To accompany contemprory strategy analysis concepts techiniques application chapter06slides

Organization
Organization Structure
Structure and
and
Management
Management Systems
Systems
OUTLINE
• Evolution of the corporation
• Principles of organizational design
• The role of hierarchy: bureaucratic
control vs. modular integration
• Alternative structural forms
• Management systems


Evolution
Evolution of
of the
the Modern
Modern Corporation
Corporation
The business
environment

Strategic
changes

Organizational
consequences

Early
19th
century

Local markets
Transport slow
Limited mechanization

Firms specialized &
focused on local
markets

Small firms.
Simple management structures

Late
19th
century

Introduction of
railroads, telegraph
industrialization

Geographical and
vertical expansion

Functional structures. Line/staff
separation. Accounting systems

Early

20th
century

Excess capacity in
distribution. Growth
of financial institutions & world trade

Product &
multinational
diversification

Development of
multidivisional
corporation


General
GeneralMotors’
Motors’ Organization
Organization Structure,
Structure,1921
1921
Board of Directors
President

GM Acceptance
Corporation

Financial
Staff

Chevrolet
Division

Sheridan
Division

GM Truck
Division

Canadian
Division

Samson
Tractor
Division

Executive Committee

Legal
Department

Oldsmobile
Division

General
Advisory Staff

Buick
Division

Oakland
Division

Cadillac
Division

Intercompany
Parts
Division

Source: A.P. Sloan, My Years with General Motors, Orbit Publishing, 1972, p. 57.

GM Export
Company

Scripps
Booth
Corp.


The
The Basic
Basic Tasks
Tasks of
of Organization
Organization
Achieving high levels of productivity requires SPECIALIZATION
Specialization by individuals necessitates COORDINATION
For coordination to be effective requires COOPERATION

But goals of employees == goals of owners
THE AGENCY PROBLEM
THE ORGANIZATIONAL CHALLENGE:
to design structure & systems that:
 Permit specialization
 Facilitate coordination by grouping individuals & link
groups with systems of communication, decision
making, & control
 Create incentives to align individual & firm goals


Hierarchy
HierarchyEconomizes
Economizeson
onCoordination
Coordination

(a) Self Organizing Team:

(b) Hierarchy:

10 interactions

4 interactions


Hierarchy
Hierarchyof
of Loosely-Coupled
Loosely-Coupled

Modules
Modules Allows
AllowsFlexible
FlexibleAdaptation
Adaptation

Tightly-coupled, integrated
system: Change in any part
of the system requires
system-wide adaptation

Loose-coupled, modular
hierarchy: partiallyautonomous modules linked
by standardized interfaces
permits decentralized
adaptation and innovation


Weber’s
Weber’s Principles
Principles of
of Bureaucracy
Bureaucracy
•
•
•
•

Rational-legal authority
Specialization of labor

Hierarchical structure
Coordination and control through rules
and standard operating procedures
• Standardization employment practices
• Separation of jobs and people
• Formalization of administrative acts,
decisions and rules


Mechanistic
Mechanistic and
and Organic
Organic Forms
Forms
FEATURE

MECHANISTIC

ORGANIC

Task definition Rigid & highly specialized
specialized

Flexible; less

Coordination
& control

Mutual adjustment.l
Cultural control

Rules & directives
imposed from the top

Communication Mainly vertical
Commitment
& loyalty

Horizontal & vertical

To immediate superior
goals & values

To the organization & its

Environmental Stable with low techDynamic, ambiguous,
context nological uncertainty
technologically
uncertain


Designing
Designingthe
the Hierarchy:
Hierarchy: The
The Basis
Basis for
forDefining
Defining
Organizational

OrganizationalUnits
Units and
and their
their Relationships
Relationships

Units may be defined on the basis of Common Tasks, Products,
Geographical Proximity, or Process/Function
Critical issue: Intensity of Coordination—Employees with the greatest
interdependence should be grouped into same organizational unit.
Additional criteria: Economies of Scale, Economies of Utilization,
Learning, Standardization of Control Systems


General
GeneralMotors’
Motors’ Organization
Organization Structure,
Structure,1997
1997
Board of Directors
President’s Council

North
American
Operations

Delphi
Automotive
Systems

GM
Acceptance
Corporation

Corporate Functions

International
Operations

Hughes
Electronics

GM Europe
Midsize
&
Luxury
Car
Group

Small
Car
Group

GM
Power
Train
Group

Vehicle

Sales, &
Marketing
Group

Development
& Technical
Cooperation
Group

Asian &
Pacific
Operations
Latin
American,
African, &
Middle East
Operation


Corporate Executive Office
Chairman & CEO
Service Divisions

GE Aircraft
Engines

GE Transportation

GE Power
Systems

Finance

GE
Industrial
Systems

GE Medical
Systems

GE
Lighting

Corporate Staff
Business
R&D
Development

GE
Plastics

GE
Specialty
Materials

Human
Legal
Resources

GE

Appliances

GE
Supply

NBC

26 businesses organized into 5 segments:
Consumer Mid-market Specialized Specialty
Services
Financing Financing
Insurance

General
GeneralElectric’s
Electric’sOrganization
OrganizationStructure,
Structure,2002
2002

GE
Capital

Equipment
Management


Mobil
MobilCorporation,
Corporation,1997

1997
Board of Directors
CEO
Executive Office
Corporate Center

North
America
Asia/
Pacific

Support Services

New
Exploration
Europe
& CIS

Shipping

Africa &
Middle
East

Worldwide
LNG & IPP

Technology

South

America
North
America
M&R

Worldwide
Chemicals


Royal
RoyalDutch/Shell
Dutch/ShellGroup,
Group,1994:
1994:AAMatrix
MatrixStructure
Structure


The
The Generic
GenericStrategic
StrategicPlanning
PlanningCycle
Cycle

Corporate
Guidelines

Draft

Discuss

Revised

Business

with

Business

Plans

Corporate

Plans

Forecasts/
Scenarios/

Approval
by
Board

Corporate

Planning
assumptions

Plan
Capex

Performance
Review

Annual
Performance
Targets

Budget