CH 8 Organizational Culture, Structure & Design – Flashcards

All managers must learn how to delegate—to assign management authority and responsibilities to people lower in the company hierarchy. But failure to delegate can happen even with high-powered executives, including those you might least suspect—such as the president of Harvard University. Dr. Neil L. Rudenstine, who became president of Harvard in 1991, initially became so exhausted from overwork that he had to stay home for 2 weeks to recover. The incident sent a message that his future survival would depend on his ability to set priorities and delegate responsibility.1 "To do more in a day, you must do less—not do everything faster," says Oakland, California, productivity expert Odette Pollar. If as a manager you find yourself often behind, always taking work home, doing your subordinates' work for them, and constantly having employees seeking your approval before they can act, you're clearly not delegating well. How do you decide when to delegate and when not to? Here are some guidelines: -Delegate Routine & Technical Matters Always try to delegate routine tasks and routine paperwork. When there are technical matters, let the experts handle them. -Delegate Tasks That Help Your Subordinates Grow Let your employees solve their own problems whenever possible. Let them try new things so they will grow in their jobs. -Don't Delegate Confidential & Personnel Matters Any tasks that are confidential or that involve the evaluation, discipline, or counseling of subordinates should never be handed off to someone else. -Don't Delegate Emergencies By definition, an emergency is a crisis for which there is little time for solution, and you should handle this yourself. -Don't Delegate Special Tasks That Your Boss Asked You to Do—Unless You Have His or Her Permission If your supervisor entrusts you with a special assignment, such as attending a particular meeting, don't delegate it unless you have permission to do so. -Match the Tasks Delegated to Your Subordinates' Skills & Abilities While recognizing that delegation involves some risk, make your assignments appropriate to the training, talent, skills, and motivation of your employees.

Want to get ahead in the workplace but hate the idea of "office politics"? Probably you can't achieve the first without mastering the second. Although hard work and talent can take you a long way, "there is a point in everyone's career where politics becomes more important," says management professor Kathleen Kelley Reardon. You have to know the political climate of the company you work for, says Reardon, who is author of The Secret Handshake and It's All Politics. "Don't be the last person to understand how people get promoted, how they get noticed, how certain projects come to attention. Don't be quick to trust. If you don't understand the political machinations, you're going to fail much more often." A great part of learning to negotiate the politics—that is, the different behavioral and psychological characteristics—of a particular office means learning to understand the organization's culture. The culture consists not only of the slightly quirky personalities you encounter but also all of an organization's normal way of doing business, as we'll explain.

Strategy—the large-scale action plans that reflect the organization's vision and are used to set the direction for the organization. To implement a particular strategy, managers must determine the right kind of (1) organizational culture and (2) organizational structure.

According to scholar Edgar Schein, organizational culture, sometimes called corporate culture, is a system of shared beliefs and values that develops within an organization and guides the behavior of its members. This is the "social glue" that binds members of the organization together. Just as a human being has a personality—fun-loving, warm, uptight, competitive, or whatever—so an organization has a "personality," too, and that is its culture. Culture can vary considerably, with different organizations having differing emphases on risk taking, treatment of employees, teamwork, rules and regulations, conflict and criticism, and rewards. And the sources of these characteristics also vary. They may represent the strong views of the founders, of the reward systems that have been instituted, of the effects of competitors, and so on.

Organizational structure is a formal system of task and reporting relationships that coordinates and motivate an organization's members so that they can work together to achieve the organization's goals. , Organizational structure is concerned with who reports to whom and who specializes in what work. Whether an organization is for-profit or nonprofit, the challenge for top managers is to create a culture and structure that will motivate its members to work together and coordinate their actions to achieve the organization's goals. A major point is that there must be consistency among all these elements.

Once a strategy has been created that reflects an organization's vision, managers must design the kind of culture and structure that will motivate and coordinate employees in achieving the organization's goals.

According to one common methodology known as the competing values framework, organizational cultures can be classified into four types: (1) clan, (2) adhocracy, (3) market, and (4) hierarchy

A clan culture has an internal focus and values flexibility rather than stability and control. Like a family-type organization, it encourages collaboration among employees, striving to encourage cohesion through consensus and job satisfaction and to increase commitment through employee involvement. Clan organizations devote considerable resources to hiring and developing their employees, and they view customers as partners. Southwest Airlines is a good example of a company with a clan culture. So is online shoe seller Zappos, which encourages managers to spend 10%-20% of their off-work hours with employees.

An adhocracy culture has an external focus and values flexibility. This type of culture attempts to create innovative products by being adaptable, creative, and quick to respond to changes in the marketplace. Employees are encouraged to take risks and experiment with new ways of getting things done. Adhocracy cultures are well suited for startup companies, those in industries undergoing constant change, and those in mature industries that are in need of innovation to enhance growth. W. L. Gore is an example of a company with an adhocracy culture. So is Google, which urges engineers to spend 20% of their time on personal projects.

A market culture has a strong external focus and values stability and control. Because market cultures are focused on the external environment and driven by competition and a strong desire to deliver results, customers, productivity, and profits take precedence over employee development and satisfaction. Employees are expected to work hard, react fast, and deliver quality work on time; those who deliver results are rewarded. Kia Motors, which fires executives who don't meet their sales goals, is an example of a company with a very aggressive and competitive market culture.

A hierarchy culture has an internal focus and values stability and control over flexibility. Companies with this kind of culture are apt to have a formalized, structured work environment aimed at achieving effectiveness through a variety of control mechanisms that measure efficiency, timeliness, and reliability in the creation and delivery of products. General Motors has been an example of a company with a hierarchical structure. So also is UPS, the delivery company.

Organizational culture appears as three layers: (1) observable artifacts, (2) espoused values, and (3) basic assumptions. Each level varies in terms of outward visibility and resistance to change, and each level influences another level.

At the most visible level, organizational culture is expressed in observable artifacts—physical manifestations such as manner of dress, awards, myths and stories about the company, rituals and ceremonies, and decorations, as well as visible behavior exhibited by managers and employees. Department store retailer J. C. Penney Co. has tried to revamp itself from a traditional, hierarchical culture into one that is more informal and flexible by, for example, allowing such observable artifacts as business-casual dress on weekdays and jeans on Fridays.

Espoused values are the explicitly stated values and norms preferred by an organization, as may be put forth by the firm's founder or top managers. For example, the founders of technology company Hewlett-Packard stressed the "HP Way," a collegial, egalitarian culture that gave as much authority and job security to employees as possible. Although managers may hope the values they espouse will directly influence employee behavior, employees don't always "walk the talk," frequently being more influenced by enacted values, which represent the values and norms actually exhibited in the organization. Thus, for example, an international corporation hung signs throughout the hallways of its headquarters proclaiming that "trust" was one of its driving principles (espoused value), yet had a policy of searching employees' belongings each time they entered or exited the building (enacted value)

Espoused values are the explicitly stated values and norms preferred by an organization

Represent the values and norms actually exhibited in the organization

Basic assumptions, which are not observable, represent the core beliefs that employees have about their organization—those that are taken for granted and, as a result, are difficult to change. Example: At insurance giant AIG, people worked so hard that the joke around the offices was "Thank heavens it's Friday, because that means there are only two more working days until Monday." Another example: When Peter Swinburn took over in 2008 as CEO of Molson Coors, headquartered jointly in Denver and Montreal, the company had grown into one of the world's largest breweries through a process of 10 acquisitions and joint ventures during the preceding decade. "The challenge was getting a staff of 15,000 workers on three continents to think as one," says one account. "There were different languages and work practices." Swinburn came up with an unofficial motto—"Challenge the expected"—that he hoped would motivate employees to think outside their roles. One survey found that 87% of employees said the company had a "clear vision for the future" in 2009, up from 73% in 2008.

Culture is transmitted to employees in several ways, most often through such devices as (1) symbols, (2) stories, (3) heroes, and (4) rites and rituals.

A symbol is an object, act, quality, or event that conveys meaning to others. In an organization, symbols convey its most important values. Example: One of the most iconic products of IKEA, maker of inexpensive home furnishings, whose vision is "to create a better life for the many," is the LACK table, a 22-inch by 22-inch side table that sells for only $9.99

A story is a narrative based on true events, which is repeated—and sometimes embellished upon—to emphasize a particular value. Stories are oral histories that are told and retold by members about incidents in the organization's history. Example: Marc Benioff is founder of cloud computing business Salesforce.com, a San Francisco company known for its great sense of social responsibility and generosity. Its spirit of philanthropy is embodied in a story called the 1-1-1 rule. "When we started the company," Benioff says, "we took 1% of our equity [stock value] and 1% of our profit and 1% of all our employees' time, and we put it into a... public charity. At the time, it was very easy because we had no profit, we had no time, we had no equity. But then, it turned out that our company is worth, you know, tens of billions of dollars." Salesforce.com also runs 10,000 nonprofits for free, doesn't charge universities for its services, and, says Benioff, delivers "hundreds of thousands of hours of community service."

A hero is a person whose accomplishments embody the values of the organization. IKEA employees are expected to work hard, inspired by an anecdote from their Swedish founder, Invar Kamprad, in his 1976 "A Furniture Dealer's Testament," in which he recounts how he was berated by his father for failing repeatedly to get out of bed to milk the cows on his family's farm. Then one day he got an alarm clock. "'Now by jiminy, I'm going to start a new life,' he determined, setting the alarm for twenty to six and removing the 'off button.'"

Rites and rituals are the activities and ceremonies, planned and unplanned, that celebrate important occasions and accomplishments in the organization's life. Military units and sports teams have long known the value of ceremonies handing out decorations and awards, but many companies have rites and rituals as well. Example: Employees of New Belgium Brewery in Fort Collins, Colorado, which makes Fat Tire Ale, are given a cruiser bicycle during their first year. After five years, they get a free brewery-hopping trip to Belgium. Ten years of employment is acknowledged with a tree planted in their name in the campus orchard. (The company boasts a 97% employment retention rate.)

Culture can powerfully shape an organization's long-term success. For example, a recent study summarized 25 years of research on the relationship between organizational culture and various measures of organizational effectiveness. Results revealed that companies with clan, adhocracy, and market cultures had significantly higher levels of employee job satisfaction, innovation, and quality of products and services. Organizations with market cultures also reported higher profits and financial growth.

1.It Gives Members an Organizational Identity At Southwest Airlines, for instance, top executives constantly reinforce the company's message that workers should be treated like customers, and they continually celebrate employees whose contributions go beyond the call of duty. 2. It Facilitates Collective Commitment Consider 3M, one of whose corporate values is to be "a company that employees are proud to be part of." This collective commitment results in a turnover rate of less than 3% among salaried personnel. "I'm a 27-year 3Mer because, quite frankly, there's no reason to leave," says one manager. "I've had great opportunities to do different jobs and to grow a career. It's just a great company." 3. It Promotes Social-System Stability The more effectively conflict and change are managed within an organization and the more that employees perceive the work environment to be positive and reinforcing, the more stable the social system within the organization. At 3M, social stability is encouraged by promoting from within, by hiring capable college graduates in a timely manner, and by providing displaced workers 6 months to find new jobs. 4. It Shapes Behavior by Helping Employees Make Sense of Their Surroundings The culture helps employees understand why the organization does what it does and how it intends to accomplish its long-term goals. 3M sets expectations for innovation, for example, by having an internship and co-op program, which provides 30% of the company's new college hires. Sometimes culture can be strong enough to take the place of structure; that is, the expectations of the culture replace formal rules and regulations. In these cases, the sense of orderliness and predictability that employees look to for guidance are provided by the culture rather than by a rule book.

What types of organizational culture can increase an organization's economic performance in terms of increasing competitiveness and profitability? Three perspectives have been proposed: (1) strength, (2) fit, and (3) adaptive.

The strength perspective assumes that the strength of a corporate culture is related to a firm's long-term financial performance. A culture is said to be "strong" when employees adhere to the organization's values because they believe in its purpose. A culture is said to be "weak" when employees are forced to adhere to the organization's values through extensive procedures and bureaucracies. The strength perspective embraces the point of view that strong cultures create goal alignment, employee motivation, and the appropriate structure and controls needed to improve organizational performance. The downside of a strong culture, critics believe, is that such financial success can so reinforce cultural norms that managers and employees become arrogant, inwardly focused, and resistant to change, with top managers becoming blinded to the need for new strategic plans. Example: A case could be made that the strong cultures of American automakers for many years made them resistant to the need to make radical adjustments.

The fit perspective assumes that an organization's culture must align, or fit, with its business or strategic context. A "correct" fit is expected to foster higher financial performance. Example: Prior to the arrival of Carleton Fiorina as CEO, Hewlett-Packard's "HP Way" culture from 1957 to the early 1990s pushed authority as far down as possible in the organization and created an environment that emphasized integrity, respect for individuals, teamwork, innovation, and an emphasis on customers and community improvement. This fit perspective was a key contributor to HP's success—until the high-technology industry began to change in the late 1990s.

The adaptive perspective assumes that the most effective cultures help organizations anticipate and adapt to environmental changes. Which Perspective Is Accurate? An investigation of 207 companies from 22 industries during the years 1977-1988 partly supported the strength and fit perspectives. However, findings were completely consistent with the adaptive perspective. Long-term financial performance was highest for organizations with an adaptive culture.

Changing organizational culture is a teaching process in which organizational members teach each other about the organization's preferred values, beliefs, expectations, and behaviors. This process is accomplished by using one or more of the following mechanisms: 1. Formal Statements The first way to embed preferred culture is through the use of formal statements of organizational philosophy, mission, vision, and values, as well as materials used for recruiting, selecting, and socializing employees. Example: Walmart founder Sam Walton stated that three basic values represented the core of the retailer's culture: (1) respect for the individual, (2) service to customers, and (3) striving for excellence. 2. Slogans & Sayings The desirable corporate culture can be expressed in language, slogans, sayings, and acronyms. Example: Robert Mittelstaedt, Dean of the W. P. Carey School of Business at Arizona State University, promotes his goal of having a world-class university through the slogan "top-of-mind business school." This slogan encourages instructors to engage in activities that promote quality education and research. 3. Stories, Legends, & Myths Until a decade ago, major drug companies treated third world countries as not worth the trouble of marketing to. But Andrew Witty, who in 2008 at age 43 became the youngest CEO of GlaxcoSmithKline, the world's second-largest pharmaceutical company, is making a name for himself by doing more for the poor people of the world than any other big drug company leader. While working in poor countries Witty found "just unbelievable energy to self-improve, to lift themselves up." He has promised to keep prices of drugs sold in poor countries to no more than 25% of what is charged in rich ones and to donate one-fifth of all profits made in such countries toward building their health systems. Now Glaxco is ranked No. 1 on the Access to Medicine index, which rates pharmaceutical companies on their stances toward the poor. 4. Leader Reactions to Crises How top managers respond to critical incidents and organizational crises sends a clear cultural message. Example: In 2001, Xerox Corporation was on the verge of bankruptcy, $19 billion in debt, and with only $100 million in cash. Anne Mulcahy, who had worked for the company for 25 years, assumed the post of CEO. Inspired by a history about adventurer Ernest Shackleton, who rescued his men after their ship was crushed by Antarctic ice in 1916, Mulcahy worked furiously for two years, not taking a single day off. She declined to file the company for bankruptcy and refused to cut research and development, believing that Xerox's long-term health depended on investment in new products. Five years later, the company reported a profit of more than $1 billion. And in 2008, she was named "CEO of the Year" by Chief Executive magazine. 5. Role Modeling, Training, & Coaching Triage Consulting Group, a health care financial consulting firm in California, places a high value on superior performance at achieving measurable goals. New employees are immediately prepared for this culture with a four-day orientation in Triage's culture and methods, followed by 15 training modules scheduled in six-week intervals. After less than a year, the best performers are ready to begin managing their own projects, furthering their career development. Performance evaluations take place four times a year, further reinforcing the drive for results. 6. Physical Design Intel originally had all its people work in uniform cubicles, consistent with the value it placed on equality. (Top managers don't have reserved parking spaces either.) However, the cubicle arrangement conflicted with the value Intel places on innovation, so the company is experimenting with open-seating arrangements combined with small conference rooms. Not only are open-seating arrangements thought to encourage collaboration, they also can reduce noise because employees can see when their activities are annoying to people nearby. Intel hopes that this environment will better support creative thinking. 7. Rewards, Titles, Promotions, & Bonuses At Triage Consulting Group, employees at the same level of their career earn the same pay, but employees are eligible for merit bonuses, again reinforcing the culture of achievement. The awarding of merit bonuses is partly based on coworkers' votes for who contributed most to the company's success, and the employees who received the most votes are recognized each year at the company's "State of Triage" meeting. 8. Organizational Goals & Performance Criteria Many organizations establish organizational goals and criteria for recruiting, selecting, developing, promoting, dismissing, and retiring people, all of which reinforce the desired organizational culture. Example: PepsiCo sets challenging goals that reinforce a culture aimed at high performance. 9. Measurable & Controllable Activities An organization's leaders can pay attention to, measure, and control a number of activities, processes, or outcomes that can foster a certain culture. Example: ExxonMobil's credo is "efficiency in everything we do," so that managers make a concerted effort to measure, control, and reward cost efficiency. As a result, the company is famous for delivering consistent returns, regardless of whether the price of oil is up or down. 10. Organizational Structure The hierarchical structure found in most traditional organizations is more likely to reinforce a culture oriented toward control and authority compared with the flatter organization that eliminates management layers in favor of giving employees more power. Example: The hierarchical structure of a railroad provides a much different culture from that of the "spaghetti organization" formerly employed by Danish hearing-aid maker Oticon, in which employees worked at mobile desks on wheels and were always subject to reorganization. 11. Organizational Systems & Procedures Companies are increasingly using electronic networks to increase collaboration among employees and to increase innovation, quality, and efficiency. For example, Molson Coors CEO Peter Swinburn, mentioned previously, in knitting together employees of several former companies made sure they had better tools to interact with each other. One technology he introduced was Yammer, a website for short messages similar to Twitter, on which some 2,000 employees now provide updates and collaborate on projects.

Once an organization's vision and strategy have been determined, as we stated at the beginning of this chapter, the challenge for top managers is to create, first, a culture that will motivate its members to work together and, second, a structure that will coordinate their actions to achieve the organization's strategic goals. Here let us begin to consider the second part—an organization's structure. According to Chester I. Barnard's classic definition, an organization is a system of consciously coordinated activities or forces of two or more people. By this definition, a crew of two coordinating their activities to operate a commercial tuna fishing boat is just as much an organization as the entire StarKist Tuna Co.

Three types of organizations are classified according to the three different purposes for which they are formed: -For-profit organizations. These are formed to make money, or profits, by offering products or services. -Nonprofit organizations. These are formed to offer services to some clients, not to make a profit (examples: hospitals, colleges). -Mutual-benefit organizations. These are voluntary collectives whose purpose is to advance members' interests (examples: unions, trade associations). Clearly, you might have an occupation (such as auditor or police officer) that is equally employable in any one of these three sectors. As a manager, however, you would be principally required to focus on different goals—making profits, delivering public services, or satisfying member needs—depending on the type of organization.

Whatever the size or type of organization, it can be represented in an organization chart. An organization chart is a box-and-lines illustration showing the formal lines of authority and the organization's official positions or work specializations. This is the family tree-like pattern of boxes and lines posted in staff break rooms and given to new hires.

Two kinds of information that organization charts reveal about organizational structure are (1) the vertical hierarchy of authority—who reports to whom, and (2) the horizontal specialization—who specializes in what work.

A glance up and down an organization chart shows the vertical hierarchy, the chain of command. A formal vertical hierarchy also shows the official communication network—who talks to whom. In a simple two-person organization, the owner might communicate with just a secretary or an assistant. In a complex organization, the president talks principally to the vice presidents, who in turn talk to the assistant vice presidents, and so on.

A glance to the left and right on the line of an organization chart shows the horizontal specialization, the different jobs or work specialization. The husband-and-wife partners in a two-person graphic arts firm might agree that one is the "outside person," handling sales, client relations, and finances, and the other is the "inside person," handling production and research. A large firm might have vice presidents for each task—marketing, finance, and so on.

Organizational psychologist Edgar Schein proposed the four common elements of (1) common purpose, (2) coordinated effort, (3) division of labor, and (4) hierarchy of authority.

An organization without purpose soon begins to drift and become disorganized. The common purpose unifies employees or members and gives everyone an understanding of the organization's reason for being.

The common purpose is realized through coordinated effort, the coordination of individual efforts into a group or organizationwide effort. Although it's true that individuals can make a difference, they cannot do everything by themselves.

Division of labor, also known as work specialization, is the arrangement of having discrete parts of a task done by different people. Even a two-person crew operating a fishing boat probably has some work specialization—one steers the boat, the other works the nets. With division of labor, an organization can parcel out the entire complex work effort to be performed by specialists, resulting in greater efficiency.

The hierarchy of authority, or chain of command, is a control mechanism for making sure the right people do the right things at the right time. If coordinated effort is to be achieved, some people—namely, managers—need to have more authority, or the right to direct the work of others. Even in member-owned organizations, some people have more authority than others, although their peers may have granted it to them. In addition, authority is most effective when arranged in a hierarchy. Without tiers or ranks of authority, a lone manager would have to confer with everyone in his or her domain, making it difficult to get things done. Even in newer organizations that flatten the hierarchy, there still exists more than one level of management.

Finally, a principle stressed by early management scholars was that of unity of command, in which an employee should report to no more than one manager in order to avoid conflicting priorities and demands. Today, however, with advances in computer technology and networks, there are circumstances in which it makes sense for a person to communicate with more than one manager (as is true, for instance, with the organizational structure known as the matrix structure, as we'll describe).

To Schein's four common elements we may add three others that most authorities agree on: (5) span of control, (6) authority, responsibility, and delegation, and (7) centralization versus decentralization of authority.

The span of control, or span of management, refers to the number of people reporting directly to a given manager. There are two kinds of spans of control, narrow (or tall) and wide (or flat). -Narrow Span of Control This means a manager has a limited number of people reporting—three vice presidents reporting to a president, for example, instead of nine vice presidents. An organization is said to be tall when there are many levels with narrow spans of control. -Wide Span of Control This means a manager has several people reporting—a first-line supervisor may have 40 or more subordinates, if little hands-on supervision is required, as is the case in some assembly-line workplaces. An organization is said to be flat when there are only a few levels with wide spans of control. Historically, spans of about 7 to 10 subordinates were considered best, but there is no consensus as to what is ideal. In general, when managers must be closely involved with their subordinates, as when the management duties are complex, they are advised to have a narrow span of control. This is why presidents tend to have only a handful of vice presidents reporting to them. By contrast, first-line supervisors directing subordinates with similar work tasks may have a wide span of control. Today's emphasis on lean management staffs and more efficiency means that spans of control need to be as wide as possible while still providing adequate supervision. Wider spans also fit in with the trend toward allowing workers greater autonomy in decision making. Research suggests that, when aided by technology to communicate and monitor, a manager can oversee 30 employees or more.

Male sea lions have to battle other males to attain authority over the herd. In human organizations, however, authority is related to the management authority in the organization; it has nothing to do with the manager's fighting ability or personal characteristics. With authority goes accountability, responsibility, and the ability to delegate one's authority.

Authority refers to the rights inherent in a managerial position to make decisions, give orders, and utilize resources. (Authority is distinguished from power, which, as we discuss in Chapter 14, is the extent to which a person is able to influence others so they respond to orders.) In the military, of course, orders are given with the expectation that they will be obeyed, disobedience making one liable to a dishonorable discharge or imprisonment. In civilian organizations, disobeying orders may lead to less dire consequences (demotion or firing), but subordinates are still expected to accept that a higher level manager has a legitimate right to issue orders.

Authority means accountability—managers must report and justify work results to the managers above them. Being accountable means you have the responsibility for performing assigned tasks.

With more authority comes more responsibility. Responsibility is the obligation you have to perform the tasks assigned to you. A car assembly-line worker has little authority but also little responsibility: just install those windshields over and over. A manager, however, has greater responsibilities. It is a sign of faulty job design when managers are given too much authority and not enough responsibility, in which case they may become abusive to subordinates and capricious in exerting authority. Conversely, managers may not be given enough authority, so the job becomes difficult.

Delegation is the process of assigning managerial authority and responsibility to managers and employees lower in the hierarchy. To be more efficient, most managers are expected to delegate as much of their work as possible. However, a business entrepreneur may fall into the common trap of perfection, believing, as one writer puts it, that "you are the only person who can handle a given situation, work with a special client, design a program." But a surprising number of managers fail to realize that delegation is an important part of their job.

Line responsibilities are indicated by solid lines, staff responsibilities by dotted lines.

Line managers have authority to make decisions and usually have people reporting to them. Examples: the president, the vice presidents, the director of personnel, and the head of accounting. Line positions are indicated on the organization chart by a solid line (usually a vertical line).

Staff personnel have authority functions; they provide advice, recommendations, and research to line managers. Examples: specialists such as legal counsels and special advisers for mergers and acquisitions or strategic planning. Staff positions are indicated on the organization chart by a dotted line (usually a horizontal line).

Who makes the important decisions in an organization? That is what the question of centralization versus decentralization of authority is concerned with.

With centralized authority, important decisions are made by higher-level managers. Very small companies tend to be the most centralized, although nearly all organizations have at least some authority concentrated at the top of the hierarchy. Sears and McDonald's are examples of companies using this kind of authority. An advantage in using centralized authority is that there is less duplication of work, because fewer employees perform the same task; rather, the task is often performed by a department of specialists. Another advantage of centralization is that procedures are uniform and thus easier to control; all purchasing, for example, may have to be put out to competitive bids.

With decentralized authority, important decisions are made by middle-level and supervisory-level managers. Here, obviously, power has been delegated throughout the organization. Among the companies using decentralized authority are General Motors and Harley-Davidson. With decentralized authority managers are encouraged to solve their own problems rather than buck decisions to a higher level. Decisions are also made more quickly, increasing the organization's flexibility and efficiency.

Now 15 years old, Google started out as a freewheeling company in which engineers were given time to experiment on their own projects, producing the famed Google's culture of innovation. The problem, however, was that the company grew so quickly (to 31,000 people) that decision making had become molasses-like. For instance, the two cofounders, who had been trained as engineers, had hired a professional manager, Eric Schmidt, to be CEO, but the three of them "had to agree before anything could be done," says one report. "The unwieldy management and glacial pace of decision making were particularly noticeable in [Silicon Valley], where startups overtake behemoths in months." Since then, Schmidt was promoted to chairman and Page took over as CEO, streamlining the company's structure and decision-making processes.

Organizational design is concerned with designing the optimal structures of accountability and responsibility that an organization uses to execute its strategies. We may categorize organizational designs as three types: (1) traditional designs, (2) horizontal designs, and (3) designs that open boundaries between organizations.

Traditional organizational designs tend to favor structures that rely on a vertical management hierarchy, with clear departmental boundaries and reporting arrangements, as follows.

The first organizational form is the simple structure. This is the form often found in a firm's very early, entrepreneurial stages, when the organization is apt to reflect the desires and personality of the owner or founder. An organization with a simple structure has authority centralized in a single person, a flat hierarchy, few rules, and low work specialization. There is only one hierarchical level of management beneath the owner. Hundreds of thousands of organizations are arranged according to a simple structure—for instance, small mom-and-pop firms running landscaping, construction, insurance sales, and similar businesses. Examples: Both Hewlett-Packard and Apple Computer began as two-man garage startups that later became large.

The second organizational form is the functional structure. In a functional structure, people with similar occupational specialties are put together in formal groups. This is a quite commonplace structure, seen in all kinds of organizations, for-profit and nonprofit. Examples: A manufacturing firm will often group people with similar work skills in a marketing department, others in a production department, others in finance, and so on. A nonprofit educational institution might group employees according to work specialty under faculty, admissions, maintenance, and so forth.

The third organizational form is the divisional structure—people with diverse occupational specialties are put together in formal groups by similar products or services, customers or clients, or geographic regions.

Product divisions group activities around similar products or services. Examples: The media giant Time Warner has different divisions for magazines, movies, recordings, cable television, and so on. The Warner Bros. part of the empire alone has divisions spanning movies and television, a broadcast network, retail stores, theaters, amusement parks, and music.

Customer divisions tend to group activities around common customers or clients. Examples: Ford Motor Co. has separate divisions for passenger car dealers, for large trucking customers, and for farm products customers. A savings and loan might be structured with divisions for making consumer loans, mortgage loans, business loans, and agricultural loans.

Geographic divisions group activities around defined regional locations. Example: This arrangement is frequently used by government agencies. The Federal Reserve Bank, for instance, has 12 separate districts around the United States. The Internal Revenue Service also has several districts.

The fourth organizational form is the matrix structure. In a matrix structure, an organization combines functional and divisional chains of command in a grid so that there are two command structures—vertical and horizontal. The functional structure usually doesn't change—it is the organization's normal departments or divisions, such as Finance, Marketing, Production, and Research & Development. The divisional structure may vary—as by product, brand, customer, or geographic region. A hypothetical example, using Ford Motor Co.: The functional structure might be the departments of Engineering, Finance, Production, and Marketing, each headed by a vice president. Thus, the reporting arrangement is vertical. The divisional structure might be by product (the new models of Taurus, Mustang, Explorer, and Expedition, for example), each headed by a project manager. This reporting arrangement is horizontal. Thus, a marketing person, say, would report to both the Vice President of Marketing and to the Project Manager for the Ford Mustang. Indeed, Ford Motor Co. used the matrix approach to create the Taurus and a newer version of the Mustang.

The second organizational design is the horizontal design. In a horizontal design, teams or workgroups, either temporary or permanent, are used to improve collaboration and work on shared tasks by breaking down internal boundaries. For instance, when managers from different functional divisions are brought together in teams—known as cross-functional teams—to solve particular problems, the barriers between the divisions break down. The focus on narrow divisional interests yields to a common interest in solving the problems that brought them together. Yet team members still have their full-time functional work responsibilities and often still formally report to their own managers above them in the functional-division hierarchy.

The opposite of a bureaucracy, with its numerous barriers and divisions, a boundaryless organization is a fluid, highly adaptive organization whose members, linked by information technology, come together to collaborate on common tasks. The collaborators may include not only coworkers but also suppliers, customers, and even competitors. This means that the form of the business is ever-changing, and business relationships are informal. Three types of structures in this class of organizational design are hollow, modular, and virtual structures.

In the hollow structure, often called the network structure, the organization has a central core of key functions and outsources other functions to vendors who can do them cheaper or faster. A company with a hollow structure might retain such important core processes as design or marketing and outsource most other processes, such as human resources, warehousing, or distribution, thereby seeming to "hollow out" the organization. Example: A firm with a hollow structure might operate with extensive, even worldwide operations, yet its basic core could remain small, thus keeping payrolls and overhead down. The glue that holds everything together is information technology, along with strategic alliances and contractual arrangements with supplier companies.

The modular structure differs from the hollow structure in that it is oriented around outsourcing certain pieces of a product rather than outsourcing certain processes (such as human resources or warehousing) of an organization. In a modular structure, a firm assembles product chunks, or modules, provided by outside contractors. One article compares this form of organization to "a collection of Lego bricks that can snap together." For example, Bombardier (pronounced "bom-bar-dee-ay"), of Wichita, Kansas, makes an eight-passenger business jet, the Continental, that is designed in a dozen large modules that are built in various places around the world. The cockpit and forward fuselage are built by Bombardier Montreal. The center section is built in Belfast, the wing by Mitsubishi in Japan, the stabilizers and rear fuselage by Aerospace Industrial Development in Taiwan, the landing gear by Messier-Dowty in Canada, and the tailcone by Hawker de Havilland in Australia. The engines are provided by General Electric and the avionics gear by Rockwell Collins, both companies in the United States. The 12 modules are shipped to Wichita, where the parts are snapped together in just four days.

"Strip away the highfalutin' talk," says one industry observer, "and at bottom the Internet is a tool that dramatically lowers the cost of communication. That means it can radically alter any industry or activity that depends heavily on the flow of information." One consequence of this is the virtual organization, an organization whose members are geographically apart, usually working with e-mail, collaborative computing, and other computer connections, while often appearing to customers and others to be a single, unified organization with a real physical location. The virtual organization allows the form of boundaryless structure known as the virtual structure, a company outside a company that is created "specifically to respond to an exceptional market opportunity that is often temporary," according to one definition. The structure, in which members meet and communicate with each other by e-mail and videoconferencing instead of face to face, is valuable for organizations that want to grow through partnerships with other companies. For instance, Finnish phone-maker Nokia, which had trouble gaining market share in the United States, changed its strategy to develop phones in partnership with U.S. carriers, as by assigning product developers to AT&T and Verizon.

An organization whose members are geographically apart, usually working with e-mail, collaborative computing, and other computer connections

A company outside a company that is created "specifically to respond to an exceptional market opportunity that is often temporary

What is the optimal size for an organization? How big is too big? Medical records company gloStream, which sells software to doctors' offices, was founded in 2005 as a virtual organization, and for four years the approach worked well, with costs kept low and salespeople having no choice but to be out in the field. But in 2009, CEO Mike Sappington decided it was time to "take the company physical"—and move more people under the same roof. "We've gotten too big to be a virtual company," he told Inc. magazine. By the following year, gloStream planned to have 100 employees in the United States and another 100 in India. "Setting up a conference call or arranging everyone's schedules for a meeting," he said, "started to take an enormous amount of time."

When managers are considering what organizational arrangements to choose from, stage of development is among the factors, or contingencies, they must consider. Recall from Chapter 2 that the contingency approach to management emphasizes that a manager's approach should vary according to—that is, be contingent on—the individual and environmental situation. Thus, the manager following the contingency approach simply asks, "What method is the best to use under these particular circumstances?" The process of fitting the organization to its environment is called contingency design. Managers taking a contingency approach must consider the following factors (among others) in designing the best kind of structure for their particular organization at that particular time: Environment—mechanistic versus organic Environment—differentiation versus integration Life cycle Link between strategy and structure

The process of fitting the organization to its environment is called contingency design.

"Here every job is broken down into the smallest of steps, and the whole process is automated," wrote BusinessWeek Actually, Deveny found that she fell behind in, say, bagging french fries, but it was certainly the intention of McDonald's guiding genius Ray Kroc that, in fact, nearly anyone should be able to do this—and that a Big Mac should taste the same anywhere. Thus, for example, procedure dictates that a hamburger is always dressed the same way: first the mustard, then the ketchup, then two pickles. McDonald's is a hugely successful example of what British behavioral scientists Tom Burns and G. M. Stalker call a mechanistic organization, as opposed to an organic organization.correspondent Kathleen Deveny, reporting about a day she spent working in a McDonald's restaurant. "Anyone could do this, I think."

Mechanistic Organizations: Centralized hierarchy of authority Many rules and procedures Specialized tasks Formalized communication Few teams or task forces Narrow span of control, taller structures Organic Organizations: Decentralized hierarchy of authority Few rules and procedures Shared tasks Informal communication Many teams or task forces Wider span of control, flatter structures

In a mechanistic organization, authority is centralized, tasks and rules are clearly specified, and employees are closely supervised. Mechanistic organizations, then, are bureaucratic, with rigid rules and top-down communication. This kind of structure is effective at McDonald's because the market demands uniform product quality, cleanliness, and fast service. In general, mechanistic design works best when an organization is operating in a stable environment. Yet new companies that have gone through a rough-and-tumble startup period may decide to change their structures so that they are more mechanistic, with clear lines of authority.

In an organic organization, authority is decentralized, there are fewer rules and procedures, and networks of employees are encouraged to cooperate and respond quickly to unexpected tasks. Tom Peters and Robert Waterman called this kind of organization a "loose" structure. Organic organizations are sometimes termed adhocracies because they operate on an ad hoc basis, improvising as they go along. As you might expect, information-technology companies such as Motorola favor the organic arrangement because they constantly have to adjust to technological change—yet so do companies that need to respond to fast-changing consumer tastes, such as clothing retailer The Worth Collection, which operates as a virtual company offering high-end women's clothing through direct selling in people's homes.

Burns and Stalker's ideas were extended in the United States by Harvard University researchers Paul R. Lawrence and Jay W. Lorsch. Instead of a mechanistic-organic dimension, however, they proposed a differentiation-integration dimension—forces that impelled the parts of an organization to move apart or to come together. The stability of the environment confronting the parts of the organization, according to Lawrence and Lorsch, determines the degree of differentiation or integration that is appropriate.

Differentiation is the tendency of the parts of an organization to disperse and fragment. The more subunits into which an organization breaks down, the more highly differentiated it is. This impulse toward dispersal arises because of technical specialization and division of labor. As a result, specialists behave in specific, delimited ways, without coordinating with other parts of the organization. For example, a company producing dental floss, deodorants, and other personal care products might have different product divisions, each with its own production facility and sales staff—a quite differentiated organization.

Integration is the tendency of the parts of an organization to draw together to achieve a common purpose. In a highly integrated organization, the specialists work together to achieve a common goal. The means for achieving this are a formal chain of command, standardization of rules and procedures, and use of cross-functional teams and computer networks so that there is frequent communication and coordination of the parts.

Like living things, organizations go through a life cycle. The four-stage organizational life cycle has a natural sequence of stages: birth, youth, midlife, and maturity. In general, as an organization moves through these stages, it becomes not only larger but also more mechanistic, specialized, decentralized, and bureaucratic. Each stage offers different managerial challenges and different organizational design issues.

The birth stage is the nonbureaucratic stage, the stage in which the organization is created. Here there are no written rules and little if any supporting staff beyond perhaps a secretary. The founder may be a lone entrepreneur, such as Michael Dell, who began Dell Computers by selling microcomputers out of his University of Texas college dorm room. Or the founders may be pals who got together, as did Apple Computer founders Steve Jobs and Stephen Wozniak, who built the first computer in Wozniak's parents' Palo Alto, California, garage, using the proceeds from the sale of an old Volkswagen.

In the youth stage, the organization is in a prebureaucratic stage, a stage of growth and expansion. Now the company has a product that is making headway in the marketplace, people are being added to the payroll (more clerical than professional), and some division of labor and setting of rules are being instituted. For Apple Computer, this stage occurred during the years 1978 to 1981, with the establishment of the Apple II product line.

In the midlife stage, the organization becomes bureaucratic, a period of growth evolving into stability. Now the organization has a formalized bureaucratic structure, staffs of specialists, decentralization of functional divisions, and many rules. In the 1980s, Apple Computer became a large company with many of these attributes. In 1983, Pepsi-Cola marketer John Scully was hired as a professional top manager. Jobs became chairman. Wozniak left the company.

In the maturity stage, the organization becomes very bureaucratic, large, and mechanistic. The danger at this point is lack of flexibility and innovation. After Jobs was fired in a boardroom struggle in 1985, Apple entered a period in which it seemed to lose its way, having trouble developing successful products and getting them to market. Scully, who emphasized the wrong technology (a "personal data assistant" called Newton, which failed to establish a following), was followed by two more CEOs who were unable to arrest the company's declining market share. In 1997, Jobs was brought back as a "temporary" chairman, and Apple began an unprecedented era of innovation and profitability. Employees who were present during birth and youth stages may long for the good old days of informality and fewer rules as the organization moves toward more formalized and bureaucratic structures. Whereas clearly some organizations jump the gun and institute such structures before they are appropriate, some expanding companies in effect never grow up, holding onto the prebureaucratic way of life for too long, hindering their ability to deliver goods or services efficiently in relation to their size.

It makes sense that a company's structure should help it achieve its goals, which represent an important part of its strategy. Thus, if the managers of an organization change its strategy, as gloStream did when it decided to add lots more people and put them under one roof instead of in a virtual network, they need to change the organization's structure to support that strategy. Indeed, companies often begin by offering a single product or product line that requires only a simple structure, but as they grow and their strategies become more ambitious and elaborate, so the structure changes to support those strategies. Most current strategy structures tend to reflect strategies of (1) cost minimization, (2) innovation, or (3) imitation. For instance, cost minimizers, who tend to tightly control costs, opt for the stability and efficiency of the mechanistic structure. Innovative companies prefer the flexibility and free flow of information of the organic structure. Imitators, who minimize their risks by copying market leaders, might use a mechanistic structure to maintain cost controls and an organic structure to mimic the industry's innovative directions.

All the organizational structures described in this chapter are used today because each structure has advantages that make it appropriate for some cases and disadvantages that make it not useful for others. For example, the clear roles and strict hierarchy of an extremely mechanistic organization are clearly suitable in a system valuing careful routines and checks and balances, such as a nuclear power plant. A fast-moving startup drawing on sources of expertise throughout the world may benefit from a more organic structure that lowers boundaries between functions and organizations. As for the types of organizational structures described in Section 8.5, all have their uses. Functional structures save money by grouping together people who need similar materials and equipment. Divisional structures increase employees' focus on customers and products. A matrix structure tries to combine the advances of functional and divisional structures, but it can also slow decision making. Teams can arrive at creative solutions and develop new products faster than workers in more traditional structures. Finally, network and modular structures can tap people in particular specialties.

One may be the loneliest number, but Verizon isn't complaining. After appearing five times in the Top 10 over the last six years, the telecommunications company captured the No. 1 spot on the Training Top 125 for the first time in 2012. Despite a relatively flat training budget and a work stoppage that resulted from the expiration of union collective bargaining agreements, Verizon remained steadfast in its commitment to effective training tied to corporate strategic goals—and had the results to show for it. "We focused on the major training initiatives that would advance our strategic business goals and business unit/functional-specific initiatives," says Al Torres, VP, Human Resources, Verizon Telecom and Business. "We remained relatively flat on full-time staff across Verizon, but we increased the number of internal subject matter experts (SMEs) significantly to help drive key initiatives deeply through the organization." Verizon's three main business goals for 2011 were: To build a business and workforce as good as its networks. To lead in shareholder value creation. To be recognized as an iconic technology company. Verizon's strategic business units (BUs) align BU-specific priorities with the company's business goals and core values. "Our federated L&D organizations, supporting each BU, establish training priorities/initiatives that align with each BU's priorities and Verizon's business goals and values—top to bottom and across," says Magda Yrizarry, VP, Corporate Human Resources.... Creating a leadership culture that leads for shareholder value was one of Verizon's significant goals in 2011, and the company's implementation of Leading for Shareholder Value (LSV) was a key lever for cultural change.... Sponsored by a new president and CEO Lowell McAdam, LSV is a 1.5-day mandatory executive education program designed to help senior leaders understand how to drive long-term value creation.... Each LSV session is led by CEO McAdam and CFO Fran Shammo.... As part of the program design, Yrizarry says, senior leaders are placed in cross-business units and cross-functional teams and given an assignment to identify obstacles preventing Verizon from creating more shareholder value. Each team recommends actions that will remove those obstacles. At the end of each session, each team reports to a panel of top executives.... In addition, during the program, each senior leader submits an Individual Accountability Plan (IAP). These IAPs are aligned with "value drivers" or metrics by which shareholders, analysts, and potential investors assess company performance.... Each senior leader selects one to two action he or she will commit to as part of driving SHV. The IAPs then are digitized and provided to Lowell McAdam and business unit presidents for review and follow-up. More than 300 senior leaders now have SHV IAPs that will be incorporated into 2011 performance reviews and, where appropriate, into 2012 performance agreements, Yrizarry says.... At the other end of Verizon's leadership development spectrum, "we are focused on attracting and retaining the best talent from colleges and universities as we see this as critical to building our leadership funnel for the future," Yrizarry says. In 2011, Verizon rolled out a new "Verizon Leadership Development Program" (VLDP) across the enterprise.... "VLDP recruits the highest-performing college graduates at strategic partnership schools with 10- to 12-week Verizon internships and semester-long co-ops as a primary feeder pool for the full-time college hire VLDP," Yrizarry says. VLDP currently sponsors Finance, Network Operations, Engineering, IT, Human Resources, and Marketing. After graduation and upon hire, participants complete a minimum of two job rotations. The number and length of job rotations varies between functions over the course of two or three years in the program. All VLDP hires experience a 24-month customized leadership curriculum road map focused on cultural immersion and self-awareness, operational effectiveness, high performance, and leadership preparation. In addition, each function has a functional-specific curriculum road map and experiential development activities. Innovation is at the core of who Verizon is, according to Verizon Wireless Human Resources VP Lou Tedrick, and "it's essential to be a leading innovator in order to achieve our goal of becoming an iconic technology company. Our 4G LTE network is key to our future ability to deliver innovative technology to our customers." Prior to rolling out its 4G LTE network in December 2010, Verizon delivered 60,000-plus hours of 4G LTE technology and device training to its front-line Sales and Services reps between January and August. "We've maintained a one-stop online performance support 4G LTE Resource Center for employees to use at the moment of apply," Tedrick notes.... With the volume of training taking place—particularly on new products and technology—just how does Verizon measure its effectiveness? At the onset of a training initiative, "we work with key stakeholders and business partners to define what success will look like in terms of employee knowledge, behaviors, and targeted business results," Tedrick says. "Then, we ideally get a pre-training 'snapshot' of knowledge, behaviors, and/or business results to compare with a post-training snapshot." Verizon Wireless (VZW), for example, uses a CS New Hire Training (NHT) Scorecard to monitor new hire performance at 30, 60, 90, and 120 days post-training. "Working with our CS Operations Leaders, we measure new hire performance on a set of CS key performance indicators such as 'Entire Rep Performance,' 'Quality,' 'First Call Resolution,' and 'Average Handle Time.'" Tedrick says new hires consistently meet the expected key performance indicators (KPIs) by 120 days post-training and that VZW has used this scorecard to determine curriculum changes needed for a CS NHT redesign and for targeted reinforcement training.... Tedrick says video/audio podcasts are fast becoming one of Verizon employees' favorite means for learning quickly. "We've built videos to demonstrate system processes for our B2B sales team-accessed from within their primary sales force automation tool. Videos demonstrating new devices provide a quick, effective, on-demand learning approach." Viewership is viral, Tedrick says, with employees recommending to peers a video lesson they just watched in a matter of minutes. Indeed, Verizon's DROID Charge by Samsung video reached 1,240 views shortly after it launched. "We distribute videos via VZTube, our internal YouTube site," Tedrick explains. Year-to-date total videos watched: 1,478,412; audio files played: 13,084; total VZTube members: 83,398. Viewership statistics on existing videos are used to make recommendations for future videos. Tedrick notes that low views on a particular video type are taken into consideration when planning future videos that are similar in style and message. Verizon also expanded its My NetWork Social Networking platform for peer-to-peer collaboration to include My NetWork On-The-Go in 2011. Employees now can access my NetWork features using their mobile devices.... "We've found that the keys to success for social media is to 'pilot' or 'trial' first, so you can work out any issues before expanding to a wider audience, and if you track the impact on KPIs, it can be a good case study to share with leaders who may be concerned about the net impact of social media," Tedrick says. "Additionally, we've found that taking a 'low-key' approach to social media for learning has let learners try things out for size, then recommend it to their peers. The result is organic versus forced utilization." Verizon currently is exploring the use of tablets for delivering Online Performance Support System (InfoManager) content at "moment of apply," particularly for its Retail representatives, Tedrick says. "This way, our Retail representatives will have access to the information while interacting with our customers and not have to step out of their sales process flow." Verizon hopes to have it available by mid-year 2012.