BA105: BA105: Organizational BehaviorOrganizational Behavior

Professor Jim LincolnProfessor Jim Lincoln

Week 2: LectureWeek 2: Lecture

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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.

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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

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Specialization(Division of Labor)

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Unity of Direction(Grouping)

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Principles of Hierarchy:Unity of Command, Scalar Chain, Span of Control

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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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Do organizations have to be hierarchical?

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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:

Functional organization, product organization, and hybrid forms

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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

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CEO

CarsPrefabHouses Electronics

HR Mfg Mkt HR Mfg Mkt HR Mfg Mkt

Product division organization

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CEO

North America

Europe Asia Pacific

HR Mfg Mkt HR Mfg Mkt HR Mfg Mkt

Regional division organization

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CEO

Home market

Education market

Corporatemarket

HR Mfg Mkt HR Mfg Mkt HR Mfg Mkt

Customer-type divisions

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ProfessorsA, B, & C

Undergrad Program

MBA Program

PhD Program

Undergrad

MBA

PhD

ProfessorA

ProfessorB

ProfessorC

Are Haas professors organized by function or product?

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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

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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

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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

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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