Miles A. Zachary MGT 4380. Executives able to skillfully orchestrate structure and control are...
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Transcript of Miles A. Zachary MGT 4380. Executives able to skillfully orchestrate structure and control are...
Executives able to skillfully orchestrate structure and control are likely to lead their firms to greater levels of success
Development of a strong structure and control system begins with the building blocks of organizational structureDivision of laborOrganizational chartVertical and Horizontal linkagesInformal linkagesUnity of command principle
Organizational Design
Division of labor is the process by which a task is split into a series of smaller tasks, each performed by a specialist
The oldest record of management practices parables the importance of the division of laborJethro teaches Moses to establish a hierarchy of
authority to better manage the freed HebrewsA hierarchy of authority is an arrangement of
individuals based on rank (e.g., the military)Greek philosopher and contemporary of Socrates,
Xenophon, noted the increased efficiency of shoemakers who divide the task of making shoes
Division of Labor
Later scholars such as Duhamel du Monceau (1761) and Smith (1776) write about the benefits of the division of labor more explicitly
Others were much more critical of the division of laborKarl Marx (1844) suggested that it alienates works
who become “depressed spiritually and physically to the condition of a machine”
Henry David Thoreau (1854) believes that it removes a workers sense of connectedness with society
Adam Smith (1776), while championing its efficiency, does discuss how it can be monotonous and lead to depressing work environments
Division of Labor
While division of labor can create efficiencies, determining how to coordinate the tasks and people who perform them is challenging
The solution is organizational structure—how tasks are assigned and grouped together with formal reporting relationships
Adequate structure increases a firm’s likelihood of success
A firm’s structure is often a function of environmental fitFor example, Burns & Stalker (1961) suggested that in
static environments, a firm can gain efficiencies from having a rigid hierarchy; however, in dynamic environments, a firm benefits from greater flexibility
Division of Labor
Many firms use organizational charts to diagram their structure: show the various vertical and horizontal linkages
A vertical linkage tie supervisors to subordinates and show the lines through which supervisors delegate authority, oversee activities, evaluate performance, and administer feedback
When mapping vertical linkages in an organizational structure, most executives rely on the unity of command principleEach employee should report to only one
supervisor; multiple bosses can be confusing
Vertical & Horizontal Linkages
A horizontal linkage is a relationship between equals in an organizations; sometimes called committees, teams, task forces, etc. depending on the extent of the relationship
Important when close coordination is needed across the organization
Informal linkages do not appear in the formal organizational chart and refer to an unofficial relationship between employees based on personal friendships, rivalries, and politics
Vertical & Horizontal Linkages
The vertical and horizontal linkages among employees forms the foundation of organizational structure
Executives may use a variety of combinations of vertical and horizontal linkages to design an effective structure
Four (4) common types of structureSimpleFunctionalMultidivisionalMatrix
Organizational Structures
Executives must weight the benefits and costs of different structures because, once formed, structure can either aid or constrain strategy
Early strategy scholars (e.g., Chandler, 1962; Pierce, 1974) conceptualized the S-C-P model
Organizational Structure
StructureConduct
(Strategy)Performance
In a simple organizational structure, an organizational chart is usually not needed
Most firms begin with a simple structureWhen a firm is owned and operated by a single individual
or a small group of peopleIn organizations composed of more than a single person,
tasks are usually assigned informally rather than formally; strategic decisions are highly centralized (owner)
The flexibility of a simple structure encourages creativity and individualism and high responsiveness
Without a formal structure, informally-assigned duties may not be accomplished; lack of clear guidance; confusing when more employees are hired
Simple Structure
As a small organization grows, simple structure begins to become ineffective thanks to added complexity
Complexities need to be managed by formalized structures with emphasis on hierarch and vertical links
A functional structure divides employees into departments that handle activities related to a functional area of the business (e.g., marketing, production, customer service, human resources, etc.)
Each area is often headed up by a manager with all employees reporting to their respective manager
Functional Structure
An important benefit of the functional structure is that each person tends to learn much about their particular function (specialization)Tends to create highly skilled specialists
Grouping functional areas decreases costs by creating efficiencies and employees with similar training backgrounds tend to get along better on average
Increased hierarchical levels can be slow to disseminate information and execute changes
Functional structures are often useful in situations where a firm has limited products or services (e.g., single offerings)
Functional Structure
When a firm begins to offer more than a few products or services (often across a wide geographical area), they often require a more responsive organizational structure
Naturally, firms often move from a functional form to a multidivisional structure in which employees are divided into departments based on product areas and/or geographic regions
Multidivisional Structure
One of the big advantages of the multidivisional form is that it allows firms to act quickly
This can backfire when divisions are loosely-coupled and are generally unaware and/or unmotivated to align with the firms overarching strategy
Also, since multidivisional structures are basically coupled functional structures, they do not benefit from the efficiency of single departments across the entire company
Instead, they need individual departments within each division
Multidivisional Structure
While functional and multidivisional structures rely primarily on vertical linkages, matrix structures rely more on horizontal linkages
Creates cross-functional teams that work on different projects
Advantages include maximizing organizational flexibilities, enhancing communication across functional lines, and creating a spirit of teamwork and collaboration
Violates the unity of command principle potentially creating confusion and/or conflict between managers
Good for organizations that need to maximize flexibility such as high technology, engineering, and consulting firms
Matrix Structure
Boundaryless organizations are ones that remove the usual barriers between parts of the organization and between them and other organizations
While absolute state is improbable, moving toward that state can help an organization become more flexible and responsive
E.g., W. L. GoreNo formal titles allows leaders to emerge based on
performance, attracting followers to new innovative ideas
Structural boundaries can inhibit and constrain firms, but can also provided needed order
Boundaryless Organizations
An organization’s structure is not a static choice, but rather should be revisited as the organization evolves
Managers and executives should be cognizant of “danger signs” (e.g., slow response time, poor performance)
Finding structural balance is difficult but desirable
Changing Structures
Effective structure and strategy depends on skillful use of organizational control systems
Control systems allow executives to track organizational performance, identify concern areas, and then take action to address concerns
Three (3) basic types of control systemsOutput controlBehavioral controlClan control
Most firms use a combination of control systems
Controlling the System
Output control focuses on measurable results within an organizationE.g., website hits per day, cars produced per
week, sales orders per month, etc.Executives decide what output (performance)
level is acceptable, communicate their expectations to employees, track performance, then make changes to either the goals or employees (feedback) as needed
Output Control
Behavioral controls focus on controlling the actions of individuals that ultimately lead to a resultE.g., company dress policy, firm purchase
procedures, etc.Reflect policies and procedures that are often
communicated to employees through a rules and regulations handbook
Can be difficult to implement; proper motivation/incentives is key
Behavioral Control
Clan control relies on traditions, expectations, values, and norms to lead individuals to work toward the good of the organizationE.g. “the way we do things here…”
An informal type of controlBased largely on organizational cultureWhile effective, it can be extremely hard to
change as culture is inertial
Clan Control
Many management fads have come and gone in business including:MBO (management by objectives): goal-setting between
supervisor and subordinate to provide structure and motivation
Sensitivity training: group discussions leading to greater self-awareness and/or self-actualization
Quality circles: employee groups formed to innovate new methods or processes to improve quality
Strong culture: interest in Japanese management systems, firms tried to develop strong collectivist cultures
While most fads fade away with time, they remind us to be true to our roots; contingency theory is no fad
Management Fads
Extremely important decision that determines how organizations structure resources, assets, and liabilities, what strategy a business should use, and how performance can be dispersed and taxed
Three (3) basic forms:Sole proprietorshipPartnershipCorporation
Many derivatives exist that have specialized purposes
Legal Business Forms
A firm owned by one individualLegally, an individual and their sole
proprietorship are one in the sameAn advantage of this unity is that after taxes
are paid, all the profits are theirs to keep or divide at will
However, the individual has unlimited liability and any losses in the business transfer to the individual
Most sole proprietors are small businesses that try to minimize overhead and other direct costs
Sole Proprietorship
Two or more individuals enter into a partnership and share ownership of an organization
Similar to sole proprietorship in that partners are beneficiaries of profits (and losses)
Can be beneficial when partners complement each other
However, partnerships often break up and adding or subtracting partners requires rewriting the partnership agreement
Many partnerships are professional organizations that combine a group of traditionally independent contractors (e.g., law firms, engineering firms, etc.)
Partnership
Corporations are distinct entities which are viewed as legally separate from their owners (two tax returns—one for the corporation and one for the owner)
Separation distinction limits liability of owners
Profits and losses are attributed to the firm and must be dispensed by owners (double-taxation)
Book error: corporations DO NOT have to issue stock or be professionally-managed, although many are
Are the most expensive basic legal form to start, but have considerable benefits for many
Corporation
S-corporations: avoids double-taxation since profits and losses flow directly to the owner(s) tax return; however, limits on # of shareholders (<100) discourage large firms
Limited liability company (LLC): granted by state, not federal, laws; owners have limited liabilities, but must choose to be taxed as one of the basic forms; very flexible
http://www.inc.com/articles/2000/06/19438.html
Other Legal Forms