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8
Organizing
Learning Objectives
Organization
Architecture
• Organization architecture: The totality of a firm’s
organization, including formal organization structure,
control systems, incentive systems, organizational culture,
and people.
Organization
Architecture
• Controls: Metrics used to measure the performance of
subunits and to judge how well managers are running those
subunits.
• Incentives: Devices used to encourage desired employee
behavior.
• Organizational culture: Values and assumptions that are
shared among the employees of an organization.
• People: The employees of an organization, the strategy used
to recruit, compensate, motivate, and retain those individuals,
and the type of people they are in terms of their skills, values,
and orientation.
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Organization
Architecture
Structure
Culture
8-7
Designing Structure
Centralization Versus
Decentralization
• Centralization: The concentration of decision-
making authority at a high level in a management
hierarchy.
Arguments for
Centralization
• Centralization can facilitate coordination.
• Centralization can help ensure that decisions are
consistent with organizational objectives.
• Centralization can avoid duplication of activities by
various subunits within the organization.
• By concentrating power and authority in one
individual or a management team, centralization can
give top-level managers the means to bring about
needed major organizational changes.
8 - 10
Arguments for
Decentralization
• Top management can become overburdened when
decision-making authority is centralized.
• Motivational research favors decentralization.
• Decentralization permits greater flexibility—more
rapid response to environmental changes.
• Decentralization can result in better decisions.
• Decentralization can increase control.
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Centralization vs.
Decentralization in
Purchasing
• Centralize for greater cost control and corporate
leverage
• Decentralize for nimbler procurement
responsiveness
• Centralize procurement of common products
• Decentralize procurement of specialized products
• Align purchasing structure with corporate
strategy, structure, and size
Source: Global Best Practices, Pricewaterhousecoopers
8 - 12
Question
Decentralization
argument works for
large businesses. For a
small business, it is
better to have
centralization. Do you
agree? Explain.
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Decentralization
and Control
The Starfish
and the Spider
• Ori Brafman and Rod Beckstrom show why businesses need to
embrace their own decentralized systems in their book called
The Starfish and the Spider.
• The book's central metaphor recognizes that if you cut the leg
off of a spider, you have at best a (crippled) spider. But if you
cut off the leg of a starfish, the starfish will grow a new leg.
• Traditional centralized organizations are the spiders, and
traditional decentralized organizations are the starfish.
Tall Versus
Flat Hierarchies
Flat at IDEO
Problems in
Tall Hierarchies
• There is a tendency for information to get accidentally
distorted as it passes through layers in a hierarchy.
Types of Structures
Hybrid Structure
at Ranbaxy
Ranbaxy Laboratories – An India-based generic drug maker
• The company redesigned the organization in
internationalizing its operations
• Developed a hybrid structure: it placed R&D in a global unit
and other functions in several geographic units.
• Result: Ranbaxy's managers adopted a global mind-set and
began spending a substantial amount of time in their most
important market—the United States.
Formal Integrating
Mechanisms
• Direct contact: This is the simplest integrating mechanism. Managers
of the various subunits just contact each other whenever they have a
concern.
• Liaison roles: This is a bit more complex than direct contact. As the
need for coordination between subunits increase, integration can be
improved by assigning a person in each subunit to coordinate with another
subunit.
• Teams: When the need for coordination is greater still, firms use
temporary or permanent teams composed of individuals from the subunits
that need to achieve coordination.
• Matrix structure: When the need for integration is very high, firms
may institute a matrix structure, in which all roles are viewed as integrating
roles.
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Integrating
Mechanisms
High Matrix
Favored by firms in structure
rapidly changing and
high-technology
Need for coordination
environments
Teams
Liaison
roles
Favored by firms
Direct
in stable and
contact
low-technology
environments
Centralization
Low
Simple Complex
Integrating mechanisms
8 - 22
Question
Informal Integrating
Mechanisms: Knowledge
Networks
• Knowledge network: A network for transmitting
information within an organization based on informal contacts
between managers within an enterprise and on distributed
information systems.
G
B E
C D
A F
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