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Lesson#34
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Restructuring Organizations
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Restructuring Organizations
We begin to examine techno-structural interventions change
programs focusing on the technology and
structure of organizations. Increasing global competition and
rapid technological and environmental
changes are forcing organizations to restructure themselves from
rigid bureaucracies to leaner more flexible
structures. These new forms of organizing are highly adaptive
and cost efficient. They often result in fewer
managers and employees and iii streamlined work flows that break
down functional barriers.
Interventions aimed at structural design include moving from
more traditional ways of dividing the
organization’s overall work, such as functional,
self-contained-unit and matrix structures, to more
integrative and flexible forms, such as process-based and
network-based structures. Diagnostic guidelines
help determine which structure is appropriate for particular
organizational environments, technologies, and
conditions.
Downsizing seeks to reduce costs and bureaucracy by decreasing
the size of the organization. This
reduction in personnel can be accomplished through layoffs,
organization redesign, and outsourcing, which
involves moving functions that are not part of the
organization’s core competence to outside contractors.
Successful downsizing is closely aligned with the organization’s
strategy.
Reengineering radically redesigns the organization’s core work
processes to give tighter linkage and
coordination among the different tasks. This work-flow
integration results in faster, more responsive task
performance. Reengineering often is accomplished with new
information technology that permits
employees to control and coordinate work processes more
effectively.
Structural Design:
Organization structure describes how the overall work of the
organization is divided into subunits and how
these subunits are coordinated for task completion It is a key
feature of an organization’s strategic
orientation. Based on a contingency perspective shown in Figure
41, organization structures should be
designed to fit with at least five factors: the environment,
organization size, technology, organization
strategy and worldwide operations. Organization effectiveness
depends on the extent to which its structures
are responsive to these contingencies.
Organizations traditionally have structured themselves into one
of three forms: functional departments that
are task specialized; self-contained units that are oriented to
specific products, customers, or regions; or
matrix structures that combine both functional specialization
and self-containment. Faced with accelerating
changes in competitive environments and technologies, however,
organizations increasingly have
redesigned their structures into more integrative and flexible
forms. These more recent innovations include
process-based structures that design subunits around the
organization’s core work processes, and networkbased
structures that link the organization to other, interdependent
organizations. The advantages,
disadvantages, and contingencies of the different structures are
described below.
Figure 41. Contingencies Influencing Structural Design
The Functional Organization:
Perhaps the most widely used organizational structure in the
world today is the basic functional structure,
depicted in figure 42. The organization usually is subdivided
into functional units, such as engineering,
research, operation, human resources, finance, and marketing.
This structure is based on early management
theories regarding specialization line and staff relations, span
of control, authority, and responsibility. The
major functional subunits are staffed by specialists in such
disciplines as engineering and accounting. It is
considered easier to manage specialists if they are grouped
together under the same head and if the head of
the department has training and experience in that particular
discipline.
Table 12 lists the advantages and disadvantages of functional
structures. On the positive side, functional
structures promote specialization of skills and resources by
grouping people who perform similar work and
face similar problems. This grouping facilitates communication
within departments and allows specialists to
share their expertise. It also enhances career development
within the specialist, whether it is accounting,
finance, engineering, or sales. The functional structure reduces
duplication of services because it makes the
best use of people and resources.
Figure 42. The Functional Organization
On the negative side, functional structures tend to promote
routine tasks with a limited orientation.
Department members focus on their own tasks, rather than on the
organization’s total task. This can lead
to conflict across functional departments when each group tries
to maximize its own performance without
considering the performance of other units. Coordination and
scheduling among departments can be
difficult when each emphasizes its own perspective. As shown in
Table 12, the functional structure tends to
work best in small-to medium-sized firms in environments that
are relatively stable and certain. These
organizations typically have a small number of products or
services, and coordination across specialized
units is relatively easy. This structure also is best suited to
routine technologies in which there is
interdependence within functions, arid to organizational goals
emphasizing efficiency and technical quality.
Table 12: Advantages, Disadvantages, and Contingencies of the
Functional Form
Advantages Disadvantages Contingencies
• Promotes skill
• specialization
• Reduces duplication of
scarce resources and uses
resources full time
• Enhances career
development for
specialists within large
departments
• Facilitates
communication and
performance because
superiors share expertise
with their subordinates
• Exposes specialists to
others within the same
specialty
• Emphasizes routine
tasks, which encourages
short time horizons
• Fosters parochial
perspectives by
managers, which limit
their capabilities for topmanagement
positions
• Reduces communication
and cooperation between
departments
• Multiplies the
interdepartmental
dependencies, which can
make coordination and
scheduling difficult
• Obscures accountability
for overall outcomes
• Stable and certain
environment
• Small to medium size
• Routine technology,
interdependence within
functions
• Goals of efficiency and
technical quality
The Self-Contained-Unit Organization:
The self-contained-unit structure represents fundamentally
different way of organizing. Also known as a
product or divisional structure
,
it was developed at about the same time by General Motors, Sears,
Standard Oil of New Jersey (Exxon), and DuPont. It groups
organizational activities on the basis of
products, services, customers, or geography. All or most of the
resources necessary to accomplish a specific
objective are set up as a self-contained unit headed by a
product or division manager. For example, General
Electric has plants that specialize in making jet engines and
others that produce household appliances. Each
plant manager reports to a particular division or product vice
president, rather than to a manufacturing vice
president. In effect, a large organization may set up smaller
(sometimes temporary) special purpose
organizations, each geared to a specific product, service,
customer, or region. A typical product structure is
shown in Figure 43. It is interesting to note that, the formal
structure within a self-contained unit often is
functional in nature.
Table 13 lists the advantages and disadvantages of
self-contained-unit structures. These organizations
recognize key interdependencies and coordinate resources toward
an overall outcome. This strong outcome
orientation ensures departmental accountability and promotes
cohesion among those contributing to the
product. These structures provide employees with opportunities
for learning new skills and expanding
knowledge because workers can move more easily among the
different specialties contributing to the
product. As a result, self-contained-unit structures are well
suited for developing general managers. Selfcontained-
unit organizations do have certain problems. They may not have
enough specialized work to use
people’s skills and abilities fully. Specialists may feel
isolated from their professional colleagues and may fai1
to advance in their career specialty. The structures may promote
allegiance to department rather than
organization objectives. They also place multiple demands on
people, thereby creating stress.
Table 13
Advantages, Disadvantages and contingencies of the
Self-Contained-unit Form
Advantages Disadvantages Contingencies
• Recognizes sources of
• interdepartmental
dependencies
• fosters an orientation
toward overall outcomes
and clients
• allows diversification
and
expansion of skills and
training
• ensures accountability
by
departmental managers
and so promotes
delegation of authority
and responsibility
• heightens departmental
cohesion and
involvement in work
• May use skills and
resources inefficiently
• Limits career
advancement by
specialists to movements
out of their departments
• Impedes specialists
esposure to others within
the same specialties
• Puts multiple-role
demands on people and
so creates stress
• May promote
departmental objectives,
as opposed to overall
organizational objectives
• Unstable and uncertain
environments
• Large size
• Technological
interdependence across
functions
• Goals of product
specialization and
innovation
The self-contained-unit structure works best in conditions
almost the opposite of those favoring a
functional organization, as shown in Table 13. The organization
needs to be relatively large to support the
duplication of’ resources assigned to the units. Because each
unit is designed to fit a particular niche, the
structure adapts well to uncertain conditions. Self-contained
units also help to coordinate technical
interdependencies falling across functions and are suited to
goals promoting product or service
specialization and innovation.
Figure 43: The Self-Contained-Unit Organization
The Matrix Organization:
Some OD practitioners have focused on maximizing the strengths
and minimizing the weaknesses of both
the functional and the self-contained-unit structures, and this
effort has resulted in the matrix organization.
It superimposes the lateral structure of a product or project
coordinator on the vertical functional structure,
as shown in Figure 44. Matrix organizational designs originally
evolved in the aerospace industry where
changing customer demands and technological conditions caused
managers to focus on lateral relationships
between functions to develop a flexible and adaptable system of
resources and procedures, and to achieve a
series of project objectives. Matrix organizations now are used
widely in manufacturing, service, and
nonprofit, governmental, and professional organizations.
Every matrix organization contains three unique and critical
roles: the top manager, who heads and
balances the dual chains of command, the matrix bosses
(functional, product, or area), who share
subordinates: and the two-boss managers, who report to two
different matrix bosses. Each of these roles
has its own unique requirements.
For example, all engineers may be in one engineering department
and report to an engineering manager,
but these same engineers may be assigned to different projects
and report to a project manager while
working on that project. Therefore, each engineer may have to
work under several managers to get his or
her job done.
In a matrix organization, each project manager reports directly
to the vice president and the general
manager. Since each project represents a potential profit
centre, the power and authority used by the
project manager come directly from the general manager.
Figure 44. The Matrix Organization
Matrix organizations, like all organization structures, have
both advantages and disadvantages, as shown in
Table 14. On the positive side, this structure allows multiple
orientations. Specialized, functional knowledge
can be applied to all projects. New products or projects can be
implemented quickly by using people
flexibly and by moving between product and functional
orientations as circumstances demand. Matrix
organizations can maintain consistency among departments and
projects by requiring communication
among managers. For many people, matrix structures are
motivating and exciting.
On the negative side, these organizations can be difficult to
manage. To implement and maintain them
requires heavy managerial costs and support. When people are
assigned to more than one department,
there may be role ambiguity and conflict, and overall
performance may be sacrificed if there are power
conflicts between functional departments and project structures.
To make matrix organizations work,
organization members need interpersonal and conflict management
skills. People can get confused about
how the matrix works, and that can lead to chaos and
inefficiencies
Table 14
Advantages, Disadvantages and Contingencies of the Matrix Form
Advantages Disadvantages contingencies
• Make specialized,
functional knowledge
available to all projects.
• Uses people flexibly,
because departments
maintain reservoirs of
specialists.
• Maintains consistency
between different
departments and projects
by forcing
communication between
managers.
• Recognizes and provides
mechanisms for dealing
with legitimate, multiple
sources of power in the
organization.
• Can be very difficult
introduce without a
preexisting supportive
management climate
• Increases role
ambiguity,
stress and anxiety by
assigning people to more
than one department
• Without power balancing
between product and
functional forms, lowers
overall performance
• Makes inconsistent
demands, which may
result in unproductive
conflicts and short-term
crisis management
• May reward political
• Dual focus on unique
product demands and
technical specialization
• Pressure for high
information processing
capacity
• Pressure for shared
resources
• Can adapt to
environmental changes
by shifting emphasis
between project and
functional aspects
skills as opposed to
technical skills
As shown in Table 14, matrix structures are appropriate under
three important conditions. First, there must
be outside pressures for a dual focus. That is, a matrix
structure works best when there are many customers
with unique demands on the one hand and strong requirements for
technical sophistication on the other
hand. Second, a matrix organization is appropriate when the
organization must process a large amount of
information. Circumstances requiring such capacity are few and
include the following: when external
environmental demands change unpredictably and there is
considerable uncertainty in decision making;
when the organization produces a broad range of products or
services, or offers those outputs to a large
number of different markets, and there is considerable
complexity in decision making: and when there is
reciprocal interdependence among the tasks in the organization’s
technical core and there is considerable
pressure on communication and coordination systems. Third, and
finally, there must be pressures for
shared resources. When customer demands vary greatly and
technological requirements are strict, valuable
human and physical resources are likely to be scarce. The matrix
works well under those conditions because
in facilitates the sharing of scarce resources. If any of the
foregoing conditions is not met, a matrix
organization is likely to fail.
Process-Based Structures:
A radically new logic for structuring organizations is to form
multidisciplinary teams around core processes,
such as product development, order fulfillment, sales
generation, and customer support. As shown in
Figure 45, process-based structures emphasize lateral rather
than vertical relationships. All functions
necessary to produce a product or service are placed in a common
unit usually managed by someone called
a “process owner.” There are few hierarchical levels, and the
senior executive team is relatively small,
typically consisting of the chair, the chief operating officer,
and the heads of a few key support services
such as strategic planning, human resources, and finance.
Figure 45: The Process-Based Structure
Process-based structures eliminate many of the hierarchical and
departmental boundaries that can impede
task coordination and slow decision making and task performance.
They reduce the enormous costs of
managing across departments up and down the hierarchy.
Process-based structures enable organization to
focus most of their resources on serving customers, both inside
and outside the firm.
The use of process-based structures is growing rapidly in a
variety of manufacturing and service companies.
Typically referred to as “horizontal” “boundary less,” or
“team-based” organization, they are used to
enhance customer service at such firm as American Express
Financial Advisors, The Associates, Duke
Power. 3M, Xerox, General Electric Capital Services, at id the
National b Provincial building Society in
time United Kingdom.
Although there is no one right way to design process- based
structures, the following features characterize
this new form of organizing.
Processes drive structure.
Process-based structures are organized around the
three to five key processes
that define the work of the organization. Rather than products
or functions, processes define the structure
and are governed by a “process owner.” Each process has clear
performance goals that drive task
execution.
Work adds value.
To
increase efficiency, process—based structures simplify and enrich work
processes.
Work is simplified by eliminating nonessential tasks and
reducing layers of management, and it is enriched
by combining tasks so that learns perform whole processes.
Teams are fundamental.
Teams are the key organizing feature in a
process- based structure. They manage
everything from task execution to strategic planning, are
typically self-managing, and are responsible for
goal achievement.
•
Customers define
performance.
The primary goal of any
team in a process-based structure is customer
satisfaction. Defining customer expectations and designing team
functions to meet those expectations
command much of the team’s attention. The organization must
value this orientation as the primary path to
financial performance.
Teams are rewarded for performance.
Appraisal systems focus on measuring team
performance against
customer satisfaction and other goals, and then provide real
recognition for achievement. Team-based
rewards are given as much, if not more, weight than is
individual recognition.
Teams are tightly linked to suppliers and customers.
Through designated members, teams have timely
and direct relationships with vendors and customers to
understand and respond to emerging concerns.
Team members are well informed and trained.
Successful implementation of a process-based
structure
requires team members who can work with a broad range of
information, including customer and market
data, financial information, and personnel and policy matters.
Team members also need problem solving
and decision-making skills and abilities to address and
implement solutions.
Table 15
lists the
advantages and disadvantages of process-based structures. The most frequently
mentioned advantage is intense focus on meeting customer needs,
which can result in dramatic
improvements in speed, efficiency, and customer satisfaction.
Process-based structures remove layers of
management, and consequently information flows inure quickly and
accurately throughout the
organization. Because process teams comprise different
functional specialties, boundaries between
departments are removed, thus affording organization members a
broad view of the work flow and a clear
line of sight between team performance and organization
effectiveness. Process-based structures also are
more flexible and adaptable to change than are traditional
structures.
Table 15: Advantages, Disadvantages, and Contingencies of the
Process-Based Form
Advantages Disadvantages Contingencies
• Focuses resources on customer
satisfaction
• Improves speed and efficiency,
often dramatically
• Adapts to environmental change
rapidly
• Reduces boundaries between
departments
• Increases ability to see total
work flow
• Enhances employee
involvement
• Lowers costs because of less
overhead structure
• Can threaten middle managers
and staff specialists
• Requires changes in commandand-
control mindsets
• Duplicates scarce resources
• Requires new skills and
knowledge to manage lateral
relationships and teams
• May take longer to make
decisions in teams
• Can be ineffective if wrong
processes are identified
• Uncertain and changing
environments
• Moderate to large size
• Non-routine and highly
interdependent technologies
• Customer-oriented goals
A major disadvantage of process-based structures is the
difficulty of changing to this new organizational
form. These structures typically require radical shifts in
mindsets, skills, and managerial roles — changes
that involve considerable time and resources and can be resisted
by functional managers and staff
specialists. Moreover, process-based structures may result in
expensive duplication of scarce resources and,
if teams are not skilled adequately, in slower decision making
as they struggle to define and reach
consensus. Finally, implementing process-based structures relies
on properly identifying key processes
needed to satisfy customer needs. If critical processes are
misidentified or ignored altogether, performance
and customer satisfaction are likely to suffer.
Table 15 shows that process-based structures are particularly
appropriate for highly uncertain environments
where customer demands and market conditions are changing
rapidly. They enable organizations to manage
non-routine technologies and coordinate work flows that are
highly interdependent. Process-based
structures generally appear in medium- to large-sized
organizations having several products or projects.
They focus heavily on customer-oriented goals and are found in
both domestic and global organizations.
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