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

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

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Carnegie model, conflict power, ethics, decision making, information technology, manufacturing technology, organization system, strategy and external environment are main topics of this course. This lectures main points ...
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Organization Theory and Design - MGT504 VU

© Copyright Virtual University of Pakistan 22

Lecture 8 ORGANIZATION STRUCTURE

The three key components in the definition of organization structure are: 1. Organization structure designates formal reporting relationships, including the number of levels in the hierarchy and the span of control of managers and supervisors. 2. Organization structure identifies the grouping together of individuals into departments and of departments into the total organization. 3. Organization structure includes the design of systems to ensure effective communication, coordination, and integration of effort across departments. These three elements of structure pertain to both vertical and horizontal aspects of organizing. For example, the first two elements are the structural framework, which is the vertical hierarchy. The third element pertains to the pattern of interactions among organizational employees. An ideal structure encourages employees to provide horizontal information and coordination where and when it is needed. Organization structure is reflected in the organization chart, it isn’t possible to “see” the internal structure of an organization the way w might see its manufacturing tools, offices, or products. Although we might see employees going about their duties, performing different tasks, and working in different locations, the only way to actually see the structure underlying all this activity is through the organization chart. The organization chart is the visual representation of a whole set of underlying activities and processes in an organization. Exhibit 3.1 shows a sample organization chart. The organization chart can be quite useful in understanding how a company works. It shows the various parts of an organization, how they are interrelated, and how each position and departments fits into the whole. The concept of an organization chart, showing what positions exist, how they are grouped, and who reports to whom, has been around for centuries. For example, diagrams outlining church hierarchy can be found in medieval churches in Spain. However, the use of the organization chart for business stems largely from the industrial Revolution. As we discussed earlier as work grew more complex and was performed by greater and greater numbers of workers, there was a pressing need to develop ways of managing and controlling organizations. The growth of the railroads provides an example. After the collision of two passenger trains in Massachusetts in 1841, the public demanded better control of the operation. As a result, the board of directors of the Western Railroad took steps to outline “definite responsibilities for each phase of the company’s business, drawing solid lines of authority and command for the railroad’s administration, maintenance, and operation. The type of organization structure that grew out of these efforts in the late nineteenth and early twentieth centuries was one in which the CEO was placed at the top and everyone else was arranged in layers down below. The thinking and decision making is done by those at the top, and the physical work is performed by employees who are organized into distinct, functional departments. This structure was quite effective and became entrenched in the business world for most of the twentieth century. However, this type of vertical structure is not always effective, particularly in rapidly changing environments. Over the years, organization have developed other structural designs, many of them aimed at increasing horizontal coordination and communication and encouraging adaptation to external changes. INFORMATION – PROCESSING PERSPECTIVE ON STRUCTURE The organization should be designed to provide both vertical and horizontal information flow as necessary to accomplish the organization’s overall goals. If the structure doesn’t fit the information requirements of the organization, people will have either too little information or will spend time processing information that is not vital to their tasks, thus reducing effectiveness. However there is an inherent tension between vertical and horizontal mechanisms in an organization. Whereas vertical linkages are designed primarily for control, horizontal linkages are deigned for coordination and collaboration, which usually means reducing control. Organizations can choose whether to orient toward a traditional organization designed for efficiency, which emphasizes vertical communication and control, or toward a contemporary learning organization, which emphasizes horizontal communication and coordination. An emphasis on efficiency and control is associated with specialized tasks, hierarchy of authority, rules and regulations, for mal reporting systems, few teams or task forces, and centralized decision making. Emphasis on learning is associated with shared tasks, relaxed hierarchy and few rules, face to face communication, many teams and task forces, and informal, decentralized decision making. All docsity.com

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organizations need a mix of vertical and horizontal linkages. Managers have to find the right balance to fit the organization’s needs. VERTICAL INFORMATION LINKAGES Organization design should facilitate the communication among employees and departments that is necessary to accomplish the organization’s overall task. Linkage is defined as the extent of communication and coordination among organizational elements. Vertical linkages are used to coordinate activities between the top and bottom of an organization and are designed primarily for control of the organization. Employees at lower levels should carry out activities consistent with top-level goals, and top executives must be informed of activities and accomplishments at the lower levels. Organizations may use any of a variety of structural devices to achieve vertical linkage, including hierarchical referral, rules, plans, and formal management information systems. Hierarchical Referral: The first vertical device is the hierarchy, or chain of command, if a problem arises that employees don’t know how to solve, it can be referred up to the next level in the hierarchy. When the problem is solved, the answer is passed back down to lower levels. The lines of the organization chart act as communication channels. Rules and plans: The next linkage device is the use of rules and plans. To the extent that problems and decisions are repetitious, a rule or procedure can bb established to employees know how to respond without communicating directly with their manger. Rules provide a standard information source enabling employees to be coordinated without actually communicating about every job. A plan also provides standing information for employees. The most widely used plan is the budget. With carefully designed budget plans, employees at lower levels can be left on their own to perform activities within their resource allotment. Vertical information systems: Vertical information systems are another strategy for increasing vertical information capacity. Vertical information systems include the periodic reports, written information, and computer- based communications distributed to managers. Information systems make communication up and down the hierarchy more efficient. Cisco Systems has turned vertical information systems into a competitive advantage by using the internet in virtually every aspect of its operations. Larry Carter, Cisco’s CFO, can call up the company’s revenues, profit margins and order information from the previous day with just a few mouse clicks. Financial data that once took weeks to gather are collected and organized automatically. Managers may use a variety of these mechanisms to provide vertical linkage and control. The other major issue in organizing is horizontal linkages for coordination and collaboration. HORIZONTAL INFORMATION LINKAGES Horizontal communication overcomes barriers between departments and provides opportunities for coordination among employees to achieve unity of effort and organizational objectives. Horizontal linkage refers to the amount of communication and coordination horizontally across organizational departments. Its importance was discovered by Lee Iacocca when he took over Chrysler Corporation. What I found a Chrysler were thirty-five vice presidents, each with his own turf… I couldn’t believe, for example, that the guy running engineering departments wasn’t in constant touch with his counterpart in manufacturing. Butt that’s how it was. Everyone worked independently I took one look at that system and I almost threw up. That’s when I knew I was in really deep trouble. Nobody at Chrysler seemed to understand that interaction among the different functions in a company is absolutely critical. People in engineering and manufacturing almost have to be sleeping together. These guys weren’t even flirting. During his tenure at Chrysler (now Daimler Chrysler), Iacocca pushed horizontal coordination to a high level. Everyone working on a specific vehicle project – designers, engineers, and manufactures, as well as representatives from marketing, finance, purchasing, and even outside suppliers – worked together on a single floor so they could constantly communicate. Ford and General Motors have also enhanced horizontal communication and coordination through mechanisms such as teams, task forces, and information systems. Horizontal linkage mechanisms often are not drawn on the organization chart, but nevertheless are part of organization structure. The following devices are structural alternatives that can improve horizontal coordination and information flow. Each device enables people to exchange information. docsity.com

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Information Systems: A significant method of providing horizontal linkage in today’s organizations is the use of cross-functional information systems. Computerized information systems can enable managers or front – line workers throughout the organization to routinely exchange information about problems, opportunities, activities, or decision. For example, at ford, every car and truck model has its own internal we site to track design, production, quality control, and delivery processes. Ford’s product – development system is updated hourly, enabling engineers, designers, suppliers, and other employees around the world to work from the same data, keeping the process moving and saving time and money. Direct Contact: A higher level of horizontal linkage is direct contact between manages or employees affected by problem. One way to promote direct contact is to create a special liaison role. A liaison person is located in one department but has the responsibility for communicating and achieving coordination with another department. Liaison roles often exist between engineering and manufacturing departments because engineering has to develop and test products to fit the limitations of manufacturing facilities. Monsanto Co. found another way to use direct contact. To get the R & D and commercial staffs working together, Monsanto pairs a scientist with a marketing or financial specialist as co-managers. For example, Frederick Perlak, a noted geneticist, and Kevin Holloway, with a background in marketing and human resources, oversee the global cotton team as co- directors. They work in adjoining cubicles, share a secretary, spend hours talking with one another, and together make all the key decisions about Monsanto’s global cotton business. Monsanto hopes this unique mechanism, known internally as two in the box, will help transform the company from a conglomerate into a life- sciences powerhouse. Task forces: Direct contact and liaison roles usually link only two departments, when linkage involves several departments, a more complex device such as a task force is required. A task force is a temporary committee composed of representatives from each department affected by a problem. Each member represents the interest of a department and can carry information from the meeting back to that department. Task forces are an effective horizontal linkage device for temporary issues. They solve problems by direct horizontal coordination and reduce the information load on the vertical hierarchy. Typically, they are disbanded after are disbanded after their tasks are accomplished. Commercial Casework, a $ 10 million woodworking and cabinetry shop in Fremont, California, used a task force to research and design the company’s bonus plan. The U.S Department of Defense set up a task force to reengineer its cumbersome travel system and make it cheaper, more efficient and more customers friendly. The task force reduced the steps in the pretravel process from thirteen to only four. Another task force brought together employees from various functional departments to tackle the issue of how to simplify the Defense department’s travel regulations. Within three months, 230 pages of regulations had been reduced to a 16 – page pamphlet. Full – time integrator: A stronger horizontal linkage device is to create a full time position or department solely for the purpose of coordination. A full – time integrator frequently has as title, such as product manger, project manager, program manager, or brand manager. Unlike the liaison person described earlier, the integrator does not report to one of the functional departments being coordinated. He or she is located outside the departments and has the responsibility for coordinating several departments. The brand manger for planter’s peanuts, for example, coordinates the sales, distribution and advertising for that product. General Motors set up brand managers who are responsible for marketing and sales strategies for each of GM’s new models. The integrator can also be responsible for an innovation or change project, such as developing the design, financing, and marketing of a new product. An organization chart that illustrates the location of project managers for new product development is shown in Exhibit 3.3. The project managers are drawn to the side to indicate their separation from other departments. The arrows indicate project members assigned to the new product development. New product a, for example, has a financial accountant assigned to keep track of costs and budgets. The engineering member provides design advice, and purchasing and manufacturing members represent their areas. The project manager is responsible for the entire project. He or she sees that the new product is completed on time, is introduced to the market, and achieves other project goals. The horizontal lines in Exhibit 3.3 indicate that project managers do not have formal authority over team members with respect to giving pay raises, hiring, or firing, Formal authority rests with the managers of the functional departments, who have formal authority over subordinates. docsity.com

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Integrators need excellent people skills. Integrators in most companies have a lot of responsibility but little authority. The integrator has to use expertise and persuasion to achieve coordination. He or she spans the boundary between departments and must be able to get people together, maintain their trust, confront problems, and resolve conflicts and disputes in the interest of the organization. American standard companies dramatically improved the efficiency and effectiveness of its chinaware division, which makes toilets and bidets, with the use of full-time integrators. Teams: Project teams tend to be the strongest horizontal linkage mechanism teams are permanent taskforces and are often used in conjunction with a full time integrator. When activities among departments require strong coordination over a long period of time, a cross – functional team is often the solution. Special project teams may used when organizations have a large – scale project, a major innovation, or a new product line. Boeing used around 250 teams to design and manufacture the 777 aircraft. Some teams were created around sections of the plane, such as the wing, cockpit, or engines, while others were developed to serve specific customers, such as United Airlines or British Airways. Boeing’s teams had to be tightly integrated and coordination to accomplish this massive project. Even the U.S Department of the Navy has discovered the power of cross – functional teams to improve horizontal coordination and increase productivity. The Rodney Hunt Company develops, manufactures, and markets heavy industrial equipment and uses teams to coordinate each product line across the manufacturing, engineering, and marketing departments. Members from each team meet the first thing each day as needed to resolve problems concerning customer needs, backlogs, engineering changes, scheduling conflicts, and any other problem with the product line. These devices represent alternatives that managers can select to increase horizontal coordination in any organization. The higher- level devices provide more horizontal information capacity, although the cost to the organization in terms of time and human resources is greater. If horizontal communication is insufficient, departments will find themselves out of synchronization and will not contribute to the overall goals of the organization. When the amount horizontal coordination required is high, managers should select higher –level mechanisms.

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