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

distinction. Accounting systems

Early
20th
century

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

Product &
multinational
diversification

Development of
multidivisional
corporation

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
ORGANIZATIONAL CHALLENGE: design structure & systems
that:
Permit specialization
Facilitate coordination by grouping individuals & link
groups with systems of communication, decision making,
& control
Deploy incentives to align individual & firm goals

How
How Hierarchy
HierarchyEconomizes
Economizeson
onCoordination
Coordination

(a) Self Organizing Team:

(b) Hierarchy:

10 interactions

4 interactions

Hierarchy
HierarchyAllows
AllowsFlexible
FlexibleAdaptation
Adaptation

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

Loose-coupled, modular
hierarchy: organizing a
complex system into subsystems and components
linked by standardized
interfaces permits
decentralized adaptation

Webers
Webers 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

Flexible; less specialized

Coordination
& control

Rules & directives

imposed from above

Mutual adjustment.l
Cultural control

Communication Mainly vertical

Horizontal & vertical

Commitment
& loyalty

To immediate superior

To the organization & its

goals & values

Environmental
context

Stable with low technologival uncertainty

Dynamic, ambiguous,
technologically uncertainty

Designing
Designingthe
the Hierarchy:
Hierarchy: The
The Basis
Basisfor
for Defining
Defining
Organizational
Organizational Units
Unitsand
andtheir
theirRelationships
Relationships

Units may be defined on the basis of Common Tasks, Products,

Geographical Proximity, or Process
Critical issue: Intensity of CoordinationEmployees 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
OrganizationStructure,
Structure, 1997
1997
Board of Directors
Presidents 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

General
GeneralElectrics
ElectricsOrganization
OrganizationStructure,
Structure, 1995
1995
Corporate Staff Functions:
Tax, Treasury, Audit. M&A,
Legal, Business Public
Relations, Government
Development Relations,
Leadership Development

Board of Directors
Corporate Executive Office

Aircraft
Engines

Appliances

Capital
Services

Industrial
Power
Systems

Lighting

Medical
Systems

Service Divisions
Aerospace
Environmental
Technology
Programs

GE
Supply

NBC

Plastics

Licensing/
Trading

Electrical
Distribution
& Control

Information
Services

Marketing
&Sales

Motors

Transportation
Systems

Mobil
Mobil Corporation,
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
Americ
a M&R

Worldwide
Chemicals

The
TheGeneric
GenericStrategic
StrategicPlanning
Planning Cycle
Cycle

Corporate
Guidelines
Forecasts/
Scenarios/
Planning
Assumptions

Draft

Discuss

Revised

Business

with

Business

Plans

Corporate

Plans

Approval
by
Board

Corporate
Plan
Capex
Performance
Review

Annual
Performance
Targets

Budget