Professional Documents
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ORGANISATIONAL STRUCTURES 1
Primary Activities
Primary activities relate directly to the physical creation, sale, maintenance and support of a
product or service. They consist of the following:
Inbound logistics These are all the processes related to receiving, storing, and distributing
inputs internally. Your supplier relationships are a key factor in creating value here.
Operations These are the transformation activities that change inputs into outputs that are
sold to customers. Here, your operational systems create value.
Outbound logistics These activities deliver your product or service to your customer. These
are things like collection, storage, and distribution systems, and they may be internal or external
to your organization.
Marketing and sales These are the processes you use to persuade clients to purchase from
you instead of your competitors. The benefits you offer, and how well you communicate them, are
sources of value here.
Service These are the activities related to maintaining the value of your product or service to
your customers, once it's been purchased.
Support Activities
These activities support the primary functions above. In our diagram, the dotted lines show that
each support, or secondary, activity can play a role in each primary activity. For example,
procurement supports operations with certain activities, but it also supports marketing and sales
with other activities.
Procurement (purchasing) This is what the organization does to get the resources it needs to
operate. This includes finding vendors and negotiating best prices.
Human resource management This is how well a company recruits, hires, trains, motivates,
rewards, and retains its workers. People are a significant source of value, so businesses can
create a clear advantage with good HR practices.
McKinsey 7s model
McKinsey 7s model is a tool that analyzes firms organizational design by looking at 7 key internal
elements: strategy, structure, systems, shared values, style, staff and skills, in order to identify if
they are effectively aligned and allow organization to achieve its objectives.
7s factors
In McKinsey model, the seven areas of organization are
divided into the soft and hard areas. Strategy, structure
and systems are hard elements that are much easier to
identify and manage when compared to soft elements.
On the other hand, soft areas, although harder to manage, are the foundation of the organization
and are more likely to create the sustained competitive advantage.
Hard S
Strategy
Structure
Systems
Soft S
Skills
Style
Staff
Shared Values
answered the questions outlined there you should look for the gaps, inconsistencies and
weaknesses between the relationships of the elements. For example, you designed the strategy
that relies on quick product introduction but the matrix structure with conflicting relationships
hinders that so theres a conflict that requires the change in strategy or structure.
Step 2. Determine the optimal organization design
With the help from top management, your second step is to find out what effective organizational
design you want to achieve. By knowing the desired alignment you can set your goals and make
the action plans much easier. This step is not as straightforward as identifying how seven areas
are currently aligned in your organization for a few reasons. First, you need to find the best optimal
alignment, which is not known to you at the moment, so it requires more than answering the
questions or collecting data. Second, there are no templates or predetermined organizational
designs that you could use and youll have to do a lot of research or benchmarking to find out how
other similar organizations coped with organizational change or what organizational designs they
are using.
Step 3. Decide where and what changes should be made
This is basically your action plan, which will detail the areas you want to realign and how would you
like to do that. If you find that your firms structure and management style are not aligned with
companys values, you should decide how to reorganize the reporting relationships and which top
managers should the company let go or how to influence them to change their management style
so the company could work more effectively.
Step 4. Make the necessary changes
The implementation is the most important stage in any process, change or analysis and only the
well-implemented changes have positive effects. Therefore, you should find the people in your
company or hire consultants that are the best suited to implement the changes.
Step 5. Continuously review the 7s
The seven elements: strategy, structure, systems, skills, staff, style and values are dynamic and
change constantly. A change in one element always has effects on the other elements and requires
implementing new organizational design. Thus, continuous review of each area is very important.
System four is responsible for long-range planning and the design of new products and
services. Whereas system three is responsible for activities inside and now, system four is
responsible for activities outside and then.
System five manages the interaction between systems three and four and embodies the
corporate ethos. Hence, system five decides the identity of the firm and its governing principles
and norms. This includes decisions about the kinds of businesses to be developed by system
four and to be put into operation by systems three, two and one.
A key feature of the VSM is the management of variety. The people in an organization need
information to perform their jobs effectively, but too much information can be a distraction. What is
needed is both variety attenuation and variety amplification. An example of variety attenuation is
the environmental scanning activity. Some people in an organization must keep up with new
technology, new government regulations, and what competitors are doing. From a great variety of
sources of information, they select the information that is most important for the decisions the firm
must make. Variety amplification, on the other hand, refers, for example, to the distribution of the
organizations messages. Advertising messages go outside the firm. Plans, policies and
procedures need to be distributed within the firm. The VSM is very useful as a guide to studying
where variety is attenuated, where it is amplified, and if there is a balance in the varieties of
interacting sub-systems.
The VSM is recursive, meaning that it applies to all levels of an organization. For example,
consider General Motors. Within this large corporation the primary divisions or product lines are
Chevrolet, Pontiac, Buick, Oldsmobile and Cadillac. At the corporate level each division would be
considered a system one. System two would coordinate activities and policies among the divisions.
System three would allocate resources among the divisions. System four would consider starting
or stopping various product lines, such as sport cars, sport utility vehicles, or hybrid vehicles.
System five would make the final decision, and hence regulate the rate of innovation, and the kind
of businesses to engage in.
Within the Chevrolet division, the system ones might be different manufacturing plants. System two
would coordinate interaction among the manufacturing plants. System three would allocate funds
for the operation of the different plants. System four would consider whether new car models or
new manufacturing facilities are needed. System five would decide when to phase in new models
or manufacturing methods. The task of system five is to insure that the organization is adaptive.
A lower level of recursion would be different production lines within a manufacturing plant. The
levels of recursion go down as far as the individual who must both carry out assigned tasks
(systems one, two, and three) and consider whether he or she wants to change jobs or obtain
more schooling (system four). Finally, he or she has to ponder these considerations in the light of
basic personal values.
The fact that system three (middle management) does not supervise the system ones (the
producing units) in detail but only makes a resource bargain with them provides the system ones
with high levels of autonomy. This approach to management is quite compatible with todays highly
educated workers and large spans of control.
The VSM is a useful guide for knowledge management. The model explains what structures and
procedures are needed at each level of an organization and hence what information and what
decisions are needed in each part of the organization. By providing a single model of activities at
all levels of the organization, the VSM increases awareness, and knowledge, among employees of
how the organization functions.
Strategy is the companys formula for winning. The companys strategy specifies the goals and
objectives to be achieved as well as the values and missions to be pursued; it sets out the basic
direction of the company. The strategy specifically delineates the products or services to be
provided, the markets to be served, and the value to be offered to the customer. It also specifies
sources of competitive advantage.
Traditionally, strategy is the first component of the Star ModelTM to be addressed. It is important in
the organization design process because it establishes the criteria for choosing among alternative
organizational forms. (See the book, Designing Dynamic Organizations by Galbraith, Downey and
Kates, published by Jossey-Bass in 2002, for tools to help translate strategy into criteria.) Each
organizational form enables some activities to be performed well, often at the expense of other
activities. Choosing organizational alternatives inevitably involves making trade-offs. Strategy
dictates which activities are most necessary, thereby providing the basis for making the best tradeoffs in the organization design. Matrix organizations result when two or more activities must be
accomplished without hindering the other. Rather than choosing the or, matrix requires an
embracing of the and. Companies want to be global and local.
The structure of the organization determines the placement of power and authority in the
organization. Structure policies fall into four areas:
Specialization
Shape
Distribution of power
Departmentalization
Specialization refers to the type and numbers of job specialties used in performing the work. Shape
refers to the number of people constituting the departments (that is, the span of control) at each
level of the structure. Large numbers of people in each department create flat organization
structures with few levels. Distribution of power, in its vertical dimension, refers to the classic
issues of centralization or decentralization. In its lateral dimension, it refers to the movement of
power to the department dealing directly with the issues critical to its mission. Departmentalization
is the basis for forming departments at each level of the structure. The standard dimensions on
which departments are formed are functions, products, workflow processes, markets, customers
and geography. Matrix structures are ones where two or more dimensions report to the same
leader at the same level.
Processes: Information and decision processes cut across the organizations structure; if structure
is thought of as the anatomy of the organization, processes are its physiology or functioning.
Management processes are both vertical and horizontal.
Vertical processes allocate the scarce resources of funds and talent. Vertical processes are usually
business planning and budgeting processes. The needs of different departments are centrally
collected, and priorities are decided for the budgeting and allocation of the resources to capital,
research and development, training, and so on. These management processes are central to the
effective functioning of matrix organizations. They need to be supported by dual or
multidimensional information systems.
Horizontalalso known as lateralprocesses, are designed around the workflow, such as new
product development or the entry and fulfillment of a customer order. These management
processes are becoming the primary vehicle for managing in todays organizations. Lateral
processes can be carried out in a range of ways, from voluntary contacts between members to
complex and formally supervised teams.
Rewards: The purpose of the reward system is to align the goals of the employee with the goals of
the organization. It provides motivation and incentive for the completion of the strategic direction.
The organizations reward system defines policies regulating salaries, promotions, bonuses, profit
sharing, stock options, and so forth. A great deal of change is taking place in this area, particularly
as it supports the lateral processes. Companies are now implementing pay-for-skill salary
practices, along with team bonuses or gain- sharing systems. There is also the burgeoning practice
of offering non- monetary rewards such as recognition or challenging assignments.
The Star ModelTM suggests that the reward system must be congruent with the structure and
processes to influence the strategic direction. Reward systems are effective only when they form a
consistent package in combination with the other design choices.
People: This area governs the human resource policies of recruiting, selection, rotation, training,
and development. Human resource policies in the appropriate combinations produce the talent
required by the strategy and structure of the organization, generating the skills and mind-sets
necessary to implement the chosen direction. Like the policy choices in the other areas, these
policies work best when they are consistent with the other connecting design areas.
Human resource policies also build the organizational capabilities to execute the strategic
directions. Flexible organizations require flexible people. Cross-functional teams require people
who are generalists and who can cooperate with each other. Matrix organizations need people who
can manage conflict and influence without authority. Human resource policies simultaneously
develop people and organizational capabilities.
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Ideology
Pressures
Each of these five parts has a tendency to pull the organisation in a particular direction favourable
to them:
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Simple Structure
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Machine Bureaucracy
Because the machine bureaucracy depends primarily on the standardization of its operating work
processes for coordination, the technostructure emerges as the key part of the structure
Machine bureaucratic work is found, in environments that are simple and stable. Machine
bureaucracy is not common in complex and dynamic environments because the work of complex
environments can not be rationalized into simple tasks and the processes of dynamic
environments can not be predicted, made repetitive, and standardized
The machine bureaucracies are typically found in the mature organizations, large enough to have
the volume of operating work needed for repetition and standardization, and old enough to have
been able to settle on the standards they wish to use
The managers at the strategic apex of these organizations are mainly concerned with the finetuning of their bureaucratic machines. Machine bureaucracy type structures are "performance
organizations" not "problem solving" ones.
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Professional Bureaucracy
Whereas the machine bureaucracy generates its own standards the standards of the professional
bureaucracy originate largely outside its own structure (especially in the self-governing association
its operators join with their colleagues from other professional bureaucracies). The professional
bureaucracy emphasizes authority of a professional nature or in other words "the power of
expertise".
The strategies of the professional bureaucracy are mainly developed by the individual
professionals within the organization as well as of the professional associations on the outside.
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Divisionalised Form
Divisionalised form type organizations are composed of semi-autonomous units - the divisions. The
divisionalised form is probably a structural derivative of a Machine Bureaucracy - an operational
solution to co-ordinate and controls a large conglomerate delivering:
Horizontally diversified products or services
In a straight-forward, stable environment
Where large economies of scale need not apply
If large economies of scale were possible the costs and benefits of divisionalisation would need
careful examination. The modern, large holding company or conglomerate typically has this form
Like the Professional Bureaucracy, the Divisional Form is not so much an integrated organization
as a set of quasi-autonomous entities coupled together by a central administrative structure. But
whereas those "loosely coupled" entities in the Professional Bureaucracy are individuals
professionals in the operating corein the Divisionalised Form they are units in the middle line.
These units are generally called divisions, and the central administration, the headquarters
The Divisionalised Form differs from the other four structural configurations in one important
respect. It is not a complete structure from the strategic apex to the operating core, but rather a
structure superimposed on others. That is, each division has its own structure.
Most important, the Divisionalised Form relies on the market basis for grouping units at the top of
the middle line. Divisions are created according to markets served and they are then given control
over the operating functions required to serve these markets.
Adhocracy
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2) Technology
3) Environment
1. Size implications
The owner of a small organisation can control most things directly, whereas large organisations
require a more complex structure with leaders in each department as they have more specialized
staff. We could say that small organisations are more informal than larger ones, which tend to be
more formalized. Therefore, we can infer that a divisional structure would not be as appropriate for
a small organisation as it could be for a larger one.
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2. Technology implications
There are different types of working technologies (small batch, large batch, continuous). Joan
Woodward found out that depending on the manufacturing techniques that the
organisation uses, there are variations in the organisation structure. She suggested that certain
organisational forms were appropriate for certain types of working technologies.
3. Environmental implications
The environmental factors that the management need to be aware of are the changes that are
happening at the present or in a possible future, and how those changes would affect the
organisations ability to function effectively. Competition against other industries is requiring leaders
to adopt new ways of thinking about managing their environments. As markets become global and
competition increases, the search for the best organisational structure has created a lot of new
organisational designs.
To deal with these variations in the external environment, an organisation should become
segmented into different units. Each unit should be concerned about a specific problem to deal
with. All units should be linked together for the successful achievement of the organisation's goals.
This need for a division of workload and the need to also be unified have led to: Differentiation and
Integration:
Differentiation: The organisation is composed of units that work on specialized tasks using
different work methods
Integration: The various units coordinate their work to achieve common goals
As organisations specialize in order to cope more effectively with their environment, they become
more differentiated. Due to this, the organisation ends up divided in different units and some
coordination is needed among them in order to be effective. P. Lawrence and J. Lorsch suggested
that the greater the internal differences, the greater the need for coordination between units.
There are two management systems that leaders use: Organic and Mechanistic
Organic: It encourages leaders and subordinates to work together in teams and to communicate
openly with each other
Mechanistic: It breaks down activities into separate, highly specialized tasks, relying extensively
on standardized rules
An organic management system is appropriate for firms that operate in changing market
environments, while mechanistic systems are more appropriate for firms operating in a relatively
stable environment.
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