Chapter 6: Structure and Control

 Structure Follows Strategy (Chandler)

 However, it’s not that simple…strategy and
structure are highly integrated

 Organizational Design = structure + control

systems
 Coordinate activities of ee’s to promote cooperation
 motivate ee’s to achieve superior building block
performance (E, I, Q, CR)
Bureaucracies
 Businesses operate as bureaucracies (Weber):
 Relational –Legal Authority – belief in legality of rules
and authority of those in command
 Specialization – division of labor
 Hierarchical structure – chain of command
 Coordination and control – rules and SOP’s
 Standardized employment rules and norms
 Separation of management and ownership (agency)
 Separation of jobs and people – no ownership of the
position by an individual
 Formalization – explicit (written) acts, decisions, rules
Organizational Structure

 Building blocks of organizational structure are:

 Differentiation - allocation of people to tasks

 vertical - distribution of decision-making (levels)
 horizontal - distribution of functions
 Integration - coordination between people or
functions or divisions or companies.
 Differentiation + Integration = Bureaucratic Costs
(time spent in meetings, # of managers)
 Organizational Structure
 Vertical differentiation:
 Reporting relationships that link people, tasks and functions
 appropriate # of levels
 appropriate span of control
 determines if a structure is flat or tall

 Tall structures
 impede communication & coordination
 raise bureaucratic costs
 distort information (intentional & non-intentional)
 decreases motivation
 too many middle managers (structure begets structure)
Organizational Structure

 Vertical differentiation:
 Centralization:
 easier coordination of activities
 decisions fit organizational strategy
 speedy decision making
 Decentralization:
 reduces overload for TMT (can focus on strategy)
 ee motivation & accountability increase
 fewer managers are needed - flatter structure
Organizational Structure
 Horizontal differentiation
 The degree to which you separate tasks or skills in
the organization (specialization or functionalization).

 Many organizational forms:

Functional Multi-Divisional Matrix Team Network ?

Mechanistic Organic
Mechanistic vs. Organic
Feature Mechanistic Organic
Task Definition Rigid and highly specialized Flexible and less narrowly
defined
Coordination Rules and directives vertically Mutual adjustment, common
and Control imposed culture
Communication Vertical Vertical and horizontal

Knowledge Centralized Dispersed

Commitment To immediate supervisor To the organization and its

and Loyalty goals
Environmental Stable with low technological Unstable with significant
Context uncertainty technological uncertainty
and ambiguity
Organizational Structure

 Functional structure - groups people on the

basis of common expertise & resources
 Adv: learning (transfer of knowledge within function)
monitoring is easier
processes become more efficient
greater managerial control
 Dis: control becomes a problem as company grows
communication and coordination (between functions)
measurement (contribution of function)
loss of strategic focus by TMT
Multi-Divisional Structure
 Product lines or business unit is self-contained -
corporate HQ established for support & control
 Divisional unit = operating authority
 HQ = strategic authority
 Adv: Financial control - easier to monitor
Strategic control - time for TMT to focus on strategy
Growth - add businesses or products
Internal efficiency - allows clearer variance
identification
Multi-Divisional Structure
 Disadvantages:
 Division/Corporate relationship
 Distortion of information - pressure to present favorable
results
 Interdivisional competition - resources, parent attention
 Transfer pricing - VI
 Short-term focus - ROI emphasis
 Bureaucratic costs
Multi-Divisional Structures
Matrix Organization
 Based on two forms of horizontal
differentiation: functional and project/product
 Advantages:
 ee’s tend to be highly qualified, professional, & perform
best in autonomous, flexible working conditions
 ee’s can be moved from project to project
 leaves TMT to focus on strategy
 Disadvantages:
 high bureaucratic costs
 constant movement of ee’s means $
 two boss role can create conflict
Matrix Structure
Team Structure

 Many companies use permanent cross-

functional teams
 formed at the beginning of product development process
and continued throughout implementation
 speeds innovation and customer responsiveness
 stronger in highly dynamic industries
 Gore is a good example of a team-based organization
Team Structure
Network Organizations

 Core group of experts manages the

outsourcing process closely
 This forms a hub & spoke type of
organization consisting of many contracts
 Could create a control problem with contract
organizations
 Nike - Esprit
Network Structure

.
Organizational Structure
 Integration
 extent to which the organization wants to coordinate
value creation activities (interdependence)
 more differentiation requires more integration
 increasing integration = $
 Some structures are naturally more integrating
 Interdepartmental liaison
 Task forces – x-functional ad hoc teams
 Integrating roles/departments - full time job of
creating coordination between functions, etc.
 Strategic Control Systems
 Strategic Control
 means of motivating ee’s to work at organizational goals
 Statement of goals
 Set of assumptions or forecasts (environmental)
 Qualitative statement of how business will change
 Specific action steps for implementation
 Set of financial projections
 provide information and feedback (information technology)
 Why strategic controls?
 Efficiency - efficient use of resources/productivity
 Quality - defect free goods, customer complaints, returns, sampling
 Innovation - encourage risk taking
 CR - evaluate ee’s with customer contact
Strategic Controls
 Types of controls
 Financial - stock price, ROI, profitability, etc.
 Output - efficiency, quality, innovation, CR
 Behavioral - rules and procedures, budgets,
standardization
 Balanced scorecard approach (Kaplan)
 A way to look out the rear view mirror (financial) as well
as down the road (strategic building blocks)
 Financial
 Customer
 Process
 Employee Development
Strategic Controls

 Organizational culture
 values and norms that are shared by people/groups that
control the way they act internally and externally.
 Values = beliefs about goals and appropriate standards for
achievement (behaviors).
 Norms = expectations about behavior in specific situations
and toward one another.
 Organizational culture is about behaviors, which are
very difficult to change. But the good news is that they
can be changed.
Organizational Culture

 Levels of culture:
 Artifacts
 visible organization structures and processes
 what one sees and hears and feels when encountering a
new group with unfamiliar culture (language, technology,
products, clothing, semiotics, etc.)
 easy to observe but difficult to decipher - only interpretable
through experience
Org Culture

 Levels
 Espoused Values
 individual values (CEO, managers) that the group adopts
through validation (cognitive transformation to shared
value)
 conscious and explicit - serve a normative or moral
function to guide members in certain situations and in
socializing members.
 Strategies - goals - philosophies
Org Culture
 Levels
 Basic underlying assumptions:
 a solution to a problem that works repeatedly &
becomes taken for granted
 cannot be confronted or debated and are difficult (if not
impossible) to change.
 can only be changed through re-examination and re-
evaluation of the cognitive structure.
 this destabilizes our cognitive and interpersonal world
 individuals will distort or deny rather than adopt - thus
culture at this level is a defense mechanism
 so…major change means managing at this level.
Org Culture
 Org socialization - how people learn the culture
 Consists of stories, myths, legends, etc.
 influence of the founder
 organizational structure
 composition of TMT
 Adaptive cultures - encourage and reward
initiative/innovativeness - easiest to change…
 Inert cultures - cautious and conservative, does
not value initiative & may discourage
Org Culture

 Strong Adaptive Cultures characterized by:

 Bias for action - autonomy, risk-taking,
entrepreneurship (intra)
 Coherent mission - sticks to knitting, close to
customers
 Structured for flexibility
Reward Systems
 Individual
 Piecework – Commission – Bonuses - Promotion
 Group
 group-based bonus - profit sharing – ESOP – gainsharing

 if system induces too much stress, internal competitiveness,

or job insecurity, results will be counterproductive…
 positive reinforcement > negative reinforcement
 but some pressure/anxiety can be productive
 meaningful incentives and career consequences =
successful implementation
Reward Systems

 Reward systems:
 in designing reward systems, jobs need to be defined in
terms of the results to be accomplished, not duties and
responsibilities.
 System should track actual achievement vs. targeted
performance using strategic/financial objectives.
 Measures usually are made up of both quantitative and
qualitative measures.
 MBO – PMP – etc.
Reward Systems

 Reward systems;
 Generously reward those who reach objectives and
deny reward to those who don’t.
 payoff should be a major piece of total comp. and…
 should extend to everyone.
 administration is paramount (timely, consistent, fair, kiss)
 tightly linked to strategic objectives
 line-of-sight
 Every comp/promo decision will be carefully scrutinized
by all employees.