ba105: organizational behavior professor jim lincoln week 2: lecture
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BA105: BA105: Organizational BehaviorOrganizational Behavior
Professor Jim LincolnProfessor Jim Lincoln
Week 2: LectureWeek 2: Lecture
2
Class Business
• First three weeks of readings on reserve in Long Library
• http://courses.haas.berkeley.edu/spring2004/ba105 (login=lincoln; pw=ba105)
• Prepare “Allentown Materials” case for Thursday.
3
Organization design I:Session objectives
• Introduce organization design as the clearest case of the “manager as engineer” perspective
• Understand the legacy of classical (“one best way”) design theory
• Understand principles of grouping and linking• Get a feel for strategic organization design from the
congruence or “fit” perspective – There is no “one best way”– Every design must be aligned with the rest of the
organization’s architecture
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Strategy (diversification; innovation)
Input
Environment(Competition, change)
Resources(munificence)
History (age, conditions at founding)
OutputSystems
Unit
Individual
InformalOrganization(culture, leadership, networks, politics)
Tasks (technologies, work flows)
People(ability, skills, motivation, biases)
FormalOrganization
(job titles, departments,
reporting hierarchy, IT & HR systems
Organizational Design
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Carly Fiorina’s reorg at HPMost dramatically, she launched a plan to consolidate H-P's 83 businesses into only 12.
She also aligned the reduced number of divisions into two "front-end" groups that would focus on customer activities, such as marketing and sales, and two "back-end" organizations devoted strictly to designing and making computer and printer products.
Old-time H-P executives were shocked. "I was a deer caught in the headlights when she described the front and back end," says Carolyn Ticknor, who now presides over the merged printer unit. Several of these executives protested that employees weren't ready for a major reorganization.
Some executives fretted that managers wouldn't wield "real" authority if they couldn't control both product development and marketing. "It took some of the glory, if you wish, out of the job," says Mr. Perez, the departed executive.
Consternation rippled through the ranks. Managers who had long aspired to run their own autonomous units, known as P&Ls, short for profit & loss, suddenly saw most of those jobs disappear.
WSJ, 8/22/2000
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What is formal organization?Bureaucracy! Meaning what exactly…?
• Formal structure – Grouping (or division of labor or differentiation)
• Divide work and group people doing similar tasks into distinct jobs and work units
– Linking (or coordination or integration)• Devise mechanisms of control and coordination to direct activity and create an
integrated whole
• Formal measurement & information systems – Accounting & finance– Inventory and process control– Human resource
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What should structure do?• Provide efficiency in the
accomplishment of tasks
• Coordinate and integrate activities across the organization
• Allow for flexibility– adjust quickly and smoothly to new
conditions– Support creativity & innovation
• Fit the organization’s strategy and environment
• Channel individual behavior in cooperative & productive ways
• Economize on information processing
• Empower people to undertake and accomplish challenging tasks
• Align with & support the organization’s culture, networks, incentive systems, etc.
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What shouldn’t structure do?• Cause overspecialization leading
to unmanageable coordination problems
• Balkanize the organization into warring fiefdoms
• Disempower and demotivate people
• Become a weapon in organizational politics
• Become sacred and ceremonial
• Breed “bureaucratic personalities”
• Be a residue or holdover from the past
• Mire the organization in “red tape”
• Divert or smother alternative means of channeling & coordinating action
• Provide a safe haven for the incompetent or unmotivated
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• This week:– Classical and mainstream design
perspectives
• Next week:– Leading edge “new economy” design
perspectives
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SCIENTIFIC MANAGEMENT :“Systems so perfect that no one will need to be good”Frederick W. Taylor: The Principles of Scientific Management, 1911. Frank B. Gilbreth: Motion Study, a Method for Increasing the Efficiency of the Workman.
New York, D. Van Nostrand Company, 1911.
Which always brings to mind….
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The Scientific Management Program:The Origin of Industrial Engineering
• Time and motion study
• Reduce physical tasks to elemental units (“therbligs”). Recombine in maximally efficient way
• Fixed rules & standards for physical task performance
• Pay geared to performance (piece rates)
• Production scheduling, equipment design, shop layout
• Scientific method (measure, experiment)
• Functional foremanship
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Oper-ations
Foreman
Worker A Worker B Worker C
Main-tenance
Foreman
Quality Assurance Foreman
Taylor’s Functional Foremanship
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CLASSICAL ADMINISTRATIVE THEORY
• Principles of horizontal structuring – Specialization (divide tasks)– Unity of direction (group tasks into departments)
• Principles of vertical structuring– Unity of command– Scalar chain
• “Go through channels”– Span of control
• Principles of authority and decision-making– Centralization:
• Fit authority to responsibility • Delegate routine decisions; manage exceptions
Henry Fayol: General and Industrial Management, 1949L. Gulick and L. Urwick: Papers on the Science of Administration, 1937J. Mooney: The Principles of Organization, 1947
18
CEO
“A”
Logical flaws in CM: The trade-off between hierarchy & span of control
CEO
“A”
Case 1 Case 2
Herbert Simon: “The proverbs of administration.” Public Administration Review 6 (1946):53-67.
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Market-ing
Market-ing
Engineering
Engineering
Manu-facturing
Manu-facturing
Human Resources
Human Resources
Manage-ment
Manage-ment
Coordination by hierarchy economizes on communication and centralizes
control
AccountingAccounting
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Coordination by mutual adjustment maximizes communication and
diffuses control
MarketingMarketing
Engineer-ing
Engineer-ing
Manu-facturing
Manu-facturing
Human Resources
Human ResourcesAccountingAccounting
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Market-ing
Market-ing
Engineering
Engineering
Manu-facturing
Manu-facturing
Human Resources
Human Resources
Coordination by rules & standards economizes on hierarchy and communication
AccountingAccounting
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Which coordination solution is chosen depends on the degree of interdependence
Regional HQ
Aircraft Scheduling
1. Pooled Interdependence
2. Sequential Interdependence
ProductDevelopment Manufacturing Sales
Hotel A Hotel B Hotel C
Operations Maintenance
Need for Integration
Low
Medium
High
Coordinating Mechanism
Rules/standards
Hierarchy
Mutual Adjustment
3. Reciprocal Interdependence
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Strategic grouping dimensions
• Inputs
– Functions, disciplines, or skills: engineering, finance, manufacturing, marketing, accounting, HR, PR, maintenance, quality, legal, logistics, etc.
• Outputs
– Product: attributes, benefits to customers, underlying technology (what does it do? or how does it work?)
– Customer: attributes or preferences; ways of buying or using products
– Region: (Northeast, midwest; Europe; East Asia)
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Engineer-ing
Manufac-turing
Marketing
General Manager
Human Resources
Account-ing
Functional organization
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Engineer-ing
Manufac-turing
Market-ing
General Manager
Human Resources
Account-ing
ProductA
ProductB
Product C
Functional organization
29
CEO
North America
Europe Asia Pacific
HR Mfg Mkt HR Mfg Mkt HR Mfg Mkt
Regional division organization
30
CEO
Home market
Education market
Corporatemarket
HR Mfg Mkt HR Mfg Mkt HR Mfg Mkt
Customer-type divisions
31
ProfessorsA, B, & C
Undergrad Program
MBA Program
PhD Program
Undergrad
MBA
PhD
ProfessorA
ProfessorB
ProfessorC
Are Haas professors organized by function or product?
32
Functional OrganizationPluses
• Lean and simple– Good fit to small, young, focused
organizations
• Functions are efficiently deployed• Breeds strong, highly-developed functions• Good fit to strategy based on functional
capabilities• Good fit to a stable, homogenous
environment• Good coordination of functions across
products & markets
Minuses
• High interdependence – Problem of hand-offs
• & functions becoming “silos”– Puts a heavy coordination burden on top
management
• Poor development of GM skills • Hard to monitor performance• Poor fit to these strategies:
– Diversification– Product, customer, or region focus
• Poor fit to turbulent, heterogeneous environment
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Product organizationPluses
• Low interdependence – easy monitoring of division
performance– Ease of acquisition absorption– Frees top execs for strategy
• Coordinate by standards• High decentralization• Skills tailored to products & markets • Develops GM skills • Good fit to turbulent, heterogeneous
environment• Good fit to these strategies:
– Diversification– Product/customer/region focus
Minuses
• Poor within-function coordination
• Breeds weak functions
• Breeds inbred division cultures
– Lack of strong corporate identity
• High redundancy and cost
• Management by the numbers
– Headquarters out of touch
– Rigid, short-term performance standards
• Excessive scale & sprawl
34
Hybrid forms
• Most large firms are functional/product hybrids: some functions are centralized others are decentralized to the division level
• Trend in recent years has been to centralize functions & consolidate divisions
35
Lou Gerstner, CEO of IBM on organizational design
“I was wrestling with decentralization because at heart I’m a decentralizer, but as I was looking at mail and customer reports, it became increasingly clear to me that the real issue of effectiveness, of winning in the marketplace, was finding ways to make the company work horizontally.”
Gerstner has been designing ways to decentralize what he calls, “the things that matter in running a business” but reinforce the things that benefit from size. That means decentralizing some things and centralizing others.
“So, while unit managers can expect to define their customers, design their own products, manage most of their costs, and set prices, they’ll be expected to cooperate more on such issues as technology and product announcements, such as the power PC”
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CEO
Marketing & Sales
Product Division A
Product Division B
A Manu-
facturing
A Engineering
Hybrid form
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CEO
Product Division A
Product Division B
Product Division C
B Human
Resources
B Engineering
Human Resources
Legal
Hybrid form
L e v i S tra uss & C o.H yb rid F o rm
M kt
D istribution
Sales
M anufac t.
ProductG roup A
M kt
D istribution
Sales
M anufac t.
Product G roup B
M kt
D istribution
Sales
M anufac t.
ProductG roup C
Legal Finance R & D A cctg.
H aasC E O
39
Next time: Allentown Materials Case Steps in preparation:
1. Assess Allentown’s problems in relation to its strategy and environment2. Consider all the issues in the case but focus on the strategic design issues of grouping
(differentiation) and linking (integration).3. Analyze cause and effect relationships behind problems
» Work back from immediate to root causes » Assess importance of cause-and-effect chains
4. Devise solutions that:» Impact causes» Are consistent and realistic
5. Think about an implementation plan that:» Has few negative spillovers (unintended consequences)» That minimizes alignment problems» That minimizes resistance
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