Organizational Design, Effectiveness, and Innovation

Chapter Seventeen
McGraw-Hill/Irwin 2013 The McGraw-Hill Companies, Inc. All rights reserved.
Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives
LO.1 Describe the four characteristics common to all organizations, and explain the difference between closed and open systems. LO.2 Define the term learning organization. LO.3 Review the factors that hinder an organizations ability to learn from success and failure. LO.4 Describe seven basic ways organizations are structured. LO.5 Discuss Burns and Stalkers findings regarding mechanistic and organic organizations.
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Learning Objectives (cont.)

LO.6 Identify when each of the seven organization structures is the right fit. LO.7 Describe the four generic organizational effectiveness criteria. LO.8 Discuss the difference between innovation, invention, creativity, and integration. LO.9 Review the myths about innovation. LO.10 Explain the model of innovation.

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What is an Organization?
Organization
system of consciously coordinated activities or sources of two or more people.

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What is an Organization?
Four common denominators
Coordination of effort Common goal Division of labor Hierarchy of authority

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What is an Organization?
Unity of command principle
each employee should report to a single manager.

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Question?
At Creative Calendars, Inc., each employee reports only to one manager. This reflects:

A.The division of labor. B.Coordination of effort. C.A narrow span on control. D.The unity of command principle.

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Organization Charts
Organization chart
a graphic representation of formal authority and division of labor relationships

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Dimensions of an Organizational Structure

Hierarchy of authority Division of labor

Spans of control

Line and staff positions

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Sample Organization Chart for a Hospital

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Organization Charts
Span of control
the number of people reporting directly to a given manager.

Generally, the narrower the span of control, the closer the supervision and the higher the administrative costs as a result of a higher manager-to-worker ratio.

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Organization Charts
Staff personnel
Do background research and provide technical advice, and recommendations to line managers.

Line Managers
have authority to make organizational decisions.

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An Open-System Perspective
Closed System
self-sufficient entity, closed to the surrounding environment.

Open System
depends on constant interaction with the environment for survival

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The Organization as an Open System

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Learning Organizations
Learning organization
one that proactively creates, acquires, and transfers knowledge and that changes its behavior on the basis of new knowledge and insights

Team mental model

represents team members shared, organized understanding and mental representation of knowledge about key elements of the teams relevant environment
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Factors That Detract from an Organizations Ability to Learn from Failure

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Organization Design
Organizational design
The structures of accountability and responsibility used to develop and implement strategies, and the human resource practices and information and business processes that activate those structures

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Traditional Design
Functional structure
groups people according to the business functions they perform, for example, manufacturing, marketing, and finance

Divisional structure
groups together activities related to outputs, such as type of product or customer

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Traditional Design
Matrix structure
combines functional and divisional chains of command to form a grid with two command structures

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Matrix Structure

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Principles for Designing a Horizontal Organization

1. 2. 3. 4.
Organize around complete workflow processes Flatten hierarchy and use teams to manage everything Appoint process team leaders to manage internal team processes Let supplier and customer contact drive performance Provide required expertise from outside the team as required
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5.

Designs That Open Boundaries between Organizations

Hollow structure
organization identifies core competencies and outsources noncore processes to vendors who can do them cheaper or faster

Modular structure
Outsources parts of a product instead of processes

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Question?
Chad has developed a new product to improve gas mileage. He has formed a new venture but must outsource his marketing and distribution. His firm has a _________ organization.

A.Functional B.Divisional C.Matrix D.Hollow

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Designs That Open Boundaries between Organizations

Virtual organization
organization identifies partners with the needed talents and negotiates an agreement in which the participants typically work in separate facilities, linked by technology

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The Contingency Approach to Designing Organizations

Contingency approach to organization design
organizations tend to be more effective when they are structured to fit the demands of the situation

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Mechanistic versus Organic Organizations

Mechanistic organizations
Rigid bureaucracies with strict rules, narrowly defined tasks, and top-down communication.

Organic organizations
Flexible networks of multitalented individuals who perform a variety of tasks

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Characteristics of Mechanistic and Organic Organizations

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Different Approaches to Decision Making

Centralized decision making
key decisions are made by top management

Decentralized decision making

important decisions are made by middle- and lower-level managers

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Question?
Bankers International (BI) can be described as a rigid bureaucracy with strict rules, narrowly defined tasks and top-down communication. BI can also be described as a(n) __________ organization. A.Mechanistic B.Organic C.Decentralized D.Wide-span

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Getting the Right Fit

A functional structure can save money by grouping together people who need similar materials and equipment Divisional structures increase employees focus on customers and products

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Getting the Right Fit

A successful matrix structure requires superior managers who communicate extensively, foster commitment and collaboration, manage conflict and negotiate effectively to establish goals and priorities consistent with the organizations strategy

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Getting the Right Fit

Horizontal designs improve coordination and communication Organizations that become hollow, modular, or virtual can generate superior returns by focusing on what they do best

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Question?
Oneal, CEO of Fredhandbag HobbyTown, wants to improve the communication in his firm. He should change to a _________ organization.

A.Functional B.Matrix C.Horizontal D.Modular

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Four Dimensions of Organizational Effectiveness

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Generic Effectiveness Criteria

Goal accomplishment
Key organizational results or outputs are compared with previously stated goals or objectives most widely used effectiveness criteria

Resource acquisition
organization is effective if it acquires necessary factors of production

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Question?
Sherman, a new manager at Get Well Industries, is interested in learning about the most likely used effectiveness criterion for organizations. Which of these would you recommend to Sherman? A.Goal accomplishment B.Resource acquisition C.Internal processes D.Strategic constituencies satisfaction

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Generic Effectiveness Criteria

Internal processes
focuses on what the organization must excel at to effectively meet its financial objectives and customers expectations.

Strategic constituencies satisfaction

Strategic constituency: any group of people with a stake in the organizations operation or success.

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Organizational Innovation
Innovation
Creation of something new that is used by consumers.

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Seeds of Innovation
1. Hard work in a specific direction 2. Hard work with direction change 3. Curiosity and experimentation 4. Wealth and money 5. Necessity 6. Combination of seeds

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Video: One Smooth Stone

The corporate event planning industry is very dynamic. What characteristics of One Smooth Stone help it to remain competitive and successful in this industry? Why wont the premises of organization theory proposed by theorists like Fayol and Weber work for organizations in a dynamic environment? Why wont they work with knowledge workers? How important is it to ensure that the values of outsourcing partners align with One Smooth Stones? Why?
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