Establishing the Structure

of Business
What does organizational design have to do with
business success?

Reading:
Karakowsky & Guriel, Chapter 2

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Learning Objectives
Identify four broad trends in the changing nature of
organizational design.
Discuss the relevance of metaphors used to describe
organizations.
Identify the elements of organizational structure.
Explain the concept of reengineering.
Describe the notion of the virtual organization.
Discuss the phenomenon of downsizing and its
rationale, methods, and objectives.

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 The Changing Nature of
Organizations
Traditional Modern
Bureaucracy Organizations
Tall/hierarchical Flat
Rigid, rule-oriented Fluid
Buffered from the Integrated
environment
Narrow market Global
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 Modern Organizations
1. Flat
• increase decision-making speed.
• react faster to environmental changes.
• allow more responsibility to employees.
• provide lower-level employees more decision-
making power.

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 Modern Organizations
2. Fluid
• adaptable to change.
• suitable in dynamic environments.
• a trait of organic structures.

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 Modern Organizations
3. Integrated
• Cross-functional teams
• Self-managing teams
• Information sharing
• Alliances outside the organization

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 Modern Organizations
4. Global
• Greater competition.
• Better access to new markets.
• Increased networking opportunities.

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 Types of organizations
• Public/governmental
• Private/nongovernmental organization
• Private organization

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Canadian Federal Government Hierarchy

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 What is an organization?
• Social
• Interactive with their environment
• Goal-oriented
• Structure-based

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 Organizations as systems
• Closed systems
• Open systems
Organizations as open systems:

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 Five Elements of
Organizational Structure

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 Work specialization
• Functional specialization
• Social specialization

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 Work specialization
• Functional specialization
• refers to the division of jobs into simple, repetitive tasks.
• Frederick Taylor’s philosophy of scientific management advocated a high
degree of job specialization; that is, Taylor argued that to maximize
worker efficiency, jobs should be divided up into their smallest
components so that workers perform simple, specific, and repetitive
tasks.
• More recently, there has been a dramatic shift in belief regarding the
degree of job specialization that should be implemented at work.
Approaches to job redesign, like job enrichment, essentially advocate a
low degree of job specialization; that is, rather than performing one narrow
task, employees in some organizations perform a wide range of tasks.

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 Work specialization
• Social specialization
• Social specialization refers to the specialization of individuals rather
than the specialization of jobs.
• Social specialization is accomplished through the employment of
professionals whose skills cannot be easily routinized. For
example, an accountant who performs an audit does so through the
application of specialized, trained skills.
• Similarly, engineers, nurses, doctors, and professors are specialized
professionals whose skills have been developed in a specific area or
specialty.

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 Decision-
making/Authority?
Where does authority rest within the
organization?
• Centralization = at the top
(executive)
• Decentralization = everywhere,
including lower levels (people who
do the hands-on work)
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 Span of control
How many levels of management does an
organization have?

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 Formalization
To what degree will rules or procedures be used to
guide organizational members?

High
• Lots of rules; rigid, standardized
Low
• Less rules; more individual discretion

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Mechanistic vs. Organic

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 Think Pair Share:
• What type of structure do you think is
suitable for Google?

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 Think Pair Share:
Suggested Answer
Google: Organic
• Work specialization wide
• Centralization decentralized
• Span of control wide (flatter)
• Formalization low
• Levels of Admin low
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 Contingency Theory
1. Strategy
2. Organizational Size
3. Technology
4. Environment

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 Reengineering
• The fundamental rethinking and radical
redesigning of business processes to
achieve dramatic improvements in
measures of performance (cost, quality,
service, speed).

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 Virtual organization
What is a virtual organization?
• Outsourcing
• Networking
• Shedding Noncore Functions

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 Virtual organization
• Outsourcing
• (or contracting out) involves hiring external organizations to conduct
work in certain functions of the company.
• For example, payroll, accounting, and legal work can be assigned to
outsourced staff.
• The organization typically will retain its core functions or competencies—
that is, those areas that it is in business to conduct. In other words, it
sticks to what it does best and outsources functions that it doesn’t
wish to focus on.
• Outsourcing can also be useful for small businesses or startups that
do not have time to devote to administrative tasks but rather need to
focus on their core activities and to grow their business.

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 Virtual organization
• Networking
• Through networking, organizations can engage in cooperative
relationships with suppliers, distributors, or competitors.
• The aim is to improve their efficiency and flexibility in meeting new
consumer needs. For example, a close relationship with a distributor
might offer the supplier company more information about the changing
needs of customers. The Japanese version of networked organizations
called keiretsu could, in fact, really be considered the first form of the
virtual organization.

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 Virtual organization
• Shedding Noncore Functions
• Companies that use information technology (IT) need to become as
flexible as the virtual organizations, given the rapidly changing face of
technology and its applications.
• For organizations whose core competency is not IT or all its elements,
there is much to be gained from partnering with other organizations in the
virtual sense.
• A growing number of IT departments are considering outsourcing models
to address all or part of their needs.

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 Virtual organization
What are the benefits and risks?
Benefits:
• Cost savings are significant.
• Great alternative for entrepreneurs.
• Fast way to develop and market new
products.
• Fast and flexible.

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 Virtual organization
What are the benefits and risks?
Risks:
• Losing control.
• Lack of employee loyalty.
• Potential sacrifice of competitive learning
opportunities.

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 Downsizing
What is downsizing?

• the planned reduction in the breadth of an

organization’s operations.

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 Downsizing
• Are any companies in Canada currently
downsizing?

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 Downsizing

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 Downsizing
Example:
• Sears
• https://www.youtube.com/watch?v=IX-
YzCYaSF0
• The National,
• Published on Jun 22, 2017

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 Downsizing
Example:
• GM
• http://www.woodstocksentinelreview.com/2017
/01/27/cami-ingersoll-slashing-600-jobs-
moving-terrain-production-to-mexico
• Published January 27, 2017.

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 Methods of Downsizing
• Across the board cutbacks.
• Early retirement and voluntary severance.
• Delayering by cutting a level or levels of the
organization.
• Contracting out work.
• Dropping product lines.

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Potential Risks of Downsizing
• Efficient departments are hurt.
• Loss of corporate memory.
• Not guided by strategic plan.
• Loss of control over outsourced work.
• Pain is not shared.

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 Why Downsizing Can Fail?
• Lack of strategic planning.
• Lack of involvement of employees.
• Removal of corporate memory.

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 Why do managers then
downsize?
• Constraining forces
• Cloning forces
• Learning forces

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 Why do managers then
downsize?
• Constraining forces
• perceived as a legitimate management
practice
• places pressure on other organizations to
do the same
• increases in share prices
• “leaner and meaner”
• favoured by shareholders.
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 Why do managers then
downsize?
• Cloning forces
• pressure fororganizations to imitate the
behaviours of industry leaders
• organizations have been “jumping on the
bandwagon.”
• demonstrate they are in tune with modern
business trends.

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 Why do managers then
downsize?
• Learning forces
• we teach this to future managers and
businesses leaders in universities and
professional associations.
• business education can come to play a
role in rationalizing downsizing.
• viewed as a legitimate activity.

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 Case Example:
Read the Case and answer the Questions

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 Case Questions:
1. Why is Great-West Life downsizing?
2. What are the methods of its downsizing?
3. What are some risks to Great-West Life in
downsizing?

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Questions and Answers?

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