session 10 - joel Flashcards
(21 cards)
What is Organizational Design?
The process of creating, implementing, monitoring, and modifying the formal systems—structure, culture, and control—to achieve strategic goals.
3 Key Components:
* Structure – How tasks are divided, coordinated, and supervised.
* Culture – Shared values and norms that influence behavior.
* Control – Internal governance mechanisms to guide actions.
What is Organizational Structure?
Determines how efforts of individuals and teams are orchestrated (i.e., how resources are distributed).
Includes four building blocks:
1. Specialization.
2. Formalization.
3. Centralization.
4. Hierarchy.
Organizational Structure - Building Blocks: Specialization
- Describes the degree to which work is divided into distinct, separate tasks.
- Larger firms: high degree of specialization.
- Smaller ventures: low degree of specialization.
- Requires a tradeoff between depth and breadth of knowledge.
- Types of Organizational Structures: Mechanistic vs. Organic Organizations
Organizational Structure - Building Blocks: Formalization
The extent to which employee behavior is guided by codified rules and procedures.
Pros:
* Ensures consistent and predictable results.
* Safety and reliability.
Cons:
* Slower decision making.
* Reduced innovation.
* Hindered customer service.
Organizational Structure - Building Blocks: Centralization
The degree to which decision making is concentrated at the top of the organization.
- Correlates to slow response time and reduced customer satisfaction.
Affects strategic planning:
* Top-down strategic planning takes place in highly centralized organizations.
* Planned emergence is found in more decentralized organizations (In strategy as planned emergence, organizational structure and systems allow bottom-up strategic initiatives to emerge and be evaluated and coordinated by top management.)
Organizational Structure - Building Blocks: Hierarchy
The formal, position-based reporting lines (i.e., Who reports to whom)
- Span of control: The number of employees who directly report to a manager.
Mechanistic vs. Organic Structures
Mechanistic:
* Rigid, hierarchical
* High specialization/formalization
* Centralized decisions
Organic:
* Flexible, flat hierachy
* Low specialization/formalization
* Decentralized, adaptable
What is the relationship between Firm Strategy and Structure?
- The relationship between firm strategy and structure is interdependent and dynamic.
- Strategy and structure impact a firm’s performance.
- Changes over time as the firm grows in size and complexity.
- Different firm stages require different structures: Simple, Functional, Multidivisional, Matrix Structure
Organisational Structure Types
1) Simple Structure
* Used by small firms with low organizational complexity (e.g., startups)
* Low complexity, specialization, and formalization
* Founders make all strategic decisions and run day-to-day operations
2) Functional Structure
* Employees grouped by expertise, often corresponding to distinct stages in the value chain (e.g., Marketing, R&D)
* Leaders of functional areas report to the CEO
3) Multidivisional Structure
* Used as a firm diversifies products and geography.
* Divided into Strategic Business Units (SBUs) with P&L responsibility
* SBUs operate independently and are led by a unique CEO who is responsible for SBU strategy and operations
* Widely adopted organizational structure
4) Matrix Structure
* Combines functional (organisational structure) and multidivisional (leverages SBUs)
* Dual-reporting (by geography/functional + business line/multidivisional)
* Fits transnational strategy best (global-local balance)
Pros & Cons of Functional Structure?
Pros:
Works well for:
* Cost Leadership: Emphasize efficiency
* Differentiation: Foster creativity & innovation
* Blue Ocean: Balance efficiency with innovation
Cons:
* Weak/suboptimal cross-departmental coordination
* Limits diversification, limiting firm growth
What does a Typical Multidivisional Structure (M-Form) look like?
See Exihibit 11.7, Session 10 Slide 19
2 Applications of M-Form in Corporate Strategy:
Related Diversification
* Cooperative M-form
* Centralized
* HQ integrates efforts
* SBU collaboration
Unrelated Diversification
* Competitive M-form
* Decentralized
* HQ provides capital only
* SBU competition
What are the cons of Matrix Structure?
- Complex reporting lines: Adds another layer of corporate hierarchy.
- Slower decision-making
- SBUs competing: Politics and turf wars over resources
- Cooperation between SBUs still needed
What organisation structure fits which global strategy?
- International: functional structure.
- Multidomestic: multidivisional structure.
- Global standardization: multidivisional structure.
- Transnational strategy: matrix structure
Closed Innovation vs Open Innovation
Closed Innovation:
* Internal R&D
* Costly, slow
* Limited by in-house talent
Open Innovation:
* Idea and innovation arise from external sources (e.g., alliances, acquisitions, customers, suppliers, universities, etc.)
* Fast, collaborative
* Accesses diverse, global knowledge
What is Organizational Culture?
Shared values and norms of an organization’s members, expressed through artifacts.
- Values: What’s important
- Norms: Expected behaviors
- Artifacts: Physical/visible expressions (e.g., office layout, stories, rituals)
Where Do Organizational Cultures Come From?
- Founder imprinting (need to beware of group think)
- From company values
How Does Organizational Culture Change?
- When the environment changes, A firm must hone, refine, and upgrade to ensure a core rigidity doesn’t emerge.
- New leadership changes in strategy and structure.
- When the original core competencies turn into a liability.
Culture Can Help a Firm’s Competitive Advantage if it…
- Makes a positive contribution to economic value creation
- Passed VRIO framework
- Can adapt as the business evolves
What is the role of Strategic Control and Reward Systems in Organizational Culture?
Serve as internal-governance mechanisms to align the incentives of:
* Principals (shareholders).
* Agents (employees).
Allow managers to:
* Specify goals.
* Measure progress.
* Provide performance feedback
Strategic Control: Input vs Output Controls?
Input Controls:
* Define behaviors before decisions (e.g., budget decisions) through explicit, codified rules (e.g. SOP)
Output Controls:
* Define expected results (outputs), let individual employees, groups, SBUs choose the method
* Works best when employees have Autonomy (freedom), Mastery (skill), Purpose (meaning)
