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An organizational example Why we can NOT eliminate hierarchy? : Why we can NOT eliminate hierarchy? Can you think about some reasons? In your life? In your school? In your community? In this nation? Max Weber Rational-legal-authority perspective Why is it rational? Provide social order to the society and human life Provide a third-party arbiter who can arbitrate among people at the some social level As a result: reduce conflict Thus, hierarchy become a legalized and prevalent form of organizing Why we can NOT eliminate hierarchy? : Why we can NOT eliminate hierarchy? A Transaction Cost perspective Market vs. organizational hierarchy as alternative of governance Markets tend to fail People are bounded rational People are easy to become opportunistic Transaction through market become very costly Market fails as a form of governance Hierarchical organization become the alternative Against opportunism by putting the two parties of the transaction under the same roof Reduce social loafing and free riding Allocation of resources by a third part (the boss) Why we can NOT eliminate hierarchy? : Why we can NOT eliminate hierarchy? An Agent Theory perspective Principal vs. Agent Principal: the person who entrust Agent: the person who is entrusted by the principal Are there any problems in the principal-agent relation? Adverse selection: before entrusting Moral risk: after entrusting Any example of Adverse Selection & Moral Risk? Adverse Selection: old car market Moral Risk: insurance, a safe car vs. unsafe car dilemma The necessary of monitoring Leading to hierarchy Principal at the higher level Agent at the lower level Organization is the sum of all principal-agent contracts Why we can NOT eliminate hierarchy? : Why we can NOT eliminate hierarchy? Can we always make decision for ourselves? our boss decide: what we produce What is the goal etc The Decision-Making Hierarchy Assign tasks Determine who can make decisions and specify how they should be made Perform tasks Implement decisions that have been made Distribute Authority Determine whether the organization is to be centralized or decentralized Organizational structure : Organizational structure A simple example President R & D Manufacturing Accounting Marketing Organizational Structure : Organizational Structure Organizational Structure: The sum of the ways an organization divides its labor into distinct tasks and then coordinates them. Organizational charts: Illustration of relationships among units and lines of authority among supervisors and subordinates Determinants of org structure : Determinants of org structure Contextual Determinants 1. Size (of the social system, i.e., number of people) 2. Technology (nature of the task in the production subsystem) 3. Environment (elements outside the organization affecting it) 4. Goals (unique purposes of the organization) 5. Strategy (competitive techniques) 6. Culture (shared values, beliefs and norms) Contextual Determinants : Contextual Determinants Environment Strategy Human Resources Technology Org structure Determinants of org structure : Determinants of org structure Structural determinants 1. Formalization (amount of written documentation) 2. Specialization (degree of division of labor) 3. Standardization (degree in which similar work is done in uniform manner) 4. Hierarchy of authority (who reports to whom and span of control) 5. Complexity (number of activities or subsystems-vertical, horizontal, special) 6. Centralization (hierarchical level with decision making power) 7. Professionalism (level of formal education and training of employees) 8. Personnel configuration (deployment, e.g., admin., clerical, and Prof.. staff ratio) Organizational structure : Organizational structure Chain of Command continuous line of authority extends from upper organizational levels to the lowest levels and clarifies who reports to whom Authority the rights inherent in a managerial position to tell people what to do and to expect them to do it Responsibility the obligation to perform any assigned duties Are these concepts still relevant today? information technology ? employee empowerment ? Specialization & Departmentalization : Specialization & Departmentalization SPECIALIZATION What needs to be done, and who will do it? DEPARTMENTALIZATION Customer Geographic Product Functional Process How much specialization is a good specialization : How much specialization is a good specialization Cognitive Differentiation : Cognitive Differentiation The extent to which people in different units within an organization think about different things or about similar things differently. Centralization vs. Decentralization : Centralization vs. Decentralization Centralization the degree to which decision making is concentrated at a single point in the organization top-level managers make decisions with little input from subordinates in a centralized organization Decentralization the degree to which decisions are made by lower-level employees distinct trend toward decentralized decision making Centralization vs. Decentralization : Centralization vs. Decentralization Centralization vs. Decentralization : Centralization vs. Decentralization Centralized Decentralized Lower level managers hold significant decision-making authority Top managers hold most decision-making authority Span of Control : Span of Control number of employees that a manager can efficiently and effectively manage determines the number of levels and managers in an organization appropriate span influenced by the skills and abilities of employees the complexity of tasks performed availability of standardized procedures Sophistication of organization’s information system Span of control : Span of control Relatively narrow span of control Relatively wide span of control Slide 21: Environment: Technology: Size: Goals: Structure: Control Mechanism: Communication: Innovation: Decision-Making: Interdepartmental Relationships: Tight Control Certain Routine Large Efficiency Functional, Centralized Bureaucratic Formal Info. System Infrequent Rational Analysis Cooperation Loose Control Uncertain Nonroutine Small Effectiveness Matrix, Decentralized Clan Face-to-Face Frequent Trial and Error Conflict standardization : standardization the degree to which jobs within the organization are standardized Removes the need for employees to consider alternatives Extent to which employees’ behavior is guided by rules and procedures employee allowed minimal discretion in highly formalized/standardized jobs explicit job descriptions clearly defined procedures Mechanistic structure : Mechanistic structure Run like a machine Individuals and functions behave in predictable ways People or department are held accountable for their actions When does it work well? The environment is certain and change is little The task is also certain: the work is repeating The production is massive and the same People are willing to obey When does it NOT work well? When the environment is uncertain When the change is quick and unpredictable When task is uncertain and subtle Organic structure : Organic structure Run like an organism or a creature Individuals and functions can behave flexibly respond quickly to frequently changing and unusual situations Suitable for innovation Suitable for self-management Any drawbacks? People & department are NOT organs May lead to competition instead of cooperation Comparison between mechanism vs. organism : Comparison between mechanism vs. organism Mechanism More hierarchical & centralized top-down communication & decision making Standardized processes, works, and procedures Clear tasks, divisions, and roles Organism Less hierarchy & more delegation Horizontal communication & decision making More task groups, more interaction and flow of human resources Flexible labor division, roles, and task Contingency Factors : Contingency Factors Strategy and Structure structure should facilitate the achievement of goals strategy and structure should be closely linked Innovation need the flexibility and free flow of information of the organic structure Cost minimizing seek efficiency, stability, and tight controls of mechanistic structure Contingency Factors : Contingency Factors Technology and Structure Technology: converts inputs into outputs mechanistic structure supports routine technology organic structure supports non-routine technology Environmental Uncertainty and Structure one way to reduce environmental uncertainty is to adjust the organization’s structure with greater stability, mechanistic structures are more effective mechanistic structures are not equipped to respond to rapid environmental change the greater the uncertainty, the greater the need for an organic structure Types of org structure : Types of org structure Simple Structure Functional Structure (U form) Divisional Structure (M form) Hybrid Structure Matrix Structure Simple Structure : Simple Structure low departmentalization, wide spans of control, authority centralized in a single person, and little formalization when an organization starts/entrepreneur commonly used by small businesses as organizations increase in size, the structure tends to become more specialized and formalized Functional Structure : Functional Structure Functional Structure : Functional Structure Context Environment: Low uncertainty, stable Technology: Routine, low interdependence Size: Small to large Goals: Internal efficiency, technical specialization and quality INTERNAL SYSTEMS Operative goals: Functional goal emphasis Planning and budgeting: Cost basis-budget, statistical reports Formal authority: Functional managers Functional Structure : Functional Structure STRENGTHS 1. Economies of scale within functions 2. In-depth skill development 3. Best in small-to medium-size organizations 4. Best when only one or a few products WEAKNESSES 1. Slow response time to environmental changes 2. Decisions may pile on top,hierarchy overload 3. Poor interunit coordination 4. Less innovation 5. Restricted view of organization goals Divisional Structure : Divisional Structure Product structure: divisions created according to the type of product or service. Geographic structure: divisions based on the area of a country or world served. Market structure: divisions based on the types of customers served. Divisional Structure : Divisional Structure Product structure Divisional Structure : Divisional Structure Geographic structure Divisional Structure : Divisional Structure Market structure Divisional Structure : Divisional Structure CONTEXT Structure: Product or Divisional Environment: Moderate uncertainty from complexity changing Technology: Nonroutine, high interdependence among departments Size: Large Goals: External effectiveness, adaptation, client satisfaction Dominant Competitive Issue: Market segments INTERNAL SYSTEMS Operative goals: Product line/location/market emphasis Planning and budgeting: Profit center basis-cost and income Formal authority: Division managers Divisional Structure : Divisional Structure STRENGTHS 1. Is suited to fast change in unstable environment 2. Leads to client satisfaction because product responsibility and contact points are clear 3. Involves high coordination across functions 4. Allows units to adapt to differences in products, regions, clients 5. Is best in large organizations with several products 6. Decentralizes decision making WEAKNESSES 1. Eliminates economies of scale in functional departments 2. Leads to poor coordination across product lines 3. Eliminates in-depth competence and technical specialization 4. Makes integration and standardization across product lines difficult. Hybrid Structure : Hybrid Structure Chief Counsel Director Human Resources Vice-President Technology Sr. Vice-Pres., Resources & Strategy Vice-President, Financial Services President Vice-President, Chemicals Vice-President, Lubricants/ Waxes Vice-President, Fuels Vice-President, Facilities Marketing Marketing Marketing Six Refineries Planning and Economics Planning and Economics Planning and Economics Supply and Distribution Supply and Distribution Supply and Distribution Manufacturing Manufacturing Manufacturing Director, Public Affairs Vice-President, Raw Materials Director, Planning & Environment Assessment Org Structure in an International Environment : Org Structure in an International Environment Global geographic structure: different divisions serve each world region. Customer needs vary between regions. Global product structure: Customers in different regions buy similar products firms keep most functional work at home set up a division to market product abroad. Matrix Structure : Matrix Structure managers group people by function and product teams simultaneously assigns specialists from different functional departments to work on projects led by project managers adds vertical dimension to the traditional horizontal functional departments creates a dual chain of command project managers have authority in areas relative to the project’s goals functional managers retain authority over human resource decisions (e.g., promotions) violates unity of command Matrix Structure : Matrix Structure President Director of Product Operations Vice-President Design Vice-President Manufacturing Vice-President Marketing Controller Procurement Manager Product Manager A Product Manager B Product Manager C Product Manager D Matrix Structure : Matrix Structure Context Environment: High uncertainty Technology: Nonroutine, many interdependencies Size: Moderate, a few product lines Goals: Dual-product innovation and technical specialization Internal Systems Operative goals: Equal product and functional emphasis Planning and budgeting: Dual systems-by function and by product line Formal authority: Joint between functional and product heads Information and Linkages: Direct contact among matrix personnel Matrix Structure : Matrix Structure Strength 1. Achieves coordination necessary to meet dual demands from environment 2. Flexible sharing of human resources across products 3. Suited to complex decisions and frequent changes in unstable environment 4. Provides opportunity for functional and product skill development 5. Best in medium-size organizations with multiple products Matrix Structure : Matrix Structure Weakness 1. Causes participants to experience dual authority, which can be frustrating and confusing 2. Means participants need good interpersonal skills and extensive training 3. Is time-consuming-frequent meetings and conflict resolution sessions 4. Will not work unless participants understand it and adopt collegial rather than vertical-type relationships 5. Requires dual pressure from environment to maintain power balance Why do people work in a highly structured hierarchy? : Why do people work in a highly structured hierarchy? Rational reasons Legal-authority reasons Transaction cost reasons Principal-agent reasons “Irrational” reasons? People obey orders because……..? Obedience : Obedience Due to external pressure, people have to change their attitudes and behaviors, and make them in accordance with external requirements Obedience : Obedience Milgram’s experiment Design of the experiment The effects of electric shock on students’ learning skill “Teacher”: subject “Student”: coordinator – experimenter’s partner If the student gives the wrong answer, teacher will give the student electric shocks Electric shocks: from 15 volts to 450 volts Real purpose of the experiment When will “teacher” stop the electric shock ? Why do people obey authority? Milgram’s experiment: subjects : Milgram’s experiment: subjects Milgram’s experiment: subjects : Milgram’s experiment: subjects Shock Level Victim Behavior % Giving Shock Slight (15 volts) 100 Moderate 100 Strong 100 Very Strong 100 Intense victim screams 88 Extreme intensity victim pounds on wall 70 Danger: severe shock victim is silent 68 xxx (450 volts) victim is silent 65 Factors that influence obedience : Factors that influence obedience Authority of the commander Morality of the subjects How close is the authority to you? How far are the victims to you? Case preview: Apple Computer : Case preview: Apple Computer Analyze the contextual dimensions of Apple and how they evolved over time. How did these dimensions affect Apple's structure? Analyze each structural change. Was each appropriate? Do you think their frequency was disruptive or energizing? Does your view of Apple’s organization type change when you analyze the organization over time, rather than at one moment in time? Do some research at home, find out what’s going now at Apple computer? NO NEED to write the short essay, but be prepared to discuss next class You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.