Balancing Stakeholders & Structures: Standardization, Adjustment, Control, Hybrid Models, Sintesi del corso di Organizzazione Aziendale

Scarica Balancing Stakeholders & Structures: Standardization, Adjustment, Control, Hybrid Models e più Sintesi del corso in PDF di Organizzazione Aziendale solo su Docsity! CHAPTER 2: (50-59 only) Organizations exist because of their ability to create value and acceptable outcomes for various groups of stakeholders, people who have an interest, claim, or stake in an organization, in what it does, and in how well it performs. In general, stakeholders are motivated to participate in an organization if they receive inducements that exceed the value of the contributions they are required to make. - inducements: Rewards such as money, power, and organizational status. - contributions: The skills, knowledge, and expertise that organizations require of their members during task performance. The two main groups of organizational stakeholders are inside stakeholders and outside stakeholders: INSIDE STAKEHOLDERS: Inside stakeholders are people who are closest to an organization and have the strongest or most direct claim on organizational resources: shareholders, managers, and the workforce. - shareholders: they are the owners of the organization, and, as such, their claim on organizational resources is often considered superior to the claims of other inside stakeholders.The shareholders’ contribution to the organization is to invest money in it by buying the organization’s shares or stock.The shareholders’ inducement to invest is the prospective money they can earn on their investment in the form of dividends and increases in the price of stock. Investment in stock is risky, however, because there is no guarantee of a return. Shareholders who do not believe the inducement (the possible return on their investment) is enough to warrant their contribution (the money they have invested) sell their shares and withdraw their support from the organization. - managers: they are the employees responsible for coordinating organizational resources and ensuring that an organization’s goals are met successfully. Top managers are responsible for investing shareholder money in resources to maximize the value of an organization’s future output of goods and services. They are actually described as the agents or employees of shareholders bc they are appointed indirectly by them through an organization’s board of directors that shareholders elect to oversee managers’ performance. Managers’ contributions are the skills and knowledge they use to plan and direct the organization’s response to pressures from the organizational environment, and to design its structure and culture. Various types of rewards induce managers to perform their activities well: monetary compensation (in the form of salaries, bonuses, and stock options) and the psychological satisfaction they get from controlling the corporation, exercising power, or taking risks with other people’s money. - workforce: consists of all non-managerial employees. Employees’ contribution to the organization is to use their skills and knowledge to perform required duties and responsibilities at a high level. Indeed, an employee’s motivation to perform well is often a function of the inducements (rewards and punishments) that the organization uses to influence job performance. OUTSIDE STAKEHOLDERS: Outside stakeholders are people who do not own the organization and are not employed by it, but they do have some claim on or interest in it. Customers, suppliers, the government, trade unions, local communities, and the general public. - customers: Customers are usually an organization’s largest outside stakeholder group. Customers are induced to select a particular product (and thus a specific organization) from alternative products by their estimation of the value of what they receive from it relative to what they have to pay for it. The money they pay for the product is their contribution to the organization (its sales revenue) and reflects the value they believe they receive from the organization. - suppliers: they contribute to the organization by providing reliable raw materials and component parts that allow the organization to reduce uncertainty in its technical or production operations and thus reduce production costs. Suppliers have a direct effect on the organization’s efficiency and an indirect effect on its ability to attract customers. An organization that has high-quality inputs can make high-quality products and attract customers. In turn, as demand for its products increases, the organization demands greater quantities of high-quality inputs from its suppliers. - the government: it has several claims on an organization. It wants companies to compete in a fair manner and obey the rules of free competition. It also wants companies to obey agreed-on rules and laws concerning the payment and treatment of employees, workers’ health and workplace safety, nondiscriminatory hiring practices, and other social and economic issues about which Congress has enacted legislation. The government makes a contribution to the organization by standardizing regulations so they apply to all companies and no company can obtain an unfair competitive advantage. The government controls the rules of good business practice and has the power to punish any company that breaks these rules by taking legal action against it. - trade unions: The relationship between a trade union and an organization can be one of conflict or cooperation. Traditionally, however, the management–union relationship has been antagonistic because unions’ demands for increased benefits conflict directly with shareholders’ demands for greater company profits and thus greater returns on their investments. - local communities: Local communities have a stake in the performance of organizations because employment, housing, and the general economic well-being of a community are strongly affected by the success or failure of local businesses. - the general public: The public is happy when organizations compete effectively against overseas rivals. This is hardly surprising, given that the present and future wealth of a nation is closely related to the success of its business organizations and economic institutions. A nation’s public also wants its corporations to act in a socially responsible way, which means that corporations refrain from taking any actions that may injure or impose costs on other stakeholders. 1 ORGANIZATIONAL EFFECTIVENESS: SATISFYING STAKEHOLDERS’ GOALS AND INTERESTS An organization is used simultaneously by different groups of stakeholders to accomplish their goals. Shareholders evaluate an organization by the return they receive on their investment. Often these goals conflict, and stakeholder groups must bargain over the appropriate balance between the inducements they should receive and the contributions they should make. An organization is viable as long as a dominant coalition of stakeholders has control over sufficient inducements so that it can obtain the contributions it needs from other stakeholder groups. The implication of the coalition view of organizations is that some stakeholder groups have priority over others. To be effective, however, an organization must at least minimally satisfy the interests of all the groups that have a stake in the organization. Problems that an organization faces as it tries to win stakeholders’ approval include choosing which stakeholder goals to satisfy, deciding how to allocate organizational re-wards to different stakeholder groups, and balancing short-term and long- term goals. - competing goals: the goals of managers and shareholders may be incompatible, but because managers are in the organizational driver’s seat, share-holder goals are not the ones most likely to be followed. (An attempt to maximize stockholder wealth, for example, may involve taking risks into uncharted territory and making capital investments in R&D that may bear fruit only in the long term as new inventions and discoveries generate new products and a stream of new revenues. Managers, however, may prefer to maximize short-term profits because that is the goal on which they are evaluated by their peers and by stock market analysts who do not take the long-term view). - allocating rewards: The allocation of rewards, or inducements, is an important component of organizational effectiveness because the inducements offered to stakeholders now determine their motivation—that is, the form and level of their contributions—in the future. (TOP MANAGERS: non so se era da fare, nel dubbio l’ho fatto) Authority: the power to hold people accountable for their actions and to make decisions concerning the use of organizational resources. The stakeholder group with ultimate authority over the use of a corporation’s resources is shareholders. Legally, they own the company and exercise control over it through their representatives, the board of directors.Through the board, shareholders delegate to managers the legal authority and responsibility to use the organization’s resources to create value and to meet goals. The board of directors monitors corporate managers’ activities and rewards corporate managers who pursue activities that satisfy stakeholder goals. CHAPTER 4: DIFFERENTIATION: The process by which an organization allocates people and resources to organizational tasks and establishes the task and authority relationships that allow the organization to achieve its goals. As organizations grow, managers must decide how to control and coordinate the activities that are required for the organization to create value. How to manage differentiation? ( = the process of establishing and controlling the division of labor, or degree of specialization, in the organization.) In a simple organization, differentiation is low because the division of labor is low. In a complex organization, both the division of labor and differentiation are high. ORGANIZATIONAL ROLES: a set of task-related behaviors required of a person by his or her position in an organization. Ex: A chef’s role is to provide customers with high-quality, appetizing, cooked-to-order meals. As the division of labor increases in an organization, managers specialize in some roles and hire people to specialize in others. Specialization allows people to develop their individual abilities and knowledge, which are the ultimate source of an organization’s core competences. (A person who can hold another person accountable for his or her performance possesses authority over the other person.) The differentiation of an organization into individual organizational roles results in clear authority and responsibility requirements for each role in the system. When an individual clearly understands the responsibilities of his or her role and what a superior can require of a person in that role, the result within the organization is control—the ability to coordinate and motivate people to work in the organization’s interests. SUBUNITS: FUNCTION AND DIVISIONS In most organizations, people with similar and related roles are grouped into a subunit. - A function is a subunit composed of a group of people, working together, who possess similar skills or use the same kind of knowledge, tools, or techniques to perform their jobs. - A division is a subunit that consists of a collection of functions or departments that share responsibility for producing a particular good or service. The number of different functions and divisions that an organization possesses is a measure of the organization’s complexity — its degree of differentiation. Differentiation into functions and divisions increases an organization’s control over its activities and al-lows the organization to accomplish its tasks more effectively. As organizations grow in size, they differentiate into five different kinds of functions: - Support functions facilitate an organization’s control of its relations with its environment and its stakeholders. Support functions include purchasing, to handle the acquisition of inputs; sales and marketing, to handle the disposal of outputs; and public relations and legal affairs, to respond to the needs of outside stakeholders. - Production functions manage and improve the efficiency of an organization’s conversion processes so that more value is created. Production functions include production operations, production control, and quality control. (At Ford, the production operations department controls the manufacturing process, production control decides on the most efficient way to produce cars at the lowest cost, and quality control monitors product quality.) 2 STANDARDIZATION VS. MUTUAL ADJUSTMENT: The design challenge facing managers is to find the best ways to use rules and norms to standardize behavior while, at the same time, allowing for mutual adjustment to provide employees with the opportunity to discover new and better ways of achieving organizational goals. -> people at higher levels in the hierarchy and in functions that perform complex, uncertain tasks rely more on mutual adjustment than on standardization to coordinate their actions. Ex: Mechanisms like task forces and teams, can increase mutual adjustment by providing an opportunity for people to meet and work out improved ways of doing things. For all organizational roles, however, the appropriate balance between these two variables is one that promotes creative and responsible employee behavior as well as organizational effectiveness MECHANISTIC AND ORGANIC ORGANIZATIONAL STRUCTURES: - MECHANISTIC STRUCTURES: Mechanistic structures are designed to induce people to behave in predictable, account- able ways. Decision-making authority is centralized, subordinates are closely supervised, and information flows mainly in a vertical direction down a clearly defined hierarchy. The hierarchy is the principal integrating mechanism both within and between functions. Tasks and roles are coordinated primarily through standardization, and formal written rules and procedures specify role responsibilities. Standardization, together with the hierarchy, are the main means of organizational control. Promotion is normally slow; it’s best suited to organizations that face stable environments. - ORGANIC STRUCTURES: Organic structures promote flexibility, so people initiate change and can adapt quickly to changing conditions; decentralized so that decision-making authority is distributed throughout the hierarchy. Roles are loosely defined and people continually develop new kinds of job skills to perform continually changing tasks; the result is joint specialization and increased productivity. A high level of integration is needed. The integration of functions is achieved by means of complex mechanisms like task forces and teams, coordination is achieved through mutual adjustment as people and functions negotiate role definitions and responsibilities, and in-formal rules and norms emerge from the ongoing interaction of organizational members. Status is conferred by the ability to provide creative leadership, not by any formal position in the hierarchy. - THERE IS NOT A BETTER STRUCTURE, IT DEPENDS ON THE ORGANIZATION! THE CONTINGENCY TO ORGANIZATIONAL DESIGN: The decision about whether to design an organic or a mechanistic structure depends on the particular context or situation an organization faces. In general, the contingencies or sources of uncertainty facing an organization shape the organization’s design. The contingency approach to organizational design tailors organizational structure to the sources of uncertainty facing an organization. - Important of these is the nature of the environment: an organization must design its internal structure to control the external environment. - the study about the link between the structure and the environment made by Lawrence and Lorsch (on differentiation, integration and the environment): they investigated how companies in different industries differentiate and integrate their structures to fit the characteristics of the industry environment in which they compete. The message of Lawrence and Lorsch’s study was that organizations must adapt their structures to match the environment in which they operate if they are to be effective. A complex, uncertain environment requires that different departments develop different orientations toward their tasks (a high level of differentiation) so that they can deal with the complexity of their specific environment. As a result of this high degree of differentiation, such organizations require more coordination (a high level of integration).They make greater use of integrating roles between departments to transfer information so the organization as a whole can develop a coordinated response to the environment. In contrast, no complex integrating mechanisms such as integrating roles are found in companies in stable environments because the hierarchy, rules, and SOPs provide sufficient coordination. - Burns and Stalker on Organic versus Mechanistic Structures and the Environment: they found that companies with an organic structure were more effective in unstable, changing environments than were companies with a mechanistic structure. The reverse was true in a stable environment: the centralized, formalized, and standardized way of coordinating and motivating people that is characteristic of a mechanistic structure worked better than the decentralized team approach that is characteristic of an organic structure. When the environment is rapidly changing and on-the-spot decisions have to be made, lower-level employees need to be empowered. Moreover, in complex environments, rapid communication and information sharing are often necessary to respond to customer needs and develop new products. When the environment is stable, in contrast, there is no need for complex decision-making systems. Managing re-source transactions is easy, and better performance can be obtained by keeping authority centralized in the top-management team. - These structures probably do not exist in a pure form in any real-life organization. Most organizations are a mixture of the two types. An organization may tend more in one direction than in the other, but it needs to be able to act in both ways to be effective. 5 CHAPTER 5: AUTHORITY, HOW AND WHY VERTICAL DIFFERENTIATION OCCURS What determines the shape of an organization’s hierarchy, that is, the number of levels of authority within an organization? An organization’s hierarchy begins to emerge when managers find it more and more difficult to coordinate and motivate employees effectively. As an organization grows, employees increase in number and begin to specialize, performing widely different kinds of tasks; the level of differentiation increases and this makes coordinating employees’ activities more difficult. An organization does two things to improve its ability to control (that is, coordinate and motivate) its members: (1) It increases the number of managers it uses to monitor, evaluate, and reward employees; and (2) it increases the number of levels in its managerial hierarchy so that the hierarchy of authority becomes taller over time; it increases vertical differentiation, so that managers personally control their subordinates. It ensures that subordinates are performing their work effectively and not hiding any information that could cause problems down the line. Thus personal supervision can be a very effective way of motivating employees and promoting behaviors that increase effectiveness. SIZE AND HEIGHT LIMITATIONS! An organization in which the hierarchy has many levels relative to the size of the organization is a tall organization. An organization that has few levels in its hierarchy is a flat organization. Research suggests that the increase in the size of the managerial component in an organization is less than proportional to the increase in size of the organization as it grows. BUT many significant problems arise as the organizational hierarchy becomes taller and taller. -> PROBLEMS WITH TALL HIERARCHIES: Choosing the right number of managers and hierarchical levels is important because this decision impacts organizational effectiveness. - communication problems: communication between managers at the top and bottom of the hierarchy takes longer. Decision making slows, and the slowdown hurts the performance of organizations that need to respond quickly to customers’ needs or the actions of competitors. Another significant communication problem is distortion. Information becomes distorted as it flows up and down the hierarchy through many levels of management, and managers up and down the hierarchy may deliberately manipulate information to promote their own interests. Studies show that communication problems get progressively worse as the number of hierarchical levels increases, thus managers are wise to try to limit and restrict the growth of the organizational hierarchy. (limit at 7 or 8 levels). - motivation problems: As the number of levels in the hierarchy increases, the relative difference in the authority possessed by managers at each level decreases, as does their area of responsibility. Managers of a flat organization possess relatively more authority and responsibility than those of a tall organization, so they are more motivated to perform their organizational roles. Also, when a hierarchy has many levels, it is easy for managers to pass the buck and evade responsibility by shifting this responsibility to the manager above them. - bureaucratic costs: Managers cost money. The greater the number of managers and hierarchical levels, the greater the bureaucratic costs. Because of the cost of a tall and bloated hierarchy, it is common, especially during a recession, for a company to announce it will reduce the number of levels in its hierarchy and lay off excess employees to reduce bureaucratic costs. Sometimes layoffs are un-avoidable, as when a totally unexpected situation arises in the organization’s environment. (The terms restructuring and downsizing are used to describe the process by which managers streamline hierarchies and lay off managers and workers to reduce bureaucratic costs). (the principle of minimum chain of command: anche se non l’abbiamo fatto a lezione: an organization should choose the minimum number of hierarchical levels consistent with its goals and the environment in which it operates. In other words, an organization should be kept as flat as possible, and top managers should be evaluated for their ability to monitor and control its activities with the fewest managers possible.) SPAN OF CONTROL: How can an organization avoid becoming too tall yet maintain effective control of its workforce? One way is to increase its managers’ span of control (that is the number of subordinates each manager directly manages). If the span of control of each manager increases as the number of employees increases, then the number of managers or hierarchical levels does not increase in proportion to increases in the number of employees. What determines the size and limit of a manager’s span of control? Perhaps the single most important factor limiting the managerial span of control is the inability to exercise adequate supervision over the activities of subordinates as they grow in number. Research has shown that an arithmetic increase in the number of subordinates is accompanied by an exponential increase in the number of subordinate RELATIONSHIPS that a manager has to supervise. Given these problems, there is a limit to how wide a manager’s span of control should be bc if the span is too wide, the manager loses control over subordinates and cannot hold them accountable for their actions. When subordinates’ tasks are complex and dissimilar, a manager’s span of control needs to be small. If tasks are routine and similar so that all subordinates perform the same task, the span of control can be widened. When subordinates’ tasks are closely interrelated, coordination and control are greater challenges for a manager and vice versa. Indeed, the major reason organizations are normally pictured as pyramids is because the higher the level in the hierarchy, the more tasks become complex and interrelated, and so the span of control narrows to allow top managers to exert more control over their subordinates activities. 6 CONTROL: FACTORS AFFECTING THE SHAPE OF THE HIERARCHY When there are limits on the usefulness of direct, personal supervision by managers, organizations have to find other ways to control their activities.Typically, organizations first increase the level of horizontal differentiation (the second most important design choice) - (to be successful managers have to solve all these challenges simultaneously). HORIZONTAL DIFFERENTIATION Horizontal differentiation leads to the emergence of specialized subunits—functions or divisions. An organization divided into subunits has many different hierarchies, not just one. Each distinct division, function, or a department inside a function has separate hierarchies. Each function chooses the fewest number of hierarchical levels it needs to operate effectively and achieve its goals. Increasing horizontal differentiation thus increases vertical differentiation within an organization because many subunit hierarchies come into being. But horizontal differentiation avoids many of the problems of tall hierarchies because the development of numerous subunit hierarchies allows the organization to remain flat. CENTRALIZATION As the hierarchy becomes taller and the number of managers increases, communication and coordination problems grow. Managers begin to spend more and more time monitoring and supervising their subordinates and less time planning and goal setting, and organizational effectiveness suffers. One solution to this problem is to decentralize authority because now less direct managerial supervision is needed.When authority is decentralized, the authority to make significant decisions is delegated to people throughout the hierarchy, not concentrated at the top. Decentralization does not eliminate the need for many hierarchical levels in a large and complex organization. However, it enables even a relatively tall structure to be more flexible in its responses to changes in the external environment because it reduces the amount of direct supervision required. STANDARDIZATION Managers can also gain control over employees by standardizing their behavior to make their actions predictable. The use of standardization reduces the need for personal control by managers and the need to add levels in the hierarchy because rules and SOPs substitute for di-rect supervision and face-to-face contact. So the amount of supervision required lessens, and a manager’s span of control can be increased. Structuring an organization to solve control problems requires decisions about all the different methods of control. The structure of every organization reflects the particular contingencies it faces, so every organization has a structure that is somewhat different. Nevertheless, some generalizations can be made: - managers increase the level of vertical differentiation, paying particular attention to keeping the organization as flat as possible and to maintaining an appropriate balance between centralization and decentralization. - they increase horizontal differentiation and thereby also increase vertical differentiation. - they decide how much they can use rules, SOPs, and norms to control activities. The more they can use them, the less they will need to rely on direct supervision from the managerial hierarchy, and the need for managers and for additional levels in the hierarchy will be reduced. Organizational structure evolves and has to be managed constantly if an organization is to maintain its competitive advantage. THE PRINCIPLES OF BUREAUCRACY Weber’s interest was in identifying a system of organization or an organizational structure that could improve the way organizations operate—that is, increase the value they create and make them more effective. A bureaucracy is a form of organizational structure in which people can be held ac-countable for their actions because they are required to act in accordance with well-specified and agreed-upon rules and standard operating procedures. - Principle One, ‘A bureaucracy is founded on the concept of rational-legal authority’: Rational-legal authority is the authority a person possesses because of his or her position in an organization. In a bureaucracy, obedience is owed to a person because of the level of authority and responsibility associated with the organizational position the person occupies. For a bureaucracy to be effective, however, the distinction between positions and the people who hold them must be clear: People are appointed to positions; they do not own them. - Principle Two, ‘Organizational roles are held on the basis of technical competence, not because of social status, kinship, or heredity’: In a well-designed hierarchy, people occupy roles because they can do the job, not be-cause of who they are or who they know. - Principle Three, ‘A role’s task responsibility and decision-making authority and its relationship to other roles in the organization should be clearly specified.’: a clear and consistent pattern of vertical differentiation (decision-making authority) and horizontal differentiation (task responsibility) is the foundation for organizational effectiveness. When the limits of authority and control are specified for the various roles in an organization, the people in those roles know how much power they have to influence the behavior of others. In such a stable system all individuals know how much their supervisor can require of them and how much they can require of their subordinates. People also know how to deal with their peers (people who are at the same level in the organization as they are). A clear pattern of vertical (authority) and horizontal (task) differentiation also cuts down on role conflict and role ambiguity. Role conflict occurs when two or more people have different views of what another person should do and, as a result, make conflicting demands on the person. Role ambiguity occurs when a person’s tasks or authority are not clearly defined and the person becomes afraid to act on or take responsibility for anything. Clear descriptions of task and authority relationships solve conflict and ambiguity problems. 7 Adopting a more complex structure is the result of three design choice: 1. An increase in vertical differentiation: this typically involves increasing the n. of levels in the hierarchy, deciding how much decision-making authority to centralize at the top of the organization, and how much to use rules, SOPs and norms to standardize the behavior of low-level employees 2. An increase in horizontal differentiation: this involves overlaying a functional grouping of activities with some other kind of subunit grouping 3. An increase in integration: The higher the level of differentiation, the more complex the integrating mechanisms that managers need to use to control organizational activities. MOVING TO A DIVISIONAL STRUCTURE The structure that organizations most commonly adopt to solve the control problems that result from producing many different kinds of products in many different locations for many different types of customers is the divisional structure, a structure in which functions are grouped together according to the specific demands of products, markets, or customers. If the control problem is due to the number and complexity of products, the organization divides its activities by product and uses a product structure. If the control problem is due to the number of locations in which the organization produces and sells its products, the organization divides its activities by region and uses a geographic structure. If the control problem is due to the need to service a large number of different customer groups, the organization divides its activities by customer group and uses a market structure. DIVISIONAL STRUCTURE I: 3 KINDS OF PRODUCT STRUCTURE To maintain effectiveness and simplify control problems as the range of its products increases, an organization groups its activities not only by function but also by type of product. A product structure is a divisional structure in which products (goods or services) are grouped into separate divi-sions, according to their similarities or differences, to increase control. To coordinate its product divisions with support functions like R&D, marketing and sales, and accounting, an organization can make two choices: (1) centralize the support functions at the top of the organization so one set of support functions services all the different product divisions, or (2) create multiple sets of support functions, one for each product division. Ex. An organization whose products are broadly similar and aimed at the same market will choose to centralize support services and use a product division structure. An organization whose products are very different and that operates in several different markets or industries will choose a multidivisional structure. An organization whose products are very complex technologically or whose characteristics change rapidly to suit changing customer needs will choose a product team structure. PRODUCT DIVISION STRUCTURE is characterized by the splitting of the manufacturing function into several different product lines or divisions; a centralized set of support functions then services the needs of all these product divisions. (used by companies that make products broadly similar and use the same set of support functions. This design decision increased horizontal differentiation within the organization, for each division is a separate manufacturing unit that has its own hierarchy headed by a product division manager. The product division manager also coordinates with the central support functions like marketing and materials management; this adds a level to the hierarchy or authority and so also increases vertical differentiation in an organization. MULTIDIVISIONAL STRUCTURE: Managing complex and diverse value-creation activities requires a multidivisional structure, a structure in which each product division is given its own set of support functions so they become self-contained divisions. A multidivisional structure has two innovations that over-come the control problems: The first innovation is the independence of each division; each division is independent and self-contained.When divisions are self-contained, each division has its own set of support functions and controls its own value-creation activities. (horizontal differentiation increases). The second innovation in a multidivisional structure is a new level of management, a corporate headquarters staff, composed of corporate managers who are responsible for overseeing the activities of the divisional managers heading up the different divisions. They coordinate the activities of the divisions. (vertical differentiation has increased, which provides more coordination and control). The heads of the divisions (divisional managers) link corporate headquarters and the divisions. A multidivisional structure is designed to allow a company to operate in many different businesses. (product division structure: 1 business). Thus one or more of the independent divisions within a multidivisional structure could use a product division structure or any other structure to coordinate its activities. This structure include three main levels of management: corporate managers, who over-see the operations of all the divisions; divisional managers, who run the individual divi-sions; and functional managers, who are responsible for developing the organization’s core competences. ADVANTAGES OF A MULTIDIVISIONAL STRUCTURE: - Increased Organizational Effectiveness: there is a clear division of labor between corporate and divisional managers. - Increased control: Corporate managers monitor the performance of divisional managers. The extra control provided by the corporate office encourages the stronger pursuit of internal organizational efficiency by divisional managers. - Profitable growth: When each division is its own profit center, corporate headquarters can identify the divisions in which an investment of capital will yield the highest returns. 10 - Internal labor market: The most able divisional managers are promoted to become corporate managers.Thus divisional managers have an incentive to perform well because superior performance results in promotion to high office. DISADVANTAGES OF A MULTIDIVISIONAL STRUCTURE: - Managing the Corporate–Divisional Relationship: The central management problem posed by a multidivisional structure is how much authority to centralize at the corporate level and how much authority to decentralize to the operating divisions. The balance between the two has to be managed all the time, continually. - Coordination Problems between Divisions: ex. corporate headquarters can allocate capital to the divisions on the basis of their performance —> divisions may begin to compete for resources, and rivalry between them may prevent them from cooperating. This can lower the organizational performance. - Transfer Pricing: the price at which one division sells a product or information about innovations to another division. To maximize its own return on investment, one division will want a high transfer price, but that will penalize the other division, which is, after all, part of the same organization. Mechanisms like integrating roles and departments are important in promoting cooperation. - Bureaucratic Costs: Multidivisional structures are very expensive to operate. Each division has a full complement of support functions, including R&D. The high costs of operating a multidivisional structure must continually be evaluated against the benefits the company obtains. - Communication Problems: These problems are common in multidivisional structures because they tend to be the tallest of all organizational structures. The gap between the corporate center and the divisions is especially large. (The more centralized an organization, the more of a problem communication will be.) PRODUCT TEAM STRUCTURE: In a product division structure, members of support functions such as marketing and R&D coordinate with the different divisions as their services are needed, but their main loyalty is to their function, not to the division. A product team structure is a cross between the product division structure, in which the support functions are centralized, and the multidivisional structure, in which each division has its own support functions. In a product team structure, specialists from the support functions are combined into product development teams that specialize in the needs of a particular kind of product. The product teams focus on the needs of one product (or client) or a few related products. The vice presidents of the functions, at the top of the organization, retain overall functional control, but decision-making authority for each product is decentralized to the team, and each team becomes responsible for the success of a project. It’s more decentralized than a functional structure or a product division structure, and specialists in the various product teams are permitted to make on-the-spot decisions, particularly important in service organizations. DIVISIONAL STRUCTURE II. GEOGRAPHIC STRUCTURE When the control problems that companies experience are a function of geography, a geographic divisional structure, in which divisions are organized according to the requirements of the different locations in which an organization operates, is available. As an organization grows, it often develops a national customer base. As it spreads into different regions of a country, it needs to adjust its structure to align its core competences with the needs of customers in different geographic regions. A geographic structure allows some functions to be centralized at one headquarters location and others to be decentralized to a regional level. The creation of a new level in the hierarchy - regional managers - and the decentralization of control to regional hierarchies also increased vertical differentiation. DIVISIONAL STRUCTURE III: MARKET STRUCTURE It aligns functional skills and competences with the product needs of different customer groups. Marketing, not manufacturing, determines how managers decide how to group organizational activities into divisions; each division makes use of centralized support functions. MATRIX STRUCTURE The search for better and faster ways to develop products and respond to customer needs has led some companies to choose a matrix structure, an organizational design that groups people and resources in two ways simultaneously: by function and by product. A matrix is a rectangular grid that shows a vertical flow of functional responsibility and a horizontal flow of product responsibility. The organization itself is very flat, having minimal hierarchical levels within each function and decentralized authority. The members of the team are called two-boss employees because they report to two superiors: the product team manager and the functional manager. The defining feature of a matrix structure is the fact that team members have two superiors. The matrix thus relies on minimal vertical control from the formal hierarchy and maximal horizontal control from the use of integrating mechanisms. Team membership is not fixed.Team members move from team to team, to where their skills are most needed. ADVANTAGES: 1. the use of cross-functional teams is designed to reduce functional barriers and over-come the problem of subunit orientation / 2. it opens up communication between functional specialists and provides an opportunity for team members from different functions to learn from one another and develop their skills. / 3. the matrix enables an organization to effectively use the skills of its specialized employees who move from product to product as needed. / 4. the dual functional and product focus promotes concern for both cost and quality. 11 DISADVANTAGES: A matrix lacks the advantages of bureaucratic structure. With a flat hierarchy and few rules and SOPs, the matrix lacks a control structure that allows employees to develop stable expectations of each other. ROLE CONFLICT (ex. the functional boss, focused on quality, and the product boss, focused on cost, often have different expectations of the team members). The lack of a clearly defined hierarchy of authority can also lead to conflict between functions and product teams over the use of resources. They are mainly appropriate when a high level of coordination between functional experts is needed because an organization must respond quickly to a changing environment. THE MULTIDIVISIONAL STRUCTURE allows an organization to coordinate activities effectively but is difficult to manage. Sometimes the corporate center becomes very remote from divisional activities and is unable to play this important integrating role. When this happens, organizations sometimes introduce the matrix structure at the top of the organization and create a multidivisional matrix structure, which provides for more integration between corporate and divisional managers and between divisional managers. HYBRID STRUCTURE: Large complex organizations that have many divi-sions often simultaneously make use of many different structures; that is, they operate with a hybrid structure. Companies that operate only in one industry but choose to compete in different mar-ket segments of the industry also may use a hybrid structure. NETWORK STRUCTURE AND THE BOUNDARYLESS ORGANIZATION A network structure is a cluster of different organizations whose actions are coordinated by contracts and agreements, rather than by a formal hierarchy of authority. (ex. a clothing manufacturer may search for ways to produce and market clothes more cheaply. Rather than manufacturing the clothes in its own factories, the company decides to outsource its manufacturing to a low-cost Asian company = OUTSOURCING). Network structures often become very complex as a company forms agreements with a whole range of suppliers, manufacturers, and distributors to outsource many of the value- creation activities necessary to produce and market goods and services. How to manage all the companies in a network? Ex. using modern IT, like using computer-aided design (CAD) to design shoes. ADVANTAGES: production costs are reduced. It avoids the high bureaucratic costs of operating a complex organizational structure. For example, the hierarchy can be kept as flat as possible and fewer managers are needed. a network structure allows an organization to act in an organic way. If the environment changes, for example, and new opportunities become apparent, an organization can quickly alter its network in response. If any of its network partners fail to perform up to Nike’s standards, they can be replaced with new partners. DISADVANTAGES: A considerable level of mutual adjustment is needed to permit the groups to interact so that they can learn from one another and constantly improve the final product. (ex. producing hardware and software). Also, managers must be there to integrate the activities of the groups to make sure their activities mesh well. The coordination problems arising from having different companies perform different parts of the work process would be enormous. It would be difficult to obtain the ongoing learning that builds core competences over time inside a company because separate companies have less incentive to make such an investment. As a result, many opportunities to cut costs and increase quality would be lost. When you replace a supplier bc it falls to perform well by forming a contract with another: how easy is it to find reliable software companies that can both do the job and be trusted not to take proprietary information and use it themselves or give it to a company’s competitors? THE BOUNDARYLESS ORGANIZATION The boundaryless organization is composed of people who are linked by computers, faxes, CAD systems, and video teleconferencing, and they may rarely or ever see one another face to face. People come and go as their services are needed, much as in a matrix structure, but they are not formal members of an organization.They are independent functional experts who form an alliance with an organization, fulfill their contractual obligations, and then move on to the next project. E-COMMERCE E-commerce is trade that takes place between companies, and between companies and individual customers, using IT and the Internet. Business-to-business (B2B) commerce is trade that takes place between companies using IT and the Internet to link and coordinate the value chains of different companies (it allows them to reduce their operating costs and may improve product quality). A main B2B network application is the B2B marketplace, an industry-specific trading network set up to connect buyers and sellers using the Internet. Business-to-customer (B2C) commerce is trade that takes place between a company and its network of individual customers using IT and the Internet. When a company uses IT to connect directly to customers, they have increased control of their network. For example, they can handle their own marketing and distribution and do not need to use intermediaries like wholesalers and retailers. The use of online storefronts allows companies to pro-vide customers with a much wider range of products and to give them much more information about these products in a very cost-effective way. 12 - Property Rights: The values in an organization’s culture also stem from (=be caused by) how the organization distributes property rights, the rights that an organization gives to its members to receive and use organizational resources. Property rights define the rights and responsibilities of each inside stakeholder group and cause the development of different norms, values, and attitudes toward the organization. Shareholders have the strongest property rights of all stakeholder groups because they own the resources of the company and share in its profits. / Top managers often have strong property rights because they are given large amounts of organizational resources, such as high salaries, the rights to large stock options, or golden parachutes, which guarantee them large sums of money if they are fired when their company is taken over. / An organization’s workforce may be given strong property rights, such as a guarantee of lifetime employment and involvement in an employee stock ownership plan (ESOP) or in a profit-sharing plan BUT often workers’ property rights are simply the wages they earn and the health and pension benefits they receive. The distribution of property rights to different stakeholders determines (1)how effective an organization is and (2)the culture that emerges in the organization. - 1.1 TOP MANAGEMENT AND PROPERTY RIGHTS: Top managers are in a strong position to establish the terms of their own employment, their salary and benefits packages, and their termination and pension benefits. Top managers also determine the property rights received by others and thus determine what kind of culture will develop in an organization. - 1.2 CAN PROPERTY RIGHTS BE TOO STRONG? The value and level of a person’s behavior and performance are, in part, a consequence of the rights the person is given. Ex. a company develops a very conservative culture in which employees have strong rights, such as the implicit promise of lifetime employment. As a result, its employees become cautious and non-innovative because the organization protect them so well that they have no motivation to perform or to take risks. In that case the property rights are too strong. To get out of this situation, the organization should change the property rights system and create an entrepreneurial culture by distributing rewards including salary and promotion based on performance and eliminated employees’ expectations of lifetime employment. - Organizational Structure: it’s the formal system of task and authority relationships that an organization establishes to control its activities (mechanistic structures and organic structures, for example, give rise to totally different sets of cultural values). - Recall: mechanistic structures are tall, highly centralized, and standardized, and organic structures are flat and decentralized and rely on mutual adjustment. In a tall, centralized organization, people have relatively little personal autonomy, and desirable behaviors include being cautious, obeying superior authority, and respect-ing traditions. Thus mechanistic structure is likely to give rise to a culture in which predictability and stability are desired end states. In a flat, decentralized structure, people have more freedom to choose and control their own activities, and desirable behaviors include being creative or courageous and taking risks. Thus an organic structure is likely to give rise to a culture in which innovation and flexibility are desired end states. - An organization’s structure can promote cultural values that foster integration and coordination; ex. norms, values, and a common organizational language can improve the performance of teams and task forces. Whether a company is centralized or decentralized also leads to the development of different kinds of cultural values: ex. in nuclear power (centralized) plants, values that promote stability, predictability, and obedience to superior authority are deliberately fostered to prevent disasters; conversely, by decentralizing authority, an organization can establish values that encourage and reward creativity or innovation. In sum, organizational structure affects the cultural values that guide organizational members as they perform their activities. In turn, culture improves the way structure co- ordinates and motivates organizational resources to help an organization achieve its goals. CAN ORGANIZATIONAL CULTURE BE MANAGED? To change a culture can be very difficult because those 4 factors interact, and major alterations are often needed to change an organization’s values. To change its culture, an organization might need to redesign its structure and revise the property rights it uses to motivate and reward employees. The organization might also need to change its people, especially its top-management team. To prevent an organization’s culture from changing in ways that reduce effective-ness as the organization grows, top managers must continually redesign its structure to offset the control problems that occur with large size and complexity. SOCIAL RESPONSIBILITY One very important consequence of the values and norms of its culture is an organization’s stance with regard to social responsibility.The term social responsibility refers to a manager’s duty or obligation to make decisions that nurture, protect, enhance, and pro-mote the welfare and well-being of stakeholders and society as a whole. APPROACHES TO SOCIAL RESPONSIBILITY The strength of an organization’s commitment to social responsibility ranges from low to high. At the low end of the range is an obstructionist approach; Obstructionist managers choose not to behave in a socially responsible way. Instead, they behave unethically and illegally and do all they can to prevent knowledge of their behavior from reaching other organizational stakeholders and society at large. A defensive approach indicates at least a commitment to ethical behavior; Defensive managers stay within the law and abide strictly within legal requirements, but they make no attempt to exercise social responsibility beyond what the law dictates. Managers adopting this approach do all they can to ensure that their employees behave legally and do not harm others. But when making ethical choices, these man-agers put the claims and interests of their shareholders first, at the expense of other stakeholders (Ex. a capitalist society). From a defensive perspective, it is not managers’ responsibility to make socially responsible choices; their job is to abide by the rules that have been legally established. An accommodative approach is an acknowledgment of the need to support social responsibility. Accommodative managers agree that organizational members ought to behave legally and ethically, and they try to balance the interests of 15 different stakeholders against one another so the claims of stockholders are seen in relation to the claims of other stakeholders. Managers taking a proactive approach actively embrace the need to behave in socially responsible ways, go out of their way to learn about the needs of different stakeholder groups, and are willing to use organizational resources to promote the interests not only of stockholders but of the other stakeholders. ‘To be at the forefront of campaigns for causes such as a pollution-free environment or recycling and conservation of resources.’ WHY BE SOCIALLY RESPONSIBLE? First, workers and society benefit directly because organizations (rather than the government) bear some of the costs of helping workers. Second, it has been said that if all organizations in a society were socially responsible, the quality of life as a whole would be higher. Other reasons for being socially responsible are that it is the right thing to do and companies that act responsibly toward their stakeholders benefit from increasing business and see their profits rise. Obviously, illegal behavior should not be tolerated. The term whistle-blower is used to refer to a person who reports illegal or unethical behavior and takes a stand against unscrupulous managers or other stakeholders who are pursuing their own ends. Laws now exist to protect the interests of whistle-blowers, who risk their jobs and careers to reveal unethical behavior. Another way in which managers can ascertain whether they are acting socially responsibly is to apply ethical standards and values. Managers’ own ethics influence their behavior, and their own values strongly influence whether they will take a proactive approach to social responsibility. An organization’s code of ethics, usually printed in its annual reports and mission statements, also influences how conscientiously man-agers seek to support the interests of all their stakeholders. Evidence suggests that managers who behave socially responsibly will, in the long run, most benefit all organizational stakeholders (including stockholders). It appears that socially responsible companies, in comparison with less responsible competitors, are less risky investments, tend to be somewhat more profitable, have a more loyal and committed workforce, and have better reputations, which encourage stakeholders (including customers and suppliers) to establish long-term business relationships with them; communities encourage such organizations to locate in their cities and offer them incentives such as property-tax reductions and the construction of new roads and free utilities for their plants. CHAPTER 8: STRATEGY AND THE ENVIRONMENT Strategy: the specific pattern of decisions and actions that managers take to use core competences to achieve a competitive advantage and outperform competitors. An organization develops a strategy to increase the value it can create for its stakeholders. Recall that core competences are skills and abilities in value-creation activities, such as manufacturing, marketing, or R&D that allow a company to achieve superior efficiency, quality, innovation, or customer responsiveness. An organization that possesses superior core competences can outperform its rivals. SOURCES OF CORE COMPETENCES The strength of the core competences is a product of the specialized resources and coordination abilities that it possesses and other organizations lack. - SPECIALIZED RESOURCES: Two kinds of resources provide an organization with core competences that give it a competitive advantage: functional resources and organizational resources. Functional resources are the skills possessed by an organization’s functional personnel; they have to be high quality but also unique or special and difficult to imitate! (to be core competences). Organizational resources are the company-specific skills and competence that give an organization a competitive advantage. They include the skills of a company’s top-management team, the vision of its founder or CEO, and the possession of valuable and scarce resources such as land, capital reserves, and plant equipment; they also include in-tangibles such as a company’s brand name and its corporate reputation. Like functional resources, to provide a competitive advantage, organizational resources must be unique or difficult to imitate. - COORDINATION ABILITIES: the organization’s ability to coordinate its functional and organizational resources to create the most value. Effective coordination of resources (achieved through the control provided by organizational structure and culture) leads to a competitive advantage. (ex. the way an organization decides to centralize or decentralize authority or the way it develops and promotes shared cultural values increases its effectiveness and allows the organization to manage and protect its domain better than its competitors can protect theirs). The way an organization coordinates people and resources within functions determines the strength of its core competences. Although many functional and organizational resources are not unique and can be imitated, an organization’s ability to coordinate and motivate its functions and departments is difficult to imitate. GLOBAL EXPANSION AND CORE COMPETENCES: Expanding globally into overseas markets can be an important facilitator of the development of an organization’s core competences. There are 4 ways in which global expansion allows an organization to create value for its stakeholders. 1. TRANSFERRING CORE COMPETENCES ABROAD: Value creation at the global level begins when an organization transfers a core competence in one or more of its functions to an overseas market to produce cheaper or improved products that will give the organization a low-cost or differentiation advantage over its competitors in that market. 16 2. ESTABLISHING A GLOBAL NETWORK: Generally, when an organization decides to transfer its competences abroad, it locates its value-creation activities in countries where economic, political, and cultural conditions are likely to enhance its low-cost or differentiation advantage. It then establishes a global network—sets of task and reporting relationships among managers, functions, and divisions that link an organization’s value-creation activities around the world. 3. GAINING ACCESS TO GLOBAL RESOURCES AND SKILLS: An organization with a global network has access to resources and skills throughout the world; because each country has unique economic, political, and cultural conditions, different countries have different resources and skills that give them a competitive advantage. 4. USING GLOBAL LEARNING TO ENHANCE CORE COMPETENCES: Organizations set up their global operating network to gain access to knowledge that will allow them to improve their core competences. The access to global resources and skills that a global network provides allows an organization to find new ways to improve its effectiveness. Of course, certain dangers are associated with outsourcing important functional competences to companies abroad: a company risks losing control of its core skills and technology by sharing it with a partner company abroad; and if its partner then works to improve on these skills, it may become a strong competitor in the future; if a company outsources a functional activity, it will no longer be investing re-sources to improve its skills in that activity—so it is giving away a potential source of future competitive advantage. 4 LEVELS OF STRATEGY Strategy is formulated at four organizational levels—functional, business, corporate, and global—by the managers at each level. - Functional-level strategy is a plan of action to strengthen an organization’s functional and organizational resources, as well as its coordination abilities, to create core competences. To strengthen their technical and human resources, functional managers train and develop subordinates to ensure the organization has skills that match or exceed the skills of its competitors. - Business-level strategy is a plan to use and combine an organization’s functional core competences to position it so it has a competitive advantage in its domain or segment of its industry. Business-level strategy is the responsibility of the top-management team (the CEO and vice presidents in charge of the various functions. Programming is the key variable that these companies can manipulate.They rely on functional experts to scan the environment and identify future viewing trends so they can commission programs that will give them a competitive advantage. - Corporate-level strategy is a plan to use and develop core competences so the organization not only can protect and enlarge its existing domain but can also expand into new domains. Corporate-level strategy is the responsibility of corporate-level managers—the top-management team of a multi-business organization; Their responsibility is to take the value-creation skills present in an organization’s divisions and combine them to improve the competitive position of each division and of the organization as a whole. - global expansion strategy involves choosing the best strategy to expand into overseas markets to obtain scarce resources and develop core competences. FUNCTIONAL LEVEL STRATEGY The strategic goal of each function is to create a core competence that gives the organization a competitive advantage. To gain a competitive advantage, an organization must be able to perform functional activities (1) at a lower cost than that of its rivals so it can charge lower prices for its good and services; or (2) in a way that allows it to differentiate its products from those of its rivals, by giving them unique qualities that customers desire, so it can charge higher or premium prices. - Strategies to Lower Costs or Differentiate Products: The manufacturing function can lower the costs of production by pioneering the adoption of the most efficient production methods; because manufacturing skills and competence can improve product quality and reliability, manufacturing can also contribute to product differentiation - On the input side, the human resource management (HRM) function can lower costs by designing appropriate control and reward systems to increase employee motivation and reduce absenteeism and turnover; HRM can contribute to differentiation by select-ing and hiring high-quality employees and managers and by running innovative training programs. The role of materials management on both the input and the output sides is also crucial. Just-in-time inventory systems and computerized warehousing reduce the costs of carrying and shipping inventory. The quality of a company–supplier relationship can also affect the quality of inputs. A supplier has more incentive to invest in specialized equipment to produce higher-quality inputs if it trusts the organization - the expertise of sales and marketing contributes directly to a low-cost or differentiation advantage. Suppose a marketing department devises an online advertising campaign that significantly increases product sales and so the organization’s market share steadily rises; when the organization expands production to meet increased customer demand, it will obtain manufacturing economies of scale and so production costs will fall. Marketing and sales help differentiate products because they tell customers about why one company’s products are better than another’s. A core competence in marketing can allow an organization quickly to discover and respond to customer needs. This speed gives the organization’s products a differentiated appeal. - Research and development can also contribute significantly to an organization’s value-creation activities. R&D can reduce costs by developing cheaper ways of making a product. - Functional-Level Strategy and Structure: Every function in an organization can develop a core competence that allows an organization to perform value-creation activities at a cost lower than its rivals or that allows it to create clearly differentiated products. The strength of a function’s core competence depends not only on its skills and resources, but also on its ability to coordinate the use of its resources. According to contingency theory, an organization’s design should permit each function to develop a structure that suits its human and technical resources. Successful innovation depends on the ability of R&D experts to apply their skills and knowledge in creative ways and to combine their activities with new 17