Chapter 10: Managing Organizational Culture and Structure

The chapter highlights the importance of organizational structure and culture in shaping employee behavior
and organizational performance. It emphasizes the need for managers to identify the most efficient and
effective way to organize resources in a dynamic business environment. The concept of organizational
architecture, which includes structure, culture, control systems, and HRM systems, is introduced as a means of
optimizing resource utilization. The chapter discusses different forms of organizational structures and cultures,
and factors that influence organizational design choices. It sets the stage for a deeper exploration of control and
HRM systems in Chapters 11 and 12.

- Designing Organizational Structure

Organizing is a crucial managerial function that involves creating a formal system of task and job relationships
among employees to achieve organizational goals efficiently and effectively. Organizational structure and
culture play a vital role in this process. Organizational design is the process of creating a particular
structure and culture that aligns with a company's desired work attitudes and behaviors. This includes
developing task and authority relationships and promoting specific cultural values and norms to motivate
managers and employees to work hard and coordinate their actions to achieve organizational goals.
Contingency theory suggests that there is no one best way to design an organization, and different factors such
as the organizational environment, strategy, technology, and human resources should be considered. Managers
must select the appropriate organizational structure and culture that fits their specific situation to create a
high-performing organization.

Factors Affecting Organizational Structure:

1. Organizational Environment
The external environment of an organization is an important factor in determining the structure and culture that
managers choose. When the environment is rapidly changing and uncertain, managers tend to choose more
flexible structures and entrepreneurial cultures that decentralize authority and empower employees to make
decisions. In contrast, when the environment is stable and resources are readily available, managers can
establish more formal and structured organizations with values and norms that emphasize obedience and team
playing. With increasing competition and pressure to attract customers and improve efficiency, managers are
interested in finding ways to structure organizations to allow for flexibility, such as through empowerment
and self-managed teams.

2. Strategy
Different strategies require different structures and cultures, such as a flexible structure for a differentiation
strategy that values innovation, and a more formal structure with conservative norms for a low-cost strategy
that aims to control costs. Managers also need to design a flexible structure when expanding the scope of
organizational activities through vertical integration or diversification, and when operating internationally,
managers must create global structures that allow for flexibility.

3. Technology
The article explains how the complexity of technology used in an organization affects the need for a flexible or
formal structure. Complicated technologies require a flexible structure to respond to unexpected situations,
while routine technologies require a formal structure due to the simplicity of the tasks. Two factors determine
the complexity of technology, task variety, and task analyzability. Complicated technologies have high task
variety and low task analyzability (R&D), while routine technologies have low task variety and high task
analyzability (fast-food service). Examples of nonroutine technology include R&D labs and strategic planning,
while routine technology includes mass production and fast-food service.

4. HR
The characteristics of an organization's external environment, strategy, technology, and human resources all
play a role in determining the appropriate organizational structure and culture. The greater the level of
uncertainty in the environment, the more complex the strategy and technology, and the more highly skilled the
workforce, the more likely a flexible and decentralized structure and professional culture will be needed. On
the other hand, a stable environment, well-understood strategy and technology, and less skilled workforce are
more likely to require a formal and controlling structure and a culture that prescribes behavior in particular
situations. Managers must pay attention to the needs of their workforce and the complexity of their work when
designing the structure and culture of an organization.

- Grouping Tasks into Jobs: Job Design

The first step in organizational design is job design, where managers determine how to divide tasks into
specific jobs that will provide customers with goods and services. At McDonald's, managers have divided
tasks between chefs and food servers to efficiently provide fast food. This division of labor makes each
employee more productive at performing their specialized tasks. In recent years, self-ordering kiosks have
been introduced, changing the job design for food servers. Subway, on the other hand, combines the roles of
chef and food server into one job, which is efficient for their simpler menu. Managers must be careful not to
take job simplification too far, as it may reduce efficiency if workers become demotivated and unhappy with
monotonous jobs.

a. Job Enlargement and Job Enrichment

The article discusses two approaches, job enlargement and job enrichment, which can be used to design
individual jobs in a way that encourages workers to perform at a higher level and be more satisfied with their
work. Job enlargement involves increasing the number of different tasks in a given job, while job enrichment
involves increasing the degree of responsibility a worker has over a job. The idea behind job enlargement is
that increasing the range of tasks performed by a worker will reduce boredom and fatigue and may increase
motivation to perform at a high level, while job enrichment aims to increase workers' involvement in their jobs
and improve their interest in the quality of the goods they make or the services they provide. The article
suggests that managers who make design choices that increase job enrichment and job enlargement are likely
to create a flexible organizational structure, whereas those who simplify jobs create a more formal structure.
Finally, the article suggests that self-managed work teams can help to create a flexible organization because
team members provide support for each other and can learn from one another.

b. The Job Characteristics Model

The job characteristics model by Hackman and Oldham explains how managers can make jobs more
motivating and interesting by considering five key characteristics of the job: skill variety, task identity, task
significance, autonomy, and feedback. These characteristics affect an employee’s motivation by influencing
their perception of the job’s meaning, responsibility, and feedback. Employees who have highly motivating
jobs tend to be more satisfied, perform at a high level, use their skills more, and are given more responsibility.
This model is particularly applicable in flexible structures where authority is decentralized and employees
work with others to complete a range of tasks.
 - Grouping Jobs into Functions and Divisions
Managers must decide how to group jobs together to match the needs of the organization's environment,
strategy, technology, and human resources. This typically involves grouping jobs into departments and
designing a functional structure, but as organizations grow and become more complex, managers may need to
consider more complex structures such as divisional or matrix structures. Choosing and designing an
organizational structure that increases efficiency and effectiveness is a significant challenge and can
differentiate effective from ineffective managers.
a. Functional structures
This passage discusses the functional structure of an organization, which groups jobs together based on similar
skills or knowledge. The Home Depot is used as an example, with departments including finance,
merchandising, supply chain, outside sales and services, information technology, and human resources.
Advantages of the functional structure include specialization, cooperation, and easier monitoring and
evaluation of performance. However, as organizations grow and become more complex, a functional structure
may become less efficient and effective due to communication and coordination issues between departments
and a focus on departmental goals rather than organizational goals.
b. Divisional structures
To overcome the problems associated with growth and diversification, managers often adopt a divisional
structure in which business units produce specific products for specific customers. The structure involves
organizing divisions into product, geographic, or market structures. The goal is to create smaller, more
manageable units within the organization. Product structures organize divisions according to the type of goods
or service they provide, geographic structures according to the area of the country or world they operate in, and
market structures according to the type of customer they focus on.
i. Product
The product structure is a way for managers to organize their operations when they decide to diversify into
new industries or expand their range of products. It involves placing each distinct product line or business in
its own, self-contained division and giving divisional managers the responsibility for devising an appropriate
business-level strategy to allow the division to compete effectively in its industry or market. Each division has
a complete set of functions needed to produce or provide goods or services efficiently and effectively, and
functional managers report to divisional managers, who report to top or corporate managers. This structure has
several advantages, including allowing functional managers to specialize in one product area, divisional
managers to become experts in their industry, and corporate managers to focus on the best corporate-level
strategy to maximize growth and create value.

The use of a product structure, which groups distinct product lines or businesses into their own self-contained
divisions, can improve the use of organizational resources and allow for a quick response to a changing task
environment. GlaxoSmithKline (GSK), a pharmaceutical company, successfully adopted a product structure
after its merger with Glaxo Wellcome and SmithKline Beecham to better organize its activities and increase
research productivity. The company grouped its researchers into eight product divisions based on particular
clusters of diseases, which resulted in the doubling of its research productivity and a record number of new
drugs moving into clinical trials. GSK's product structure worked well and led to a joint venture with Pfizer to
spin off both companies' consumer healthcare divisions into a new global company, potentially worth billions
in sales. In 2020, GSK announced it would split the organization into two entities.

ii. Geographic
The article discusses the limitations of functional structures when dealing with the challenges of expansion
both domestically and internationally. In such cases, a geographic structure, which divides operations by
region, may be more suitable. For instance, Fred Smith, founder of FedEx, divided operations into divisions in
each region to achieve their corporate mission of providing next-day mail service. Large retailers such as
Macy’s, Neiman Marcus, and Brooks Brothers also use a geographic structure to meet the needs of regional
customers.

If pursuing a multidomestic strategy, a global geographic structure with global divisions located in each world
region may be appropriate, as customer needs differ widely by country or world region. In contrast, if
customers abroad are willing to buy the same kind of product, a global product structure may be preferred,
where each product division manages its own global value chains and decides where to establish foreign
subsidiaries to distribute and sell their products to customers in foreign countries.

iii. Market
The article discusses how sometimes organizations need to group functions according to the type of customer
buying the product in order to tailor the products the organization offers to each customer's unique demands.
This is known as a market structure, which groups divisions according to the particular kinds of customers they
serve. This structure allows managers to respond to the needs of their customers and act flexibly in making
decisions in response to customers' changing needs. The example of Dell, which adopted a market structure
with four streamlined market divisions to cater to different types of customers, is given.

c. Matrix and Product Team Design

i. Matrix structure
The matrix structure is a flexible organizational structure that combines functional and product team grouping.
This structure is used when there is a need for rapid response to changing environments such as in high-tech
companies. In the matrix structure, employees are grouped by function and by product team, and team
members report to two bosses - the functional boss and the product team boss. This makes them two-boss
employees. The product team is responsible for making most of the important decisions involved in product
development, and the product team manager acts as a facilitator, controlling financial resources and trying to
keep the project on time and within budget. The functional managers try to ensure that the product is the best it
can be to maximize its differentiated appeal. The matrix structure allows for the most use of human resources
and flexibility in a changing and increasingly complex environment.

ii. Product team structure

The product team structure is an organizational design that empowers cross-functional teams to bring a new or
redesigned product to market. Unlike the matrix structure, it does away with dual reporting relationships and
two-boss employees. Functional employees are permanently assigned to the cross-functional team and report
only to the product team manager or to one of his or her direct employees. The functional managers have only
an informal advisory relationship with members of the product teams. The product team structure is
increasingly being used by organizations to gain a competitive advantage in fast-changing organizational
environments. For example, Newell Brands opened a design and innovation center in Kalamazoo, Michigan, to
accelerate performance.

- Coordinating Functions and Divisions

The complexity of a company's structure can pose challenges in coordinating and linking its different functions
and divisions. Each function or division develops its own orientation towards the other groups, leading to
different perspectives on major goals and issues. At the functional level, manufacturing has a short-term focus
on cost control and timely product delivery, while product development takes a long-term approach with a
focus on high product quality. At the divisional level, employees may prioritize the success of their own
division over the profitability of the entire company, leading to a lack of cooperation and information sharing.
As the number of functions and divisions increases, coordination becomes more challenging. Managers
can design the hierarchy of authority and use integrating mechanisms to effectively coordinate functions and
divisions.

a. Allocating authorities
The article discusses the importance of developing a clear hierarchy of authority to coordinate the activities of
people, functions, and divisions in an organization. The hierarchy of authority refers to an organization's chain
of command, extending from the CEO at the top, down through middle managers and first-line managers, to
non-managerial employees. The span of control refers to the number of employees who report directly to a
manager. The article uses the example of McDonald's Corporation's hierarchy of authority to illustrate the
concept. The article also explains the difference between line managers and staff managers. Finally, the article
notes that managers at each level of the hierarchy confer with managers at the next level down to decide how
to use organizational resources, and that those lower-level managers are accountable for their decisions.

i. Tall and Flat Organizations

The size of an organization and its hierarchy of authority can be categorized as tall or flat, with tall
organizations having more levels of authority relative to company size. Communication problems can arise in
tall hierarchies due to the length of time it takes for decisions and orders to reach managers further down,
leading to managers spending too much time making decisions to improve their chances of being right or
avoiding responsibility. Distortion of orders and messages (missinterpretation) can also occur, either
accidentally or intentionally, due to managers interpreting information from their own narrow perspectives or
for personal advantage. Tall hierarchies also indicate that an organization is employing many managers, which
can be expensive for the organization. During economic downturns, companies may restructure and downsize
their workforce, including managers, to reduce costs.

ii. The minimum chain of command

The article suggests that as organizations grow, their hierarchy of authority typically becomes taller, which can
result in communication problems, distortion of commands and messages, and increased costs. To mitigate
these issues, top managers should ensure that they are employing the right number of middle and first-line
managers and redesign their organizational architecture to reduce the number of managers. Effective managers
should constantly scrutinize their hierarchies to see if the number of levels can be reduced, and empower
employees to take on more responsibility. One example is David Novak, former CEO of Yum Brands, who
turned the company's headquarters into a support center for worldwide operations and empowered employees.
Some small companies like Plexus Corp. have also created empowered work teams that are empowered to
make all the decisions necessary to make a particular product, allowing them to compete against low-cost
manufacturers abroad.

iii. Centralization and decentralization of authority

The article discusses how managers can keep the organizational hierarchy flat by decentralizing authority,
giving lower-level managers and non-managerial employees the responsibility of making important decisions.
This helps to minimize communication problems and the need for more managers. Decentralization also
enables organizations to behave flexibly and respond to customer needs. However, too much
decentralization can lead to pursuing individual goals at the expense of organizational goals and lack of
communication among functions or divisions. Therefore, managers must seek a balance between centralization
and decentralization of authority that best meets the contingencies an organization faces. In stable
environments, there is no pressing need to decentralize authority, while in uncertain, changing environments,
empowering employees and teams to make important decisions is necessary. Failing to control the balance
between centralization and decentralization can result in poor organizational performance.

b. Integrating and Coordinating Mechanism

The hierarchy of authority is a common way to coordinate activities in organizations, but it can lead to
problems when managers from different functions or divisions have different views on how to achieve
organizational goals. To prevent conflicts from escalating to top management, integrating mechanisms such
as liaison roles, task forces, cross-functional teams, and integrating roles can be used. These mechanisms help
increase communication and coordination among functions and divisions, and are especially important for
complex organizational structures. By using these mechanisms, managers can improve performance and
achieve synergies among different parts of the organization.

Managers can enhance coordination among functions and divisions by implementing liaison roles, task forces,
and cross-functional teams. When there is a rise in communication between two functions, assigning a
manager from each function as liaisons can improve coordination. These liaisons have the responsibility of
coordinating with the other function regularly, establishing informal relationships that facilitate smoother
collaboration.

However, when multiple functions or divisions face shared problems, direct contact and liaison roles may not
be sufficient. In such cases, a task force is formed, consisting of managers from relevant functions or
divisions. The task force meets to address specific mutual issues, and its members report back to their
respective departments with recommendations and solutions. Task forces are temporary and disband once the
problem is resolved.

For recurring problems like product development or customer acquisition, managers often utilize permanent
integrating mechanisms like cross-functional teams. These teams, composed of members from various
functions, work together on an ongoing basis to achieve integration and speed up processes such as product
development.

Integrating roles play a crucial part in promoting coordination and integration among functions and divisions.
These roles are typically fulfilled by experienced senior managers who can leverage the resources of different
functions or divisions to achieve synergies. Their aim is to obtain performance gains by optimizing
coordination.

In summary, as organizations grow and become more complex, managers must prioritize coordination among
functions and divisions by employing various integrating mechanisms. The choice of organizational structure
is vital in ensuring effective resource utilization and adaptability to changes in the task and general
environments.

- Organizational Culture
Organizational culture is the shared set of beliefs, values, and norms that guide how members of an
organization work together. It influences employee attitudes and behaviors, as they internalize and act upon
these shared values and norms. Values represent the standards by which employees evaluate their
contributions, while norms prescribe desired behaviors. When a strong and cohesive culture exists, employees
prioritize the organization's long-term success in their decisions and actions. This can be seen through their
dedication, innovation, and commitment to excellence.

a. Where Does Organizational Culture Come From?

Organizational culture is influenced by several factors, including the characteristics of its members, ethical
values, human resource policies, and organizational structure. Different organizations develop distinct
cultures because they attract and select individuals with varying values, personalities, and ethics. Over time,
employees who do not fit in tend to leave, resulting in a more homogeneous workforce and a distinct
organizational culture. However, a strong and cohesive culture can hinder the organization's ability to adapt to
changes in the environment. Organizational ethics play a crucial role in shaping culture, as managers implant
ethical values into the organization's norms and rules. The nature of the employment relationship, as
determined by human resource policies, also influences culture. For example, promotion policies can affect
loyalty, goal alignment, and employee motivation. Additionally, the organizational structure contributes to
cultural values. Tall and centralized structures promote norms of caution, obedience to authority, and respect
for traditions, while flat and decentralized structures encourage creativity, courage, and risk-taking. Changing
organizational culture requires a comprehensive assessment of these factors, as they interact and affect one
another.

Companies like Ford, Google, Apple, and Microsoft require a strong emphasis on values that prioritize
innovation and hard work. However, it is crucial for these companies to avoid the misconception that they are
invincible in their respective industries. Many companies have made the mistake of believing in their own
superiority, leading to their downfall. A notable example is Digital Equipment, whose CEO dismissed the
potential threat of personal computers to their minicomputers, stating that PCs were mere toys. As a result,
Digital Equipment no longer exists.

To foster innovation and responsiveness to customers, companies such as Southwest Airlines and Google have
implemented company wide stock option systems. Additionally, companies like Airbnb provide attractive
perks such as an annual stipend for employees to travel and stay in Airbnb listings worldwide, while PwC
offers student loan debt reimbursement. These initiatives aim to cultivate a culture that encourages employee
engagement and loyalty.

However, changing an organization's culture can be challenging due to the intricate interactions and
interdependencies among the various factors involved. The characteristics of organizational members, ethical
values, human resource policies, and organizational structure all play significant roles in shaping the culture.

b. Strong, Adaptive Cultures vs Weak, Inert Cultures

Many researchers and managers believe that organizations with strong and cohesive organizational cultures
tend to have employees who go the extra mile to help the organization. These cultures, known as adaptive
cultures, effectively control employee attitudes and behaviors, enabling the organization to grow, change, and
achieve its goals. On the other hand, organizations with inert cultures have values and norms that fail to
motivate or inspire employees, leading to stagnation and potential failure over time.

Research has shown that organizations with strong adaptive cultures, such as 3M, UPS, Microsoft, and IBM,
invest in their employees. They emphasize long-term employment relationships, avoid layoffs, and provide
opportunities for long-term career paths and extensive training and development. These organizations value
human resources and foster supportive work attitudes and behaviors.
In adaptive cultures, employees are often rewarded based on their performance and the overall performance of
the company. Some organizations even establish employee stock ownership plans (ESOPs) where workers
collectively own a significant portion of the company's stock. This ownership encourages employees to
develop their skills, actively seek ways to improve quality and efficiency, and contribute to the organization's
success.

However, some organizations develop cultures that do not prioritize the worth of their human resources as a
major goal. These organizations focus on short-term employment and invest minimally in employees
performing routine tasks. In such inert cultures, employees are not rewarded based on their performance,
which results in little incentive for skill improvement or investment in the organization. Poor working
relationships, noncooperation, laziness, and output restriction become common.

Adaptive cultures emphasize entrepreneurship, employee respect, and empowerment through organizational
structures like cross-functional teams. Employees are motivated to make decisions and succeed. In contrast,
inert cultures rely on close supervision, hierarchical authority, and a lack of motivation or incentive to perform
beyond minimum requirements. This makes it challenging for organizations with an inert culture to adapt to a
changing environment.

Google is cited as an example of a company with an adaptive culture that emphasizes creativity, innovation,
and decentralized decision-making. The company fosters informal and personal relationships, norms of
cooperation and teamwork, and provides a supportive work environment through its Googleplex campus.
GlaxoSmithKline is another example, where an adaptive culture nurtures innovation, freedom for research
scientists, and values that prioritize human health over profits.

However, not all organizational cultures lead to beneficial managerial actions. Dysfunctional cultures can
encourage harmful managerial actions and discourage actions that would improve performance. An example is
the case of luggage startup Away, where the CEO's behavior and the company's toxic workplace culture were
exposed, leading to the CEO stepping down. While some organizations' cultures contribute positively to
managerial actions, others can have detrimental effects.

Overall, organizational culture plays a significant role in shaping employee attitudes, behaviors, and
organizational success. Adaptive cultures that value and invest in employees tend to foster engagement,
innovation, and growth, while inert cultures can hinder performance and adaptation.