Organization design: fashion or fit?

Submitted by:
GROUP - 10 Ashish Gupta 12P191 Rahul Kumar 12P224 Rajan Mishra 12P225 Naveen Babu 12P228 Satish Kumar 12P230 Shivam Singh 12P232

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Why Organizational structure is important? Internal Issues External Issues Simple Structure Apex corporation example Machine bureaucracy Maruthi and Bajaj example Professional bureaucracy Health care Industry, Lawyers and consultants Divisionalised form Good Year India example Adhocracy Sumaprojekt example

Agenda

Internal Issues

External Issues
If structure doesn't reflect the business goals, employees may have a hard time working successfully for the company. As the size and reach of the business increases, it is necessary to realign the organization structure business strategy to achieve its goals. An effective organizational structure helps the company to communicate, distribute responsibility and adapt to change.

Organizational structure is the fundamental design of a company. A company's organizational structure can determine its success or failure Organizational structure can have a large influence on the culture within the organization. It helps to improve the decision making process and employee performance.

Why Organizational design is important?

Simple Structure Machine bureaucracy Professional bureaucracy Divisionalised form Adhocracy

The organization should select one or combination (of two or three) organizational structure based on its strategy, complexity and importance of the organization.

Five configurations of Organizational Structure

The simple structure, typically, has little or no techno structure, few support staffers, a loose division of labour, minimal differentiation among its units, and a small managerial hierarchy. The behaviour of simple structure is not formalised and planning, training, and liaison devices are minimally used in such structures. Example New companies, one-person companies, family companies Often many startup companies which have simple organic structure are vulnerable to sudden heart attack. The entrepreneurial organization is fast, flexible, and lean, and it's a model that many companies want to copy. However, as organizations grow, this structure can be inadequate as decision-makers can become so overwhelmed that they start making bad decisions. This is when they need to start sharing power and decision-making. Also, when a company's success depends on one or two individuals, there's significant risk if they sell up, move on to new entrepreneurial ventures, or retire

Simple Structure

Example: The Apex corporation case discussed in class gives a example of simple structure In the case, Initially there are a group of 25 employees with no-clear cut job responsibilities but as the organization began to grow they found the need to form hierarchical, functional structure to align with the business strategy. A simple structure may fail if the size of the organization grows and hence every organization has to transform itself into other structure as it grows.

 Emphasis on the standardization of work and stability in the organization. Mechanistic bureaucracy will be successful when the jobs are routine and repetitive. Example 1: Manufacturing companies like Maruthi follow mechanistic structure and has been very successful in practicing it. However the same mechanistic bureaucratic organizational structure restricted Maruthi from creativity and innovation. It imports technology from Japan and outsources few manufacturing parts to other vendors. In this model, importance is given to efficiency and should be praticised low uncertainty. Example 2: Bajaj followed mechanistic structure in producing scooters to meet high demand efficiently in 1990s and not able to catch-up new technologies and product innovations in early 2000s. It lost its market share to Hero Honda.

Machine Bureaucracy

Professional bureaucracy divide the work according to the professional groups, and task collaboration is done by standardizing the knowledge and skills of the professions. Example 1: Healthcare is a professional bureaucracy in the Mintzberg Model. The departments are all organized by the professions the nurses are all in nursing, the pharmacists are all in the pharmacy, and the lab technologists are all in the laboratory. A professional bureaucracy has a tiny techno-structure. Decisions on methods are made by the operating core, the very same people doing operations. Professional organizations are typically staffed by well educated and qualified individuals who deliver highly specialized and valuable services and charge accordingly. This high complexity of task leads to relatively low centralisation. A key principle of professional organizations is the autonomy of its agents who are assumed to be sufficiently expert to make serious choices in the actions they undertake Example: Lawyers and consultants

Professional bureaucracy:

 prime coordinating mechanism: standardisation of outputs key part: middle line main design parameters: market grouping, performance control system, limited vertical decentralisation situational factors: diversified markets (particularly products or services); old, large; power needs of middle managers; fashionable

The divisions are fairly autonomous There is little interdependence between divisions Divisions address separate markets Divisional leaders are very strong Headquarters focus on performance (economic result) Divisions are driven towards machine bureaucracy Comes as a result of diversification or acquisitions Split in separate organisations is a realistic alternative

Divisional Configuration

Advantage
Better Allocation of capital Helps training managers Spreads risk across markets Strategically responsive

Problems
Centralisation of power Bureaucratisation Reliance on MIS Outside private sector: artificial performance standards Pure divisionalisation may be a weaker alternative than full split remember: no environment of its own Controlled diversity more profitable than conglomerate by-product or related-product forms the more interesting

Advantages compared to machine bureaucracy

with initially there was a Functional organization structure being followed for many decades in India. simple, conventional and formal organizational structure Span of control was different at different levels. higher at the bottom line of the organization where a sales manager has to manage a team of 5-6 sales persons. Moreover, this hierarchy existed in other functions as well like production, customer service and operations etc. lack of coordination between different functions of the organization.

Goodyear Tire and Rubber Company Functional to Divisional

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Age and Sizewell established in India, (since 1962) deep and solid network of retailers across Indian states. systems and procedures were well formalized in the market from top of the management to a retailer. Marketing strategy was quite obvious and market knew that when and how to deal with Goodyear. This hampered the speed at which company grew. Technology, Failure to innovateThe range of Goodyear tyres being marketed up till 2008 had become obsolete need of new products to compliment rapid developments in automobile sector. Despite having a wide range globally, Goodyear could not replace new products because of excessive standardization of products, resistance to change from factory employees, sales team and retailers. Environmentcommon strategy for a diverse country like India was not helping. competitors(Bridgestone Michelin) entered Indian market with more customer focused approach in their different product segments this forced Goodyear to launch its new product ranges for different types of tyre customers, thereby complicating the environment.

Factors which influenced Structural change for Goodyear India

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StrategyThe Place, Promotion and People for different products marketed by Goodyear, became too obtuse to each other due to growth in market size and arrival of competitors. The Four Ps of marketing forced Goodyear to change its functional structure and move to a Product based Unit structure. One single strategy to increase business was not enough to retain or gain overall market share. (Cummins 2008) Delays in decision making: formalized structure resulted in slow decision making process and which resulted in dissatisfaction and reduced effect and success ratio of a decision. Disagreement and the inability to resolve issues effectively slowed the company response and turned the focus inward rather than on customers. (Dyck 2010)

Factors which influenced Structural change for Goodyear India

all the departments divided in two different product categories Passenger Business Unit Car tyre and Commercial Business Unit Truck and Farm tyres. Both the PBUs had separate set of professionals in different functions from Top management to bottom line workers. Two production facilities were also reorganized: one to produce tyres passenger cars and other to produce tyres for commercial vehicles.

Transformation from Functional to Divisional Form Product Based Unit (PBU) in 2008

Direct control vs. Autonomy: low degree of centralization which meant that there was more power or autonomy at lower level of organization, however holding the core objectives and purposes of a PBU intact. Speed of Response: Response time improved significantly as employees at each level were given more authorities. There was significant improvement in After-sales service which provided higher level of customer satisfaction. Flexibility: Sensitive to external factors, companys pricing, logistics and supply (production) became more flexible and started adjusting swiftly to different markets or market segments and also in the event of a change in any of its competitors strategy (pricing, distribution etc) Innovation and Predictability: Resultant of PBU structure, a dedicated R&D for both the PBUs was able to introduce new technologies for different market segments. This enabled company to gain significant market share and acquiring more market out of a growing economy in India.

Results of Product based Unit structure

prime coordinating mechanism: mutual adjustment key part: support staff (together with the operating core in the operating adhocracy) main design parameters: liaison devices, organic structure, selective decentralisation, horizontal job specialisation, training, functional and market grouping concurrently situational factors: complex, dynamic (sometimes disparate) environment; young (especially operating adhocracy); sophisticated and often automated technical system (in the administrative adhocracy); fashionable

Focus on innovation, cannot rely on standardisation Goes away from the principle of unity of command Gives power to experts, but cannot rely on their standardised skills to achieve coordination Mutual adjustment in and between project teams
project coordinators, meetings, etc experts formally in functional units project teams based on (market) needs

Matrix structure common

Adhocracy

Features
A lot of coordination needed Managers participate in project teams Ensuring proper management and anchoring of projects often demanding Need to monitor and redirect projects Distinction between line and staff becomes unclear Hard to split strategy formulation and strategy implementation Strategy tends to evolve formed implicitly by decisions made strategy formation, emergent strategy, strategising

Conditions
Dynamic and complex environment Interdependencies that need to be handled Frequent product changes Often young (esp. operating adhocracies) Sophisticated and sometimes automated technical system An element of fashion all the right words: dynamic, expertise, projects, etc.

Adhocracy

operating adhocracy
Solves problems on behalf of its clients
think-tanks applied R&D institutes creative advertising companies manufacturer of prototypes experimenting theatre company

administrative adhocracy
Solves problems, runs projects, on behalf of itself Typically a company where the operating core is truncated
done in a separate organisation contracted out (outsourcing) by full automation (c.f. discussion of machine bureaucracy)

May easily turn into a professional bureaucracy if more focused and with standardised methods
e.g. from NR to Accenture

Tricky issue of combining efficient production with high degree of innovation

machine bureaucracy with a venture team is not an adhocracy

Types of Adhocracy

Sumaprojekt is a stock company for projecting and engineering in wood processing industry offering consultancy services. Treating business problems in an innovative way helped company to cope its own business reality successfully. It is about the operative form of the adhocrative organizational configuration, because jobs in Sumaprojekt are carried out exclusively for the clients needs.

Sumaprojekt
Functional to operational Adhocracy

privatization process just finished (2001) Functional organizational design was not able to find an answer to emerged changes in the environment. All of this led to decrease of activities of the organization that was followed by decrease of performances and results of business. At the same time business environment wasradically changed. The B&H wood processing industry became more sophisticated industry with more demanding companies Sumaprojekts potential customers. Some big B&H wood processing companies, the most important Sumaprojekts customer before the war (Sipad, Sarajevo; Sana, Sanski Most; ...), were disappeared. On the other side a lot of new companies were born mostly SMEs companies which were focused on more sophisticated customer, with higher degree of wood processing. Their requirements addressed to Sumaprojekt as a consultant company in woodprocessing industry were very demanding.

Problems with functional

Sumaprojekt : Functional Structure

New organizational structure incorporates project organization in the existing functional structure creating so-called matrix structure. all Sumaprojects business activities were being undertaken through ac-hoc projects. All the business activities of Sumaprojekt were carried out in the form of the project task for which Project Manager is appointed.

Further on, Project Manager appoints members of the project team.

Board for project is lateral link (meeting) that, due to parallel and simultaneous realization of numerous projects, manage those projects. At the same time, parallel existence of the functional organization (static aspect) and project

organization (project managements) promotes the matrix organization as the basic

organizational form. Multidisciplinary ad-hoc teams are basic element of Sumaprojects organizational structure.

Sumaprojekt: shift to operational adhocracy

Sumaprojekt : Operational adhoc Structure

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