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York University
Administrative Studies
ADMS 1000
Peter Tsasis

Management of Organizational Structure Mechanistic Organic Division of Labor Narrow division of labor Wider division of labor High Centralization of decision- De-centralization of decision- Centralization making making Span of Narrow: Much Hierarchy, many Wide: Little hierarchy, few Control/Hierarchical of administration levels of administration High formalization of work Low formalization of work Formalization procedures (rules, and regulation, procedures (rules and standardization) regulations, standardization) Organic • Wide division of labour: Organization provides jobs enrichment which allow employees work with more challenging and meaningful work, i.e., increasing variety of work they perform and freedom in performing the work. In-Class Case – Land’s End: o Term-based work – each group member contributes their own expertise to help design and market their goods. o Before, people worked in narrowly defined jobs – quality assurance personal, inventory control, advertising, copyrighter, marketing personnel. Now they put these people together in teams – they have widened the division of labor. o Bring together people of different backgrounds/expertise for greater knowledge sharing improving awareness of consumer needs. • De-centralization of decision-making: To make organizations more efficient and speedier in decision-making ability, they allowing lower levels who are close to consumers involve in decision making process. Cross-functional Team and self-managing work teams – the work teams are given the power to manage themselves and make decisions without the approval of formal management. In-Class Case – Land’s End: o People working together in teams – and they are taking responsibility for the designing and production of the products, i.e., decentralization decision making. o Bring decision authority about the product to those closed to the consumers – that would benefit consumers, i.e., better services for consumers. • Little hierarchy, few levels of administration: Flatter and wider span of control could cut costs and speed up the communication or decision-making process because it spreads decision-making authority down to the lower level of organization. In-Class Case – Land’s End: o Flattering the hierarchy – i.e., reduced the number of levels of administration o Team-based work means that they also don’t need to be governed by many levels of authority above them. 1 o Reduced time it take products to market/consumers • Low formalization of work procedures: In order to adapt to the changing external environment (competitors, consumers, technological changes etc.), The workers are less restricted with fewer rules and regulations; standardization of jobs have been cutting down to be more creative and innovation. In-Class Case – Land’s End: o Basic rules for designing certain products. o But the team can approach the design and marketing this product in any way they’d like o Contribution from team members are not heavily governed by rules o Give member freedom to be creative. o Innovation for the marketplace Mechanistic • Narrow division of labour: In order to maximize worker efficiency and productivity, jobs are divided u into simplest and repetitive tasks. • High Centralization of decision-making (Top-down approach): The important decisions are made by the top of the organizational hierarchy – top manager. Lower level employees have little or no involvement in decision-making. • Much hierarchy or many levels of administration: Taller and narrower span of control improves a manager’s ability to manage, but it is costly (more layer of management = more expanse) and more time consuming in communication. • High formalization of work procedures: There are clear rules and regulations regarding how the work should be performed. Most work standardized work which is very much rule-directed. The employees know exactly what is expected of them and how they should perform their jobs. • Advantages: Predictability and reliability – rules and standardized jobs ensure workers are doing what the boss wants. Better Control – the formal hierarchy ensures that how the work is conducted is clearly controlled. • Disadvantages: Because of environment changes (increasing competitors, demands for better products, improved customers services, shorter production time for market and consumers), job specialization, the narrow division of labour, standardization rules, etc. are not suitable to a changing environment. 2 What determines Organizational Structure 1. Strategy: • Organic when the goal or mission is to be innovative because fewer rules and decentralized decision making encourage flexibility and adaptiveness to environment demands. o In-Class Case – Land’s End: Innovation – Organic, i.e., the structure is such that employees can easily adapt and are motivated to generate products to meet changing consumer tastes. • Mechanistic when the organizational goal focus on cost and efficiency because narrowly division of labor provides simplest and best way to perform job to increase productivity, high formalization also bring efficiency in organization. The formal hierarchy ensures that how the work is conducted is clearly controlled. 2. Organization Size • Tend to be Organic for a small organization because fewer employees mean that we don’t need much control on employees. Also, it might not be necessary to standardize to ensure efficiency and productivity. • Tend to be Mechanistic for large organization because of the need of control, i.e., when we have masses of employees, their performance must be directed by rules and regulation to ensure performance. It is also beneficial to standardize or routinize the work to avoid errors and improve productivity and reduce cost. 3. Technology • Better suited with Organic when facing non-routine technology such as creativity and innovation because innovation requires less rules and regulations to govern activity. • More compatible with Mechanistic when facing routine technology (standardized and mass production operation) because it can easily standardized work for employees. 4. Environment • Organic is suitable when organizations that exist in an unpredictable or dynamic environment because they must be prepared for the continuous change. Organic structure is more flexible to adapt to change in dynamic environment because it could quick response to the less predictable environment and provide the just-in-time product or service which is the demand of the consumer. • Mechanistic is suitable when organizations operating in stable and unchanging environmental because they don’t need to change the standardized job, rule and regulation. 3 Re-engineering • The fundamental rethinking and radical redesigning of business processes to achieve dramatic improvement in measures of performance. • Fundamental rethinking of the organization’s structure and function: How do we improve quality of our product/service? • Radical redesign of organization processes and structure: • Combine several jobs into one – reduce processing time Focus on process of job – allowing individual employee to involve in more whole job rather than simplest and specialized jobs. • Work can be performed efficiently with fewer employees. • Re-engineering means cutting the size of workforce, and often involve flatting the organizational hierarchy. Virtual Organizations • Outsourcing – involves hiring external organizations to conduct work in certain functions of the company while the organization retains its core functions, i.e., let other expert company in a certain areas does our jobs that we do not have expertise. It will be for efficiency and help to cut down the cost. • Networking – engages in co-operative relationship with external environments - suppliers, distributors or competitors. Benefits: information sharing – ensure better products and services, shorter production time and improve their efficiency and flexibility in meeting new consumer needs. • Shed non-core function – sheds some of their non-core functions and outsource these to affiliated organizations. E.g., if our core competency is not IT, it is much to gained from partnering with other IT company, rather than creating our won IT departments. Advantages: • The cost saving are significant. E.g. IT or payroll outsourcing • It’s easier to start a business in cooperate with other organization since we don’t need to buy everything. • It’s a fast way to develop and market new products since relying on the expertise of partners reduce time and investment. • Fast and flexible – resource can be quickly arranged and rearranged to meet changing demands of best serve customers. Disadvantages: • Loss of control – no standardization work, flatting hierarchy, and less rules and regulations means harder to control. Too dependant to external source also leads to lack of control. • Lack of employee loyalty – Less commitment to organizational goals since employee are committed only to the task they are hired for. • Sacrifice Competitive learning opportunities – An unimportant function that we outsourced may become important in future, but when if this function outsourced, it 4 means that we are losing skills that we need for future competitiveness because the internal organization lost the experience or learning in doing jobs. Managing Globalization • Globalization – A process involving the integration of world market and economics. o Cross-border transaction among people, assets, goods and services. o Growth in direct foreign investment in regions across the world. o Increasing economic interdependence between nations – generating one world economic system or a global economy. • Pull Factors – The reasons a business would gain from entering the international context. o Potential for Sales Growth – expand markets because domestic market is too small for increasing sales. o Obtaining Needed Resources –Obtaining needed resource. Importing lower cost raw materials. Cheaper labor costs. Domestic resource is unavailable or too costly. • Push Factors – The forces that act upon all businesses to create an environment where competing successfully means competing globally. o The Force of Competition – Force to compete with a foreign competitor – competitors obtain cheaper or better products or services. First mover advantage – go global first  strong position in world markets. o Shift toward Democracy – Democracy create new market opportunity. o Reduction in Trade barriers – Reduction in trade and investment restrictions – free trade agreement or areas. o Improvement in Technology – Easier for cross-border transaction and transportation, Easier to transfer information, products, service, capital and human resource around the world. Internet, Email, teleconferencing, faxing, etc. help managing and controlling organization. • Channels of Global Business Activity: o Exporting and Importing o Outsourcing o Licensing and Franchising Arrangements o Direct Investment in Foreign Operations o Joint Venture – Strategic Alliances – two or more companies from different countries come together to produce a product or service. o Mergers and Acquisitions o Establishment of Subsidiaries 5 • Multinational Corporation – global businesses: o They operate directly in some form of international activity in at least two different foreign countries o They generate products/services through affiliate in several countries o They are usually very large: Maybe globally integrated – e.g. decision making at HQ/home country. Maybe multi-domestic – e.g. decision making in host country Benefits & Threats of MNC’s/TNC’s BENEFITS THREATS Economic development – e.g. employment No allegiance to host country Brings management expertise Mobile profits Introduces new technology & relevant training Power held in home country, e.g. R & D Develops trade Difficult to control Unites cultures & nations Supports global co-operation • Advantages: o Encourages economic development o Offers management expertise o Introduces new technologies o Provides financial support to underdeveloped region of the world o Creates employment o Encourages international trade through a company’s access to different market: it is relatively easy to produce goods in one country and distribute them in another country through a subsidiary or foreign affiliate. o Brings different countries closer together o Facilitates global co-operation and worldwide economic development. • Disadvantages: o MNCs do not have any particular allegiance or commitment to their host country. o Profits made by an MNC do not necessarily remain within the host country but may be transferred out to other locations depending on where the MNC feels the funds are most needed. o Decision making and other key functions of MNCs may be highly centralized in the home country, so that even though other operations are performed in the host country, they do
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