Ch8 ORG designs and new forms of service-driven.docx

Ch 8 ORG designs and new forms of service-driven ORGs Macro – large scale organizational design issues. Concerned with how managers put people together to co-ordinate their work to achieve ORG goals. A company’s structure resolves two of the basic tasks of getting the work done 1. Dividing up the work in ORG 2.) Ensuring work gets done by providing coordination and control of employee activities. How do managers tackle the problem of creating an effective ORG Design? The ORG arrangements include 1. Division of labor 2. Allocation of authority 3. Departmentalization 4. Span of control Mechanistic ORG – Posses tight rules and policies. Limited individual job discretion and formal and written coordination.1. Have high division of labor, 2. Low delegation of authority 3. Great uniformity of work 4. Narrow spans of control. Organic ORG – less job specialization, greater delegation of authority, low uniformity, wide span of control. 1. Employees have few rules and procedures, 2. Expect face to face or informal coordination 3. Expect to be empowered Division of labor – degree of job specialization. Type of work performed, work method or process used. Makes companies effective because managers break down jobs into subtasks at which employees develop expertise through repetition. Delegation of authority – is a manger decision on how much authority to give a subordinate. Why delegate authority? Represents manager giving up part of his job. Can’t do it all will need to accomplish goals through others efforts. Getting more authority is a powerful motivator (Intrinsic reward) which raises employee effort. Principles of delegation of authority – 1. For each responsibility delegated an equal amount of authority must be given. 2. All decisions must be delegated to the lowest ORG level possible. 3. Practice management by exception 4. Should tell teams or subordinates what to do but also how to do. 5. Subordinates responsibility to the manager is absolute and managers can not escape responsibility for the performance of their subordinates. Departmentalization – how work activities are grouped together. Logical grouping of work activities to create divisions. Advantages of functional design – 1. Logical reflection of firms design. 2. Based on specialization – which is efficient 3. Efficient because individuals learn to speak the same a common language. 4. Minimized the duplication of effort 5. Training is narrowed and simplified 6. Facilitates tight control and legitimate authority Disadvantages of functional design – 1. Overspecialization 2. Development of managers limited to functional area. 3. Coordination between departments can weaken 4. Employees identify more strongly with the department than the culture of firm. 5. CEO may be overburdened 6. Managers may fail to develop strong focus on customer’s products or markets. Territorial design – groups based on geographic area. Advantages – 1. Tailors work units to features of a region 2. Provides excellent training grounds for managers as they are assigned to different regions. 3. Excellent basis for career development for managers 4. Creates workgroups highly responsive to specialized customer needs. Disadvantages – danger of duplication of effort serving territories and regions, must hire managers who are capable of handling several functions. Product divisional design – diversified product lines. ADV – 1. Provides adaptability and flexibility in meeting customer demands. 2. External changes can be detected more readily and understood in product terms. 3. Employees gain deep understanding of product and market char. 4. Encourages the development of separate business units - friendly competition 5. Performance measures are easy to create. 6. Burden of general management shifts to divisional managers. Disadvantages – product divisional can duplicate effort and resources as they attempt to solve similar problems. 2. Finding and training people to head divisions is difficult 3. Conflicts can arise in joint venture – sharing resources and agreeing on transfer prices. Matrix departmentalization – overlays a project or product design on a functional design. Advantages 1. Combines strengths of product and functions 2. Blends an emphasis on market changes in a given product or project area. 3. develops managers with technical knowledge who can communicate efficiently with marketing, production, and personnel form other departments. 4. Self contained department can devote undivided attention to needs to its products, projet or customer. 5. Can focus on specific products without creating permanent units. Disadvantages – 1. Confusing as employees do not know who their real boss is. 2. Requires excellent planning and resource allocation. 3. PM’s must have excellent technical, communication and management skills. 4. may lead to excessive costs because projects may over hire technical and support staff. Span of control - # of people who report to a manager. Three factors affect a manager’s span of control 1. Required contact 2. degree of specialization (spans narrow further up in the org – less specialization. 3. ability to communicate ORGANIZATIONAL STRUCTURE – two basic components of organization structure 1 decentralization (pushing authority down ORG chain) management decision to delegate authority. Powerful forces for decentralization 1. shareholders demand for higher returns. 2. increasing global competition 3. repeat buys demanding higher service and quality 4. technical advances that support highly delayed structure. Outsourcing is the ultimate end point of decentralization. and centralization retention of authority to make decisions by top management. Very formalized and standardized. All employees follow uniform procedures. Decision making is centralized by rules and regulations. Firm creates more control by adding layers causing the # of managers and admits to grow and is a cause for rising costs. Interorganizational designs – 2 types 1. Conglomerates (involve diversification – holding company that acquires may other unrelated companies – in Japan they are called keiretsu) 2. Strategic alliances (joint venture) – a form of interorganizational design. Corporate agreement between two firms. Drawback – strategic alliances require coordination through meetings and task forces. deciding what to share and what remains and what is proprietary. , overcoming cultural and language barriers. Rising above trust and suspicion. Depending too much on skills and expertise of others. Formalization of rules and regulations often promotes job dissatisfaction except for employees who have a strong need for job security. Spans that are too wide can cause communication and coordination problems. 2. Coordination and control. – To ensure outcomes managers must create coordination and control. Critical determinant of coordination is the amount of information which must be processed during task execution. Stable environments require less coordination. Firms operating in stable environments were more centralized with greater standardization and formalizations. Vertical coordination – strengthens the link between ORG levels. Tools used for vertical coordination: 1. Teams and task forces (create more group based decision making) Collateral organization – is a parallel co-existing arrangement which supplements formal hierarchy. Works on problems that cut across the organization. Broader than a task force. 2. Use direct supervision – chain of command. 3. use standardization of work processes – makes it harder for firms to utilize self directed teams. 4. Use standardization of outputs – 5. Use performance appraisal – can be used to control individual performance and to communicate work expectations and goals to employees. 6. create a management information system – providing early warning signals, providing information to assist decision making, conducing programmed decision making, automating routine clerical functions Areas that benefit most from MIS are – inventory management, accounts payable, purchasing, production control, and project control. Horizontal coordination - ensure orderly processing of company’s workflow. Mechanisms used – 1. Direct contact 2. use liaison roles. 3. cross functional teams (temporary task force) 4. permanent teams to manage recurring workflow problems – Control in the organization – control is the set of mechanisms used to keep action and outcomes within predetermined limits. It is the setting of work standards, measuring against plans and initiating coercive action. Process control – standardization of task performance. Managers view process control for achieving efficiencies and employees see process control as mindless formalizations. Companies that have shifted to internally based process control (Total quality Management (TQM) and self-directed teams were able to get a competitive jump. Results control – MBO, used to gain output controls in firms. MBO systems try to ensure that managers set specific measurable goals, monitor progress towards these goals. And receive rewards based on their accomplishments. MBO relies on superior-subordinate meetings to 1. establish goals 2. review goals and results. 3. resolve conflicts and take corrective actions. MBO experts believe 3 properties are critical to an MBO 1. Knowledge of what is expected 2. knowledge of results (performance feedback) 3. function of superior (must provide work oriented feedback not personality oriented) Steps in MBO 1. establish goals and action plans 2. discuss and ensure goals are understood. 3. one-on-one meetings to ensure goals are specific. 4. jointly establish outcome criteria. 5. periodic formal / informal feedback 6. goals are documented 7. goals are cascaded down the hierarchy. And become more specific and quantified at lower levels. left000Problems with MBO: 1. Employees can develop tunnel vision about results and may not give attention to how task activities shoud be done. 2. MBO degenerates into a paper chase. 3. superiors fall into either a punish or reward mentalilty regarding resutls achieved by subordinates. Collabrative aspects of the system are lost if employees have too many golas or they are worried about their own specific goals. Understanding the responsive organization: New actions to capture competitive advantage: simplify and delayer Reassign supporting staff employees. wider span of control Empower the workforce. Create team based work system. Let self directed teams makes the following decisions Recruiting, hiring, performance evaluation and termination. 2. Budgeting, 3. Making capital acquisition proposal 4. Handling quality control, trouble shooting and problem solving.5 developing numerical standards for productivity and quality. 6. Suggest new products and development of prototypes. 7. Working with other teams from sales, marketing, and product development. Boundary less organization – in which traditional vertical and horizontal boundaries are made more permeable and flexible by using self-directed teams, technology sophistication, responsiveness to customer, outsourcing and strategic alliance. Authority boundary – natural distinction between leaders and followers in firms. Task boundary – when someone decides who must do what when departments work together. Biggest threat is how managers view costs versus investment. Political boundary – made of political agenda which can divide company units and create conflicts. Identity boundary – consists of employee shared experiences and beliefs which set them apart from rest of the company. Drivers of growth in customer service: 1) Differentiating service is often easier and faster than differentiating products in terms of physical characteristics. 2. Customers demand better quality. 3. Service improvements strengthen brand loyalty and erect market segment and industry entry barriers. 4. Bad service quickly drives off customers and lowers or erases profits. How good service retains customers – Producing and developing services differs from manufacturing and selling products in several distinctive and important ways; 1 not until service is demanded it is produced. Service units are immediately consumed and can not be restored. 2. Service is often provided by employees not under the direct supervision of supervisor. 3. Services are provided when and where the customer desires. 4. Services are labor intensive. 5. Service is intangible and its characteristics are more difficult to measure than features of a product. 6. Service is often produced in the presence of the customer who participates in the delivery process. “Moment of truth” occurs in service delivery when the customer encounters any aspect of firm and forms an opinion about the quality of its services and products. For a firm to achieve competitive advantage through service improvement the three factors described below must guide all changes in the firm’s mix. 1) Well conceived strategy for service. 2. Customer oriented front line people. 3. Customer friendly systems. At the heart of the service are the needs and expectations of customers as they themselves define them not the operating system or its constraints. Organizing principles of Service quality. 1. Classify the firm’s services on the client customer services spectrum. 2. Organize to improve service. 3 using employee empowerment. 4. Abandon manufacturing assumptions in service quality delivery. Creating a service driven organization: Steps 1 – conduct a service audit. Step 2 – develop a company wide service strategy Step 3 – conduct wall to wall employee training Step 4 – Implement the service improvement program. Step 5 – make the service improvements permanent Summary Points The four key aspects of organizational design are division of labor, allocation of authority, departmentalization and span of control. Mechanistic designs vary in terms of division of labor, allocation of authority departmentalization, and span of control. The mechanistic firm has high division of labor, low delegation of authority, uniform departments, and narrow spans of control. Organic designs have less division of labor, greater delegation of authority, and wider spans of control. Division of labor is a management decision to subdivide work. It can create economies of scale since people can specialize in certain tasks. This can be a factor in sustaining competitive advantage based on being a low cost producer. Delegation of authority is a management decision to give control of work activities and goals to employees. It is a necessary aspect of superior–subordinate relationships. There are five principles for effective delegation of authority. When done broadly across the firm, delegation of authority transforms to employee empowerment. The benefits of delegation of authority for the firm include: 1) development of competitive work climates, 2) increased employee creativity, 3) lowered costs through smaller staffs, 4) employee participation in decision making, and 5) more rapid employee development. Departmentalization refers to how work activities are grouped together. The four forms of departmentalization are: 1) functional, 2) territorial, 3) product, and 4) matrix. Large, complex firms blend all four forms of departmentalization in their designs. The choice of design is heavily influenced by the extent of environmental uncertainty. Many large corporations have developed successful product divisional structures only to find that integration of the product divisions has become difficult. This has led some of them to adopt more functional designs while trying to preserve the flexibility of the product divisional design. Organizational structure refers to the arrangement of roles and reporting relationships which govern employee behavior. Centralization refers to the retention of authority to make decisions by top management. Highly centralized firms exhibit high formalization, standardization and specialization. Administrative ratio is the number of managers and administrators in relation to the number of employees engaged in production. It generally rises as firms become more centralized and vertically complex. Formalization is the extent to which employees’ work is controlled by written documentation of rules, regulations and work procedures. Standardization is the degree to which behavior variation is allowed in a job or series of jobs. Outsourcing is contracting with outside firms for goods and services that support manufacturing, accounting functions purchasing, sales, customer service, product development and personnel practices. In some ways it resembles a strategic alliance. Decentralized organizations create work systems where authority is delegated to employees. They exhibit less formalization and standardization than centralized organizations. The decentralized organization presents specific strengths and weaknesses which must be matched to strategic decisions. Coordination refers to the set of mechanisms which managers employ to link the actions of organizational subunits to achieve a pattern of consistent outcomes. The extent of coordination necessary in the organization is determined by the amount of information to be processed during task accomplishment. Turbulent business environments create more information processing needs than placid environments. Vertical coordination can be enhanced by using groups, a collateral organization, direct supervision, standardized work processes, standardization of outputs, use of performance appraisal, and management information systems. Horizontal coordination can be facilitated by the use of direct manager contact, liaison roles, horizontal task forces, and permanent teams to manage recurring workflow problems. Interorganisational designs are conglomerates. Conglomerates can engage in related and unrelated diversification. Strategic alliances are cooperative arrangements between two firms and they are often used to help a company enter global markets. Keiretsu are Japanese conglomerates and they dominate the Japanese economy. Organizational control refers to the set of mechanisms used to keep action and outcomes within predetermined limits. Process control is the standardization of task performance. It can be achieved by specifying work methods and setting work standards. Process control can limit organizational flexibility if the firm operates in a turbulent environment. Further, it can be external or internal. External process control refers to organizational units that detect production process problems and correct them. Internal process control is based in self-directed teams that solve product or production problems with total quality management. Once all companies in an industry understand and use TQM, it ceases to be a basis for competitive advantage and simply becomes a rule of competition. Results oriented control refers to a system which achieves control by specifying the results to be obtained by employees and their work units. The most common form of results oriented control is management by objectives (MBO). MBO rests on superior–subordinate teamwork to: 1) establish goals, 2) review goal progress, and 3) resolve conflicts and take corrective action with respect to set goals. MBO capitalizes on the important motivational force of specifying outcomes to be obtained. MBO can create problems in organizations if the process of documenting and recording goals becomes more important than the goals themselves. Responsive firms are customer oriented and delayered. In them coordination is achieved through technology based communications. The primary emphasis is on revenue growth within a reasonable cost structure; but cost control is not a primary goal. Companies that use outsourcing to create lean staffs and increase the extent to which customers have contact with the firm. Boundary less firms use lean corporate staffs, wide management spans and empowered, self-directed teams. The complexity of service delivery requires the responsive firm to emphasize employee training, reward system design and improvements to the quality of the employment relationship. The client/customer service spectrum shows a firm the relationships among its types of service, the customer service provider interaction and the extent to which employees need more service training. This tool can be used by a firm wishing to enhance its competitive advantage through service quality improvement. Many firms go through downsizing and delayering prior to becoming responsive and service driven. The job insecurity created by these two activities makes employees reluctant to believe that their jobs can become more secure if the firm achieves greater service providing capabilities. In effect they doubt that there are increased profit opportunities in service customization. This attitude is a carryover from long held assumptions about the central importance of manufacturing efficiencies in profitability. This form of resistance to change must be managed and reduced. Manufacturing assumptions originate in scientific management. In scientific management the goal is to seal off operating systems from the effects of external uncertainty. This allows the firm to manage and control the rate of flow of factors of production through its transformation process (conversion of inputs to outputs). However, a major and less manageable source of external uncertainty is customer demand for service. To make service a source of profits, the firm must abandon the management and process assumptions that originate in scientific management. Job designs in the responsive, service driven firm require employees to recognize sales opportunities as they complete a customized service transaction. A customized service episode (based on the analysis of moments of truth) requires that employees have the authority and training to systems that are based on measurements of customer satisfaction, response times and cost effectiveness in service delivery. Service employee empowerment must be at the centre of the firm’s attempt to give frontline service employees the authority and training to deliver high quality service.