Managing Organizational Structure and Culture

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1 Chapter 4 Managing Organizational Structure and Culture CHAPTER OUTLINE I. DESIGNING ORGANIZATIONAL STRUCTURE A. Organizing is the process by which managers establish the structure of working relationships among employees to allow them to achieve organizational goals efficiently and effectively. 1. Organizational structure is the formal system of task and reporting relationships that determines how employees use resources to achieve goals. 2. Organizational culture is the shared set of beliefs, values, and norms that influence the way people and groups work together to achieve organizational goals. 3. Organizational design is the process by which managers make specific organizing choices that result in the construction of a particular organizational structure. a. The challenge facing all companies is to design a structure and culture that i. motivates managers and employees to work hard and to develop supportive job behaviors and attitudes, and ii. coordinates the actions of employees, groups, functions and divisions to ensure they work together efficiently and effectively. b. According to contingency theory, managers design organizational structures to fit the factors or circumstances that are affecting the company and causing them the greatest uncertainty. c. Thus, there is no one best way to design an organization. 4. Four factors are important determinants of the type of organizational structure or culture a manager selects: They are 1): the nature of the organizational environment; 2) the type of strategy the organization pursues; 3) the technology the organization uses; 4) the characteristics of the organization s human resources. 1

2 B. The Organizational Environment: The more quickly the external environment is changing and the greater the uncertainty within it, the greater the need to speed decision-making and communication so that scarce resources can be obtained. 1. In such situations, the manager s goal is to make organizing decisions that result in greater flexibility and an entrepreneurial culture. a. Therefore, they are likely to decentralize authority, empower lowerlevel employees, and encourage values and norms that emphasize change and innovation. 2. In contrast, if the external environment is relatively stable, uncertainty is low, and resources are readily available, managers make organizing decisions that bring more stability or formality to the organization s structure. a. They also choose values and norms that emphasize obedience and being a team player. b. Managers in this situation prefer a clearly defined hierarchy of authority, standard operating procedures, and restrictive norms to guide employee activities. 3. In today s marketplace, increasing competition is putting pressure on managers to find ways to structure organizations that allow people and departments to behave flexibly. C. Strategy: Different strategies often call for the use of different organizational structures and cultures. 1. For example, a differentiation strategy aimed at increasing quality usually succeeds best in a flexible structure with a culture that values innovation. 2. In contrast, a low-cost strategy aimed at driving down costs works best in a more formal structure with more conservative norms, which gives managers greater control. 3. At the corporate level, when managers pursue a strategy of vertical integration or diversification, a flexible structure is needed to provide sufficient coordination between different business divisions. 4. Managers are also challenged to create organizational structures that allow flexibility on a global level. D. Technology is the combination of skills, knowledge, tools, machines, computers, and equipment that are used in the design, production, and distribution of goods and services. 1. The more complicated the technology, the greater the need for a more flexible structure that allows managers to respond quickly to unexpected situations. 2

3 2. If technology is routine, a formal structure is more appropriate because tasks are simple and procedures for performing tasks can be outlined in advance. 3. Two factors determine how complicated or nonroutine technology is, according to researcher Charles Perrow. They are task variety and task analyzabilitiy. a. Nonroutine technologies are characterized by high task variety and low task analyzability. b. Routine technologies are characterized by low task variety and high task analyzability. 4. Examples of nonroutine technology are found in the work of scientists in a research and development laboratory who develop new products. 5. Examples of routine technology include typical mass production or assembly operations, where workers perform the same task repeatedly and managers identify programmed solutions necessary to perform a task efficiently. E. Human Resources: The more highly skilled a workforce and the more people are required to work together in groups or teams to perform tasks, the more likely an organization is to use a flexible, decentralized structure and a professional culture based on values and norms that foster employee autonomy and self-control. 1. Flexible structures, characterized by decentralized authority and empowered employees, are well suited to the needs of highly skilled people. 2. Similarly, when people work in teams, they must be allowed to interact freely and develop norms and guide their own work interactions, which is also possible in a flexible organizational structure. 3. The way an organization s structure works depends upon the organizing choices that managers make about three issues: a. how to group tasks into individual jobs b. how to group jobs into functions and divisions c. how to allocate authority and coordinate or integrate jobs, functions, and divisions. II. GROUPING TASKS INTO JOBS: JOB DESIGN A. The first step in organizational design is job design. Job design is the process by which managers decide how to divide into specific jobs the tasks that have to be performed. B. The result of the job design process is a division of labor among employees. Establishing an appropriate division of labor among employees is vital to increasing efficiency and effectiveness. 3

4 C. When deciding how to assign tasks to individual jobs, managers must be careful not to oversimplify jobs. Job simplification is the process of reducing the number of tasks that each worker performs. Too much job simplification may reduce efficiency rather than increase it, if workers become bored and unhappy. D. Job Enlargement and Job Enrichment 1. Job enlargement is increasing the number of different tasks in a given job by changing the division of labor. a. By increasing the range of tasks performed by a worker, managers hope to reduce boredom and increase motivation to perform at a high level. 2. Job enrichment is increasing the degree of responsibility a worker has over his or her job by a. empowering workers to experiment to find new or better ways of doing the job b. encouraging workers to develop new skills c. allowing workers to decide how to do the work and giving them the responsibility for deciding how to respond to unexpected situations d. allowing workers to monitor and measure their own performance. e. By enriching an employee s job, managers are expecting that employee s level of involvement in their work to increase, thereby increasing productivity. 3. Managers who make design choices such as these are likely to increase the degree to which workers behave flexibly rather than mechanically. 4. Narrow, specialized jobs lead people to behave in predictable ways. 5. In contrast, workers who perform a variety of tasks are encouraged to discover new ways to perform their jobs and are more likely to act flexibly and creatively. E. The Job Characteristics Model : J. R. Hackman and G. R. Oldham s Job Characteristics Model explains how managers can make jobs more interesting and motivating. According to Hackman and Oldham, every job has five characteristics that determine how motivating the job is. They are: 1. Skill variety, which examines the extent to which a job requires an employee to use a wide range of different skills, abilities, or knowledge. 2. Task identity, which examines the extent to which a job requires a worker to perform all the tasks from the beginning to the end of the production process. 3. Task significance, which examines the degree to which a worker feels his or her job is meaningful because of its effect on people outside of the organization. 4

5 4. Autonomy, which examines the degree to which a job gives an employee the freedom and discretion needed to schedule different tasks and decide how to carry them out. 5. Feedback, which is the extent to which a worker receives clear and direct information regarding how well he or she has performed the job. 6. The five job characteristics affect an employee s motivation by impacting three critical psychological states. They are: a. feeling that one s work is meaningful b. feeling responsible for work outcomes c. feeling responsible for knowing how those outcomes affect others. III. GROUPING JOBS INTO FUNCTIONS AND DIVISIONS A. The next organizing decision is how to group jobs together to best match the needs of the organization s environment, strategy, technology, and human resources. 1. Most top-management teams group jobs into departments and develop a functional structure. 2. As the organization grows, managers design a divisional structure or a more complex matrix or product team structure. B. Functional Structure: A function is a group of people working together who possess similar skills or use the same knowledge, tools, or techniques to perform their jobs. A functional structure is a structure composed of all the departments that an organization requires to produce its goods or services. 1. The advantages of grouping jobs according to function are: a. When people who perform similar jobs are grouped together, they can learn from observing one another. b. When people who perform similar jobs are grouped together, it is easier for managers to monitor and evaluate their performance. c. The functional structure allows managers to create the set of functions they need to scan and monitor the task and general environments. 2. As an organization grows, the functional structure may become less efficient and effective for the following reasons: a. Managers in different functions may find it more difficult to communicate and coordinate with one another. b. Functional managers may become so preoccupied with supervising their own specific departments that they lose sight of organizational goals. 5

6 C. Divisional Structures: Product, Market, and Geographic 1. As the problems associated with growth and diversification increase over time, most managers of large organizations choose a divisional structure and create a series of business units, each of which produces a specific kind of product for a specific kind of customer. 2. Each division is a collection of functions or departments that work together to produce the product. There are three different forms of divisional structure: product structure, geographic structure, and market structure. 3. Product Structure: When using a product structure managers place each distinct product line in its own self-contained division and give divisional managers the responsibility for devising and appropriate business-level strategy. a. Each division is self-contained because it has a complete set of all the functions that it needs to produce goods or services. Advantages of using a product structure are: b. It allows functional managers to specialize in only one product area, so they build expertise. c. Each division s managers can become experts in their industry. d. It frees corporate managers from the need to supervise directly each division s day-to-day activities. e. The extra layer of management (the divisional management layer) can improve the use of organizational resources. f. It puts divisional managers close to their customers and lets them respond quickly and appropriately. 4. Geographic Structure: When organizations expand rapidly both at home and abroad, functional structures can create problems because managers in one central location may find it increasingly difficult to deal with problems arising in other regions of the country or world. a. In such cases, a geographic structure, in which divisions are broken down by geographical location, is chosen. b. Managers are most likely to use a global geographic structure when pursuing a multidomestic strategy, since customer needs vary widely by country or world region. c. In contrast, managers are most likely to use a global product structure when pursuing a global strategy, since customers abroad are willing to buy the same kind of product, or slight variations thereof. 5. Market Structure Sometimes managers group functions according to the type of customer buying the product, in order to tailor an organization s products to each customer s unique demands. a. A market structure (also called customer structure) is an organizational structure in which each kind of customer is served by a self-contained division. 6

7 b. It allows managers to be responsive to the needs of customers and allows them to make decisions in response to customers changing needs. D. Matrix and Product Team Designs 1. When the environment is dynamic, changing rapidly, and uncertainty is high, even a divisional structure may not provide enough flexibility. 2. Matrix and product team designs are the most flexible type of organization structures. 3. Matrix Structure: In a matrix structure, managers group people in two ways simultaneously: by function and by product. The result is a complex network of reporting relationships that makes the matrix structure very flexible. a. Each person in a product team reports to two bosses: 1) a functional boss, who assigns individuals to a team and evaluates their performance, and 2) the boss of the product team, who evaluates their performance on the team. Thus, team members are known as two-boss employees. b. The functional employees assigned to product teams change over time as specific skills needed by the team change. To keep the matrix flexible, product teams are empowered and team members are responsible for making important decisions. c. Matrix structures have been successfully used for years at high-tech companies where new product development takes place frequently and the need to innovate quickly is vital to the organization s survival. 4. Product Team Structure: The dual reporting relationships of a matrix structure have always been difficult for managers and employees to deal with. To avoid these problems, managers have devised another way of organizing people and resources: a product team structure. a. The product team structure differs from a matrix in that: 1) it does away with dual reporting relationships and two-boss managers, and 2) functional employees are permanently assigned to a crossfunctional team. b. A cross-functional team is a group of managers brought together from different departments to perform organizational tasks. They report only to the product team manager or to one of his or her subordinates. c. Increasingly, organizations are making empowered cross-functional teams an essential part of their organizational architecture to help them gain a competitive advantage in fast-changing organizational environments. 7

8 E. Hybrid Structure: A large organization that has many divisions and simultaneously uses many different structures has a hybrid structure. 1. For example, most large organizations use product division structures to create self-contained divisions. 2. Then, each division manager selects the structure that best meets the needs of their particular environment, strategy, etc. IV. COORDINATING FUNCTIONS AND DIVISIONS A. The more complex the structure a company uses to group its activities, the greater are the problems of linking and coordinating its different functions and divisions. Coordination becomes a problem because each function or division develops a different orientation toward the other groups that affects the way it interacts with them. B. Allocating Authority: To coordinate the activities of people, functions, and divisions and to allow them to work together managers must develop a clear hierarchy of authority. Authority is the power vested in a manager to make decisions and use resources to achieve organizational goals by virtue of his or her position in an organization. 1. The hierarchy of authority is an organization s chain of command. Every manager, at every level of the hierarchy, supervises one or more subordinates. 2. The term span of control refers to the number of subordinates who report directly to a manager. 3. A line manager is someone who is in the direct line or chain of command and has formal authority over people and resources below him. 4. A staff manager is a manager responsible for managing a specialist function. 5. Managers at each level of the hierarchy confer upon managers below them in the chain of command the authority to make decisions. a. By accepting this authority, those lower-level managers then become responsible for their decisions and are accountable for how well they make them. C. Tall and Flat Organizations. As an organization grows in size, its hierarchy of authority normally lengthens, making the organizational structure taller. 1. A tall organization has many levels of authority relative to company size. 2. A flat organization has fewer levels relative to company size. 3. As a hierarchy becomes taller, effective communication becomes difficult and expenses rise. a. It can take a long time for decisions to move downward in the hierarchy, causing a disconnection between top and middle managers. b. Also, it can result in the distortion of commands and orders being transmitted up and down the hierarchy. 4. Another problem with tall hierarchies is that they are expensive. 8

9 D. The Minimum Chain of Command: The principle of the minimum chain of command states that top managers should always construct a hierarchy with the fewest levels of authority necessary to efficiently and effectively use organizational resources. 1. To ward off the problems associated with tall organizations, top managers must be sure that they are employing the right number of middle and firstline managers. 2. Effective managers constantly scrutinize their hierarchies to see if the number of levels can be reduced. E. Centralization and Decentralization of Authority: Another way that managers keep the organizational hierarchy flat is by decentralizing authority, that is, giving lower-level managers and non-managerial employees the right to make important decisions about how to use organizational resources 1. Advantages of decentralization include fewer communication problems, a need for fewer managers, and an improved ability of employees to recognize and respond to customer needs. 2. Another advantage is that the organization continues to behave in a flexible as it grows and becomes taller. 3. However, too much decentralization has disadvantages, including managers who may begin to pursue their own goals at the expense of organizational goals and a lack of communication among functions or divisions that may prevent possible synergies. 4. Top managers must seek a balance between centralization and decentralization of authority that best responds to the four contingencies that they face. 5. If in a stable environment, are using well understood technology, and are producing staple kinds of products, then there is no need to decentralize authority. 6. However, in uncertain, changing environments, where high-tech companies are producing state-of-the art products, top managers must often empower employees and allow teams to make important strategic decisions. F. Integrating and Coordinating Mechanisms: Managers can use various integrating mechanisms to increase communication and coordination among functions and divisions. 1. The greater the complexity of an organization s structure, the greater is the need to increase communication and coordination among functions and divisions. 2. Liaison Roles: When the volume of contacts between two functions increases, one way to improve coordination is to give one manager in each function or division the responsibility for coordinating with the other. a. The responsibility for coordination is a part of the liaison s full time job. 9

10 b. Usually an informal relationship forms between the people involved, greatly easing strains between functions. 3. Task Forces: If two or more functions share common problems and direct contact and liaison roles do not provide sufficient coordination, a task force may be appropriate. a. One manager from each relevant function or division is assigned to a task force that meets to solve the specific, mutual problem. b. Members are responsible for reporting back to their own departments on issues addressed and solutions recommended. c. Task forces are often called ad hoc committees because they are temporary. Once the problem is resolved, the task force is disbanded. 4. Cross-Functional Teams: To address recurring problems effectively, managers are increasingly using permanent integrating mechanisms such as cross-functional teams. a. An example of a cross functional team is a new product development committee that is responsible for the choice, design, manufacturing, and marketing of a new product. b. The more complex an organization, the more important cross-functional teams become. 5. Integrating Roles: An integrating role is a role whose only function is to increase coordination and integration among functions or divisions to achieve performance gains from synergies. a. Usually, senior managers who can envision how to use the resources of the functions or divisions to obtain new synergies are chosen to perform such roles. b. Once again, the more complex an organization, the more important integrating roles become. V. ORGANIZATIONAL CULTURE A. The second principal issue in organizational design is to create, develop, and maintain an organization s culture. Organizational culture is the shared set of beliefs, expectations, values, and norms that influence how members of an organization relate to one another and cooperate to achieve organizational goals. 1. Organizational culture influences work attitudes and behaviors when employees internalize organizational values and norms, and then allow those values and norms to guide their decisions and actions. B. A company s culture is a result of its pivotal or guiding values and norms. 1. Values are the shared standards which organizational members use to evaluate whether or not they have helped the company achieve its vision and goals. 10

11 2. Norms are informal, yet powerful rules concerning how employees should behave in a company if they are to be accepted and help it to achieve its goals. Ideally, a company s norms help the company achieve its goals. 3. Over time, members of a company learn from one another how to perceive and interpret various events that happen in the work setting and how to respond to them in ways that reflect the company s guiding values and norms. C. Where Does Culture Come From? Organizational culture is shaped by the interaction of four main factors: the personal and professional characteristics of people within the organization, organizational ethics, the nature of the employment relationship, and the design of its organizational structure. 1. These factors work together to produce different cultures in different organizations and cause changes in culture over time. 2. Characteristics of Organizational Members: Organizations develop distinctly different cultures because they attract, select, and retain people with different values, personalities, and ethics. a. People are attracted to organizations whose values match theirs, and similarly, an organization selects people who share its values. b. Over time, people who do not fit in leave. and as a result the people inside the organization become more and more similar, and the values of the organization become more and more pronounced and clear-cut, and also more and more distinct from that of similar organizations. c. When an organization s values and norms become so strong and promote so much cohesiveness in the attitudes of its members that they begin to misperceive the environment, this may, in fact, hinder the organization s ability to adapt and respond to changes in the environment. 3. Organizational Ethics: Organizational ethics are the moral values, beliefs, and rules that establish the appropriate way for an organization and its members to deal with each other and people outside the organization. a. Top managers purposefully implant ethical values into an organization s culture to help managers and employees make choices about the right, or ethical, thing to do. b. Consequently, ethical values, as well as the rules and norms embodied in them become an integral part of an organization s culture and determine how its members will manage situations and make decisions. 4. The Employment Relationship: A third factor shaping organizational culture is the nature of the employment relationship a company establishes with its employees via its human resource policies and practices. a. An organization s HR policies provide a good indicator of the values in an organization s culture concerning its responsibilities to employees. 11

12 b. Policies concerning hiring, promotion, layoffs, pay, and benefits can influence how hard employees will work to achieve the organization s goals, how attached they will be to it, and if they will buy into its values and norms. c. Another example is a company s policy of promoting from within, as opposed to consistently hiring people from outside of the organization to fill open positions. d. Promoting from within will bolster strong values and norms that build loyalty, align employee goals with the organization and encourage employees to work hard to advance within the company. e. If employees see no prospect of being promoted from within, they are likely to look for better opportunities elsewhere, cultural values and norms result in self-interested behavior, and cooperation and cohesiveness fall. 5. Organizational Structure. A fourth source of cultural values comes from the organization s culture. Different kinds of structure give rise to different kinds of culture. a. Tall and highly centralized structures people have little personal autonomy and therefore give rise to cultures that emphasize caution, obedience to authority, and respecting tradition. Predictability and stability are desired goals. b. In contrast, flat, decentralized organizations give rise to cultures that emphasize creativity, courage, and risk taking. Innovation and flexibility are the desired goals. c. By decentralizing authority and empowering employees, an organization can establish values that encourage and reward creativity or innovation, hence signaling employees that is okay to be innovative and do things their own way. In contrast, centralization of authority can be used to create cultural values that reinforce obedience and accountability. d. Changing a culture can be difficult because of the way these factors interact and affect one another. Often, a major reorganization is necessary for a cultural change to occur. D. Strong, Adaptive Cultures Versus Weak, Inert Cultures : Many researchers and managers believe that employees of organizations go out of their way to help their organization because the organization has a strong and cohesive organizational culture, i.e., an adaptive culture. 1. Adaptive cultures are those whose values and norms that help an organization to build momentum, grow, and change as needed to achieve its goals and be effective. 2. In contrast, inert cultures are those that lead to values and norms that fail to motivate or inspire employees. They lead to stagnation and often failure over time. 12

13 3. Researchers have found that organizations with strong adaptive cultures invest in their employees and demonstrate their commitment to them. a. An example of such investment and commitment is emphasizing the long-term nature of the employment relationship, trying to avoid layoffs, developing long-term career paths for employees, and investing heavily in training and development to increase employee value to the organization. b. Also, employee rewards are linked directly to employee and organizational performance. 4. Other organizations, however, develop cultures with values that do not reflect a commitment to protecting and increasing the worth of their human resources. a. In a company with an inert culture, poor working relationships frequently develop between the organization and its employees. b. Instrumental values of non-cooperation, laziness, and loafing are prevalent and work norms of output restriction are common. 5. An adaptive culture develops an emphasis on entrepreneurship, respect for employees, and uses an organizational structure that empowers employees and motivates them to succeed. 6. In contrast, in an inert culture, employees are content to be told what to do and have little incentive or motivation to perform beyond minimum work requirements. 13