Management MCO101 – Unit 5 – Organisational Structure and Strategy
Organizational structures developed from the ancient times of hunters and collectors in tribal organizations through highly royal and clerical power structures to industrial structures and today’s post-industrial structures. It is usually assumed that hierarchies developed when settled farmers started to produce an excess of crops – i.e. more than they and their families needed – and trading and cities established. People in cities do not grow crops, they trade and administer and govern and tax. This was the origin of management and administration as discussed in the first unit.
Amongst the ways in which they are structured are according to:
- Function – functional structures group employees together based upon the functions of specific jobs within the organization
- Matrix – these structure groups employees by both function and product.
- Customer – structure groups employees by market segments.
- Geographic – structures groups according to region or country
Organizational structure in most companies follow their growth patterns; A simple structure in the beginning – the family business for instance, with the mother or father as the leader. A more defined functional structure as the company grows. Here we would witness the beginning of job specialization. a product based division structure or Area based division structure as the company becomes multinational, and a Transnational network or a Matrix structure as the company becomes a global giant.
Along with the evolution of the company structure along with growth, Organizations are structured to reflect and implement the corporate strategy. This for long has been the chosen way to organize the company. In the recent years, innovative organizational structures have been explored, GE’s “Boundaryless Organization” where the boundary within the organization is more flexible and more permeable allowing a faster knowledge transfer. Other types of structures have been “Modular organizations” and “Virtual Organizations”, these organizational ideas also revolve around knowledge sharing for better operational decision making.
Modular, Virtual, and Boundary less organizational structures are optimized for faster information creation and sharing. In today’s information driven world, it makes sense to have an organizational structure to exploit faster movement of information.
The underlying philosophy of all the new organizational structures is the value chain of the company.
“Value Chain Analysis provides a useful framework for dividing the firm’s activities into a set of distinct activities which add value.” – G. Dess and et al.
Modular Organizations: These rely on outsourcing any (or all) non-critical functions i.e., which does not affect the company’s long term competitive advantages. Outsourcing enables company to remain small, use relatively small amounts of capital, have a small management team and yet achieve seemingly unattainable goals. Such organizations keep their core value chain activities in-house, i.e., those that add value to the company and stakeholders and outsource any activity which adds no value or minor value to its activities.
For example, Xilinx, a leading programmable logic chip maker outsource manufacturing and some IT support functions. For Xilinx, major value addition takes place in R&D of the products and in customer interaction areas. Xilinx’s customers value its support in form of design assistance, FPGA logic synthesis, logic functionality, timing and software. Xilinix helps its customers bring their designs to market, have flexibility in the final product design and beat the narrow time-to-market window. This high level of customer interaction and in cases a handholding and guiding customers to achieve their aims adds value. Manufacturing of the chips itself does not add any significant value for Xilinx. Accordingly, the organizational structure at Xilinx follows their value chain Model.
Virtual Organizations. Many companies form strategic alliances with customers, suppliers and even competitors to build new capabilities. Thus the organization appears to have more capabilities than it really possesses. Strategic alliances forms a network of organizations. Firms in this network of organizations may be performing a different value creating activities such as production, R&D, IT infrastructure support, distribution etc. Each company in the network offers its core competence as a service to other member in the network. The alliances in this network need not be permanent and the alliances are maintained as long as it meets the goals and objectives.
Virtual organizations by nature do not have absolute strategic control, every member in the network becomes interdependent on one other. In such a frame work, companies can win only when the other members in the alliance win. This strategic interdependence makes the alliances work for everyone’s gain. Interdependence will be built up over a period of time if organizations learn from each other as to what the other member in the alliance wants in future and builds up the required capability to do so.
Organizational culture comprises the attitudes, experiences, beliefs and values of an organization.
Edgar Schein, an MIT Sloan School of Management professor, defines organizational culture as:
“A pattern of shared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way you perceive, think, and feel in relation to those problems”.
According to Schein, culture is the most difficult organizational attribute to change, outlasting organizational products, services, founders and leadership and all other physical attributes of the organization. His organizational model illuminates culture from the standpoint of the observer, described by three cognitive levels of organizational culture.
1. At the first and most cursory level of Schein’s model is organizational attributes that can be seen, felt and heard by the uninitiated observer. Included are the facilities, offices, furnishings, visible awards and recognition, the way that its members dress, and how each person visibly interacts with each other and with organizational outsiders.
2. The next level deals with the professed culture of an organization’s members. At this level, company slogans, mission statements and other operational creeds are often expressed, and local and personal values are widely expressed within the organization. Organizational behavior at this level usually can be studied by interviewing the organization’s membership and using questionnaires to gather attitudes about organizational membership.
3. At the third and deepest level, the organization’s tacit assumptions are found. These are the elements of culture that are unseen and not cognitively identified in everyday interactions between organizational members. Additionally, these are the elements of culture which are often taboo to discuss inside the organization. Many of these ‘unspoken rules’ exist without the conscious knowledge of the membership. Those with sufficient experience to understand this deepest level of organizational culture usually become acclimatized to its attributes over time, thus reinforcing the invisibility of their existence. Surveys and casual interviews with organizational members cannot draw out these attributes–rather much more in-depth means is required to first identify then understand organizational culture at this level. Notably, culture at this level is the underlying and driving element often missed by organizational behaviorists.
Structural change and Process change
Organizational structure varies but is best understood by organisational charts detailing key personnel in different locations within the firm. They may be ordered according to their roles or tasks, their managerial or operative level, or even where they are located geographically. Organizational structure depends on the product to be developed. Wheelwright and Clark define a continuum of organizational structures between two extremes, functional organizations and project organizations.
Functional organizations are organized according to technological disciplines. Senior functional managers are responsible for allocating resources. The responsibility for the total product is not allocated to a single person. Coordination occurs through rules and procedures, detailed specifications, shared traditions among engineers and meetings (ad hoc and structured). Products that need a high level of specialized knowledge require a functionally organized structure.
Processes are the ordered set of activities which are used to generate the outputs of an organisations. Michael Hammer and James Champney define a business process as, “a collection of activities that take one or more kinds of input and creates an output that is of value to the customer.” (1995:35)
“If you want people to do a good job, give them a good job to do.”
Every manager must know the relationship between how organisation being structured, the job within and the linkages to organisational processes.
The theory of job design is an important concept in business management and has been well known in the private sector for over 30 years. According to its proponents, workers are motivated by jobs in which they feel they can make a difference—and jobs can be designed with that in mind. An employee may take on a whole position involving many tasks, or a reduced number of tasks, depending on ability, time allotment and other constraints.
Put simply, “job design refers to the way tasks are combined to form complete jobs”. Using job design principles results in clear job descriptions, a motivated workforce and successful completion of tasks. People are assigned to a job because they are perceived to be able to fill its requirements. From an employer’s perspective, the employee knows exactly what to do and is accountable. From the employee’s perspective, the job requirements and responsibilities are clear. A contractual element—through either a position description or the employment contract—ensures that both employer and employee have a shared understanding of the work to be done.
Job design theory has a basis in the work of a number of key researchers. Psychologist
A. H. Maslow identified a hierarchical scheme of five basic needs that motivate people: to stay alive, to be safe, to be with others, to be respected and to do work that corresponds to our gifts and abilities.
Frederick Herzberg, a noted behavioural scientist, distinguished between what he called the maintenance and the motivational factors that affect job satisfaction (Herzberg’s Two-Factor Theory). Maintenance factors include salary, administrative policies and working conditions. On their own, maintenance factors cannot provide job satisfaction, although they can be reasons for job dissatisfaction. On the other hand, motivational factors include a sense of achievement, the perceived importance of the work, job autonomy and skill development. Workers respond positively to the importance of the work they are doing and an opportunity for living up to their potential (Bittel and Newstrom).
Based on these theoretical underpinnings, job design methodology has been developed for and by larger organizations to handle the challenges associated with employing a large number of people in a wide variety of capacities. Among features of the modern workplace that come out of the job design model are flextime, job-sharing, job rotation and the compressed workweek. All of these can lead to more autonomy for the worker and thereby tend to increase job satisfaction.
In addition to revisiting the organization’s mission statement, there may be other tools
to help you identify functions in your association, including strategic plans, budget
documents, contracts, job descriptions and promotional materials. Start with whatever
you have. Some points to consider:
■ Are the functions described in these tools still relevant to what your organization is
trying to accomplish? When were they last reviewed? If most of the functions are still relevant, proceed with the task analysis process. Don’t delay job design unnecessarily to embark on a long-term planning process.
■ Are there any activities identified in your planning tools that aren’t being done?
This could mean one of two things: either you need to update the documents and
let both the organization and its stakeholders know that the organization is engaged
in that work OR you need to make the recruitment, training and delivery of those
activities a priority?
■ Have you identified any new functions that your organization is ideally suited to
undertake, if you had the resources and people to assign to them?
Having identified the general functions of the organization, consider the components
and tasks of each. As in every instance where we are asked to adopt a ‘model’ for doing something, remember that it is not that important to define functions, components and tasks to a highly technical degree. The point is to break down the work of the organization into manageable pieces for the purposes of creating a series of work assignments.
Since the fundamental building block for the work of the organization is found at the level of tasks the following theory may be helpful as you commence the breakdown process. Job design theory presents three elements to our consideration of ‘tasks’:
■ Task analysis
■ Task identity
■ Task significance
Task analysis identifies and describes every task to be performed on each job, the skills necessary to perform those tasks, and the minimum acceptable standards of performance (Dolan and Schuler, p.608). For example a paid ‘Office Manager’ might carry out a range of tasks from reception duties, to mailroom, to bookkeeping and general office management. While it is reasonable to expect to be able to hire a person who can speak both English and French (in order to be able to do the reception part of the job), have good technical abilities (for the mailroom) and some bookkeeping experience, it could be a tall order to find a volunteer with such a mix of skills and the time/interest to be able to carry out such a range of tasks. It is more likely that by breaking down the function of Office Management into three or more tasks—reception, bookkeeping, mailroom—that a series of attractive volunteer assignments will emerge.
The principle of task identity involves designing tasks with clear start and end points and plainly articulated purposes—this task will produce result X. In this way, when individual workers carry out the task they are given responsibility to handle it from beginning to end, taking ownership of the product or outcome. Task identity allows volunteers to put their work in context and in measurable terms: for example, “I answer the phones and track the calls” is more specific than a vague, “I’m an office worker.” And when workers track the 300th call, or finish their three-week assignment on the phones, they have something quantifiable to show for their efforts.
Finally the principle of task significance refers to the relevance of a role within the scheme of the organization. Identifying the significance of the task results in a clear understanding between employer and employee of why the work assignment is important, and how the task contributes to the achievement of the organization’s goals.
Task significance can be further enhanced through having the volunteers form positive relationships with those they serve, whether clients of the organization, or others within the organization who rely on volunteers. This may also require having the volunteer determine specific feedback criteria with the client or user.
Business Process Reengineering
Davenport (1992) prescribes a five-step approach to the Business Process Reengineering model:
- Develop the business vision and process objectives: The BPR method
is driven by a business vision which implies specific business objectives
such as cost reduction, time reduction, output quality improvement.
- Identify the business processes to be redesigned: most firms
use the ‘high-impact’ approach which focuses on the most important processes
or those that conflict most with the business vision. A lesser number of
firms use the ‘exhaustive approach’ that attempts to identify all the processes
within an organization and then prioritize them in order of redesign urgency.
- Understand and measure the existing processes: to avoid the repeating
of old mistakes and to provide a baseline for future improvements.
- Identify IT levers: awareness of IT capabilities can and should
- Design and build a prototype of the new process: the actual design
should not be viewed as the end of the BPR process. Rather, it should be
viewed as a prototype, with successive iterations. The metaphor of prototype
aligns the Business Process Reengineering approach with quick delivery of
results, and the involvement and satisfaction of customers.
We have spoken much about decision-making and choice – strategy is about choice.
It affects outcomes. Organizations can often survive – indeed do well – for periods of time in conditions of relative stability, low environmental turbulence and little competition for resources. Virtually none of these conditions prevail in the modern world for great lengths of time for any organization or sector, public or private. Hence, the rationale for strategic management. The nature of the strategy adopted and implemented emerges from a combination of the structure of the organization (loosely coupled or tightly coupled), the type of resources available and the nature of the coupling it has with environment and the strategic objective being pursued.
We have also already discussed how organisations are always involved in a variety of change, and this is not just confined to internal projects, for example it could also encompass interaction with suppliers and customers. The change being undertaken by organisations now is inherently complex and often impacts diverse stakeholder groups both internally and externally.
As the change portfolio grows the level of complexity grows with it, with many organisations now finding it difficult to understand and track the plethora of change initiatives underway. An added complexity is a reduction in manpower: when rapid and complex change is needed the skilled resources required to deliver it are at their scarcest.
Strategic change management is the process of delivering the strategy of an organisation in a controlled, efficient and effective manner. Strategic change management is not about the delivery of a single project or monitoring business as usual activities. Strategic change management is the process of governing a portfolio of programmes, projects and initiatives within the context of a wider strategy for the organisation. The purpose of the whole exercise is to deliver value to the organisation, and there are three key groups of people who will need to work together to achieve this aim.
When you conduct a situational analysis, you will always find that there are more situations that need attention than you can possibly address within the constraints of the available time, money, and other resources. Thus it is necessary to make proactive decisions about program priorities. Once the firm has specified its objectives, it begins with its current situation to devise a strategic plan to reach those objectives.
Changes in the external environment often present new opportunities and new ways to reach the objectives. An environmental scan is performed to identify the available opportunities. The firm also must know its own capabilities and limitations in order to select the opportunities that it can pursue with a higher probability of success. The situation analysis therefore involves an analysis of both the external and internal environment.
The external environment has two aspects: the macro-environment that affects all firms and a micro-environment that affects only the firms in a particular industry. The macro-environmental analysis includes political, economic, social, and technological factors and sometimes is referred to as a PEST analysis.
An important aspect of the micro-environmental analysis is the industry in which the firm operates or is considering operating. Michael Porter devised a five forces framework that is useful for industry analysis. Porter’s 5 forces include barriers to entry, customers, suppliers, substitute products, and rivalry among competing firms.
The internal analysis considers the situation within the firm itself, such as:
* Company culture
* Company image
* Organizational structure
* Key staff
* Access to natural resources
* Position on the experience curve
* Operational efficiency
* Operational capacity
* Brand awareness
* Market share
* Financial resources
* Exclusive contracts
* Patents and trade secrets
A situation analysis can generate a large amount of information, much of which is not particularly relevant to strategy formulation. To make the information more manageable, it sometimes is useful to categorize the internal factors of the firm as strengths and weaknesses, and the external environmental factors as opportunities and threats. Such an analysis often is referred to as a SWOT analysis.
Factors to Consider
Some of the factors to be considered in conducting a situational analysis are:
* County or community demographics
* The economic structure of the county and its individual communities
* Topographical and other physical characteristics of the county or a specific area
* Governmental, public, private, community, and other support systems available
* Characteristics of the population, including:
o educational levels
o cultural characteristics
o life styles and living standards
o primary occupations
o income levels
o communities and their distinguishing characteristics
o mobility and rates on inflow and outflow of citizens
o services available
o any other aspect of society that may be useful in assessing factors such as attitudes, motivation, and other characteristics of individual learner groups.
Porter’s five forces model
Porter’s 5 forces analysis is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979 . It uses concepts developed in Industrial Organization (IO) economics to derive 5 forces that determine the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry profitability. An “unattractive” industry is one where the combination of forces acts to drive down overall profitability. A very unattractive industry would be one approaching “pure competition”. Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist of those forces close to a company that affect its ability to serve its customers and make a profit. Read more here.
The original work on Positioning was consumer marketing oriented, and was not as much focused on the question relativity to competitive products as much as it was focused on cutting through the ambient “noise” and establishing a moment of real contact with the intended recipient. In the classic example of Avis claiming “No.2, We Try Harder”, the point was to say something so shocking (it was by the standards of the day) that it cleared space in your brain and made you forget all about who was #1, and not to make some philosophical point about being “hungry” for business.
The expression adaptive strategies is used by anthropologist Yehudi Cohen to describe a society’s system of economic production. Cohen argued that the most important reason for similarities between two (or more) unrelated societies is their possession of a similar adaptive strategy. In other words, similar economic causes have similar sociocultural effects.
For example, there are clear similarities among societies that have a foraging (hunting and gathering) strategy. Cohen developed a typology of societies based on correlations between their economies and their social features. His typology includes these five adaptive strategies: foraging, horticulture, agriculture, pastoralism, and industrialism
The modern myths about entrepreneurs include the idea that they assume the risks involved to undertake a business venture, but that interpretation now appears to be based on a false translation of Cantillon’s and Say’s ideas. The research data indicate that successful entrepreneurs are actually risk averse. They are successful because their passion for an outcome leads them to organize available resources in new and more valuable ways.
Entrepreneurship: the process of entering new or established markets with new goods or services.
Intrapreneurship: entrepreneurship within an existing organisation.
Entrepreneurial orientation: the set of processes, practices, and decision-making activities that lead to new entry.
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