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Four Key elements of organizational structure
- Specialization
- Formalization
- Centralization
- Hierarchy
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Mechanistic vs. organic organizations – pros of Mechanistic
- High levels of efficiency, standardization and predictability
- Well-suited for top-down strategic planning
- Well-suited for cost leadership strategies
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Mechanistic vs. organic organizations – pros of Organic
- Higher flexibility, adaptability, willingness and ability to innovate
- High employee engagement and motivation
- Well-suited for emergent strategy
- Well-suited for differentiation
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The complexity of the organizational structure increases as firms grow – 4 types of structure
- Simple
- Functional
- Multidivisional
- Matrix
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Simple structure- Implications
- Generally applicable for very small companies
- As the company grows in complexity and headcount, the sheer volume of information/decision making may overwhelm the founder (bottleneck)
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Functional structure- Implications
- Can be flexibly adapted to both cost leadership and differentiation strategies
- Generally best applicable for single product (class), single geography company; has issues once the company expands geographically or diversifies
- functional silos; cross-functional teams often needed to supplement coordination
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Multidivisional (M-form) structure- Implications
- Significant autonomy for the business units can ensure their adaptability to multiple markets without overburdening the CEO
- duplication of functions (Loss of economies of scale, synergies in learning)
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Cooperative multidivisional form vs Competitive multidivisional form
- Centralized VS Decentralized decision-making and low level of integration at the corporate headquarters
- high VS low level of integration at the corporate headquarters
- Both: Competition for resources from the internal capital markets
- Cooperative: Cooperation in competency sharing
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Matrix organization – Implications
- combine local responsiveness and focus with global vision
- economies of scale
- multiple reporting relationships create ambiguity
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Different global strategies (4 types) require different organizational structure
- International strategy: functional
- Multidomestic strategy: Multidivisional around geographic areas (decentralized)
- Transnational strategy: matrix
- Global (standardization) strategy: Multidivisional around product (centralized)
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The creation of corporate culture
- Founder imprinting
- Environmental imprinting
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Culture can get perpetuated by…
- Selective attraction & recruitment
- Selective promotion & retention
- Socialization
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Culture can get changed by…
- Big change in the group composition
- Value change from the top
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Benefits and drawbacks of strong culture
- inspire much commitment and attachment
- motivate the employees
- effective shared guide to action and facilitate coordination
- group-think and failure to take advantage of opportunities or spot threats
- create resistance to change (core rigidities, detrimental when the organization faces turbulent environment)
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Different types of controls – eg
- Budgets
- Standard operating procedures
- Values and norms
- Targets and goals
- Quality control
- Annual assessments
- Peer monitoring
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incentive system is key to reinforcing desirable employee behaviors – eg
- Retention
- Monetary incentives
- Promotion possibilities
- Peer acceptance and respect
- Intrinsic motivations
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