Chapter 9 Organizing and Enabling Success PDF

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TOPIC 9: ORGANIZING AND ENABLING SUCCESSINTRODUCTIONOrganizations exist to achieve set goals. Successful organizations are those that have figured out the best way to integrate and coordinate key internal and external elements and relationships. They understand the importance of reviewing and redesi...

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TOPIC 9:

ORGANIZING AND ENABLING SUCCESS

INTRODUCTION Organizations exist to achieve set goals. Successful organizations are those that have figured out the best way to integrate and coordinate key internal and external elements and relationships. They understand the importance of reviewing and redesigning their structures on an ongoing basis. Organizations can be structured in various ways, with each structure determining the manner in which the organization operates and performs. Each organization have their own organizational structure which aligns and relates parts of an organization so it can achieve its maximum performance. But it should be noted that in an organization there is no one right organizational configuration and it is up to the managers to determine exactly what kind of structure is going to be the most effective based on the market and set goals of a particular organization. The Mintzberg’s Organizational Configurations can assist business owners and managers to recognize exactly how they should be setting up their operation based on what they are trying to accomplish. LEARNING OUTCOMES At the end of the topic, students will be able to: 1. Advise on how the organization can be structured to deliver a selected strategy. 2. Explore generic processes that take place within the structure, with particular emphasis on the planning process. 3. Discuss how internal relationships can be organized to deliver a selected strategy. 4. Discuss how external relationships (outsourcing, strategic alliances, networks and the virtual organization) can be structured to deliver a selected strategy. 5. Explore (through Mintzberg’s organizational configurations) the design of structure, processes and relationships. ACTIVATING PRIOR LEARNING Fill in the KWL chart below by jotting down what you already know, what you wanted to know and what have you learned on the following topics: a. Organization structure b. Internal and external relationships c. Mintzberg’s organizational configurations

PRESENTATION OF CONTENT

O rg a n isin g a n d E n a b lin g S u c c e ss

O rg a n isin g fo r S uccess

S tra te gy Im p le m e n ta tio n

O rg a n iz a tio n S tru c tu re

In te rn a l a n d E x te rn a l R e la tio n s h ip s

Span of C o n tro l

In te rn a l R e l a t i o n s h ip

M i n t z b e r g 's O rg a n iz a tio n a l C o n fig u ra tio n s

E x te rn a l R e l a t i o n s h ip

F iv e B u ild in g B lo c k s

6 O rg a n iz a tio n a l C o n fig u ra tio n s

E n tr e p re n e u ria l O rg a n iz a tio n

C e n tra liz a tio n

S tra te g ic A llia n c e s

S t r a t e g ic A pex

S i m p le S tru c tu re

F u n c tio n a l O rg a n iz a tio n

D e c en ta liz a tion

V a lu e N e tw o rk s

O p e ra ting C o re

M a c h ine B u re a u c ra c y

D iv isio n al O rg a n iz a tio n

O u ts o u rc in g

M id d le L in e

P ro fe s sio n a l B u re a u c ra c y

M a trix O rg a n iz a tio n

V irtu a l O rg a n iz a tio n

S u p p o rt S ta ff

D iv isio n a lise d F o rm

T e c h n o s tr u c tu re

A d h o c ra c y

P ro je c t-b a se d S tru c tu re

M iss io n a ry O rg a niz a tio n

1. Organizing for success 1.1

Strategy implementation

After a strategic position analysis has been undertaken, available strategies have been evaluated and the preferred strategies have been selected, the selected strategies must be implemented. Achieving strategic objectives requires successful strategy implementation. Strategy implementation takes the form of day-to-day actions and relationships. Three aspects of strategy implementation are: a. organization structure, including the organization of processes and relationships b. managing strategic change c. implementing strategy through a combination of intended strategy and emergent strategy. 1.2

Organization structure

Organization structure is an aspect of strategy implementation. Strategy is implemented through actions, and actions are planned and controlled through the management and decision-making structure within the entity. Organization structures differ between entities. The organization structure for an entity should be appropriate for the size of the entity, the nature of its operations, and what it is trying to achieve. Most important, the organization must enable the entity to develop plans and implement them effectively.

There are several different types of organization structure. Within a single entity, particularly a large entity, there might be a mixture of different organization structures, with different structures in different parts of the entity. From a strategic perspective, however, the key question is: ‘What is the most appropriate structure for a particular entity that will help it to achieve its strategic objectives in the most efficient way?’ Organization structures for multinational and global entities were described in an earlier chapter. You should also be familiar with the following basic structures that might exist within any entity or part of an entity:  entrepreneurial organization structure  functional structure  a divisional structure  a matrix organization. Entrepreneurial Organization An entrepreneurial organization is an entity that is managed by its entrepreneurial owner. The main features of an entrepreneurial organization are usually that: a. the entrepreneur takes all the main decisions, and does not delegate decision making to anyone else b. the entity is therefore organized around the entrepreneur and there is no formal management structure c. operations and processes are likely to be simple, and the entity will probably sell just a small number of products or services. An entrepreneurial structure is appropriate when an entity is in the early phase of its life. As it grows larger, however, an entrepreneurial structure will become inefficient, and a formal management structure is needed.

Advantages  Very quick decision making  Staff know who the boss is  Manager can make decisions without consulting staff Disadvantages  Difficult to use in large businesses  Managers has massive workload  Demotivated staff due to lack of involvement

Functional organization structure A functional structure is usually the next stage in the development of the organization structure of a growing entity. In a functional organization structure, decision-making authority is delegated in a formal structure divides arrangement, and responsibilities are divided between the managers of different activities or functions. A functional structure divides the organization into departments based on their function. Each is headed by a functional manager and employees are grouped as per their role. Functional managers have experience in the roles they supervise. This ensures that employees are using their skills effectively. It helps organizations in achieving their business objectives. The functional organization structure is suitable for a business dealing with operations, like manufacturing industries. Advantages  Employees are grouped by their knowledge and skills, allowing them to achieve high performance.  Their roles and responsibilities are fixed, facilitating easy accountability for the work.  The hierarchy is clear. This reduces the number of communication channels.  Communication is frictionless within the department.  Work is not duplicated as all departments have defined responsibilities.  Employees feel secure; they perform well without fear.  Because of job security, employees tend to be loyal to the organization.  Employees have a clear career growth path.  Cooperation is excellent within the department. Disadvantages  Employees may feel bored because of repetitive work. This monotony causes loss of enthusiasm.  Conflicts may arise if the performance appraisal system is not properly managed. A highly skilled employee costs more.  The departments have a self-centered mentality. Functional managers pay more attention to their own departments and ignore others’ interests.  Communication is weak among the departments. This causes poor interdepartment coordination, affecting flexibility and innovation.  There is a lack of teamwork among different departments.  Employees may have little concern about events outside their group.  The functional structure is rigid and adapting to changes difficult and slow.  Decision making is slow due to the bureaucratic hierarchy.  Functional managers can make decisions without consulting team members. This is not good for the organization.

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Personal bias may affect employee morale. For example, an employee may feel demoralized when a low-performing employee is promoted. When the organization becomes larger, functional areas can become challenging to manage. Each department may start behaving like a small company with its facilities. Functional departments may be distracted by departmental goals, rather than organizational goals. Employees do not learn any new skills and their roles don’t change often.

Divisional organization structure As entities grow still further, and develop their business operations into different product-markets, a divisional structure might become appropriate. A division is an area of operations, defined by: a. markets in different geographical areas (for example, the European and the North American divisions). b. different products (for example the bus division and the rail division of a transport company). c. different customers (for example, industrial products and consumer products). A division might be a strategic business unit of the entity (group). Each division has its own functional departments, such as marketing and sales, operations (production), accounting and finance, and so on. Authority is delegated from head office to the divisional management (led perhaps by a divisional managing director), and responsibility for the implementation of product-market strategy is mainly at divisional level. Head office retains overall control, and there may be some head office functions providing support services to all the divisions, such as corporate strategy, IT and research and development.

Advantages  Flexibility divisions can be closed or created to respond to changes in organizational strategy.  Specialist expertise is built up relating to a particular product or market segment.  Managers of divisions have a greater personal interest in the strategy for their own division.  The enabling of performance management (and hence control) of businesses by head office from a distance. Disadvantages  High central management costs.  Duplication of effort with all functions represented within divisions.  Vertical barriers between divisions that may prevent information sharing and co-operation between divisions.  Strategic management can be a complex hierarchical process.

This structure allows for much more autonomy among groups within the organization. One example of this is a company like General Electric. GE has many different divisions including aviation, transportation, currents, digital and renewable energy, among others. Under this structure, each division essentially operates as its own company, controlling its own resources and how much money it spends on certain projects or aspects of the division. Matrix organization structure Some entities have developed a matrix organization structure for some of their activities. The matrix organization originated in the 1950s and 1960s, in entities where it was recognized that different functions within the entity needed to work closely together. Horizontal relationships across different functions were as important as the ‘traditional’ reporting relationship within functions. Matrix organizations and project organization structures were both first used in the defense and aerospace industries, where companies were required to carry out major projects for customers, such as building a quantity of aircraft for a government customer.

The challenge was to complete projects on time and on budget. However, the traditional functional structure within the construction companies meant that no one was responsible for the project as a whole. A matrix organization or project management organization was introduced to overcome the problem. a. Project managers were appointed with overall responsibility for individual projects. Project managers had to organize the efforts of individuals in all the different functions. b. At the same time, functional managers such as management of engineering, production and sales and marketing, retained their decision-making authority. In this way, a dual command structure was created. In a matrix organization, the traditional vertical command structure has an overlay of horizontal authority or influence. A matrix organization has been defined as: ‘any organization that employs a multiple command system that includes not only a multiple command structure but also related support mechanisms and an associated organizational culture and behavior pattern’ (Davis and Lawrence 1977). The difference between a matrix organization structure and a project organization is that with a project organization, the project management comes to an end when the project ends. With matrix organization, the matrix structure of authority and command is permanent.

In the diagram above, the person shown is a quality control expert and is responsible to the quality control manager for technical aspects of the job, maintaining quality systems and so on. The person is also responsible to the manager of Project B. That manager will be concerned with completing the project on time, within the cost budget and to the proper standard. Obviously, conflicts can arise: the project manager might want to skip some tests to make up time, but the quality control department won’t want to do that. Both can put the employee under some pressure. However, the matrix

structure should allow the employee to ask the two managers to discuss the problem, as it is plain that they are both involved. Overall, matrix structures should: a. encourage communication b. place emphasis on ‘getting the job done’ rather than each manager defending his or her own position. c. be suitable for fairly large number of different functions. Advantages  It offers greater flexibility. This applies both to people, as employees adapt more quickly to a new challenge or new task, and develop an attitude which is geared to accepting change; and to task and structure. Flexibility should facilitate efficient operations in the face of change.  It should improve communication within the organization.  Dual authority gives the organization multiple orientation so that functional specialists do not get wrapped up in their own concerns.  It provides a structure for allocating responsibility to managers for endresults. A product manager is responsible for product profitability, and a project leader is responsible for ensuring that the task is completed.  It provides for inter-disciplinary cooperation and a mixing of skills and expertise. Disadvantages  Dual authority threatens a conflict between managers. Where matrix structure exists, it is important that the authority of superiors should not overlap and areas of authority must be clearly defined. Subordinates must know to which superior they are responsible for each aspect of their duties.  One individual with two or more bosses is more likely to suffer role stress at work.  It is sometimes more costly – e.g. product managers are additional jobs which would not be required in a simple structure of functional departmentation.  It may be difficult for the management to accept a matrix structure. It is possible that a manager may feel threatened that another manager will usurp his or her authority.  It requires consensus and agreement which may slow down decision-making. 1.3

Span of control

The span of control refers to the number of people who directly report to a manager in a hierarchical management ‘command’ structure. There are two extreme shapes: a. Tall-narrow. In this type of structure, each manager has a small number of subordinates reporting directly to him. As a result, in a large organization, there are many layers of management from the top down to supervisor level. The span of control is narrow, and the shape of the organization structure is tall, because of the many layers of management.

b. Wide-flat. In this type of structure each manager has a large number of subordinates reporting directly to him. As a result, even in a large organization, there are only a few layers of management from the top down to supervisor level. The span of control is wide, and the shape of the organization structure is flat, because of the small number of management levels.

Wider and flatter organization structures have replaced tall bureaucratic structures in many organizations. The reasons why wide-flat organizations are often preferred are as follows. a. Wide-flat structures are more suitable to rapidly-changing business environments, where entities must respond to changes quickly and with flexibility. An organization in which information travels quickly and decisions can be made quickly is more appropriate in these circumstances that a structure that is more formal and hierarchical. b. Cost savings. It has been argued that in a tall-narrow organization, managers spend too much time managing each other, instead of adding value. If middle managers do not add value, they should be eliminated from the organization structure. 2. Internal and External Relationships Organizational relationships and implementing strategy Plans are put into action by the coordinated efforts of many individuals and groups within the entity. The way in which plans are implemented depends on: a. the nature of internal relationships: these are relationships between different parts of the organization b. the nature of external relationships: in many entities a significant amount of work is done by other entities and individuals who are external to the entity and not a part of it. 2.1

Internal relationships: centralization versus decentralization

An important aspect of internal relationships is the extent to which decisionmaking is centralized, so that major planning decisions are made (and implemented) by ‘head office’, or decentralized.

a. In a centralized organization, senior management retain most (or all) of the authority to make the important decisions. b. In a decentralized organization, the authority to take major decisions is delegated to the management of units at lower levels in the organization structure, such as SBU managers, and divisional managers. The choice between a centralized and a decentralized organization depends to some extent on the preference of senior management. However, the size and complexity of the entity also influence the extent to which decision-making, planning and control are centralized or decentralize (‘devolved’). It is difficult to control a large and complex entity from head office, without delegating substantial amounts of authority to divisional managers. Advantages of centralization are as follows: a. Decisions by management are more likely to be taken with regard for the corporate objectives of the entity as a whole. There is a very strong argument in favor of making strategic decisions centrally. b. Decisions by management should be coordinated more effectively if all the key decisions are taken centrally. c. In a crisis, it is easier to make important decisions centrally. Advantages of centralization: Advantage Control Standardization Corporate view

Balance of power Experience counts Lower overheads

Leadership

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