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Restructuring Organizations

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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