Lecture management a pacific rim focus chapter 10 strategic organisation design

CHAPTER 10
STRATEGIC ORGANISATION
DESIGN

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Lecture outline
•
•
•
•
•

Overview: Organisation structure design
Assessing structural alternatives
Weighing contingency factors
Matching strategy & structure
Promoting innovation

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Organisation structure design
• Strategy & structure: which comes first?
– Strategy & structure are closely linked with each
other.
– Mismatches in strategy/structure lead to
difficulties.

• Factors influencing organisation design

– Contingency factors: technology, size,
environment.
– Need to promote innovation: roles, differentiation,
transfer processes.
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Organisation structure design
Contingency
Contingencyfactors
factors
••Technology
Technology
••Size
Size
••Environment
Environment

Strategy
Strategy

Organisational
Organisationalgoals
goals
Organisation
structure
Organisation structure
(efficiency
&&
(efficiency

••Functional
Functional
effectiveness)
••Divisional
effectiveness)
Divisional
••Hybrid
Hybrid
••Matrix
Matrix
Structural
Structuralmethods
methodsfor
for
promoting
promotinginnovation
innovation
••Roles
Roles
••Reservations
Reservations
••Differentiation
Differentiation
••Transfer
Transferprocesses
processes

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Assessing structural
alternatives
•
•
•
•
•

Functional structure
Divisional structure
Hybrid structure
Matrix structure
Emergent structure

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Assessing structural
alternatives
Functional structure
Structure in which positions are grouped according
to their main functional (or specialised) area.
CEO

Manager,
Manufacturing

Manager,
Distribution

Manager,
Administration

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Functional structure
Advantages

Disadvantages

• In-depth expertise
development.
• Clear career path within
function.
• Efficient use of resources.
• Economies of scale
(possible).
• Ease of co-ordination.
• Technical advantage on
competition.

• Slow response re:
multifunction problems.
• Decision backlog at top of
hierarchy.
• Bottlenecks re: sequential
tasks.
• Inexact measures of
performance.

• Narrow training of future
managers.

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Assessing structural
alternatives
Divisional structure:
Structure in which positions are grouped
according to similarity of products, services
or markets.

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Assessing structural
alternatives
CEO,
CEO, Alpha
Alpha Industries
Industries

Chief
ChiefGeneral
General
Manager
Manager
Copier
Copierproducts

products

Chief
ChiefGeneral
General
Manager
Manager
Photographic
Photographic
products
products

Chief
ChiefGeneral
General
Manager
Manager
Scanner
Scannerproducts
products

Chief
ChiefGeneral
General
Manager
ManagerComputer
Computer
Storage
products
Storage products

Chief
ChiefGeneral
General
Manager
Manager
Industrial
Industrial
Imaging
Imagingproducts
products

Chief
ChiefGeneral
General
Manager
Manager
Marine
MarineElectronic
Electronicproducts
products

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Divisional structure
Advantages

Disadvantages

•

•

•
•
•
•
•

Fast response to environmental
change
Simplified co-ordination across
functions
Simultaneous emphasis on
organisational goals
Strong customer orientation
Accurate measurement of
performance
Broad training in management
skills

•
•
•
•
•

Resource duplication in each
division

Reduction of in-depth expertise
Competition amongst divisions
Limited sharing of expertise
between divisions
Innovation restricted to each
division
Neglect of overall goals

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Assessing structural
alternatives
Hybrid structure:
Structure adopting both functional and
divisional structures at the same
management levels.

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Hybrid structure
Advantages
• Alignment of corporate
& divisional goals.
• Functional expertise
&/or efficiency.
• Adaptability & flexibility
in divisions.

Disadvantages
• Conflicts between
corporate departments
& divisions.
• Excessive
administration
overhead.
• Slow response to
exceptional situations.

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Assessing structural
alternatives
Matrix structure:
Structure superimposing a horizontal set of
divisional reporting relationships onto a hierarchical
functional structure.

Appropriate when:
• Need for a strong focus on both functional &
divisional dimensions.
• Need to quickly process information & co-ordinate
activities.
• There is pressure for shared resources.
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Assessing structural

alternatives
GM,
Transport
Manager,
Business A
Manager,
Business B
Manager,
Business C
Manager,
Business D
Manager,
Business E

GM,
Sales

GM,
HRM

GM,
Finance

Transport,
Business A

Sales,
Business A

HRM,

Business A

Finance,
Business A

Transport,
Business B

Sales,
Business B

HRM,
Business B

Finance,
Business B

Transport,
Business C

Sales,
Business C

HRM,
Business C

Finance,
Business C

Transport,

Business D

Sales,
Business D

HRM,
Business D

Finance,
Business D

Transport,
Business E

Sales,
Business E

HRM,
Business E

Finance,
Business E

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Matrix structure
Advantages

Disadvantages

• Decentralised decisionmaking.
• Strong product coordination.
• Improved environmental
monitoring.
• Flexible use of human
resources.
• Efficient use of support
systems.
• Fast response to change.

• High administrative costs.
• Confusion over authority &
responsibility (potential).
• Excessive focus on internal
relations.
• Overemphasis on group
decision making.
• Slow response to change
(possible).

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Assessing structural
alternatives
Emerging structures:
• Process structure
Type of departmentalisation where positions are grouped by
a complete flow of work.

• Networked structure
Form of organising where many functions are contracted out
to other independent firms & coordinated by use of
information technology networks to operate as if they were
within a single corporation.
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Weighing contingency factors
The best structure for an organisation depends
on contingency factors such as:
• Technology
• Size
• Environment.

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Weighing contingency factors
Technology:
• Technological complexity (Woodward)
– Unit & small batch production
– Large batch & mass production
– Continuous process production

• Technological interdependence (Thompson)
– Pooled interdependence
– Sequential interdependence
– Reciprocal interdependence

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Weighing contingency factors
•• Four
Four trends
trends
With
Withgrowth:
growth:
more
moredepartments,
departments,
shift
shiftfrom
fromfunctional
functional
to
todivisional
divisionalform
form
With
Withgrowth:
growth:
additional
additionalrules
rules
&®ulations
regulations
(formalisation)

(formalisation)

With
Withgrowth:
growth:
more
morestaff
staffpositions
positions
to
toassist
assistsenior
senior
management
management
With
Withgrowth:
growth:
tendency
tendencyto
todecentralise
decentralise
(enabled
(enabledby
by
formalisation)
formalisation)

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Weighing contingency factors
Stable environments,
mechanistic

Unstable/uncertain
environments, organic

•

•

Narrow tasks, prescribed
tasks, hierarchical control,
decision-making levels,
communication vertical,
instructions by superiors,
loyalty to organisation &
obedience to superiors

General tasks, tasks subject to
continuous negotiation, network
control, decision making rests with
those with knowledge,
communication across & between
levels, ‘supervision’ is information
& advice, commitment to
organisational goals, possession of
expertise

•• Lawrence
Lawrence&&Lorsch:
Lorsch:Balance
Balanceofofdifferentiation
differentiation&&integration
integration

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Matching strategy & structure
Managers must match strategy & structure to
achieve effectiveness e.g:
Niche
Niche
differentiation:
differentiation:
–narrow
–narrowtarget
targetmarket
market

Cost
Costleadership:
leadership:

Innovative
Innovative
differentiation:
differentiation:

Market
Marketdifferentiation:
differentiation:
––advertising,
advertising,prestige
prestige

–complex
–complexproduct
product
ororservice
serviceinnovations
innovations

–organisational
–organisational
efficiency,
efficiency,
lower
lowerprices
prices

pricing
pricing&&
market
marketsegmentation
segmentation

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Promoting innovation
Structure’s ability to support strategy can be
enhanced by using structural means to
encourage innovation.
Innovation is critical to various differentiation
strategies.

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Promoting innovation
Four major means of using organisation
structure to facilitate innovation are:
• Vital roles
Idea champion, sponsor, orchestrator.

• Reservations
Organisation units devoted to the generation of innovative
ideas.

• Differential paradox
Separating innovation process decreases chance of
implementation.

• Transfer process
The difficulty of translating ideas into products/services.
© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint

Lecture summary
• Overview: Organisation structure design
– Strategy & structure closely linked.
– Factors influencing design: contingency factors, need for
innovation.

• Assessing structural alternatives
– Functional, divisional, hybrid, matrix, emerging structures.

• Weighing contingency factors
–

Technology, size, environment.

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint


Lecture summary
• Matching strategy and structure
– Structure must match chosen strategy for effectiveness.

• Promoting innovation
– Structure may enhance innovation.
– Key factors: vital roles, reservations, differential paradox,
transfer process.

© 2003 McGraw-Hill Australia Pty Ltd. PowerPoint