TUM-BWL SS2011 - Organisation Zusammenfassung

8/6/2019 TUM-BWL SS2011 - Organisation Zusammenfassung

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Organisation ! Lehrstuhl: Welpe01 - Introduction

Organisation = made of people, labourdivision, pursuit of shared goals/objectives

Org. exist because Specialisation / division of labour Economies of scale/scope Manage external environment Economize on Transaction cost Exert power/ control

--> trade-off:

Division of labor & specialisation (efciency gains) Need for coordination (resource consumption)

-> Agency problem-> Lack of knowledge -> Managing interdependency-> Lack of motivation

Evolution of the moderncorporation

Business Environment Strategic Changes OrganisationalConsequences

Early 19th cent

Late 19th cent

Early 20th cent

Late 20th centry

Poor transport Specialised rms, local markets Simple mgmt structures

Railroads, telegraph,industrialisation

Geographical & verticalexpansion

Line/Staff separation, functionalstructures & accounting syst.

Road transport,communication, nancialmarkets, world trade

Product diversication,multinational growth

Multidivisional structures

Rapid innovation, IT Competitive advantage,Outsourcing

Matrix structure,Decentralization, alliances &networks

02 - Organisation Theories

Different org. theories because of multiple aspects/ factors in organisations Individual, group, organisational factors (see effectivenes) External environment Performance / Humanistic orientation No simple, linear causal relationships

--> Contingency = Situational approach due to high organisational variance (-> no stable laws apply)! -> adapt best available knowledge to situation

Individual effectiveness-> Ability, skill, knowledge, attitude, motivation

Group effectiveness-> Cohesiveness, leadership, structure, status

Organisational effectiveness-> Environment, technology, strategy, structure, culture

Beaurocratic Theory (Max Weber, 1864- 1920)

1800: Organisation = extension of families, hiring based on favoritism, subjectivity --> growth uncovered inefciency

Proposition for efcient / rational bureaucracy: Dened authority (hierarchy) + assigned responsibilities Objective criteria for evaluation of performance / suitability of staff Fixed salaries for administrators

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Administrative theory (Henri Fayol, 1841 - 1925)Management has two distinct functions:

Coordination Specialisation

Scalar principle : Hierarchical distribution of power, pyramidstructure

Unity of command : Only one superior Span of control : Optimal no. of subordinates Exceptions principle : lower lvl employees handle routine

events, managers for more complex tasks

Departmentalisation : Similar tasks / functions that needcoordination grouped within same unit

Line / Staff functions : Line contributes directly to pursuit ofprimary organisational goals, staff adds support activities

Scientic management (Frederick Taylor, 1856 - 1915) Decisions abt organisational- job design based on scientic study Method to deliver greatest output :

Standardised procedures Qualied human capital Work planning Incentives to increase output --> Link of output to payment -> Employees improve wages, Shareholders increase surplus

Neo-Classical theories Classical theories only concerned with Meso- (Group) and Macro-level (Org) --> Neo-classical theories focus on micro

Importance of human needs / relations Expectancies of employees Give-and-Take relationships

Hawthorne Studies Human relations more important than physical work conditions -> socio-economic factors inuenced performance Psychological factors strongly inuence performance--> Turning point: People s roles extend beyond work in organisations, multiple and divergent needs

Behavioral decision theory (Simon & March)

Bounded rationality : individuals only capable to act rational to certain extent Limited by imperfect knowledge, evaluation of future outcomes, incapability to consider all alternatives

--> Facilitate decision making by reducing complexity and uncertainty Division of Labor -> Problems are divided in sub-problems, Individuals confronted with subsets of goals/ alternatives Standardisation of processes Hierarchy limits decision space of subordinates Communication aids in diffusion of information Indoctrination establishes trust culture, less supervision required, company goals/ values/ mission are internalised

Institutionalism Companies perform when perceived by larger environment

to have legitimacy to exist Environment composed of norms/ values of external

stakeholders

Legitimacy : Organisation s actions = desirable, appropriatewithin system of norms/ values

Isomorphism : similarity among org s in population Coercive = pressure by other organisations/ society Mimetic = imitate competitor to increase legitimacy Normative = indirect adoption of norms through

exchange of employees, knowledge transfer

. . .

Insitutions have and assign property rights

4Property Rights

AbususChange of the property

Usus fructusRight to any benefit from

the property

UsusUse of the property

Ius abutendi

Right to transfer or sellthe property

Property rights are defined and protected within state laws, normally within constitutionor bill of rights

Property rights are assigned to legal not necessarily natural personsProperty is not a relationship between people and things, but a relationship betweenpeople with regard to things

Marius Scholinz TUM BWL - SS2011 !

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Capabilities exist when resources have been purposely integrated to achieve task Development of capabilities that lead to competitive advantage evolve over time! --> based on developing, carrying and exchanging information / tacit knowledge through human capital

Core competencies : resources and capabilities that serve as a source of competitive advantage over rivals! --> characterise activities that rm performs exceptionably well/ through which unique value is added

Human capital : sum of skills, knowledge, generalattributes of people in an organisation

does not depreciate, but enhances through use critical resource: superior knowledge abt customers,

markets, technologies and competitors used to gain competitive advantage

05 - Inside the corporation (II)

Managers w/ requisite knowledge for capability building = key resource for development of capabilities Capability = path dependent (competence today is result of past developments)

Linkages between resources & capabilities (see chart in 04) Organisational culture:

Shared perceptions, common values and behavioral norms Capacity to comprehend one another/ collaborate without direction --> mutual adjustment

Organisational Structure (see 07) Management system

IS allowing organisational members to identify changing circumstances/ actions of workers Incentive systems to promote cooperation and motivation

Strategic intent Effective leadership that communicates drive and direction of organisation

Capabilities can act as barriers: development over long time/ embodied in culture and structure --> rigidity, inertia! --> the more developed capabilities, the narrower repertoire/ adaption to new circumstances

Dynamic capabilities : Reconguration of internal and external competences to address rapidly changing environment! --> capacity to change may be regarded as organisational capability

Acquiring capabilities Mergers & Acquisitions: acquiring desired capability developed in another rm to shorten development! --> major risks, e.g. irreversible investmt/ surplus of acquired resource needs integration -> culture clashes Strategic Alliances: cooperative relationship between rms to reduce costs/ risks and transfer knowledge

Internal development: Focus and sequencing Obtaining resources easy, challenge = integration of resources to achieve task Requires organisational design / managemt systems and is facilitated by culture / strategic intent Building superior capabilities requires leveraging resources by concentration within units / aggregation among units Focusing within units implies sequential development -> incremental evolution

Incubation in seperate organisational units may foster capabilities through different cultures, structures and systemfrom existing rm --> combines exibility of startups w/ resources of established players

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Knowledge management Systematic leveraging of information and expertise to improve organisational innovation, responsiveness, competence Firm = assemblage of knowledge assets --> value created by deploying knowledge Knowledge mgmt = most important resource, provides overview of interlinkages betw. knowledge development,

transfer, utilisation activities Explicit knowledge = easy to exploit but difcult to protect from rivals -> weak basis for sustainable advantage Tacit knowledge = slow / costly to transfer, but strong basis for sustainable comp. advantage

Tacit -> Tacit knowledge = Socialisation

Tacit -> Explicit knowldg = Externalisation

Explicit -> Tacit knowldg = Internalisation

Explicit -> Explicit knowldg = Combination

Strategic Leadership Ability to anticipate, envision, maintain exibility

and empower others to create strategic change

Leaders guide rm according to vision / mission Vision = picture of what rm wants to be/ achieve Mission = specic businesses in which rm wants

to compete/ customers it intends to serve Transactional Leadership: engaging followers through exchange between them / leaders, typically done through

formalisation of rules/ establishing hierarchy and correcting behavior Transformational Leadership: motivating followers to exceed expectations of others, continuosly enrich capabilities,

place interests of organisation above own

06 - Inside the corporation (III)

Productivity of manufacturing processes increased --> lower prices, offshoring Service quality contingent upon management of strategies, systems / employees meeting needs, expectations Service innovation creates new markets and are more likely generating high returns Service innovations characterised by two dimensions:

Type of benet : New core benet vs. Existing benet by new delivery Type of service : Can consumption be separated from production?

Factors that foster market-creating innovations:1. Scalable business model2. Comprehensive CRM3. Investment in employee performance4. Operational innovation (Process design)5. Brand differentiation

Characteristics of service rms Characteristics of manufacturing rms

Intangible output Simultaneous production & consumption (no storage) Labor- and knowledge intensive Customer interaction high Quality difcult to measure Rapid response time Location important

Tangible product Products stored in inventory Capital asset-intensive Little b2c interaction Human element may be less important Quality directly measured Longer response time Site of facility depends on transport

Flexible Manufacturing Systems : link manufacturing components that previously were isolated, e.g. robots,machines, product design and engineering integrated through IS

---> allows companies to produce customized products in mass production

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Lean Manufacturing: Cut waste and improve quality by training employees in continuous improv / problem solving requires adequate organizational system --> decision making, culture that supports employee participation focus: people (e.g. Toyota)

Key advantage of exible manufacturing: products ofdifferent size / type to fulll customer needs

--> customer satisfaction.

Mass Customisation : Firm applies technology andmanagement methods to provide product variety andcustomisation through exibility & quick responses

--> produce enough variety to satisfy broad range of need Mass Production : Standard goods at affordable prices

Department Design Analysis of nature of department s technology leads to design

structure of department Analysability : Tasks reduceable to mechanical steps Variety : Unexpected situations / contingencies

Dimensions of dept design: Formalization : Standardisation, division of labor Decentralisation: Decisions centralised vs Delegation Workers skills Span of control Communication and coordination : frequency, medium

Types of interdependence among departments Pooled : work does not ow between units

Each Dept. contributes to common good/ independent Mediating technologies

! --> standardisation Sequential : Outputs of one Dept. = inputs to another

Effectiveness depends on prior Department Greater need for horizontal mechanisms Long-linked technologies

! --> planning Reciprocal : Output depend mutually on each other

intensive technologies required! --> mutual adjustment

07 - Organisational and structure design

Organisational Structure Organisational Design

Pattern of jobs and groups of jobs in an organisation

Important cause of individual and group behaviour Regularity of predictable activities

Process by which managers select and manage aspects of

structure and culture so that an organisation can controlnecessary activities to achieve its goals Management decisions and actions that result in specic

organisation structure

Differentiation = breaking up work in array of tasks Integration = task coordination to achieve goals Depicted by org. chard representing authority

Umbrella concept including structural and process issues Considers unit grouping, size, planning and controlling

systems, behavior formalisation, centralisation

Organisational design = important:

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Positive effects of good design Ability to deal with contingencies Achieve competitive advantage Manage diversity Raise efciency (e.g. cross functional IS) Innovation

Negative effects of poor design: Decline in prots / sales Loss of contro l over Org. structure / culture Inability to adapt to change Slow value creation


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Dimensions of Organisational DesignStructural:

1. Formalisation : Reliance on written documentation (e.g.procedures, regulations)

2. Specialisation (Differentiation): Degree of subdivision of tasksinto separate jobs (e.g. extensive -> narrow range of tasks)

3. Hierarchy of Autonomy4. Centralisation

5. Professionalism : Level of formal education / training ofemployees6. Personnel Ratios / Span of command: Ratio of ppl in various

departments

Contextual:1. Size : Measured for aggregates2. Organisational technology : Tools used to turn inputs into outputs3. Environment : All elements outside organisation4. Goals and Strategy/ Mission : Goals dene purpose and competitive techniques which set it apart from other org s, Strategy

is plan of action describing resource allocation / activities dealing with environment to reach goals! ! --> Together dene scope of operations and relationship with employees, customers and competitors

5. Culture : Set of shared key values, beliefs, norms of employees

5 Key Design decisions

1. Division of Labor (Differentiation vs. Integration) Personal Specialities (occupational and professional specialities) Horizontal : Division as necessary by natural sequence of tasks Vertical (Hierarchy): From low to high-level managers

Economies on coordination, increased adaptability Increased no. of hierarchy = more face-to-face control Problems of Tall vs. Flat structures:

Communication (long decision time, distortion, manipulation) Motivation (Less responsibilty, passing problems up hierarchy) Bureaucratic cost Parkinson s Law (Multiply subordinates to enlarge empire)

2. Departmentalisation (Homogeneous vs. Heterogeneous) Individuals requiring most coordination should work within same department Grouping into: Tasks, Product, Geography, Process

Group to achieve economies of scale / scope , learning Functional Structure : similar functions, work processes grouped together

Conditions: Small number of similar products, few locations, one major customer type Advantages: Learning / Spill-over effects through peer supervision, especially for

cooperation-savvy work Disadvantages: Communication, measurement, location

Divisional Structure : organised according to outputs Advantages: Increased organisational effectiveness (synergies), control through prot

centers Disadvantages: Divisional relationship, coordination between divisions, transfer pricing,

commuication

Matrix Structure : incorporates two grouping approaches simultaneously Appropriate only if high cross-functional efforts needed, e.g. NPD-Process Advantages: Reducing cross-functional barriers, Increasing cost/ quality awareness across

departments, Effective use of expertise as needed, Know-how synergies Disadvantages: Lacks bureaucratic structure and stable expectations, no clearly dened

hierarchy/ chain of command

Virtual Network : loosely connected cluster of separate components, Depts. =separate organisations Connected for information diffusion, can be spread worldwide Advantages: Cost economies Disadvantages: Coordination problems -> the more complex value creation the higher Integrating effort, Trust

3. Span of Control (Narrow vs. Wide) Number of subordinates under direct management, increases expontially The more complex task, the smaller efcient span Advantages of wide spans = Lower coordination costs, BUT loss of control possible

4. Authority (Centralised vs. Decentralised) Advantages of centralisation : Top Mgmt coordinates activities, assures goals are met Disadvantages: Little focus on long-term strategic decisions Advantages of decentralisation : exibility, responsiveness, motivation Disadvantages: Coordinating effort substantially increased, agency problems

5. Formalisation (Standardised vs. Mutually adjusted) Formalisation = use of written rules / procedures to standardise operations -> proper actions for given situation Mutual adjustment = Own judgement rather than standardised rules to address probem Advantages: Better control of employee behavior Disadvantages: Rules/ routine vs. innovativeness, openness and exibility

. . .

Goals andStrategy

SizeEnvironment

. .

Culture Technology

Structure1. Formalization2. Specialization

3. Hierarchy of authority4. Centralization5. Professionalism6. Personal ratios

The organization

Structuraldimensions

Contextualdimensions

Structural dimensions:Provide

Labels to distinguishkey, internalcharacteristics of anorganisationA basis to compare thecomposition of

organisations

Contextual dimensions:Characterizeorganizations as awhole and the broader organizational setting

Sources: Daft et al. (2007 . 17-20

. . .. .

10 interactions 4 interactions

Self Organizing Team Hierarchy

Tightly-coupled, integrated system: Changein any part of the system requires system-

wide adaptation

Loose-coupled, modular hierarchy:Partially-autonomous modules linked by

standardized interfaces permitsdecentralized adaptation and innovation

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CEO

Engineering Marketing Manufacturing

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ProductDevision 1

ProductDevision 2

ProductDevision 3

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Product Devision 1

Marketing Manufacturing

Product Devision 2

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Mechanic Structure Organic Structure

Individual specialisation : Employees work seperately andspecialise in clearly dened task

Simple Integrating Mechanisms : Hierarchy clearly denedand serves as major mechanism

Centralisation : Authority to control tasks kept at top lvl Standardisation : Extensive use of rules and SOPs to

coordinate tasks, work process = predictable

Joint specialisation : Teamwork, coordination of actions Complex Integrating Mechanisms : Task forces Decentralisation : Authority delegated to all lvls, most

communication is lateral Mutual adjustment : Extensive use of face-to-face contact,

work process relatively unpredictable

08 - Organisational design and performance management

Performance = heavily routed to inteded purpose of organisation, mostly nancial protability

Strategic Control Systems: Tools that allow managers to monitor and evaluate whether given strategy and structure are working as intended and

how they could be improved or changed to achieve goals Used to create incentives Important because of impact on competitive advantage, e.g. efciency, innovation, quality and cust. service Effective systems are: exible , provide accurate information and support decisions in a timely manner .

Personal control system : Shape and inuence behavior of person in face-to-face interaction Direct supervision by manager, peer supervision --> prevents free-riding

Output control system : Managers estimate performance goals, then compare actual performance

Often incentives are linked to performance -> motivate employees at all levelsBehavior control system : Establishment of comprehensive system of rules / procedures Intent not to specify goals, but to standardise means of achieving them

Three typical control strategies Bureaucratic Control Market Control Clan Control

Description

Requirements

When to use

Use of rules, policies, hierarchyof authority, standardisation

Use of price mechanisms toevaluate performance, e.g.divisional structures -> prot

Use of social characteristics,such as culture, shared values

Rules, standards, legitimateauthority

Prices, competition, exchangerelationship

Tradition, trust

Large organisations with stableenvironment and routinetechnology

Outputs can be priced,competitive bidding available-> management accting

Small departments, uncertanity

Complementing nancial performance measures: Performance goals = long-term BUT performance targets = short term --> add non-nancial measures and targets Avoid mistakes:

Not linking measure to strategy Not validating links (e.g. does measure really evaluate performance) Not setting right performance targets Measuring incorrectly

Strategic reward systems Managers have to decide which behaviors to reward --> measure desired behavior, then link reward-system Extrinsic rewards vs. intrinsic rewards Systems should encourage:

1. Attraction/ retention of valued staff2. Predictability of behavior3. Above average performance4. Working exibility

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Classication of rewardsystems, key characteristics

Feature to which paymentis tied

Presence of in centive Usu al freq uency ofpayment

Unit to which basis ofpayment is related

Flat time - time rates

Output incentives

Merit Rating

Performance-related pay

Gain Sharing

Prot Sharing / ESOP

Fulllment of agreed hoursof work

No Weekly / monthly, additionalhours deffered

Individual

Set formula relating to lvl ofoutput or sales

Yes, may be entirelydependent on workachieved or bonus

Weekly Individual, workgroup,department

Performance assessedsubjectively by supervisor

Yes, usually lump-sumbonuses. May be weak ifcriteria clear, mistrust

Deferred bonus, increasedwage

Individual

Performance assessedaccording to agreed criteria,objective

Yes, Lump-sum bonuses Varies, 6-monthly orannually

Individual or group

Increase in productivity / saving in cost / improvementin exibility

Yes, may be one-offpayment or bonusguaranteed whileimprovement lasts

Varies Plant-wide, limited tospecic groups that are partof agreement

Increase in organisationsprot / dividend payment

Yes, but weak and indirect Long deferred, protdistribution yearly, dividendsemi-annually

Whole company or prot-center

Considerations of reward systems

Trade-off between ne-tuning pay policies and cost of establishing Simplicity vs. complexity of reward systems Standardisation vs. Differentiation of reward systems Relatively xed vs. Flexible and adaptable Inuence on individuals motivation/ performance vs. Fostering harmonious collective relationship

09 - Vertical integration and the scope of the rm

Business Strategy = how a rm competes in particular are of businessCorporate Strategy = where a rm competes --> Scope of the rm

Product Scope : Firm s product range (specialised vs. broad) Geographical Scope : Optimal geographical spread of activities

Vertical Scope : Range of vertically linked activitiesVertical integration = ownership of vertically related activities along value chain! --> indicator is EVA to sales revenueRecent trends: downsizing and refocusing as result of greater turbulence in bus. environment / ICT efciency

Cost of linkages in value chains within rms: Administrative / bureaucratic cost of organising production within markets: Transaction Cost

Relative cost between the 2 = decision mechanism Transaction Cost : Cost in excess of actual amount paid to input supplier

Vary with required amounts of transaction specic investments, uncertainty and frequency of transactions Relatively high when:

competitive market is missing (e.g. monopolistic supplier -> relative bargaining power too high --> integrate) hold up through transaction specic investment

Relatively low when: Differences in optimal scale present (e.g. 40k rubber boots needed, but MES is at 100k --> outsource) Distinctive capabilities needed Strategically different businesses (special capabilities needed to manage integration of rubber boots) Incentive problems (mkt offers high power incentives -> efciency gains/ quality improvmt., internal mkt does not) Competitive effects of vertical integration (if monopoly @ one stage of value chain, integration cannibalises prot) Flexibility needed --> uncertain demand/ new combination of technical capabilities/ risk

Considerations for Outsourcing decisions:

Characteristics of Vertical Relationship Implications

How many rms? Transaction-specic investments needed? External transaction subject to tax / inhibitive regulation?

Uncertainty of exchange relationship high? Optimal scale given? Strategically similar stages? Market demand / Risk?

The fewer the greater transaction cost (monopol. sup. --> VI) Investments increase advantage of VI Can be avoided by internal production --> VI

Difculty of contracting, reliability threatened -> VI If not, outsource The greater, the higher advantage of VI over outsourcing Higher uncertainty --> need for exibility --> outsource


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10 - Guest Lecture, Dr. Eberl of Siemens AG

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Types of Strategic alliances

Long-term contracts (non-equity) reduce costs / share resources and risk of activities least formal type of alliance, can be written, casual etc. no ties linking organisations apart from agreement

Networks (non-equity)

cluster of different organisations whose actions arecoordinated through contracts / agreemt

members work closely to support / complement eachother s activities

Minority ownership (equity strategic alliance) forges strong cooperative bonds, e.g. keiretsu in JP

Joint Venture (equity strategic alliance) jointly established business w/ shared ownership legal agreement spells out rights and responsibilities of partners reduces problems of managing complex organisational relationships experienced e.g. in contract-relationships

Important considerations of interorganisational strategy Manage competitive risk with coop. strategies:

Cost minimisation : use detailed contracts / monitoring Opportunity maximisation by developing trust relationships = most efcient way to inuence & control partners

Purpose of Alliance should be identied upon entering --> indication of future problems helps deciding on formal vs. informal alliance! --> chose informal rather than formal alliance whenever possible Transaction cost theory to identify benets vs. costs of alliances

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12 - Global Strategies and the Multinational Corporation

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,*" increased intensity of competition Higher industry rivalry : higher seller concentration/ diversity of competitors ----> reduction of industry protability Higher bargaining power of buyers : worldwide market


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Motivation for global expansion Economies of scale through large-volume prodcution -> low per-unit cost Economies of scope through wider access to markets, adapt products to local needs Cheaper production factors Exploiting national resources Competing strategically : e.g. Unicredit 2010 -> German operations prot make up for loss in main activities Learning benets : integrating knowledge from multiple locations

Comparative advantage Results from availability of national resources Refers to relative efciency of producing products If exchange rates stable, then comparative adv. = competitive advantage---> historical change of focus: from natural resources / labor supply / capital stock to knowledge and commercialisation potentials

Determinants of geographical location for production1. National resource availability (determine resource needs, then nd lowest cost location)2. Firm-specic competitive advantage (to what extent is comp. adv. based on rm-specic resources? transferable?)3. Tradability (economic transportation cost? trade restrictions?)

Recent development = fragmented value chain to best t resource availability cost according to requirements at each vertical stage! --> HOWEVER: subject to exchange rate risks

Entering New Markets

Benets of joint ventures Combining resources / different capabilities -> synergies Knowledge / technology transfer Reducing time-to-market for innovations Risk sharing Proting from local partners expertise w/ mkt. environment

Drawbacks: Management differences --> conict Distribution of benets

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TUM-BWL SS2011 - Organisation Zusammenfassung

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