13 Edition Don Hellriegel and John W. Slocum, JR.: Prepared by Argie Butler, Texas A&M University

13th Edition
Don Hellriegel and John W. Slocum, Jr.
Prepared by Argie Butler, Texas A&M University
©2011
©2011 Cengage
Cengage Learning.
Learning. All
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Chapter 15
Prepared by Argie Butler, Texas A&M University
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1. Explain the environmental and strategic factors that
affect the design of organizations
2. State the two basic fundamentals of organizing
3. Describe the major concepts of vertical organizational

design
4. Describe four types of horizontal organizational design
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part. Chapter 15: PowerPoint 15.1
Learning Insights
 Lowe’s organized by function and geography
 Lowe’s is organized to support small businesses in

rural locations
 Lowe’s entered into joint venture with Kobalt tools
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Suppliers Competitors
Organization
Distributors Customers
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Broad
Strategic Target
Differentiation Cost Leadership

Strategy Strategy
Focused Strategy
Narrow
Uniqueness Low Cost
Source of Advantage
Source: Adapted with the permission of The Free Press, a division of
Simon & Schuster, from Competitive Strategy: Techniques for Analyzing
Industries and Competitors (p. 39) by Michael E. Porter. Copyright © 1980
by The Free Press.
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Failure to factor the environmental issue into
corporate strategy greatly increases the probability
that the company strategy will turn into a nightmare
for many firms. A company needs to think proactively
about how to create a reputation for a clean
company that helps develop the economy in
environmentally sustainable ways.
Elizabeth Economy,
Senior Fellow, U.S. Council on Foreign Relations
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 Strategies for Building a Competitive Advantage
– Sell standardized products at low-cost
– Works best in stable environment
– Firm organized by function
 Risks
– competitors copy strategy
– leaders ignore changes in environment
– leaders “locked in” to design
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 Provide customers with unique product/service
 Organization provides superior value
 Keep costs low in areas not related to differentiation
 Risks
 Premium prices
 Leader overdo R&D
 Market shifts to low cost products
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Learning Insights
• KFC’s need to work with Chinese governments to
gain entry
• KFC organized to attract kids and promote China’s
values
• KFC recognized social freedom values and
designed stores to enhance customers’ experience
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 Choose an industry niche
 Need to gain repeat customers
 Specialize in functions that competitors cannot
compete
 Risks
 Market niche shifts
 Products ‘blur’ overtime
 Firms expand distribution channels too fast
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 Differentiation
– division of labor
– specialization
 Integration
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 Centralization of decision making
 Designed so that individuals and functions will

behave in predictable ways
 Reliance on formal rules and regulations
 Narrowly defined job responsibilities
 Rigid hierarchy of authority
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 Low to moderate use of formal rules and
regulations
 Decentralized and shared decision making
 Broadly defined job responsibilities
 Flexible authority structure with fewer levels in

the hierarchy
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ORGANIC MECHANISTIC
Tasks tend to be interdependent Tasks are highly specialized
Tasks are continually adjusted and Tasks tend to remain rigidly defined
redefined through interaction and as unless changed by top management
situations change
Generalized roles (responsibility for tack Specific roles (rights, obligations, and
accomplishment beyond specific role technical methods) are prescribed for
definition) are accepted each employee
Network structure of control, authority, Hierarchical structure of control,
and communication authority, and communication
Communication and decision making are Communication and decision making are
both vertical and horizontal, depending primarily vertical, top-down
on where needed information and
expertise reside
Communication emphasizes the form of Communication emphasizes directions
mutual influence and advice among all and decisions issued by superiors
levels
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 Hierarchy
 Span of Control
 Authority
 Responsibility
 Accountability
 Delegation: centralization versus decentralization
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Learning Insights
 Authority, responsibility, and accountability unclear
 Leaders committed perjury to show profitability
 Enron’s organization design flawed
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Learning Insights
 Centralization of product development and
planning needed for integration
 Leaders in different countries adopted different

designs
 Plant leaders performance judged by profitability
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 Functional
 Product
 Geographical
 Network
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 Permits clear identification and assignment of
responsibilities
 Employees easily understand the design
 People doing similar tasks and facing similar

problems work together, thus increasing
opportunities for interaction and mutual support
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 Employees tend to lose sight of the organization
as a whole
 Coordination across functional departments often

becomes difficult
 With the exception of marketing, most employees

have no direct contact with customers and may
lose sight of the need to meet or exceed
customer expectations
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 Narrow product line
 Competes in a stable environment
 Pursues a low-cost or focused business strategy
 Does not have to respond to the pressures of

serving different types of customers
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 Involves the establishment of self-contained units, each
capable of developing, producing, marketing, and
distributing its own goals and services
 Typically incorporates features of functional and place

designs into the organization of each product division
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 Reduces the information overload that managers
face in a purely functional design
 More effective in handling multiple customers with

unique needs
 Product line leaders held accountable for

profitability
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 Each department or division is in direct contact
with customers in its locale and can adapt more
readily to their demands
 Lower costs for materials, freight, and labor may

result
 Marketing strategies and selling practices can be

tailored to geographic regions
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 Brings together special knowledge and skills of
others—rather than hiring employees
 Brings together people with different insights into

teams that focus on a given project
 Brings together a wide variety of suppliers,

manufacturers, and other organizations to respond
to different circumstances
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 Organizations can fail to meet agreed upon
deadlines—creating ripple effects
 Managers must constantly monitor quality of work

by other organizations
 Employees in outsourced organizations may not

commit to the same values and sense of time
urgency as those in the core network organizations
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Learning Insights
 DreamWorks contracts other organizations to make
films and video games
 Uses H-P to create computer-designed animation
 Leaders need to communicate with diverse

employees and organizations
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1. We discussed many features of Lowe’s organizational
design. If Lowe’s continues to grow, what are some of the
possible changes that might be considered in its organization
design? You might want to go to Lowe’s website (
www.lowes.com), search for “About Lowe’s” and then go to
“Investors Report” and download Lowe’s annual report.
2. What are some organizational design mistakes you learned
from reading the Ethics Competency feature about Enron?
3. What impact does the choice of business strategy have on
how your organization or university is designed?
4. Give examples of authority, responsibility, and accountability
for a course in which you have been enrolled.
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5. The following are some reasons why organizations fail:
Lack
Lackofofgoal
goalclarity—strategic
clarity—strategicgoals
goalsare
arenot
notclear
clearororlinked
linkedtoto
the
theorganization’s
organization’sdesign.
design.
Lack
Lackofofinternal
internalalignment—the
alignment—thedesign
designofofthe
theorganization
organization
doesn’t
doesn’tpinpoint
pinpointauthority,
authority,responsibility,
responsibility,and
andaccountability.
accountability.
Ineffective
Ineffectiveattention
attentiontotocustomers’
customers’needs—the
needs—thestrategy
strategyand
and
design
designare
areout
outofoftouch
touchwith
withthe
theneeds
needsofofcustomers.
customers.
Lack
Lackofofexternal
externalfit—the
fit—thedesign
designdoes
doesnot
notmatch
matchthe
thedemands
demands
ofofsuppliers,
suppliers,distributors,
distributors,and
andcustomers.
customers.
Identify and describe briefly one organization (e.g., General Motors,
Chrysler, Citigroup) whose ineffectiveness you believe reflects these
reasons.
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6.6. Think
Thinkofofaaleader
leaderfor
forwhom
whomyouyouhave
haveworked.
worked.Based
Basedonon
the
theguidelines
guidelinespresented
presentedfor
foreffective
effectivedelegation,
delegation,did
did
this
thismanager
managerdo doaagood
goodjob
jobofofdelegating?
delegating?Explain
Explainyour
your
answer.
answer.
7.7.What
Whatare
aresome
someadvantages
advantagesand
anddisadvantages
disadvantagesofof
organizing
organizingby
byproduct?
product?
8.8.What
Whatare
aresome
somewarning
warningsigns
signsthat
thatan
anorganization’s
organization’s
design
designisisnot
notworking?
working?
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9. What implications for managerial spans of control
can be expected as organizations downsize?
What additional managerial competencies might
be required of leaders who remain in a downsized
organization?
10. What are some of the challenges facing leaders

of a network organization?
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1. Using the data you plotted, what is the context
orientation of your organization designed?
2. What are some consequences for employees working

in a Country Club context? A Burnout context?
3. What organization design decisions are needed to

make your organization’s context more effective?
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1. What aspects of differentiation and integration
are illustrated in this case?
2. What concepts of vertical design are highlighted?
3. What is FedEx Office and Print Services’

business strategy? That is, how does it compete
in the printing services industry?
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13th Edition

Don Hellriegel and John W. Slocum, Jr.

Prepared by Argie Butler, Texas A&M University

Prepared by Argie Butler, Texas A&M University

2. State the two basic fundamentals of organizing

3. Describe the major concepts of vertical organizational

4. Describe four types of horizontal organizational design

 Lowe’s is organized to support small businesses in

 Lowe’s entered into joint venture with Kobalt tools

Differentiation Cost Leadership

 Organization provides superior value

 Keep costs low in areas not related to differentiation

 Designed so that individuals and functions will

 Reliance on formal rules and regulations

 Narrowly defined job responsibilities

 Rigid hierarchy of authority

 Decentralized and shared decision making

 Broadly defined job responsibilities

 Flexible authority structure with fewer levels in

 Delegation: centralization versus decentralization

 Leaders committed perjury to show profitability

 Enron’s organization design flawed

 Leaders in different countries adopted different

 Plant leaders performance judged by profitability

 Employees easily understand the design

 People doing similar tasks and facing similar

 Coordination across functional departments often

 With the exception of marketing, most employees

 Competes in a stable environment

 Pursues a low-cost or focused business strategy

 Does not have to respond to the pressures of

 Typically incorporates features of functional and place

 More effective in handling multiple customers with

 Product line leaders held accountable for

 Lower costs for materials, freight, and labor may

 Marketing strategies and selling practices can be

 Brings together people with different insights into

 Brings together a wide variety of suppliers,

 Managers must constantly monitor quality of work

 Employees in outsourced organizations may not

 Uses H-P to create computer-designed animation

 Leaders need to communicate with diverse

10. What are some of the challenges facing leaders

2. What are some consequences for employees working

3. What organization design decisions are needed to

2. What concepts of vertical design are highlighted?

3. What is FedEx Office and Print Services’

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