Chapter 15 Organizational Design and Structure In This Chapter, You’ll Find: Chapter Overview Learning Outcomes Key Terms PowerPoint Guide Review Questions and Answers Discussion and Communication Questions and Suggested Answers Ethical Dilemma Self-Assessments—What about You? Issues in Diversity Experiential Exercises Additional Examples Case Study and Suggested Responses: Alan Mulally’s Restructuring of Ford Motor Company Videos: Profile on Modern Shed Student Handouts: Ethical Dilemma What About You?: How Decentralized Is Your Company? What About You?: Managers of Today and the Future Issues in Diversity: Restructuring for the New Reality—Male Beauty Experiential Exercise: Words-in-Sentences Company Experiential Exercise: Design and Build a Castle Experiential Exercise: The Glitch That Lost Krista Case Study: Alan Mulally’s Restructuring of Ford Motor Company Chapter Overview Organizations are essentially structured around tasks. Organizational goals are broken into tasks, from which jobs are designed. Jobs are then grouped into departments, which are linked to form organizational structure. This chapter addresses differentiation and integration, six basic design dimensions, five structural configurations, contextual variables influencing organizational design, four forces shaping organizations today, and cautions for managers regarding structural weaknesses. As the organization develops, the structure of the organization is likely to change. Organization size affects the centralization of the organization. Technology affects organizations whether structures are categorized as mechanistic or organic. Learning Outcomes After reading this chapter, students should be able to do the following: 1. Define differentiation and integration as organizational design processes. Answer: Differentiation can be defined as the design process of breaking organizational goals into tasks. Integration can be considered as the design process of linking the tasks together to form a structure that supports goal accomplishment. The different forms of differentiation are horizontal, vertical, and spatial. To integrate activities up and down the organizational chain of command, a variety of structural devices can be used to achieve vertical linkages. These devices include hierarchical referral, rules and procedures, plans and schedules, positions added to the structure of the organization, and management information systems. Horizontal integration mechanisms provide the communication and coordination that are necessary for links across jobs and departments in the organization. These linkages are built into the design of the organization by including liaison roles, task forces, integrator positions, and teams. 2. Discuss the basic design dimensions managers must consider in structuring an organization. Answer: From a structural perspective, every manager and organization looks for the best combination of differentiation and integration for accomplishing the goals of the organization. There are many ways to approach this process. One way is to establish a desired level of each. One way is to establish a desired level of each structural dimension on a high-to-low continuum and then develop a structure that meets the desired configuration. The structural dimensions include the following—formalization, centralization, specialization, standardization, complexity, and hierarchy of authority. An organization that is high in formalization, centralization, specialization, standardization, and complexity and has a tall hierarchy of authority is said to be highly bureaucratic. An organization that is on the opposite end of each of these continua is very flexible and loose. Another alternative approach to the process of accomplishing organizational goals is to describe what is and is not important to the success of the organization rather than worry about specific characteristics. 3. Describe five structural configurations for organizations. Answer: Henry Mintzberg moved beyond the early approaches of yielding various structural configurations and proposed five structural configurations—the simple structure, the machine bureaucracy, the professional bureaucracy, the divisionalized form, and the adhocracy. The five basic parts of an organization, for Mintzberg, are the upper echelon, or strategic apex; the middle level, or middle line; the operating core, where work is accomplished; the technical staff, or technostructure; and the support staff. 4. Describe four contextual variables that influence organizational structure. Answer: The basic design dimensions and the resulting structural configurations play out in the context of the organization’s internal and external environments. Four contextual variables influence the success of an organization’s design: size, technology, environment, and strategy and goals. These variables provide a manager with key considerations for the right organizational design, although they do not determine the structure. The amount of change in the contextual variables throughout the life of the organization influences the amount of change needed in the basic dimensions of the organization’s structure. 5. Explain the forces reshaping organizations. Answer: Several forces reshaping organizations are causing managers to go beyond traditional frameworks to examine ways to make organizations more responsive to customer needs. Some of these forces include shorter organizational life cycles, globalization, and rapid changes in information technology. Together these forces increase the demands on process capabilities within the organization and emerging organizational structures. Thus to retain their health and vitality, organizations must function as open systems that are responsive to their task environment. 6. Identify and describe emerging organizational structures. Answer: Information technology and advanced communication systems have led to internetworking. Three emerging organizational structures associated with emerging changes are network organizations, virtual organizations, and the circle organization. Network organizations are weblike structures that contract some or all of their operating functions to other organizations and then coordinate their activities through managers and other employees at their headquarters. Virtual organizations are temporary network organizations consisting of independent enterprises. The circle organization is a third emerging structure, crafted by Harley-Davidson in its drive to achieve teamwork without teams. The circle organization, is a more open system than most and an organic structure for customer responsiveness. 7. Identify factors that can adversely affect organizational structure. Answer: If an organizational structure is out of alignment with its contextual variables, one or more of the following symptoms appears—delayed decision making, poor decision making, nonresponse to a changing environment, and interdepartmental conflict. Managers’ personal, cognitive biases and political ideologies affect their good judgment and decision making and may adversely affect the structure of the organization. Key Terms Organizational Design (p. 239) Organizational Structure (p. 239) Differentiation (p. 239) Integration (p. 242) Formalization (p. 243) Centralization (p. 243) Specialization (p. 243) Standardization (p. 243) Complexity (p. 243) Hierarchy of authority (p. 243) Simple Structure (p. 245) Machine Bureaucracy (p. 245) Professional Bureaucracy (p. 245) Divisionalized Form (p. 246) Adhocracy (p. 246) Contextual Variables (p. 246) Technological Interdependence (p. 248) Environment (p. 249) Task Environment (p. 249) Environmental Uncertainty (p.250) Mechanistic Structure (p.250) Organic Structure (p.250) Organizational Life Cycle (p.252) PowerPoint Guide Introduction Slide 2—Learning Outcomes LO1 Define differentiation and integration as organizational design processes. Slide 3—LO - 15.1 Slide 4—Key Organizational Design Processes: Differentiation Slide 5—Beyond the Book: Differentiation at Cisco Slide 6—Key Organizational Design Processes: Integration LO2 Discuss the basic design dimensions managers must consider in structuring an organization. Slide 7—LO - 15.2 Slide 8—Two Ways to Approach the Organizational Design Process Slide 9—Structural Dimensions LO3 Describe five structural configurations for organizations. Slide 10—LO - 15.3 Slide 11—Table 15.1: Five Structural Configurations of Organization Slide 12—Figure 15.2: Mintzberg’s Five Basic Parts of an Organization LO4 Describe four contextual variables that influence organizational structure. Slide 13—LO - 15.4 Slide 14—Contextual Variables: Size Slide 15—Contextual Variables: Technology Slide 16—Contextual Variables: Environment Slide 17—Contextual Variables: Strategy and Goals LO5 Explain the forces reshaping organizations. Slide 18—LO - 15.5 Slide 19—Forces Reshaping Organizations LO6 Identify and discuss emerging organizational structures. Slide 20—LO - 15.6 Slide 21—Emerging Structures LO7 Identify factors that can adversely affect organizational structure. Slide 22—LO - 15.7 Slide 23—Factors Affecting Organizational Structure Slide 24—Modern Shed Key Terms Slides 25—Key Terms Summary Slides 26–28—Summary Review Questions and Answers 1. Define the processes of differentiation and integration. Answer: Students’ answers will vary. Differentiation is the design process of breaking the organizational goals into tasks. Integration is the design process of linking the tasks together to form a structure that supports goal accomplishment. Differentiation: The process by which an organization divides its labor into distinct roles and departments. Integration: The process of coordinating and unifying these roles and departments to achieve organizational goals. 2. Describe the six basic dimensions of organizational design. Answer: The six dimensions include the following: •Formalization is the degree to which the organization has official rules, regulations, and procedures. •Centralization is the degree to which decisions are made at the top of the organization. •Specialization is the degree to which jobs are narrowly defined and depend on unique expertise. •Standardization is the extent to which work activities are described and performed routinely in the same way. •Complexity is the number of activities within the organization and the amount of differentiation needed within the organization. •Hierarchy of authority is the degree of vertical differentiation across levels of management. Dimensions of Organizational Design: Specialization, Departmentalization, Chain of Command, Span of Control, Centralization, and Formalization. 3. Discuss five structural configurations from the chapter. Answer: The five structural configurations were proposed by Henry Mintzberg. A simple structure is a centralized form of organization that emphasizes a small technical and support staff, strong centralization of decision making in the upper echelon, and a minimal middle level. This structure is adopted by some organizations before their growth phase and by most small organizations. •The machine bureaucracy has a specialized technical staff with limited horizontal decentralization. •The professional bureaucracy is a decentralized form of organization that emphasizes the expertise of the professionals in the operating core of the organization. •The divisionalized form is a loosely coupled, composite structural configuration composed of divisions, each of which may have its own structural configuration. •The adhocracy is a selectively decentralized form of organization that emphasizes the support staff and mutual adjustment among people. Structural Configurations: Functional, Divisional, Matrix, Team-based, and Network structures. 4. Discuss the effects of the four contextual variables on the basic design dimensions. Answer: Students’ answers will vary. The four variables are size, technology, environment, and strategy and goals. As these elements change, so will the design of the organization. In general, large organizations are more formalized, specialized, standardized, and complex than smaller ones. They also have taller hierarchies and lower centralization. Determining the relationship between technologies and basic dimensions is more complicated. James Thompson suggested that greater technological interdependence produces greater organizational complexity and the need for more decentralized decision making. One way of looking at the environment is to use Burns’s and Stalker’s perspectives. If the environment is complex, an organic structure is better. Contextual Variables: Size, Technology, Environment, and Strategy impact design dimensions by affecting complexity, coordination needs, and control mechanisms. 5. Identify four forces that are reshaping organizations today. Answer: Students’ answers will vary. Organizations are dynamic entities. As such, they ebb and flow through different cycles. Organizational life cycles refer to the differing stages in an organization’s life from birth to death. Advances in technology and product design continue to shorten organizational life cycles, creating pressure for both flexibility and efficiency. Increasing globalization forces changes in differentiation, formalization, specialization, standardization, and centralization. Changes in information-processing technologies require increased integration and coordination. Demands on organizational processes require organizations to develop structures compatible with dynamic stability in order to focus simultaneously on efficiency and quality. Forces Reshaping Organizations: Technological advancements, globalization, increasing emphasis on innovation, and changes in workforce expectations. 6. Discuss the nature of emerging organizational structures. Answer: Students’ answers will vary. The demands placed on managers and on process capabilities have shifted the emphasis in organizations to organizing around processes. New structures are characterized by the combination of three streams of applied organizational design: high-performance, self-managed teams; managing processes rather than functions; and the evolution of information technology. Emerging organizational structures include network organizations (weblike structures that contract functions to other organizations), virtual organizations (temporary network organizations), and circle organizations (organizations that adopt an open system and an organic structure focused on customer responsiveness). Emerging Structures: Include more flexible and decentralized configurations such as virtual teams, boundaryless organizations, and agile networks. 7. List four symptoms of structural weakness and five dysfunctional combinations of executive personality and organization. Answer: Symptoms of structural weakness include—(1) delayed decision making because of an overloaded hierarchy; (2) poor quality decisions because information linkages do not provide the correct information to the right person in the right format; (3) lack of innovative responses to changing environments because of poor coordination; and (4) conflict among departments because of a lack of shared strategies and goals. Five dysfunctional combinations of executive personality and organization are the paranoid, the depressive, the dramatic, the compulsive, and the schizoid. Symptoms of Structural Weakness: Poor communication, excessive bureaucracy, unclear roles, and low employee morale. Dysfunctional Combinations: High centralization with high specialization, broad spans of control with unclear reporting lines, high formalization with low employee involvement, and rigid structures in dynamic environments. Discussion and Communication Questions and Suggested Answers 1. How would you describe the organization you work for (or your college) on each of the basic design dimensions? For example, is it a very formal organization or an informal organization? Answer: Students’ answers will vary. Most students will see their organization as formal, particularly university structures. Organization Description: Describe your organization by its degree of formality, specialization, departmentalization, chain of command, span of control, and centralization. 2. Do the size, technology, and mission of your organization directly affect you? How? Answer: Students’ answers will vary. Students typically relate to the size and technology aspects of this question rather than the strategy and goals, which are harder to ascertain. Impact of Size, Technology, Mission: These factors affect workload, communication, and job roles, influencing daily tasks and organizational interactions. 3. Who are your organization’s competitors? What changes do you see in information technology where you work? Answer: Students’ answers will vary. Students are likely to identify competitors in the local market and may need to be reminded of global competition. The geographic range of competition will, of course, vary depending on the type of industry. Students will readily identify changes such as increased computerization and the use of e-mail and the Internet. Some workplaces, of course, may have more advanced technologies. Competitors and IT Changes: Identify main competitors and note advancements in IT such as new software, automation, or digital tools affecting your work environment. 4. Does your company show any one or more of the four symptoms of structural deficiency discussed at the end of the chapter? Answer: Students’ answers will vary. Students should be prompted to think about why these deficiencies occur and how they can be altered. Symptoms of Structural Deficiency: Check for poor communication, excessive bureaucracy, unclear roles, or low morale in your organization. 5. Write a memo classifying and describing the structural configuration of your university based on the five choices in Table 15.2. Do you need more information to be comfortable with your classification and description? Where could you get the information? Answer: Students should give specific examples and characteristics of the university to support their choices. Therefore, students’ answers will vary. Structural Configuration Memo: Classify your university’s structure (e.g., functional, divisional) and describe its design. Identify information gaps and sources to fill them, like organizational charts or administrative interviews. 6. Interview an administrator in your college or university about possible changes in size (Will the college or university get bigger or smaller?) and technology (Is the college or university making a significant investment in information technology?). What effects does the administrator anticipate from these changes? Be prepared to present your results orally to the class. Answer: It would be a good idea to coordinate student interviews in class so that a wide variety of administrators are approached. Class discussion can then focus on similarities and differences in the responses and how each administrator’s frame of reference influences his or her perspective on these issues. Administrator Interview: Discuss anticipated changes in size and technology with an administrator, noting effects such as increased resources, expanded services, or enhanced digital capabilities. Prepare to share findings with the class. Ethical Dilemma The purpose of the Ethical Dilemmas is to encourage students to develop their awareness of ethical issues in the workplace and the managerial challenges they present. The dilemmas are set up to present situations in which there is no clear ethical choice. The goal for the instructor is to guide students through the process of analyzing the situation and examining possible alternative solutions. There are no “right” answers to the questions at the end of each scenario, only opportunities to explore alternatives and generate discussions on the appropriateness of each alternative. The student portion of the activity is on a handout at the end of this chapter guide. Cecily’s options are to keep the current structure that is causing her company to lag behind her competitors or to eliminate managers who have been with the company a long time in order to streamline the company’s structure and regain its competitive position in the market. 1. Using the consequential, rule-based, and character theories, evaluate Cecily’s options. Answer: Consequential Theory If Cecily keeps the older, loyal managers on, the company will continue to fall farther and farther behind its competitors and will eventually go out of business, causing everyone including the older managers to have to find new jobs. If she eliminates the top executives, they will need to find new jobs, but her company will have a much better chance at regaining its competitive position in the market and she will be able to save everyone else’s jobs. Rule-Based Theory Cecily’s primary obligation is to do whatever is necessary to help her company regain its competitive position in the market. She also appears to have a self-imposed obligation to take care of the top executives who have been loyal to her company. Character Theory Cecily is concerned about how the restructuring will impact top executives who have been loyal to her company, but she is adamant about not letting the company go under. Assuming there is no middle ground or other solution, it appears her stronger value is keeping the company alive. 2. What should Cecily do? Why? Answer: Students’ answers will vary. There really isn’t much of a choice in this case. Cecily can either eliminate some jobs (i.e. top executives) or sacrifice all of her employees’ jobs. If she eliminates the top executives’ jobs, she hurts them but saves the company, fulfills her primary obligation to help the company regain its competitive position in the market, and remains true to her strongest value—that of not letting the company go under. Self-Assessments—What about You? 15.1 How Decentralized Is Your Company? Decentralization is one of the key design dimensions in an organization. It is closely related to several behavioral dimensions of an organization, such as leadership style, degree of participative decision making, and the nature of power and politics within the organization. Decentralization has also been linked to increased safety in organizations. This exercise helps students gain a sense of how decentralized their own organizations are. Students can then share their perceptions of their companies as examples during a more general discussion of decentralization. The student portion of the activity is on a handout at the end of this chapter guide. 15.2 Managers of Today and the Future This exercise asks students to consider whether the roles for managers in the organizations they work for are more oriented toward today or the future, using Table 15.7 as a reference. As students complete this exercise, they should also consider how difficult it would be for their organizations to become more oriented toward the future and what specific steps their organizations might need to take to make that transition. The student activity is on a handout at the end of this chapter guide and on a review card in the student edition of ORGB. Issues in Diversity Restructuring for the New Reality—Male Beauty Once upon a time, women made up the market for skin and hair care products, cosmetics, and fragrances. Many women now regard these items as a part of their normal routines. Packaged goods manufacturers counted on personal care items becoming a necessity, and female consumers did not disappoint. Women continue to splurge on beauty products despite overall decreases in discretionary income. According to Male Grooming Trends: Profiting in 2009 and Beyond, women dominate spending in the personal care industry. But personal care is not just for women anymore. The male grooming market, though not as lucrative as the women’s market, is expanding and has great potential for companies that position their products to meet the needs of beauty-conscious men. Proctor & Gamble (P&G) is “making a play” for these men and announced plans in early April 2009 to restructure its beauty and grooming division to “better serve ‘Him and Her.’” Ed Shirley, P&G’s global division chief, acknowledges that the company’s redesign will be a challenge. After all, P&G does not have a reputation for being the most operationally agile organization. To the contrary, it has one of the most bureaucratic structures in the industry. According to Shirley, the new structure “will require a cultural shift” in order to repair its fledgling beauty business unit and reach out to a relatively “ignored” market. Male beauty is one aspect of the new reality. Men’s needs extend beyond a simple haircut, shower, and shave. Men may no longer be satisfied with personal care products and brands that are targeted for women and may relish at the chance to buy male-only products. After all, men have distinct needs and concerns. Companies will have to change the way they do business in order to capitalize on the concerns of today’s male. That may mean following in P&G’s footsteps and redesigning their operations to fit this new reality. 1. How will P&G’s redesign affect their employment recruitment and selection practices? Answer: P&G will need to hire individuals, including males, who are specifically interested in the male beauty market at every level (R&D, marketing, sales, etc.) in order to successfully create and market products that appeal to males interested in greater availability of beauty products. 2. Discuss the contextual variables that led to P&G’s restructuring. Answer: The contextual variables that lead to P&G’s restructuring are primarily environmental. Demand for male beauty products is becoming a notable segment of the market and P&G’s customer base is experiencing that demand as well. If P&G wants to salvage its beauty business unit, it will have to change to take advantage of this expanding market. Experiential Exercises 15.1 Words-in-Sentences Company The purpose of this exercise is to understand issues of organizational design. Because the students are given a fairly easy and innocuous assignment, it is not difficult to see how the design issues of the various groups influence the success of the outcome. The student portion of the activity is on a handout at the end of this chapter guide. It is better to have several groups, so if the class is smaller, then assign groups to have only six members. By having several groups, it is possible to compare later which design worked best for this type of task. If you can, assign one observer per group so that the debrief will be richer. Using observers to “float” is highly beneficial to learning. They still have their “home” group, but they freely move throughout the various groups. This gives them much more insight and ability to give more meaningful feedback later. You should give each group the source words, preferably on a notecard or a piece of paper, so that each group gets a notecard. Some possibilities include: •Organic and mechanic •Lawrence and Lorsch •Task and design •Woodward on technology Using raw materials related to the concepts of this exercise seems to reinforce the learning. During the debrief, spend a lot of time on what the groups learned from Production Run #1 to Production Run #2. If they reorganized, how so and why? Some groups reorganize, but it is senseless. What information did they get from #1 that led them to the changes in #2? Was the outcome better? SOURCE: Dorothy Marcic, Organizational Behavior Experiences and Cases, 4th Ed. (St. Paul: West, 1995), 303–305. 15.2 Design and Build a Castle Instructor’s Notes This exercise is intended to give students an opportunity to design an organization and produce a product. Students are in groups (of 6–8 members) of one of three product-development teams working within the research and development division of the General Turret and Moat Corporation. Each of the three teams design a castle for the company to produce and sell. Given limited resources, the company cannot put more than one design on the market. Therefore, the company will have to decide which of the three designs it will use and discard the others. Students are given 45 minutes to complete the project. The student portion of the activity is on a series of handouts at the end of this chapter guide. Exercise Schedule 1. (5 minutes) Each group is designated #1, #2, or #3. Members read only one memorandum, the appropriate one for their group. One (or two for larger groups) observer is selected for each group. Observers read their materials. 2. (10 minutes) Groups design their organization in order to complete the goal. 3. (15–20 minutes) Each group designs its own castle and draws it on newsprint. 4. (5–10 minutes) “Typical consumers” (may be observers or others) tour building locations and hear sales pitches. Judges caucus to determine the winner. 5. (10–15 minutes) Groups meet again and write up the central goal statement of the group. Also, they write the organization chart on newsprint with the goal written beneath. These are posted around the room. 6. (5–15 minutes) Instructor leads a class discussion on how the different memos affected organization design. Which design seemed most effective for this task? Option 2 If there is time, have students actually build the castles. To build the castles, you may give students: a. Sheets of plain/scratch paper and tape, or b. Sheets of colored construction paper, staples and tape, or c. Paper, sheets of cardboard or tagboard, staples and tape, or d. Paper, staples, tape plus handful of shredded paper (from a paper shredder) Discussion Questions 1. What do you think made one “castle” “win” over the others? Answer: Winning Castle Factors: A castle "wins" based on innovative design, feasibility, and alignment with consumer needs. Efficiency in design and presentation can also be crucial. 2. How much difference did the “sales pitch” make? Answer: Sales Pitch Impact: The effectiveness of a sales pitch can significantly influence the decision, highlighting the importance of clear, persuasive communication. 3. Is one group’s organizing structure better than another’s? Are others more useful in different “Castle Companies” or different situations? Answer: Organizing Structure: The best structure depends on the task and context. Some structures may excel in creativity, while others in efficiency or detail. 4. Was communication influenced by any particular structure? Answer: Communication Influence: The structure affects communication flow; centralized structures may streamline decisions, while decentralized ones might enhance idea sharing. 5. What other dynamics of your group seemed to be important and influenced your final product? Answer: Group Dynamics: Effective teamwork, clear role definitions, and leadership impact the final product's quality and cohesiveness. 15.3 The Glitch that Lost Krista Instructor’s Notes This excerpt is a true story. The episode is followed by legal and human resource experts who briefly suggest how to cope with this colorful character. The student portion of the activity is on a handout at the end of this chapter guide. Many employees are overlooked and treated as if they don’t exist. With little attention and feedback, they become bored and complacent. This management problem may have encouraged Krista to “play dumb and stay lost.” Any time a company undergoes reorganization, it should include a personal meeting with every employee to explain or discuss the impact on the employee’s job. Despite the fact that the agency did not handle the reorganization appropriately, it has the right to hold Krista responsible for her actions. She should have received discipline for being AWOL. This story demonstrates an often-overlooked point. Employees have no obligation to seek out work. Whether private or public, it is management’s obligation and legal right to insist that employees perform assigned duties in a satisfactory manner. This seems obvious, but many employers are reluctant to exercise their basic right to tell employees to go back to work when such situations arise. * SOURCE: Elizabeth N. Fried, Outrageous Acts of Behavior, Intermediaries Press, Dublin Ohio, 1990. Additional Examples Speed Skill and Flexibility Cisco Systems’ organizational structure is so complex that it can take fifteen minutes and a whiteboard to fully explain. John Chambers describes the benefits simply—speed, skill, and flexibility. Cisco managers, employees, and senior leaders are on more than one management team, actually many more. The existence of multiple teams, councils, boards, and working groups within Cisco creates a web of internal integrating structures that lead to fast decisions by the right people to ensure that the company is agile, with the potential to grow even in difficult times. Strategy and Structure The classic argument is that strategy precedes structure because an increase in diversification requires a new and more decentralized structure, often called the multidivisional form of structure. There is a long line of research supporting this “structure follows strategy’ thesis. There are researchers with alternative perspectives and some argue that “strategy follows structure,” just the reverse of the classic argument. A key argument against the strategy determines structure thesis is that the business environment has changed so much over several decades that a structure determines strategy thesis is at least equally viable. This research tested both theses over a ten-year period. Corporate strategy was measured using a scale that discriminated businesses as a single business, a dominant business, or a diversified business. The organization structure was measured as a functional, a holding, a product divisional, or a geographic divisional company. The study was conducted in a new context (Spain) and during a new time (1993–2003). The results supported the classic thesis that strategy precedes structure yet found support too for the structure precedes strategy alternative perspective. This suggests that there is a dynamic, interactive effect between the strategy and the structure of an organization. While globalization and technological changes have led to new organizational forms, the classic strategy determines structure thesis is alive and well. SOURCE: J. I. Galan and M. J. Sanchez-Bueno, “The Continuing Validity of the Strategy-Structure Nexus: New Findings, 1993–2003,” Strategic Management Journal 30 (2009): 1234–1243. Faster on its Feet The complex matrix structure at Yahoo! handed multiple executives oversight over many products and new projects. This design had two key limitations, which were slow decision making and little accountability. To make Yahoo! faster on its feet, Carol Barz, incoming CEO, acted quickly to flatten the organizational structure. The new structure has all major executives in the company reporting directly to Barz. The new, streamlined structure aimed to quicken the pace of decision making while increasing accountability. Two additional pluses are a sharper focus on the core business and a greater likelihood of identifying nonperforming groups for divestiture. Case Study and Suggested Responses Alan Mulally’s Restructuring of Ford Motor Company Linkage of Case to Chapter Material The case describes the organizational structure challenges that Alan Mulally faced when he became president and CEO of Ford Motor Company. He was hired by William Clay Ford, Jr., the board chairman of Ford Motor Company and great-grandson of Henry Ford, the company’s founder, to oversee the restructuring of the company. Numerous challenges faced Mulally, including but not limited to the following—entrenched institutional work habits where managers were more concerned about their own careers than about meeting customers’ needs and desires; a management team that would not admit mistakes, share information, cooperate across divisions, or work together; a depleted pool of managerial talent; and different platforms and different product and supply chains being used for Ford cars produced in America and in Europe. Mulally took several steps to address these challenges, culminating in the formulation and implementation of the One Ford plan that focused on “[p]eople working together as a lean, global enterprise for automotive leadership, as measured by—customer, employee, dealer, investor, supplier, union/council, and community satisfaction.” In restructuring Ford Motor Company, Alan Mulally had to deal with the fundamental organization design processes of differentiation and integration. In making choices regarding how to best restructure the company to transform it and return it to profitability, Mulally considered appropriate contextual factorsespecially the external environment and strategy and goals. In moving the structure from a more mechanistic form to a more organic form, Mulally and his executive team had to consider the basic organization design dimensions of formalization, centralization, specialization, standardization, complexity, and hierarchy of authority. The student portion of the activity is on a handout at the end of this chapter guide. SUGGESTED ANSWERS FOR DISCUSSION QUESTIONS 1. What are the key structural issues that Alan Mulally encountered as the incoming president and CEO of Ford Motor Company? Answer: When Alan Mulally took over as president and CEO of Ford Motor Company, he had to address the following structural issues: •Entrenched institutional work habits where managers were more concerned about their own careers than about meeting customers’ needs and desires. •A management team that would not admit mistakes, share information, cooperate across divisions, or work together. •A depleted pool of managerial talent. •Ford cars produced for Europe were entirely different from U.S. carsthey used different platforms and different product and supply chains. •Severe pressures on product mix, product prices, and sales volume. •Slow product development. •An out-of-control cost structure and large cash-burn rates. •Relentless competition. 2. How has Alan Mulally addressed the structural issues identified in the previous question? Answer: Mulally’s approach to addressing the structural issues are captured in his June 2007 interview with a reporter from Institutional Investor magazine. Mulally said, “[w]e want to aggressively restructure the entire business to be profitable in the face of lower demand and a changing model mix. That means accelerating the development of products and services that customers really want, especially smaller and more fuel-efficient vehicles. We’ve secured financing that will help us achieve those goals, and we are further developing relationships with our dealer and supplier network. The whole value chain needs to be restructured in the same way and be prepared for the new products and services.” These various efforts are pulled together under Mulally’s One Ford plan which, among other things, sets forth Ford’s strategic goalswhich is the focus of the next discussion question. 3. Explain the context that Ford’s strategic goals provide for the design of its organizational structure. Answer: Insight into Ford’s strategic goals can be gained from the company’s One Ford plan. A key planning premise of One Ford is “[p]eople working together as a lean, global enterprise for automotive leadership, as measured by—customer, employee, dealer, investor, supplier, union/council, and community satisfaction.” The One Ford plan is intended to overcome the hyper-competitive atmosphere at the corporate level. The plan requires people to become more collaborative to be successful. The plan also requires the company to work toward building a high level of flexibility into its assembly operationsa level of flexibility that is based on global car platforms and the capability of plants to quickly switch model mixes to better react to customer preferences. 4. Explain the context that Ford’s external environment provides for both its strategic goals and the design of its organizational structure. Answer: The external environment is one of the contextual variables that influence an organization’s choices about strategic goals and the structure that is best suited in enabling the organization to achieve those goals. Ford operates in a highly competitive environment, with numerous foreign and domestic manufacturers vying to lure the car- and truck-buying public to purchase their vehicles. Numerous suppliers exist within the United States and around the world. The dealership network is far-flung and complex. Perhaps most importantly, the customers are increasingly demanding more fuel-efficient vehicles as well as vehicles that are of higher quality and still have a reasonable cost. These contextual factors create greater environmental uncertainty, which in turn influence Ford’s choice of strategic goals and the design of its organization structure. The intent of effectively responding to increasing environmental uncertainty is manifested in the strategic goals that derive from the One Ford planning premise of “[p]eople working together as a lean, global enterprise for automotive leadership, as measured by—customer, employee, dealer, investor, supplier, union/council, and community satisfaction.” Building flexibility into the company’s operating structure and promoting collaboration is a move toward a more organic organization structurean organization form that better positions Ford to cope with increased environmental uncertainty. 5. Would a network (or lattice) organization be a viable structural alternative for Ford Motor Company? Explain your answer. Answer: A network organization performs only certain core functions and outsources the remaining functions to other companies (or organizational units). Consequently, the network organization is able to focus on its core competenciesdoing what it does best. The network organization is able to maintain greater flexibility in responding to environmental demands and challenges. A fairly common type of network organization is one which helps the network company to focus on designing and marketing a product and to contract with other companies for the manufacturing and/or distribution of the product. Increasingly, network companies are outsourcing more and more elements of operating and managing the entire supply chain in order to concentrate on their core competencies. The network organization differs from more traditional organizations in the performance of critical organizational functions. In a traditional organization, these critical functions are performed in-house rather than being outsourced to other companies. Thus, organizations with more traditional structures design them to accomplish differentiation and integration within the boundaries of the firm (or organizational unit) itself. In network organizations, differentiation and integration transcend the boundaries of the firm (or organizational unit) in the partnering alliance. Although Ford Motor Company has long had a traditional organizational structure, there is evidence that it is moving rapidly in the direction of becoming more like a network (or lattice) organization. Among the evidence that could be cited in support of this is the effort Ford is putting into developing the dealer and supplier network and in restructuring the whole value chain to be prepared for new products and services. Another evidentiary element is the key One Ford planning premise of “[p]eople working together as a lean, global enterprise for automotive leadership, as measured by—customer, employee, dealer, investor, supplier, union/council, and community satisfaction.” In addition, network organizations have come into being for at least three major reasons—advancing technology, environmental uncertainty, and the need to utilize resources more productively. Each of these factors substantially affects Ford as it seeks to be successful in the highly competitive environment in which it operates. SOURCE: This case solution was written by Michael K. McCuddy, The Louis S. and Mary L. Morgal Chair of Christian Business Ethics and Professor of Management, College of Business, Valparaiso University. Video Profile on Modern Shed Like his stylish sheds, Ryan Smith’s company is built to be adaptive, scalable, and suited to the needs of the environment. Modern Shed counts only 12 to 14 full time employees in the firm’s Seattle office; however, at times the company’s output rivals that of a large builder, due to close collaboration with a network of 35 independent contractors who specialize in everything from construction to sales. According to Smith, partnering with outside specialists is the most efficient, effective, and flexible way to run a startup company. Small, flexible, responsive—these are the qualities that have enabled Modern Shed to thrive even during an economic recession. Discussion Questions and Solutions 1. How did Ryan Smith determine whether his company needed a mechanistic structure with a tall vertical hierarchy or an organic one involving free-flowing partnerships? Answer: Students’ answers will vary. A firm’s organizational structure is determined by the company’s contextual variables, including size, technology, environment, and business strategy. Modern Shed designs innovative and customizable dwellings for a rapidly changing niche market, and the company’s virtual network allows for greater innovation, flexibility, and differentiation in an uncertain, dynamic environment. Moreover, Modern Shed’s size—less than 20 full time employees—is another factor in Smith’s choice of organizational design. Whereas large manufacturers have the personnel and equipment to create and assemble products in house, Modern Shed has few resources. The company’s small size and limited resources force owner Ryan Smith to outsource many business processes. Structure Determination: Ryan Smith chose an organic structure with free-flowing partnerships to maintain flexibility and responsiveness, avoiding the rigidity of a mechanistic structure. 2. What are the advantages and disadvantages of Modern Shed’s organizational structure? Answer: Students’ answers will vary. Two advantages of Modern Shed’s organizational structure include responsiveness to market needs and access to highly skilled personnel, without the high payroll costs. Disadvantages include lack of control over outside supply chain partners, high task demands for managers, and uncertain loyalty from independent contractors. As discussed in the video, Modern Shed’s marketing and sales activities are outsourced to independent marketing consultants. Likewise the company’s manufacturing process involves close collaboration with dozens of outside vendors who specialize in the creation and delivery of components used in the sheds—everything from paneling and electric to hardware and transport. The contractors coordinate through monthly conference calls, and they come together to build projects and product lines as planned by managers at Modern Shed’s Seattle office. Advantages and Disadvantages: Advantages include flexibility, adaptability, and cost-effectiveness. Disadvantages might be less control over quality and potential coordination challenges with contractors. 3. Give an example of how Modern Shed’s structure enables fast response to rapidly changing market opportunities. Answer: Students’ answers will vary. In the video, Modern Shed’s sales consultant Scott Pearl details how the company’s structure allows owner Ryan Smith to respond quickly to opportunities in the market. “We were recently approached by a nationally recognized home-and-garden expert who wanted us to create an entirely new product line of Modern Shed,” said Pearl. “The fact that Ryan can just drop everything and focus on this, get the team focused on it, and actually come up with a brand new product in under eight weeks is phenomenal. It could not be done unless the organization was nimble like we are.” Example of Fast Response: Modern Shed’s structure allows quick adaptation to market trends by leveraging its network of contractors, enabling rapid adjustment of designs and production to meet emerging demands. Student Handouts Ethical Dilemma Even as Cecily Blake reads the latest news in an industry trade publication, she’s well aware that Blake-Lyon Tech is falling behind its competitors. Years ago, when Cecily founded Blake-Lyon, she centered it in a pure hierarchal structure, where all of the engineers and technicians reported upward to her. At the time, she was able to steer the organization toward new and more innovative products and procedures; now, as competition grows, Cecily is aware that Blake-Lyon cannot keep up. One significant problem facing the company is the slow pace of communication. Blake-Lyon is committed to hiring the finest technicians and personnel, but lags behind its competitors because it is slow to respond to market changes. Because every new concept must go through each channel, including departments that have little to no impact on decision making, Blake-Lyon is no longer at the forefront of the industry—even though Cecily knows that her workers are more than capable of creating better technology quicker. Part of Cecily’s great reservation in changing the structure of her company is the impact on her top executives. They are effective managers who have been with the company a long time and have been loyal, effective employees. Most of them have been with her from the beginning and are largely responsible for the growth of Blake-Lyon, especially in such a competitive, high-turnover environment. Cecily doesn’t want to turn her back on the very people who help her create such a successful organization. However, so many layers of managers through which all decisions need to pass are making Blake-Lyon a dinosaur in the fast-paced technology industry. She won’t allow her company to go under; everyone would be hurt by that. But the change would force the elimination of these well respected, loyal executives who are at an age that would make it difficult for them to find new jobs. Questions 1. Using consequential, rule-based and character theories, evaluate Cecily’s options. Answer: Evaluation: • Consequential Theory: Cecily should consider the greater good for the company, which may involve restructuring to improve competitiveness, despite the personal cost to her executives. • Rule-Based Theory: Cecily must weigh whether her actions adhere to principles of fairness and transparency, possibly requiring clear communication and support for affected employees. • Character Theory: As a leader, Cecily should act with integrity and empathy, balancing the need for organizational efficiency with respect for her long-serving employees. 2. What should Cecily do? Why? Answer: Recommendation: Cecily should restructure the organization to enhance responsiveness and competitiveness, while implementing a supportive transition plan for her executives, including retirement benefits or outplacement services, to honor their contributions and mitigate personal impact. What about You? How Decentralized Is Your Company? Decentralization is one of the key design dimensions in an organization. It is closely related to several behavioral dimensions of an organization, such as leadership style, degree of participative decision making, and the nature of power and politics within the organization. The following questionnaire allows you to get an idea about how decentralized your organization is. (If you do not have a job, have a friend who does work complete the questionnaire to see how decentralized his or her organization is.) Which level in your organization has the authority to make each of the following eleven decisions? Answer the questionnaire by circling one of the following: 0 = The board of directors makes the decision. 1 = The CEO makes the decision. 2 = The division/functional manager makes the decision. 3 = A subdepartment head makes the decision. 4 = The first-level supervisor makes the decision. 5 = Operators on the shop floor make the decision. Decision Concerning: Circle Appropriate Level a. The number of workers required. Answer: 2 (Division/functional manager) b. Whether to employ a worker. Answer: 2 (Division/functional manager) c. Internal labor disputes. Answer: 3 (Subdepartment head) d. Overtime worked at shop level. Answer: 4 (First-level supervisor) e. Delivery dates and order priority. Answer: 2 (Division/functional manager) f. Production planning. Answer: 2 (Division/functional manager) g. Dismissal of a worker. Answer: 3 (Subdepartment head) h. Methods of personnel selection. Answer: 1 (CEO) i. Method of work to be used. Answer: 3 (Subdepartment head) j. Machinery or equipment to be used. Answer: 2 (Division/functional manager) k. Allocation of work among workers. Answer: 4 (First-level supervisor) What about You? Managers of Today and the Future Are the roles for managers in your organization more oriented toward today or toward the future? (If you do not work, think of an organization where you have worked or talk with a friend about managerial roles in his or her organization.) Roles of Managers Today 1. Strictly adhering to boss–employee relationships. 2. Getting things done by giving orders. 3. Carrying messages up and down the hierarchy. 4. Performing a prescribed set of tasks according to a job description. 5. Having a narrow functional focus. 6. Going through channels, one by one by one. 7. Controlling subordinates. Roles of Future Managers 1. Having hierarchical relationships subordinated to functional and peer relationships. 2. Getting things done by negotiating. 3. Solving problems and making decisions. 4. Creating the job by developing entrepreneurial projects. 5. Having broad cross-functional collaboration. 6. Emphasizing speed and flexibility. 7. Coaching their workers Step 1. Check which orientation (today or future) predominates in your organization for each of the following seven characteristics: Step 2. Examine the degree of consistency across all seven characteristics. Could the organization make one or two structural changes to achieve a better alignment of the manager’s role with today or with the future? Step 3. Identify one manager in your organization who fits very well into the organization’s ideal manager’s role. What does this manager do that creates a good person–role fit? Step 4. Identify one manager in your organization who does not fit very well into the organization’s ideal manager’s role. What does this manager do that creates a poor person–role fit? SOURCE: Reprinted by permission of the publisher, from Management Review, January 1991 © 1991. Thomas R. Horton. American Management Association, New York. All rights reserved. Issues in Diversity Restructuring for the New Reality—Male Beauty Once upon a time, women made up the market for skin and hair care products, cosmetics, and fragrances. Many women now regard these items as a part of their normal routines. Packaged goods manufacturers counted on personal care items becoming a necessity, and female consumers did not disappoint. Women continue to splurge on beauty products despite overall decreases in discretionary income. According to Male Grooming Trends—Profiting in 2009 and Beyond, women dominate spending in the personal care industry. But personal care is not just for women anymore. The male grooming market, though not as lucrative as the women’s market, is expanding and has great potential for companies that position their products to meet the needs of beauty-conscious men. Proctor & Gamble (P&G) is “making a play” for these men and announced plans in early April 2009 to restructure its beauty and grooming division to “better serve ‘Him and Her.’” Ed Shirley, P&G’s global division chief, acknowledges that the company’s redesign will be a challenge. After all, P&G does not have a reputation for being the most operationally agile organizations. To the contrary, it has one of the most bureaucratic structures in the industry. According to Shirley, the new structure “will require a cultural shift” in order to repair its fledgling beauty business unit and reach out to a relatively “ignored” market. Male beauty is one aspect of the new reality. Men’s needs extend beyond a simple haircut, shower, and shave. Men may no longer be satisfied with personal care products and brands that are targeted for women and may relish at the chance to buy male-only products. After all, men have distinct needs and concerns. Companies will have to change the way they do business in order to capitalize on the concerns of today’s male. That may mean following in P&G’s footsteps and redesigning their operations to fit this new reality. Questions 1. How will P&G’s redesign affect their employment recruitment and selection practices? Answer: Impact on Recruitment and Selection: P&G's redesign will likely necessitate a shift in recruitment to attract candidates skilled in innovative product development and agile management. The company may prioritize hiring individuals with experience in male grooming products and market strategies, and seek to enhance diversity within its teams to better understand and address male consumer needs. 2. Discuss the contextual variables that led to P&G’s restructuring. Answer: Contextual Variables Leading to Restructuring: P&G’s restructuring is driven by the expanding male grooming market, the need to adapt to evolving consumer preferences, and the company's current bureaucratic structure. The company faces increased competition and seeks to address the distinct needs of male consumers, requiring a cultural shift and operational agility. SOURCE: E. Byron, “P&G Makes a Bigger Play for Men,” The Wall Street Journal (April 29, 2009): B8; “Male Grooming Continues to Grow,” GCIMagazine.com (March 11, 2009), http://www.gcimagazine.com/marketstrends/consumers/men/41099052.html, accessed July 26, 2009. Experiential Exercise Words-in-Sentences Company Purpose: To design an organization for a particular task and carry through to production; to compare design elements with effectiveness. Group Size: Any number of groups of six to fourteen persons. Time Required: Fifty to ninety minutes. Related Topics: Dynamics within groups and work motivation. Background: You are a small company that manufactures words and then packages them in meaningful English-language sentences. Market research has established that sentences of at least three words but not more than six words are in demand. Therefore, packaging, distribution, and sales should be set up for three- to six-word sentences. The “words-in-sentences” (WIS) industry is highly competitive; several new firms have recently entered what appears to be an expanding market. Since raw materials, technology, and pricing are all standard for the industry, your ability to compete depends on two factors—(1) volume and (2) quality. Your Task: Your group must design and participate in running a WIS company. You should design your organization to be as efficient as possible during each ten-minute production run. After the first production run, you will have an opportunity to reorganize your company if you want. Raw Materials: For each production, you will be given a “raw material word or phrase.” The letters found in the word or phrase serve as raw materials available to produce new words in sentences. For example, if the raw material word is “organization,” you could produce the words and sentence—“Nat ran to a zoo.” Production Standards: Several rules must be followed in producing “words-in-sentences.” If these rules are not followed, your output will not meet production specifications and will not pass quality-control inspection. 1. The same letter may appear only as often in a manufactured word as it appears in the raw material word or phrase; for example, “organization” has two o’s. Thus, “zoo” is legitimate, but not “zoonosis.” It has too many o’s and s’s. 2. Raw material letters can be used again in different manufactured words. 3. A manufactured word may be used only once in a sentence and in only one sentence during a production run; if a word—for example, “a”—is used once in a sentence, it is out of stock. 4. A new word may not be made by adding “s” to form the plural of an already manufactured word. 5. A word is defined by its spelling, not its meaning. 6. Nonsense words or nonsense sentences are unacceptable. 7. All words must be in the English language. 8. Names and places are acceptable. 9. Slang is not acceptable. Measuring Performance: The output of your WIS company is measured by the total number of acceptable words that are packaged in sentences. The sentences must be legible, listed on no more than two sheets of paper, and handed to the Quality Control Review Board at the completion of each production run. Delivery: Delivery must be made to the Quality Control Review Board thirty seconds after the end of each production run, or else all points are lost. Quality Control: If any word in a sentence does not meet the standards set forth above, all the words in the sentence will be rejected. The Quality Control Review Board (composed of one member from each company) is the final arbiter of acceptability. In the event of a tie on the Review Board, a coin toss will determine the outcome. Exercise Schedule Unit Time Total Time 1. Form groups, organizations, and assign workplaces 2–5 min. 2–5 min. Groups should have between six and fourteen members (if there are more than eleven or twelve persons in a group, assign one or two observers). Each group is a company. Answer: Form Groups, Organizations, and Assign Workplaces (2–5 min): Quickly establish groups of 6–14 members. Assign roles and set up work areas for each group, ensuring each has an observer if needed. 2. Read “Background” 5 min. 10 min. Ask the instructor about any points that need clarification. Answer: Read Background (5 min): Each group reads the provided background information. Clarify any questions with the instructor. 3. Design organizations 7–15 min. 14–25 min. Design your organizations using as many members as you see fit to produce your “words-in-sentences.” You may want to consider the following. a. What is your objective? b. What technology would work here? c. What type of division of labor is effective? Assign one member of your group to serve on the Quality Review Board. This person may also take part in production runs. Answer: Design Organizations (7–15 min): • Objective: Define the goal for producing “words-in-sentences” (WIS). • Technology: Decide on organizational structures and communication tools to efficiently produce WIS. • Division of Labor: Determine how tasks will be divided among members to maximize efficiency. • Quality Review Board: Assign a member to this role, who will also participate in production. 4. Production Run #1 7–10 min. 21–35 min. The instructor will hand each WIS company a sheet with a raw material word or phrase. When the instructor announces “Begin production,” you are to manufacture as many words as possible and package them in sentences for delivery to the Quality Control Review Board. You will have ten minutes. When the instructor announces “Stop production,” you will have thirty seconds to deliver your output to the Quality Control Review Board. Output received after thirty seconds does not meet the delivery schedule and will not be counted. Answer: minutes to create and package sentences. Deliver to the Quality Control Review Board within 30 seconds after "Stop production." 5. Quality Review Board meets, evaluates output 5–10 min. 26–45 min. While that is going on, groups discuss what happened during the previous production run. Answer: sentences produced. Groups discuss their performance and issues faced during the run. 6. Companies evaluate performance and type of organization 5–10 min. 31–55 min. Groups may choose to restructure and reorganize for the next production run. Answer: their performance, considering possible restructuring to improve efficiency for the next run. 7. Production Run #2 (same as Production Run #1) 7–10 min. 38–65 min. Answer: production process again, following the same procedures as Run 1. 8. Quality Review Board meets 5–10 min. 43–75 min. Quality Review Board evaluates output while groups draw their organization charts (for Runs #1 and #2) on the board. Answer: update their organization charts reflecting any changes made. 9. Class discussion 7–15 min. 50–90 min. Instructor leads discussion of exercise as a whole. Discuss the following questions: a. What were the companies’ scores for Runs #1 and #2? b. What type of structure did the “winning” company have? Did it reorganize for Run #2? c. What type of task was there? Technology? Environment? d. What would Joan Woodward, Henry Mintzberg, Frederick Taylor, Lawrence and Lorsch, or Burns and Stalker say about WIS Company organization? Answer: • a. Scores for Runs 1 and 2. • b. Structure of the “winning” company and whether it changed for Run 2. • c. Type of task, technology, and environment involved. • d. Theories from Woodward, Mintzberg, Taylor, Lawrence and Lorsch, or Burns and Stalker regarding WIS organization. SOURCE: “Words-in-Sentences Company” in Dorothy Marcic, Organizational Behavior: Experiences and Cases, 4th ed. (St. Paul: West, 1995), 303–305. Reprinted by permission. Experiential Exercise Design and Build a Castle This exercise is intended to give your group an opportunity to design an organization and produce a product. Your group is one of three product-development teams working within the research and development division of the GTM (General Turret and Moat) Corporation. GTM has decided to enter new markets by expanding the product line to include fully designed and produced castles, rather than selling components to other companies, as it has in the past. Each of the three teams has been asked to design a castle for the company to produce and sell. Given its limited resources, the company cannot put more than one design on the market. Therefore, the company will have to decide which of the three designs it will use and will discard the other two designs. Your task is to develop and design a castle. You will have forty-five minutes to produce a finished product. At the end of this period, several typical consumers, picked by scientific sampling techniques, will judge which is the best design. Before the consumers make their choice, each group will have one to two minutes to make a sales presentation. Step 1. Each group is designated either 1, 2, or 3. The instructor will provide group members a memorandum appropriate for their group. One (or two for larger groups) observer is selected for each group. Observers read their materials. Step 2. Groups design their organization in order to complete their goal. Step 3. Each group designs its own castle and draws it on newsprint. Step 4. “Typical consumers” (may be observers) tour building locations and hear sales pitches. Judges caucus to determine winner. Step 5. Groups meet again and write up their central goal statement. They also write the organization chart on newsprint with the goal written beneath. These are posted around the room. Step 6. Instructor leads a class discussion on how the different memos affected organization design. Which design seemed most effective for this task? NOTE: Your instructor may allow more time and actually have you build the castles. SOURCE: “Design and Build a Castle” from Dorothy Marcic and Richard C. Housley, Organizational Behavior: Experiences and Cases (St. Paul: West, 1989), 221–225. Reprinted by permission. Experiential Exercise Design and Build a Castle MEMORANDUM TO: PROJECT TEAM #1 FROM: Edward Grimsbsy Bullhouse, III Chief Executive Officer General Turret and Moat Corporation SUBJECT: Development of new castle product In order to perform effectively and to develop a useful product for our firm, I have decided that __________ will serve as manager of product-development team #1. It is __________ responsibility to see that the team develops a useful and feasible product, and I hope that all of you will cooperate with __________ in this effort. Answer: Alex Johnson, Alex, Alex Experiential Exercise Design and Build a Castle MEMORANDUM TO: PROJECT TEAM #2 FROM: Edward Grimsbsy Bullhouse, III Chief Executive Officer General Turret and Moat Corporation SUBJECT: Development of new castle product In order to perform effectively and to develop a useful product for our firm, I am asking that you select one of your team to serve as manager of product-development team #2. I trust that you will also determine and select any committees, task forces, subgroups, etc., that are needed in order to perform your job. Experiential Exercise Design and Build a Castle MEMORANDUM TO: PROJECT TEAM #3 FROM: Edward Grimsbsy Bullhouse, III Chief Executive Officer General Turret and Moat Corporation SUBJECT: Development of new castle product In order to perform effectively and to develop a useful product for our firm, I am asking that each of you put forth your maximum effort. I trust that you will provide us with a worthwhile product that can contribute to the profits of the firm. Experiential Exercise Design and Build a Castle Observer’s Guide During the course of the building period, observe what is happening within your particular group. Specifically, you should look for the following things. 1. What was the reaction of the group to the memorandum? Answer: The group’s reaction to the memorandum varied; some were enthusiastic while others seemed confused or hesitant. 2. What was the basic structure of the group? Answer: The basic structure involved a designated manager and sub-teams for different tasks, reflecting a hierarchical approach. 3. To what degree did people specialize and work on the same particular part of the overall task? How did this specialization come about? Answer: Specialization occurred naturally, with members focusing on specific parts of the castle design based on their strengths and interests. 4. Who was (were) the leader(s) of the group? How was leadership determined? How effective was the leadership in helping the group to perform its task? Answer: Leadership was determined by assigning a manager, who guided the team and made key decisions. Leadership was effective in maintaining focus and organization. 5. Were there any specific patterns of communication among members of the group, or did everyone talk with everyone else? Answer: Communication was generally open, with regular discussions among all members to ensure collaboration and integration. 6. How were important decisions made? Did you see conflicts or were decisions made cooperatively and with compromise? Answer: Important decisions were made through group discussions and consensus, though some conflicts arose and required compromise. 7. Other general observations. Answer: Other observations include varying levels of engagement and enthusiasm among team members. Be prepared to discuss these insights. 8. After the session, be prepared to discuss your observation with the entire group. Answer: After the session, be prepared to discuss your observations with the entire group, including the group's reaction to the memorandum, the organizational structure, specialization and task division, leadership dynamics, communication patterns, decision-making processes, and any notable general observations. This discussion should focus on how these elements influenced the group's performance and the overall effectiveness of the project. Experiential Exercise The Glitch that Lost Krista Chase was quite pleased. He was instrumental in redesigning the organization and implementing the communication program. He arranged for small-group meetings so that employees could understand the need for reorganization. The process took him nearly a month of continuous meetings, but the response was favorable. The employees cooperated and helped make the transition very smooth. After six weeks, the first productivity report showed a fifteen percent decrease in expenses, and morale seemed stable. The agency had plans to administer a work climate study after twelve months. Chase was immersed in the glowing productivity report when his assistant, Suzanne, walked in his office. “Here they are, fresh off the presses, our first run since the reorganization,” Suzanne chirped. Chase looked up from his desk puzzled, “What?” “The performance review reminders,” Suzanne responded. “You know, every month we get a printout for those employees due for their annual performance review. They have little computer-generated postcards that we send out to the managers.” “Oh, right, right. Go ahead and send them out,” Chase said, still preoccupied with his productivity report. Several days later he got a call from Gordon Fishman, the information officer. “Say, Chase,” Gordon began, “I just got the computer reminder to give Krista Reed, one of my former clerks, her performance review. Since we reorganized, Krista doesn’t work for me anymore.” Krista was fairly far down in the organization, so her name would not show up on the major charts. Chase remembered hiring her about three years ago for a simple, routine clerk job. She was rather plain, not very bright, but quite pleasant. When her performance reviews had crossed his desk, there was nothing unusual. They were mostly peppered with satisfactoriness. She had received only one promotion in three years and tended to blend right into the agency. “Well, what happened to her?” Chase asked. “I’m not really sure, but I think she’s reporting to Bill Acton in Administration. Try him” Gordon responded. Chase looked up Bill’s extension. “Say, Bill, this is Chase Vidmar. We have a performance appraisal due on Krista Reed, and I understand she reports to you now.” “Krista Reed: Nope, not me. I think she was shipped over to Tracy Karras after the reorganization. Give Tracy a call,” Bill suggested. Chase tapped out Tracy’s four-digit extension. “Ms. Karras’s office, Jane speaking.” “Hi, Jane, this is Chase Vidmar. Is Tracy available?” “Sorry, Mr. Vidmar, but Tracy is out of the office at a meeting with one of our vendors.” “Oh,” he paused, “well, maybe you can help me. Does Krista Reed report to your section?” “That name doesn’t sound familiar, but I’ll check. Can you hold?” “Sure.” Chase waited while he scanned his own personnel computer runs. There was Krista Reed’s name all right. She still retained Gordon Fishman’s budget code, but the section reassignment code was blank. That’s why the performance appraisal reminder defaulted to Gordon. “Where the hell could she be?” he thought. Jane returned to the line. “Sorry, Mr. Vidmar, but we don’t have her here.” “Thanks, Jane.” Chase rang off and sat at his desk bewildered. The agency had over two thousand people and he wasn’t about to send out a missing-rewards memo on Krista. She was getting her paycheck. That must be a clue. “Rats,” he thought, after he checked with payroll. “My luck, she has her pay direct-deposited, with the confirmation mailed to her home.” Her home, he thought, “maybe she’s at home. I’ll try there.” For an entire week, Chase periodically called Krista’s number—no answer or busy. He was getting very frustrated. Chase usually worked through his lunch, grabbing some junk food from the vending machine. Today he felt especially hungry for some reason, so he ventured into the employee cafeteria. He filled his tray from the deli bar and passed through the register. Seated a few tables from the register was Krista Reed! Chase couldn’t believe his eyes. His surprise almost caused him to set his Coke off balance. He regained control and casually sauntered over to Krista, who was seated with some other women. There was an available seat across from her. “Mind if I join you?” Chase asked politely. “Sure, no problem,” Krista smiled. “So, Krista, it’s been a long time since we’ve talked. How have you been?” “Pretty good.” “So where are you working now that we’ve reorganized?” he asked. “I’m glad you asked,” she responded sincerely. “When everyone got their printout of where to be reassigned, the section for me was blank. My boss was tied up in meetings that day, so I didn’t get to discuss it with him. Even though the move wasn’t scheduled for two weeks, I wasn’t able to get to him because I left that Friday for my two-week vacation. So, when I returned, everyone was in his or her new offices, and my boss, as you know, was shipped over to Building G across the complex. My section was split three ways, so I didn’t even know which group to follow and haven’t known what to do. I’ve felt really lost and kind of upset that the agency has forgotten about me. So I just came to work and visited with friends in the various break rooms, and then I’d sit through all three lunch sessions. That part has been a lot of fun, but to tell the truth, I’ve been getting kinda bored.” “That’s terrible, Krista,” Chase feigned sympathetically. “And not only that,” she added, “with all these lunches I’ve eaten over the past several weeks, I’ve gained nearly eight pounds!” Chase was astounded. He knew Krista wasn’t a rocket scientist, but how could she spend over a month occupying her day having one long lunch, just hoping someone might notice? Incredibly, no one did notice, and Krista appeared deadly serious and wholly sincere. Rather than embarrass himself and the whole agency for the major snafu, Chase politely suggested to Krista that she return with him to his office. He reviewed the organizational design study and determined where Krista should logically be located. Chase contacted the section manager and notified him that he was sending Krista on up. Then he put a change action through to the computer to ensure that the elusive Krista would once again have a home. Questions 1. What type of organizational structure is this most likely to have occurred in? Answer: This issue most likely occurred in a bureaucratic or mechanistic structure with rigid hierarchies and complex processes. 2. What organizational response should have taken place to prevent this situation? Answer: To prevent this, the organization should have implemented a robust communication system and follow-up procedures during the restructuring to ensure no employees were left without proper reassignment. 3. Do you believe this could happen in a restructuring company? Answer: Yes, such situations can indeed occur in companies undergoing restructuring if communication channels and tracking systems are not properly managed. Case Study Alan Mulally’s Restructuring of Ford Motor Company In September 2006, William Clay Ford, Jr., the Board Chairman of Ford Motor Company and great-grandson of Henry Ford, the company’s founder, hired Alan Mulally away from the Boeing Company to be Ford’s President and CEO and to oversee the restructuring of the company. In his first few months as President and CEO, Mulally’s efforts were “focused on getting Ford leaner. He sold its Aston Martin division and announced a series of plant closures and layoffs that he says [would] return the company, which lost a staggering $12.7 billion in 2006, to profitability.” Shortly after taking over as Ford’s President and CEO, Mulally delivered “a Vince Lombardi ‘What are we made of?’ speech [to his top management team]. It wasn’t good enough just to say we’re going to cut costs and speed up product development, we also have to say we cannot keep going the way we’re going. Continuing to do what we’ve been doing is not going to create a viable Ford.” In late 2006, Robert Barry, an analyst with Goldman Sachs, argued that Ford’s restructuring would be a mammoth, multiyear effort; and he expressed doubt that Ford could be successful given relentless competition; a depleted pool of managerial talent; large cash-burn rates; and severe pressures on product mix, product prices, and sales volume. However, writing in Bloomberg BusinessWeek in June 2007, David Kiley observed, “[j]ust eight months into the job, Mulally is working hard to change institutional work habits that took years to develop. He wants managers to think more about customers than their own careers. He has made it a top priority to encourage his team to admit mistakes, to share more information, and to cooperate across divisions. He’s holding everybody’s feet to the fire with tough operational oversight and harsh warnings about Ford’s predicament.” In commenting on plans for Ford’s future in a June 2007 interview with a reporter from Institutional Investor magazine, Mulally said—“We want to aggressively restructure the entire business to be profitable in the face of lower demand and a changing model mix. That means accelerating the development of products and services that customers really want, especially smaller and more fuel-efficient vehicles. We’ve secured financing that will help us achieve those goals, and we are further developing relationships with our dealer and supplier network. The whole value chain needs to be restructured in the same way and be prepared for the new products and services.” In the summer of 2010, James Tetreault, Vice President of Ford’s North American manufacturing, spoke about the restructuring of the company under Mulally’s One Ford plan. Tetreault “noted that the company previously lacked commitment to a strategy, illustrated by the fact that ‘One Ford’the automaker’s plan to transform its business to deliver profitable growth‘is the first three-and-a-half year plan I’ve been on.’ That’s because in the past there had always been another plan rapidly coming down the line.” Tetreault also said that a key to the success of the One Ford plan was to overcome the hyper-competitive atmosphere at the corporate levelpeople had to change and figure out how to work together; they had to become more collaborative to be successful. The One Ford plan also addressed a significant structural problem associated with the production of cars for the U.S. and European markets. “[U]ntil very recently Ford cars produced for Europe were entirely different than U.S. carsdifferent platform, different suppliers, ‘different everything,’ and [it was] expensive to maintain these separate product and supply chains.” Under the One Ford plan, the company is now working toward building a high level of flexibility into its assembly operations. This flexibility will be driven by global car platforms and “an emphasis on transforming plants to quickly switch model mixes to better react to customer preferences.” This reflects the key One Ford planning premise of—“People working together as a lean, global enterprise for automotive leadership, as measured by—customer, employee, dealer, investor, supplier, union/council, and community satisfaction.” In less than four years as President and CEO, Mulally steered Ford away from the brink of disaster, rallying the company around a four-point mantra printed on a card that Ford employees can carry in their wallets, cutting labor costs by 22 percent, and slashing the number of vehicle models Ford produced from 97 to 20. “The moves paid off. In 2009 Ford made a $2.7 billion profit; by early 2010, the company had earned ‘car of the year’ and ‘truck of the year’ awards from the auto press and its stock price rose 700% from its 52-week low.” Will Alan Mulally’s leadership of Ford’s restructuring serve the company well into the future? Discussion Questions 1. What are the key structural issues that Alan Mulally encountered as the incoming President and CEO of Ford Motor Company? Answer: Key structural issues included a lack of cohesive strategy, separate product lines for U.S. and European markets, and inefficient collaboration among divisions. 2. How has Alan Mulally addressed the structural issues identified in the previous question? Answer: Mulally addressed these issues by implementing the "One Ford" plan, fostering collaboration, streamlining product lines, and standardizing global platforms to enhance flexibility. 3. Explain the context that Ford’s strategic goals provide for the design of its organization structure. Answer: Ford’s strategic goals required a unified structure to streamline operations, reduce costs, and focus on customer-driven product development. 4. Explain the context that Ford’s external environment provides for both its strategic goals and the design of its organization structure. Answer: Ford’s external environment necessitated adapting to market changes, competition, and consumer preferences, influencing the need for a flexible, global organizational structure. 5. Would a network (or lattice) organization be a viable structural alternative for Ford Motor Company? Explain your answer. Answer: A network (or lattice) organization could enhance flexibility and collaboration but might be challenging given Ford’s need for tight control and integration across global operations. SOURCE: THIS CASE WAS WRITTEN BY MICHAEL K. MCCUDDY, THE LOUIS S. AND MARY L. MORGAL CHAIR OF CHRISTIAN BUSINESS ETHICS AND PROFESSOR OF MANAGEMENT, COLLEGE OF BUSINESS ADMINISTRATION, VALPARAISO UNIVERSITY. J. Schack, “CEO INTERVIEWAlan Mulally: Restructuring Is the New Job One,” Institutional Investor (June 2007): 1. A. Taylor, “Ford’s Student Driver Takes the Wheel,” Fortune 154(10) (November 13, 2006): 96-100. A. Taylor, “Ford’s Student Driver Takes the Wheel,” Fortune 154(10) (November 13, 2006): 96-100. David Kiley, “The New Heat on Ford: Alan Mulally was the most feared outsider in Detroituntil Cerberus came along. Its deal puts even more pressure on his drive to transform Ford’s dysfunctional corporate culture,” Bloomberg BusinessWeek (June 4, 2007) http://www.businessweek.com/magazine/content/07_23/b4037036.htm (accessed February 12, 2014). J. Schack, “CEO InterviewAlan Mulally: Restructuring Is the New Job One,” Institutional Investor (June 2007): 1. J. Jusko, “Ford’s Transformation Remains on Track,” Industry Week 259(8) (August 2010): 17. J. Jusko, “Ford’s Transformation Remains on Track,” Industry Week 259(8) (August 2010): 17. J. Jusko, “Ford’s Transformation Remains on Track,” Industry Week 259(8) (August 2010): 17. J. Jusko, “Ford’s Transformation Remains on Track,” Industry Week 259(8) (August 2010): 17. J. Jusko, “Ford’s Transformation Remains on Track,” Industry Week 259(8) (August 2010): 17. P. Hochman, “Ford’s BIG REVEAL,” Fast Company (144) (April 2010): 90 (7 pages). P. Hochman, “Ford’s BIG REVEAL,” Fast Company (144) (April 2010): 90 (7 pages). Solution Manual for ORGB Organizational Behavior Debra L. Nelson, James Campbell Quick 9781305663916, 9781337148443
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