Fundamentals of Organization Structure

Module - 4

 For achieving purposes and goals, orgs need to use various structural alternatives; Structural changes are needed to reflect new strategies or to respond to changes in other contingency factors environment, technology, size, life cycles, culture, etc.; Key components of Organization Structure Formal reporting relationships, Grouping together of individuals into deptts and of deptts into total org, and Ensuring effective comm., coordination, and integration of effort across deptts.;

 OS gets reflected in Organizational Chart which is the visual representation of a whole set of underlying activities and processes in an org; The OC has been found to be quite effective during the 19th and early 20th century but has been found to be ineffective in present days rapidly changing environment;

Therefore, org now goes for designing different structure with main emphasis on increasing horizontal coordination & communication & encouraging adaptation to external changes;

A Sample Organization Chart

CEO

Vice President Finance

Vice President Manufacturing

Director Human Resources

Chief Accountant

Budget Analyst

Plant Maintenance Superintendent Superintendent

Training Specialist

Benefits Administrator

Information Processing Perspective to Organization Structure

 Accomplishing orgs overall goals, it is necessary to have both vertical & horizontal flow of information but there happens to be inherent tensions b/w vertical and horizontal mechanisms in organization;
Vertical linkages are created primarily for control whereas horizontal linkages are designed for coordination & collaboration which usually means reducing control;

 Emphasis on VL (ie., efficiency & control) specialized tasks, hierarchy of authority, rules & regulations, formal reporting systems, centralized decision making, few teams/task forces; Emphasis on HL - relaxed hierarchy, few rules, faceto-face commn, many teams/task forces, informal decentralized Decision-Making, etc.;

But these two extremes have their own disadvantages too, thus need for searching best combination of vertical controls and horizontal collaboration, centralization and decentralization;

Relationship of Organization Design to Efficiency vs. Learning Outcomes

Horizontal Organization Designed for Learning

Horizontal structure is dominant Shared tasks, empowerment Relaxed hierarchy, few rules Horizontal, face-to-face communication Many teams and task forces Decentralized decision making

Dominant Structural Approach

Vertical structure is dominant Specialized tasks Strict hierarchy, many rules Vertical communication and reporting systems Few teams, task forces or integrators Centralized decision making

Vertical Organization Designed for Efficiency

Horizontal Linkage: Project Manager Location in the Structure

President

Finance Department
Financial Accountant Budget Analyst Management Accountant

Engineering Department
Product Designer Draftsperson

Marketing Department
Market Researcher Advertising Specialist

Purchasing Department
Project Manager New Product A Project Manager New Product B Project Manager New Product C

Buyer

Buyer Electrical Designer Market Planner

Buyer

Teams Used for Horizontal Coordination at X Softaware Company

President Marketing Vice Pres. Programming Vice Pres Research Vice Pres Videogames Basic Research Supervisor Applications and Testing Supervisor Memory Products Chief Programmer Memory Products Team Customer Service Manager Procurement Supervisor Memory Products Research Supervisor

Videogames Sales Manager Videogames Product Team Memory Products Sales Manager Memory Products International Manager Advertising Manager

Videogames Chief Engineer

Ladder of Mechanisms for Horizontal Linkage and Coordination

H IGH

Teams

Amount of Horizontal Coordination Required

Full-time Integrators
Task Forces Direct Contact
LOW

Information Systems
LOW HIGH

Cost of Coordination in Time and Human Resources

Structural Design Options for Grouping Employees into Departments

Functional Grouping

CEO

Engineering

Marketing

Manufacturing

Divisional Grouping
CEO

Product Division 1

Product Division 2

Product Division 3

Strengths and Weaknesses of Functional Organization Structure

STRENGTHS: Allows economies of scale within functional departments Enables in-depth knowledge and skill development Enables organization to accomplish functional goals Is best with only one or a few products

WEAKNESSES: Slow response time to environmental changes May cause decisions to pile on top, hierarchy overload Leads to poor horizontal coordination among departments Results in less innovation Involves restricted view of organizational goals

Strengths and Weaknesses of Divisional Organization Structure

STRENGTHS: WEAKNESSES: Suited to fast change in Eliminates unstable environment economies of scale in functional Leads to client satisfaction departments because product responsibility and contact points are clear Leads to poor coordination across Involves high coordination product lines across functions Eliminates in-depth Allows units to adapt to competence and differences in products, technical regions, clients specialization Best in large organizations Makes integration with several products and standardization Decentralizes decision-making across product lines difficult

Reorganization from Functional Structure to Divisional Structure at Info-Tech

Functional Structure
R&D

Info-Tech President
Manufacturing Accounting Marketing

Divisional Structure
Electronic

Info-Tech President
Office Virtual

Publishing
R&D Mfg Acctg Mktg R&D

Automation
Mfg Acctg Mktg R&D

Reality
Mfg Acctg Mktg

Structural Design Options for Grouping Employees (Continued)

Horizontal Grouping

CEO

Human Resources

Finance

Core Process 1

Core Process 2

Geographical Structure for Apple Computer

CEO

Apple Products

Apple Americas Canada Latin America/ Caribbean Sales Service and Marketing to Regions

Apple Europe France

Apple Pacific Australia

Japan

Asia

Matrix Structure

Dual-Authority Structure in a Matrix Organization

President Director of Product Operations
Product Product Manager A Product Product Manager B Manager B Product Product Manager C Manager C

Design Vice President

Mfg Vice President

Marketing Vice President

Controller

Procurement Manager

Product Product Manager D Manager D

Strengths and Weaknesses of Matrix Organization Structure

 STRENGTHS: Achieves coordination necessary to meet dual demands from customers Flexible sharing of human resources across products Suited to complex decisions and frequent changes in unstable environment Provides opportunity for both functional and product skill development Best in medium-sized organizations with multiple products

WEAKNESSES: Causes participants to experience dual authority, which can be frustrating and confusing Means participants need good interpersonal skills and extensive training Is time consuming; involves frequent meetings and conflict resolution sessions Will not work unless participants understand it and adopt collegial rather than vertical-type relationships Requires great effort to maintain power balance

Matrix Structure for Worldwide Steel Company

President Mfg. Vice President Open Die Business Mgr. Marketing Vice President Finance Vice President Mfg. Services Vice President

Vertical Functions
Metallurgy Field Sales Vice Vice President President Industrial Relations Vice President

Horizontal Product Lines

Ring Products Business Mgr.

Wheels & Axles Business Mgr. Steelmaking Business Mgr.

A Horizontal Structure

Top Management Team

Process Owner
Market Analysis

Team 1

Team 2
Product Planning

Team 3

Research

Testing

Customer

New Product Development Process

Process Owner

Team 1

Team 2
Material Flow

Team 3 Customer

Analysis

Purchasing

Distrib.

Procurement and Logistics Process

Strengths and Weaknesses of Horizontal Structure

 STRENGTHS:
Flexibility and rapid response to changes in customer needs Directs the attention of everyone toward the production and delivery of value to the customer Each employee has a broader view of organizational goals Promotes a focus on teamwork and collaborationcommon commitment to meeting objectives Improves quality of life for employees by offering them the opportunity to share responsibility, make decisions, and be accountable for outcomes

WEAKNESSES:
Determining core processes to organize around is difficult and time-consuming Requires changes in culture, job design, management philosophy, and information and reward systems Traditional managers may balk when they have to give up power and authority Requires significant training of employees to work effectively in a horizontal team environment Can limit in-depth skill development

Modular Structure

????

Restructuring Organizations

Contingencies Influencing Structural Design

Environment Worldwide Operations

Organization Size

Technology

Organization Goals

Downsizing Tactics
Tactic
Workforce Reduction

Characteristics
Reduces headcount Short-term focus Fosters transition Changes

Examples
Attrition Retirement Layoffs Eliminate functions,

Organization organization Redesign Medium-term focus Fosters transition & transformation

Changes culture Long-term focus Fosters

layers, products Merge units Redesign tasks

Change

Systemic

transformation

responsibilities Foster continuous improvement Downsizing is normal

Overall Overhaul @ M&M

 Organizational restructuring, managing key resource requirements, PMS, career & succession planning have all been re-aligned to form synergy with the companys overall business strategy; The objective was to grow leadership positions in the UV and tractor market & developing successful businesses in relatively new business areas like IT, financial services, realty and infrastructure development and also service industries like Time share (Club Mahindra);

Organizational Restructuring

 For the group, organizational restructuring posed the greatest challenge keeping in mind the changing dynamics in the business especially the tractor and automotive division; Thus the process began by changing benchmarks of excellence to global standards; internal

Benchmarking all business processes from product development to customer care and commercial controls to JUSA (Japanese Union of Scientists and Engineers) was implemented.

 The company began a full reassessment of organization and management structure with the help of consultants like Mckinseys, Arthur Anderson and Korn Ferry; The outcome was, Identification of clear roles and responsibilities, and mapping required competency for each role; The officers went through individual assessments of competencies against the requirement of each role;
External consultants as well as internal assessors ran assessment centers and each individual was then placed based on competency and role fitment;

 The restructuring also led to the pruning of the staff; In 2001, there were 3970 officers in 13 grades and levels which was brought down to 3400 officers in 5 responsibilities namely strategic, executive, department/unit head, managerial and operational in 2003. Organizational restructuring based on business needs was later extended to smaller businesses in the group. Mahindra Engineering services has recently been established by combining key engineering and design resources from the Tractors and Automotive division.

Given the numbers involved, the challenge was to manage expectations, feeling of threat that is intrinsic to such an exercise, communications and counseling; HR function played an important role as it led the exercise with co-operation from all line managers Mr. Choudhari, Executive VP, HR & Corporate Services, M&M Group

Managing Key Resource Requirements

 Reassessment of organizational requirements brought in gaps in terms of management resources;

Many of the roles were filled through internal promotions and parallel moves, certain gaps like inability of the senior management to fit in the role due to rapidly changing business environment emerged;

It began inducting senior management resources from diverse companies outside the M&M Group;

 Senior management resources from companies like Xerox, Marico, Enron, HLL and also from engineering, tractor and automobile sectors were inducted; Purpose was to induct a talent pool with rich background suitable for changing business requirements of the group; Moreover, to bring in Young Talent keeping in mind long term objectives, the M&M Group has started a formal Management Trainee Scheme (MTS) through campus recruitments;

 The move threw up an interesting observation, that of acceptability of young blood working initially at operational level jobs with older experienced people; To avoid the feeling of animosity and in order to build camaraderie, the group has put in place a Mentoring System, where each management trainee has a senior executive who plays the role of mentor; The mentor reviews the progress made by the trainee every two-three months and provides guidance and counseling, if the need so arises;

 Furthermore, to encourage existing management resources to seek internal opportunities beyond their immediate business group, a formal internal advertisement has been established, which puts up vacancies on the Mahindra intranet;

Management Development

 Keeping in mind the changing business scenario, thrust is on building lship development at middle and senior mgt levels and this objective is being met through a series of initiatives at all levels including the top mgt, where the emphasis is on strategy, leadership and change;
A three tier approach is in place to develop capabilities of the mgt, the mgt development have been structured to meet needs at each responsibility band of management;

 If the emphasis in the top mgt is on strategy, leadership and change, for the strategic and executive mgt band, focus is on team building, people skills, understanding and managing technology and financial and marketing orientation; For deptt and unit head mgt band, the emphasis is on general mgt skills, managerial and personal effectiveness and multi functional understanding; The group also utilizes selective outside Programs for high potential managers - Management Programs run by HBS, LBS and ISB Hyderabad;

Managing Succession

 The objective of this function is to chart out a detailed career path of each individual employee at the senior most levels; The career path taps both strengths and weaknesses and aspiration of each individual executive; The detailed career planning leads to identification of incumbents as successor to a specific responsibility by providing expanded responsibilities so that there is an on-the-job development of a larger perspective and understanding;

Organization Development efforts at M&M Group is a continuous process and we focus on alignment of change brought in one part to another pocket and people draw pleasure by engaging themselves in organizational renewal processes,

Executive VP, HR & Corporate Services, M&M Group

The Restructuring at SBI

 To overcome intense competition from private & foreign banks, SBI planned a major organizational restructuring exercise; Key aspects involved redesigning of branches, providing alternate channels - focus on a lean structure and technological up-gradation; Business Process reengineering (BPR) team was constituted in June 2003 with McKinsey & Co as consultants;

 The BPR's basic goal was to create an operating architecture that would facilitate service delivery of international standards;

The project objectives were defined as "increasing customer satisfaction and convenience, freeing up time for branch manager and branch staff to focus on sales and marketing, simplifying process for employees, enhancing SBI's competitiveness in the market, increasing the profitability through higher market share and improved process efficiency..."

 Following in PNBs footsteps, the SBI is restructuring its business model for faster decision making;

Indias largest lender, State Bank of India (SBI), is shedding an intermediate layer from its organizational structure in an attempt at faster decision making; Based on advice from consultant McKinsey & Co, SBI is getting rid of its 58 module offices or zonal offices, headed by deputy general managers, or DGMs;

 De-layering is not new among public sector banks, PNB closed 26 zonal offices for faster decision-making; About 2,000 employees were then shifted to generate new business and marketing. PNB was advised by BCG;

Under existing OS in SBI, banks corporate office controls 14 local head offices or circles, headed by CGMs with two GMs under them; These 58 modules are headed by DGMs who report to GMs in local head offices; each module has between 37 RMs who, in turn, control more than 10,000 branches;

 AGMs and RMs, who were earlier reporting to the DGMs will now report directly to GMs; they will now focus on marketing and business development; New job profiles will be created for DGMs, the banks DGMs were responsible for administration, business and processes in previous OS;

 Now, their work will be distributed among AGMs and they will control various processing activities that have been migrated to centralized processing centers or CPC; Out of its 14 circles, the new structure has already been put in place in eight; Under the new structure, AGMs and RMs will be responsible for marketing and procuring the business whereas DGMs will be responsible for a faster delivery of the processes by heading the processing centers;

 The banks TUs, which have a say in such changes, dont seem to have any major issues with new structure; Initially, we opposed the move because of some HR related issues, after the management cleared our doubts, we have given a go-ahead to it, said T.N. Goel, president of All India State Bank Officers Association; When SBI wants to meet the competition and do what other banks the world over are doing, we dont want to be an obstacle in the way; tomorrow, we wont like to hear that the bank is losing out to competition because of us, Goel added;

 Marketing of financial products has been a weakness of state-run banks in India that account for 70% of the banking industry in terms of assets; New private and foreign banks in India mostly use their branches as sales offices, but state-run banks continue to follow the old pattern where there is virtually no distinction between a back office and a branch; McKinsey started working with SBI during the mid1990s,its next assignment in the bank is recasting SBIs wholesale businesses;

Punjab National Bank (PNB)

 PNB has embarked on its 2nd round of restructuring essentially a 4 pronged strategy to make it strong enough to counter competition; BCG, which was engaged to do a study on ways and means of improving the banks profitability, has recently suggested a 4 pronged strategy; The strategy involves centralization of the backoffice, a hub-and-spoke set-up, where all data operations would be centralized at a single centre;

 The 2nd step would be to do a detailed study of the profitability of all products on the shelves, which would be followed by corrective actions to align them with the market scenario; The 3rd strategy would be to undertake an integrated risk management system to followed by an organisational revamp, Organisational restructuring would involve a study of different tiers of the bank; PNB has a four-tier system, which include branches, regional offices, zonal offices and headoffice, it is looking at the possibility of reducing one or two of these system, *****