Imagining Organizations

Prof. Subir Verma

Images of Organization
 Machine

• Classical Management Principles

• Scientific Management or McDonaldization
• Weber’s bureaucracy
• Dehumanization
• Re-engineering movement is all about creating
technical fixes
• Emphasis on productivity and efficiency
 Organism

▫ Organizations are “open systems”

▫ Adaptation to Environment: Differentiation and
Integration
▫ Organizational life cycles
▫ Org Health and Development: Elton Mayo and
Maslow; participative management
▫ Different species of organizations: mechanistic vs
organic
▫ Species and Ecology: from “Survival of the fittest
to the Survival of the fitting”
 Brain
• Brain is a processor/memory bank/ complex
computer/ holographic system.
• Scientists have shown that rats can survive with
large part of brain removed.
• Technology has allowed for virtual organizations
• Focus on learning abilities and processes that stunt
or enhance organizational intelligence.
• Single Loop Learning (Budget) vs Double Loop
Learning (ringi mechanism)
 Brain
Chaos Theory:
• Unpredictability, The “butterfly effect”,
• Chaos & Lack of order, structure and
systems & Importance of actions (JIT
Strategy)
• Attractors in a complex system.
• Self Organizing Principles viz. redundancy,
requisite Variety, minimum specification,
learning to Learn and organizing for change
 Culture
• Cross-national variations in cultural style
• Each organization has its own unique culture
• Rule following vs. Rule enactment; Shared
Enactment of Organization, Environment,
Leadership and Management
• Organization Culture or Cultures in Organizations?
• Organization rests in shared meetings that allow
people to behave in organized ways
• Culture Building: Assimilation vs Acculturation
• Ethnocentrism; Group behavior
 Political
• Organization and management is a political
process
• There are different styles of government
• Organization becomes politicized because of
divergent interests of individuals and groups
• Conflict is a natural property of every organization
• There are different sources of power and base for
advantage
 Psychic Prisons
• Organization always has unconscious
significance.
• Frozen mindsets and unconscious forces can
make people resist innovation and
organizational change.
• Group Think; Path Beaten Competencies,
Favoured way of thinking and acting
• Transitional Phenomena
 Domination
• Organizations are systems that exploit their employees, the
natural nvironment, and the global economy for their own
ends,
• Rationality as Domination
• Workaholism and social/mental stress is the price inflicted
on one group in service to another.
• Global corporations exploitation of people and resources –
what British Prime Minister, Edward Heath, once described
as “the ugly face” of organizational life.
• Max Weber outlined 3 types of domination: Charismatic;
Traditional and Rational
 Reading Multicom--Metaphors
• Machine: An organization drifting into a mechanistic
mode of operation
• Organism: An organization drifting out of alignment
with the challenges of the external environment
• Brain: A holographic, team based learning
organization that is being bureaucratized
• Culture: A corporate culture in transition: The flexible
and dynamic essence of the old Multicom being
reproduced in Media 2000
• Political: A politicized organization that has
factionalized and been transformed in pursuit of the
competing interests of the four principals
 Reading Multicom
• Psychic Prison: An organization that has been shaped by
conflicting ideologies of what it means to get organized
and by unconscious needs to control and reduce
uncertainty
• Flux & Transformation: An organization drawn towards
two different attractor patterns, one resulted in the
restyled Multicom; the other generated Media 2000.
• Domination: A white collar middle class organization
serving the interests of its clients
• Thank You
 What are Organizations ?

• All Organizations are social entities that are goal

directed, deliberately structured activity system with a
permeable boundary.
•4 key elements in all organizations
1. Social Entities
2. Goal Directed
3. Deliberately Structured Activity
4. Permeable Boundary
 Why do Organizations Exist?

To create and provide value through

1. Specialization and division of labour
2. Use of large scale technology to obtain
economies of scale and scope
3. Management of external environment
4. Economizing on transaction costs
5. Exertion of power and control
 Organizations vs Individual Behaviour

• Organizations are actors

• Real, because of the life cycle metaphor

• Actions & decisions of an organization exists

beyond the pale of individuals composing it.

• Organizational factors determine decision making

• Organizations have outcomes

 Some Typologies of Organizations
• Profit - Not for profit: in terms of goals
• Formal -Informal: in terms of processes
• Large-Small: in terms of size
• Public- Private: in terms of ownership
• Mutual benefit - businesses- commonweal: In terms of Who
Benefits (Blau and Scott)
• Democracy- autocracy: on the nature of participation.
• Mechanistic- Organic: in terms of management practices/style.
• Bureaucracy-Adhocracy: structuring based on the contingencies
organizations face (Mintzberg)
 Organization as an Open System
• A System is a set of interacting elements that acquires
inputs from the environment, transforms them and
discharges the outputs to the environment.
• The dependency of the organization on the exchange of
resources in both product market and resource markets
embeds it in the environment.
• As a result organizations tend to co-evolve with their
environment.
 Firm as an Open System
“Boundary” of the firm
Strategic Logic of the firm
Flow of decisions, resources,
information, knowledge and incentives

Management Processes

Resources and Capabilities Resource

Flow of
data and Operations
resources markets
Products

Competition
for resources

Product
Product Market competition Competitors
Systems and Roles in Organizations

Boundary Spanning
 Five Parts of Organization

Strategic Apex
Techno-Structure Support Staff

Middle
Line

Operating Core
 Members & Units of Mfg org.
Board of Directors Legal
President counsel
Strategic planning Ex. Committee President’s Staff P.R
Controller I.R
Personnel Trainer VP Ops VP Mkt R&D
Op Research
Prod. Scheduler Plant RS Mgrs Pricing
Work Study Mgrs Payroll
Dist. S. Reception
Tech Clerks Foreman Mgrs

Purchasing Machine Assemblers Salesmen

agents Operators
 23

Organizational
Effectiveness
Prof. Subir Verma
 24

Organizational Effectiveness
• Issue of definition
• Is it the degree to which an organization realizes
its stated goals ?
▫ Whose Goals
▫ Stated or Actual
▫ One Goal or Many

• How to measure? Could be both Intended and

unintended activities of organization
 25

Goals
• Official goals and Operative Goals

• Performance, Resource acquisition, Market

development, Employee development,
Innovativeness, Productivity etc.

• Managing Multiple Goals: Bargaining and

Satisficing
 26

Why goals are important

They provide:
• Legitimacy
• Employee Direction
• Motivation
• Decision Guidelines and Standards of
Performance
 27

Traditional effectiveness approaches

They have focused on the different parts of the organisation for
the measurement of effectiveness.

Organisation
internal Products and
Resource inputs activities service
and processes outputs

System resource Internal process Goal Approach

approach approach
 28

Goal Approach
• Definition: It identifies organisation output goal and assesses how
well the organisation has achieved them.

• Indicators: Official goals are abstract and diffuse. Operative goals are
better indicants of how well the organisation is performing. profit,
customer satisfaction, output-growth, market share, product quality,
financial strength and stability.

• Application: organisation frequently measure their effectiveness in

terms of the output measures. Issues are multiple goals which cannot
be achieved simultaneously and their subjective interpretation.
 29

System Resource Approach

Definition: lt is the ability of the organisation to exploit its
environment in the acquisition of scarce and valued
resources.
Indicators:
• Bargaining position of the organisation vis-a-vis its
environment
• Ability to scan, diagnose and interpret the environment
• Ability of the organisation to respond and adapt to
environmental changes.
Applicability
For measuring the output of the organisation as in
educational and not-for-profit organisations.
 30

Internal Process Approach

Definition: It is the ability of the organisation to
process the resources it has and is reflected in its
internal health and efficiency
Indicants:
1. Healthy Human relations: Corporate Culture,
Team spirit, commitment, subordinate
development and constructive conflict
management
2. Efficiency and Productivity
 31
Contemporary effectiveness approaches

• These approaches are integrative and acknowledges that

the organisations do many things and have several
outcomes.

Stakeholder approach
Definition:
• It asserts that there are multiple stakeholders in and of an
organisation who have a stake in organisation’s
performance.. Evaluating how organisations perform across
stakeholder groups offers an overall assessment of
effectiveness
 32

Indicators : Each stakeholder has different criterion of effectiveness

because it has different interest in the organisation.

Stakeholder Effectiveness Criteria

1. Owners Financial return
2. Employees Worker satisfaction, pay and supervision
3. Customers Quality of goods and services
4. Creditors Credit-worthiness
5.Community Contribution to community affairs
6. Suppliers Satisfactory transactions
7. Government Obedience to laws, regulations.
 33
Competing Value Approach

• Developed by Robert Quinn and John Rohrbaugh

• Indicators are based on the dominant value dimensions

which relates to 2  2 matrix:

▫ Focus: concern of the management viz. Internal Efficiency

and Health vs. External Well-being.
▫ Flexibility: organization structure viz. Stability through top
down control vs. Flexibility for change and Adaptability

• The combination of these values provide the four models

for assessing organisational effectiveness and the choice
points for the management.

Competing Value Approach
FOCUS
Human Relations Emphasis
Primary Goal: HRD
Flexibility Sub-Goals: cohesion,
morale, training
STRUCTURE Internal Process Emphasis
Primary Goal: Stability,
equilibrium
Control Sub-Goals: information
management,
communication
Internal
34
Open System Emphasis
Primary Goal: Growth,
resource acquisition
Sub-Goals: flexibility,
readiness, external
evaluation
Rational Goal Emphasis
Primary Goal: Productivity,
efficiency, profit
Sub-Goals: planning, goal
setting
External
 A Model of Organizational Design
Structure

t o ry
H is

Style Shared Values Staff/Skills

Systems Strategy
Design for sustainable excellence: Internal
and External Fit
Structure

t o ry
H is
Style Staff/Skills
Internal Fit
Shared Values

Systems Strategy
External Fit

Environment
Dimensions of Organization design

• Structural Dimensions
Complexity, Formalization, Centralization

• Contextual Dimensions
Size, Environment, Strategy, Technology, Culture
 38

Organization and
Environment

Prof. Subir Verma

 39

Environment and Firm—2 views

• Environment is composed of those

institutions or forces that affect the
performance of the organization but over
which the organization has little or no
direct control.

• Environment includes the entire universe

minus the subset that represents the
organization.
The Organizational Environment
 41

General vs. Specific Environment

General environment encompasses all the

conditions--political, economic, legal etc. that may
impact the organization potentially, but their
relevance is not overtly clear.

Specific environment includes everything and

everyone who are the stakeholders in the
organization. Here the notion of domain is
important.
 42

Domain

 Domain is the claim which the organization

makes with respect to the products/services and
geographic market. The domain identifies the
company’s niche. Domain is important in that the
domain defines the nature and the limits of the
specific environment.
 43

The Contingency from the Environment

• Environment influences
Organization for 2 reasons:
▫ Source of Information
▫ Source of Resources

• Two Concepts:
▫ Uncertainty
▫ Munificence
 44

Environmental Uncertainty

• Due to Insufficient information about

environmental factors; and
• Due to Difficulty predicting external
changes
• Environmental uncertainty leads to risk of
failure.
• Perceived Environmental Uncertainty is
more important
 Sources of Uncertainty in the
Organizational Environment

1. Environmental complexity: the strength,

number, and interconnectedness of the specific
and general forces that an organization has to
manage
2. Environmental dynamism: the degree to which
forces in the specific and general environments
change quickly over time
3. Environmental richness: the amount of
resources available to support an organization’s
domain
Three Factors Causing Uncertainty
 Framework for assessing environmental uncertainty
Simple + Stable = Low
Uncertainty
 Small nos. of external
elements which are similar
 Elements remain the
same/change slowly
Eg. Soft drink bottlers, beer
distributors, hardware shops
Change etc.
Simple + Unstable = Moderate
Uncertainty
 Small no of external
elements which are similar
 Elements change
frequently and unpredictably
Eg. Personal computers,
fashion clothing, music
industry, toy manufacturers
Complexity
47
Complex + Stable =
Moderate Uncertainty
 Large no. of external
elements that are dissimilar
 Elements remain the
same/change slowly
Eg. Universities, insurance
cos,. Chemicals cos.
Complex + Unstable =
High Uncertainty
 Large no. of external
elements and elements are
dissimilar
 Elements change
frequently and
unpredictably
Eg. Electronic, Telecom
firms, Airlines, oil industry
etc.
 48

Strategies to reduce uncertainty

1. Just Exploit. Forego/postpone exploration

2. Buffer: to absorb uncertainty.
 Slack
 Strategic alliances and Joint Ventures

3. Boundary Spanning: activities to detect and

bring into organization the information from the
environment as also to send information to the
environment
 49

Strategies to reduce uncertainty

4. Differentiation and Integration:

 Differentiation is the difference in cognitive and
emotional orientations among managers in different
functional departments and difference in their formal
structure among these departments.
 Integration is the quality of collaboration between
departments. It could be carried out by liaison
personnel, brand managers or coordinators such as
hierarchy or rules and regulations.
 50

Lawrence and Lorsch

• Different departments have different degree of

differentiation and integration because of the
contingency of their environment.
 51
Characteristic R&D dept Mfg dept Sales dept

Environment Sc journals Raw materials, Customers, advertisers,

research labs, labor, suppliers, competitors,
Scientific equipments distributors
associations

Goals New Products, Efficiency Customer Satisfaction

Quality

Time Horizon Long Short Short

Interpersonal Mostly task Task Social

orientation

Structure Low formality High formality High Formality

 52
BURNS AND STALKER

Characteristic Mechanistic Organic

Task Division Broken down into Employees contribute
specialized separate to the common task
parts
Task definition Rigid Flexible

Communication Vertical Lateral

Formalization High Low

Influence Authority Expertise

Control Centralized Diverse

 53

Controlling Environmental Resources

Establishing Inter- Controlling the
organizational Linkages Environmental Domain

 Ownership through M&A  Change of Domain

 Contracts, Joint Ventures  Political Activity,

Regulation
 Cooptation, Interlocking  Trade Associations
Directorates
 Executive Recruitment  Illegitimate Activities

 Advertising, P.R.

•Transaction Costs and Bureaucratic Costs

 Interorganizational Strategies for Managing
Uncertainties because of Resource Dependencies
• Interdependencies that needs to be managed.
▫ Symbiotic interdependencies:
interdependencies that exist between an
organization and its suppliers and distributors

▫ Competitive interdependencies:
interdependencies that exist among organizations
that compete for scare inputs and outputs
 55
Strategies for Managing Symbiotic Resource Interdependencies

Reputation
•Co-optation •Strategic Mergers
•Interlocking Alliances and
Directorate Networks Takeover
Minority s
Ownership
Joint Ventures
Informal Formal

Collusion 3rd Party Mergers &

Strategic
Cartel Linking Acquisitions
Alliances
Mechanism

Strategies for Managing Competitive Resource Interdependencies

 56

Strategy

• Strategy: is the determination of the basic long

term goals and objectives of the enterprise and the
adoption of courses of action and the allocation of
resources necessary for carrying out these goals.
• Strategy consists of the following:
 Vision
 Mission
 Core Values
 Goals
 Plan of Action
 Activities subserving chosen strategic position
 57

Strategy and Structure

 Chandler’s structure-follows-strategy thesis:

Transition from simple to functional to Divisional
Structures with the firm’s growth strategy.
 Miles and Snow: Prospector-Analyzer-Defender
Strategy
 Michael Porter: Cost- Differentiation-Strategy and
impact on Structure
 Miller’s Framework: Internal and External Fit
 Strategy and Organizational Ambidexterity
 58

Organizational Effectiveness

• The Contingency Theory: Search for “Fit”

▫ If-then, determinism, adaptation
• The Strategic Choice School: Search for “Misfit”
▫ Intent & BHAG, Designing, built to Last
• The Configuration Approach: May Hundred
Flowers bloom
▫ Range of Possibilities, Fit and Equifinality
Nadler & Tushman’s Congruence Model
Transformation

Informal Output
Context Organization

Formal
Environment Organizat Organizati
Resources Strategy on
Task ional
History Arrange Group
ments Individual

Individual

Feedback
 Star Model: effects of Misalignment

Structure Reward People

Strategy Processes
System Practices

If strategy is If structure is If development If the metrices If people

missing, not aligned to of coordinating & rewards are’nt enabled
unclear or not strategy mechanism is don’t support & empowered
agreed left to chance the goal

Low
Confusion Friction Gridlock Competition Performance

•No Common • Inability to • Low collaboration • Wrong results • Effort without

mobilize • Long Decision cycle • Diffused energy
Direction results
resources • Low innovation • Low standards •
•No criteria for Low employee
• Ineffective • Distorted sharing of • Frustration &
decision making satisfaction
execution information & best Attrition • Low motivation
practices
 Current Challenges
• Globalization:
▫ Markets, Technologies and Organizations
have become interconnected
▫ Global outsourcing of activities and
functions
▫ Strategic partnering at global levels
• Intense Competition
▫ How to cut costs, price right, differentiate
uniquely through innovation

• Ethics and Social Responsibility

 Current Challenges
• Speed & Responsiveness:
▫ Environmental Changes,
▫ Technological Development
▫ Customer Expectations
▫ Organizational crisis
• The Digital Workplace
▫ Men, work-stations & teams are connected
electronically and enmeshed with suppliers,
contractors and customers thru e-network
▫ Men have to manage work and relationships
• Diversity: Gender, Millenials, Countries/races &
Aging
 63
Achieving Organizational Effectiveness
Corporate culture
 Climate of trust
 Productivity
Organisation Design through People
 Simple form, lean  Long Term View
staff
Top Management  Decentralisation
 Leadership vision to increase
Strategic Orientation  Bias toward entrepreneurship
 Close to customer action  Simultaneous
 Fast response  Minimal loose-tight
 Clear Business Rationality properties
Focus
 64

• Thank You
Organizational Structure
Prof. Subir Verma
 Definition

• Structure refers to the formal

configuration between individual and
groups with respect to the allocation
of tasks, responsibilities, and
authority within an organization.
 Organizational Structure

• At times built; Could be/Are imitations; Reflect the

current fad in their design.

•
• They are emergent, a medium of control and a

product of interaction.

• They are both constituted and constitutive!

 Structure Perform 3 functions

1. They produce organisational outcomes and achieve

organisational goals.

2. They are designed to minimise/ regulate individual

variations on the organisation.

3. Structures are settings in which power is exercised,

in which decisions are made and in which
organisation activities are carried out
 Dimensions of Structure

1. Complexity

2. Formalization

3. Centralization
 Complexity

It refers to the degree to which the activities in

the organization is broken up or
differentiated.

It consists of 3 elements
1. Horizontal Differentiation
2. Vertical Differentiation
3. Spatial Dispersion
 Horizontal Differentiation
It refers to the subdivision of tasks performed in the
organization.

• Give specialist a rather comprehensive range of

activities (craftsmen--social differentiation);

• Break down the task to a minutest detail so that

anyone can perform them (assembly line—

functional differentiation or DOL).

 Vertical Differentiation
• It is the measure of the depth in the organization

• Based on either

 The number of levels between the top-most

position and the lowest level of workers in a
division; or

 A mean number of levels for the organization as a

whole.
 Spatial Dispersion
It is dispersion of activities & personnel in space,
due to horizontal or vertical differentiation or the
separation of power centres or tasks.
• Indicants:
▫ The degree to which physical
facilities/personnel is spatially
dispersed,
▫ The location (distance from the
headquarters.) of the spatially dispersed
facilities/personnel.
 The 3 Elements Interact
• The three dimensions of complexity can vary
independently of each other or together.

• Small firms will have low complexity as against

relatively large and diversified firm

• However, Complexity itself creates problems of

communication, co-ordination and control.
 Formalization

• It refers to the degree of rules and regulations to

programme individual actions and behaviour in
the organization.

• Determines the degree of control over individual

and the way organizations handle contingencies.
 Degree of Formalization

• Maximal: When responses can be programmed.

eg. assembly line production system and automated
information use and sharing system (computers)

• Minimal: When there is no pre-programmed

response to the contingencies either because of lack
of precedent or volatility in the environment. The
decisions and processes are intuitive or experience
based.
 Measures of formalization

• It looks at the degree to which the jobs are codified

(work is standardized) and the range of variations

tolerated (rule observation)

• The make or buy decision and the socialization

process
 Socialization Techniques
▫ Selection
▫ Role Requirements
▫ Rules, Procedures and Policies
▫ Training
▫ Rituals
 Centralization

• It refers to the distribution of power and the locus

of decision making within an organisation

• Decision Discretion and Overriding Policies

• Centralization means concentration of decision

making at a single point and at a higher level

• Centralization is facilitated by monitoring,

information input, decision support system
Top
Autocracy/Centralized.
Few decisions are made
by lower level personnel
and these are governed
by broad policies. Most
decisions are referred to
the Top management
Refer
Level
Collegial / Decentralized.
Most decisions are made
at lower level without policy
restrictions ; other decision
made at the lower level
within the framework of
policies.
Lower
Few Decisions not covered by policies
Bureaucracy/Centralized
Decisions are made by
operating personnel within
the framework of restrictive
policies ,procedures and
rules; problems not covered
must be referred to higher
level for decisions/
clarification
Bureaucracy/Decentralize
d
Decisions are mostly taken
at lower levels within the
framework of the policies;
personnel have discretion
;on problems not covered by
polices.
Many
 Design Challenge 1: Differentiation

• As needs increases, activities multiply, functions

are created so that role, responsibility and

accountability can be fixed. This is called

Differentiation.

But how do you control and coordinate?

Design Challenge 2: Balance Differentiation &
Integration

• Specification of roles and tasks helps coordinate

the work process-- but builds barriers between
people and functions.

The problem of communication and coordination

becomes aggravated.
 Design Challenge 3
Balance Centralization &Decentralization

People in the organization do not want to take

risk or responsibility. They always look to their
boss for direction and supervision.

Result: Decision making is slow and

cumbersome and opportunities are lost
 Design Challenge 4
Balance Standardization and Mutual
Adjustment

People in the organization pay too much

attention to the rules. Whenever a unique/novel

customer need arises or quick and flexible

response is required, rules become constraints.

Choice points for Vertical Linking Mechanisms

High •Vertical information

system
Degree of Vertical
Coordination •Add positions to hierarchy
Required

• Rules and Regulations

• Hierarchical referral
Low
High
Information capacity of the mechanism
 Choice points for Horizontal Linking
Mechanisms

High •Teams

•Full Time Integrators

Degree of
Horizontal •Task Forces
Coordination
Required •Liaison Roles

• Direct Contact

Low High
Information capacity of the mechanism
 PUTTING THINGS BACK TOGETHER

The need to create value/expand value creation

• The impact of environment

• The impact of strategy

• The impact of Task

 Symptoms of Structural Deficiency
1. Decision making is delayed or lacking in
quality:
WHY?
• Hierarchy
• Insufficient Delegation
• Information may not reach the right
people
• Inadequate Horizontal or Vertical
Linkages
 Symptoms of Structural Deficiency

2. The organisation does not respond

innovatively to a changing environment:

WHY?
• Lack of co-ordination between
relevant departments: Marketing,
R&D and Strategic
Symptoms of Structural Deficiency

3. Too much conflict is evident:

WHY?
 Horizontal linkage mechanisms are
not adequate.
Organization Design– Functional (grouping based on
skills)

F u n c tio n a l S tr u c tu r e

In fo - T e c h
P r e s id e n t

R&D M a r k e tin g M a n u fa c tu r in g A c c o u n tin g

 Strength & Weaknesses
1. Economies of scale 1. Slow response to
within functions depts. environmental changes
2. In-depth Knowledge 2. Decisions to pile on top,
and skill development. hierarchy overload.
3. Accomplish functional 3. Poor Horizontal
goals coordination among
4. Is best with only few depts.
products—medium size 4. Less Innovations
organization 5. Restricted view of
organizational goals
Divisional Structure: Product Structure or SBUs
(groupings based on organizational outputs)
D iv is io n a l S t r u c t u r e : P r o d u c t

In fo - T e c h
P r e s id e n t

E le c t r o n ic P u b lis h in g O ffic e A u to m a tio n V ir t u a l R e a lit y

R&D M fg A cct M kt R&D M fg A cct M kt R&D M fg A cct M kt

 Divisional Structure at Microsoft
• 30000 employees; 180 products; 5 layers of management.
• Reorganized into 8 Divisions
1. Business & Enterprise: Windows 2000 for corporate customers
2. Home & Retail: Games, Home Applications, children software &
peripherals
3. Business Productivity group: developing applications like word
processing for Knowledge workers
4. Sales and support: customer segments such as ISPs, Corporates
5. Developer Group: create tools used by corporate programmers
6. Consumer & Commerce: Linking merchants thru MSN portal
7. Consumer Windows Division: make PC usage easier for
consumers
8. Microsoft research: basic research from speech recognition to
advanced computing.
 Strengths & Weaknesses
• Suited to fast change in
unstable environment
• Client satisfaction because
product responsibility and
contact points are clear.
• Involves high coordination
across functions
• Allows units to adapt to
different products, regions,
clients.
• Best in large organizations
with several products
• Decentralizes decision
making
• Eliminates economies of
scale
• Leads to poor
coordination across
product lines
• Eliminates in-depth
competence and
technical specialization
• Makes integration and
standardization across
product lines difficult
 Matrix Structure (Product-Division+functional
Structure)

Conditions for Matrix

1. Pressure exists to share scarce resources across

product lines– part time assignations.
2. Environmental pressure exist for at least 2
outputs: in-depth technical knowledge and
frequent new products—dual authority structure.
3. Environmental domain of organization is both
complex and uncertain.—large amount of
coordination and information processing.
 M a t r ix S t r u c t u r e fo r W o r ld W id e S t e e l

P r e s id e n t

M fg M kt F in S e r v ic e M e t a llu r g y F ie ld S a le s IR
VP VP VP VP VP VP VP

O p e n D ie
B u s in e s s
M anager

R in g P r d s
B u s in e s s
M anager

W h e e ls &
A x le s
B u s in e s s
m anager

s t e e lm a k in g
B u s in e s s
M anager
 Horizontal Structure
• Organized around core processes and not tasks,
functions or geographies
• Eliminates vertical& horizontal boundaries.
• Self directed teams not individuals are the basis of
organization design

• Process owners have responsibility for each process

in its entirety.

• Customers drive the structure. Effectiveness is

measured by end-of-process performance objectives
of value addition, customer satisfaction, employee
satisfaction and financials
 Top
Management
Team

Process Customer
Owner Team1 Team2 Team3

Analysis-- Research—Product planning--Testing

New Product Development Process

Process
Owner Team-1 Team-2 Team-3 Customer

Analysis-- Purchasing—Material flow--distribution

Procurement & Logistics Process

 Hybrid Structure
• Combines various approaches of designing
tailored to specific needs
• Typically in rapidly changing environment so
as to achieve flexibility.
• Combinations are typically
functional+divisional as in BPCL & Sun
Petrochemicals
• Functional+Horizontal as in Ford Motors &
Xerox
Structure & Org’s need for Efficiency and Learning

Functional +
Functional teams/integrators Divisional Matrix Horizontal
Horizontal:
Coordination, innovation
Learning, flexibility

Vertical:
Control, efficiency,
stability, reliability
A comparison of organizational structures
Functional Divisional Matrix Network
Division of By inputs By outputs By input & By knowledge
Labour outputs
Coordination Hierarchy + Division GM Dual reporting Cross
plans functional
teams
Decision rights Highly Separation of shared Highly
centralized strategy & decentralized
execution
Boundaries Core/periphery Internal & Multiple Porous &
external mkt interfaces changing
Informal low modest considerable high
structure
Politics Inter-functional Corp division Along matrix Shifting
coalitions
Basis of Positional & General Mgt Negotiating
authority functional resources
advantages & disadvantages of diff structures
Functional Divisional Matrix Network

Resource excellent poor moderate Good

efficiency

Time efficiency Poor Good moderate Excellent

Responsiveness Poor Moderate Good excellent

Adaptability Poor Good Moderate Excellent

Accountability Good Excellent Poor Moderate

Environment best Stable Heterogeneous Complex Volatile

suited for

Strategy best Focused/low diversified responsive innovation

suited cost ness
Henri Mintzberg’s Five
Structures
Prof. Subir Verma
 Five Parts of Organization

Strategic Apex
Techno- Support Staff

Structure
Middle
Line

Operating Core
 Members & Units of Mfg org.
Board of Directors Legal counsel
President P.R
Strategic planning Ex. Committee President’s Staff
Controller I.R
Personnel Trainer R&D
Op Research Pricing
VP Ops VP Mkt
Prod. Scheduler Payroll
Work Study Plant Mgrs RS Mgrs Reception
Tech Clerks
Foreman Dist. State.
Managers

Purchasing Machine Assemblers Salesmen

agents Operators
 Basic Design Configuration

Structural Prime Key Part of Type of

Configuration Coordinating Organization Decentralization
Mechanism
Simple Direct Supervision Strategic Apex Vertical and
Structure Horizontal
centralization
Machine Standardization of Technostructure Limited horizontal
Bureaucracy work processes decentralization

Professional Standardization of Operating Core Vertical and

Bureaucracy skills Horizontal
Decentralization
Divisionalized Standardization of Middle Line Limited Vertical
Form outputs Decentralization

Adhocracy Mutual Support Staff Selective

Adjustment Decentralization
 Simple Structure

Design Parameter Situational Factor

• Centralization • Young, small
• Organic • Simple but dynamic
environment
• Possibly Hostile
• Strong Power needs of the
manager
 Simple Structure
Strength Weakness

• Flexible Decision Making • Inadequate information

• Rapid Response due to dissemination
Centralized power • Inadequate resource allocation
• Entrepreneurial • Strategic orientation subjugated
• Strong Sense of Mission due to emphasis on operations
• Too restrictive
 Machine Structure
Design Parameters Situational Context

• Large Unit Size • Old & Large

• Vertical & Horizontal • Regulated, non-automated
Differentiation technical system
• High Specialization • Simple, Stable environment
• High Formalization
• Functional grouping
• High Centralization
 Machine Structure
Strength Weakness

• Efficiency • Ignores Human Factor

• Predictability • Conflict and Coordination

problems at administrative
centre

• Adaptation Problem at the

strategic apex
 Professional Bureaucracy
Design Parameters Situational Factors
▫ Two parallel structures: Professionals • Complex Environment
& Administrators
▫ High Decentralization • Stable Environment
▫ Horizontal Job Specialization.
▫ Pigeonholing predetermined
contingency to a standard program
 Professional Bureaucracy

Strength Weakness

• Autonomy • Coordination
• Discretion
• Innovation
 Divisional Structure

Design Parameters Situational Factors

• Market grouping • Diversified Products & Services

• Performance control for • Old & Large
standardization of outputs • Power needs of middle
• Limited vertical decentralization managers
 Divisional Structure
Strength Weakness

• Efficient Allocation of men • Duplication of resources and

and resources activities
• Better Accountability • Problems of coordination
• Autonomy & Self containment • Problems of head-qtrs control
• Diversifies Risks • Inter division conflict
 Ad-hocratic Structure
Main Design Parameters:
• Highly Organic Structure with low formalization
• High Horizontal Job Specialization
• Functional grouping for house keeping purposes
but deployment in market based project teams
• Liaison devices to assist mutual adjustment for
coordination
• Selective Decentralization: experts are distributed
all over-- horizontally and vertically
 Types of Adhocracy

• Operating Adhocracy : Line and Support staff

blend for united effort unlike in Professional
Bureaucracy

• Administrative Adhocracy: Distinguishes b/w

administrative staff and operating core which can
be hived off/ outsourced /automated
 Situational Context

• Complex environment

• Dynamic environment

• Young

• Sophisticated and automated technical systems

 Strengths of Matrix Structure

• Coordination meets the dual demands from environment

• Flexible sharing of human resources across lines
• Suited to complex decisions and frequent changes in
unstable environment
• Provides opportunity for functional and product skill
development
• Best in medium sized organisation with multiple products
 Weaknesses of Matrix Structure
• Dual authority can be frustrating and confusing

• Participants need good interpersonal skills and extensive

training

• Time consuming, frequent meetings, conflict resolution

sessions

• Will not work unless participants understand and adopt

collegial rather than vertical type relationships

• Requires dual pressure from environment to maintain power

balance
Thank You
 122

Some Hypothesis

 H1: The older the organization, the more formalized

the structure

 H2: The Larger the organization the more elaborate

the structure-- more specialization of tasks, more
differentiation of units and more developed the
administrative component.

 H3: Larger the organization, the more formalized its

behaviour.
 123

Hypothesis
 H4: The more dynamic the environment, the more
organic the structure

 H5: The more complex the organization, the more

decentralized the structure.

 H6: Extreme hostility in its environment drives any

organization to centralize its structure temporarily

 H7: The more diversified the organization’s markets, the

greater the propensity for it to split into market based
units (given favourable economies of scale)
 124

• Thank You
Organizing for Global Dominance
Prof. Subir Verma
Behavioural Sciences Area
 Globalization and MNE
• MNEs have to address the challenges of efficiency in
current operations, management of risks and the need for
global learning and innovation (Ghosal, 1987).

• MNEs’ Organizational structure consists of (1) dispersal of

activities and functions in the value chain and their
location in different parts of the world to take advantage of
national differences (2) re-integration of the dispersed
activities and functions to benefit from scale and scope
economies.

• Shift from Simple integration appropriate to multi-

domestic strategy to Complex integration co-evolving with
dispersal of location and decision making
 Typologies of MNE before the IT Era

Global Transnational
High (consumer electronics, (financial services, telecom
books, CDs, Industrial equipment, info oriented
Level of products, wines)
Global goods and components)
Efficiency
International Multi-domestic
(local commodities such (look ‘n’ feel goods
Low branded packaged goods,
as produce, cement,
internet dial up services) clothing, arts)

Low High
Level of Local responsiveness
Key Organizational Features of MNE strategy
Key International Multi domestic Global Transnational strategy
organizational strategy strategy strategy
dimensions
Configuration Sources of core Decentralized Centralized Dispersed independent
of assets and competencies and nationally and globally and specialized
capabilities centralized, self sufficient scaled
others
decentralized
Role of Adapting and Sensing and Implementing Differentiated
overseas leveraging parent exploiting local parent contribution by nation
operation competencies responsiveness competencies units to integrated world
wide operations
Development Developed at Developed and Developed at Developed jointly and
& diffusion of centre and retained within the center & shared worldwide
knowledge transferred each unit transferred
overseas
Organization Functional Worldwide area Worldwide Worldwide matrix
Structure structure; or geographic product structure
International structure structure
Divisions
Factors shaping global organization

• Level of international development:

▫ Export, JV, subsidiary
▫ Role assigned to subsidiary
▫ % of assets and management located outside the home country
• Cross border coordination
▫ Fixed costs
▫ Homogeneity of products and markets
▫ Customers, competitors and suppliers
▫ Transportability
• Active Host Government
• Diversity of International Business Portfolio: degree to which the
business logic is same or diverse.
 Outline of levels of international development

Level Role of Mode Organizations % of value

subsidiary added
0 None None National co. zero

1 Seller Export National low

co+sales cos.
II Local partner Partnerships National cos Low med
+partnerships
III Start up For’n ops Geographic medium

IV Implementor For’n ops Multidimensio Med-high

nal network
V Contributor For’n ops Transnational high
Features of levels of international development
Level subsidiary mode Org capabilities

I Seller Export International product development

International brand mgt

II Local partner Partners IPD + IBM + International

hips Partnering

III Start up For’n ops IPD+IBM+ IP+ Transfer and

modification of resource advantages

IV Implementor For’n ops IPD+IBM+ IP+TMRA+ cross unit

integration

V contributor For’n ops IPD+IBM+IP+TMRA+CUI+managem

ent of distributed headquarters
Factors influencing BOP b/w H-qtrs and subsidiaries

Strong geographical Strong Business Dimension

dimension

Level of New geography Known, High proportion of

international Few assets and resources
development Geography is a contributor
Amount of Low fixed costs (R&D, Advt),
cross border heterogenous mkt and
coordination unique products, local
customers, competitors and
suppliers, low transportability
Local Govt active and demanding
Institutions Unions and strong partners
assets and people, is an
implementor
High fixed costs,
homogenous mkts and
standard products, global
customers, competitor,
suppliers
High transportability
Govt passive, weak unions,
wholly owned subsidiaries

Diversity of Multiple business, single Multiple business, several

portfolio business logic logic
 MNE diffuses IT
Two Mechanisms:
▫ As MNEs enter new markets and fulfill sourcing
requirements
▫ As part of their communication networks in the
world wide coordination of far flung subsidiaries,
customers and suppliers.

• IT has enabled MNE to globalize production and

finance by reducing the cost and time of
communication
 MNEs IT Architecture

• Data Architecture: format of database content or

the arrangement of MNE’s database

• Communication Architecture: integration of

communication facilities between MNEs HQ and
Subsidiaries

• Technology Architecture: Hardware and software

configuration in the entire MNE
 IT architecture and MNE strategies
Dimensions of Multinational Global Transnational
IT Architecture

Data Decentralized Centralized Distributed/

Shared database

Communication Direct HQ- Multiple Enterprise wide

Subsidiary Networks linkage
HQ-Subs
Technology Local facility Central Interdependent
shared
facility
 Influence on Global Efficiency

• Internal Value Chain activities: linkages,

standardization and centralization of data for
control/coordination

• Business Process Transactions and Activities are

seamless across MNE’s entire supply chain (at the
upstream--- inbound logistics and operations-- and
downstream activities---outbound logistics,
marketing/sales and services)
Influence on Global Responsiveness

• Use of Internet to educate

• After sales service such as on-line support of
customer service
• Customizing product features (beta versions)
• Mass customization-Dell and Cmax footwear
Trends in organizing the Global corporation

 As diversification and subsidiaries increased, structures

became limited;
 New mechanisms of coordination and control:
information system, planning process, performance
measurement, product development teams, project teams
and resource allocation schemes.
Normative integration thru shared norms and
values/culture
 HR practices related to selection, development and
rotational assignments.
 Shift from Designing structure to Designing
organization
 Designing Organizations

• Simple Head Quarters-Subsidiary Model as Hub

and Spoke

Head Quarters
Home Country

Country Country Country

Subsidiar Subsidiar Subsidiar
y y y
Distributed Headquarters Model of MNC
 Hybrid organisation:
• A two line organisation –
Front end: focused on the customer
Back end: focused on products

• Front end can be geographical or market

segment based
• Back end supplies all customers

• Both are multifunctional units

• This model separates the value chain in to two
specialized halves
• Examples-IBM,citibank
Front-back structure:

CEO
 Need/requirement:
• To simultaneously achieve global scale and local
customer responsiveness

• Back end provides the global scale. For e.g.

R&D, procurement, manufacturing

• Front end achieves responsiveness by being

located closer to the customer
 Unique structure

• Difference from matrix structure- none of the

functions have two bosses

• From country organisation- Front and back end

units located in same country are separate profit
centres.

• Worldwide business unit structure: Back end

equally serves all the front ends
 Examples: citibank

• Front end is structured around industry and

subdivided by customers

• Back end is organized around products to take

the advantage of the scale and expertise

• A global relationship manager is assigned to

each customer and local relationship managers
report to them and not country managers
Citibank’s structure
Factors behind hybrid structure:

• Customers can buy all products

• Customer want single point of contact
• Customer want sourcing partnership
• Customer wants solutions and system
• Opportunity for cross selling and bundling
• Customer specific value addition
• Advantages are gained by better customer and
segment knowledge
 Challenges:
 Complex Structure with inherent conflicts

 How to integrate front and back end to

produce a viable organisation

 Three approaches to manage conflicts-

1. Use management processes
2. Use market mechanism
3. Use only using front or back end and partnering
with other company to perform other function
 Challenges:

• Which function belong to which end?

Some times depends on the customers dictates

Trend is towards moving more activities towards
the front end
Some times this is resolved by division of function
in back and front end
Eg. Marketing, production
 Balance:

What is the balance between the front and the

back?
One way is by making one end as profit center
and another as cost center
If both profit centers then give priority
Balance can be achieved by dialogue between
the two ends
 Links…

What are the links between the front and the

back ?
Some kind of matrix structure can be used for
this
A nodal person can be appointed to facilitate the
link
A different reward system can help in
facilitating link
 Integration by market:

• Back and front end organisations are linked by

market forces
• SBU(strategic business units )for back end and
RBU(regional business unit) for front end
• Interaction between two is purely commercial
• Eg. Acer
Thank You
Philips
Strategic competence
• Technology driven innovation
• National Market responsiveness
Strategic incompetence
• Inability to bring innovation to market
• Inefficiencies, high cost base
• Organizational capability
• Well funded independent R&D
• Strong Nos
• Organizational Disability
• Compartmentalized organization with a weak
middle link (PDs0
• A fragmented value chain—particularly from
development to market
Philips Value Chain

R&D PDs NOs

Research Development Local Adaptation Manufg

Marketing
Philips NO Manager Power
• Control over key assets, resources, esp plants
• Knowledge of local markets, consumer needs
and lack of PD knowledge
• Dutch Mafia. United group of NO managers
• Access to Board
• Career Path to the top
• Best people became Nomgrs
• Independence thru local share holding
Matsushita’s market responsive innovation

CRL PDs METC

Jt People
Jofunding Transfer
s Overseas
25000 Shops Companies
Joint funding
from CRL & PD
Market Data Internal
from shops & Merchanise
shows show

Research Product Development Manufacturing Sales &

Marketing
Organizational Change
Prof. Subir Verma
Organization Change
That is:
▫ How an organization functions
▫ Who its members and leaders are
▫ What form it takes
▫ How it allocates resources
 A model of Organizational Change

Environmental Characteristics Strategies

•Turbulence Prospector
•Competitiveness Defender
•Complexity R=. 41
R=.33

Performance Levels & Changes

•Recent decrease in performance R=.36
•Antecedents level of Organizational Change
performance
R=.31
R=.36
Top Manager Characteristics Structural Characteristics
•Work History factors •Centralization
•Age & education •Standardization
•Personality Variables •Specialization
Categories of Organizational Change

• Externally focused:
▫ Strategy (product, market, emphasis)
▫ Interaction with customers/clients/parent organization
• Internally focused:
▫ Goal/philosophy/culture
▫ Change in the way product or service is produced
▫ Change in administrative procedure
▫ Change in internal communication and coordination
▫ Change in specific staffing level/staff
• Organizational form
▫ Changes in the responsibility of top management
▫ Changes in the resources /responsibility
▫ Addition/elimination of a major organizational unit
 Theories E and O of Change

Purpose & Theory E Theory O

means
Purpose Maximize economic Develop organizational
value capabilities
Leadership Top -down Participative
Focus Structure & systems Culture
Planning Programmatic Emergent
Motivation Incentives led Incentives Lag
Consultants Large/Knowledge Small process driven
driven
Theory E: Al Dunlap CEO of Scott Paper in
1994
• Purpose: single minded pursuit of maximizing shareholder value.
When sold to Kimberly Clark it had increased by 200%.

• Leadership: Top Down. Only Generals have a view of the total

battlefield. Big, complex and speedy decision requirements cannot
wait for participation/consensus/organizational capability

• Focus: On hardware—strategies, structures and systems

• Planning: planned and programmatic: The road map must be
clear

• Motivation: Financial Incentives for everybody. Stock options.

• Consultants: large firms with superior knowledge and solutions

Theory O: Andrew Sigler, CEO of
Champion International in 1981
• Purpose: Develop Organizational Capabilities esp. of employees

• Objective: create a work system in which employees are committed

to efficiency and effectiveness

• Leadership: Participative and collaborative

• Focus: On software—values and behaviour—The champion way

• Planning: non-programmatic and emergent

• Motivation: Skill based pay systems, reorganization of work and

changes in management style.
• Consultants: small firms with process consultation capabilities
Resolving the tension between E and O,:
The Jack Welch way

• No. 1 or 2 or fix/sell/close
• Streamline and simplify GE bureaucracy thru
downsizing. Between 81-85 no. dropped from 412000
to 299000, revenues went up by 19.7 % and net income
by 37.8 %, management levels came down from 9 to 6,
corporate staff reduced by 60%.
• Jack Welch became Neutron Jack
• Initiated numerous organizational initiatives:
Boundaryless, Work-out, Stretch Goals and Global
organization
 Corporate Transformation Model

Corporatization Regeneration
Quality
of Integrate across Balance discipline,
integrat units support, stretch and
ion trust
across
units A
B

Rationalization C Revitalization
Instill discipline and Build stretch
support and trust

Quality of Performance of each unit

Thank You