Fundamentals of Organization Structure. Organizations and ICT 2014/2015 Fabiano Dalpiaz

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1 Fundamentals of Organization Structure Organizations and ICT 2014/2015 Fabiano Dalpiaz 1

2 Acknowledgements Most of these slides are taken from Daft s book Organization Theory and Design, chapter 3 Not part of the recommended literature thus, unless you have the book, take notes or ask notes to your colleagues 2

3 Lecture outline 1. Case study: CISCO 2. Organization Structure 3. The Role of Information 4. Organization Design Styles 5. Structural Alignment 3

4 1. Case study: CISCO Company background Core business: routers/switches Other businesses: Collaboration solutions VOIP Telepresence Data centers Security and surveillance 4

5 1. Case study: CISCO Case study background 300 locations in 90 countries 65k employees 46 data centers and server rooms supporting employees 14 for production / customer-facing 32 for product development Organizational structure: traditional, siloed 5

6 1. Case study: CISCO The problem With two separate service organizations Much duplication See the two financial support department, multiple engineering and operations depts, etc. Lack of focus: staff doing both implementation/deployment and operational/innovation work 6

7 1. Case study: CISCO Key ingredients for the solution Structure the organization around CISCO s lifecycle model 1. Prepare (business case) 2. Plan (project feasibility) 3. Design (project set-up) 4. Implement (build, deploy) 5. Operate (monitor health) 6. Optimize (improve) 7

8 1. Case study: CISCO Developing the solution: a new org. structure New departments, each for one specific phase Results in terms of maturity (vs. lack of focus) 8

9 2. Organization Structure Definition An organization(al) structure defines how activities such as task allocation, coordination and supervision are directed towards the achievement of organizational aims [1] Explicit and implicit institutional rules and policies designed to provide a structure where various work roles and responsibilities are delegated, controlled and coordinated [2] 1 D.S. Pugh, Organization Theory: Selected Readings 2 9

10 2. Organization Structure Three key components of organization structure Vertical aspect of organizing 1. Formal Reporting Relationships including the number of levels and the span of control 2. Grouping of Individuals into departments and of departments into the total organization Horizontal aspect of organizing 3. Design of Systems to ensure effective communication coordination integration of efforts 10

11 2. Organization Structure Organization charts i.e., visualizing the structure What components does it cover? Formal reporting? Grouping into departments? Design of systems? 11

12 2. Organization Structure Organization chart, University College Utrecht 12

13 2. Organization Structure Notes on organization charts as models Loosely defined relationships. Intuitively, this means supported by, but nowhere is stated what this dotted line means neither if the UCU Council supports the Dean or vice-versa 13

14 2. Organization Structure Notes on organization charts as models Strong reliance on orientation. Top-down reading, where top management is in the upper part, operational staff is in the lower part 14

15 2. Organization Structure Notes on organization charts as models Some reliance on shapes. In this chart, ovals are departments or boards, while rectangles are individuals Remark: no unique style exists. When reading another chart, ovals may be individuals! 15

16 2. Organization Structure Notes on organization charts as models Yet, they fulfill their purpose, which is that of communicating the basic organization structure 16

17 3. The Role of Information From vertical to horizontal organization structures 17

18 3. The Role of Information Information linkages Managers search for the best combination of vertical and horizontal linkages that enable communication and coordination among organizational elements Aim: both vertical and horizontal linkages are needed Linkages are concerned with information! 18

19 3. The Role of Information Vertical information linkages Vertical linkages coordinate activities between the top and the bottom of the organization 1. Hierarchical referral are the vertical lines which identify the chain of command 2. Rules and Plans Rules enable peer employees to be coordinated, without involving their managers Plans provide boundaries for employees behavior (e.g., budget plans leave freedom of action within the budget limits) 3. Vertical information systems enable vertical information dissemination in an organization E.g., periodic reports 19

20 3. The Role of Information Horizontal information linkages Horizontal linkage refers to the communication and coordinate activities across organizational departments 1. Information Systems enable information exchange throughout the organization 2. Organization structuring mechanisms a. Direct Contact is a higher level of horizontal linkage (i.e. liaison role) b. Task Force is a temporary committee composed of representative from each department involved. c. Full-Time Integrator responsible for coordination d. Team is the strongest horizontal linkage 20

21 3. The Role of Information a. Horizontal linkages: direct contact (liaison) Makes contacts with people outside area of responsibility Internal to the organization Outside the organization Liaisons don t play decisional and informational roles They are interpersonal managers 21

22 3. The Role of Information b. Horizontal linkages: task forces Task force: a temporary committee composed of representatives from each organizational unit affected by a problem An effective horizontal linkage for temporary issues 22

23 3. The Role of Information c. Horizontal linkages: full-time integrator Full-time integrator: a permanent position or department whose purpose is solely coordination Typically this person has a title/position: Product manager Project manager Programme manager Brand manager 23

24 3. The Role of Information c. Horizontal linkages: full-time integrator 24

25 3. The Role of Information d. Horizontal linkages: teams Team: permanent task force often used in conjunction with a full-time integrator Virtual team: made up of organizationally or geographically dispersed members Primary link: information and communication technologies Important features of teams are fostering teamwork and team building 25

26 3. The Role of Information Information linkages: the landscape 26

27 4. Organization Design Styles Three main elements of organization design 1. Required work activities What has to be done? 2. Reporting relationships The so-called chain of command 3. Departmental grouping options Functional grouping Divisional grouping Multifocused grouping Horizontal grouping Virtual network grouping 27

28 4. Organization Design Styles Functional structure Activities are grouped together by common function from the bottom to the top of the organization All engineers in the engineering dept All marketing people in the marketing dept Etc. 28

29 4. Organization Design Styles Functional structure: strengths Allows economies of scale within functional departments All people within the same department are homogeneous Enables in-depth knowledge and skill development Through sharing among like-minded people Enables organizations to accomplish functional goals Is best with only one or a few products Why? 29

30 4. Organization Design Styles Functional structure: weaknesses Slow response time to environmental changes Changes need a cross-functional response! May cause decisions to pile on top, hierarchy overload Leads to poor horizontal coordination Can be enhanced through organizational linkages Results in less innovation Involves restricted view of goals By function, rather than by organization 30

31 4. Organization Design Styles Divisional structure Divisions are organized according to individual products, services, projects, divisions, etc. a.k.a., product structure, strategic business units 31

32 4. Organization Design Styles Divisional structure: strengths Suited to fast change in unstable environment Divisions are cross-functional! Leads to higher customer satisfaction The interface to the customer is people working on the product Involves high coordination Best in large organizations with several products Decentralizes decision making Product-per-product 32

33 4. Organization Design Styles Divisional structure: weaknesses Eliminates economies of scale in functional departments Eliminates in-depth competence and technical specialization E.g., engineers are spread out across multiple divisions Achieving high coordination incurs in overheads Makes integration and standardization across product lines difficult Why? 33

34 4. Organization Design Styles Geographical structure Organizing to meet needs of customers by geography It is particular common in large nonprofit orgs Multinational corporations are organized by country Focuses managers/employees on specific geog. regions Strengths and weaknesses like divisional organization 34

35 4. Organization Design Styles Matrix structure Prerequisite conditions Shared resources across the organization Two or more critical outputs required: products and technical knowledge Environment is complex and uncertain Two variations: functional and product matrix Depending on row/columns A dual-authority structure can help to ensure a balance between vertical and horizontal aspects of organizations 35

36 4. Organization Design Styles Matrix structure: example 36

37 4. Organization Design Styles Matrix structure: strengths Achieves coordination to meet dual demands Both product-specific and function-specific Flexible sharing of human resources across products Suited to complex decisions and unstable environment Promotes both functional and product skill development Best in medium-sized organizations with multiple products 37

38 4. Organization Design Styles Matrix structure: weaknesses Dual authority causes confusion Needs good interpersonal skills and extensive training Time consuming Dual authority means more bureaucracy Needs common understanding among participants Requires great effort to maintain power balance 38

39 4. Organization Design Styles Horizontal structure Organization around core processes Structure is created around cross-functional processes Self-directed teams are the basis of organization design and performance Process owners are responsible for entire process People on the team are given authority for decisions Can increase organization s flexibility Customers drive the horizontal corporation The culture promotes openness, trust and collaboration 39

40 4. Organization Design Styles Horizontal structure: example 40

41 4. Organization Design Styles Horizontal structure: strengths Promotes flexibility and rapid response to changes Focus on the production and delivery of value Each employee has a broader view of organization goals Promotes a focus on teamwork and collaboration Improves quality of life for employees 41

42 4. Organization Design Styles Horizontal structure: weaknesses Determining core processes is difficult and time consuming Requires many changes Traditional managers may baulk when they have to give up power and authority Requires significant training of employees Can limit in-depth skill development 42

43 4. Organization Design Styles Virtual Network structure Extends the concept of horizontal coordination and collaboration beyond the boundaries of the organization Most common strategy is outsourcing Virtual or modular structures subcontract most of its major functions to separate companies 43

44 4. Organization Design Styles Virtual network structure: strengths Enables organizations to obtain talent and resources worldwide Gives a company immediate scale and reach without huge investments Enables the organization to be highly flexible and responsive to changing needs Reduces administrative cost 44

45 4. Organization Design Styles Virtual network structure: weaknesses Managers do not have hands-on control over many activities and employees Requires a great deal of time to manage relationships Risk of organizational failure Employee loyalty and corporate culture might be weak 45

46 4. Organization Design Styles Hybrid structure Organizations often use a hybrid structure that combines characteristics of various structure approaches tailored to specific needs Most of the organizations employ hybrid styles The pure ones are good for illustrating the differences though 46

47 Summary Multiple organizational design styles exist No always-better solution exists! The choice depends on the context and org. goals! but hybrid is the most common choice 47

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