Chapter 10 creating effective organizational designs PDF

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Professor Suzanne Stem, Lecture 10 notes, contains bulleted list of important topics covered....

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BUSI 400 CHAPTER 10 CREATING EFFECTIVE ORGANIZATIONAL DESIGNS  Todays managers are faced with 2 ongoing and vital activities in structuring and designing their organizations: 1) they must decide on the most appropriate type of organizational structure. 2) they need to assess what mechanisms, processes, and techniques are most helpful in enhancing the permeability of both internal and external boundaries  Organizational structure = formalized patterns of interactions that link a firms tasks, technologies, and people  Structures help to ensure that resources are used effectively in accomplishing an organizations mission  Structure provides a means of balancing two conflicting forces::: 1) a need for the division of tasks into meaningful groupings. 2) the need to integrate such groupings in order to ensure efficiency and effectiveness  Structure = identifies the executive, managerial, and administrative organization of a firm and indicates responsibilities and hierarchical relationships, also it influences the flow of info as well as the context and nature of human interactions  A firms strategy and structure change as it increases in size, diversifies into new product markets, and expands its geographic scope Most common types of organizational structures::: simple, functional, divisional, and matrix  Simple structure = oldest/most common organizational form, most are very small and have a single or narrow product line in which the owner/manager makes most decisions and controls all activities  Functional structure = as firms grow excessive demands may be placed on the owner/manager in order to obtain and process all necessary info, thus, functional structure groups major functions of the firm, coordination and integration of functional areas becomes one of the most important jobs of the chief executive  Divisional organizational structure = organized around products, projects, or markets. Each of the divisions includes its own functional specialists who are organized into departments. Divisional structure encompasses a set of relatively autonomous units governed by a central corporate office  Divisional executives play a key role:: helping determine the product market and financial objectives for the division as well as their divisions contribution to overall corporate performance  Advantages of divisional structure::: separation of strategic and operating control, divisional managers can focus their efforts on improving operations in product markets they are responsible for, corporate officers can devote their time to overall strategic

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issues, enhanced ability to respond to changes, problems associated with sharing resources across departments is minimized, development of manager talent is enhanced Two variations of the divisional structure = 1) strategic business unit (SBU). 2) holding company structures. Strategic business unit (SBU) = divisions with similar products, markets, and/or tech are grouped together into homogenous units to achieve synergies ((including leveraging core competencies, sharing infrastructures, market power) Generally, the more related businesses are within a corporation, the fewer SBUs will be required Each of the SBUs in the corporation operates as a profit center Holding company structure = appropriate when the businesses in a companys portfolio do not have much in common or for firms with a strategy of unrelated diversification. Corporate offices for this structure provide a great deal of autonomy to operating divisions and rely on financial controls/incentives to obtain high levels of performance Matrix structure = combo of functional and divisional structures, functional departments are combined with product groups on a project basis. Individuals become responsible to the project manager as well as the manager of their functional area Product managers have global responsibility for the development, manufacturing, and distribution of their own line Managers of geographic regions have responsibility for the profitability of the businesses in their regions It is important for managers to maintain a global orientation toward their firms businesses and competitive strategies Managers must ensure consistency between their strategies and the structure of their organization Three major contingencies that influence the chosen structure::: 1) type of strategy driving foreign operations. 2) product diversity. 3) extent to which a firm is dependent on foreign sales Global start up = a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries Right from the beginning, global start ups use inputs from around the world and sell products and services to customers around the world The strategy that a firm chooses dictates such structural elements such as the division of tasks, the need for integration of activities, and authority relationships within the organization Once a firms structure is in place, it is very difficult and expensive to change Boundaryless organizational designs = boundaryless implies that boundaries become more open and permeable, should complement traditional structures.

Types of boundaryless organizational forms::: barrier-free, modular, virtual

 Barrier-free organization = enables a firm to bridge real differences in culture, function, and goals to find common ground that facilitates information sharing and other forms of cooperative behavior  Eliminating the multiple boundaries that stifle productivity and innovation can enhance the potential of the entire organization  For barrier-free organizations to work effectively, the level of trust and shared interests among all parts of the organization must be raised  Recommendations for helping teams be successful::: keep the size of the team small, staff the team with top performers, fully funding the team up front, empower the team to spend the budget, hold the team accountable, and have an engaged manager  Modular organization = outsources non-vital functions, tapping into the knowledge and expertise of best in class suppliers but retains strategic control.  Outsiders may be used to manufacture parts, handle logistics, or perform accounting  The organization ends up becoming a central hub surrounded by networks of outside suppliers and specialists, and parts can be added or taken away ((ex. manufacturing/service units))  Outsourcing non-core functions offers three main advantages:: decrease costs, focus scarce resources on the areas where it holds a competitive advantage, and an organization can tap into he knowledge and expertise of its specialized supply chain partners  Risks of modular organization form::: 1) loss of critical skills or developing the wrong skills. 2) loss of cross-functional skills. 3) loss of control over a supplier  Virtual organization = continually evolving network of independent companies, suppliers, customers, even competitors that are linked together to share skills, costs, and access to each others markets  Virtual = being in effect but not actually so  By assembling resources from a variety of entities, a virtual organization may seem to have more capabilities than it really possesses  Virtual organizations do not have to be permanent and participating firms may be involved in multiple alliances  2 issues managers need to be aware of as they work to design an effective boundaryless organization:::: 1) managers need to develop mechanisms to ensure effective coordination and integration. 2) managers need to be aware of the benefits and costs of developing strong and long-term relationships with both internal and external stakeholders  Horizontal organizational structures – group similar or related business units under common management control, facilitate sharing resources and infrastructures to exploit synergies among operating units and help to create a sense of common purpose  3 benefits that organizations accrue when relying on relationships::: 1) agency costs within the firm can be dramatically cut through the use of relational systems. 2) likely to be a reduction in the transaction costs between a firm and its suppliers and customers. 3) individuals will be more likely to search for win-win solutions Ambidextrous organizations face 2 contradictory challenges:::

 1) managers must explore new opportunities and adjust to volatile markets in order to avoid complacency. Must ensure they maintain adaptability and remain proactive in expanding/modifying their product-market scope to anticipate and satisfy market conditions  2) – managers must effectively exploit the value of their existing assets and competencies, they need to have alignment (clear sense of how value is being created in the short term and how activities are integrate and property coordinated  Firms that achieve both adaptability and alignment are considered ambidextrous  Handling such opposing demands is difficult because there will always be some degree of conflict  If a firm places too much focus on adaptability, the firm will suffer low profitability in the short term. If managers direct their efforts primarily at alignment, they will likely miss out on promising business opportunities  In some study, companies structured their breakthrough projects in one of four primary ways::: 1) 7 were carried out within functional organizational structures. 2) 9 were organized as cross-functional teams. 3) 4 were organized as unsupported teams. 4) 15 were conducted within ambidextrous organizations...