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Chapter 07 - Designing Organizational Structure

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Chapter 07 Designing Organizational Structure

Learning Objectives

Key Definitions/Terms

Chapter Overview

Lecture Outline

Management in Action

Building Management Skills

Small Group Breakout Exercise

Be the Manager

Case in the News

CHAPTER CONTENTS


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LO 7-1. Identify the factors that influence managers choice of an

organizational structure.

LO 7-2. Explain how managers group tasks into jobs that are motivating and satisfying for employees.

LO 7-3. Describe the types of organizational structures managers can design, and explain why they choose one structure over another.

LO 7-4. Explain why managers must coordinate jobs, functions, and divisions using the hierarchy of authority and integrating mechanisms.

authority: The power to hold people accountable for their actions and to make decisions concerning the use of organizational resources. boundaryless organization: an organization whose members are linked by computers, faxes, computer-aided design systems, and video teleconferencing and who rarely, if ever, see one another face-to-face. business-to-business (B2B) network: a group of organizations that join together and use IT to link themselves to potential global suppliers to increase efficiency and effectiveness. cross-functional team: A group of managers brought together from different departments to perform organizational tasks. decentralizing authority: Giving lower-level managers and nonmanagerial employees the right to make important decisions about how to use organizational resources.

divisional structure: An organizational structure composed of separate business units within which are the functions that work together to produce a specific product for a specific customer. functional structure: An organizational structure composed of all the departments that an organization requires to produce its goods or services. geographic structure: An organizational structure in which each region of a country or area of the world is served by a self-contained division. hierarchy of authority: An organizations chain of command, specifying the relative authority of each manager. integrating mechanisms: Organizing tools that managers can use to increase communication and coordination among functions and divisions. job design: The process by which managers decide how to divide tasks into specific jobs.

LEARNING OBJECTIVES

KEY DEFINITIONS/TERMS


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job enlargement: Increasing the number of different tasks in a given job by changing the division of labor. job enrichment: Increasing the degree of responsibility a worker has over his or her job. job simplification: The process of reducing the number of tasks that each worker performs. knowledge management system: A company-specific virtual information system that allows workers to share their knowledge and expertise and find others to help solve ongoing problems. market structure: An organizational structure in which each kind of customer is served by a self-contained division; also called customer structure. matrix structure: An organizational structure that simultaneously groups people and resources by function and by product. network structure: A series of strategic alliances that an organization creates with suppliers, manufacturers, and/or distributors to produce and market a product. organizational design: The process by which managers make specific organizing choices that result in a particular kind of organizational structure.

organizational structure: A formal system of task and reporting relationships that coordinates and motivates organizational members so that they work together to achieve organizational goals. outsource: To use outside suppliers and manufacturers to produce goods and services. product structure: An organizational structure in which each product line or business is handled by a self-contained division. product team structure: An organizational structure in which employees are permanently assigned to a cross-functional team and report only to the product team manager or to one of his or her direct subordinates. span of control: The number of subordinates who report directly to a manager. strategic alliance: An agreement in which managers pool or share their organizations resources and know-how with a foreign company and the two organizations share the rewards and risks of starting a new venture. task force: A committee of managers from various functions or divisions who meet to solve a specific, mutual problem; also called ad hoc committee.

To create high performing organizations, managers must design an organizational structure that maximizes the efficient use of resources. This chapter opens by examining the four critical factors that help managers to determine the most appropriate organizational structure. Next, it discusses three components of organizational design: job design, grouping jobs into functions and divisions, and the coordination of functions and divisions. The chapter closes with a discussion of integrating mechanisms and the growing popularity of global strategic alliances and business-to-business network structures.

CHAPTER OVERVIEW


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Management Snapshot (pp. 211-212 of text) Alan Mulally Tranforms Ford How Should Managers Organize to Improve? With Fords performance suffering in 2006, its board of directors realized they needed an outsider to change the way Ford operated, and they recruited Alan Mulally from Boeing to become its new CEO. Mulally discovered that over the years, Ford had developed a tall hierarchy of managers whose main goal was to protect their turf and avoid any direct blame for its plunging car sales. Mulally soon realized that the managers thought the best way to maintain their jobs was to hoard information, rather than share them. Thus values of secrecy and ambiguity reduced the level of coordination and integration between managers. He issued an order that the detailed statement of costs should be shared between divisions. He insisted that each of Fords divisional presidents should attend weekly meetings with different subordinates to openly discuss all the problems. Mulallys goal was to create new rules that it was fine to admit mistakes, share information, and find ways to reduce costs. He also emphasized cooperation within divisions. By 2012, Ford had become the highest performing U.S. carmaker.

LECTURE OUTLINE


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I. Designing Organizational Structure

A. Organizing is the process by which managers establish the structure of working relationships among employees to allow them to achieve organizational goals efficiently and effectively.

1. Organizational structure is the formal system of task and job reporting relationships that determines how employees use resources to achieve goals. 2. Organizational design is the process by which managers make specific organizing choices about tasks and job relationships that result in the construction of a particular organizational structure. 3. According to contingency theory, managers design organizational structures to fit the factors or circumstances that are affecting the company and causing them the most uncertainty.

B. Four factors are important determinants of the type of organizational structure or culture managers select:

1. The Organizational Environment: The more quickly the external environment is changing and the greater the uncertainty within it, the greater the need to speed decision-making and communication so that resources can be obtained.

a. In such situations, managers make organizing decisions that result in more flexible structures and entrepreneurial cultures. Therefore, they are likely to decentralize authority, empower lower-level employees to make decisions, and encourage values and norms that emphasize change and innovation. b. In contrast, if the external environment is relatively stable, uncertainty is low, and resources are readily available, managers make organizing decisions that bring more stability or formality to the organizational structure. They choose values and norms that emphasize obedience and being a team player. Managers in this situation prefer to make decisions with a clearly defined hierarchy of authority, standard operating procedures, and restrictive norms to guide and govern employees activities.


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c. In todays marketplace, increasing competition is putting pressure on managers to find ways to attract customers and increase efficiency and effectiveness.

2. Strategy: Different strategies often call for the use of different organizational structures and cultures.

a. A differentiation strategy aimed at increasing quality usually succeeds best in a flexible structure with a culture that values innovation. b. In contrast, a low-cost strategy aimed at driving down costs works best in a more formal structure with more conservative norms, which gives managers greater control. c. At the corporate level, when managers pursue a strategy of vertical integration or diversification, a flexible structure is needed to provide sufficient coordination between different business divisions. d. Managers are also challenged to create organizational structures that allow flexibility on a global level.

3. Technology is the combination of skills, knowledge, machines, and computers that are used in the design, production, and distribution of goods and services.

a. The more complicated the technology, the greater the need for a more flexible structure that allows managers to respond quickly to unexpected situations. b. If technology is routine, a formal structure is more appropriate because tasks are simple and procedures to produce goods and services have been outlined in advance. c. According to researcher Charles Perrow, two factors determine how complicated or nonroutine technology is. They are task variety and task analyzability.

i. Nonroutine technologies are characterized by high task variety and low task


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analyzability. ii. Routine technologies are characterized by low task variety and high task analyzability. iii. Examples of nonroutine technology are found in the work of scientists in an R&D laboratory who develop new products. iv. Examples of routine technology include typical mass production or assembly operations, where workers perform the same task repeatedly and managers identify programmed solutions necessary to perform a task efficiently.

4. Human Resources: The more highly skilled a workforce, and the greater the number of employees who work together in groups or teams, the more likely an organization is to use a flexible, decentralized structure and a professional culture based on values and norms that foster employee autonomy and self-control.

a. Flexible structures, characterized by decentralized authority and empowered employees, are well suited to the needs of highly skilled people. b. Similarly, when people work in teams, they must be allowed to interact freely and develop norms to guide their own work interactions, which is also possible in a flexible organizational structure. c. The way an organizations structure works depends on the organizing choices managers make about three issues:

i. How to group tasks into individual jobs

ii. How to group jobs into functions and divisions

iii. How to allocate authority and coordinate or integrate functions, and divisions.


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II. Grouping Tasks into Jobs: Job Design

A. The first step in organizational design is job design, the process by which managers decide how to divide into specific jobs the tasks that have to be performed.

1. The result of the job design process is a division of labor among employees. Establishing an appropriate division of labor among employees is vital to increasing efficiency and effectiveness. 2. When deciding how to assign tasks to individual jobs, managers must be careful not to oversimplify jobs. Job simplification is the process of reducing the number of tasks that each worker performs. Too much job simplification may reduce efficiency rather than increase it, if workers become bored and unhappy.

B. Job Enlargement and Job Enrichment

1. Job enlargement is increasing the number of different tasks in a given job by changing the division of labor. By increasing the range of tasks performed by a worker, managers hope to reduce boredom and increase motivation to perform.

2. Job enrichment is increasing the degree of responsibility a worker has over a job by:

a. empowering workers to experiment to find new or better ways of doing the job, b. encouraging workers to develop new skills, c. allowing workers to decide how to do the work and giving them the responsibility for deciding how to respond to unexpected situations

d. allowing workers to monitor and measure their own performance.

3. By enriching an employees job, managers are expecting the employees level of involvement in their work to increase, thereby increasing productivity. 4. Managers who make design choices that increase job enrichment and job enlargement are likely to increase the degree to which workers behave


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flexibly rather than mechanically. 5. Narrow, specialized jobs lead people to behave in predictable ways. In contrast, workers who perform a variety of tasks and who are encouraged to discover new and better ways to perform their jobs are likely to act flexibly and creatively.

C. The Job Characteristics Model: J. R. Hackman and G. R. Oldhams job characteristics model explains how managers can make jobs more interesting and motivating. According to Hackman and Oldham, every job has five characteristics that determine how motivating the job is:

1. Skill variety is the extent to which a job requires an employee to use a wide range of different skills, abilities, or knowledge. 2. Task identity is the extent to which a job requires a worker to perform all the tasks necessary to complete the job, from the beginning to the end of the production process. 3. Task significance is the degree to which a worker feels his or her job is meaningful because of its effect on people outside the organization. 4. Autonomy is the degree to which a job gives an employee the freedom and discretion needed to schedule different tasks and decide how to carry them out. 5. Feedback is the extent to which actually doing a job provides a worker with clear and direct information regarding how well he or she has performed the job. 6. The five job characteristics affect an employees motivation by affecting three critical psychological states:

a. feeling that ones work is meaningful

b. feeling responsible for work outcomes, and

c. feeling responsible for knowing how those outcomes affect others.


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III. Grouping Jobs into Functions and Divisions:

Designing Organizational Structure

A. After task allocation, the next organizing decision is how to group jobs together to best match the needs of the organizations environment, strategy, technology, and human resources.

1. Most top-management teams group jobs into departments and develop a functional structure. 2. As the organization grows, managers design a divisional structure or a matrix or product team structure.

B. Functional Structure: A function is a group of people, working together, who possess similar skills or use the same knowledge, tools, or techniques to perform their jobs. A functional structure is a structure composed of all the departments that an organization requires to produce its goods or services.

1. The advantages of grouping jobs according to function are:

a. When people who perform similar jobs are grouped together, they can learn from observing one another. b. When people who perform similar jobs are grouped together, it is easier for managers to monitor and evaluate their performance. c. The functional structure allows managers to create the set of functions they need to scan and monitor the competitive environment.

2. As an organization grows, the functional structure may become less efficient and effective for the following reasons:

a. Managers in different functions may find it more difficult to communicate and coordinate with one another. b. Functional managers may become so preoccupied with supervising their own specific departments that they lose sight of organizational goals.


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C. Divisional Structures: Product, Market, and Geographic: As the problems associated with growth and diversification increase over time, most managers of large organizations choose a divisional structure and create a series of business units, each of which produces a specific kind of product for a specific kind of customer. Each division is a collection of functions or departments that work together to produce the product. There are three different forms of divisional structure: product structure, geographic structure, and market structure.

1. Product Structure: When using a product structure managers place each distinct product line in its own self-contained division and give divisional managers the responsibility for devising an appropriate business-level strategy.

a. Each division is self-contained because it has a complete set of all the functions that it needs to produce goods or services. b. It allows functional managers to specialize in only one product area, so they are able to build expertise. Each divisions managers can become experts in their industry. c. It frees corporate managers from the need to supervise directly each divisions day-to-day activities. d. The extra layer of management, the divisional management layer, can improve the use of organizational resources. e. It puts divisional managers close to their customers and lets them respond quickly and appropriately.

2. Geographic Structure: When organizations expand rapidly both at home and abroad, functional structures can create problems because managers in one central location may find it increasingly difficult to deal with problems arising in other regions of the country or world.

a. In such cases, a geographic structure, in which divisions are broken down by geographical location, is chosen. b. Managers are most likely to use a global


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geographic structure when pursuing a multidomestic strategy, since customer needs vary widely by country or world region. c. In contrast, some managers are most likely to use a global product structure when pursuing a global strategy, since customers abroad are willing to buy the same kind of product, or slight variations thereof.

3. Market Structure: Sometimes managers group functions according to the type of customer buying the product, in order to tailor an organizations products to each customers unique demands.

a. A market structure, also called customer structure, is an organizational structure in which each kind of customer is served by a self-contained division. b. It allows managers to be responsive to the needs of customers and allows them to make decisions in response to customers changing needs.

D. Matrix and Product Team Designs: . Matrix and product team designs are the most flexible type of organization structures.

1 Matrix Structure: In a matrix structure, managers group people and resources in two ways simultaneously: by function and by product. The result is a complex network of reporting relationships that makes the matrix structure very flexible.

a. Each person in a product team reports to two bosses: 1) a functional boss, who assigns individuals to a team and evaluates their performance, and 2) the boss of the product team, who evaluates their performance on the team. Thus, team members are known as two-boss employees. b. The functional employees assigned to product teams change over time as the specific skills needed by the team change. To keep the matrix flexible, product teams are empowered and team members are responsible for making important decisions.


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c. Matrix structures have been successfully used for years at high-tech companies, where new product development takes place frequently and the need to innovate quickly is vital to the organizations survival.

2. Product Team Structure: The dual reporting relationships of a matrix structure have always been difficult for managers and employees to deal with. To avoid these problems, managers have devised a product team structure to organize people and resources.

a. The product team structure differs from a matrix in two ways: (1) it does away with dual reporting relationships and two-boss employees, and (2) functional employees are permanently assigned to a cross-functional team. b. A cross-functional team is a group of managers brought together from different departments to perform organizational tasks. They report only to the product team manager or to one of his or her subordinates. c. Increasingly, organizations are making empowered cross-functional teams an essential part of their organizational architecture to help them gain a competitive advantage in fast-changing organizational environments.

IV. Coordinating Functions and Divisions

A. The more complex the structure a company uses to group its activities, the greater are the problems of linking and coordinating its different functions and divisions. Coordination becomes a problem because each function or division develops a different orientation toward the other groups that affects the way it interacts with them. B. Allocating Authority: To coordinate the activities of people, functions, and divisions and to allow them to work together, managers must develop a clear hierarchy of authority.

1. Authority is the power vested in a manager to make decisions and use resources to achieve organizational goals by virtue of his or her position in an organization.

a. The hierarchy of authority is an organizations


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chain of command. Every manager, at every level of the hierarchy, supervises one or more subordinates. b. The term span of control refers to the number of subordinates who report directly to a manager. c. A line manager is someone who is in the direct line or chain of command and has formal authority over people and resources. d. A staff manager is a manager responsible for a specialist function. e. Managers at each level of the hierarchy confer on managers below them the authority to make decisions. By accepting this authority, those lower-level managers are accountable for how well they make those decisions.

2. Tall and Flat Organizations: As an organization grows in size, its hierarchy of authority normally lengthens, making the organizational structure taller.

a. A tall organization has many levels of authority relative to company size. b. A flat organization has fewer levels relative to company size. c. As a hierarchy becomes taller, effective communication becomes difficult and expenses rise.

i. It can take a long time for decisions to move downward in the hierarchy, causing disconnection between top and middle managers. ii. Also, it can result in the distortion of commands and messages being transmitted up and down the hierarchy.

3. The Minimum Chain of Command: The principle of the minimum chain of command states that top managers should always construct a hierarchy with the fewest levels of authority necessary to efficiently and effectively use organizational resources.

a. To ward off the problems associated with tall organizations, top managers must be sure that they are employing the right number of middle and first-line managers.


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b. Effective managers constantly scrutinize their hierarchies to see if the number of levels can be reduced.

4. Centralization and Decentralization of Authority: Another way in which managers keep the organizational hierarchy flat is by decentralizing authority, that is, giving lower-level managers and non-managerial employees the right to make important decisions about how to use organizational resources.

a. Decentralizing authority allows the organization to behave in a flexible as it grows and becomes taller. b. However, too much decentralization has disadvantages, including managers who may begin to pursue their own goals at the expense of organizational goals and a lack of communication among functions or divisions that may prevent possible synergies. c. Top managers must seek a balance between centralization and decentralization of authority that best responds to the four contingencies that they face. d. If managers in a stable environment are using well-understood technology, and are producing stable kinds of products, there is no need to decentralize authority. e. However, in uncertain, changing environments where high-tech companies are producing state-of-the art products, top managers must often empower employees and allow teams to make important strategic decisions.

C. Integrating and Coordinating Mechanisms: Managers can use various integrating mechanisms to increase communication and coordination among functions and divisions. The greater the complexity of an organizations structure, the greater is the need for coordination among functions and divisions.

1. Liaison Roles: When the volume of contacts between two functions increases, one way to improve coordination is to give one manager in each function or division the responsibility for coordinating with the other.

a. The responsibility for coordination is a part of the liaisons full-time job.


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b. Usually an informal relationship forms between the people involved, greatly easing strains between functions.

2. Task Forces: If two or more functions share common problems, and direct contact and liaison roles do not provide sufficient coordination, a task force may be appropriate.

a. One manager from each relevant function or division is assigned to a task force that meets to solve a specific, mutual problem. b. Members are responsible for reporting to their own departments on the issues addressed and solutions recommended. c. Task forces are often called ad hoc committees because they are temporary. Once the problem is resolved, the task force is disbanded.

3. Cross-Functional Teams: To address recurring problems effectively, managers are increasingly using permanent integrating mechanisms such as cross-functional teams.

a. An example of a cross functional team is a new product development committee that is responsible for the choice, design, manufacturing, and marketing of a new product.

4. Integrating Roles: An integrating role is a role whose only function is to increase coordination and integration among functions or divisions to achieve performance gains from synergies.

a. Usually, senior managers who can envisage how to use the resources of the functions or divisions to obtain new synergies are chosen to perform such roles. b. The more complex an organization, the more important integrating roles become.


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V. Strategic Alliances, B2B Network Structures, and IT

1. A strategic alliance is a formal agreement that commits two or more companies to exchange or share their resources in order to produce and market a product. Strategic alliances are usually formed because the companies involved have similar interests and believe they can benefit by cooperating. 2. A network structure is a series of global strategic alliances that one or several organizations create with suppliers, manufacturers, and/or distributors to produce and market a product. Network structures allow an organization to manage its global value chain in order to find new ways to reduce costs and increase the quality of products, without incurring the high costs of operating a complex organizational structure. 3. The process of outsourcingusing outside suppliers and manufacturers to produce goods and serviceshelps to keep the organizations structure flat and flexible. 4. The ability of managers to produce and distribute products using a network structure instead of creating a complex organizational structure, has led to the popularity of the idea of a boundaryless organization. Such an organization is composed of people linked by ITcomputers, faxes, computer-aided design systems, and video-teleconferencingwho may rarely, if ever, see each other face-to-face. 5. Large consulting companies utilize their employees in this way. Consultants are connected by laptops to the organizations knowledge management system, its company-specific information system that systematizes the knowledge of its employees and provides them with access to other employees who have the expertise to solve the problems they encounter as they perform their jobs. 6. The push to lower costs has led to the development of electronic business-to business networks in which most or all of the companies in an industry use the same software platform to link to each other and establish industry specifications and standards and solicit bids from thousands of potential suppliers worldwide. Suppliers also use the same software platform, so electronic bidding, auctions, and transactions are possible between buyers and sellers around the world.


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7. To maximize efficiency and effectiveness, managers must carefully assess the relative benefits of performing a functional activity in-house versus outsourcing. It still is not clear how B2B networks and other forms of electronic alliances between companies will develop in the future.

ORGANIZING FOR CUSTOMER SERVICE Traditional formal organization structure can stifle an organizations ability to deliver exemplary customer service. To meet the needs of customers, a more fluid approach is needed. An example of this is the customer-supplier relationship developed by Digital Equipment Corporation, which attempts to build lasting partnerships with its customers by anticipating not only the day-to-day requirements of customers, but also by helping them plan for the unexpected. An example of this occurred at 3:30 a.m. January 4, 1988 when an electrical fire in Chase Banks main production site in Manhattan wiped out the fifty-story buildings power, including all computer systems. This was the first day of the banking new year and Chase expected to process well over its daily average money transfer volume. When Chase purchased its equipment, Digital assisted in planning for the everyday and back-up operations crucial to the banks relationship with its customers. They also supported a secondary site which was fully operational and configured to meet the backup processing requirements of the main production facility. The situation for Chase was potentially threatening. If on-line systems failed to process even one days worth of transactions, the bank could be subject to serious penalties. Two Digital field service crews were on the scene before dawnone downtown and another at one of the banks contingency sites. Simultaneously, a Digital team from manufacturing, sales, and field service banded together, coordinating overnight delivery of additional parts and peripherals. That same day, the operational site was fully operational, enabling Chase to successfully complete 95 percent of its business volume. Digital continuously worked with bank personnel until the main production site was back in business. For Chase customers, it was business as usual. FLEXIBLE DESIGN EXTENDS TO THE WORKPLACE Businesses, having become convinced of the value of teamwork, are starting to redesign offices to accommodate the teams. Braun Inc., a small appliance manufacturer and a Gillette Co. subsidiary, recently celebrated its move from a traditional office building in Lynnfield, Mass. to a two-story, 38,000-square-foot site where employees meet at oases furnished with cafe-style tables and chairs, computer terminals for Internet browsing, and aquariums stocked with exotic fish. We wanted to change the rules and create a more open environment that would encourage communication and collaboration, said president Bruce Cleverly. We had already restructured our business by creating cross-functional teams that allow our finance, logistics, sales, and marketing people to work together based on specific products. We needed an environment that reflected our new approach. Braun is hardly alone. Over the last decade, International Business Machines Corp., Chrysler Corp., AT&T Co., and Ford Motor Corp. have all redesigned their office spaces with an eye toward flexibility and open communication.


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Not surprising, the office-furniture industry has capitalized on the trend, aggressively marketing flexible furnishings for the flexible workspace. One example: Personal Harbor, a Steelcase Inc. product that helps companies build their own collaborative office spaces with cabinets on wheels, screens with dual functions, and other portable furnishings. To be sure, the much-maligned cubicle of Dilbert fame still exists. But at Braun, the standard cubicle now includes stylish glass openings that allow employees to see beyond their own gray walls and reflect light from the banks of windows that line the office. Brauns Cleverly described the impetus for creating the new, open office. With company sales expected to reach the $500 million mark next year, the firm needed more space, giving it a ready-made opportunity to move to a more open floor plan. So Braun hired architects Jung & Brennan Inc. to draw up plans for renovation of some additional leased space. Under the architects direction, contractors tore down walls, connected two floors by way of a spiral staircase and created a meeting place in the lobby with the look and feel of a living room. Additionally, the new floor plan encouraged socializing by developing islands where the companys 170 employees could meet in small groups. The company still uses offices, but windows lessen the isolation that previously characterized the executives old offices. And strategically placed meeting places make it possible for people to gather for impromptu or planned discussions throughout the day. Jim Barter, a Braun product manager, says the new office has encouraged brainstorming and reduced the amount of time it takes to gather information. Its easier to connect with the people you need and share ideas. You just walk out the office door, he said. DISCUSSION:

Would a flexible or a more formal structure be appropriate for these organizations: (a) a large department store (b) a Big Five accountancy firm (c) a biotechnology company? Explain your reasoning.

A large department store should utilize a formal structure. The retail business is a relatively stable environment. Resources are readily available, and uncertainty is low. Less coordination and communication among people and functions is needed to obtain resources. In a department store, most important decisions can and should be made by top managers within a clearly defined hierarchy of authority. Employees do not need to decide which products to sell, or how the store will market itself. Employee activities should be governed by extensive rules and standard operating procedures. A Big Five accountancy firm should utilize a more flexible structure. Most of these firms are expanding globally, and global expansion is facilitated by a flexible structure that allows for more autonomy at lower levels in the organization. Also primarily, professionals staff an accounting firm. Flexible structures are best suited to the needs of highly skilled people. Most accountants have learned professional honesty and integrity in their training, and would likely resent close supervision, a distinct feature of a formal structure.

MANAGEMENT IN ACTION


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A biotechnology firm should also implement a flexible structure, due to the ever-changing and developing environment in which it operates. A flexible structure makes it easier to speed decision making and communication, and makes it easier to obtain resources. In addition to the environment, technology is also a factor. The more complicated the technology, the greater the need for a more flexible structure. Biotechnology firms have incredibly complicated skills, knowledge, tools, machines, and computers that they use to conduct research and develop products. Many of their human resources are skilled, as scientists or doctors, and do not require close management supervision. 2. Using the job characteristics model as a guide, discuss how a manager can enrich or enlarge subordinates jobs. A university has many different departments and positions, so a typical job may not be easy to identify. Since a secretary would be found in most departments, that will be used as an example. A secretary of a department may have duties like typing, answering the telephone, taking messages, accepting packages, and mailing out information. The skill variety may be sufficient if the secretary feels that a wide range of skills, abilities, and knowledge are being used. Task identity may not be very high for a secretary, since most tasks, such as typing a letter or sending out department information, probably dont require much process. Increased task identity can be gained by having the secretary give input concerning the type of information the department sends out, or having the secretary contribute to the content of this information. Secretaries can often feel that they have task significance when faculty or staff thank them for completing a task and therefore show them that their work is important. 3. How might a salespersons job or a secretarys job be enlarged or enriched to make it more motivating? Allowing them to schedule their various activities and be responsible for reporting to management on their progress could enrich a salespersons job. A salesperson could also be charged with the task of finding new ways to approach customers or close a sale that make repeat business more likely. Management might encourage their sales force to develop new skills, such as marketing techniques and knowledge that can be applied to their current jobs. A workshop for salespeople could be arranged to help figure out ways to respond to unexpected situations, with various workshop members offering suggestions and solutions. Giving him or her the opportunity to handle new responsibilities could enrich a secretarys job. A manager could encourage a secretary to develop new skills or extend the opportunity to decide how to do the work, for example, developing a new way of organizing files or documents. Allowing a secretary to monitor and measure their own performance might also give him or her a feeling of job involvement, and encourage flexibility rather than rigidity in the work setting.


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4. When and under what conditions might managers change from a functional to (a) a product (b) a geographic, or (c) a market structure? A functional structure is a structure that is composed of all the necessary departments that an organization requires to produce its goods or services. A functional structure might be changed to a product structure if growth and diversification in an organization become a problem over time. Managers might create divisions according to the type of product or service they provide if they decide to diversify into new industries or to expand their range of products. By placing each distinct line or business in its own self-contained division and giving the divisional managers the responsibility for devising the right business-level strategy, the division will be in a better position to compete effectively in that industry or market. A geographic structure may be adopted when organizations are expanding rapidly both at home and abroad. Managers find it increasingly difficult to manage, from one central location, the problems and issues that may arise in each region of the country or area of the world. When shifting to this structure, management breaks down divisions by geographic location, giving managers the flexibility they need to best meet the needs of regional customers. A market structure is appropriate when an organization needs to group functions according to the type of customer buying the product. This structure allows managers to be more responsive to the needs of their customers and allows them to act flexibly to make decisions that are needed to quickly respond to changing customer needs. This structure is beneficial in organizations where the time factor is critical. 5. How do matrix structures and product team structures differ? Why is the product team structure more widely used? In a matrix structure, managers group people and resources in two ways simultaneously: by function and by product team. In developing this structure, managers build a network of reporting relationships among product teams and functions. Each person in a product team reports to both a functional and a product team boss (known as two boss managers.) Matrix structure makes the most use of human resources because people are only part of the team when their skills are needed, and leave the team after they have completed their assignment. A product team structure is different from a matrix structure in that (1) it does away with dual reporting relationships and two boss managers; and (2) in a product team structure, employees are permanently assigned to cross-functional team, and the team is empowered to bring a new or redesigned product to market. Members of a cross-functional team report only to the product team manager or one of his/her direct subordinates. The product team structure is more widely used today because dual reporting relationships that characterize the matrix structure are difficult for managers and employees to handle. Often, the two bosses make conflicting demands, leaving employees confused and frustrated. Functional and product team bosses may come into conflict over who is in charge of which team members for how long, since members are not permanently assigned to a cross-functional team in a matrix structure, like they are in a product team structure. A product team structure is used because it allows flexibility with a structure that is easier to operate.


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ACTION 6. Find and interview a manager and identify the kind of organizational structure that his or her organization uses to coordinate its people and resources. Why is the organization using that structure? Do you think a different structure would be more appropriate? Which one? Dr. Miller is the director of a survey research institute affiliated with a large university. The institute uses a functional structure, or one that encompasses all the necessary departments that it needs to produce its goods and services. Departments include sampling, interviewing, data collection, data processing, data programming, and accounting. Departments are arranged so that everyone possesses similar skills and uses the same kind of knowledge, tools, and techniques to perform their jobs. This structure is used so that people can learn from observing one another and they can become more specialized and perform at a higher level. It is also easier for managers, or study directors, to monitor and evaluate the performance of their subordinates. Also, it allows study directors to scan and monitor the environment more efficiently. Occasionally, a different structure is used when it is deemed appropriate. In some research organizations, it is necessary to adopt a product structure. This occurs when a department accepts a project that is different from what is normally done by the organization. When this occurs, one team will be responsible for all aspects of one study, from data collection, to sampling, to evaluation, to data processing. This allows the team to concentrate on one project or subject area. 7. With the same or another manager, discuss the distribution of authority in the organization. Does the manager think that decentralizing authority and empowering employees is appropriate? Dr. Millers department is structured hierarchically. Dr. Miller is the director of the department, and study directors report directly to her. Under the study directors, the divisions are similar in terms of authority. Each division has a person in charge of that division, with subordinates reporting to them. Study directors have line authority, that is, they are in the direct chain of command and are directly responsible for making the decisions about the research. Heads of the departments have staff authority, and are responsible for giving the best possible advice to the study directors about how resources and skills should be utilized. Dr. Miller explained that authority was decentralized, though final reports and communications needed to be approved by the director. Employees are somewhat empowered in that they are responsible for monitoring some of their own work, and they receive feedback on their performance. Dr. Miller did not think that more responsibility needed to be given to employees in addition to what they already have, since many grants and contracts are for national clients, who prefer to deal directly with the director and the study directors. 8. Interview some employees of an organization, and ask them about the organizations values and norms, the typical characteristics of employees, and the organizations ethical values and socialization practices. Using this information, try to describe the organizations culture and the way it affects the way people and groups behave. Bloomberg Financial Markets in Princeton New Jersey has a very unique culture. There are no offices or internal walls so that everyone is visible to all. The dress-code and conversations within the office are very casual. The company provides lunch to all employees as well as snacks and soft drinks throughout the day. This encourages employees to limit the time for lunch with some employees even eating at their desks. There is no reason for employees to


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leave the building. By 5:30 most of the employees are gone and not many work more than 40 hours a week. Employees are encouraged to spend time familiarizing themselves with the many features of the Bloomberg terminal, which provides an abundance of financial information on stocks, bonds, and mutual funds. This affords the employees leisure time to explore a wide array of information offered on the Bloomberg. Since employees are free to roam throughout the building, a very social atmosphere exists. Many of the younger employees socialize outside of work, playing together on softball teams and taking ski vacations. Understanding Organizing Think of an organization with which you are familiar, perhaps one you have worked for such as a store, restaurant, office, church, or school. Then answer the following questions. 1. Which contingencies are most important in explaining how the organization is organized? Do you think it is organized in the best way? A large university will be used as an example of an organization. The environment is important in explaining why a university is usually operated under a formal structure. Historically, universities have served the purpose of providing higher education, with adequate faculty and support staff. The environment was not subject to a high level of uncertainty, and resources were readily available. Most universities adopted the same strategy, perhaps differentiating some programs, but most were comparable in services and courses offered. Technology has emerged as a new standard, though computers are becoming increasingly prevalent in all aspects of teaching and administration. Human resources is less of a factor because the range is typically great, from professors, to custodial staff, to administrative staff. This formal, functional structure may not be the most appropriate for universities that hope to succeed in the coming years. Students are requiring more from schools, funding is scarce, and many schools need to learn to do more with less. A more flexible structure, at least in some departments, may help universities respond to the changing academic environment. 2. Using the job characteristics model, how motivating do you think the job of a typical employee in this organization is? Based upon the job characteristics model, the job of a professor should be extremely motivating since skill variety, task significance, task identity, autonomy and feedback are high. However, this may not be the case for a member of the universitys administrative staff, such a secretary of a department. Skill variety may be sufficient if the secretary feels that she uses a wide range of skills, abilities, and knowledge. However, task identity may be low, since there is little opportunity to complete a job from start to finish.

BUILDING MANAGEMENT SKILLS


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3. Can you think of any ways in which a typical job could be enlarged or enriched? A secretary of a department may have duties such as typing, answering the telephone, taking messages, accepting packages, and sending out information. Having the secretary provide input concerning what type of information the department sends out or asking her to contribute to the content of this information can increase task identity. Secretaries can often feel that they have task significance when faculty or other staff members thank them for completing a task and therefore show them that their work is important. 4. What kind of organizational structure does the organization use? If it is part of a chain, what kind of structure does the entire organization use? What other structures discussed in the chapter might allow the organization to operate more effectively? For example, would the move to a product team structure lead to greater efficiency or effectiveness? Why or why not? A university is usually composed of different schools, for example, arts and sciences, engineering, business, and so on. Within each school, there are usually deans and faculty, both senior and associate. Overall, the structure is functional in that departments are made up of people who possess similar skills or use the same kind of knowledge, tools, or techniques to perform their jobs. There are other structures in a university, also. The fact that universities are divided into graduate and undergraduate programs is indicative of a market structure, in that the schools are divided according to the type of student on which they focus. Some universities are also divided into more than one campus, which makes a geographic structure appropriate. This allows schools to focus on the area in which a school is, as is the case when there is an urban and a suburban campus. Students at each of the two schools often have unique needs and issues. A product structure would not lead to more organizational effectiveness in this context because all the divisions or schools in the university should be striving to deliver the same product, which is a quality education. In terms of type of degree, a university could be labeled a product structure in that each faculty member tends to specialize in one school, and they can become experts in their respective fields. 5. How many levels are there in the organizations hierarchy? Is authority centralized or decentralized? Describe the span of control of the top manager and of middle or first-line managers. There are many levels in a universitys hierarchy. The president of the university must report to a board of trustees, and deans of schools must report to both university president and the board. Senior faculty must report to the head of their department, and the heads of departments must report to deans of schools. Associate faculty need to report to senior faculty in their department, as well as the head of the department. Graduate students who work for the university must report to their advisors and department faculty. Authority tends to be centralized at the very top of each division, but becomes more decentralized as you move down the hierarchy. The president of the university cannot make all the decisions about which courses will be offered or which faculty will be hired, but some decisions about budget allocations and strategy are too monumental to be delegated to specific departments.


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The president has a large span of control, or many subordinates that he or she directly manages. The heads of departments, which can be viewed as middle managers, have large spans of control as well. A professor, which may be viewed as a first line manager, would have a small span of control, perhaps only over a few graduate students. 6. Is the distribution of authority appropriate for the organization and its activities? Would it be possible to flatten the hierarchy by decentralizing authority and empowering employees? The functional structure of a large university is appropriate because divisions like athletics, food service, maintenance and other operation divisions should be separate from the academic departments such as psychology, mathematics, education, and so forth. Authority is decentralized within each department so that the head of the department does not have to make day-to-day decisions, but is still informed of the activities that are being carried out. Within a very large university, sometimes the hierarchy is too formally structured in a way that makes it difficult to get things done. In some cases, a student may need the signature of a head of a department in order to add or drop a class. If the department head is very busy, it may be difficult for a student to fulfill this requirement, possibly causing him or her time and money. If authority was decentralized to faculty for this requirement, it would be easier for the student to fulfill it. Sometimes it is difficult to decentralize authority and empower employees in a situation where those with authority are unwilling to relinquish it to others. This can happen in a university as well as in any organization. Also, if departments or divisions are given too much decision making authority, there is the danger that they will begin to pursue their own goals at the expense of the universitys goals. An example might be a department who wants to concentrate heavily on research at the expense of teaching. This may not be in line with the strategy of the university primarily as a educational, rather than a research, institution. 7. What are the principal integrating mechanisms used in the organization? Do they provide sufficient coordination among individuals and functions? How might they be improved? Faculty and departmental meetings are held in which everyone meets to discuss relevant issues and to update one another on the status of their teaching and/or research activities. Different committees are also formed in which representatives of each division meet to address problems or issues that concern everyone. These committees serve as task forces within the academic system. These tools are used so that divisions can increase communication and coordination within themselves, and their departments. The existing integrating mechanisms may not be providing sufficient coordination between people and functions. These mechanisms could be improved by having cross-departmental meetings. In todays universities, many students are requesting inter-departmental learning. The boundaries between fields are becoming blurred, and students want to be able to take classes from and specialize in many different fields in order to be successful in their careers. Universities that continue to operate as if each department exists within a vacuum will find that students will look elsewhere for education that takes more of an integrative approach. The environment is changing in that students need to know more and have more diversified experiences. More direct contact with faculty from different divisions, and more cross-functional or cross-departmental teams or committees could promote communication and integration within the academic departments. In addition, liaisons from the real-world could be established in order to connect the academic setting with the realities of the working environment. Faculty could meet with these liaisons to establish internships and job opportunities.


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8. Now that you have analyzed the way this organization is structured, what advice would you give its managers to help them improve the way it operates? The advice that would be most helpful would be to be flexible. Certain functions need to remain separate, but departments and schools would do well to try to integrate more and become less strict with requirements to take certain classes in certain schools. Students should be allowed and encouraged to build their own curriculum so that they receive the relevant training that they need to succeed in todays world. The job opportunities that exist today require people who have many different skills and wide knowledge bases. The environment is very unstable in many industries, and employers are looking for students who possess initiative and creativity. Allowing for more flexibility within our education systems can promote this while providing quality education. Questions 1. What ethical rules (see Chapter 3) should managers use to decide which employees to terminate when redesigning their hierarchy? When redesigning the hierarchy requires downsizing, managers must be certain that the Justice Model guides their decision making. This model states that an ethical decision is one that is rendered in a fair, impartial, and equitable way and prohibits discrimination between people based on observable appearances or behaviors. Clearly, the strongest performers should be retained since they make the greatest contribution to the companys bottom line. Retaining employees based on factors unrelated to job performance, such as friendship or subservient behavior, undermines the organizations ability to compete effectively, thereby negatively impacting all stakeholders. 2. Some people argue that employees who have worked for an organization for many years have a claim on the organization at least as strong as that of its shareholders. What do you think of the ethics of this positioncan employees claim to own their jobs if they have contributed significantly to its past success? How does a socially responsible organization behave in this situation? The highest performers should be retained because they make the greatest contribution to the companys bottom line, not because their performance has provided them with ownership of their jobs. When downsizing long time employees whose job performance has been mediocre or marginal, the highly ethical and socially responsible organization might provide free job outplacement counseling, generous severance pay, or other services that will help the employee adjust to their new situation.

MANAGING ETHICALLY


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Bobs Appliances You are a team of local consultants that Bob has called in to advise him as he makes this crucial choice. Which structure do you recommend? Why? Since Bobs strategy is to widen his product range and compete directly with the chains, he needs to implement a structure that is more flexible than the functional structure that is currently in place. The current divisions of sales, purchasing and accounting, and repair will not adequately accommodate the new product line of consumer electronics. The best strategy would be to implement a product structure with separate functions for each of his two lines of business. A product structure would be the most appropriate because the consumer electronics business is much less predictable and stable than the appliances business. A product structure will give divisional managers (appliances and consumer electronics) the responsibility for devising the right business-level strategy to allow the two divisions to compete with the chain stores. This structure will also allow functional managers to specialize in only one product area, and each manager can become experts in their product industry. This structure also liberates Bob from direct responsibility for all day-to-day operations. In terms of customer service, a product structure will enable Bobs Appliances to retain their good reputation. Product divisional managers are closer to their customers and can respond more appropriately to the changing environment. Questions 1. Discuss ways in which you can improve how the current functional structure operates so that it speeds website development. Given the project-oriented nature of the firm, the matrix structure would work well. A product team structure with cross-functional roles would expedite the process of website development. 2. Discuss the pros and cons of moving to a (a) multidivisional, (b) matrix, or (c) product-team structure to reduce website development time. A multidivisional structure would help the company organize workers into smaller, more manageable units, which would presumably work faster. With a matrix structure, employees from different functional areas would learn from each other and become more skilled and productive. The product team structure would allow employees to work cross-functionally but would do away with the dual reporting relationship of the matrix structure, which can be problematic. 3. Which of these structures do you think is most appropriate, and why? The product team structure appears to be the best alternative. Because they report to two bosses, employees often find the matrix structure frustrating and confusing. A divisional structure does not lend itself to the companys project orientation.

SMALL GROUP BREAKOUT EXERCISE

BE THE MANAGER


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Case Synopsis: Larry Pages Google 3.0: The company cofounder and his star deputies are trying to root out bureaucracy and rediscover the nimble moves of youth. Googles weekly meeting, known as the Execute, was launched to get the near-sovereign leaders of Googles far-flung product groups into a single room and harmonize their disparate initiatives led by Sergey Brin and new CEO, Larry Page. The biggest criticism against the company is that its management is growing counterproductive. Since the creation of Gmail, all the other services of Google have not fared well among consumers. Andy Rubin, who oversees the Android division, is given unique leeway in managing his division. His Android platform has pulled off arguably the fastest land grab in tech history, jumping from also-ran to market leader with 26% of the smartphone market. This success has made Rubin a model inside Google for how executives can run units autonomously.Over the last few years, Google has lost many executives to rival companies. Page values strong, unique leaders who own their domains and have their own rigid agendas. The leaders of all the divisions should coordinate with each other. Can the leaders of various project teams integrate their plans while satisfying Larry Pages need for speed? At some point, Page may have to dispense with the philosophical discussions, put some limits on the open atmosphere of geeky experimentation, and make some tough decisions. Questions 1. How would you describe how Googles organizational structure has developed since its founding? Google had a matrix structure in which the employees had decentralized authority and could make important decisions about how to use their resources. The new CEO, Larry Page emphasized the importance of a product team structure, and formed cross-functional teams headed by a suitable manager. 2. What are some of the problems that Google has run into recently as a result of its organizational structure? The loosely organized structure was growing counterproductive. Other than the creation of Gmail, all the other services of Google have not fared well in among consumers. Over the past few years, Google has also seen many of its executives move to other companies. 3. In what ways do you think Larry Page needs to change Googles structure to make it work more effectively? Larry Page should ensure that the leaders of all the product groups must cooperate and coordinate with each other. The decision-making and implementation power should rest in the hands of the top management.

CASE IN THE NEWS


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\ Making Changes in New Orleans Most Troubled Schools When Paul Vallas arrived in New Orleans in July 2007 as the new public school superintendent, he had his work cut out for him. The citys schools had long been considered among the nations worst. The state had threatened for years to take control as test scores repeatedly showed poor performance. There had been frequent changes in administration leadership, with an average of a new superintendent every 18 months. When no one thought things could get worse, Katrina arrived in 2005 and devastated the citys educational infrastructure. Floodwaters damaged many of the districts 124 schools beyond repair. Records were lost. Families, teachers and students were displaced by the thousands, many never to return. Amid the devastation, still evident in many sections of New Orleans, was an opportunity to rebuild the schools from the ground up. From the moment Vallas took the superintendent job, he has been selling his vision of the future. We cannot afford anything less than excellence, he says. With a mandate to turn around the Recovery School District, which contains the citys worst schools, Vallas is planning a massive redesign of the districts high schools. The plan for Rabouin, the districts largest high school where historically only half of the seniors graduate, is to transform it into a school with a large international baccalaureate program. There, however, teachers have been too occupied with day-to-day concerns to think much about grand plans. For the first two months of the 2007-08 school year, scheduling problems left students in the wrong classes. Students wandered the hallways during class, with teachers yelling at them to go to their classrooms. One first-year teacher described it as a circus atmosphere and a tense environment, where morale was plummeting. Her question to the education official visiting in January to survey teachers morale was, Where have you been? Weve been suffering for months. Vallas replaced Rabouins principal with the schools assistant principal, a dynamic and strong leader who instills confidence in her ability. Teachers say the new principal has been much stricter in enforcing policies and backing up what she says with actiona refreshing and much needed change. More personnel changes may follow as all principals and teachers are evaluated. Vallas emphasizes that he will not parade principals in and out or get rid of lots of teachersonly those with high absenteeism, minimal effort, low expectations of students, and lack of results.

VIDEO CASE


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As part of the new campaign for excellence, all district schools start the day at 8 A.M. and go until 4:30 P.M. All eighth and ninth graders will be in school year-round. Vallas set up a school, Booker T. Washington, just for eighth graders unable to pass the mandatory state test required to move on to high school. With its population of over-age underachievers, Booker T. was plagued by behavioral problems that disrupted teachers and students who wanted to learn. This school in crisis needed a culture where learning could take place. Vallas hired Camelot, a private educational services provider, which placed personnel through the school to enforce rules and limit movement in hallways. Camelot employees first took an aggressive approach to restore order, then changed their tactic to get to know the students while enforcing discipline. Vallas knows it will take time to change Booker T.s culture for good and raise performance of students who have demonstrated underperformance for years. While he is patient at Booker T., as in all the district schools, he expects results. Questions 1. How would you rate teaching according to the five characteristics that determine how motivating a job is? What does the Rabouin High School situation show about the effect those in authority have on motivation and morale? 2. What types of organizational structures does the New Orleans Recovery School District illustrate? How do these structures impact the schools? 3.Does establishing organizational culture in a school present any different challenges than establishing culture in a business? Sources: Dana Gonzalez, STEM Progress in Katrinas Wake, Tech Directions, March 2008, pp. 23-27; Coleman Warner, The Katrina Kids, Planning, January 2008, pp. 22-28; Tom Bethell, Cross Country: Big Easy, Bigger Test, Wall Street Journal, June 9, 2007, p. A8. Chapter 7 Video Case ANSWERS Making Changes in New Orleans Most Troubled Schools Teaching Objective: To look at job motivation, organizational structure, and culture at a special type of organization, the public school Summary: New Orleans public schools had a history of subpar performance when they were devastated by the hurricane and its aftermath. The destruction of the citys educational infrastructure brought a chance for rebuilding. Superintendent Paul Vallas is trying to seize that chance with ambitious plans for the districts high schools. To build a culture of excellence, plans include changes in leadership, personnel performance evaluations, a longer school day, increased discipline, rigorous academic standards, and even specialty schools for at-risk students.


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uestions: 1. How would you rate teaching according to the five characteristics that determine how motivating a job is? What does the Rabouin High School situation show about the effect those in authority have on motivation and morale? Teaching would rate high in all five characteristics: skill variety, task identity, task significance, autonomy, and feedback. A principal who does not enforce rules or policies, support teachers, and solve problems like scheduling of classes has devastating effects on teacher morale. As the first-year science teacher at Rabouin High School says, teachers there suffered for months. It was a refreshing change and a moral boost when the new principal proved that she meant what she said. 2. What types of organizational structures does the New Orleans Recovery School District illustrate? How do these structures impact the schools? Like most school districts, the Recovery School District uses geographic structure and market structure. Besides old problems of poor performance and inefficient management, the schools face unique, severe problems because of their locationan area devastated by the hurricane and subsequent flooding. Establishing Booker T. Washington as a school serving only over-age, underachieving students is an example of market structure. That population presents many instructional and disciplinary challenges. 3. Does establishing organizational culture in a school present any different challenges than establishing culture in other types of organizations? Besides management, faculty, and other staff members, schools have an additional group to share in the organizational culturestudents. Unlike customers or clients of other organizations, students directly affect a high schools culture, since their performancemeasured in tests, graduation rates, and extracurricular activitiesis used to measure teacher and administration performance.

check page 28 case study larry pages google 3.0

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