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Transcript of Organizatinal Change
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Managing Change in an Organization
Abstract
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Firms using dynamic networks use a small amount of capital to fund growth
allowing them to grow rapidly. They usually have a small staff. They subcontract
work and outsource noncore functions. They hire superior talent, avoid idle
capacity, and reduce inventory allowing them great flexibility. Dynamic networks
have vertical disaggregation, brokers, market mechanisms, and full-disclosure
information systems. Firms that function in a global environment have special
challenges and environmental pressures. They must respond to local laws and
customs, and conditions in their host country. Firms structure their division of labor
through horizontal differentiation, vertical differentiation, personal differentiation,
and special differentiation depending on the type of firm. Firms are decentralizing
responsibility for decision making to more people in the firm allowing for increasing
autonomy.
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Characteristics of Dynamic Networks
Dynamic networks (modular organizations) combine a variety of subcontractors
into a working organization. Modular organizations have a small staff that develops
strategy, subcontracts work and outsources noncore functions, and monitors the
interface with various subcontractors allowing managers to decrease overall costs
and speed the development of new products. This allows the company to hire
superior talent to perform certain functions, avoid idle capacity, reduce inventory
costs, and avoid becoming committed to a technology that becomes obsolete.
These companies can grow rapidly since they use a small amount of capital to feed
rapid growth. For example, a core firm may sell computers, but contract out design,
manufacturing, sales, and distribution. The firm can add or subtract subcontractors
as needed. This allows great flexibility for the firm. The modular structure meets
the need for innovation and efficiency since subcontractors pursue different
strategies, yet complement each other as part of the network (Gordon, 2002, pg.
414).
The dynamic network takes different forms. Individual firms join in partnerships
to work in international projects. High-tech firms strategically collaborate with each
other to form network organizations. General contractors and subcontractors in the
construction business form a stable and continuous network over time. Dynamic
networks have four characteristics. They have vertical disaggregation in which
independent organizations within the network perform the business functions. It is
used in product design, marketing, manufacturing, and other functions. They have
brokers that assemble the business groups by subcontracting for required services,
creating linkages among partners, or locating such functions as design, supply,
production, and distribution. They have market mechanisms such as contracts or
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payments for results, rather than plans, controls, or supervision, hold the functions
together. In addition, there is full disclosure information systems link the various
network components. A modular structure also can exist inside an organization.
The company creates entrepreneurial and market components, such as distribution,
information technology, or research and development that operate as separate
divisions or profit centers with bottom-line responsibility (Gordon, 2002, pg. 414).
Horizontal organization focuses on core processes, emphasizes on empowering
workers by reducing the management hierarchy, and encourages employees to
focus on customer requirements and satisfaction. It includes cross-functional teams
that manage and run processes. Horizontal structures organizes work around key
processes instead of tasks, flattens the hierarchy by empowering workers and
eliminating non-value-added work, uses teams to manage everything, and lets
customers satisfaction drive performance. It uses information technology to reach
performance objectives and deliver value to customers. Process owners take
responsibility for an entire core process. It rewards workers for their team-related
performance and maximizes contact with suppliers and customers (Gordon, 2002,
pp. 410-411).
Lattice Organizations emphasizes teamwork and employee empowerment that
results in structures that reduce or eliminate organizational hierarchy. It can
eliminate assigned or assumed authority. Sponsors rather than bosses work with
associates instead of employees. This structure emphasizes strong interpersonal
communication. Individuals responsible for accomplishing various objectives are
tasked with setting the objectives (Gordon, 2002, pp. 411-412).
Some firms unite and form alliances to pursue a set of agreed-upon goals.
Rather than acquiring and developing their own resources, some organizations find
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it faster and cheaper to form alliances with another organization. They share control
over the performance of assigned tasks and make continuing contributions to the
alliance. The linkages between organizations in alliances strengthen companies by
bringing additional resources to solving organizational problems and competing in
the marketplace. Strategic alliances also create opportunities for learning from a
partner. Successful alliances view partnership as an opportunity, attach importance
to the results of the collaborative efforts, demonstrate a reasonable level of trust,
and demonstrate a willingness to learn from each other. It creates shared goals and
realistic expectations, uses conflict productively, redesigns and creates integrated
systems, and believes in honest communication. In addition, these alliances have
committed leadership; plan and budget jointly, have congruent measurement and
reward systems, and provide necessary resources (Gordon, 2002, pp. 412-413).
The virtual organization is a network of independent suppliers, customers, and
even competitors, tied together by computer technology. The Internet and
information technology allows them to share skills, costs, access to markets, and
supports the development of this structure. Once the network achieves its
objectives, it may dissolve. Each organization participating in the network
contributes only its core competencies. Companies frequently regroup which into
new virtual corporations which creates flexibility to seize new opportunities. These
organizations usually have flat structures in which information and decision making
move horizontally. Electronic communication supports multidisciplinary work
arrangements that link people across formal organizational boundaries. Virtual
organizations may be temporary, and firms may participate in multiple alliances
simultaneously. In virtual corporations, computer networks link companies,
entrepreneurs, and partnerships. Each partner brings its core competencies
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allowing the creation of a best-of-everything organization. Partnerships are more
opportunistic, less permanent, and less formal. Since members rely on each other
to achieve their goals, there must be a level of trust. The virtual corporation
redefines the traditional boundaries of a company. Increased cooperation among
competitors, suppliers, and customers makes it difficult to determine companys
borders. Virtual organizations can exist within a single company. They have of a
pool of employees from whose expertise various business units can draw which
allows all parts of the organization access to a broader pool of talent and enables
information technology staff to work on a broader array of projects and problems
(Gordon, 2002, pg. 416).
Differences between Global Management and Multinational Management
Increasingly, companies function in a global environment, with special
challenges. Managers in high-performance companies structure their organizations
to increase effectiveness of their interactions with the environment. Many of these
firms are moving to a decentralized structure that allows managers to respond
more quickly and effectively to customer requirements. Organizations that
function in the global environment face special environmental pressures. They
must respond to local laws and customers, as well as to those of their home
country. Multinational companies typically choose the extent to which they create
special local structures that respond to conditions in their host countries (Gordon,
2002, pp. 432-449).
There are many challenges in the global environment such as the rapidly
changing environment, the constant development, and availability of new
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technology, and the increased number of knowledge workers in the labor force.
Firms that start and develop as part of the dot-com companies face many
challenges in structuring themselves so that they are responsive to the changing
environment. Companies in this environment tend to implement organic structures,
such as horizontal organizations, network structures, and even virtual corporations.
Frequent reinvention and restructuring occurs as these companies respond to new
product launches, increased competition, and a general environment. These firms
combine mechanistic structures and organic structures to create a hybrid firm as
they become more established. There may be variations in laws and regulations
that require special support staff in various countries to ensure compliance.
However, with the elimination of economic boarders between countries and
comparable consumer demands, global structures have emerged thus eliminated
the need to differentiate horizontally into regional divisions or product subsidiaries.
With the Internet and communication technologies of today, coordination across
long distances is simple and effortless (Gordon, 2002, pg. 449).
Managers of multinational organizations create structures and management
strategies that respond to their needs. Firms with similar products in different
regional markets such as oil companies, use a global management style. These
firms compete worldwide by creating few or no distinctions between markets and
developing global economies of scale in manufacturing, distribution, and sales.
Firms in the electronic industry or consumer products industry such as the food
industry, use a multinational management style. These firms design marketing,
sales, and products to meet specific country or regional requirements.
Pharmaceutical firms use an international management style that falls between
global and multinational management. These firms sell similar products in all
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countries but tailor them to meet local requirements. A transnational management
style combines elements of each of these approaches. This style adds elements
from the other styles to meet special market needs, a changing environment, or
cost-reduction pressures (Gordon, 2002, pp. 449-450).
Some firms represent a new breed of multinational companies. They outsource
part of the manufacturing and distribution process to other countries and focus on
their core competencies.
Companies that form international alliances need to add a cultural dimension to
their normal financial, legal, and strategic planning. There are eight stages in
developing a culturally responsive alliance: (1) create cultural profiles of each
partner, (2) compare profiles and identify incompatibilities, (3) develop a joint
business purpose, (4) identify the desired degree of operational independence, (5)
carefully choose the legal structure for the alliance, (6) agree to the management
systems for the alliance, (7) staff the alliance, and (8) assess the alliances demands
on its parent company cultures and change practices as needed. To increase the
likelihood that the international alliance will succeed, companies identify and
address cultural incompatibilities. The firm can create a shared vision and smooth
its development and operation by involving managers and employees in the
alliance. Some companies have moved from high-cost U.S. and European sites to
locations in developing countries (Gordon, 2002, pp. 450-451).
Multinational firms are organizations that function in numerous countries. They
must deal with the unique characteristics of numerous cultures and countries,
experiences even greater environmental complexity. They have employees with
different cultural backgrounds, experiences, values, and education. A companys
employees within a given country may come from both the home country and the
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host country. Reconciling differences in employees perspectives, as well as taking
advantage of their different views, is challenging when designing organizations.
Establishing structures that allow for the fluid exchange of employees at various
sites across the world is important. Many companies have shifted work outside the
United States to locations with lower-cost labor. The transfer of skills and the
translation of knowledge among locations occur more easily in product or project
structures, in which people are used to working with diverse groups. Functional
structures, in contrast, tend to perpetuate a more holistic viewpoint. Network
structures provide the greatest opportunity for taking advantage of synergy from
diverse countries and using it to make the parent organization more competitive
(Gordon, 2002, pp. 440-450).
Global organizations have the same basic structures as domestic ones; they face
particular challenges in creating a cohesive structure across countries. They must
respond to differences in culture, language, and laws while creating an integrated
enterprise. For example, Hewlett-Packard reorganized its global structure so that
multinational clients can purchase from a single sales and marketing group in their
local area. Other companies have moved key operations to specific business
locations. Companies that tend to have longer-lasting international joint ventures
are those with experience in forming domestic joint ventures and those that are
international, wholly owned subsidiaries (Gordon, 2002, pp. 416-450).
Division of Labor
The division of labor at Orion College is personal differentiation in which labor is
divided according to the workers expertise or training. Orion emphasizes the
personal division of labor and organizes labor around workers specialties. With
personal differentiation, departments within the organization can vary the degree in
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their differentiation. Orion may also organize groups within its management
department around professors expertise, such as strategy, organizational behavior,
human resource management, and social issues in management. This type of
division of labor is also valuable in business situations that require special expertise
in firms such as high-technology manufacturing or specialty marketing. Orion
College divides its labor according to expertise and specialty. For example, the
Admissions Department answers questions about the admissions process, makes
admissions decisions, and communicates with students until they arrive on campus.
This department sends students information about financial aid but does not answer
questions about the financial aid process. The Financial Aid Department receives
applications for financial aid, makes decisions about financial aid, and then
administers it during the students four years in college. The registrar handles all
course registration. In this division of labor, CEOs, CROs, or Executive Vice
Presidents are usually at the top. The specialties report to these executives is
divided into the Director of Admissions, Registrar, Director of Financial Aid, Director
of Housing, and Controller. With this division of labor, Orion College has received an
increasing amount of student complaints. The students feel that they must deal
with too many departments and that Orion is not customer-oriented and sensitive to
student issues (Gordon, 2002, pg. 399).
There are other types of division of labor. With horizontal differentiation, jobs
are grouped at the same level in the hierarchy according to their function,
customer, product, process, or geographical area. There can be a high or low
division of labor. The amount of horizontal differentiation varies. It depends on
factors as the managers preference and the employees abilities, as well as the
organizations size, age, goals, and product or service. As a firm grows and
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differentiation increases, barriers to communication also increase. Electronic
communication can reduce these barriers since communication as it makes
communication across units as easy as communication within the unit (Gordon,
2002, pg. 399).
Vertical differentiation exists in tall organizations that have many levels in the
hierarchy. This division of labor describes the number of hierarchical levels in a
company. Flat organizations usually have few vertical levels. Medium-size firms
may have seven or eight levels. Vertical differentiation increases the checks and
balances in a company and can help the firm minimize or avoid mistakes by
employees. Higher-level employees more often check the decisions made by lower-
level employees. In tall structures, there are many levels of positions, which
provide more avenues for advancement within the organization, which a closer
fitting of employees personal needs, and abilities to jobs. However, tall structures
can slow decision making if people at many levels in the hierarchy participate.
Since higher-level managers make the important decisions, workers low in the
hierarchy have be less motivated.
With a vertical division of labor, the responsibility for decision-making is usually
limited to those at the top of the firms hierarchy. Firms decrease inefficiency by
centralizing functions. Decentralization refers to extending the responsibility for
decision making to workers at all levels in the organization. This gives workers
more responsibility and autonomy. Problems can occur when employees lack
training in their roles and can contribute to failure. Decentralization assumes that
people closest to the problem have the most knowledge and can make the best
decisions on how to fix it. In the vertical division of labor, flatter structures have the
potential for faster communication and greater adaptability, however even tall
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structures can allow the decentralization of decision-making (Gordon, 2002, pp.
399-403).
Spatial differentiation describes the grouping of jobs according to geographical
location. This type of division of labor responds best to differences in customers,
suppliers, or even regulation in different locations (Gordon, 2002, pp. 399-401).
Coordination Mechanisms
Firms such as Orion College create positions and departments or other groupings
of workers. The firm must finds ways to coordinate the various groups.
Coordination refers to the extent and means by which an organization integrates or
holds together its various parts and helps them work together to accomplish a
common goal or activity. Coordination methods include mutual adjustment, direct
supervision, standardization of work processes, standardization of outputs, and
standardization of skills (Gordon, 2002, pg. 401).
OrionCollege uses mutual adjustment. With this type of coordination, a firmutilizes informal but direct communication between individuals. It also occurs with
electronic media in which employees can have immediate access to co-workers
around the world through e-mail, telephone communication, or videoconferencing.
Simple organizations rely heavily on mutual adjustment to coordinate the work.
Large, bureaucratic firms rely on it in small departments or among top
management. Complex firms use it to reduce uncertainty in communication and
task performance (Gordon, 2002, pg. 401).
Orion College is categorized as a mechanistic structure. Mechanistic structures
have relative stability and inflexibility in the way they organize activities and
workers. They usually have centralized decision-making accompanied by a unitary
chain of command. They rely on extensive horizontal and vertical division of labor
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to encourage specialization of activities throughout the organization. Orion has a
horizontal division of labor in which there is job specialization. For example, the
Admissions Department answers any questions about the admissions process,
makes admissions decisions, and communicates with the students until they arrive
on campus. Although the Admissions Department sends incoming students
information about financial aid, it does not answer questions about it or process aid
applications. The Financial Aid Department receives applications for financial aid,
makes decisions about financial aid, and then administers it during the students
four years in college. The registrar handles all course registration (Gordo, 2002, pg.
403).
Firms use direct supervision when more formalized control is needed. A
manager directly supervises or has responsibility for the work of one or more other
employees. The director of Human Resources may coordinate the work of her
employees through direct supervision by providing guidance, timetables, and
feedback to employees about their performance. Direct supervision uses the chain
of command to ensure that workers do their jobs correctly. Many organizations
have substituted mutual adjustment for direct supervision of employees.
Horizontal, lattice, modular, and virtual organizations emphasize mutual adjustment
rather than direct supervision for coordinating work-related activities. In some
cases, it is used with other coordinating mechanisms, such as mutual adjustment or
standardization of work processes. With the increased emphasis on empowering
workers and using teams in the workplace there has been a trend of reducing the
amount of direct supervision (Gordon, 2002, pg. 401).
Standardization of work processes occurs when managers specify the actual
steps employees should follow in performing the work. Standardization of work
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processes is used in production that uses assembly-line technology, such as
manufacturing tires, parts, or hamburgers at a fast-food restaurant. This
standardization uses equipment, computer programs, or written directions to define
each step in the process. This reduces the need for other forms of coordination.
Empowered teams of the modern firm have the autonomy to adjust work processes
to meet the needs of the firm. Coordination also occurs by specifying the nature of
outputs, known as standardization of outputs. For example, managers who are
judged based on their groups productivity or profitability have their work
coordinated by standardization of outputs and motivate workers to accomplish
goals based on outcomes. Standardization of outputs coordinates the work of top
management by allowing managers discretion to devise the best processes to get
the job done. This results in worker empowerment by allowing more workers to
respond creatively to changing conditions or customer demands (Gordon, 2002, pp.
401-402).
Other professions such as teachers, nurses, and pharmacists rely on their
training and expertise to coordinate their work through the standardization of skills.
Licenses, certification programs, and training offer ways of standardizing skills. For
example, certified public accountants and board-certified surgeons participate in
new programs directed at creating and maintaining skill standards. Through
training, school, and on the job, nurses know how to interact with physicians and
other medical personnel. Through legal training, lawyers know their responsibilities
in the courtroom. In addition, these professionals may also use mutual adjustment
supplement the standardization of skills (Gordon, 2002, pp. 401-402).
Organizations can Solve or Create Problems
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Orion College has a functional organizational structure. In functional structures,
employees are grouped according to major categories of work activity. At the
corporate level, companies may group employees into marketing, information
systems, and human resources functions, among others, and then into further
groupings within each major function. At Orion College, there is horizontal
differentiation that characterizes the structure. The functional structure works best
when the roles or jobs in the organization are grouped into functional areas,
employees need relatively little communication outside the groupings, the
organization has a well-developed product or service, and few exceptions occur. In
addition, the company has a relatively benign environment, such as a stable and
predictable market, and the organization is small-to medium-sized, making face-to-
face communication feasible (Gordon, 2002, pg. 405).
There are three types of functional structures: simple structure, machine
bureaucracy, and professional bureaucracy. Firms that have a simple structure are
small and young use mutual dependence and direct supervision as coordinating
mechanisms. The top manager has significant control. As the organization grows,
the simple structure either departmentalizes by function or develops a more
complex form that relies on other means of coordination. As organizations, grow in
size, horizontal and vertical differentiation increase, leading to the standardized and
formalized behavior characteristic of machine bureaucracy. They key coordinating
mechanisms are direct supervision and standardization of work processes. Large-
scale firms such as automobile, steel, equipment, and consumer goods
manufacturers organize this way (Gordon, 2002, pg 405-406).
Orion is considered a professional bureaucracy. This structure has the
formalized characteristics of the machine bureaucracy, but emphasizes
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standardization of skills rather than standardization of work processes for
coordination. A professional bureaucracy typically has little vertical or horizontal
differentiation, but extensive personal differentiation. Firms train workers to ensure
that they have the required skills for organizational functioning (Gordon, 2002, pg.
406).
The advantage of a functional structure is that it encourages people with jobs in
the same area of specialization to work together. This type of interaction builds a
strong loyalty to the functional group and offers extensive expertise in specified
areas. The relatively high vertical division of labor that often accompanies this
structure provides employees with many opportunities for advancement within a
functional discipline. This structure avoids duplication of effort in different parts of
the organization since typically only a single human resources department,
operations division, or accounting group services the entire company. The
disadvantage is that the high horizontal and vertical differentiation can cause
problems. Dysfunctional performance and competition results when communication
is limited between functional areas. There may be a call for communication up the
hierarchy when dealing with problems, which slows the response time and hinders
the response time to customer demands. Although this specialization can work well
in predictable situations, it tends to slow decision-making and impede effective
communication as seen with the increasing number of complaints from students.
Students feel that they must deal with too many departments and the college is not
customer-oriented (Gordon, 200, pp. 403-406).
Effective Types of Organizations
Mechanistic structures rely on standardization of work processes and direct
supervision. These approaches limit the discretion of most workers in the
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organization for processing information because they use the hierarchy for
communication and problem solving. In Orion College, each individual reports to
one supervisor. This results in clear lines of authority. Each person knows whom to
communicate problems or questions. Although each individual reports to a single
person, many organizational members have more than one subordinate as seen
with Orion College. A managers span of control is the number of people who report
to him. Orion focuses on standardization of skills and personal differentiation. This
structure seems to work best for universities however; Orion can increase the skills
of workers, through cross training and reduce the number of departments students
must involve. By providing training to increase the knowledge and empower
employees with responsibility, employee morale can improve as well as customer
service. Employees can focus on their main role; however through training
employees can answer a wider range of student questions. For example, the
Admissions Department and Student Accounts Department may be trained to
answer certain questions regarding financial aid (Gordon, 2002, pg. 403).
Market-Oriented structures groups employees according to functional areas
according to the market they serve. For example, a consulting firm may organize
its workers into projects for a particular industry. In market-oriented structures, a
product, project, client, or geographical grouping exists at one level, but other
forms may exist elsewhere such as a product structure. A product manager may
supervise various functional groups where the top level of a geographical structure
emphasizes location. In addition, a more typical functional structure may exist
within each geographical division. Larger firms may create market-based divisions
or separate subsidiaries. Firms can respond to a mixed environment and diverse
cultures by setting up mini-organizations that meet unique needs of various
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countries and cultures. The market-oriented structure responds effectively when
the company faces a dynamic and unpredictable market situation, success requires
rapid communication for rapidly changing conditions. In addition, the organization
has abundant resources for meeting customer needs (Gordon, 2002, pp. 407-408).
The advantage of market-oriented structures is that it focuses on the needs of
particular products, projects, customer, or geographical areas. Teams develop the
common goal of meeting market demands, which is advantageous when market
needs require a fast response. This structure speeds problem solving and
adaptation when combined with decentralization. The disadvantage is that it
increases costs since it can duplicate knowledge throughout the organization. The
focus on market requirements also prevents workers from developing a wider,
functional expertise that lets workers moved from market group to market group as
necessary (Gordon, 2002, pg. 408).
The integrated structure is a combination that incorporates both functional and
market-oriented structures. It responds to the needs of a changing and complex
environment (adhocracy). It uses a variety of ad hoc or temporary liaison devices
such as task forces, projects teams, and matrix structures, to encourage mutual
adjustment among members. Flexible structures respond to a complex, changing
environment. It incorporates sophisticated information technologies that support
teamwork and information. The integrated structure has flexible groupings of
individual and change as the organizations needs change. It groups individuals that
emphasize a market focus. With decentralized decision-making, there is increased
autonomy, responsibility, and accountability of all employees allowing them to
respond faster to unpredictable conditions. It also groups employees that combine
functional specialties. Some firms have an integrated structure (matrix), which
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combines the best aspects of functional and product structures (Gordon, 2002, pp.
408-409).
The advantage of integrated structures is that they respond well to a changing
environment. Firms can add or delete product of project groups as necessary.
Firms adopt this structure when they have high information processing needs.
Since project teams share functional sources, some cost economies can occur.
Workers retain a strong functional identity that helps bring special expertise to the
needs of various products or projects. The matrix form of an integrated structure
has special costs such as overhead costs from more managers and personal costs
for workers from reporting to more than one boss. There may be conflict and stress
among workers from working for people with different standards, expectations, and
work priorities. There may be power struggles from competition among managers.
The matrix structure slows time-to-market in new product development. Although
these situations can improve from clarifying responsibilities and quickly identifying
problems, firms look for other ways to combine functional and market-oriented
structures. More adaptive structures include horizontal organizations, lattice
organizations, alliances, modular organizations, and virtual organizations (Gordon,
2002, pp. 409-410).
Horizontal organization focuses on core processes, emphasizes empowering
workers by reducing the management hierarchy, and encourages employees to
focus on customer requirements and satisfaction. It includes cross-functional teams
that manage and run processes. Horizontal structures organizes work around key
processes instead of tasks, flattens the hierarchy by empowering workers and
eliminating non-value-added work, uses teams to manage everything, and lets
customers satisfaction drive performance. It uses information technology to reach
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performance objectives and deliver value to customers. Process owners take
responsibility for an entire core process. It rewards workers for their team-related
performance and maximizes contact with suppliers and customers (Gordon, 2002,
pp. 410-411).
Lattice Organizations emphasizes teamwork and employee empowerment that
results in structures that reduce or eliminate organizational hierarchy. It can
eliminate assigned or assumed authority. Sponsors rather than bosses work with
associates instead of employees. This structure emphasizes strong interpersonal
communication. Individuals responsible for accomplishing various objectives are
tasked with setting the objectives (Gordon, 2002, pp. 411-412).
Some firms unite and form alliances to pursue a set of agreed-upon goals.
Rather than acquiring and developing their own resources, some organizations find
it faster and cheaper to form alliances with another organization. They share control
over the performance of assigned tasks and make continuing contributions to the
alliance. The linkages between organizations in alliances strengthen companies by
bringing additional resources to solving organizational problems and competing in
the marketplace. Strategic alliances also create opportunities for learning from a
partner. Successful alliances view partnership as an opportunity, attach importance
to the results of the collaborative efforts, demonstrate a reasonable level of trust,
and demonstrate a willingness to learn from each other. It creates shared goals and
realistic expectations, uses conflict productively, redesigns and creates integrated
systems, and believes in honest communication. In addition, these alliances have
committed leadership; plan and budget jointly, have congruent measurement and
reward systems, and provide necessary resources (Gordon, 2002, pp. 412-413).
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Modular organizations (dynamic networks), combines a variety of subcontractors
into a working organization. Modular organizations have a small staff that develops
strategy, subcontracts work and outsources noncore functions, and monitors the
interface with various subcontractors allowing managers to decrease overall costs
and speed the development of new products. This allows the company to hire
superior talent to perform certain functions, avoid idle capacity, reduce inventory
costs, and avoid becoming committed to a technology that becomes obsolete.
These companies can grow rapidly since they use a small amount of capital to feed
rapid growth. A modular structure has vertical disaggregation in which independent
organizations within the network perform the business functions. It is used in
product design, marketing, manufacturing, and other functions. Brokers assemble
the business groups by subcontracting for required services, creating linkages
among partners, or locating such functions as design, supply, production, and
distribution. Market mechanisms such as contracts or payments for results, rather
than plans, controls, or supervision, hold the functions together. There is full
disclosure information systems link the various network components. A modular
structure also can exist inside an organization. The company creates
entrepreneurial and market components, such as distribution, information
technology, or research and development that operate as separate divisions or
profit centers with bottom-line responsibility (Gordon, 2002, pg. 414).
The virtual organization is a network of independent suppliers, customers, and
even competitors, tied together by computer technology. The Internet and
information technology allows them to share skills, costs, access to markets, and
supports the development of this structure. Once the network achieves its
objectives, it may dissolve. Each organization participating in the network
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contributes only its core competencies. Companies frequently regroup which into
new virtual corporations which creates flexibility to seize new opportunities. These
organizations usually have flat structures in which information and decision making
move horizontally. Electronic communication supports multidisciplinary work
arrangements that link people across formal organizational boundaries. Virtual
organizations may be temporary, and firms may participate in multiple alliances
simultaneously. In virtual corporations, computer networks link companies,
entrepreneurs, and partnerships. Each partner brings its core competencies
allowing the creation of a best-of-everything organization. Companys band
together to meet a specific market opportunity. They disband after meeting the
need. Partnerships are more opportunistic, less permanent, and less formal. Since
members rely on each other to achieve their goals, there must be a level of trust.
The virtual corporation redefines the traditional boundaries of a company.
Increased cooperation among competitors, suppliers, and customers makes it
difficult to determine companys borders. Virtual organizations can exist within a
single company. They have of a pool of employees from whose expertise various
business units can draw which allows all parts of the organization access to a
broader pool of talent and enables information technology staff to work on a
broader array of projects and problems (Gordon, 2002, pg. 416).
References
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Gordon, J. R. (2002). Organizational Behavior: A Diagnostic Approach (7th ed.). NewJersey: Prentice Hall.