Session 5: Org structure & Hierarchy : Session 5: Org structure & Hierarchy
What is social or org hierarchy? : What is social or org hierarchy? 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