large multinational firms conflicts
Hybrid Structure:
The structure of a large organization that has many divisions
and simultaneously uses many different organizational
structures.

+ Focuses on products, services

- Focus on division goals can
and customers. lose total organization view.
+ Adapts well to complex - Potential for high
environments. administrative overhead.
+ Economies of scale (shared - Potential conflicts between
resources). division managers and
corporate headquarter
(autonomy vs. control).
Example: Walt Disney Company, Google
Span of control: #workers a manager manages
! Small: complex and dissimilar tasks
! Large: routine and similar tasks
Coordinate functions and divisions: Allocate Authority
Authority:
The power to hold people accountable for their actions and
to make decisions concerning the use of organizational
resources.
Hierarchy of Authority:
An organization’s chain of command, specifying the relative
authority of each manager.
! Flat: wide spans of control (Statoil, Facebook)
! quick communication but also overworked managers.
!increased pace of change and creativity
! Tall: narrow spans of control (McDonalds)
!difficult communication, delays, more managers (reduced
motivation), higher costs
Decision making
1. Levels of hierarchy
2. De-/Centralized Authority

Centralized Decentralized Authority

Authority
+ in stable puts more authority at lower levels !flatter
environment organizations.
+ low Communication and motivation problems
- divisions, functions or teams may start to pursue
their own goals
- can cause lack of communication among
functions or divisions !performance suffers
Executive Payment:
1. Fixed Salary !no motivation
2. Salary contingent on performance !incentive to invest in short term p.
3. Fixed + contingent part !long term projects
a. Bonus payments !Past oriented
b.Shares of company stock !Future oriented +
motivation through ownership
! If pressure is too high
!illegal behavior

Principle-Agent Problem
!Moral Hazard Problem
The principal finds it difficult to evaluate
how the agent performed because of the
information advantage of the agent.
!Monitoring, incentives
To create the right incentives, the motivation of employees (agents) has to be well
understood.
Motivation =the psychological forces acting on an individual that determine:
! the direction of a person’s behavior
! the effort
! the persistence
!Explains why people behave the way they do (in organizations).
A. Intrinsically Motivated Behavior Autonomy, Job satisfaction,
responsibility, a feeling of accomplishment,…
! Behavior that is performed for its own sake
! The source of the motivation is performing the behavior
! Interesting and challenging jobs lead to it
!Fosters creativity
!BUT too much leads to happy engineering
B. Extrinsically Motivated Behavior Pay, Job security, vacation time,…
! Behavior that is performed to acquire material or social
rewards or to avoid punishment
! The source of the motivation is the consequences of the
behavior and not the behavior itself
! Extrinsic rewards undermine intrinsic motivation
C. Prosocially Motivated Behavior (to benefit or help others)
Theories of Motivation:
1. Expectancy Theory
Motivation will be high when workers believe that:
! high levels of effort will lead to high performance.
! high performance will lead to the attainment of desired
outcomes (i.e. benefits).

Examples:
Google Lacking Nothing !Keep employees in office
Facebook Employee’s paradise !Family friendly
Netflix Vacation Placation !Autonomy

Explains the motivational process: How is certain behaviour

evoke, guided and maintained? (Instrumentality!)
 Find&out&what&
Training,&team&work,...& ppl&want&
& Clearly&communicate&which&
performance&leads&to&which&outcome&
and&how&performance&is&measured
!High Motivation, if all 3 are high
2. Need Theories
Need: A requirement for survival and well-being.
!people are motivated to obtain outcomes to satisfy their needs.
!Find out what needs a worker needs and ensure this outcome
when performing well.

Need Theories don’t...

! explain why specific actions are chosen in specific situations to obtain specific
outcomes.
! easily account for individual differences.
! Are not consistent over cultures.
Maslow: Hierarchy of Needs

Explains the content of your motivation: No hints for managers

Herzberg’s Motivation-Hygiene Theory

! Intrinsic motivators (achievement, recognition, work itself,...)
! Hygiene factors (extrinsic): Decrease dissatisfaction, increase
satisfaction (company policy, supervision,...)
 A&
B&
Part&of&BSC& C&

I&
II&
III&
(Bureaucratic&Control)&
Financial Measures: (know 2)

! Profit ratios: Measures of how efficiently managers convert

resources into profits, e.g. return on investment (ROI).
! Liquidity ratios: Measures of how well managers protect
resources to meet short term debt.
! Leverage ratios: Measures of how much debt is used to finance
operations, e.g. debt-to-asset.
! Activity ratios: Measures of how efficiently managers are
creating value from assets, e.g. inventory turnover.
 A. + objective; available at all time
- rather short term measures (past related)!risky behaviour;
shows only one part of the organization
B. Overall Goal is divided !every level develops a strategy to achieve
the given goal (No conflicting goals!!)

Incentive&system&

C. Each division is evaluated on its own budgets for cost, revenue,

and/or profit. (autonomy is needed!) freedom to schedule tasks and
carry them out
!Goals must motivate, but not too high and not focus on only short-term
Organizational Culture
The set of internalized values, norms, standards of behavior and common
expectations that control the ways in which individuals and groups in an
organization interact with each other and work to achieve organizational goals.

Schein’s 3 levels: Zappos – deliver happiness

1. Surface manifestation: artefacts, ceremonials, behaviors
(IKEA clothes, WALMART cheer)
2. Values: norms and standards
3. Basic assumptions about the environment, truth, human
nature
Organizational Change:
process from current state to a desired future state !increase
efficiency & effectiveness

If&you&implement&too&many&
rules,&you&are&too&inflexible&to&
react&to&new&events&&
 !market&share&
!profits&
!ability&to&meet&goal&
!benchmarking&

Change&management:&
t.d.&quickly&
b.u.&gradual,&more&effective&
Example: CEO of Siemens
Specialist Each has his own powers
Vs.
Generalist One person has all the power
!Depends on the task which one is better

Group: 2+ people who interact to accomplish certain goals. (e.g.

Sales people in a department store)

Teams: A group whose members work intensely with each other,

to achieve a specific, common goal or objective. (e.g. Olympic team)
• Are difficult to form
• Takes time
1. Enhance Performance
Synergy Effect: Employees in a group produce more/better output
! Pool knowledge, share resources
! Brainstorm, correct each others mistakes, …
! 1+1=3

!Build autonomous empowered groups with members of

different skills and knowledge

2. Increase responsiveness to customers needs

Cross!functional teams (i.e. of different departments: MKT +
R&D) can provide the wide variety of skills needed to meet
customer demands.
3. Increase innovation
The creative development and application of new products,
technologies, services or organizational structures.
! Groups have a wider variety of skills
(important since technology is difficult and product life circle has shortened)
! Balance strength and weaknesses of members
! Manager should empower the team (make it accountable)

4. Increase motivation and satisfaction (teams > groups >individuals)

! Teams !increase happiness !increase productivity
! provide needed social interaction and help employees cope
with work!related stressors.
! ! if they don’t like each other !decrease of productivity
Disharmony of teams because of…
! differences in language and culture (technical vs. business
people) MKT and R&D people don’t speak the same language
! different objectives
! lack of trust in information from other functions
! lack of credibility of information source
! too-good friends
!Project success is strongly correlated with harmony in interaction
Recommendations (Souder):
! split larger projects in sub! projects
! open discussions about conflicts and interface problems
! early integration of both functions in innovation process
! support contacts between individuals
! integrating task force of management
! clear definition of competencies Who is the leader,...
Group Dynamics

The characteristics and

processes that affect
how a group
or team functions.
1. Group Size
Affects how a group performs
! Normally small groups interact better and are more motivated
(synergy effect > coordination costs) „two-pizza teams“
• Coordination and communication costs increase with size
Communication is more effectively rather than more
• to stay decentralized and move fast, to encourage high
autonomy and innovation

! Larger groups are used when

more resources are needed and
division of labor is possible

!Pool knowledge vs. effectiveness

3. Group Leadership
Important qualities of a leader:
! Effective communication
! Motivate and inspire the group
! Proper planning, vision and commitment to achieve the goal
! Experience and knowledge to make communication easier
! Integrity
! flexible, adaptable and should be capable to face all types of
situations including challenges and failures
4. Group Development

Exception: Teams operating in extreme conditions !trust

Motivate groups:
Apply the same incentive systems like individuals – but groups are more difficult
! Award the whole group (only works if everyone contributes the
same)
! Identify the most productive people (difficult!)
! Make additional resources (beyond compensation) such as
choice assignments available to high!performance groups
Communication and Management
The sharing of information to reach a common understanding
Good communication leads to…
! Increased efficiency by updating technologies and skills.
! Improved quality of products and services.
! Increased responsiveness to customers.
! More innovation through communication.
Verbal Communication: The encoding of messages into words, either written
or spoken.
Nonverbal Communication: The encoding of messages by means of facial
expressions, body language and styles of dress.

Globalization and multicultural workforce increase the need for

intercultural communication.
Formal communication along
organizational structure (vertical &
horizontal)
!Clear responsibilities, and possible
censorship of information

Informal communication (grapevine)

!faster, competitive advantage, but not always accurate
Gatekeepers Communication enabler

• occur ‘spontaneously’ and their emergence is not amenable to

organizational intervention.
• Effective gatekeeper roles cannot be filled by simply
identifying and assigning a member of staff to this “position”.

!Suitable individuals – who already act informally in such a role

– must be identified and supported in their role (natural
gatekeepers)
Information Technology
Set of methods or techniques for acquiring, organizing, storing,
manipulating, and transmitting information that you get through
communication.

! Is needed for manager’s effective decision making

! And to achieve control over any organizational activity
(principal!agent problem).

!Management Information Systems are needed

Example Walt Disney wristbands
Big Data
Data sets that are so large or complex that traditional data
processing applications are inadequate.
Challenges:
– Need for speed
– Data quality
– Understanding the data
– Displaying meaningful results
– Dealing with outliers
The Value of IT
• Physical, human and financial assets are rival assets. Example:
seats on a plane.
• Intangibles are often non!rival (their production requires a fixed (sunk
cost) effort, but producing one more unit of output from them carries very low
or zero costs.) Example: bookings on an airline reservation system.
!Economic implication !,scalability: returns to scale are not
diminishing quickly. They may even be increasing.

• Network Effects: one’s benefit from being part of an

(economic) network increases with the number of other agents
connected to the network.
!Powerful in intangibles due to scalability and non-rivalry