Week 5

Hastings argues that economic growth of last 300 years has been powered by industrialisation

Factories that can repeatedly make, without error, millions of cars/T shirts/doses of penicillin

This requires a structure focused on mass production/ scale/ error reduction

But if you want to stimulate creativity – trial and error, learning and making mistakes – then a very different model is needed

Hence: structure follows strategy

https://www.youtube.com/watch?v=IrGkeGExJfw

The structure of an organisation is the pattern of organisational roles, relationships, and procedures that enable collective action

Every organised human activity requires “two fundamental and opposing requirements: the division of labor into various tasks to be performed, and the coordination of these tasks to accomplish the activity” (Mintzberg*)

Shaping or designing the organisational structure is one of the most important tasks of a manager (Crisis -> reorganisation)

In a traditional organisations there may be highly formal, clearly articulated, hierarchical structures set out by top management (mechanistic)

In less traditional organisations, structures may emerge in a more participative, collaborative, less hierarchical, way (organic)

It is about much more than an organisational chart of lines and boxes

* Mintzberg, H. (1983). Structure in Fives: Designing Effective Organisations (pp 1-25). New York: Prentice Hall.

1. The division of labour

2. Integration mechanisms to coordinate activites

3. The distribution of decision-making authority to coordinate goals

4. The setting of organisational boundaries

1. The division of labour

   ‘One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands’

Key trade-off:

Highly specialised jobs: avoid duplication and focus attention

BUT: Extreme specialisation increases coordination costs (and can lead to monotonous jobs)

1. Integration mechanisms to coordinate activites

   Once you divide labour you then have to find some way to coordinate

   Can involve: formal rules and procedures, plans and budgets, direct supervision, liaison roles, committees, task forces, informal meetings

   E.g. Apple: “zero committees” (but lots of meetings?)

   Choice reflects whether integration issues are routine or exceptional

   Integration is costly! (takes time)

   Technology has a growing role here

   For example: An assembly line v operating theatre

   
   

1. The distribution of decision-making authority to coordinate goals

   Who gets to decide?

   On a vertical level: how far to centralise or decentralise authority

   On a horizontal level*: does the marketing or engineering department get to decide on design specifications of new features?

   * i.e. at different roles at the same level

   
   

   Ideally decision rights should be given to those who have best information (typically lower down/ on the front line). Why might this be problematic?

   
   

   
   

1. The setting of organisational boundaries

   Not all capabilities, activities, and goals are organised within the boundaries of the firm.

   What do you make, what do you buy, what about strategic alliances and supply chain relationships?

   Which parts of the organisation interact directly with the outside environment. Should customers be allowed to interact directly with workers? Or only the sales force?

   How much inventory should the organisation hold in its warehouses?

   These decision are becoming more complex as the boundary between firm and markets becomes blurred

   Eg: Ford v GM structure

(i) Efficiency: can the organisation perform tasks reliably with most economic use of resources

(ii) Responsiveness: organisations ability to satisfy the demands of customers

(iii) Adaptability: organisations ability to innovate and change over time to stay ahead of the competition

(iv) Integrity: the organisations ability to provide the glue to ensure consistency between the organisation’s enduring sense of who they are and what they do (organisational purpose), individual members’ motivation, and external demands

Trade-offs may be necessary!

Weber was interested in authority structures in organisations (why we do as we are told)

He analysed bureaucratic organisations (principally state organisations) which were increasingly run on “legal and rational” principles.

These principles included

Weber, M (1922 | 2013)

Fayol set out the first general statement of management principles.

Many relate to how an organisation should be structured.

-Division of work

-Authority (right to give orders & power to gain obedience, formal & personal)

-Unity of command (only one master)

-Unity of direction (one strategy and plan)

-Subordination of individual interests to the general interest

-Centralisation (appropriate to the size of organisation)

-Scalar chain (i.e., clear lines of communication)

-Stability of tenure

+ others

“A leader who is a good administrator but technically mediocre is generally much more useful to the enterprise than if he were a brilliant technician but a mediocre administrator”

“Structure follows strategy”

Chandler studied the structural changes that had occurred in American corporations

The most fundamental change was from a centralised, functionally organised structure (U-form) to a multi divisional one (M-form)

Chandler argued the M-form arose not because of an organisation’s increase in size but when an organisation began to increase in diversity and complexity

From this he developed his thesis that structure follows strategy

Further: that existing structure also shapes (usually hold backs) strategy

Specialised along functional lines

(e.g., small manufacturing company)

This is the simplest organisational form.

The U form is one in which the firm is organised as a single unit, which is specialised along functional lines such as marketing, finance, personnel.

The M form was invented by Sloan at GM

Two wings finance and general advisory staff – these are called staff functions in org speak. These are the functions that support the rest of the organisation.

Then we have the central part – the main part of the business. There are a series of separate autonomous divisions run as profit centres – the different car makes that GM had acquired over the years and continued to run as separate brands.

M form corporations: a multi divisional structure with multiple profit centres (for example according to product or region) each with its own separate functions and autonomous management team) under a vigilant head office corporate staff.

Subdivisions were responsible for their own production and profit; the parent was responsible for developing the overall strategy of the business.

This became a common way to organise very large businesses that dominated management thinking about organisational design in the middle of the last century.

-M form likely to be more efficient: very top managers able to tightly control managers of each division and make sure they do not follow non-profit goals

-After adopting the M-form, many firms showed a substantial increase in their profits

-This structure also makes it easier for firms to buy and sell parts of their companies

-For a time, M- form seen as best corporate structure for large and diversified companies.

-BUT: This new form was no panacea - firms Chandler examined had constant problems in defining the relationships between their corporate centre and their operating divisions

-"the multi-divisional form, which hardly existed in 1920, had, by 1960, become the accepted form of management of the most complex and diverse of American industrial enterprises." (Chandler)

1: A pricing pyramid

From the economical Chevrolet to the deluxe Cadillac: “A car for every purse and purpose”. No competition between brands. Customers could move up the “ladder of success” as their incomes grew.

He established annual styling changes from which came concept of planned obsolescence

2: A focus on research and innovation.

Not just in car manufacture, but financial products (pioneered car financing)

3. Diversification

Both inside and outside the US. They purchased Vauxhall (British) Opel (German) Holden (Australian).

In 1908 the entrepreneur Billy Durant created the first automotive conglomerate - GM.

by 1920 the company was suffering due to poor management and economic recession. Billy Durant lost control of the company to the DuPont family. They appointed Sloan to reorganise the structure and management processes to be in line with its strategies.

Sloan introduced three main strategies that would guide GM through the next decades

1. The pricing pyramid

In contrast to Ford with its single Model T, GM had a car for every purpose.

Sloan established a pricing structure in which (from lowest to highest priced) Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac, referred to as the ladder of success, did not compete with each other, and buyers could be kept in the GM "family" as their buying power and preferences changed as they aged.

Sloan is also credited with establishing annual styling changes, from which came the concept of planned obsolescence.

2. A focus on innovation

Not just in manufacturing, but also finance. In 1919, he and his corporate deputies created the General Motors Acceptance Corporation, a financing arm that practically invented the auto loan credit system, that allowed car buyers to bypass having to save for years to buy Ford's affordable car.

3. Diversification: both inside and outside the US.

These concepts, along with Ford's resistance to the change in the 1920s, propelled GM to industry-sales leadership by the early 1930s, a position it retained for over 70 years. Under Sloan's direction, GM became the largest industrial enterprise the world had ever known.

In 1920 GM (under founder Durant) was in crisis.

Dupont family took control – installed Sloan

Sloan (engineer) developed new strategy -> new structure: the M form

Each car division (e.g. Chevrolet, Buick, Cadillac) was run as autonomous profit centre with self-contained set of functions (e.g. engineering, assembly, production and sales etc).

GM’s subsidiaries and many assembly plants in 15 countries around the world also operated independently, focusing on their home markets and developing their own way of working

Top management committee set guiding policies for the organisation and decided resource allocations

“From decentralisation we get initiative, responsibility, development of personnel, decisions close to the facts” “From coordination we get efficiencies and economies” (Sloan)

Notes:

Sloan designed this organisational structure to keep senior management detached from the interests of specific decisions so they could concentrate on broader issues.

General managers of divisions made all the operating decisions for their divisions so long as they were consistent with the corporation’s general policies and financial standards. As division were profit centres, they developed their own plans and forecasts, although all major capital expenditures required approval of the management committee.

Sloan was very analytical in his decision making. GM had accounting innovations such as ROI for measuring divisional performance, standard volume and standard prices to ensure a set level of return and transfer pricing among division gave Sloan information to manage the performance of divisions.

For many years GMs sales volume were large enough to cover the costs of plant dedicated to single model, and the duplication of processes and functions that that involved as well as the internal competition that resulted (and was encouraged). This M form structure essentially remained in place until the 90s.

Advantages/ disadvantages:

In Sloan’s words: “From coordination we get efficiencies and economies. From decentralisation we get initiative, responsibility, development of personnel, decisions close to the facts – all the qualities necessary for an organisation to adapt to new conditions” For Sloan, handling the contradiction between the two was the essence of a manager's job.

Every organised human activity requires “two fundamental and opposing requirements: the division of labor into various tasks to be performed, and the coordination of these tasks to accomplish the activity”

“The structure of an organisation can be defined simply as the sum total of the ways in which its labor is divided into distinct tasks and then its coordination is achieved among these tasks.”

1. Mutual adjustment

(Coordination by internal communication)

1. Direct supervision

(One person takes responsibility for the work of others)

If the first two do not work, then you can standardise in one of three ways:

1. Standardised work processes

(Process of work is specified or programmed)

1. Standardised outputs

(Specification of product)

1. Standardised skills

(Skills and knowledge are specified)

Most organisation will favour one coordinating mechanisms over the others, however, most mix all five

Notes:

Five coordinating mechanisms seem to explain the fundamental ways in which groups coordinate their work, these should be considered the most basic elements of structure:

M argues that as the complexity of work increases, the favoured method of coordination seems to shift from mutual adjustment to direct supervision, to standardisation, finally reverting back to mutual adjustment

Where work is simple and routine the work process can be standardised (in a tax office or call centre or an assembly line in a factory).

Where work is more complex the output may be standardised (so worker is free to choose how to carry out the work itself, only the required output is specified – an example may be a contract for a building).

With the most complex forms of work, where outputs or processes cannot be standardised, the skills of the worker themselves may be standardised (example of doctors in an operating room who barely need to speak to each other).

And then the mechanisms run full circle and workers must communicate informally.

Most organisation will favour one coordinating mechanisms over the others, however, most mix all five. M notes that: Formal and informal structures are intertwined and often indistinguishable.

The mix and preference of these coordinating mechanisms is reflected in the literature of management

In the 20th C: Fayol was concerned primarily with formal authority, in effect with the role of direct supervision in the organisation.

Taylor’s main preoccupation was the standardisation of the work process.

The human relations school threw light on the informal structure – the unofficial relationships in the work group (i.e. mutual adjustment as an important coordinating mechanism).

Notes:

1. The strategic apex – the highest level that decides on strategy

2. The operating core – this performs the basic work related to the production of products and services.

1. The middle line – The middle managers who supervise the operating core. As supervision relies on personal contact there is a limit to the numbers of operators any one manager can supervise.

1. The technostructure – the analysts who decide how work is to be structured

2. The support staff – IT department, security, cafeteria.

1. Simple structure

Based on direct supervision – strategic apex is key. e.g., small manufacturing company

1. Machine bureaucracy

Standardisation of work processes – technostructure is key. e.g. call centre

1. Professional bureaucracy

Standardisation of skills – operating core is key. e.g., hospital, law firm

1. Divisionalized form

Standardisation of outputs – middle line is key. e.g., multinational corporation

1. Adhocracy

Mutual adjustment – support staff and operating core are key. e.g., small creative agency

1. Functional

2. Divisional

3. Matrix

Capabilities are grouped together by common function (HR, Finance, Engineering, R&D)

Activities are coordinated vertically within the function by hierarchical supervision rules and plans

Employees are committed to achieving their goals of their respective functional departments

Planning and budgeting is by department

Careers are normally defined on the basis of experience within the function

Coordination across functions occurs through the office of the CEO and or a senior executive committee

Typically, a new organisation starts with one product or service, so a functional structure makes sense.

As they grow, they may find that their portfolio of products/ services grows so……..

Notes:

How to choose between these two templates? Because new organisations often start with only one product or service (i.e. they are one division) they typically begin with a functional structure. But before long they many find that their portfolio of products or services has grown, or that it needs separate divisions to serve different markets, geographies, or customer groups.

Upon creating new divisions, a new problem arises - coordinating across divisions and avoiding duplicative effort and resources between them.

For example, at first organisation may create cross cutting shared services such as IT and HR, for example that can minimise duplication and serve the needs of multiple divisions. But when the demand for coordination across divisions becomes more on an issue – when customers for example demand that the organisation present a single face to them across product divisions, then organisation look to hybrid forms – like matrix organisations.

* Planning and budgeting is by division (Willman 2014, theme 6) discusses potential systems to monitor the performance of divisions, for example; cost centres, revenue centres, profit centres (the most extreme form of decentralisation), investment centres, expense centres.

Is the main business problem one of production rather than sales, such as large-scale capital equipment or products? If so, organise by product lines e.g., Nuclear power plants, Aircraft manufacture

Is the main business problem about sales rather than production? If so, organise by customer

-Are your customers local to a particular geographical location? If so, organise by geography e.g., countries and regions – supermarkets, FMCG

-Are your customers global and interested in particular type of expertise? If so, organise by service line e.g., banking, consultancy

What might be the problems of multi divisional firms?

AND SO……

GM problems:

-cannibaliseon across the division

-Waste

-GM example: cannibalise other divisions outputs

Here both divisional and functional structures are implemented simultaneously.

Both division managers and functional managers have authority

Employees report to both of them - distinction sometimes made between a direct line reporting relationship (primary boss) and a dotted line reporting relationship (secondary boss)

Multinational firm may need to coordinate across functions, products and geography

Q: What might be the problem?

-Ambiguity: Who is responsible? Who has authority to make the division? what if two bossed don’t agree _ or have conflicting requirements?

-When conflicts arise, it can be harder to reach consensus

…?

Functional (U form): New organisations often start with only one product or service they typically begin with a functional structure.

Multi Divisional (M form): But before long they many find that their portfolio of products or services has grown, or that it needs separate divisions to serve different markets, geographies, or customer groups.

Upon creating new divisions, a new problem arises: coordinating across divisions and avoiding duplicative effort and resources between them.

Matrix: At first organisation may create cross cutting shared services such as IT and HR, for example that can minimise duplication and serve the needs of multiple divisions. But when the demand for coordination across divisions becomes more of an issue – when customers for example demand that the organisation present a single face to them across product divisions, then organisation look to hybrid forms – like matrix organisations.

When Jobs returned to Apple in 1997 it had a conventional organisational structure for a company of its size and scope

It was organized into business units (a divisional structure) each with its own profit and loss responsibilities. General managers ran the Macintosh products group, the information appliances division and the server products division among others.

Believing that general management had stifled innovation, Jobs, in his first year as CEO laid off the GMs of the all the business units in one day.

Jobs dramatically shifted to a functional organization (which they retain despite being nearly 40 times larger today)

Senior vice presidents are in charge of functions, not products

Notes:

Deep technical expertise: Experts lead other experts. The assumption is that it is easier to train an expert to manage well than a manager to be an expert. They also believe that world class talent wants to work for world class talent. Jobs in a 1984 interview said that they went through that stage in Apple where we thought: “Oh, we’re gonna be a big company, let’s hire professional management. We went out and hired a bunch of professional management. It didn’t work at all….They knew how to manage, but they didn’t know how to do anything. If you’re a great person, why do you want to work for someone you can't learn anything from? And you know what’s interesting? You know who the best managers are? They are the great individual contributors who never, ever, want to be a manager but decide that they have to be…because no one else is going to…do as good a job”.

Example: Apple has cameras in many products. They have more than 600 experts on cameras. If apple had a divisional structure organized by product line then all these experts would be scattered across these product lines. This would dilute their collective expertise, reducing their power to innovate.

Hamel & Zanini: Bureaucracy must die

The blueprint for bureaucracy:

A formal hierarchy

Power is vested in formal positions

Strategies and budgets are set at the top

Job roles are tightly defined

Control is achieved through oversight, rules, process and sanctions

Everyone competes for promotion up the hierarchy

Compensation correlates with rank

Can one capture the benefits of bureaucracy - control, consistency and coordination, while avoiding its downsides - inflexibility, mediocrity and apathy?

-> Rip it all up!

Holacracy one of best-known models for self management

2013 Zappos became the largest and best known of almost 300 organisations to adopt holacracy

Main unit in a holacracy is the “circle” a fluid yet distinct team

Circles are designed to meet specific goals and are created and disbanded as projects’ needs change

Sub circles are created for aspects that don’t need all circle member's input

Circle performance is made public through leader boards as well as presentations about the value each project delivers

People step out of roles continuously based on what they would like to accomplish and what needs to get done. They often hold roles in multiple circles. Leadership is similarly fluid

Meetings are run under rigid guidelines

Self-organisation models typically have three characteristics:

1. Teams are the structure (Circles, Cabals, or just teams)

2. Teams design and govern themselves (e.g. Morning Star’s CLOUs)

3. Leadership is contextual

   
   

How does this lead to better performance?

1. Designing roles that match individual capabilities

2. Making decision closer to work

3. Responding to emerging needs in the market

Bernstein, Bunch, Canner (2016)

Organisations need both reliability and adaptability

Reliability means many things – generating reliable returns for shareholders, adhering to regulations, maintaining stable employment, fulfilling customer expectations.

Adaptability calls for constant small adjustments to meet local needs, as well as fundamental shifts in strategy.

Organizations need to achieve both (will be different in different organisations)

What are the enabling factors for self management structures to work? What might be the challenges with this type of structure?

1. Is one form of organisation better, more advanced, or more successful than others?

No. The form of organisational structure that is best for an organisation is contingent on its context/ strategy

1. Does the appearance of post bureaucratic models mean the end of managers?

Note the task of setting direction and objectives, planning, directing, controlling and evaluating have not disappeared. They are simply no longer concentrated in dedicated pre-defined management roles (i.e., job descriptions)

1. Are newer forms of organisational structure more equal, empowered, democratic, fluid

Not necessarily. A self-managing or self-organising team can be far more static or hierarchical depending on how the structuring processes are used

1. How to determine what type my organisation is?

It is rare that an organisation belongs in just one category, the above presents a typology of ‘ideal types’ but many aspects and characteristics of each are adapted to fit the needs of the organisation.