Organization Structure 3-Organization Theory and Design-Handouts, Lecture notes for Organization Theory and Design. Amity Business School
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alaknanda7 August 2012

Organization Structure 3-Organization Theory and Design-Handouts, Lecture notes for Organization Theory and Design. Amity Business School

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Organization Theory and Design - MGT504 VU

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Lecture 10 ORGANIZATION STRUCTURE (contd.)

HORIZONTAL STRUCTURE The most recent approach to organizing is the horizontal structure, which organizes employees around core processes. All the people who work on a particular process are brought together so that they can easily communicate and coordinate their efforts and provide value directly to customers. The horizontal structure virtually eliminates both the vertical hierarchy and old departmental boundaries. Many of today’s organizations are striving to reduce boundaries both within the organization and with other companies. The horizontal structure is largely a response to the profound changes that have occurred in the workplace and the Business environment over the past fifteen to twenty years: Technological process emphasizes computer-based integration and coordination. Customers except faster and better service and employees want opportunities to use their minds, learn new skills, and assume greater responsibility. Organizations mired in a vertical mindset have a hard time meeting these challenges. Thus, numerous organizations have experimented with horizontal mechanisms such as cross-functional teams to achieve coordination across departments or task forces to accomplish temporary projects. Increasingly, organizations are shifting away from hierarchical, function-based structures to structures based on horizontal processes. Characteristics • A horizontal structure has the following characteristics: • Structure is created around cross-functional core processes rather than tasks, functions, or geography. Thus, boundaries between departments are obliterated. Ford Motor Company’s Customer Service Divisions. For example, has core process groups for business development, parts supply and logistics, which service and programs, and technical support. • Self Directed teams, not individuals, are the basis of organizational design and performance. • Process owners have responsibility for each core process in its entirety, for Ford’s parts supply and logistics process, for example, a number of teams may work on jobs such as parts analysis, purchasing, material flow, and distribution, but a process owner is responsible for coordinating the entire process. People on the team are given the sills, tools motivation, and authority to make decisions central to the team’s performance. Team members are cross-trained to perform one another’s jobs, and the combined skills are sufficient to complete a major organizational task. • Teams have the freedom to think creatively and respond flexibly to new challenges that arise. • Customer drive the horizontal corporation, effectiveness is measured by end-of –process performance objectives (based on the goal of bringing value to the customers, as well as customer satisfaction, employee satisfaction, and financial contribution. • The culture is one of openness, trust, and collaboration, focused on continuous improvement. The culture values employee empowerment, responsibility, and well being. Experimentation with teams and horizontal organizing often begins at lower levels of the organization. Today, however a few companies are structuring practically the entire organization horizontally, with perhaps only a few senior executives in traditional support functions such as human resources or fiancé. Xerox, for example, still maintains some elements of a vertical design, but below the level of executive vice president, the entire organization is structured horizontally. Strengths and Weaknesses Although Xerox has achieved impressive results with a horizontal structure, as with al structures, it has weaknesses as well as strengths. The strengths and weaknesses of the horizontal structure are listed below. The most significant strength of the horizontal structure is that it can dramatically increase the company’s flexibility and response to changes in customer needs because of the enhance coordination. The structure directs everyone’s attention towards the customer, which leads to greater customer satisfaction as well as improvements in productivity, speed, and efficiency. In additional, because there are no boundaries between functional departments, employees take as broader view of organizational goals rather than being focused on the goals of a single department. The horizontal structure promotes an emphasis on teamwork and cooperation, such that team members share a commitment to meeting common objectives. Finally, the horizontal structure can improve the quality of life for employees by giving those opportunities to share responsibility, make decisions, and contribute significantly to the organization. docsity.com

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A weakness of the horizontal structure is that it can harm rather than help organizational performance unless managers carefully determine which core processes are critical for bringing value to customers. Simply defining the processes around which to organize can be difficult and time consuming. AT&T’s Network Systems Division eventually counted 130 processes, then began working to pare them down to fewer than 15 core ones. In addition, shifting to a horizontal structure is time consuming because it requires significant changes in culture, job design, management philosophy, and information and reward systems. Traditional managers may balk when they have to give up power and authority to serve instead as coaches and facilitators of teams. Employees have to be trained to work effectively in a team environment. Finally, because of the cross-functional nature of work, a horizontal structure can limit in depth knowledge a skill development unless measures are taken to give employees opportunities to maintain and build technical expertise can limit in depth skill development. HYBRID STRUCTURE As a practical mater, many structures in the real work do not exist in the pure forms we have outlined in this discussion, particularly in today’s complex business environment; organizations often use a hybrid structure that combines characteristics of various approaches tailored to specific strategic needs. Most companies combine characteristics of functional, divisional, geographical, or horizontal structures to take advantage of the strengths of various structures and to avoid some of the weaknesses. Hybrid structures tend to be used in rapidly changing environments because they offer the organization greater flexibility. One type of hybrid that is often used is to combine characteristics of the functional and divisional structures. When a corporation grows large and has several products or markets. It typically is organized into self – contained divisions of some type. Functions that are important to each product or market are decentralized to the self – contained units. However, some functions that are relatively stable and require economies of scale and in –depth specialization are also centralized at headquarters. Sun Petroleum Products (SPPC) reorganized to a hybrid structure to be more responsive to changing markets. The new hybrid organization structure adopted by SPPC has three major product divisions – fuels, lubricants, and chemicals – were created each serving a different market and requiring a different strategy and management style, each product line vice president is now in charge of all functions for that product, such as marketing, planning, supply and distribution, and manufacturing. However, activities such as human resources, legal, technology, and fiancé were centralized as functional departments at headquarters in order to achieve economies of scale. Each of these departments provides services for the entire organization. A second hybrid approach that is increasingly used today is to combine characteristics of functional and horizontal structures. For d Motor Company’s customer Service Division, a global operations made up of 12000 employees serving nearly 15000 dealers, provides an example of this type of hybrid. Beginning in 1995, when Ford launched its “Ford 2000” initiative to become the world’s leading automotive firm in the twenty – first century, top executives grew increasingly concerned about complaints regarding customer service. They decided that the horizontal model offered the best chance to gain a faster, more efficient, integrated approach to customer service. Several horizontally aligned groups, make up of multi skilled teams, focus on core processes such as parts supply and logistics ( acquiring parts and getting them to dealers quickly and efficiently), vehicles service and programs ( collecting and disseminating information about repair problems), and technical support ( ensuring that every service department

Strengths and Weakness of Horizontal Structure Strengths:

1. Promotes flexibility and rapid response to changes in customer needs. 2. Directs the attention of everyone toward the production and delivery of value to the

customer 3. Each employee has broader view of organizational goals. 4. Promotes a focus on teamwork and collaboration 5. Improve quality of life for employees by offering them the opportunity to share

responsibility, make decision and be accountable for outcomes. Weaknesses:

1. Determining core processes is difficult and time consuming 2. Requires changes in culture. Job design, management philosophy, and information

and reward systems. 3. Traditional managers may balk when they have to give up power and authority 4. Requires significant training of employees to work effectively in a horizontal team

environment.

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receives updated technical information). Each group has a process owner who is responsible for seeing that the teams meet overall objectives. Ford’s Customer Service Divisions retained a functional structure for finance, strategy and communication, and human resources departments. Each of these departments provides services for the entire division. In a huge organization such as Ford, Managers may use a variety of structural characteristics to meet the needs of the total organization. A hybrid structure is often preferred over the pure functional, divisional, or horizontal structure because it can provide some of the advantages of each and overcome some of the disadvantages. APPLICATION S OF STRUCTURAL DESIGN Each type of structure is applied in different situations and meets different needs. In describing the various structures, we touched briefly on conditions such as environmental stability or change and organizational size that are related to structure. Each form of structure – functional, divisional, matrix, horizontal, and hybrid – represents a tool that can help managers make an organization more effective, depending on the demands of its situation. STRUCTURAL CONTINGENCIES Recall the idea of “contingencies” from earlier discussions and that managers design the organization to fit the contingency factors. Structure is influenced by environment, strategy and goals, culture, technology, and size. Of these contextual variables, the connection between competitive strategy and structure is of particular interest and has been widely studied. Structure typically reflects organizational strategy, and a change in product or market strategy frequently leads to a change in structure. Strategy and goals were discussed in detail in earlier. Once a company formulates a strategy by which it plans to achieve a competitive advantage in the marketplace, leaders design or redesign the structure to coordinate organizational activities to best achieve that advantage. As discussed earlier, Xerox shifted to a horizontal structure after CEO Paul Allaire and other top executives developed a new strategic direction that required flexibility and close horizontal coordination. STRUCTURAL ALIGNMENT Ultimately, the most important decision that managers make about structural design is to find the right balance between vertical control and horizontal coordination, depending on the needs of the organization. Vertical control is associated with goals of efficiency and stability, while horizontal coordination is associated with learning, innovation, and flexibility. The functional structure uses task specialization and a strict chain of command to gain efficient use of scarce resources, but is does not enable the organization to be flexible or innovative. At the opposite end of scale, the horizontal structure is appropriate when the organization has a high need for coordination among functions to achieve innovative. At the opposite end of the scale, the horizontal structure is appropriate when the organization has a high need for coordination among functions to achieve innovation and promote learning. The horizontal structure enables organizations to differentiate themselves and respond quickly to changes, but at the expense of efficient resource use. SYMPTOMS OF STRUCTURAL DEFICIENCY Top executives periodically evaluate organization structure to determine whether it is appropriate to changing organization needs. Many organizations try one organization structure, and then reorganize to another structure in an effort to find the right fit between internal reporting relationships and the needs of the external environment. Compaq Computer Corporation, for example, switched from a functional structure to a divisional structure for about a year to develop new products and then switched back to a functional structure to reduce competition among its product lines. As a general rule, when organization structure is out of alignment with organization needs, one or more of the following symptoms of structural deficiency appear. Decision making is delayed or lacking in quality. Decision makers may be overloaded because the hierarchy funnels too many problems and decisions to them. Delegation to lower levels may be insufficient. Another cause of poor quality decisions is that information may not reach the correct people. Information linkages in either the vertical or horizontal direction may be inadequate to ensure decision quality. The organization does not respond innovatively to a changing environment. One reason for lack of innovation is that departments are not coordinated horizontally. The identification of customer needs by the marketing department and the identification of technological development in the research department must be coordinated. Organization structure also has to specify departmental responsibilities that include environmental scanning and innovation. docsity.com

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Too much conflict is evident. Organization structure should allow conflicting departmental goals to combine into a single set of goals for the entire organization. When departments act at cross purposes or are under pressure to achieve departmental goals at the expense of organizational goals, the structure is often at fault – horizontal linkage mechanisms are not adequate. Organization structure must accomplish two things for the organization. It must provide a framework of responsibilities, reporting relationships, and groupings and it must provide mechanisms for linking and coordinating organizational elements into a coherent whole. The structure is reflected on the organization chart linking the organization into a coherent whole requires the use of information systems and linkage devices in addition to the organization chart. It is important to understand the information – processing perspective on structure. Organization structure can be designed to provide vertical and horizontal information linkages based on the information processing required meeting the organization’s overall goal. Managers can choose whether to orient toward a traditional organization designed for efficiency, which emphasize vertical linkages such as hierarchy, rules and plans, and formal information systems, to toward a contemporary learning organizations, which emphasizes horizontal communication and coordination. Vertical linkages are not sufficient for most organizations today. Organizations provide horizontal linkages through cross functional information systems, direct contact between managers across department lines, temporary task forces, full time integrators, and teams. Alternatives for grouping employees and departments into overall structural design include functional grouping, divisional grouping, and multi focused grouping, and horizontal grouping. The choice among functional, divisional, and horizontal structures determines where coordination and integration will be greatest. With functional and divisional structures, managers also use horizontal linkage mechanism to complement the vertical dimension and achieve integration of departments and level into an organizational whole. With a horizontal structure, activities are organized horizontally around core work processes. The matrix structure attempts to achieve an equal balance between the vertical and horizontal dimensions of structure. Most organizations do not exit in these pure forms, using instead a hybrid structure that incorporates characteristics of two or more types of structure. Ultimately, managers attempt to find the correct balance between vertical control and horizontal coordination. Finally an organization chart is only so many lines and boxes on a piece of paper. A new organization structure will not necessary solve an organization’s problems. The organization chat simply reflects what people should do and what their responsibilities are. The purpose of the organization chart is to encourage and direct employees into activities and communications that enable the organization to achieve its goals. The organization chart provides the structure, but employees provide the behavior, the chart is a guideline to encourage people to work together, but management must implement the structure and carry it out.

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