3. 8-3
Learning Objectives
1. Explain what is meant by organization architecture.
2. Explain the advantages and disadvantages of centralization
and decentralization.
3. Discuss the pros and cons of tall versus flat structures.
4. Outline the different kinds of structure a firm can operate
within and explain how strategy should determine structure.
5. Describe the different integrating mechanisms managers can
use to achieve coordination within a firm, and explain the
link between strategy, environment, and integrating
mechanisms.
4. 8-4
Organization
Architecture
• Organization architecture: The totality of a firm’s
organization, including formal organization structure,
control systems, incentive systems, organizational culture,
and people.
• Organization structure: The location of decision-
making responsibilities in the firm, the formal division of
the organization into subunits, and the establishment of
integrating mechanisms to coordinate the activities of
subunits.
5. 8-5
Organization
Architecture
• Controls: Metrics used to measure the performance of
subunits and to judge how well managers are running those
subunits.
• Incentives: Devices used to encourage desired employee
behavior.
• Organizational culture: Values and assumptions that are
shared among the employees of an organization.
• People: The employees of an organization, the strategy used
to recruit, compensate, motivate, and retain those individuals,
and the type of people they are in terms of their skills, values,
and orientation.
6. 8-6
Organization
Architecture
Structure
Controls People Incentives
Culture
7. 8-7
Designing Structure
• Vertical differentiation: The location of
decision-making responsibilities within a structure.
• Horizontal differentiation: The formal division
of the organization into subunits.
• Integrating mechanisms: Mechanisms for
coordinating subunits.
8. 8-8
Centralization Versus
Decentralization
• Centralization: The concentration of decision-
making authority at a high level in a management
hierarchy.
• Decentralization: Vesting decision-making
authority in lower-level managers or other employees.
9. 8-9
Arguments for
Centralization
• Centralization can facilitate coordination.
• Centralization can help ensure that decisions are
consistent with organizational objectives.
• Centralization can avoid duplication of activities by
various subunits within the organization.
• By concentrating power and authority in one
individual or a management team, centralization can
give top-level managers the means to bring about
needed major organizational changes.
10. 8 - 10
Arguments for
Decentralization
• Top management can become overburdened when
decision-making authority is centralized.
• Motivational research favors decentralization.
• Decentralization permits greater flexibility—more
rapid response to environmental changes.
• Decentralization can result in better decisions.
• Decentralization can increase control.
11. 8 - 11
Centralization vs.
Decentralization in
Purchasing
• Centralize for greater cost control and corporate
leverage
• Decentralize for nimbler procurement
responsiveness
• Centralize procurement of common products
• Decentralize procurement of specialized products
• Align purchasing structure with corporate
strategy, structure, and size
Source: Global Best Practices, Pricewaterhousecoopers
12. 8 - 12
Question
Decentralization
argument works for
large businesses. For a
small business, it is
better to have
centralization. Do you
agree? Explain.
13. 8 - 13
Decentralization
and Control
Decentralization of Which Thereby
decisions to a Increases
increases enhancing
subunit … responsibility …
accountability control.
14. 8 - 14
The Starfish
and the Spider
• Ori Brafman and Rod Beckstrom show why businesses need to
embrace their own decentralized systems in their book called
The Starfish and the Spider.
• The book's central metaphor recognizes that if you cut the leg
off of a spider, you have at best a (crippled) spider. But if you
cut off the leg of a starfish, the starfish will grow a new leg.
• Traditional centralized organizations are the spiders, and
traditional decentralized organizations are the starfish.
Source: Business Week Online, October 17, 2006
15. 8 - 15
Tall Versus
Flat Hierarchies
• Tall hierarchies: Organizations with many layers
of management.
• Flat hierarchies: Organizations with few layers of
management.
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Flat at IDEO
• IDEO is a product design company comprising 14
studios
• Each studio comprises 15 to 35 people with one head
responsible for profit/loss
• Individuals are allowed to be best in what their passion
is rather then take up managerial positions
• Concept of Hot Teams is encouraged with autonomy
• Mobility from one studio to another is encouraged
• Bottom line structure: very flat
Source: Business Week Online, January 11, 2001
17. 8 - 17
Problems in
Tall Hierarchies
• There is a tendency for information to get accidentally
distorted as it passes through layers in a hierarchy.
• There is also the problem of deliberate distortion by
midlevel managers who are trying to curry favor with
their superiors or pursue some agenda of their own.
• They are expensive.
18. 8 - 18
Types of Structures
• Functional structure: A structure that follows the obvious
division of labor within the firm, with different functions
focusing on different tasks.
• Multidivisional structure: A structure in which a firm is
divided into different divisions, each of which is responsible for
a distinct business area.
• Geographic structure: A structure in which a firm is
divided into different units on the basis of geography.
• Matrix structure: An organization with two overlapping
hierarchies.
19. 8 - 19
Hybrid Structure
at Ranbaxy
Ranbaxy Laboratories – An India-based generic drug maker
• The company redesigned the organization in
internationalizing its operations
• Developed a hybrid structure: it placed R&D in a global unit
and other functions in several geographic units.
• Result: Ranbaxy's managers adopted a global mind-set and
began spending a substantial amount of time in their most
important market—the United States.
Source: The McKinsey Quarterly, 2005 Number 2
20. 8 - 20
Formal Integrating
Mechanisms
• Direct contact: This is the simplest integrating mechanism. Managers
of the various subunits just contact each other whenever they have a
concern.
• Liaison roles: This is a bit more complex than direct contact. As the
need for coordination between subunits increase, integration can be
improved by assigning a person in each subunit to coordinate with another
subunit.
• Teams: When the need for coordination is greater still, firms use
temporary or permanent teams composed of individuals from the subunits
that need to achieve coordination.
• Matrix structure: When the need for integration is very high, firms
may institute a matrix structure, in which all roles are viewed as integrating
roles.
21. 8 - 21
Integrating
Mechanisms
High Matrix
Favored by firms in structure
rapidly changing and
high-technology
Need for coordination
environments
Teams
Liaison
roles
Favored by firms
Direct
in stable and
contact
low-technology
environments
Centralization
Low
Simple Complex
Integrating mechanisms
22. 8 - 22
Question
ABC Information, Inc. operates in a rapidly
changing high-technology environment. Which of
these would represent the most complex
integrating mechanism favored by ABC?
a. Liaison roles
b. Teams
c. Direct contacts
d. Centralization
23. 8 - 23
Informal Integrating
Mechanisms: Knowledge
Networks
• Knowledge network: A network for transmitting
information within an organization based on informal contacts
between managers within an enterprise and on distributed
information systems.
G
B E
C D
A F
24. 8 - 24
Strategy, Coordination, and
Integrating Mechanisms
• All enterprises need coordination between subunits, whether
those subunits are functions, businesses, or geographic areas.
• There is a high need for coordination in firms that face an
uncertain and highly turbulent competitive environment, where
rapid adaptation to changing market conditions is required for
survival.
• In contrast, if a firm is based in a stable environment
characterized by little or no change, and if developing new
products is not a central aspect of firm’s business strategy, the
need for coordination between functions may be lower.
Notas del editor
See Text Page: 180
Learning Objective 1: Explain what is meant by organization architecture. See Text Page: 182
Learning Objective 1: Explain what is meant by organization architecture. See Text Pages: 182-183
Learning Objective 1: Explain what is meant by organization architecture. See Text Page: 182
Learning Objective 1: Explain what is meant by organization architecture. See Text Page: 184
Learning Objective 2: Explain the advantages and disadvantages of centralization and decentralization. See Text Page: 185
Learning Objective 2: Explain the advantages and disadvantages of centralization and decentralization. See Text Page: 185
Learning Objective 2: Explain the advantages and disadvantages of centralization and decentralization. See Text Pages: 185-186
Learning Objective 2: Explain the advantages and disadvantages of centralization and decentralization. Centralization Vs. Decentralization in Purchasing This slide presents the global best practices tips from PriceWaterhouseCoopers in procurement. Ask the students – Looking at he five bullets, what is their assessment with regards to should organizations use centralization or decentralization in purchasing decisions? It is argued that – it should depend on the strategy, structure and size of the organization when it comes to purchasing. Larger organizations have the purchasing power but if the efforts are not coordinated, it does not materialized. Smaller organizations can operate through co=op type of situation to get the volume/size needed. However, it should be moderated with the strategy and structure of the organization. If the structure is centralized, purchasing cannot be decentralized effectively. Furthermore, centralization gives cost control but decentralization offers faster responsiveness. Therefore, again, it depends on the strategy of the firm. Source: Global Best Practices, Pricewaterhousecoopers
See Learning Objective 6: Discuss some of the challenges of managing in a global enterprise. Question Students should be able to argue against this point with examples of entrepreneurial activities and online businesses which can be and are decentralized and very successful. Also, the next two slides, especially the one on Starfish and the Spider support the argument of decentralization for small businesses.
Learning Objective 2: Explain the advantages and disadvantages of centralization and decentralization. See Text Page: 186
See Learning Objective 2: Explain the advantages and disadvantages of centralization and decentralization. The Starfish and the Spider This slide presents, very briefly, the lessons from the book: The Starfish and the Spider. Ask the students – so what is the moral of the story? Advice for the small-business leader – Embrace the era of starfish. Build your organization with “company commanders” who understand their mission and make decisions and support their colleagues rather than simply having “good soldiers” who wait for the next order. In other words: Decentralize the decision making Source: Business Week Online, October 17, 2006
Learning Objective 3: Discuss the pros and cons of tall versus flat structures. See Text Page: 188
Learning Objective 3: Discuss the pros and cons of tall versus flat structures. Flat at IDEO This slide presents an example of flat organizational structure at IDEO – a product design company. Ask the students what might be some of the benefits of a flat organizational structure like IDEO’s? (Close to customers, quick decision making, minimizing red tape, etc.) Ask the students – would they like to work in a flat or a tall organizational structured organization? Why?
Learning Objective 3: Discuss the pros and cons of tall versus flat structures. See Text Pages: 189-190
Learning Objective 4: Outline the different kinds of structure a firm can operate within and explain how strategy should determine structure. See Text Pages: 192-196
Learning Objective 4: Outline the different kinds of structure a firm can operate within and explain how strategy should determine structure. Hybrid at Ranbaxy This slide presents an example of a hybrid structure at Ranbaxy laboratories based in India but quickly becoming a global giant. Ranbaxy is deliberating the possibility of moving its headquarters from India to the United States. So, having such a structure allows the managers to gain experience and the know-how of the other market places. Ask the students – what other ways the company could structure their operations?
Learning Objective 5: Describe the different integrating mechanisms managers can use to achieve coordination within a firm, and explain the link between strategy, environment, and integrating mechanisms. See Text Pages: 198-199
Learning Objective 5: Describe the different integrating mechanisms managers can use to achieve coordination within a firm, and explain the link between strategy, environment, and integrating mechanisms. See Text Page: 198
Learning Objective 5: Describe the different integrating mechanisms managers can use to achieve coordination within a firm, and explain the link between strategy, environment, and integrating mechanisms. See Text Page: 198 Answer: B
Learning Objective 5: Describe the different integrating mechanisms managers can use to achieve coordination within a firm, and explain the link between strategy, environment, and integrating mechanisms. See Text Pages: 199-200
Learning Objective 5: Describe the different integrating mechanisms managers can use to achieve coordination within a firm, and explain the link between strategy, environment, and integrating mechanisms. See Text Pages: 201-202