UGBA105: UGBA105: Organizational BehaviorOrganizational Behavior

Professor Jim LincolnProfessor Jim LincolnWeek 2: LectureWeek 2: Lecture

Organization design: Organization design: From vertical (mechanistic) to horizontal (organic)From vertical (mechanistic) to horizontal (organic)

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Organization design: Session objectives

• Introduce organization design as “manager as engineer” perspective

• Understand the legacy of classical design theory• Discuss strategic grouping and linking• View structure from the congruence perspective • Contrast hierarchy with other coordination modes• Consider process and network organization as

horizontal “organic” forms

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The Two Faces of Management The Two Faces of Management

Manager as engineer: Manager as engineer:

Trained technician who Trained technician who uses a professional body uses a professional body of knowledge to create of knowledge to create formal systems that plot formal systems that plot strategy, make decisions, strategy, make decisions, incent people, and incent people, and coordinate units in coordinate units in maximally efficient ways.maximally efficient ways.

Manager as leaderManager as leader: : Individual who leverages Individual who leverages highly personal resources highly personal resources (energy, stamina, charisma, (energy, stamina, charisma, vision, warmth, charm, vision, warmth, charm, gregariousness, toughness, gregariousness, toughness, daring, know-how) to inspire, daring, know-how) to inspire, empower, and channel the empower, and channel the actions of others.actions of others.

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Strategy

Input Environment

Resources

History

OutputSystems

Unit

Individual

Informal

Organization

Tasks

People

Formal

Organization

The Congruence Model

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What is the formal organization?

• Formal structure – Grouping (or division of labor or differentiation)

• Divide work and group people doing similar tasks into distinct jobs and work units

– Linking (or coordination or integration)• Devise mechanisms of control and coordination to direct activity and create

an integrated whole

• Formal control & information systems (rules, procedures, measurement)

– Accounting & finance– Inventory and process control– Human resource

6Source: S. Adams, Dogbert’s Big Book of Business, DILBERT reprinted by permission of United Features Syndicate, Inc.

Why do managers like to change structure?Why do managers like to change structure?

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What should structure do?

• Increase efficiency

• Allow for flexibility

• Channel individual behavior in desired directions

• Empower people to accomplish tasks

• Enable teamwork

• Fit the informal org, strategy, environment

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What shouldn’t structure do?• Create unmanageable

coordination problems

• Balkanize the organization into warring fiefdoms

• Disempower and demotivate people

• Be a weapon in organizational politics

• Become sacred and ceremonial

• Breed “bureaucratic personalities”

• Cause inertia

• Mire the organization in “red tape”

• Divert or smother other ways of doing things

• Provide a safe haven for the incompetent or unmotivated

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THE VERTICAL (MECHANISTIC) MODEL: SCIENTIFIC MANAGEMENT :

“Systems so perfect that no one will need to be good”Frederick W. Taylor: The Principles of Scientific Management, 1911. Frank B. Gilbreth: Motion Study, a Method for Increasing the Efficiency of the Workman.

New York, D. Van Nostrand Company, 1911.

Which always brings to mind….

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THE VERTICAL (MECHANISTIC) MODEL: CLASSICAL ADMINISTRATIVE THEORY

• Horizontal structuring (grouping)– Specialization (divide tasks)– Unity of direction (group similar tasks in departments)

• Vertical structuring (linking)– Unity of command– Scalar chain– Span of control

• Authority – Fit to responsibility

• Decision-making– Delegate routine decisions; manage exceptions

Henry Fayol: General and Industrial Management, 1949L. Gulick and L. Urwick: Papers on the Science of Administration, 1937J. Mooney: The Principles of Organization, 1947

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Horizontal and Vertical Structuring

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Strategic grouping:

Dividing people, activities, and resources so as to maximize efficiency, flexibility,

and success

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Dimensions to group on

• Inputs

– Function, tasks, disciplines, or skills:

• Outputs

– Product, customer, market, region

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R&DEngineer-

ingManu-

facturing

General Manager

Human resources

Sales

ProductA

Product

B

Product C

Functional grouping

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CEO

CarsPrefabHouses Electronics

HR Mfg Mkt HR Mfg Mkt HR Mfg Mkt

Product grouping

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CEO

North America

Europe Asia Pacific

HR Mfg Mkt HR Mfg Mkt HR Mfg Mkt

Regional grouping

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Finance Professors

Lyons, Odean, Stanton

Undergrad Program

MBA Program

PhD Program

Undergrad

MBA

PhD

ProfessorLyons

ProfessorOdean

ProfessorStanton

Are Haas professors organized by function or product?

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Matrix

Marketing R&D EngineeringManu-facturing Sales

Cars

Prefab houses

Electronics

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The discipline – degree program matrix at Haas

Accounting Finance Marketing OBIR EAP

Under- grad

MBA

PhD

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Hybrid forms

• Most large firms are functional/product hybrids

• Trend in U. S. in recent years is to centralize functions & consolidate divisions

• Trend in Japan is to decentralize

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Hybrid form at Levi Strauss

Haas CEO

Product Group A

Product Group A

Product Group B

Product Group B

Product Group C

Product Group C LegalLegal FinanceFinance R&DR&D Acctg.Acctg.

Mkt

Distribution

Sales

Manufact.

Mkt

Distribution

Sales

Manufact.

Mkt

Distribution

Sales

Manufact.

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Vertical structuring: The linking (coordination) problem

The hierarchical chain of command– Must organizations be hierarchical?

• “The iron law of oligarchy” ( (Robert Michels, 1915)

• And alternatives to it

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Market-ing

Market-ing

Engineering

Engineering

Manu-facturing

Manu-facturing

Human Resources

Human Resources

Manage-ment

Manage-ment

What’s good about hierarchy?

Account-ing

Account-ing

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The 180◦ alternative: mutual adjustment

Market-ing

Market-ing

Human resources

Human resources

Engin-eering

Engin-eering

Account-ing

Account-ing

Manu-facturing

Manu-facturing

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A formal org alternative: rules & standards

Market-ing

Market-ing

Manu-facturing

Manu-facturing

Account-ing

Account-ing

Engin-eering

Engin-eering

Human resources

Human resources

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The choice depends on the level of The choice depends on the level of task interdependencetask interdependence

Regional HQ

Aircraft Scheduling

1. Pooled Interdependence

2. Sequential Interdependence

ProductDevelopment Manufacturing Sales

Hotel A Hotel B Hotel C

Operations Maintenance

CoordinationNeed?

Coordination Method?

3. Reciprocal Interdependence

InterdependenceInterdependence

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CEO

“A”

Principles of hierarchy: Unity of command, Scalar chain,

Span of control

CEO

“A”

Case 1 Case 2

Herbert Simon: “The proverbs of administration.” Public Administration Review 6 (1946):53-67.

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Product Z

manager

Engineer-ing

Manufac-turing

Marketing

General Manager

Z Eng

Z Mfg

Z Mkt

What principle of vertical structuring does matrix violate?

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Steps in cross-functional coordination:An evolutionary sequence

Pure functional organization

Functional org with product-centered culture

Liaison roles / employee transfers

Cross-functional task forces & teams

Integrating roles

Matrix

“Heavyweight” product manager form

Fully self-contained product organization

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Engineer-ing

Manu-facturing

Marketing

General Manager

Z Eng

Z Mfg

Z Mkt

Product Z culture

A strong product-specific culture helps to A strong product-specific culture helps to coordinate cross-functionally around product Zcoordinate cross-functionally around product Z

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Engineer-ing

Manufac-turing

Marketing

General Manager

Z Engin

Z Mfg

Z Mkt

Temporary or permanent employee transfers help to Temporary or permanent employee transfers help to coordinate cross-functionally around product Zcoordinate cross-functionally around product Z

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Engineer-ing

Manufac-turing

Marketing

General Manager

Z Mfg

Z Mtg

ProductZ cross-functional team

Cross-functional teams help to Cross-functional teams help to coordinate around product Zcoordinate around product Z

Z Eng

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Engineer-ing

Manufac-turing

Marketing

General Manager

Z Eng

ZMfg

Z Mkt

Integrating roles: brand, account, & project managers rely on leadership skills to coordinate cross-functionally around product Z

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Product Z

manager

Engineer-ing

Manufac-turing

Marketing

General Manager

Z Eng

Z Mfg

Z Mkt

Full matrix: What’s the cross-functional coordination device?

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Product Z

manager

Engineer-ing

Manufac-turing

Marketing

General Manager

Z Eng

Z Mfg

Z Mkt

“Heavyweight product manager” form

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CEO

Product W Product X Product Z

Eng Mfg Mkt Eng Mfg Mkt Eng Mfg Mkt

Fully self-contained product division form

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Functional organization goods and bads

Good• Simplicity of design• Efficient use of

specialists• Deepens specialist skill• Good fit to function-

based strategy

Bad• Breeds “silos”• Pushes coordination up• Conflict among groups• Poor general mgt skills • Poor fit to diversification

strategy

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R&DEngineer-

ingManu-

facturing

General Manager

Human resources

Sales

ProductA

Product

B

Product C

Functional organization

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Product organization goods and bads

Good• Low interdependence

• Develops general mgr skills • Fits a turbulent environment• Fits these strategies:

– Product diversification

– Product/customer/region focus

Bad

• Breeds weak functions

• Poor w/in function coordination

• Isolated divisions

• High redundancy & cost

• Headquarters out of touch

• Short-termism

• Excessive scale

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CEO

Product W Product X Product Z

Eng Mfg Mkt Eng Mfg Mkt Eng Mfg Mkt

Product organization

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Matrix organization goods and bads

Good• Balances functional & product

priorities • Forces consensus decision making

• Forces a corporate-wide

perspective • Fits where quality & service

requirements are high but time and cost pressures are low

Bad• Costly in time and

management • Unstable• Stressful, conflict-prone• Nonlinear career paths (?)

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Product Z

manager

Engineer-ing

Manufac-turing

Marketing

General Manager

Z Eng

Z Mfg

Z Mkt

Matrix organization

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Matrix as culture, not structure

Strongly shared commitments to product quality, customer service, and functional expertise (as in Total Quality Management)

Bartlett and Ghoshal: “Matrix management-- not a structure, a frame of mind.” Harvard Business Review, 1990.

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The problem with the previous designs is that many business processes cut across functions & products

General Manager

Marketing Manufacturing Engineering

Product

Manager

Prod. B

Prod. A

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Process organization: Grouping by interdependence, not similarity

Hammer and Champy: Reengineering the Corporation, 1993

– Identify core business processes – Create and empower multi-functional teams – Revamp accounting & reward systems – Shrink functional groups but preserve specialist expertise– Eliminate low-value added activities

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Keep functional skills but dispense with functional groups

“’Create a house Yellow Pages so functional expertise is easy to find even though dispersed. Link experts in a real or electronic network where they can keep each other up to date and can get training and career development help’…’The engineers can have a club. But they can’t work in the same room, and they can’t sit at the same table at the company banquet.’”

Thomas A. Stewart: “The search for the organization of tomorrow” Fortune, 5/18/92.

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Top Management

TeamTeamProcessCoordinators

TeamTeamProcessCoordinators

TeamTeamProcessCoordinators

New product development process

Order fulfillment process

Procurement, logistics process

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Network organization

• Small, lean, specialized firms • The “organization” is a network• Absence of authority and structure to control and

coordinate division of labor – Examples:

• Japanese keiretsu• Silicon valley• New York fashion industry• Germany’s mittelstand • Northern Italy’s furniture industry• Ethnic enclaves

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Designers

Core FirmProducers

DistributorsSuppliers

Managers

Suppliers Distributors

ITServices

Producers

Producers

Designers

Distributors

Suppliers

Brokers

Full Vertical Integration

Full Network Organization

Networked Firm

HR Services

IT Services

HR Services

Designers Marketers

HR Services

IT Services

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Managing process & network organizations

• Abandonment of the “manager as engineer” (vertical, mechanistic) model – Less hierarchical command & control– Fewer rules, standards, and procedures– Less detailed and rigid division of labor – No more vertical career

• Embrace of “manager as leader” (horizontal, organic) model – Teamwork (coordination through mutual

adjustment) – Networking and political maneuvering – Leadership and culture– Entrepreneurial

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EmailTeleconferencing

GroupwareKnowledge management

ERP

Is information technology the answer?It facilitates teamwork and networking

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IT and the manager’s jobIT and the manager’s job

• FolkloreFolklore: IT has made : IT has made organizations flatter, organizations flatter, leaner, more flexible, leaner, more flexible, more virtual, more more virtual, more global, less integrated, global, less integrated, empowered people, empowered people, reduced need for rigid reduced need for rigid control systemscontrol systems

• FactFact: The effects of IT have : The effects of IT have been complex & been complex & contradictory. It has also contradictory. It has also disempowered employees disempowered employees by intensifying surveillance, by intensifying surveillance, increased written increased written communication and some communication and some forms of standardization, forms of standardization, created information created information overloads and shortened overloads and shortened attention spans attention spans

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Allentown Materials Case What is the structure of the Electronic Products Division, and what are the problems with it?

How well aligned is EPD’s structure with its business environment, strategy, corporate culture, and human resource systems?

How did the leadership styles of, first, Bennett and then Rogers affect the functioning of the structure?

What changes would you recommend for EPD?