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Lecture 4

MHR 505 Lecture Notes - Lecture 4: Cost Leadership, Handelsbanken, Role Conflict


Department
Human Resources
Course Code
MHR 505
Professor
Frank Miller
Lecture
4

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MHR505
February 3, 2017
Lecture 4 - chapter 13: designing Organizational structures
(make sure to fully understand this topic, make sure you know how to understand the
company and what are the best structures to implement in that company)
Define Organizational structure
Division of labour and patterns of coordination, communication, workflow, and formal
power that direct organizational activities
Relates to many OB topics (job design (who should employees go and talk to - report
to, and what are each person responsible for), teams, power)
Division of labour and coordination
Used for efficiency in labour, can used in any size company, small or big
Division of labour
Results in specialization, separate jobs for different people
Improves work efficiency
Coordination of work
Value of division of labour is limited to ability to coordinate that work
Coordinating work can be costly
There are different functions
3 coordinating mechanisms (these 3 are split in the bottom)
Informal communication
Formal hierarchy
○ Standardization
Making sure that there is constant flow between employees and employers,
always connected
Coordination through informal communication
All firms use informal communication for coordination
Vital in nonroutine and ambiguous situations
Easiest in small firms, but technology extends its use in large firms
Larger firms also apply informal communication through:
Liaison roles
Integrator roles
Temporary teams
Other coordinating mechanisms
Formal hierarchy
Direct supervision
Assigns legitimate power to manage others
Necessary in most firms, but has problems
Basically there is a head manager and you do what he says
However this is difficult when there is more than 1 person who is wants to be
or are your boss/manager. This becomes hard when they all want to give you
stuff to do
Standardization –routine behaviour/output
Standardized processes (e.g., job descriptions)
Knowing exactly what needs to be done
1
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MHR505
February 3, 2017
Standardized outputs (e.g., sales targets)
Making a goal to meet and minimum amount you have to make
Standardized skills (e.g., training)
Have certain education, and having certain skills and abilities
This is needed to do the job right, like having the ability to describe a
product to a customer to make a sale
Elements of organizational structure
-Line function: the people actually doing the work, like production. Even things like
marketing
-Staff functions: are department of people who make decisions, people who are
managers
-This function is seen as a costly function in the company since all they do is
use up money
(there are 4 parts of the org structure)
Departmentalization (2)
Span of control (1)
Formalization (3)
Centralization (2)
Span of control (1)
Number of people directly reporting to the next level
Wider span of control is possible when:
Other coordinating mechanisms are present
Routine tasks
Low employee interdependence
Tall vs. flat structures
As companies grow, they:
Build a taller hierarchy
Widen span, or both
This can be bad since there is a wide separation between the head boss and
the low employees
Problems with tall hierarchies
Poorer upward information
Overhead costs
Focus power around managers, so staff feel less empowered
A flat structure is when there are only a few levels, which makes things easy for
employees to communicate with each other, with managers and even with the CEO
In some cases each structure is equally able to work
However there are more and more companies who are switching to flat structures
since the environment of the company is making it difficult for tall structures to work
Svenska Handelsbanken’s decentralized structure
Svenska Handelsbanken supports better customer service and higher empowerment
by giving its branch managers and staff considerable autonomy to run the local
branches.
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MHR505
February 3, 2017
Centralization/ Decentralization (2)
Centralization -- Formal decision making authority is held by a few people, usually at
the top (the head office)
This can be good, since there are many people who do not like to make the
decisions, since they do not want the bad decisions to backfire on them
Decentralization increases as companies grow
Where more and more decisions are being made by more people
This usually happens when the company is growing and it becomes more
difficult for a few people to make decisions for a market that they are too far
removed from that part of the market
Therefore who is the closest to the center market will make the decisions that
deal with that certain market like deciding the price and where to sell and
advertise
Varying degrees of centralization in different areas of the company
Example: decentralized sales ; centralized information systems
Formalization (3)
Standardizing behaviour through rules, procedures, training, etc
Increases as firms get older, larger, regulated
Problems with formalization
Less organizational flexibility
Discourages organizational learning/creativity
Less work efficiency
Increases job dissatisfaction and work stress
Rules/procedures become focus of attention
Can be seen as being a control freak, if there is too much rules, leaving no “wiggle
room”
Mechanistic vs. organic structures
Mechanistic Structure
Narrow span of control
3
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