Ebook Management (6th edition): Part 2

(BQ) Part 2 book Management has contents: Organisational structure and design, managers and communication, human resource management, understanding individual behaviour, understanding groups and teams, motivating employees, leadership, foundations of control, managing operations.

part 4 Organising

10 Organisational structure and design

4

Organising is an important task of managers – one that is not always

understood or appreciated However, when the organisation’s goals and

plans are in place, the organising function sets in motion the process of

seeing that those goals and plans are pursued When managers organise,

they are defining what work needs to get done and creating a structure

that enables those work activities to be completed efficiently and

effectively.

In Part 4, we look at the management function of organising

Chapter 10 introduces the concepts of organisational structure and

organisational design Part of getting an organisation to function well is

to make sure communication is flowing up and down the organisational

structure, and managers play a crucial part in achieving this This is what

we will look at in Chapter 11 Finally, the organising function involves

finding people to fill the jobs that have been created In Chapter 12,

we will therefore discuss the human resource management activities

in which managers become involved.

Copyright © Pearson Australia (a division of Pearson Australia Group Pty Ltd) 2012 – 9781442538603 - Robbins/Management 6th edition

10.1 Explain why organising is important.

10.2 Describe six key elements in organisational design.

10.3 Contrast mechanistic and organic structures.

10.4 Identify the contingency factors that favour either the mechanistic model or the organic model of organisational design.

10.5 Describe traditional organisational designs.

10.6 Discuss contemporary organisational designs.

10.7 Describe today’s organisational design challenges.

hen Bernie Brookes took on the job of CEO of

Myer after the break-up of the Coles Myer Group

in mid-2006, he knew he had a big task ahead

of him to turn around the poorly performing department store chain The once successful retail business had consistently underperformed since the late 1990s in comparison to its closest competitor David Jones, and it became Bernie Brookes’ job to make the ‘My Store – My Myer’

catchphrase come alive again.1

The Myer business was founded by Sidney Myer, who arrived in Melbourne in 1899 as

a penniless Russian immigrant and ended up creating one of the largest retail businesses

in Australia The Myer retail brand continued

to grow during the 20th century, becoming well-recognised by Australian households In

1983, Myer acquired Grace Bros Holdings Ltd,

a department store chain based in New South Wales In 1985, Myer merged with G.J Coles

& Co Ltd and became Coles Myer Ltd In 2004, Grace Bros stores were rebadged to Myer

However, by that time the retail store chain was

in deep trouble

In June 2006, Myer was acquired from Coles Myer Ltd by a consortium comprising Newbridge Capital, Texas Pacific Group (TPG), Blum Capital and the Myer Family Company (the ‘consortium’)

in a $1.4 billion transaction Eighty-three per cent

of Myer was owned by TPG and associates, 9 per cent by management, and 8 per cent by the Myer Family Company According to Bernie Brookes, the new ownership structure was advantageous for Myer, for a couple of reasons First, it gave the new management team, as one of the three key ownership groups within the business, a lot

of scope and authority to make major changes

Second, because Myer was no longer a public company, management did not need to spend a lot

of time and resources on external communication

to shareholders and financial analysts Instead, it could focus on its internal communication with staff and on getting the job done in terms of turning the organisation around

The new management team under the leadership of Bernie Brookes set out an ambitious

‘First 100 Days’ plan that was intended to be a bold start to a 50-month turnaround program of achieving the vision of becoming an ‘International Class Retail Business providing Inspiration to Everyone’

One of the first things that had to be changed was the culture, which needed to become more customer-focused To emphasise the change, head office was literally renamed as the ‘Support Centre’ This was a radical change from how the ‘old’ Myer had operated The ‘old’ Myer had become famous for multiple management layers and duplications What management wanted

to achieve was to change the emphasis of the business from being ‘head office-centric’, or autocratic, to being much more ‘store-centric’,

or autonomous

Brookes had anticipated a hard slog getting staff and store managers on board with the change program after years of difficulties at the retailer, but he found them eager for change They found the ‘new Myer’ willing to listen to their ideas The objective of the new approach was to empower local management to drive store sales, improve customer loyalty and better support/

engage with the local communities Budgets

W

Having successfully achieved what the private equity owners had set out to do – to revitalise the Myer chain – the company was refloated on the Australian Securities Exchange in November

2009

Having successfully managed the business transformation process during the 50 months’

turnaround phase (from the beginning of June

2006 to the end of July 2010), Bernie Brookes

is now focusing on the next stage – the growth phase – beyond July 2010 To this effect, Myer has commenced an expansion program of having

80 stores by 2014 (from the original 60 when the transformation started in 2006), which would be more than double the proposed number of stores operated by its smaller competitor, David Jones

Myer’s future goal is also to boost turnover from

$3.3 billion in 2010 to $4 billion by 2015

When Bernie Brookes took on the role of CEO of Myer in 2006, he found management staff eager for change Their greater autonomy resulted in better management practice and healthier staff morale.

on community sponsorships and in-store events

Store managers were given a say about what

products they would stock, how they would

market them, how they would manage their

people, and so on Cross-functional teams, called

‘Red Teams’, were set up that identified 101

customer service improvement projects across

the whole retail chain According to Brookes, the

increased autonomy of store managers paid off in

improved morale of management and staff Along

with greater autonomy, Brookes also offered

1200 managers and staff across the business

incentivised remuneration as part of a strategy

to change the culture at Myer

The departure from the Coles Group also

meant that the ‘new’ Myer had to set up an

independent organisational platform with its own

human resources, IT and distribution functions

By mid-2007, Myer had completed this transition

to its own recruiting and training, as well as

payroll and performance management, systems

IT was largely outsourced to IBM However, the

biggest restructure occurred in the distribution

function Instead of having 34 small distribution

centres, a new supply chain management

system was put in place based on four large

Australian distribution centres – Perth, Brisbane,

Melbourne and Sydney – and four Asian hubs –

in Shenzhen (China), Shanghai, Hong Kong and

Singapore This system, in combination with a

major restructuring of the buying section, was

seen as a key means to improve the buying

system, reduce costs, and create a clearer

chain of command and accountability Basing

the distribution around four warehouses across

Australia meant that fashion goods would reach

Myer stores 14–21 days faster, in a better and

more store-ready condition, and at half the cost,

than under the previous arrangements

By 2009, after three years and an investment

of more than $500 million in its supply chain,

technology, brands and stores, Myer was back in

a competitive position, generating healthy annual

earnings before interest and tax of $236 million

A lthough Bernie Brookes’s organisational changes under a private equity group at

the ‘new’ Myer might not be right for others, this example illustrates how important

it is for managers to design an organisational structure that helps to accomplish organisational goals and objectives In this chapter, we will present information about designing appropriate organisational structures We will look at the various elements of organisational structure and at contingency factors that influence the design We will look at some traditional and contemporary organisational designs Finally, we will describe the organisational design challenges facing managers – such as Bernie Brookes – today

Defining organisational structure and design

No other topic in management has undergone as much change in the past few years as that of organising and organisational structure Traditional approaches to organising work are being questioned and re-evaluated as managers search out structural designs that will best support and facilitate employees doing the organisation’s work – designs that can achieve efficiency, such as

in the case of Myer in our opening story, but that also have the flexibility that is necessary for success in today’s dynamic environment

The basic concepts of organisation design formulated by early management writers such

as Henri Fayol and Max Weber offered structural principles for managers to follow (Those principles are described in Chapter 1.) Over 80 years have passed since many of those principles were originally proposed Given that length of time and all the changes that have taken place, you would think that those principles would be pretty worthless today Surprisingly, they are not For the most part, they still provide valuable insights into designing effective and efficient organisations Of course, we have also gained a great deal of knowledge over the years

as to their limitations

In Chapter 1 we defined organising as arranging and structuring work to accomplish

the organisation’s goals It is a process through which managers design an organisation’s structure That process is important and serves many purposes (see Table 10.1) The challenge for managers is to design an organisational structure that allows employees to do their work effectively and efficiently

Just what is organisational structure? It is the formal arrangement of jobs within an

organisation Just as humans have skeletons that define their shape, so organisations have structures that define theirs When managers develop or change an organisation’s structure they

are engaged in organisational design, a process that involves decisions about six key elements:

work specialisation, departmentalisation, chain of command, span of control, centralisation and decentralisation, and formalisation.2 Let us take a closer look at each of these elements

Arranging and structuring

work to accomplish the

Work specialisation

Remember the discussion of Adam Smith in Chapter 2, who first identified division of labour and

concluded that it contributed to increased employee productivity? Early in the 20th century,

Henry Ford applied this concept in an automobile assembly line where every Ford worker was

assigned a specific, repetitive task One person would put on the right front wheel, someone else

would install the right front door, and another worker would put in the bench seat By breaking

jobs up into small, standardised tasks that could be performed over and over again, Ford was

able to produce cars at the rate of one every ten seconds, using employees with relatively

limited skills

Today, we use the term work specialisation to describe the degree to which tasks in an

organisation are divided into separate jobs The essence of work specialisation is that an entire

job is not done by one individual but instead is broken down into steps, and each step is

completed by a different person Individual employees ‘specialise’ in doing part of an activity,

rather than the entire activity, and that is why it is also known as division of labour

Work specialisation makes efficient use of the diversity of skills that workers have In most

organisations, some tasks require highly developed skills; others can be performed by employees

with lower skill levels This concept explains why you rarely find a cardiac surgeon closing up a

patient after surgery Instead, doctors doing their residencies in open-heart surgery and learning

the skill usually stitch and staple the patient after the surgeon has finished the surgery

Early proponents of work specialisation believed that it could lead to great increases in

productivity At the beginning of the 20th century, that generalisation was reasonable Because

specialisation was not widely practised, its introduction almost always generated higher

productivity But, it can also result in monotonous and repetitive jobs At some point, the human

diseconomies from division of labour – boredom, fatigue, stress, low productivity, poor quality,

increased absenteeism and high turnover – exceed the economic advantages.3

Today’s view

Most managers today continue to see work specialisation as an important organising mechanism

because they recognise the economies it provides in certain types of jobs, but they also understand

the problems it creates when it is carried to extremes McDonald’s, for example, uses high work

specialisation to make and sell its fast-food products efficiently One person takes orders, others

cook and assemble the hamburgers, another works the fryer, another gets the drinks, another

bags orders, and so forth Such single-minded focus on maximising efficiency has contributed

to increasing productivity In fact, at many McDonald’s, you will see a clock that times how long

it takes employees to fill the order; look closer and you will probably see posted somewhere

an order fulfilment time goal At some point, however, work specialisation no longer leads to

productivity That is why other companies such as Ford Australia, Hallmark and Bendix Mintex

use minimal work specialisation and instead give employees a broad range of tasks to do

Departmentalisation

Does your university or college have an office of student services? Does it have an educational

media department? If you are employed, does your organisation have a centralised marketing

department or regional sales divisions? After deciding what job tasks will be done by whom,

common job activities need to be grouped back together so that the work can be done in a

coordinated and integrated way How jobs are grouped together is called departmentalisation

Every organisation will have its own specific way of classifying and grouping work activities

Figure 10.1 shows the five common forms of departmentalisation

Functional departmentalisation groups jobs by functions performed This approach can be

used in all types of organisations, although the functions change to reflect the organisation’s

objectives and work activities Product departmentalisation groups jobs by product line

functional departmentalisation

Grouping jobs by functions performed.

product departmentalisation

Grouping jobs by product line.

Describe six key elements in organisational design.

Learning outcome

10.2

In-depth specialisation

+ + +

Manager, Human Resources

Manager, Accounting

Manager, Engineering

Manager, Purchasing Functional departmentalisation

Sales Manager

Effective and efficient handling of specific regional issues Serves needs of unique geographic markets

+ +

Sales Manager, Sales NSW/ACT

Sales Manager, Sales Queensland

Sales Manager, Sales Western Australia/NT

Sales Manager, Sales Victoria/Tasmania

Geographic departmentalisation

Sales Manager, Sales South Australia

Plant Superintendent

More efficient flow of work activities +

Sawing Department

Manager

Planing and Milling Department Manager

Assembling Department Manager

Lacquering and Sanding Department Manager

Finishing Department Manager

Inspection and Shipping Department Manager Process departmentalisation

Product departmentalisation

Customers’ needs and problems can

be met by specialists +

Director

of Sales

Manager, Wholesale Accounts

Manager, Retail Accounts Government AccountsManager,Customer departmentalisation

Chief Executive Officer

Heavy Vehicle Division Manager

Car and Sport-Utility Vehicle (SUV) Division Manager

Manager, SUV Manufacturing Plant

Manager, Truck Manufacturing

Manager,

Duplication of functions Limited view of organisational goals

– –

Can only be used with certain types of products –

Poor communication across functional areas Limited view of organisational goals

– –

Duplication of functions Can feel isolated from other organisational areas

– –

Allows specialisation in particular products and services

Managers can become experts in their industries Closer to customers

+ + +

Duplication of function Limited view of organisational goals –

–

review questions

In this approach, each main product area is placed under the authority of a manager who is

responsible for everything having to do with that product line Geographic departmentalisation

groups jobs on the basis of territory or geography, perhaps the Asia-Pacific, European and

North American regions Each of these regions is, in effect, a department organised around

geography If an organisation’s customers are scattered over a large geographic area, this form

of departmentalisation can be valuable Process departmentalisation groups jobs on the basis of

product or customer flow In this approach, work activities follow a natural processing flow of

products or even of customers For example, at a wood cabinet manufacturing plant in southern

New South Wales, production is organised around six departments: sawing, planing and milling,

assembling, lacquering and sanding, finishing, and inspection and shipping Finally, customer

departmentalisation groups jobs on the basis of customers who have common needs or problems

that can best be met by having specialists for each group For example, a large law office might

segment its staff on the basis of whether they serve corporate or individual clients

Today’s view

Most large organisations continue to use combinations of most or all of these types of

departmentalisation For example, Black & Decker organises its divisions along functional lines,

its manufacturing units around processes, its sales around geographic regions, and its sales

regions around customer groupings

One popular departmentalisation trend is the increasing use of customer

departmentalisa-tion Because getting and keeping customers is essential for success, this approach works well

because it emphasises monitoring and responding to changes in customers’ needs Another

popular trend is the use of teams, especially as work tasks have become more complex and

diverse skills are needed to accomplish those tasks One specific type of team that more

organisations are using is a cross-functional team, which is a work team composed of individuals

from various functional specialties For instance, at Ford’s material planning and logistics

division, a cross-functional team with employees from the company’s finance, purchasing,

engineering and quality control areas, and with representatives from the company’s outside

logistics suppliers, has made several work improvement ideas.4 And if you remember from the

Myer example at the beginning of the chapter, Myer used cross-functional teams to identify

101 projects across the chain where teams are now working to try and improve customer service

The use of cross-functional teams is discussed more fully in Chapter 14

1 Explain why organising is important

2 Identify the six key elements used in designing an organisation’s structure

3 Discuss the traditional and contemporary views of work specialisation

4 Describe each of the five forms of departmentalisation

Chain of command

Suppose you were at work and had a problem with some issue that came up What would you

do? Who would you go to, to help you resolve that issue? People need to know who their boss is

That is what the chain of command is all about The chain of command is the line of authority

that extends from the upper organisational levels to the lowest levels, which clarifies who reports

to whom Managers need to consider the chain of command when organising work, because

it helps employees with questions such as ‘Who do I report to?’ or ‘Who do I go to if I have a

problem?’

To understand the chain of command, you have to understand three other important

concepts: authority, responsibility and unity of command Authority refers to the rights inherent

geographic departmentalisation

Grouping jobs on the basis

of geographical region.

process departmentalisation

Grouping jobs on the basis

of product or customer flow

customer departmentalisation

Grouping jobs on the basis

of specific and unique customers who have common needs.

cross-functional teams

Work teams composed of individuals from various functional specialities.

chain of command

The line of authority extending from upper organisational levels to the lowest levels, which clarifies who reports to whom.

authority

The rights inherent in a managerial position to tell people what to do and to expect them to do it.

in a managerial position to tell people what to do and to expect them to do it.5 An organisation’s managers, who are in the chain of command, are granted a certain degree of authority to do their job of coordinating and overseeing the work of other people As managers assign work to employees, those employees assume an obligation to perform any assigned duties This obligation

or expectation to perform is known as responsibility Finally, the unity of command principle

(one of Fayol’s 14 principles of management) helps to preserve the concept of a continuous line of authority It states that a person should report to one manager only Without unity of command, conflicting demands and priorities from multiple bosses can create problems

unity of command principle However, such arrangements can and do work if communication,

conflict and other issues are managed well by all involved parties Of course, many organisations still find that they are most productive by enforcing the chain of command, but their numbers are dwindling

Span of control

How many employees can a manager efficiently and effectively manage? The traditional view was that managers could not – and should not – directly supervise more than five or six subordinates

This question of span of control is important because, to a large degree, it determines the

number of levels and managers an organisation has Other things being equal, the wider or larger the span of control, the more efficient an organisation is An example will show you why

Assume that we have two large organisations, and each has approximately 4100 employees As Figure 10.2 shows, if one organisation has a uniform span of four and the other a span of eight,

the wider span will have two fewer levels and approximately 800 fewer managers If the average manager made $80 000 a year, the organisation with the wider span would save over $64 million a year in management salaries alone! Obviously, wider spans are more efficient in terms of cost However,

at some point, wider spans may reduce effectiveness if employee performance worsens because managers no longer have the time to lead effectively

Today’s view

The contemporary view of span of control recognises that there is no magic number

Many factors influence the number of

FIgurE 10.2 Contrasting spans of control

1 4 16 64 256 1024 4096

Assuming span of 4

Span of 4:

Employees Managers (level 1–6) = 4096= 1365

Span of 8:

Employees Managers (level 1–4) = 4096= 585

1 8 64 512 4096

Assuming span of 8

1 2 3 4 5 6 7

The obligation to perform

any assigned duties.

unity of command

The management principle

that each person should

report to only one manager.

span of control

The number of employees

a manager can efficiently

and effectively manage.

employees that a manager can efficiently and effectively manage These factors include the skills

and abilities of the manager and the employees, and the characteristics of the work being done

For instance, managers who have well-trained and experienced employees can function quite

well with a wider span Other contingency variables that will determine the appropriate span

include similarity of employee tasks, the complexity of those tasks, the physical proximity of

subordinates, the degree to which standardised procedures are in place, the sophistication of the

organisation’s information system, the strength of the organisation’s culture and the preferred

style of the manager.8

The trend in recent years has been towards larger spans of control For example,

Hewlett-Packard Australia has cut its management layers from 12 to an average of four, and IBM Australia

has gone from ten to four In the IBM case, where the managers were previously responsible

for six employees, the average became 12.9 These wider spans of control are also consistent

with managers’ efforts to reduce costs, speed up decision making, increase flexibility, get closer

Empowerment in asia

T he concept of empowerment is starting to spread into Asia, with a few younger Asian

business leaders now espousing this style of management, too An example is Ho Kwong Ping, the executive chairman and CEO of the Banyan Tree Hotels and Resorts Group, who wants to engage his staff and cultivate in them a set of core values that he hopes over time will take root and mature into an instantly recognisable Banyan Tree culture Ho Kwong Ping was named ‘CEO of the Year’ at the Singapore Corporate Awards

2008 The former chairman of India’s Infosys, N.R Narayana Murthy, and its present chief executive

and managing director, Nandan Nilekani, are also two widely admired top managers who espouse

empowerment of staff – a business practice not widely seen in India However, as Asian companies

start to rely more on professional employees of all sorts, and as professional services become more

important in Asian economies, the less autocratic and more participative and even empowered style

of leadership will emerge

How can managers empower employees? They can begin by using participative decision making,

in which employees provide input into decisions Although getting employees to participate in making

decisions is not quite taking the full plunge into employee empowerment, it is at least a way to begin

tapping into the collective array of employees’ talents, skills, knowledge and abilities

Another way to empower employees is through delegation – the process of assigning certain decisions

or specific job duties to employees By delegating decisions and duties, the manager is turning over the

responsibility for carrying them out When a manager is finally comfortable with the idea of employee

empowerment, fully empowering employees means redesigning their jobs so they have discretion over the

way they do their work It is allowing employees to do their work effectively and efficiently by using their

creativity, imagination, knowledge and skills

If a manager implements employee empowerment properly – that is, with complete and total commit-

ment to the program and with appropriate employee training – results can be impressive for the

organisation and the empowered employees The business can enjoy significant productivity gains,

quality improvements, more satisfied customers, increased employee motivation and improved morale

Employees can enjoy the opportunities to do a great variety of work that is more interesting and challenging

In addition, they are encouraged to take the initiative in identifying and solving problems and doing

their work

Sources: Banyan Tree Holdings Limited Annual Report 2007, <www.banyantree.com>, 17 May 2008; and

D Quinn Mills, ‘Asian and American leadership styles: How are they unique?’, Harvard Business School:

Working Knowledge, <hbswk.hbs.edu/item/4869.html>, 27 June 2005.

Managing in the

asia-paciFic region

review questions

to customers and empower employees However, to ensure that performance does not suffer because of these wider spans, organisations are investing heavily in employee training Managers recognise that they can handle a wider span when employees know their jobs well or can turn to co-workers if they have questions

5 Discuss the traditional and contemporary views of chain of command

6 Discuss the traditional and contemporary views of span of control

Centralisation and decentralisation

In some organisations, top managers make all the decisions and the lower-level managers and

employees simply carry out their orders At the other extreme are organisations in which decision making is pushed down to the managers who are closest to the action The former organisations are described as highly centralised, and the latter as decentralised

Centralisation describes the degree to which decision making is concentrated at upper

levels of the organisation If top managers make the organisation’s key decisions with little or

no input from lower-level employees, then the organisation is centralised In contrast, the more

that lower-level employees provide input or actually make decisions, the more decentralisation

there is Keep in mind that the concept of centralisation–decentralisation is relative, not absolute – that is, an organisation is never completely centralised or decentralised While Myer,

as was discussed in the opening vignette to this chapter, has decentralised a lot of the decision making to the store managers, some other decision making, particularly in relation to buying and distribution, is still highly centralised at Myer Few organisations could function effectively

if all decisions were made by a select group of top managers only; nor could they function effectively if all decisions were delegated to employees at the lowest levels

What determines whether an organisation will tend to be more centralised or decentralised?

Table 10.2 lists some of the factors that have been identified as influencing the amount of centralisation or decentralisation an organisation uses.10

of the decision-making authority to store managers Before the change, nearly all decisions were

TaBLE 10.2 Factors that influence the amount of centralisation and decentralisation

The degree to which lower-level employees provide

input or actually make

decisions.

made at the ‘old’ Coles Myer head office and the store managers felt they had little say in how to

operate their store However, under the new management at Myer, individual store managers and

managers of in-store divisions such as cosmetics, women’s wear, homewares and electrical have a

greater say about what products they stock and how they market them, which has allowed them

to differentiate their offerings based on each store’s local conditions.11 Another example can be

seen at Honeywell Pacific, which moved from a hierarchical management structure to one that is

much flatter and team-based Before the change, nearly all decisions were made at headquarters,

but authority was pushed down to individual plant and brand managers The results have been

Another term for increased decentralisation is employee empowerment, which is giving

employees more authority (power) to make decisions We will address empowerment more

thoroughly in our discussion of leadership in Chapter 16

Formalisation

Formalisation refers to how standardised an organisation’s jobs are and the extent to which

employee behaviour is guided by rules and procedures In highly formalised organisations, there

are explicit job descriptions, lots of organisational rules and clearly defined procedures covering

work processes Employees have little discretion over what is to be done, when it is to be done

and how it should be done Employees can be expected to handle the same input in exactly the

same way, resulting in a consistent and uniform output On the other hand, where formalisation

is low, job behaviours are relatively unstructured and employees have a great deal of freedom in

how they do their work

The degree of formalisation can vary widely between organisations and even within

organisations For instance, at a newspaper publishing company, journalists often have a great

deal of discretion in their job They may be told what news topic to write about, but they have the

freedom to find their own stories, research them in the way they want and write them up, usually

within minimal guidelines On the other hand, the compositors who lay out the newspaper pages

do not have that type of freedom They have constraints – both time and space – that standardise

how they do their work

Today’s view

Although some formalisation is important and necessary for consistency and control, many of

today’s organisations seem to be less reliant on strict rules and standardisation to guide and

regulate employee behaviour For instance, consider the following situation:

It is 2.37 pm and a customer at a branch of a large bank is trying to get an international bank draft organised to send overseas the same day Bank policy states that an international bank draft must be organised before 2 pm for this service The employee knows that rules like this are supposed to be followed At the same time, he wants to be accommodating to the customer, and he knows that the draft could, in fact, be done that day He decides to accept the job and, in so doing, violates the policy He just hopes that his manager does not find out.13

Has this employee done something wrong? He did ‘break’ the rule But by breaking the rule, he

actually brought in revenue and provided the customer with good service: so good, in fact, that

the customer may be satisfied enough to come back in the future

Considering the fact that there are numerous situations like these where rules may be too

restrictive, many organisations have allowed employees some latitude, giving them sufficient

autonomy to make those decisions that they feel are best under the circumstances It does not mean

that all organisational rules are thrown out the window, because there will be rules that are important

for employees to follow – and these rules should be explained so that employees understand why it

is important to adhere to them But for other rules, employees may be given some leeway.14

employee empowerment

Giving employees more authority (power) to make decisions.

formalisation

How standardised an organisation’s jobs are, and the extent to which employee behaviour

is guided by rules and procedures.

review questions 7 Describe the factors that influence the amount of centralisation and decentralisation.8 Explain how formalisation is used in organisational design.

Organisational design decisions

Organisations do not, and will not, have identical structures A company with 30 employees is not going to look like one with 30 000 employees But even organisations of comparable size do not necessarily have similar structures What works for one organisation may not work for another

How do managers decide what organisational design to use? That decision depends upon certain contingency factors This section looks at two generic models of organisational design and then

at the contingency factors that favour each

Mechanistic and organic organisations

Table 10.3 describes two organisational forms.15 The mechanistic organisation is a rigid and

tightly controlled structure It is characterised by high specialisation, rigid departmentalisation, narrow spans of control, high formalisation, a limited information network (mostly downward communication) and little participation in decision making by lower-level employees

glass ceiling

Pretend that you have just finished your MBA degree It has not been easy Your graduate

classes were challenging, but you feel well prepared for and excited about getting your first post-MBA job If you are female, that first job for 60 per cent of you will be an entry-level position However, if you are male, only 46 per cent of you would start out in an entry-level position And only 2 per cent of women would step into the CEO or senior executive position, compared with 6 per cent of men Although entry into occupations such as accounting, business and law happens at about the same rate for men and women, evidence is mounting that women’s and men’s career paths begin to divide soon after their initial employment What is going on here? After all these years of

‘equal opportunity’, why do we still see statistics like these?

The term glass ceiling, which was first used in a Wall Street Journal article in the 1980s, refers to

the invisible barrier that separates women and minorities from top management positions The idea of a

‘ceiling’ means that there is something blocking upward movement, and the idea of ‘glass’ is that whatever

is blocking the way is not immediately apparent

Research on the glass ceiling has looked at identifying the organisational practices and interpersonal biases that have blocked women’s advancement Findings from those studies have ranged from lack of mentoring, sex stereotyping, views that associate masculine traits with leader effectiveness, and bosses’

perceptions of family–work conflict

As others have said, it is time to shatter the glass ceiling for all employees Every employee should have the opportunity to work in a career in which they can use their skills and abilities, and to have a career path that allows them to progress however far they want to go Getting to that end, however, is not going

to be easy

Sources: Catalyst, ‘Workforce metrics: Level of first position’, Workforce Management Online, <www.workforce.com>,

8 April 2010; J.M Hoobler, S.J Wayne and G Lemmon, ‘Bosses’ perceptions of family-work conflict and women’s

promotability: Glass ceiling effects’, Academy of Management Journal, October 2009, pp 939–57; and C Hymowitz and T.D Schellhardt, ‘The glass ceiling’, The Wall Street Journal: A Special Report – The Corporate Woman, 24 March 1986,

In the mechanistic structure, work specialisation creates jobs that are simple, routine

and standardised Extensive departmentalisation increases impersonality and the need for

multiple layers of management to coordinate these specialised departments There is also

strict adherence to the unity of command principle This ensures the existence of a formal

hierarchy of authority, in which each person is supervised by one superior Narrow spans of

control, especially at increasingly higher levels of the organisation, have the effect of creating

tall organisational structures with many layers and levels As the distance between the top and

the bottom of the organisation widens, top managers tend to impose rules and regulations to

control employee behaviour because they are so far removed from the lower-level activities that

they cannot directly supervise and ensure the use of standard practices Instead, they substitute

high formalisation

Mechanistic types of organisational structures tend to be efficiency machines and rely heavily

on rules, regulations, standardised tasks and similar controls This organisational design tries to

minimise the impact of differing personalities, human judgment and ambiguity because these

are seen as inefficient and inconsistent Although no pure form of the mechanistic organisation

exists in reality, almost all large corporations and government agencies tend to have many, or at

least some, of these mechanistic characteristics The mechanistic structure is also very similar to

Weber’s bureaucracy concept, which was discussed in Chapter 2

In direct contrast to the mechanistic form of organisation is the organic organisation,

which is as highly adaptive and flexible a structure as the mechanistic organisation is rigid

and stable Rather than having standardised jobs and regulations, the organic organisation

is flexible, which allows it to change rapidly as needs require Organic organisations may

have specialised jobs, but these jobs are not standardised Employees are highly trained and

empowered to handle diverse job activities and problems, and these organisations frequently

use employee teams Employees in organic-type organisations require minimal formal rules

and little direct supervision Their high levels of skills and training, and the support provided

by other team members, make formalisation and tight managerial controls unnecessary For

example, a much-needed organisational restructuring at GlaxoSmithKline, the London-based

pharmaceutical company, made it more of an organic structure Before the restructuring,

research at Glaxo was hampered by a slow-moving bureaucracy Decisions about which drugs

to fund were made by a committee of research and development executives far removed

from the research labs – a time-consuming process not at all appropriate for a company

dependent on new scientific breakthroughs Now, lab scientists set the priorities and allocate

the resources The change has ‘helped produce an entrepreneurial environment akin to a

smaller, biotechnology outfit’.16

When is a mechanistic organisational structure preferable, and when is an organic one more

appropriate? Let us look at the key contingency factors that influence the decision

TaBLE 10.3 Mechanistic versus organic organisation

review questions

Contingency factors

Jim Mullen, CEO of Biogen, says: ‘The campfire culture doesn’t work here anymore, with people sitting around telling each other what’s going on We need to be organised looking to the future

The complexity of this company was, and is, rapidly increasing We need to motivate people

to take risks, we need to look for innovation and creativity and we need to demand results.’17

As can be seen from this example, top managers of most organisations typically put a great deal

of thought into designing an appropriate structure What that appropriate structure is depends

on four contingency variables: the organisation’s strategy, size, technology, and degree of environmental uncertainty

Strategy and structure

An organisation’s structure should help it achieve its goals Because goals are an important part

of the organisation’s strategies, it is only logical that strategy and structure should be closely linked More specifically, if managers significantly change the organisation’s strategy, the structure should change to support the new strategy – that is, structure should ‘follow’ strategy

The initial research on the strategy–structure relationship was a study by Alfred Chandler

of several large US companies.18 Chandler traced the development of organisations such as DuPont, General Motors, Standard Oil and Sears over a period of 50 years and concluded that changes in corporate strategy led to changes in an organisation’s structure He found that these organisations usually began with a single product or line that required only a simple or loose form of structure Decisions were centralised in the hands of a single senior manager, and specialisation, departmentalisation and formalisation were low However, as these organisations grew, their strategies became more ambitious and elaborate, and the structure changed to support the chosen strategy

Most current strategy–structure frameworks tend to focus on three dimensions: (1) innovation, which reflects the organisation’s pursuit of meaningful and unique innovations; (2) cost minimisation, which reflects the organisation’s pursuit of tightly controlled costs; and (3) imitation, which reflects an organisation’s seeking to minimise risk and maximise profit opportunities by copying the market leaders What organisational design works best with each?19 Innovators need the flexibility and free flow of information of the organic structure, whereas cost minimisers seek the efficiency, stability and tight controls of the mechanistic structure Imitators use structural characteristics of both – the mechanistic structure to maintain tight controls and low costs, and the organic structure to mimic the industry’s innovative directions

Size and structure

There is considerable evidence that an organisation’s size significantly affects its structure.20

For instance, large organisations – those with 2000 or more employees – tend to have more specialisation, departmentalisation, centralisation, and rules and regulations than small organisations However, the relationship is not linear It seems that as an organisation grows past a certain size, size has less influence on structure Why? Essentially, once an organisation has around 2000 employees it is already fairly mechanistic Adding 500 employees to a firm with

2000 employees will not have much of an impact On the other hand, adding 500 employees to

an organisation that has only 300 members is likely to make it more mechanistic

9 Contrast mechanistic and organic organisations

10 Explain the relationship between strategy and structure

11 Explain how organisational size affects organisational design

TaBLE 10.4 Woodward’s findings on technology, structure and effectiveness

unIT PrODuCTIOn Mass PrODuCTIOn PrOCEss PrODuCTIOn

Structural characteristics • Low vertical differentiation • Moderate vertical differentiation • High vertical differentiation

• Low horizontal differentiation • High horizontal differentiation • Low horizontal differentiation

Technology and structure

Every organisation uses some form of technology to convert its inputs into outputs To reach its

objectives, the organisation combines equipment, materials, knowledge and experienced individuals

into certain types and patterns of activities For instance, workers at Whirlpool’s Manaus, Brazil,

facility build microwave ovens and air conditioners on a standardised assembly line Employees

at Bond Imaging Laboratories in Richmond, Victoria, produce custom-made professional photo

and image processing jobs for individual customers And employees at Bayer’s facility in Karachi,

Pakistan, make pharmaceutical products using a continuous-flow production line

The initial interest in technology as a determinant of structure can be traced to the

work of a British scholar, Joan Woodward, who studied several small manufacturing firms in

southern England to determine the extent to which structural design elements were related

to organisational success.21 Woodward was unable to derive any consistent pattern from her

data until she segmented the firms into three categories based on the size of their production

runs The three categories, representing three distinct technologies, had increasing levels of

complexity and sophistication The first category, unit production, described the production

of items in units or small batches The second category, mass production, described large-batch

or mass-production manufacturing such as refrigerators or cars The third and most technically

complex group, process production, included continuous process producers such as oil and

chemical refiners A summary of Woodward’s findings is shown in Table 10.4

Since Woodward’s initial work, numerous studies have been conducted on the technology–

structure relationship These studies generally demonstrate that organisations adapt their

structure to their technology.22 The processes or methods that transform an organisation’s

inputs into outputs differ by their degree of routineness or standardisation In general, the more

routine the technology, the more mechanistic the structure can be Organisations with more

non-routine technology are more likely to have organic structures.23

Environmental uncertainty and structure

In Chapter 3 we introduced the organisation’s environment and the amount of uncertainty in

that environment as constraints on managerial discretion Why should an organisation’s structure

be affected by its environment? Because of environmental uncertainty! Some organisations face

relatively stable and simple environments; others face dynamic and complex environments

Because uncertainty threatens an organisation’s effectiveness, managers will try to minimise

it One way to reduce environmental uncertainty is through adjustments in the organisation’s

structure.24 The greater the uncertainty, the more an organisation needs the flexibility offered by

an organic design For example, due to the uncertain nature of the oil industry, those companies

need to be flexible Soon after being named CEO of Royal Dutch Shell plc, Jeroen van der Veer

streamlined the corporate structure to counteract some of the volatility in the oil industry One

thing he did was to eliminate the company’s cumbersome, overly analytical process of making

deals with OPEC countries and other major oil producers.25 On the other hand, in stable, simple

environments, mechanistic designs tend to be the most effective

review questions

Today’s view

The evidence on the environment–structure relationship helps to explain why so many managers are restructuring their organisations to be lean, fast and flexible Worldwide economic uncertainties, global competition, accelerated product innovation by competitors and increased demands from customers for higher quality and faster deliveries are examples of dynamic environmental forces Mechanistic organisations are not equipped to respond to rapid environmental change and environmental uncertainty As a result, we are seeing organisations designed to be more organic

12 Discuss Woodward’s findings on the relationship of technology and structure

13 Explain how environmental uncertainty affects organisational design

Common organisational designs

What organisational designs do BHP Billiton, Lion Nathan, Nestlé, Toshiba and eBay have? In making organisational design decisions, managers have some common structural designs from which to choose This section looks first at some traditional organisational designs and then at some more contemporary ones

Traditional organisational designs

In designing a structure to support the efficient and effective accomplishment of organisational goals, managers may choose to follow traditional organisational designs These designs – simple structure, functional structure and divisional structure – tend to be more mechanistic Table 10.5 summarises the strengths and weaknesses of each of these designs

Simple structure

Most organisations start as entrepreneurial ventures with a simple structure consisting of owners

and employees A simple structure is an organisation design with low departmentalisation, wide

spans of control, authority centralised in one person and little formalisation.26 This structure is most commonly used by small businesses in which the owner and manager are one and the same

The strengths of the simple structure are obvious: it is fast, flexible and inexpensive to maintain, and accountability is clear However, it usually becomes increasingly inadequate as an organisation grows because its low formalisation and high centralisation tend to result in information overload

at the top As the organisation increases in size, decision making becomes slower and can eventually come to a standstill as the single executive tries to continue making all the decisions The simple structure’s other weakness is that it is risky: everything depends on one person If anything happens

to that person, the organisation’s information and decision-making centre is lost

Most organisations do not remain simple structures, especially as they grow and add employees

As the number of employees increases, the structure tends to become more specialised and formalised Rules and regulations are introduced, work becomes specialised, departments are created, levels of management are added and the organisation becomes increasingly bureaucratic

(You can review Weber’s concept of bureaucracy in Chapter 2.) At this point, a manager might choose to organise around a functional structure or a divisional structure

Functional structure

A functional structure is an organisational design that groups similar or related occupational

specialities together The strength of the functional structure lies in the cost-saving advantages that accrue from specialisation Putting similar specialities together results in economies

of scale, minimises duplication of people and equipment, and makes employees more

simple structure

An organisational

design with low

departmentalisation,

wide spans of control,

centralised authority and

comfortable because they are with others who ‘talk the same language’ The biggest weakness

of the functional structure is that the organisation can lose sight of its best overall interests

in the pursuit of functional goals No one function is totally responsible for end results, so

functional specialists become insulated and have little understanding of what people in other

functions are doing Many medium-sized organisations tend to use a functional structure where

the organisation is organised around the functions of: operations, finance, human resources,

and product research and development It is a functional departmentalisation applied to the

entire organisation

Ed Whitacre, formerly CEO of aT&T, now CEO of general Motors

No one could have imagined it After all these years, many thought it was too big to fail

Yet, on 1 June 2009, General Motors Corporation (GM) filed for Chapter 11 bankruptcy protection, the second-largest industrial bankruptcy in history (WorldCom was the largest.) GM, which had not made a profit since 2004, declared in its filing that it had US$172 billion in debt and US$82 billion in assets As any competent business student could tell you, that ratio does not make a balance sheet balance, especially when the company’s equity is

worth little

Fritz Henderson, who was named CEO of GM on 30 March 2009, was a numbers guy, but he knew

the company’s culture had to change His vision of the new organisational culture revolved around four

guidelines: risk taking, accountability, speed and customer-product focus The problem was that GM had

tried before to reinvent itself, with mixed success ‘GM’s past is littered with the buzzwords of culture

change.… It has struggled to impose cultural change across the highly bureaucratic company in which

brands, departments, and regions operated like self-governing and competing states within a federation.’

But, GM’s executives said, this time would be different After all, there was the bankruptcy and the selective

elimination of entrenched leadership Were things really changing, though? Despite his well-intentioned

plans, Henderson was fired by the board on 1 December 2009 Some felt he was not radical enough to

change the company His replacement was the person appointed by the Obama administration’s car czar

to oversee the automaker’s revival after bankruptcy, Ed Whitacre, the well-respected retired chairman and

CEO of AT&T

The challenges Whitacre faces in changing GM’s ‘plodding’ culture are vast A recent meeting of the

CEO and other top executives illustrates why The meeting was called to approve plans for a new generation

of cars and trucks Before the executives could go through all the pictures, charts and financial projections

they had prepared, Whitacre stopped them to ask why they were having the meeting in the first place

‘You have all checked all this out pretty thoroughly I imagine you are not going to approve something that

is bad or unprofitable, so why don’t you make the final decisions?’ He let the plans stand and suggested

that the group disband its regular Friday sessions And it is not just the top executives who did this In the

past, even minor decisions were mulled over by committee after committee Whitacre is trying to change

that Pushing authority and decision making down into GM’s multilayered organisation and slicing away at

the bureaucracy are big parts of the cultural changes Whitacre is attempting Changing GM’s entrenched

corporate culture is not going to be easy, but it is necessary if GM is to become once again the automotive

icon it once was

Sources: D Welch, ‘Ed Whitacre’s battle to save GM from itself’, Bloomberg BusinessWeek, 3 May 2010, pp 48–55;

S Terlep, ‘GM’s plodding culture vexes its impatient CEO’, The Wall Street Journal, 7 April 2010, pp B1+; J Smerd,

‘Back to the drawing board – Can a new company culture save Motors?’, Workforce Management Online,

<www.workforce.com>, 19 October 2009; and N King and S Terlep, ‘GM collapses into government’s arms’,

The Wall Street Journal Online, <online.wsj.com>, 2 June 2009.

Managers

Who Made a diFFerence

review question

Divisional structure

The divisional structure is an organisational structure made up of separate units or divisions.27

In this structural design, each unit or division has relatively limited autonomy, with a division manager responsible for performance and who has strategic and operational decision-making authority over his or her unit In divisional structures, however, a central headquarters (or parent corporation) typically acts as an external overseer to coordinate and control the various divisions, and often it provides support services such as financial and legal support Large multi-product companies such as BHP Billiton and Boral are examples of organisations with divisional structures In Boral’s case the divisions include Australian Construction Materials (ACM), Boral Cement, Boral Clay & Concrete Products, Boral Plasterboard, Boral Timber and Boral USA Each division specialises in its product field in the building and construction materials industry

The strength of the divisional structure is its focus on results Division executives are responsible for what happens to their products or services The main disadvantage of this approach is the duplication of activities and resources Each division has its own functional departments – such

as marketing, research and development, and production – and this duplication of functions increases the organisation’s costs and reduces efficiency

14 Contrast the three traditional – simple, functional and divisional – organisational designs

Contemporary organisational designs

Microsoft’s Windows 7 was the outcome of a three-year project marked by close collaboration among the thousands of people working on various aspects of the product.28 This approach was in sharp contrast to the development of Windows Vista, where the development team had evolved into ‘a rigid set of silos – each responsible for specific technical features – that did not share their plans widely’ With Vista, programming code created by each group might have worked fine on its own, but it caused technical problems when integrated with code created by other groups Those design issues, as well as internal communications breakdowns, contributed

to numerous product delays and defects CEO Steve Ballmer was adamant about not repeating that mistake again Thus, to ‘rebuild Windows, Microsoft razed walls’ – that is, organisational structure walls that acted as barriers and impediments to efficient and effective work

TaBLE 10.5 Strengths and weaknesses of common traditional organisational designs

grouped with others who have similar tasks

Weaknesses: Pursuit of functional goals can cause managers to lose sight of what’s best for overall organisation, and functional specialists become

insulated and have little understanding of what other units are doing

DIvIsIOnaL sTruCTurE

Strengths: Focuses on results – division managers are responsible for what happens to their products and services

Weaknesses: Duplication of activities and resources increases costs and reduces efficiency

Like Steve Ballmer, managers in many contemporary organisations are finding that these

traditional hierarchical designs often are not appropriate for today’s increasingly dynamic and

complex environment Instead, organisations need to be lean, flexible and innovative; that is, they

need to be more organic So, managers are finding creative ways to structure and organise work

and to make their organisations more responsive to the needs of customers, employees and other

organisational constituents.29 The following sections will introduce some of the contemporary

concepts in organisational design Table 10.6 summarises these contemporary designs

Team structures

Larry Page and Sergey Brin, co-founders of Google, have created a corporate structure that

‘tackles most big projects in small, tightly focused teams’.30 In a team structure, the entire

organisation is made up of work groups or teams that perform the organisation’s work.31 In this

structure, employee empowerment is crucial because there is no line of managerial authority

from top to bottom Rather, employee teams design and do work in the way they think is best

However, the teams are also held responsible for all work performance results in their respective

areas Let us look at some examples of how companies have used the team-based structure and

how they have gone about introducing it

At Lion Nathan’s brewery in Khyber Pass, Auckland, New Zealand, the production side of the

brewing company is organised around a number of teams that report directly to management

The teams, generally consisting of 12–14 individuals, take responsibility for their own production,

wastage, continuous improvement, quality assurance, training, and a range of safety measures In

the past, many of these activities were assigned to various managers, which sometimes resulted

in buck passing and demarcation between different departments or between employees and

managers Although each team has a team leader, the whole team has a say in selecting its leader

and gets involved in the recruitment of team members.32

The transition to organising around teams is usually a gradual one For example, Toyo’s

(Australia) ink manufacturing plant at Kilsyth in Victoria is now organised around self-managing

teams The reorganising process developed out of the company’s continuous improvement

approach and the need to get staff more involved in what the company was doing During the

TaBLE 10.6 Contemporary organisational designs

Matrix and project structures

Other popular contemporary designs are the matrix and project structures The matrix structure

assigns specialists from different functional departments to work on projects being led by a project manager Figure 10.3 shows an example of a matrix structure used in an aerospace firm

Along the top are the familiar organisational functions of engineering, accounting, human resources and so forth The various projects the aerospace firm is currently working on are listed

on the left-hand side Each project is directed by a manager who staffs his or her product team with people from each of the functional departments The addition of this vertical dimension

to the traditional horizontal functional departments, in effect, ‘weaves together’ elements

of functional and product departmentalisation – hence, the term matrix How does a matrix

structure work in reality?

One unique aspect of the matrix design is that it creates a dual chain of command since

employees in the matrix have two managers: their functional department manager and their product or project manager, who share authority The project manager has authority over the functional members who are part of that manager’s project team in areas relevant to the project’s goals However, any decisions about promotions, salary recommendations and annual reviews typically remain the functional manager’s responsibility The matrix design ‘violates’ the unity of command principle, which says that each person should report to only one boss Despite that, it can, and does, work effectively if both managers communicate regularly, coordinate work demands on employees and resolve conflicts together One company that uses a matrix organisational structure is Skanska, the leading ground-engineering business in the United Kingdom Employees from the company’s proposals, operations and commercial areas are assigned to the various engineering projects taking place in different geographic locations.34

Although the matrix structure is an effective structural design choice for some organisations,

many organisations are using a more ‘advanced’ type of project structure, in which employees

continuously work on projects Unlike the matrix structure, a project structure has no formal

FIgurE 10.3 A matrix organisation in an aerospace firm

Design Engineering Manufacturing AdministrationContract Purchasing Accounting Resources (HR)Human

Design Group

Alpha Project ManufacturingGroup ContractGroup PurchasingGroup AccountingGroup GroupHR

Design Group

Beta Project ManufacturingGroup ContractGroup PurchasingGroup AccountingGroup GroupHR

Design Group

Gamma Project ManufacturingGroup ContractGroup PurchasingGroup AccountingGroup GroupHR

Design Group

Omega Project ManufacturingGroup ContractGroup PurchasingGroup AccountingGroup GroupHR

matrix structure

An organisational structure

that assigns specialists

from different functional

departments that employees return to at the completion of a project Instead, employees take

their specific skills, abilities and experiences to other work projects In addition, all work in

project structures is performed by teams of employees For instance, at Oticon Holding A/S,

a Danish hearing-aid manufacturer, there are no organisational departments or employee job

titles All work activities are project-based, and these project teams form, disband and form

again as the work requires Employees ‘join’ project teams because they bring needed skills

and abilities to that project Once the project is completed, however, they move on to the

next one.35

Project structures tend to be very fluid and flexible organisational designs There is no

departmentalisation or rigid organisational hierarchy to slow down decision making or

taking action In this type of structure, managers serve as facilitators, mentors and coaches

They ‘serve’ the project teams by eliminating or minimising organisational obstacles and by

ensuring that the teams have the resources they need to complete their work effectively and

efficiently

The boundaryless organisation

Another approach to contemporary organisational design is the concept of a boundaryless

organisation, an organisation whose design is not defined by, or limited to, the horizontal,

vertical or external boundaries imposed by a predefined structure.36 The term was coined

by Jack Welch, former chairman of General Electric (GE), who wanted to eliminate vertical

and horizontal boundaries within GE and to break down external barriers between the

company and its customers and suppliers This idea may sound odd, yet many of today’s

most successful organisations are finding that they can operate most effectively by remaining

flexible and unstructured – that the ideal structure for them is not having a rigid, pre-

defined structure.37

What do we mean by ‘boundaries’? There are internal boundaries – the horizontal boundaries

imposed by work specialisation and departmentalisation, and vertical boundaries that separate

employees into organisational levels and hierarchies Then, there are external boundaries – the

boundaries that separate the organisation from its customers, suppliers and other stakeholders To

minimise or eliminate these boundaries, managers might use virtual

or network structural designs

A virtual organisation is an organisation that consists of a small core

of full-time employees and that hires outside specialists temporarily

as needed to work on projects.38 Virtual organisations are becoming

quite popular, especially with smaller and mid-size companies and,

of course, with online businesses The type of work virtual employees

do typically involves ‘researching, sales, marketing and social-media

development’ – tasks that can be done anywhere with a computer

and online access An example is StrawberryFrog, a global advertising

agency with offices in Amsterdam, New York, São Paulo and Mumbai

It does its work with a relatively small administrative staff, but has

a global network of freelancers who are hired to work as needed

on client projects By relying on this web of freelancers around the globe, the company enjoys

a network of talent without all the unnecessary overhead and structural complexity.39 The

inspiration for this structural approach comes from the film industry If you look at that industry,

people are essentially ‘free agents’ who move from project to project applying their skills –

directing, talent search, costuming, makeup, set design – as needed

Another structural option for managers wanting to minimise or eliminate organisational

boundaries is the network organisation, which is an organisation that uses its own employees

to do some work activities and networks of outside suppliers to provide other needed product

boundaryless organisation

An organisation whose design is not defined by, or limited to, the horizontal, vertical or external boundaries imposed by a predefined structure.

virtual organisation

An organisation that consists of a small core of full-time employees and that hires outside specialists temporarily as needed to work on projects.

The structure of virtual organisations is inspired

by the film industry

People in the film industry are essentially

‘free agents’ who move from project to project, often around the world, applying their skills

network organisation

An organisation that uses its own employees to do some work activities and networks

of outside suppliers to provide other needed product components or work processes.

review questions

organisation, especially in manufacturing organisations.41 This structural approach allows organisations to concentrate on what they do best and to contract out other activities to com- panies that can do those activities best Many organisations use the network structure to outsource manufacturing Companies such as Ikea, Nike and Cisco Systems have found that they can do hundreds of millions of dollars of business without owning manufacturing

facilities At Boeing, the company’s head of development for the 787 Dreamliner manages

thousands of employees and some 100 suppliers at more than 100 sites in different countries,

its research and development, to more cost-effective contractors in New Delhi, Singapore and other global locations.43

15 Explain team-based, matrix and project structures

16 Describe the design of virtual and network organisations

Today’s organisational design challenges

As managers look for organisational designs that will best support and facilitate employees doing their work efficiently and effectively in today’s dynamic environment, there are certain challenges with which they must contend These include keeping employees connected, organisational design issues in relation to sustainability, building a learning organisation and managing global structural issues

To capture the essence

of innovation and pace,

StrawberryFrog has

smashed through the

conventional hierarchical

structure around

which most corporate

advertising agencies have

always been based

Boundaryless organisations

The days when businesses generate their own product development ideas in-house and

develop, manufacture, market and deliver those products to customers may be numbered

Today, many companies are trying open innovation, which is opening up the search for new ideas beyond the organisation’s boundaries and allowing innovations to transfer easily inward and outward For instance, Procter & Gamble, Starbucks, Dell, Best Buy and Nike have all created digital platforms that allow customers to help them create new products and messages As you can

see, many of today’s successful companies are collaborating directly with customers in the product development

process Others are partnering with suppliers, other outsiders and even competitors

Companies worldwide are finding ways to connect to each other Once bitter rivals, Nokia and Qualcomm

formed a cooperative agreement to develop next-generation mobile phones for North America Nokia also

collaborated with Yahoo in a partnership where Yahoo’s software powers email and chat services on most

Nokia phones

In today’s environment, organisations are looking for advantages wherever they can get them One way they

can do this is with strategic partnerships, which are collaborative relationships between two or more organisations

in which they combine their resources and capabilities for some business purpose Here are some reasons why

such partnerships make sense: flexibility and informality of arrangements promote efficiencies; provide access

to new markets and technologies; entail less paperwork when creating and disbanding projects; risks and

expenses are shared by multiple parties; independent brand identification is kept and can be exploited; working

with partners possessing multiple skills can create major synergies; rivals can often work together harmoniously;

partnerships can take on varied forms from simple to complex; dozens of participants can be accommodated

in partnership arrangements; and antitrust laws can protect R&D activities Strategic partnerships are growing

in popularity However, as with all the collaborative arrangements we have described – external and internal –

the challenge for managers is finding ways to exploit the benefits of such collaboration while incorporating the

collaborative efforts seamlessly into the organisation’s structural design

Sources: D Lavie, U Stettner and M.L Tushman, ‘Exploration and exploitation within and across organizations’, Academy of

Management Annals, June 2010, pp 109–55; S Morrison, ‘Yahoo chief defends her site, strategy’, The Wall Street Journal,

25 June 2010, p B5; H Mitsuhashi and H.R Greve, ‘A matching theory of alliance formation and organizational success:

Complementarity and compatibility’, Academy of Management Journal, October 2009, pp 975–95; J Winsor, ‘Crowdsourcing:

What it means for innovation’, BusinessWeek Online, 15 June 2009; D Durfee, ‘Try before you buy’, CFO, May 2006, pp 48–54;

B McEvily and A Marcus, ‘Embedded ties and the acquisition of competitive capabilities’, Strategic Management Journal,

November 2005, pp 1033–55; and R.D Ireland, M.A Hitt and D Vaidyanath, ‘Alliance management as a source of competitive

advantage’, Journal of Management, Vol 28, No 3, 2002, pp 413–46.

Managing

FroM a gloBal perspectiVe

Keeping employees connected

Many organisational design concepts were developed during the 20th century, when work was

done at an employer’s place of business under a manager’s supervision, work tasks were fairly

predictable and constant, and most jobs were full time and continued indefinitely.44 But, that is

not the way it is today at many companies For instance, thousands of Cisco Systems employees

sit at unassigned desks in team rooms interspersed with communal break areas At some IBM

divisions, only a small percentage of employees – mostly top managers and their assistants – have

fixed desks or offices All others are either mobile employees, or they share desks when they

need to be at work.45 As these examples show, a major structural design challenge for managers

is to offer flexibility, but also to keep widely dispersed and mobile employees connected to the

organisation Mobile computing and communications technology have given organisations and

employees ways to stay connected and to be more productive For instance, handheld devices

have email, calendars and contacts that can be used anywhere there is a wireless network

And these devices can be used to log in to corporate databases and company intranets Trend

Micro Inc., a maker of anti-virus software that employs more than 3000 employees, is a virtual organisation with financial headquarters in Tokyo, product development people in Taiwan, and sales offices in Silicon Valley (to serve the huge US market).46 Its computer-virus response centre

is in Manila, and its smaller labs are scattered around the world, from Munich to Sydney The company’s chairman and founder, Steve Chang, suggests that this organisational structure has been necessary in order to operate in an effective way With the internet, viruses become global

To fight them, Trend Micro had to become a global company that can respond 24/7 to any security threats Trend Micro has responded to virus threats in as little as 30 minutes

Organisational design issues in relation to sustainability

How an organisation goes about dealing with introducing sustainability into its operations will vary widely if you compare a small three-accountant partnership to a large international manufacturer with global operations employing tens of thousands of people In a small company,

it may be relatively simple In a larger organisation, on the other hand, it will require a lot more elaborate strategies, policies and structures that are well-anchored at the very top of the organisation in the form of the board or the CEO Many of the leading sustainability-driven organisations have a board committee or a leading non-executive director devoted to the area, ensuring that things move ahead For example, at Novozymes, a Danish world-leader in ‘green

chemicals’ that has five times been named one of Sustainable Business’s Top 20 most sustainably

innovative companies, sustainability is a fixed agenda item at every board meeting.47

While the overall strategies and efforts are generally initiated at the top of Novozymes, within the company a team has to be assembled that works with the different departments and business

are organisations exploiting ‘non-employees’?

In the past decade, we have seen the steady rise of ‘non-employees’ working for organisations in

the form of casuals, outworkers, contractors and agency workers It is estimated that nearly quarter of Australian employees are casuals These types of contingent work relationships provide management with increased flexibility – but at what price to the workers themselves?

one-For some workers, the rapid growth in demand for contingent workers is a blessing It is a great opportunity for people who want to work on a part-time basis only Being a disposable employee, however, is not necessarily a status everyone seeks willingly Casual and temporary workers may find themselves in an uncertain situation from both a psychological and a financial viewpoint Sudden loss of income, difficulty getting a bank loan for a home, and financial uncertainty all contribute to a very stressful situation for individuals caught in this type of employment Some industries (clothing manufacture is one example) employ their workers as contractors on a piecework rate, often expecting them to work in their own homes and supply their own machines The wages earned by these people are usually well below the weekly wage of factory workers, even when the employee puts in the same number of hours

The casual type of employment has increased in both Australia and New Zealand and is now not uncommon among a broad range of professional people For example, universities and colleges are increasingly staffing their classes with lecturers on short-term contracts, or sessional lecturers and tutors employed for only a few hours each week While it may be good for the organisation in terms of increasing the flexibility to deal with varying student demands and lowering costs, it also creates a high degree of uncertainty and impermanence for the individuals who are employed on such a short-term basis

Are organisations that use contingent workers to cut costs and increase their own flexibility exploiting these people? Are these organisations shirking their responsibilities to these workers and to society as a whole? Should legislation be passed that would mandate minimum entitlements for casual or contingent

workers? What do you think?

thinking critically

aBout ethics

units in the actual integration of sustainability into the company’s business units and operating

locations.48 Such committees or teams are usually composed of individuals with a wide variety of

skills and professions such as accounting, engineering, human resources and marketing, making

it a cross-functional team Employing more than 4000 individuals in 30 different countries,

Novozymes has also set up a dedicated sustainability development centre, where specialists in the

fields of social responsibility, human rights, the environment and ethics have been employed to

support the strategy and help different parts of the company to integrate sustainability into their

operations This correlates well to recent research, which has found that sustainability teams are

typically cross-functionally matrixed structures.49 The same research has also shown that many

organisations that are pursuing sustainability often have teams organised around some specific

issue, such as water or energy use, with internal portals for information transfer and building

communities of practice BHP Billiton, for example, set up a program to cut fuel costs and

bring down carbon emissions In doing so, it appointed a coordinator to manage the ‘Energy

Excellence’ program and assigned 30 ‘energy excellence champions’ to lead the charge across

its sites in Australia.50 Organisations that can generate an engagement of employees are more

likely to be able to implement and integrate more sustainable practices into the daily activities

of the organisation

Building a learning organisation

The concept of a learning organisation was first introduced in Chapter 2 as we looked at some of

the current trends and issues facing managers The concept of a learning organisation does not

involve a specific organisation design per se, but instead describes an organisational mind-set or

philosophy that has significant design implications

What is a learning organisation? It is an organisation that has developed the capacity to con-

tinuously learn, adapt and change.51 In a learning organisation, employees continually acquire

and share new knowledge and are willing to apply that knowledge in making decisions or

performing their work Some organisational theorists even go so far as to say that an organisation’s

ability to do this – that is, to learn and to apply that learning as they perform the organisa-

tion’s work – may be the only economically sustainable source of competitive advantage.52

What would a learning organisation look like? As you can see in Figure 10.4, the characteristics

of a learning organisation revolve around organisational design, information sharing, leadership

and culture

learning organisation

An organisation that has developed the capacity to continuously learn, adapt and change.

FIgurE 10.4 Characteristics of a learning organisation

Sources: Based on P.M Senge, The Fifth Discipline: The Art and Practice of Learning Organizations (New York: Doubleday,

1990); and R.M Hodgetts, F Luthans and S.M Lee, ‘New paradigm organisations: From total quality to learning to world

class’, Organizational Dynamics, Winter 1994, pp 4–19.

In a learning organisation, it is critical for members to share information and collaborate

on work activities throughout the entire organisation – across different functional specialities and even at different organisational levels To do this requires minimal structural and physical barriers In such an environment, employees work together in doing the organisation’s work the best way they can, while learning from each other in the process Finally, empowered work teams tend to be an important feature of a learning organisation’s structural design These teams make decisions about doing whatever work needs to be done or resolving issues With empowered employees and teams, there is little need for ‘bosses’ to direct and control Instead, managers serve as facilitators, supporters and advocates

Managing global structural issues

Are there global differences in organisational structures? Are Australian organisations structured like those in the United States? Are German organisations structured like those in Mexico or China? Given the global nature of today’s business environment, this is an issue with which managers need to be familiar Researchers have concluded that the structures and strategies of organisations worldwide are similar, ‘while the behaviour within them is maintaining its cultural uniqueness’.53 What does this mean for designing effective and efficient structures? When designing or changing structure, managers may need to think about the cultural implications

of certain design elements For instance, one study showed that formalisation – rules and bureaucratic mechanisms – may be more important in less economically developed countries, and less important in more economically developed countries where employees may have higher levels of professional education and skills.54 Another study found that organisations with people from high power-distance countries (such as Greece, France and most of Latin America) find that their employees are much more accepting of mechanistic structures than are employees from low power-distance countries

Other structural design elements may be affected by cultural differences as well Take, for example, Svenska Handelsbanken, Sweden’s premier bank and one of the largest banks in the Nordic region The bank has a decentralised structure, with a network of some 660 branches in Sweden, Denmark, Finland, Norway and Great Britain, as well as in 17 other countries.55 The bank’s 35-plus years of developing its branch network has allowed it to consistently grow market share and achieve a return on equity above the average of its competitors It also has a very high level of customer satisfaction Now, other competitors are starting to copy Handelsbanken’s structural model However, Handelsbanken’s competitive advantage is not just having more branches It is the great degree of autonomy that branch managers are given that sets it apart from its competitors The branch is the bank!

Handelsbanken’s branch managers can choose their customers and product mix They also set staffing numbers and decide salary levels All customers, private and corporate, no matter what size, are the responsibility of a local branch This means that even a large global customer such as Volvo is managed by a branch office However, a branch office can ‘buy in’ specialist services it may need in order to service important customers such as Volvo Each branch manager

is also responsible for branch performance, which is measured by a ratio of costs divided by revenues, and all the bank’s branches are benchmarked against each other If a branch starts underperforming, the regional office will offer advice and examples of what other branches have done And, to stop predatory competition between its own branches, the company has set up strict geographical boundaries Handelsbanken’s number of centralised staff is a fraction of what

is common in banks of a similar size in other countries around the world, and guidelines coming out of headquarters are few and far between Handelsbanken’s flat management structure and emphasis on personal responsibility and a consensus approach is well suited to the Swedish culture However, it would not be an approach that would work well for a Chinese bank, nor would it be likely to work in France due to the cultural differences identified by Hofstede’s and the GLOBE frameworks (see Chapter 4) Would it work in Australia? Yes, possibly

10

review questions

The question would be if Australian top managers would be able to cope with the higher degree

of uncertainty, the more unstructured situation and the greater autonomy of branch managers

that such decentralisation would require

A final thought

No matter what structural design managers choose for their organisation, the design should help

employees do their work in the best – most efficient and effective – way they can The structure

should support and facilitate organisational members as they carry out the organisation’s work

After all, an organisation’s structure is simply a means to an end

17 Discuss the organisational design challenges facing managers today in relation to keeping employees

connected and in relation to sustainability

18 Describe the characteristics of a learning organisation

19 Discuss how national cultures can influence structural issues

Learning outcome 10.1: Explain why organising is important.

Organising is arranging and structuring work to accomplish the organisation’s goals It is a process through which managers design

an organisation’s structure This structure is the formal arrangement of jobs within an organisation The challenge for managers is

to design an organisational structure that allows employees to do their work effectively and efficiently

Learning outcome 10.2: Describe six key elements in organisational design.

Traditionally, work specialisation was viewed as a way to divide work activities into separate job tasks Today’s view is that it is

an important organising mechanism but it can lead to problems The various forms of departmentalisation are as follows: Functional

groups jobs by functions performed; product groups jobs by product lines; geographical groups jobs by geographical region;

process groups jobs on product or customer flow; and customer groups jobs on specific and unique customer groups The chain

of command and its companion concepts – authority, responsibility and unity of command – were viewed as important ways of

maintaining control in organisations The contemporary view is that they are less relevant in today’s organisations The traditional

view of span of control was that managers should directly supervise no more than five or six individuals The contemporary view

is that the span of control depends on the skills and abilities of the manager and the employees, and on the characteristics of the

situation Centralisation–decentralisation is a structural decision about who makes decisions – upper-level managers or lower-level

employees Formalisation concerns the organisation’s use of standardisation and strict rules to provide consistency and control

Learning outcome 10.3: Contrast mechanistic and organic structures.

A mechanistic organisation is a rigid and tightly controlled structure It is also a structure that most large corporations and

government agencies tend to have, which is why it is sometimes referred to as a bureaucratic structure An organic organisation is

highly adaptive and flexible It can adjust or change more rapidly depending on circumstance and may therefore be more suitable in

certain situations where an organisation needs to be more flexible or entrepreneurial

Learning outcome 10.4: Identify the contingency factors that favour either the mechanistic model or the

organic model of organisational design.

An organisation’s structure should support the strategy If the strategy changes, the structure also should change An organisation’s

size can affect its structure up to a certain point Once an organisation reaches a certain size (usually around 2000 employees), it is

fairly mechanistic An organisation’s technology can affect its structure An organic structure is most effective with unit production

and process production technology A mechanistic structure is most effective with mass production technology The more uncertain

an organisation’s environment, the more it needs the flexibility of an organic design

Learning outcome 10.5: Describe traditional organisational designs.

A simple structure is one with low departmentalisation, wide spans of control, authority centralised in a single person and little

formalisation This a common structure for a small organisation A functional structure groups similar or related occupational

specialties together, and this type of structure is common in many medium-sized organisations A divisional structure is made up of

separate business units or divisions, which is a common structure for many large multi-product companies

Learning outcome 10.6: Discuss contemporary organisational designs.

In a team structure, the entire organisation is made up of work teams The matrix structure assigns specialists from different functional

departments to work on one or more projects being led by project managers A project structure is one in which employees continuously

work on projects The boundaryless organisation’s design is not defined by, or limited to, the horizontal, vertical or external boundaries

Learning summary

Do you know this material yet? Let MyManagementLab tell you where you need help and

devise a personal study plan for you Visit www.pearson.com.au/mymanagementlab

imposed by a predefined structure A virtual organisation consists of a small core of full-time employees and outside specialists

temporarily hired as needed to work on projects A network organisation is an organisation that uses its own employees to do some

work activities and networks of outside suppliers to provide other needed product components or work processes

Learning outcome 10.7: Describe today’s organisational design challenges.

A major structural design challenge for managers is to find a way to keep widely dispersed and mobile employees connected to the

organisation Another challenge is to develop a structure which will help to integrate sustainability efforts in their operations For

managers, it may also be important to build a learning organisation A learning organisation is one that has developed the capacity

to continuously learn, adapt and change It has certain structural characteristics, including an emphasis on sharing information and

collaborating on work activities, minimal structural and physical barriers, and empowered work teams The final challenge is for

managers of global organisations to consider the interaction between cultural differences and certain design elements

1 Researchers are now saying that work specialisation actually has negative results for both companies and their employees

Do you agree? Why or why not?

2 Can an organisation’s structure be changed quickly? Why or why not? Should it be changed quickly? Explain your answer.

3 Would you rather work in a mechanistic or an organic organisation? Why?

4 What types of skills would a manager need in order to work effectively in a project structure? In a boundaryless organisation?

In a learning organisation?

5 The boundaryless organisation has the potential to create a major shift in the way we work Do you agree or disagree with

this statement? Explain your answer

6 With the availability of advanced information technology that allows an organisation’s work to be done anywhere and at any

time, is organising still an important managerial function? Why or why not?

7 If an organisation wants to introduce more sustainable organisational practices, does it need to become a learning

organisation in the process of doing so? Why or why not?

8 Analyse the four contemporary organisational designs that are summarised in Table 10.6 How are they similar? Different?

Thinking critically about management issues

How can you develop a better understanding of organisational structure and design issues?

• If you belong to a student organisation or are employed, notice how various activities and events are organised through the

use of work specialisation, chain of command, authority, responsibility, and so forth

• Find three different examples of an organisational chart (Companies’ annual reports are a good place to look.) In a

report, describe each of these Try to decipher the organisation’s use of organisational design elements – especially

departmentalisation, chain of command, centralisation/decentralisation, and formalisation

• Survey five different managers as to how many employees they supervise Also ask them whether they feel they could

supervise more employees, or whether they feel the number they supervise is too many Write a report that draws some

conclusions about span of control

• Using the organisational chart you created in the team exercise, redesign the structure What structural changes might make

this organisation more efficient and effective? Write a report describing what you would do and why Be sure to include an

example of the original organisational chart, as well as a chart of your proposed revision of the organisational structure

• In your own words, write down three things you learned in this chapter about being a good manager

Becoming a manager

An organisational chart can be a useful tool for understanding certain aspects of an organisation’s structure Form small groups of

three to four individuals Among yourselves, choose an organisation with which one of you is familiar (where you work, a student

organisation to which you belong, your university or college, or similar) Draw an organisation chart of this organisation Be very

careful to show departments (or groups), and be especially careful to get the chain of command correct Be prepared to share your

chart with the class

Working together: Team-based exercise

Ethical dilemma

Is a manager acting unethically by simply following orders within the chain of command? One recent survey of managers found that

52 per cent of the respondents felt some pressure to bend ethical rules, often because of orders from above or to achieve ambitious

goals

Imagine that you are a salesperson with a large company Your manager invites you to an expensive restaurant where she is

entertaining several colleagues and their spouses The boss orders you to put the meal on your expense account as a customer

dinner She says that she will approve the expense so that you are reimbursed, and that higher-level managers will not know that

managers and their spouses were in attendance What would you do in this situation? What are some of the ethical concerns you

can see in this situation?

The virus hunters

Imagine what life would be like if your product were never finished, if your work were never done, if your market shifted

30 times a day The computer-virus hunters at Symantec Corporation do not have to imagine That is the reality of their

daily work life At the company’s Response Lab in Santa Monica, California, described as the ‘dirtiest of all our networks

at Symantec’, software analysts collect viruses and other suspicious code and try to figure out how they work so that

security updates can be provided to the company’s customers By the door to the lab, there is even a hazardous materials

box marked ‘Danger’ where they put all the disks, tapes and hard drives with the nasty viruses that need to be carefully

and completely disposed of Symantec’s situation may seem unique, but the company, which makes content and network

security software for both consumers and businesses, reflects the realities facing many organisations today: quickly shifting

customer expectations and continuously emerging global competitors that have drastically shortened product life cycles

When Symantec started its operations, it only employed a handful of people and the pace of the industry was fairly slow Perhaps there would be a few new viruses popping up each day, but the spread was fairly slow – months, not

minutes like today! Now, Symantec’s virus hunters around the world deal with some 20 000 virus samples each month,

not all of which are unique, stand-alone viruses To make the hunters’ jobs even more interesting, computer attacks are

increasingly being spread by criminals wanting to steal information, whether corporate data or personal user account

information that can be used in fraud Dealing with these critical and time-sensitive issues requires special talents The

response-centre team is a diverse group whose members were not easy to find because the really talented anti-malware

or security experts are in short supply, even when the company spreads its recruitment net widely The response-centre

C a s E a p p L i C a T i O n

team’s makeup reflects that For instance, one senior

researcher is from Hungary; another is from Iceland;

and another works out of her home in Melbourne,

Florida But they all share something in common: They

are all motivated by solving problems

The launch of the Blaster-B worm changed the company’s approach to dealing with viruses The

domino effect of Blaster-B and other viruses spawned

by it meant the frontline software analysts were

working around the clock for almost two weeks The

‘employee burnout’ potential made the company realise

that its virus-hunting team would now have to be much

deeper talent-wise Now, the response centre’s team

numbers in the hundreds and managers can rotate

people from the front lines, where they are responsible

for responding to new security threats that crop up, into groups where they can help with new-product development Others

write internal research papers Still others are assigned to develop new tools that will help their colleagues battle the next

wave of threats There is even an individual who tries to figure out what makes the virus writers tick – and the day never

ends for these virus hunters When Santa Monica’s team finishes its day, colleagues in Tokyo take over When the Japanese

team finishes its day, it hands off to Dublin, who then hands back to Santa Monica for the new day It is a frenetic, chaotic,

challenging work environment that spans the entire globe

But the security experts realise that despite their team’s best efforts, ‘they are losing the battle’ They plan to add another line of defence and use the power of people to hunt down the cybercriminals by ‘recruiting victims and other computer users

to help them go on the offensive and track down the hackers’ Rowan Trollope, senior vice president for consumer products

at Symantec, says: ‘It’s time to stop building burglar alarms to keep people safe and go after the bad guys.’ Thus, at the

introduction of its new Norton Internet Security system, Symantec is now asking customers to opt in to a program that will

collect data about attempted computer intrusions and then forward the information to authorities

Discussion questions

1 How might the nature of what the virus hunters do affect the most appropriate structure for getting work done

efficiently and effectively?

2 In fighting the onslaught of computer viruses, what will be the challenges of managing a team of professionals and a

group of customer ‘volunteers’?

3 What types of adaptive organisational designs discussed in this chapter might be most appropriate for Symantec to

use in order to manage most effectively its professionals and customer volunteers? Explain your choices

4 Which of the challenges that were discussed in relation to today’s organisational design issues are relevant at

Symantec? How and why?

Sources: Information from Symantec’s website, <www.symantec.co>, 15 November 2010; C Edwards, ‘Hounding the hackers’,

BusinessWeek, 14 September 2009, p 30; A Vance, ‘For Symantec and McAfee, arms race for security’, The New York Times Online,

6 July 2009; J Cox, ‘Cyber threats get personal’, CNNMoney.com, 18 September 2007; N Rothbaum, ‘The virtual battlefield’, Smart Money,

January 2006, pp 76–80; S.H Wildstrom, ‘Viruses get smarter – and greedy’, BusinessWeek online, 22 November 2005; and S Kirsner,

‘Sweating in the hot zone’, Fast Company, October 2005, pp 60–5

Symantec’s operations centre is the front line in the fight against network attacks.

mass production (p 371)matrix structure (p 376)mechanistic organisation (p 368)network organisation (p 377)organic organisation (p 369)organisational design (p 360)organisational structure (p 360)organising (p 360)

process departmentalisation (p 363)

process production (p 371)product departmentalisation (p 361)project structure (p 376)

responsibility (p 364)simple structure (p 372)span of control (p 364)team structure (p 375)unit production (p 371)unity of command (p 364)virtual organisation (p 377)work specialisation (p 361)

1 This opening story is based on information from Myer’s

website, <www.myer.com.au>, 10 February 2011; R Myer,

‘The turnaround man’, The Sydney Morning Herald Online,

<www.smh.com.au>, 26 October 2010; D Kitney, ‘Myer

outlines $100m over four years to lift customer service’,

The Australian, 17 July 2010; p 28; J Thomson, ‘Myer’s bad

timing’, SmartCompany, 12 March 2010; J Thomson, ‘Myer

says it may float this year’, SmartCompany, 4 August 2009;

A Sharp, ‘Myer turnaround on track with strong profit

growth’, The Age, 30 September 2008, p B2; F Tyndall and

A Jury, ‘My store’, AFR Boss, February 2007, pp 16–20;

‘The new Myer – Myer under private equity’, CEO Forum

Magazine, Spring 2007, <www.ceoforum.com.au>

2 See, for example, R.L Daft, Organization Theory and Design,

10th edn (Mason, OH: South-Western College Publishing,

2009).

3 S.E Humphrey, J.D Nahrgang and F.P Morgeson,

‘Integrating motivational, social and contextual work

design features: A meta-analytic summary and theoretical

expansion of the work design literature’, Journal of Applied

Psychology, September 2007, pp 1332–56.

4 D Drickhamer, ‘Moving man’, Industry Week, December

2002, pp 44–6.

5 For a discussion of authority, see W.A Kahn and K.E Kram,

‘Authority at work: Internal models and their organizational

consequences’, Academy of Management Review, January 1994,

pp 17–50.

6 R Ashkenas, ‘Simplicity-minded management’, Harvard

Business Review, December 2007, pp 101–9.

7 R.C Morais, ‘The old lady is burning rubber’, Forbes,

26 November 2007, pp 146–50.

8 D Van Fleet, ‘Span of management research and issues’,

Academy of Management Journal, September 1983, pp 546–52.

9 D James, ‘The end of the career path’, Business Review

Weekly, 6 March 1995, pp 34–8.

10 See, for example, J Child, Organization: A Guide to Problems

and Practices (London: Kaiser & Row, 1984); and

H Mintzberg, Power In and Around Organizations (Upper

Saddle River, NJ: Prentice Hall, 1983).

11 F Tyndall and A Jury, ‘My store’, AFR Boss, February 2007,

pp 16–20.

12 C Tohurst, ‘Companies march on the morale of their workers’,

Australian Financial Review, 13 November 1998, p SP2.

13 E.W Morrison, ‘Doing the job well: An investigation of

pro-social rule breaking’, Journal of Management, February

2006, pp 5–28.

14 Ibid.

15 D.A Morand, ‘The role of behavioral formality and informality in the enactment of bureaucratic versus organic

organizations’, Academy of Management Review, October 1995,

pp 831–72; and T Burns and G.M Stalker, The Management

of Innovation (London: Tavistock, 1961).

16 J Whalen, ‘Bureaucracy buster? Glaxo lets scientists choose its

new drugs’, The Wall Street Journal, 27 March 2006, pp B1+.

17 C Fishman, ‘Isolating the leadership gene’, Fast Company,

March 2002, p 90.

18 A.D Chandler, Jr, Strategy and Structure: Chapters in the History

of the Industrial Enterprise (Cambridge, MA: MIT Press, 1962).

19 See, for instance, W Chan Kim and R Mauborgne, ‘How

strategy shapes structure’, Harvard Business Review, September

2009, pp 73–80; L.L Bryan and C.I Joyce, ‘Better strategy

through organizational design’, The McKinsey Quarterly, 2007,

Number 2, 2007, pp 21–9; D Jennings and S Seaman, ‘High and low levels of organizational adaptation: An empirical

analysis of strategy, structure, and performance’, Strategic

Management Journal, July 1994, pp 459–75; D.C Galunic

and K.M Eisenhardt, ‘Renewing the strategy–structure–

performance paradigm’, in B.M Staw and L.L Cummings

(eds), Research in Organizational Behavior, Vol 16 (Greenwich,

CT: JAI Press, 1994), pp 215–55; H.A Simon, ‘Strategy and

Endnotes

organizational evolution’, Strategic Management Journal, January

1993, pp 131–42; H.L Boschken, ‘Strategy and structure:

Reconceiving the relationship’, Journal of Management, March

1990, pp 135–50; and R.E Miles and C.C Snow, Organizational

Strategy, Structure, and Process (New York: McGraw-Hill, 1978).

20 See, for instance, R.Z Gooding and J.A Wagner III,

‘A meta-analytic review of the relationship between size

and performance: The productivity and efficiency of

organizations and their subunits’, Administrative Science

Quarterly, December 1985, pp 462–81; D.S Pugh, ‘The

Aston program of research: Retrospect and prospect’,

in A.H Van de Ven and W.F Joyce (eds), Perspectives on

Organization Design and Behavior (New York: John Wiley,

1981), pp 135–66; and P.M Blau and R.A Schoenherr,

The Structure of Organizations (New York: Basic Books, 1971).

21 J Woodward, Industrial Organization: Theory and Practice

(London: Oxford University Press, 1965).

22 See, for instance, J Zhang and C Baden-Fuller,

‘The influence of technological knowledge base and

organizational structure on technology collaboration’, Journal

of Management Studies, June 2010, pp 679–704; C.C Miller,

W.H Glick, Y.D Wang and G Huber, ‘Understanding

technology–structure relationships: Theory development and

meta-analytic theory testing’, Academy of Management Journal,

June 1991, pp 370–99; J.D Thompson, Organizations in

Action (New York: McGraw-Hill, 1967); and C Perrow,

‘A framework for the comparative analysis of organizations’,

American Sociological Review, April 1967, pp 194–208.

23 D.M Rousseau and R.A Cooke, ‘Technology and

structure: The concrete, abstract, and activity systems of

organizations’, Journal of Management, Fall–Winter 1984,

pp 345–61; and D Gerwin, ‘Relationships between

structure and technology’, in P.C Nystrom and

W.H Starbuck (eds), Handbook of Organizational Design,

Vol 2 (New York: Oxford University Press, 1981), pp 3–38.

24 S Rausch and J Birkinshaw, ‘Organizational ambidexterity:

Antecedents, outcomes, and moderators’, Journal of

Management, June 2008, pp 375–409; M Yasai-Ardekani,

‘Structural adaptations to environments’, Academy of

Management Review, January 1986, pp 9–21; P Lawrence

and J.W Lorsch, Organization and Environment: Managing

Differentiation and Integration (Boston, MA: Harvard Business

School, Division of Research, 1967); and F.E Emery and

E Trist, ‘The causal texture of organizational

environments’, Human Relations, February 1965, pp 21–32.

25 S Reed, ‘He’s brave enough to shake up Shell’,

BusinessWeek, 18 July 2005, p 53.

26 H Mintzberg, Structure in Fives: Designing Effective Organizations

(Upper Saddle River, NJ: Prentice Hall, 1983), p 157.

27 R.J Williams, J.J Hoffman and B.T Lamont, ‘The influence

of top management team characteristics on M-form

implementation time’, Journal of Managerial Issues, Winter

1995, pp 466–80.

28 N Wingfield, ‘To rebuild Windows, Microsoft razed walls’,

The Wall Street Journal, 20 October 2009, p B9.

29 See, for example, G.J Castrogiovanni, ‘Organization task environments: Have they changed fundamentally over time?’,

Journal of Management, Vol 28, No 2, 2002, pp 129–50;

D.F Twomey, ‘Leadership, organizational design, and

competitiveness for the 21st century’, Global Competitiveness, Annual 2002, pp S31–S40; E Pinchot and G Pinchot, The

End of Bureaucracy and the Rise of the Intelligent Organization

(San Francisco: Berrett-Koehler Publishers, 1994);

T Clancy, ‘Radical surgery: A view from the operating

theater’, Academy of Management Executive, February 1994,

pp 73–8; I.I Mitroff, R.O Mason and C.M Pearson,

‘Radical surgery: What will tomorrow’s organizations look

like?’, Academy of Management Executive, February 1994,

pp 11–21; and R.E Hoskisson, C.W.L Hill and H Kim,

‘The multidivisional structure: Organizational fossil or

source of value?’, Journal of Management, Vol 19, No 2,

1993, pp 269–98.

30 Q Hardy, ‘Google thinks small’, Forbes, 14 November 2005,

pp 198–202.

31 See, for example, D.R Denison, S.L Hart and J.A Kahn,

‘From chimneys to cross-functional teams: Developing

and validating a diagnostic model’, Academy of Management

Journal, December 1996, pp 1005–23; D Ray and

H Bronstein, Teaming Up: Making the Transition to a

Self-directed Team-based Organization (New York: McGraw-Hill,

1995); and J.R Katzenbach and D.K Smith, The Wisdom of

Teams (Boston, MA: Harvard Business School Press, 1993).

32 P Shannon, ‘Teams power productivity’, New Zealand

36 See, for example, G.G Dess, A.M.A Rasheed, K.J McLaughlin

and R.L Priem, ‘The new corporate architecture’, Academy of

Management Executive, August 1995, pp 7–20.

37 For additional readings on boundaryless organisations, see M.F.R Kets de Vries, ‘Leadership group coaching in action: The Zen of creating high performance teams’,

Academy of Management Executive, February 2005, pp 61–76;

J Child and R.G McGrath, ‘Organizations unfettered:

Organizational form in an information-intensive economy’,

Academy of Management Journal, December 2001,

pp 1135–48; R Ashkenas, D Ulrich, T Jick and S Kerr,

The Boundaryless Organization: Breaking the Chains of Organizational Structure (San Francisco: Jossey-Bass, 1997);

and J Gebhardt, ‘The boundaryless organization’, Sloan

Management Review, Winter 1996, pp 117–19 For another

view of boundaryless organisations, see B Victor, ‘The dark

side of the new organizational forms: An editorial essay’,

Organization Science, November 1994, pp 479–82.

38 See, for instance, R.J King, ‘It’s a virtual world’,

Strategy+Business, <www.strategy-business.com>, 21 April

2009; Y Shin, ‘A person–environment fit model for virtual

organizations’, Journal of Management, December 2004,

pp 725–43; D Lyons, ‘Smart and smarter’, Forbes, 18 March

2002, pp 40–1; W.F Cascio, ‘Managing a virtual workplace’,

Academy of Management Executive, August 2000, pp 81–90;

H Chesbrough and D Teece, ‘When is virtual virtuous:

Organizing for innovation’, Harvard Business Review, January–

February 1996, pp 65–73; and W.H Davidow and M.S Malone,

The Virtual Corporation (New York: HarperCollins, 1992)

39 StrawberryFrog website, <www.strawberryfrog.com>, 15 June

2010; ‘Over there’, Marketing Magazine, 9 February 2009,

p 19; and T Howard, ‘StrawberryFrog hops to a different

drummer’, USA Today, 10 October 2005, p 4B

40 R Merrifield, J Calhoun and D Stevens, ‘The next

revolution in productivity’, Harvard Business Review, June

2008, pp 73–80; R.E Miles, C.C Snow, J.A Matthews,

G Miles and H.J Coleman, Jr, ‘Organizing in the knowledge

age: Anticipating the cellular form’, Academy of Management

Executive, November 1997, pp 7–24; C Jones, W Hesterly

and S Borgatti, ‘A general theory of network governance:

Exchange conditions and social mechanisms’, Academy of

Management Review, October 1997, pp 911–45; R.E Miles

and C.C Snow, ‘The new network firm: A spherical structure

built on human investment philosophy’, Organizational

Dynamics, Spring 1995, pp 5–18; and R.E Miles and C.C

Snow, ‘Causes of failures in network organizations’, California

Management Review, Vol 34, No 4, 1992, pp 53–72.

41 G Hoetker, ‘Do modular products lead to modular

organ-izations?’, Strategic Management Journal, June 2006, pp 501–18;

C.H Fine, ‘Are you modular or integral?’, Strategy & Business,

Summer 2005, pp 44–51; D.A Ketchen, Jr and G.T.M Hult,

‘To be modular or not to be? Some answers to the question’,

Academy of Management Executive, May 2002, pp 166–7; and

M.A Schilling, ‘The use of modular organizational forms:

An industry-level analysis’, Academy of Management Journal,

44 C.E Connelly and D.G Gallagher, ‘Emerging trends

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45 K Holland, ‘The anywhere, anytime office’, The New York

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46 Trend Micro’s website, <www.trendmicro.com>, 7 May 2008.

47 See D Grayson, Z Jin, M Lemon, M.A Rodriguez,

S Slaughter and S Tay, ‘A new mindset for corporate responsibility’, A White Paper Sponsored by BT and Cisco,

2008, p 13; and SB20 – The World’s Top Sustainable Business Stocks 2007, <www.sustainablebusiness.com>,

7 May 2008.

48 Based on information from Novozymes’ website,

<www.novozymes.com>, 14 February 2008.

49 J Wirtenberg, J Harmon, W Russel and K Fairfield,

‘HR’s role in building a sustainable enterprise: Insights

from some of the world’s best companies’, Human Resource

Planning, Vol 30, No 1, 2007, pp 10–20.

50 M Zonneveldt, ‘BHP plans a greener tomorrow’, Herald

Sun, 14 May 2007, p 27.

51 P.M Senge, The Fifth Discipline: The Art and Practice of

Learning Organizations (New York: Doubleday, 1990).

52 S.A Sackmann, P.M Eggenhofer-Rehart and

M Friesl, ‘Long-term efforts toward developing a

learning organization’, Journal of Applied Behavioral

Science, December 2009, pp 521–49; D.A Garvin,

A.C Edmondson and F Gino, ‘Is yours a learning

organization?’, Harvard Business Review, March 2008,

pp 109–16; A.N.K Chen and T.M Edgington,

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Considerations for knowledge workers’, MIS Quarterly,

June 2005, pp 279–309; K.G Smith, C.J Collins and K.D Clark, ‘Existing knowledge, knowledge creation capability and the rate of new product introduction in

high-technology firms’, Academy of Management Journal,

April 2005, pp 346–57; B Marr, ‘How to knowledge

management’, Financial Management, February 2003,

pp 26–7; R Cross, A Parker, L Prusak and S.P Borgati, ‘Supporting knowledge creation and

sharing in social networks’, Organizational Dynamics,

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p 10

photo credits

359 © Newspix/News Ltd/David Geraghty; 377 © Eric Gevaert | Dreamstime.com; 378 <www.strawberryfrog.com>;

387 Courtesy of Symantec Inc.

11.1 Define the nature and function of communication.

11.2 Identify the seven components of the communication process.

11.3 Compare and contrast methods of interpersonal communication.

11.4 Identify barriers to effective interpersonal communication, and describe how

to overcome them.

11.5 Explain how communication can flow most effectively in organisations.

11.6 Describe how technology affects managerial communication

11.7 Discuss contemporary issues in communication.

rganisations are today exploring new

technologies that can help them facilitate both

internal and external communication YouTube, Facebook, Twitter, apps and blogs are all powerful new social media tools that can be used to share information and stay connected Social networking has really taken off around the world and Australians are among the highest users, according to the

2010 Social Media Report from Nielsen In 2010,

social media was used by 9 million Australians to connect to other people, 8 million read a blog, and

7 million created a profile on a social networking site

While many companies were initially very sceptical about such social networking tools, worried that employees were wasting valuable working hours, businesses and managers are now increasingly starting to embrace these social media tools for their own purposes in relation to knowledge sharing, communication, collaboration and marketing

Wavelength International is one such company

Wavelength International is a medical recruitment company headquartered in Sydney that provides HR solutions to health-care organisations such as hospitals and medical practices throughout Australia and New Zealand but also beyond, such as in Canada, Singapore, Ireland, the UK and countries in the Middle East.1

It specialises in bringing medical professionals and health-care employers together by providing assistance in recruitment, migration and medical registration to ensure a smooth transition between geographical locations Its medical specialties include anaesthetics/ICU, acute care/emergency, surgical, pathology, radiology/medical imaging, obstetrics and gynaecology, paediatrics, psychiatry/mental health, executive/management

and nurse management The company was started

in 1998 by co-founders Dr John Bethell and Claire Ponsford, as a recruitment firm that specialised in bringing doctors into Australia and New Zealand on temporary work visas With the chronic shortage

of medical specialists in the Australian and New Zealand health-care systems, the business has grown steadily since, employing more than

50 people in 2010 Like many other rapidly expand- ing businesses, Wavelength International has found it difficult to keep the internal communication lines open within the company ‘With only ten

of us, you just leant over your shoulder and talked,’ co-founder Dr John Bethel says ‘As we grew, it became increasingly obvious that lines of communication required a bit of effort.’

As the company employed more and more people, it found management decisions were not being filtered down, feedback from staff was not coming back up, and a lot of the communication became restricted to group emails, which tended

to clog up inboxes There were also more limited opportunities for collaboration and knowledge sharing between the recruitment specialists within the company as it grew

To address the internal communication problems management turned to using Yammer, which is

a social media-inspired communication platform similar to Facebook or Twitter, but more specialised

in relation to allowing a company to operate a private and secure company social network Employees at Wavelength International, or ‘Wavies’ as they call themselves, can log on to the company’s secure network, which enables them to communicate, collaborate and share information more easily without having to call meetings

O

which has been facilitated through the use of its secure social communication network However,

it is not just due to the use of Yammer that Wavelength was recognised as a great place to work The organisation has a positive culture where everybody is treated equally and their opinions really count Some recent testimonials from employees at Wavelength attest to the workplace being friendly, welcoming, team-oriented and a place where everyone genuinely cares about each other Although everybody works hard, it is not a competitive environment Instead, staff are happy

to share their experiences and knowledge

It is not just the employees that have benefited from the use of Yammer; it has also helped Wavelength International to offer a top service

to its clients The company was a proud winner

at the 2010 Recruitment Excellence Awards, taking home the awards for ‘Best Brand’ and ‘Best Learning and Development Plan’ These excellence awards recognise performance and innovation in the Australian recruitment industry, and attest to the professionalism of the staff at Wavelength International and their pride in offering their services

to the broader community in order to help struggling hospitals and remote communities find critical medical staff so they can fulfil their services to the public

Wavelength International uses

a secure social communication network to provide recruitment and staffing services

to hospitals and medical practices throughout Australia and New Zealand.

esses around the world are today using Yammer

to handle their internal communication needs, and

employees can easily log on to the system via

their email address and access Yammer via the

web or mobile devices such as their smartphones

An advantage is also the fact that there is no

need for a company using Yammer to host it on

its own internal servers Instead, they can simply

sign up for free or pay a small monthly fee per

user for extra services For smaller companies,

like Wavelength International, this is a real benefit

because they simply do not have the level of IT

expertise that would be required to set up their

own social networks

As is common for most new technologies,

Wavelength International found that it took some

time for its employees to get used to the new

system While there were some early adopters

of the new technology, not everybody was

enthusiastic about it at the beginning, but as

more and more people started to experiment with

it they found it more useful than the traditional

emails Six months after having first adopted

Yammer, the company is now using it in a variety

of ways that have helped to break down the silos

within the organisation Managers at Wavelength

use Yammer to inform employees about plans,

progress and various developments; while staff use

it to share ideas and news as well as information

about clients and projects Of course, there are

also some informal communications going on that

help staff to know about, for example, parking

inspectors being in the local office area and other

social chit-chat But what it has really done is to

reduce the emails in people’s inboxes while at

the same time allowing staff to keep themselves

informed about what is happening within the

company, which is very important considering the

company’s policy of allowing staff to work one day

a week from home Yammer certainly facilitates

this ‘connectedness’ for staff without sacrificing

productivity

Wavelength International was also selected

among BRW ’s 2010 ‘Top 50 Best Places to Work’,

where it was number 30 – one of just a handful

of small businesses to make the list One of

the reasons why Wavelength International was

so highly regarded was its ability to keep staff

connected to and actively involved in the business,

Managers at Wavelength International recognise the importance of effective

communication Communication between managers and employees provides the information necessary to get work done effectively and efficiently in organisations As such, there is no doubt that communication is fundamentally linked to managerial performance.2 In this chapter, we will present basic concepts in managerial communication We will explain the interpersonal communication process, methods of communicating, barriers to effective communication and ways to overcome those barriers We will also look at organisational communication issues, including communication flow and communication networks Because managerial communication is

so greatly influenced by information technology, this will receive some attention Finally,

we will discuss several contemporary communication issues facing managers The area of communication has undergone tremendous change in the past decade With the development

of new communication technologies, it is sometimes easy to think that communication should not be a problem in most organisations However, the experts are arguing that, although communication may be more efficient today because of the available technology, it may not always be effective, because of the impersonal nature of that technology

Understanding managerial communication

The importance of effective communication for managers cannot be overemphasised, for

one specific reason: everything a manager does involves communicating Not some things, but everything! A manager cannot make a decision without information That information has to be

communicated Once a decision is made, communication must again take place Otherwise, no one would know that a decision had been made The best idea, the most creative suggestion, the best plan or the most effective job redesign cannot take shape without communication Managers need effective communication skills We are not suggesting that good communication skills alone make a successful manager We can say, however, that ineffective communication skills can lead to

a continuous stream of problems for the manager

What is communication?

Communication is the transfer and understanding of meaning The first thing to note about this

definition is the emphasis on the transfer of meaning This means that if no information or ideas

have been conveyed, communication has not taken place The speaker who is not heard or the writer who is not read has not communicated More importantly, however, communication involves

the understanding of meaning For communication to be successful, the meaning must be imparted

and understood A letter written in Chinese addressed to a person who does not read Chinese cannot be considered communication until it is translated into a language the person does read and understand Perfect communication, if such a thing existed, would be when a transmitted thought or idea was perceived by the receiver exactly as it was envisioned by the sender

Another point to keep in mind is that good communication is often erroneously defined by the communicator as agreement with the message, instead of clearly understanding the message.3

If someone disagrees with us, many of us assume that the person just did not fully understand our position In other words, many of us define good communication as having someone accept our views But I can clearly understand what you mean and just not agree with what you say In fact, many times when a conflict has gone on a long time, people will say it is because the parties are not communicating effectively That assumption reflects the tendency to think that effective communication equals agreement

The final point about managerial communication is that it encompasses both interpersonal

communication – communication between two or more people – and organisational comm­

unication – all the patterns, networks and systems of communication within an organisation

Both these types of communication are important to managers in organisations

All the patterns,

networks and systems of