LP- 10

Mba 1E - 16 Dec 17 / Mba 6A – 20 Dec 17

• Ch 10 ---- Creating Effective Organizational

Designs
• Learning Objectives
– Importance of organizational structures and the concept of
“boundary-less” organization in implementing strategies
– Traditional structures – Simple, Functional, Divisional and
Matrix
– Understanding Boundary-less, Barrier-free, Modular and Virtual
Organizations Models
• Learning Outcomes
– Students would be able to appreciate why a certain
organizational model is a must for meeting the organizational
objectives
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 Case Study ---- Ford Motors
• The metal Palladium is used in the vehicles’ exhaust system. It
has the absorbent qualities of poisonous gases and particles
that are emitted by the engines exhaust. The use of this metal
was essential to meet the environmental standards.
• The SCM deptt continued to buy the metal in large quantities
as its prices had fallen worldwide. The former never realized
that use of palladium had been discontinued courtesy R&D
department.
• As a result of lack of cooperation within the organization,
Ford Motors wrote off $1bn inventory of precious metal
Palladium in 2002.
• Solution
– Managers to learn to continue modifying strategies as well as
organizational structures in order to avoid huge / avoidable losses
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 LEARNING FROM MISTAKES
• The Boeing 787 Dreamliner is a game changer in the aircraft market. It is
the first commercial airliner that doesn’t have an aluminum skin. Instead,
it has composite exterior, which provides a weight savings that allows the
plane to use 20 percent less fuel than the 767. Boeing received orders for
over 900 jets before the first 787 ever took flight.
• It was also a game changer for Boeing. In 2003, when Boeing announced
the development of the new plane, Boeing also decided to design and
manufacture it differently than they ever had before.
• New Strategy
• To limit the upfront investment they would need to make with the 787,
Boeing moved to a modular structure and outsourced much of the
engineering of the components to suppliers.
• Boeing provided the Suppliers with basic specifications and left it to them
to undertake the detailed designing, engineering, and manufacturing of
components and subsystems.
• Boeing’s operations in Seattle were then responsible for assembling the
pieces into a completed aircraft.
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 LEARNING FROM MISTAKES– Dreamliner Boeing 787
• Working with about 50 suppliers on four continents, Boeing found the
coordination and integration of the work of suppliers to be very
challenging. With the geographic stretch of the supplier set, Boeing also
had difficulty monitoring the progress of the supplying firms. Boeing even
ended up buying some of the suppliers once it became apparent they
couldn’t deliver the designs and products on schedule.
• When the suppliers finally delivered the parts, Boeing found they had
difficulty assembling or combining the components. With their first 787,
they found that the nose section and the fuselage didn’t initially fit
together, leaving a sizable gap between the two sections. To address these
issues, they were forced to co-locate many of their major suppliers
together for six months to smooth out design and integration issues.
• In the end, the decision to outsource cost Boeing dearly. The plane was
three years behind schedule.
• The entire process took billions of dollars more than originally projected
and also more than what it would have cost Boeing to design in house.

1/4/2018 Traditional Forms of Organizational Structure 6

 PATTERN OF GROWTH OF LARGE CORPORATIONS
Strategies leading Dominant
to new structures Simple Growth Path
structure for US Firms

Diversification Vertical
Into unrelated areas Growth of revenues Integration
and employees
Holding
Functional Functional
Company
Structure Structure
Structure
Diversification
Into related areas
Related
Int. Expansion Diversification Int. expansion
Divisional
Structure
Worldwide Holding Worldwide
Company Functional
Int. expansion
Structure Structure
Related
Increase Diversification
relatedness International
of Structure
prod and mkts
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 Simple Structure
• Number of employees is small say 15 or so
• Highly informal
• Tasks are done through direct supervision
• Decision making highly centralized
• Least specialization
• Few rules and regulations
• Informal evaluation and reward system
• Owner-manager intimately involved in all decisions
and tasks
• Manager is employed for day to day operations.
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 FUNCTIONAL ORG
Standard Organization

CEO

GM
GM Fin GM Ops
Admin

Mgr Fin Mgr Prod Mgr HR

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 FUNCTIONAL STRUCTURE
• Number of employees is generally more than 20
• Growth in business places demands on owner-
manager for maximum information about the
business
• Need to hire specialists and experts
• Applicable to firms that have single or closely related
products or services, high production volume and
some vertical integration
• Firms tend to penetrate new or existing markets and
increase scope of their businesses.

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 Functional Org Structure
Advantages & Disadvantages
• Advantages
– Enhances co-ord and control within each of the functional
areas
– DM is generally centralized and rests with the top of the
Org
– Provides a platform for efficient use of managerial and
technological skills and knowledge
• Disadvantages
– Differences in values and orientation may impede
communication and co-ord
– Attitude is that of “stove pipes” and of “silos” needing no
ventilation from outside, totally insular / self contained
leading to short – term thinking
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 DIVISIONAL STRUCTURE
• It is organized around Products, Services Projects
or Markets.
• Operating divisions are generally independent and
consist of Products and Services that are different in
each division.
• Top level managers delegate DM to lower level
managers.
• 1920s---- Ford Motors created 5 Div – Cadillac, Pontiac, Oldsmobile,
Chevrolet and Buick
• See Exhibit 10.3 Pg 323 (Examples in Pakistan -?)

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 Div Org Structure

CEO

Corporate
Staff

Div A Div B Div C

GM GM GM

Mgr
Ops Mgr prod

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 Advantages & Disadvantages
DIVISIONAL STRUCTURE
• Advantages
– Separation of strategic and operating control for the
management of individual products and services
– Executives can focus on the respective division’s products
and services.
– General management level gets enhanced due presence of
multi level management within the division
• Disadvantages
– It is expensive. The costs increase due duplication of
managers
– Problem of image and quality can / may occur when
different divisions are providing different products and
services to the same set of customers (Markets)

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 VARIANCE TO DIV STRUCTURE
SBU & HOLDING COMPANY STRUCTURES
• SBUs
• Used when similarities exist between the individual
businesses
• SBU is a supra body over Divisional Orgs
• Process of planning and control is managed by corporate
office more easily as compared to Div structure
• Each of the SBUs in the corporation operates as a profit center
/ independent entity
• However, Synergy between the Div or SBUs remains a
problem.

Examples ?
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 Holding Company Structure
• Synonyms' with Conglomerates (a corporation consisting of a number
of subsidiary companies or divisions in a variety of unrelated industries, usually as a result of
merger or acquisition).

• Used when businesses in corporation do not have

much in common
• Potential for synergies is limited
• Cost saving is the hallmark due less personnel and
low overheads
• Inherent lack of control and dependence that
corporate – executives have in Div Structure

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Examples ? 16
 MATRIX STRUCTURE

• Combination of Functional & Div Structures

• Mostly suited for projects rather than Prod &
Services in real terms
• It combines product group with geographical units
• Prod Mgrs have global responsibility for the
development, manufacturing, and distribution of
their own line.
• Managers within the geographical units are
responsible for the profitability of the businesses in
their regions.

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 Matrix Org Structure --- a combination of Div and Functional org

CEO

Corporate
Staff

GM Fin GM Ops GM Adm GM PR

PM – Project A------------------------------------------------------------------------------------

PM – Project B -----------------------------------------------------------------------------

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 ADV & DIS-ADV ------ MATRIX STRUCTURE

• Advantages
– It facilitates the use of specialized personnel, equipment,
and facilities.
– Avoids duplication
• Disadvantages
– Dual reporting structures can result in uncertainty and lead
to intense power struggle and conflict over the se of
resources.
– Working relationship becomes more complicated

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 Refer to Exhibit 10.5 page 321 for detailed and
comparative statement of advantages and
disadvantages of different org structures

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 International Operations
Implications for Org Structures

• To be successful in the global marketplace,

managers must ensure consistency between
their strategies.
• Three major contingencies that influence the
structures are:
– Type of strategy that is driving the firm’s foreign
businesses
– Product diversity
– Extent to which a firm is dependent on foreign
sales

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 International Operations: Org Structures
• Multi-domestic strategies are driven by political and
cultural imperatives that require managers to respond
to local conditions . Thereby, local managers get high
level of autonomy.
• The suitable structures for the same would be
International Division & Geographic area division ----
consistent with strategic orientation
• However, global strategies are driven by economic
pressures. Managers must manage the operations for
maximum efficiency. For that, following structures
would be best options:
– Worldwide functions
– Worldwide product division
– Worldwide matrix

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 BOUNDARYLESS ORGANIZATIONAL DESIGNS

• External limits do not vanish. They only become open

and permeable.
• Roles of managers and employees are simple, clear,
well-defined and long –lived.
• Structures tend to be divisive: it leads to territorial
flights
• There are 3 concepts that make the org structures
permeable:
– Barrier free Org
– Modular Org
– The virtual Org
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 BARRIER FREE ORG

• Creating Permeable Internal Boundaries

• It helps bridge real differences in culture,
function, and goals
• It helps to find common ground that facilitates
flow of information and exchange of skills and
tacit knowledge
• Employees tend to work in a democratic
organization
• Leads to organizational development rather than
relying on executive development

1/4/2018 Example in Pakistan ? 24

 BARRIER FREE ORG
• Developing effective Relationship with
External constituencies
– It helps develop win-win relationship /
partnership internally and externally as
well as with ----- competitors ----- Hauling
services
• Risks, challenges, and Potential Downsides
– Difficult to remove political and authority
boundaries
– Difficult to manage democratic processes
– Co-ord remains a problem due lack of
common vision, goals and strategies
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 MODULAR ORG
Outsourcing remains a problem – refer to learning from mistakes
Pros Cons
• Directs a firm’s managerial • Inhibits common vision through
and technical talent to the most reliance on outsiders
critical activities • Diminishes future competitive
• Maintains full strategic control advantages if critical technologies
over core competencies or competencies are outsourced
• Achieves best in class • Increase the difficulty of bringing
performance at each link in the back into the firm activities that
value chain now add value to the market shifts
• Leverages core competencies • May lead to an erosion of cross
by outsourcing with smaller functional skills
capital commitment • Decreases operational control and
• Encourages information potential loss of control over a
sharing and accelerates supplier
organizational learning
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 THE VIRTUAL ORG
Pros
• Enables sharing of costs and
skills
• Enhances access to global
markets
• Increases market
responsiveness
• Creates a best of everything
org since each partner brings
core competencies to the
alliance
• Encourages both individual
and org knowledge sharing
and accelerates org learning
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Cons
• Harder to imagine where
one company ends and
another begins, due to close
interdependencies among
players
• Leads to potential loss of
operational control among
partners
• Results in loss of strategic
control over emerging
technologies
• Requires new and difficult
to acquire managerial skills
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 Boundaryless Org
To make them work we got to create:

1. Common culture and shared values ---- High degree of

trust is mandatory among other features
2. Horizontal Org structures ---- Group common or related
products / services under common management and
enhance training values
3. Horizontal systems and processes ---- Business re-
engineering may be the tool to achieve the strategic
purposes
4. Communication and information technologies ---- sky is the
limit
5. Human resource practices --- Rely on Change Mgmt

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 AMBIDEXTROUS ORG DESIGN

• The need for creating ambidextrous organizational designs

that enable firms to explore new opportunities and effectively
integrate existing operations.
• Adaptability: Managers’ exploration of new
opportunities and adjustment to volatile markets in order to
avoid complacency.
• Alignment: Managers’ clear sense of how value is being
created in the short term and how activities are integrated
and properly coordinated.
• Ambidextrous Organizational Designs
• Organizational designs that attempt to simultaneously pursue
modest, incremental innovations as well as more dramatic,
breakthrough innovations.
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 HOW TO BE SUCCESSFUL - AMBIDEXTROUS DESIGNS
• A clear and compelling vision, consistently communicated by
the company’s senior management team is critical
• The tight coordination and integration at the managerial
levels would enable the newer units to share important
resources from the traditional units.
• Such sharing must be encouraged and facilitated by effective
reward systems that emphasizes overall company goals.
• The organizational separation ensures that the new units’
distinctive processes, structures, and cultures are not
overwhelmed by the forces of “business as usual.”
• The established units must be shielded from the distractions
of launching new businesses.
• Focus their attention and energy on refining their operations,
enhancing their products, and serving their customers.
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 Thank you for investing your time with me

25-29 Dec --- Submit Research Projects

01 – 03 Jan 18 --- Presentations

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