Business Organization (Prof. Ricciardi e Prof. Broccardo)

Business organization

Università degli Studi di Torino, Business and Management, 2nd year

Lecture One – 26th April

The aim of the course is to study the so-called “organizational variables,” that is to say, how to analyse and design the organizational structure and management systems, by which to divide and coordinate the tasks in order to influence the human resources behaviour, to achieve the basic goals of the firm.

Program of the course

• Organizational variables and external and internal context variables
• The organizational structure parameters (specialization, grouping, coordination, decentralization, formalization etc.)
• Organizational configurations
• The operative schemes of the organizational structure
• The management systems: planning and control, human resources, management and development, information and communication
• Management models and leadership styles

What is an organization?

It is a social organism that enables an activity system, systems of coordinated activities for a certain goal.

How can we analyse an organization as a social organism?

1. Structure (anatomy – parts of the organism)
2. Systems (mechanisms – information systems etc.)
3. Management Style & Organizational Culture (soft traits)
4. Processes (physiology – how parts work/are linked)

Companies can have born or die and one of the factors that can decide about their birth or death is organization. The social organism can vary from organization to organization, with different parts, different mechanisms, several soft traits and different processes.

Organizational theories and approaches

There are numerous and multidisciplinary theories that study organization. They began in the late nineteenth century with the scientific management (or Taylorism). A modern and – at the same time – consolidated approach, which is typical of management studies, is the contingency model.

In the past, they had a great resonance with other approaches, characterized by operational orientation and problem solving, including the following:

• Taylorism:
  • It formulates general organizational rules, considered universally valid
  • It advocates hierarchy and functional specialization
  • It subordinates the “human” component to the “technical” one
  • So, it is the human that must adapt to the machine
• Human Relations and Motivational Theories:
  • It emphasizes the human component, the role of groups and the informal organization
  • It affirms the need to motivate individuals to share organizational decisions
  • It is focused on the physiological needs of people

Taylorism basic concepts

• Hierarchical order:
  • Scalar principle: there is a clear line of hierarchy
  • Unitary control: every person in the company must have just one boss
  • Line and staff: the line of command between various levels
  • Exception principle: everything that is ordinary, that repeats, it must be done by normal employees, not by managers, who have to deal with exceptions.
  • Balancing authority and accountability: when you’re responsible for something, you must have the authority which is proportionate to the accountability that is requested
• Labour Specialization:
  • By department (marketing, production, administration) = function
  • Specific Tasks
• Management activities:
  • Planning, management control system, leadership, organization, employee motivation.

Motivational Theories principles

• Needs in hierarchical order:
  • Physiological
  • Safety
  • Belonging
  • Self-esteem
  • Self-realization
• Policies/tools to satisfy needs:
  • Factors such as salary, safety and hygiene at work
  • Motivational factors (recognition of results, job satisfaction, involvement, team spirit).

Contingency approach

• The organization has to be analysed and designed in strict compliance with “contingency” variables:
  • External environment
  • Trade and cultural associations
  • Technologies
  • Institutional variables
  • Business strategy
• There are no best organizational choices; there are different options: the company must be like a tailor and adapt its organization to company needs.

The contingency model states that all the features are linked together and based on the general and specific environment on which are based behavioural input and output.

Organizational variables

• Structure: criteria of labour sharing and coordination and linked choices
• Management systems: planning and control systems, human resources etc.
• Management style: behavioural models, values, ideas and principles

Lecture Two – 27 April

Business processes

Processes are sets of coordinated activities. They are analysed by dividing them into pieces determined by verbs (do, put, decide etc.).

Example: of eggs and cakes: manage eggs purchasing.

• Counting eggs
• Check eggs number
• Buy eggs
• Put eggs in order

Writing down a process means making a job description explicit; when you work in a well-organized company, probably they will give you a job description. Moreover, it is not necessary that all the activities are carried out by the same person.

Kinds of process

• Vertical process: inside one single department (e.g. marketing, so internally focused).
• Horizontal process: when it goes through different departments to the customer (so externally focused). These are considered the most important processes because the satisfaction of the customer is essential.

A good design of processes is essential in order not to lose value and time.

Typical roles in BPM projects

• Process owner – chairman, head of division
• Process manager – head of department
• Process participant – clerk etc.
• Process analyst – in-house consultant
• Process engineer – software developer

The positive effects are that a good process implements efficiency and avoids losing time and value. On the other hand, there is the risk of losing oneself in the details, having a very rich and precise process but low real value.

Moreover, determining good processes can take quite long and can be expensive: a company can hire a consultant to know what it needs to implement its process, and he will ask for long meetings that maybe manager do not have time to follow.

As we’ve said, a starting point for reasoning about the organizational structure could focus on activities and operational processes. They are the basis to define the social organism.

Operational processes

The operational processes are sets of activities:

• With a specific output and for a defined goal
• To satisfy an internal or external customer

Some examples of operational processes that exist in any organization:

• Transformation
• Inbound and outbound logistics
• Marketing
• Customer services
• Supplies
• Research and development

The vision based on processes helps us to properly understand how business works. This is often true even if a company does not have an organizational structure for processes (usually the company has a functional organization: processes are cross-functional).

The vision based on processes helps us to have a mindset (and operational approach) which could be:

• Systemic
• Customer-oriented

Keep in mind that thinking just for your own department and not as a global system is one of the worst things and sources of disappointment (thinking silos).

Drawing an organizational structure

To draw an organizational structure means solving two basic problems:

1. How to assign the work (buy eggs, put them in order etc.)
2. How to coordinate these individuals and tasks

If you conduct good process analysis, you will be able to assign and coordinate easily the various individuals. Once we’ve established the processes, we go on with the structure of the business (anatomy).

Structure’s parameters

We have to make different decisions based on the structure’s different parameters, as shown here:

• Specialization: varying numbers and complexity of tasks of each component of the workforce.
• Grouping: building organizational units (vertical and horizontal development).
• Coordination: integrating different tasks and organizational units.
• Decentralization: distributing decision-making power.
• Formalization: defining organizational rules.
• Unit Size: how many people must have every unit (and the company).

Keep in mind that there is not a correct way to design the structure and to make decisions on the features above; in fact, there are several ways!

To make correct decisions for each of these parameters (and combine them harmoniously), we should remember:

• Organizational variables are an important element of competitive advantage;
• Different parameters must be selected according to management goals, and we need to simulate the impact on efficiency and effectiveness (and indirectly on costs and revenues);
• Depending on the parameters, the reasoning to do this is different and "targeted" (e.g. Choosing how to group, rather than how to coordinate).

Specialization

Is it appropriate to assign few or many tasks to individual positions? Simple or complex activities?

The answer to these questions is – at least initially – almost automatic for some typical organizational positions:

• A high-level executive
• Supervisor (medium – low level)
• Unskilled operator
• Professional

Careful! The type of job can lend itself to different organizational choices, even if it conditions the degree of specialization. For example:

• If unskilled positions are subject to rotation, variety and new challenges, demotivation and poor performance can be avoided or reduced;
• If professional positions are subject to rules and procedures, arbitrary conduct can be avoided.

Grouping

What are the appropriate criteria to group the working positions/organizational units? How necessary is it to develop the structure “vertically” (number of organizational levels)?

It is what creates teams, departments and functional areas. Usually, people are grouped in small groups until the top of the company.

There is no single answer to these questions. In fact:

• Grouping methods are different and they work well under different conditions
• Horizontal development (flat structure) is often praised, but it does not always attract or produce the expected results.

However, it depends on the company’s size. Big companies tend to have more layers, but there is more bureaucracy. So, the number of departments and functional areas define the hierarchical levels.

You can group people by several criteria:

• Input: promotes efficiency (strengthening expertise)
  • Numbers
  • Time
  • Skills
  • Technology
• Process
• Output: promotes effectiveness (especially, services for external or internal customers)
  • Customer base
  • Geographical area
  • Project

Grouping choices concern different levels and different areas of the same organizational structure. Therefore, all the bases of grouping, seen before, can coexist at some different hierarchical levels and in different "sectors" of the organization.

The choice of the level is immediately dependent on Top Management and defines the global face of the macro organizational structure.

Or you can group following:

• Vertical Development: The vertical development of the organizational structure is defined by the number of hierarchical levels. Vertical development tends to grow although not necessarily in proportion to staff numbers. Vertical development is synonymous with a hierarchical chain and undoubtedly involves problems with communication.