Managerial Economics and Organizational Architecture, 5e

Managerial Economics and

Organizational Architecture, 5e

Chapter 13: Decision

Rights: Bundling Tasks into
Jobs and Subunits
McGraw-Hill/Irwin

Copyright 2009 by The McGraw-Hill Companies, Inc. All Rights Reserved.

Managerial Economics and Organizational Architecture, 5e

Task Assignment
Specialized
perform limited number of functions
e.g. traditional assembly line

Broad
perform multiple functions
e.g. professors

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Managerial Economics and Organizational Architecture, 5e

Specialized Task Assignment

Benefits
comparative advantage
lower cross-training expense

Costs
foregone complementarities across tasks
coordination costs
functional myopia
reduced flexibility
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Managerial Economics and Organizational Architecture, 5e

Incentive Issues
Depending on the compensation and
ability to measure different tasks,
individuals may put more effort into one
task over another

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Managerial Economics and Organizational Architecture, 5e

Tasks at Finware
FinWare, Inc.
Function
Sales

Service

Task 1

Task 2

Task 3

Task 4

Individuals
Customer
type
Businesses

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Managerial Economics and Organizational Architecture, 5e

Bundling Jobs into Subunits

Grouping people together reduces
communication and coordination costs
within the subunit
Activities must be coordinated across
subunits
incentive issues must be considered when
grouping
it is easier to devise performance evaluation
and reward systems in some groupings than in
others
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Managerial Economics and Organizational Architecture, 5e

Methods of Grouping Jobs

U-form of organization (unitary)
group by functional specialty
each primary function in one major subunit

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Managerial Economics and Organizational Architecture, 5e

Finware as Functional
Organization
FinWare, Inc.
Chief Executive Officer

Sales Department

Service Department

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Managerial Economics and Organizational Architecture, 5e

Functional Subunits
Advantages
promotes effective coordination
promotes functional expertise
well-defined promotion path

Disadvantages
opportunity cost of senior management time
coordination problems across departments
employee focus on functions, not customers
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Managerial Economics and Organizational Architecture, 5e

Methods of Grouping Jobs

M-form of organization (multidivisional)
group by product
group by geographic area
each unit has multiple functions

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Managerial Economics and Organizational Architecture, 5e

Finware as Product and

Geographic Organization
FinWare, Inc.
Product Organization

Geographic Organization

Chief Executive Officer

Chief Executive Officer

Business Products
Division

Consumer Products
Division

West Coast
Division

East Coast
Division

Sales Department

Sales Department

Sales Department

Sales Department

Service Department

Service Department

Service Department

Service Department

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Managerial Economics and Organizational Architecture, 5e

Product/Geographic Subunits
Advantages
decision rights tied to specific knowledge
senior management able to focus on strategy
promotes coordination pertinent to
product/area

Disadvantages
unit interdependencies may be ignored
economies may be foregone
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Managerial Economics and Organizational Architecture, 5e

Functional Subunits
Tend to work best
in small firms with homogeneous products
when technological change is slow

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Managerial Economics and Organizational Architecture, 5e

Methods of Grouping Jobs

Matrix organization
intersecting lines of authority
functional departments address performance
reviews and professional development
product/geographic subunits address
customer/client needs

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Managerial Economics and Organizational Architecture, 5e

Finware as Matrix Organization

Chief Executive Officer

Sales Division

Service Division

Business Products Team

Business Sales
Department

Business Service
Department

Business Products Team

Consumer Sales
Department

Consumer Service
Department

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Managerial Economics and Organizational Architecture, 5e

Matrix Organization
Difficult to implement
Incentives for cooperation are not strong
Other structures:
mixed design
organize by product, geography and function
depending on the subunit

Network
Keiretsu
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Managerial Economics and Organizational Architecture, 5e

IBM Credit Originally

Originally organized around functions
employees assigned specialized set of tasks
within functional area
employees had limited decision authority

Credit application processing took 6 days

as each functional area reviewed the
application

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Managerial Economics and Organizational Architecture, 5e

IBM Credit with Functional

Organization
General Manager

Credit
Department

Contracts
Department

Pricing
Department

Documents
Department

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Managerial Economics and Organizational Architecture, 5e

A Re-engineered IBM Credit

New technology and information systems
supported task reassignment and job
redesign
As reorganized, empowered caseworkers
handle process in 4 hours

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Managerial Economics and Organizational Architecture, 5e

IBM Credits Revised

Organization
IBM Credit
General Manager

Caseworker

Caseworker

Caseworker

Caseworker

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Managerial Economics and Organizational Architecture, 5e

Appendix

Managerial Economics and Organizational Architecture, 5e

Battle of the Functional Managers

Quick Motorcycle Company
functionally organized
design department
marketing department

New product design options

speed
safety

Marketing options
magazine advertising older consumers
television advertising younger consumers

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Managerial Economics and Organizational Architecture, 5e

Battle of the Functional Managers

$5000

$2000

PinoDesign 1

PinoDesign 1

game matrix

PinoDesign 2

PinoDesign 2

$100
LanMarketing plan 1

$100
LanMarketing plan 2

LanMarketing plan 1

$100

$100

$1000

$4000
LanMarketing plan 2

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