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DesigningOrganizationalStructuresCopyright©2015McGraw-HillEducation.Allrightsreserved.NoreproductionordistributionwithoutthepriorwrittenconsentofMcGraw-HillEducation.ValveCorporationhasaflat,organicorganizationalstructuretoleveragethecreativeandentrepreneurialpotentialofits300employeesValveCorporation’sOrganizationalStructureOrganizationalStructureDefinedDivisionoflaborandpatternsofcoordination,communication,workflow,andformalpowerthatdirectorganizationalactivitiesRelatestomanyOBtopics(jobdesign,teams,power)DivisionofLaborandCoordinationDivisionoflaborResultsinspecialization,separatejobsfordifferentpeopleImprovesworkefficiencyCoordinationofworkValueofdivisionoflaborislimitedtoabilitytocoordinatethatworkCoordinatingworkcanbecostlyThreecoordinatingmechanismsinformalcommunicationformalhierarchystandardizationCoordinationThroughInformalCommunicationInformalcommunicationcoordinatesworkinallfirmsVitalinnonroutineandambiguoussituationsEasiestinsmallfirms,buttechnologyextendsitsuseinlargefirmsLargerfirmsalsoapplyinformalcommunicationthroughLiaisonrolesIntegratorrolesTemporaryteamsOtherCoordinatingMechanismsFormalhierarchyDirectsupervisionAssignslegitimatepowertomanageothersNecessaryinmostfirms,buthasproblemsStandardization–createroutinebehavior/outputStandardizedprocesses(e.g.,jobdescriptions)Standardizedoutputs(e.g.,salestargets)Standardizedskills(e.g.,training)Elementsof

OrganizationalStructureSpanofControlCentralizationDepartment-alizationFormalizationElementsofOrganizationalStructureKenGen’sFlatterStructureKenGen,Kenya’sleadingelectricitygenerationcompany,reduceditshierarchyfrom15layerstojust6layers.“Thisflatterstructurehasreducedbureaucracyandithasalsoimprovedteamwork,”explainsKenGenexecutiveSimonNgure.SpanofControlNumberofpeopledirectlyreportingtothenextlevelWiderspanofcontrolpossiblewhen:OthercoordinatingmechanismsarepresentRoutinetasksLowemployeeinterdependenceTallvsFlatStructuresAscompaniesgrow,they:BuildatallerhierarchyWidenspan,orbothProblemswithtallhierarchiesPoorerupwardinformationOverheadcostsFocuspoweraroundmanagers,sostafffeellessempoweredCentralization/DecentralizationCentralization–Formaldecisionmakingauthorityisheldbyafewpeople,usuallyatthetopDecentralizationincreasesascompaniesgrowVaryingdegreesofcentralizationindifferentareasofthecompanyExample:salesdecentralized;infosystemscentralizedUpperMgtMiddleMgtFrontlineSupervisoryUpperMgtMiddleMgtFrontlineSupervisoryUpperMgtMiddleMgtFrontlineSupervisoryProductionSalesInformation

Systems=locusofdecisionmakingauthorityFormalizationStandardizingbehaviorthroughrules,procedures,training,etcIncreasesasfirmsgetolder,larger,regulatedProblemswithformalizationLessorganizationalflexibilityDiscouragesorganizationallearning/creativityLessworkefficiencyIncreasesjobdissatisfactionandworkstressRules/proceduresbecomefocusofattentionMechanisticvs.OrganicStructuresMechanisticStructureNarrowspanofcontrolHighcentralizationHighformalizationOrganicStructureWidespanofcontrolDecentralizeddecisionsLowformalizationCEOFinanceProductionMarketingOrganizesemployeesaroundspecificknowledgeorotherresources(e.g.,marketing,production)FunctionalOrganizationalStructureEvaluatingFunctionalStructuresBenefitsEconomiesofscaleSupportsprofessionalidentityandcareerpathsEasiersupervisionLimitationsEmphasizessubunitmorethanorganizationalgoalsHigherdysfunctionalconflictPoorercoordination–requiresmorecontrolsOrganizesemployeesaroundoutputs,

clients,orgeographicareasDivisionalStructureCEOHealthcareLightingProductsConsumer

LifestyleDivisionalStructureBesttypeofdivisionalstructuredependsonenvironmentaldiversityoruncertaintyGeographicstructuresbecominglesscommonbecause:LessneedforlocalrepresentationReducedgeographicvariationMoreglobalclientsEvaluatingDivisionalStructuresBenefitsBuildingblockstructure–accommodatesgrowthFocusesonmarkets/products/clientsLimitationsDuplication,inefficientuseofresourcesSilosofknowledge–expertiseisolatedacrossdivisionsExecutivepoweraffectedbyshiftingdivisionalstructure–commonwithcomplexenvironmentSelf-directedworkteamsorganizedaroundworkprocessesTypicallyorganicstructureUsuallyfoundwithindivisionalizedstructureTeam-BasedStructureEvaluatingTeam-BasedStructuresBenefitsResponsive,flexibleLoweradmincostsQuicker,moreinformeddecisionsLimitationsInterpersonaltrainingcostsSlowercoordinationduringteamdevelopmentRoleambiguityincreasesstressTeamleaderissues–lesspower,ambiguousroles/careerDuplicationofresourcesNorthAmericaSouth

AmericaEuropeMiddleEast,Africa/IndiaAsia

PacificPowerProductsPowerSystemsDiscreteAutomationandMotionProductleaderinthatregionProductGroupsRegionalGroupsLowVoltage

ProductsProcess

AutomationABB’s*Geographic-ProductMatrixStructure*SimplificationofABB’sactualstructureEvaluatingMatrixStructuresBenefitsUsesresourcesandexpertiseeffectivelyPotentiallybettercommunication,flexibility,innovationFocusesspecialistsonclientsandproductsSupportsknowledgesharingwithinspecialtySolutionwhentwodivisionshaveequalimportanceLimitationsMoreconflictamongmanagerswhosharepowerTwobossesdilutesaccountabilityMoreconflict,organizationalpolitics,andstressExternalEnvironment&StructureDynamic• Highrateofchange• Useteam-based,network,orotherorganicstructureStable• Steadyconditions,predictablechange• UsemechanisticstructureComplex• Manyelements(suchasstakeholders)• DecentralizeSimple• Fewenvironmentalelements• LessneedtodecentralizeDiverse• Severalproducts,clients,regions• UsedivisionalformalignedwiththediversityHostile• Competitionandresourcescarcity• UseorganicstructureforresponsivenessIntegrated• Singleproduct,client,place• Usefunctionalstructure,orgeographicdivisionifglobalMunificent• Plentyofresourcesandproductdemand• LessneedfororganicstructureExternalEnvironment&StructureEffectsofOrganizationalSizeAsorganizationsgrow,they:Increasedivisionoflabor(jobspecialization)Increasestandardization

andformalhierarchyascoordinatingmechanismsBecomemoredecentralizedTechnologyandStructureMechanisms/processesformakingproductsorservicesTwocontingencies:Variability–thenumberofexcept

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