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Chapter 8

Chapter 8 Organization .docx

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University of Toronto Mississauga
Dave Swanston

Chapter 9: Organization ORGANIZATIONAL ARCHITECTURE Organization architecture The totality of a firm’s organization, including formal organization structure, control systems, incentive systems, organizational culture, and people. Organization structure: The location of decision- making responsibilities in the firm, the formal division of the organization into subunits, and the establishment of integrating mechanisms to coordinate the activities of subunits. Controls: Metrics used to measure the performance of subunits and to judge how well managers are running those subunits. Incentives: Devices used to encourage desired employee behaviour. Organizational Culture: Values and assumptions that are shared among the employees of an organization. People: The employees of an organization; the strategy used to recruit, compensate, motivate, and retain those individuals; and the type of people they are in terms of their skills, values, and orientation. DESIGNING STRUCTURE: VERTICLE DIFFERENTIATION. Vertical differentiation: The location of decision- making responsibilities within a structure. Horizontal differentiation: The formal division of the organization into subunits. Integrating mechanisms: Mechanisms for coordinating subunits. CENTRALIZATION AND DECENTRALIZATION Centralization: The concentration of decision-making authority at a high level in a management hierarchy. Arguments for Centralization 1. Centralization can facilitate coordination 2. Centralization can help ensure that decisions are consistent with the organizational objectives. 3. Centralization can avoid duplication of activities by various subunits with the organization 4. By concentrating power and authority in one individual or management ream, centralization can give top level managers the means to bring about needed major organizational changes. Decentralization: Vesting decision-making authority in lower-level managers or other employees. Arguments for decentralization 1. Top management can become overburdened when decision making authority is centralized. 2. Motivational research favours decentialization 3. Decentralization permits greater flexibility—more rapid response to environ- mental changes 4. Can result in better descisions, because decisions are made by people who work on the job. 5. Decentralization can increase control. It can establish relatively autonomous, self-contained subunits within an organization. An autonomous subunit has all the resources and decision- making power required
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