Organization Structure and Management Systems

OUTLINE Evolution of the corporation Principles of organizational design The role of hierarchy: bureaucratic control vs. modular integration Alternative structural forms Management systems

Evolution of the Modern Corporation

The business environment
Early 19th century Late 19th century Early 20th century
Local markets Transport slow Limited mechanization Introduction of railroads, telegraph industrialization

Strategic changes
Firms specialized & focused on local markets Geographical and vertical expansion

Organizational consequences
Small firms. Simple management structures Functional structures. Line/staff separation. Accounting systems Development of multidivisional corporation

Excess capacity in distribution. Growth of financial institutions & world trade

Product & multinational diversification

General Motors Organization Structure, 1921

Board of Directors President Executive Committee

Financial Staff

GM Acceptance Corporation

Legal Department

General Advisory Staff

Chevrolet Division

Sheridan Division

Canadian Division

Oldsmobile Division

Buick Division

Cadillac Division

GM Export Company

GM Truck Division

Samson Tractor Division

Oakland Division

Intercompany Parts Division

Scripps Booth Corp.

Source: A.P. Sloan, My Years with General Motors, Orbit Publishing, 1972, p. 57.

The Basic Tasks of Organization

Achieving high levels of productivity requires SPECIALIZATION

Specialization by individuals necessitates COORDINATION

For coordination to be effective requires COOPERATION

But goals of employees == goals of owners THE AGENCY PROBLEM

THE ORGANIZATIONAL CHALLENGE: to design structure & systems that: Permit specialization Facilitate coordination by grouping individuals & link groups with systems of communication, decision making, & control Create incentives to align individual & firm goals

Hierarchy Economizes on Coordination

(a) Self Organizing Team: 10 interactions

(b) Hierarchy: 4 interactions

Hierarchy of Loosely-Coupled Modules Allows Flexible Adaptation

Tightly-coupled, integrated system: Change in any part of the system requires system-wide adaptation

Loose-coupled, modular hierarchy: partiallyautonomous modules linked by standardized interfaces permits decentralized adaptation and innovation

Webers Principles of Bureaucracy

Rational-legal authority Specialization of labor Hierarchical structure Coordination and control through rules and standard operating procedures Standardization employment practices Separation of jobs and people Formalization of administrative acts, decisions and rules

Mechanistic and Organic Forms

FEATURE MECHANISTIC ORGANIC Flexible; less specialized Mutual adjustment.l Cultural control Horizontal & vertical To the organization & its goals & values Dynamic, ambiguous, technologically uncertain

Task definition Rigid & highly specialized

Coordination & control

Rules & directives imposed from the top

Communication Mainly vertical Commitment & loyalty Environmental context To immediate superior

Stable with low technological uncertainty

Designing the Hierarchy: The Basis for Defining Organizational Units and their Relationships

Units may be defined on the basis of Common Tasks, Products, Geographical Proximity, or Process/Function

Critical issue: Intensity of CoordinationEmployees with the greatest interdependence should be grouped into same organizational unit.
Additional criteria: Economies of Scale, Economies of Utilization, Learning, Standardization of Control Systems

General Motors Organization Structure, 1997

Board of Directors Presidents Council Corporate Functions

North American Operations

Delphi Automotive Systems

GM Acceptance Corporation

International Operations

Hughes Electronics

GM Europe Midsize & Luxury Car Group Small Car Group GM Power Train Group Vehicle Sales, & Marketing Group Development & Technical Cooperation Group Asian & Pacific Operations Latin American, African, & Middle East Operation

Corporate Executive Office Chairman & CEO Service Divisions Corporate Staff Business R&D Development

Finance

Human Legal Resources

GE Aircraft Engines

GE Transportation

GE Industrial Systems

GE Plastics

GE Appliances

GE Supply

GE Power Systems

GE Medical Systems

GE Lighting

GE Specialty Materials

NBC

GE Capital

26 businesses organized into 5 segments: Consumer Mid-market Specialized Specialty Services Financing Financing Insurance

Equipment Management

Mobil Corporation, 1997

Board of Directors CEO Executive Office
Corporate Center Support Services

North America
Asia/ Pacific

New Exploration Europe & CIS Africa & Middle East

Worldwide LNG & IPP South America North America M&R

Technology

Shipping

Worldwide Chemicals

Royal Dutch/Shell Group, 1994: A Matrix Structure

The Generic Strategic Planning Cycle

Corporate Guidelines

Draft Business Plans

Discuss with Corporate

Revised Business Plans

Forecasts/ Scenarios/
Planning assumptions

Approval by Board

Corporate Plan Capex Performance Review Annual Performance Targets Budget