Organizational forms and design - Appunti

Cap 4: Basic challenge of organizational design

Overview of the basic challenges of organizational design

The focus of analysis: distinguish between micro and meso level of analysis.

Micro-level of analysis: horizontal and vertical differentiation, and basic coordination mechanisms.

Meso-level of analysis: horizontal and vertical differentiation, centralization/decentralization, integration mechanisms.

4.1 Overview of the basic challenges of organizational design

Key challenges include:

• Differentiation (the division of labor and degree of specialization) vs integration
• Standardization vs mutual adjustment
• Centralization vs decentralization

To address the issue, it may be useful to distinguish between:

• Micro-level of analysis
• Meso-level of analysis

4.2 Micro-level of analysis

The work situation most immediately involving the individuals.

At this level of analysis, key organizational design choices concern:

• Who does what, with whom and when
• Type, number, and variety of tasks allocated to an individual (individual vs joint specialization)
• The extent to which individuals can make decisions during work (the level of vertical differentiation)
• Coordination mechanisms (direct supervision and standardization vs mutual adjustment)

4.2.1 Lateral and vertical differentiation

Lateral differentiation

• Individual specialization - one-to-one correspondence between a person and a task; simple tasks, rigidly, clearly specified. If more than one task is allocated, they are similar (high level of horizontal differentiation and specialization).
• Example: secretary tasks
• Joint specialization: a person performs more than one task, tasks are loosely defined; a variety of tasks is allocated (low level of horizontal differentiation).
• Example: lean products method (Toyota)

Vertical differentiation

• The extent to which each individual has the responsibility to oversee the behavior of others (level of formal authority).
• The extent to which they can make decisions when performing their work.
• Basic coordination mechanisms include:
• Direct supervisor - another person is responsible for planning how work is to be done, giving detailed day-to-day instructions and orders, monitoring execution, and solving unexpected problems.
• High level of vertical differentiation because there is another person that has authority.
• Direct supervision is reduced when the number of employees is high.
• Standardization/formalization - Individual has no authority to break the rules (high level of verticalization).
• Standardization: conformity to specific, well-established sets of rules and procedures that prescribe how workers are to perform their tasks. Their actions are predictable.
• Formalization: the use of written rules and procedures to standardize operations.
• They specify the appropriate means for reaching desired goals.
• This mechanism can have some problems, especially in highly uncertain, rapidly evolving working situations - lots of unexpected problems.
• Workers have no authority to do new procedures, so they have to ask the superior, taking a lot of time, and in the meanwhile, the problem can become bigger.
• Mutual adjustment - decision-making and coordination are evolving/dynamic processes and people use their judgment rather than standardized rules to address an unexpected problem.
• Socialization/culture:
• Socialization - the process by which employees/workers learn the norms or styles of behavior the organization considers appropriate in a given situation.
• Organizational culture - the set of shared values and norms that control organizational members' interactions with each other and with suppliers, customers, and other people/organizations outside the organization.
• They control the way members make decisions, how they interpret a given situation, and information; they shape members' behavior, and the responses to situations, and increase the reliability of members' behavior.
• Different kinds of values: obedience to rules and SOPs, creativity, risk-taking, hard work, respect for tradition and authority, being cautious and conservative, and being frugal.
• They can be transferred and internalized through training and ceremonial rites (awards, promotions).
• Socialization can support either the development of standardized responses or the development of innovative, creative responses.

Trade-off - Balancing standardization vs mutual adjustment

To balance standardization and mutual adjustment, organizations need to differentiate between different kinds of tasks:

• Complex vs simple tasks, R&D accounting
• Using task forces and teams
• Also in accounting to foster innovation

4.3 The meso-level of analysis

It’s one solution to solve the trade-off between standardization and mutual adjustment.

Level of horizontal differentiation

• How to group individuals and roles/jobs into subunits:
• Function - a subunit composed of a group of people, working together, who process similar tasks or use the same kind of knowledge, tools, or techniques to perform their tasks.
• Divisions - a subunit that consists of a collection of functions or departments that share responsibility for producing a particular good or service.
• Organizational complexity - the number of different functions and divisions possessed by an organization.
• Degree of horizontal differentiation.
• The greater the level of functions, divisions, and organizational complexity, the greater the level of horizontal differentiation.

Level of vertical differentiation

The way an organization designs its hierarchy of authority and creates reporting relationships to link roles and subunits (who reports to whom, who can make decisions, control/supervise the behavior of others).

• Involves decisions about how to distribute authority (centralization or decentralization).
• Centralized - organizational setup in which the authority to make important decisions is retained by managers at the top of the hierarchy.
• It could create top management overload - no time to manage relationships with the environment.
• Decentralized - an organizational setup in which the authority to make important decisions about organizational resources and to initiate new projects is delegated to managers at all levels in the hierarchy.
• Ideal balance entails:
• Enabling middle and lower managers who are at the scene of the action to make important decisions.
• Allowing top managers to focus on long-term strategy making.
• Number of hierarchical levels from top to bottom.
• Kind of coordination mechanism used to coordinate people when they perform their tasks and on the level of centralization and decentralization.

Balancing differentiation and integration

• Horizontal differentiation is supposed to enable people to specialize and become more productive.
• Specialization often limits communication between subunits.
• People develop subunit orientation - a tendency to view one’s role in the organization strictly from the perspective of the time frame, goals, and interpersonal orientations of one’s subunit.
• When subunit orientation occurs, communication fails and coordination becomes difficult.

Integration

The process of coordinating various functions and divisions so that they work together and not at cross-purposes.

The integration mechanisms an organization can use to coordinate its various subunits include:

• The hierarchy of authority
• Liaison roles
• Integrating roles of departments
• Direct contacts
• Task forces
• Teams

Types of integration mechanisms

• Hierarchy of authority - dictates "who reports to whom"
• Direct contact - managers meet face to face to coordinate activities
• Problematic in that a manager in one function has no authority over a manager in another
• Liaison roles - a specific manager is given responsibility for coordinating with managers from other subunits on behalf of their subunits
• Integrating role - a new, full-time role established to improve communications between divisions, focused on company-wide integration
• Integrating department - a new department intended to coordinate the activities of functions or divisions
• Created when many employees enact integrating roles
• Task force - managers meet in temporary committees to coordinate cross-functional activities
• Task force members responsible for taking coordinating solutions back to their respective functions for further input and approval
• Teams - a permanent task force used to deal with ongoing strategic or administrative issues

05.10 Mechanism and organic organizational structures and Ikea case study

5.1 Ikea case study

For the most part, the text deals with organizational design choices concerning the micro-level of analysis:

• Joint specialization - IKEA’s employees are quickly trained to perform all the various jobs involved in-store operations. They are often rotated between departments and sometimes stores.
• Mutual adjustment - employees are expected to cooperate to solve problems and get the job done; to take initiative and responsibility to resolve problems proactively, to focus on customers and on being one step ahead of potential problems.
• Socialization into the key values of the organizational culture which emphasize responsiveness, customer focus, entrepreneurship, togetherness (every person has an obligation to everyone else).
• Transferred through ceremonial rites (initiatives such as “breaking the bureaucracy week”), promotion, above-average pay, sore bonus system to reward those who show commitment to the company key values.
• We can say that IKEA has achieved a perfect balance between both standardization and mutual adjustment, combining it perfectly with the coordination mechanism of socialization.
• IKEA’s employees, during the training process, internalize both the values of the company (which are linked with the culture of IKEA) and the norms provided by the company (which are written statements that specify the appropriate means for reaching the desired goals). The company expects its employees to be able to take responsibility, make decisions and solve problems and this may involve using their judgment instead of predefined rules.
• So, IKEA achieved the perfect balance between standardization that is to say the conformity to specific models defined by sets of rules and norms and the mutual adjustment which is the process by which employees use their best judgment of events to solve a problem or make a decision rather than standardized rules.
• Employees are rotated between departments - subunits/functions.
• Integration - communication and coordination among functions is fostered.
• IKEA is highly decentralized, but some decisions are centralized as decisions about values are made by the founders and others by top managers.

5.2 Mechanistic and organic structures

How the design challenges result in Mechanistic or Organic Structures. Mechanistic structures result when an organization makes these choices:

Mechanistic structure

• Individual Specialization - Employees work separately and specialize in one clearly defined task.
• Simple Integrating Mechanisms - Hierarchy of authority is clearly defined and is the major integrating mechanism.
• Centralization - Authority to control tasks is kept at the top of the organization. Most communication is vertical.
• Standardization - Extensive use is made of rules and SOPs to coordinate tasks, and work process is predictable.

Organic structure

• Joint Specialization - Employees work together and coordinate their actions to find the best way of performing tasks.
• Complex Integrating Mechanisms - Task forces and teams are the major integrating mechanisms.
• Decentralization - Authority to control tasks is delegated to people at all levels in the organization. Most communication is lateral.
• Mutual Adjustment - Extensive use is made of face-to-face contact to coordinate tasks, and work process is relatively unpredictable.

Hierarchy of authority is complementary to standardization:

• When a company is centralized, the use of rules is paramount to make sure that employees follow orders.

Discussion questions:

• What are the key features of organizational culture in a mechanistic structure? and in an Organic structure?
• What's the role of the informal organization in a mechanistic structure? and in the organic structure?
• Low importance in the mechanistic structure
• In a mechanistic structure, there is no such space to develop a kind of informal organization
• The employees in the organic structure play a decision role, while in the mechanistic structure they only execute orders
• It is important in both structures. In the mechanistic structure, the main values stressed on following rules; in the organic structure, the main values
• The socialization in a mechanistic culture is mostly vertical because it is between the employees and their superiors
• The organizational culture is more important in an organic structure because people (employees) take a higher number of important decisions, so they have to be aware of the organizational culture
• How to choose between mechanistic and organic structure?
• How do most organizations combine both?
• Depending on the industry within the company competes
• Goals of the organization
• Number of employees
• Infrastructure
• Due to the importance of values, choosing between the two structures is also important to consider the social context (country, habits, and so on)
• The strategic and operational importance of resources and competencies

Informal organization - decision-making and coordination taking place outside the formally designed channels as people interact.

Rules and norms emerging from the interaction between people and not from the formal rules and blueprint established by managers.

Cap 6: Functional and divisional structure

6.1 Functional structure

It’s a design that groups people based on their common expertise and experience or because they use the same resources.

• Functional structure is the bedrock of horizontal differentiation.
• It’s the first step that top managers can do to strike a balance because it’s the first feature of both mechanistic and organic structures. Adopting a functional structure involves grouping people in different functions.
• Example: function R&D - difficult tasks - mutual adjustment.

An organization groups tasks into functions to increase the effectiveness with which it achieves its goals.

6.1.2 Advantages of functional structures

• Provides people with the opportunity to learn from one another and become more specialized and productive (company’s core competencies develop).
• People who are grouped by common skills can supervise one another and control each other’s behavior.
• People develop norms and values that allow them to become more effective at what they do.
• Different functions develop different rules to coordinate their work internally, different goals, time orientations.

6.1.3 Control problems

• Communication problems:
• Hierarchy: if there is a conflict between R&D and S&M, the CEO can "decide" and coordinate, but the CEO spends a lot of time resolving conflicts and doesn’t have enough time to manage the company.
• Functional structure is appropriate if the organization:
• Limits itself to producing a few similar products
• Produces those products in one or a few locations
• Sells them to only one general type of client or customer

Measurement problems

• All the functions provide services for the production of ALL the products of the company.