Summary Organizational Structure - Chapter 5
Organizational Structure (EBP670C05)
Rijksuniversiteit Groningen
Aanbevolen voor jou
Reacties
Preview tekst
Chapter 5 - Strategy
Strategy is imperativeit dictates the structure
According to Chandler: Strategy is the determination of basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.
How to determine a firm’s goals? Planning mode= strategy as an explicit and systematic set of guidelines developed in advance(What to achieve and how to get there), widely practised in large firms (features: rational process, example: stock market exchange)
Evolutionary mode=strategy evolves over time as a pattern of significant decisions; takes occurences in account such as unexpected opportunity, changing perceptions of the board, change of competition
Levels of Strategy Organizations that are in multiple businesses need to develop different strategies for different levels of activities. Therefore, it is necessary to distinguish:
Corporate-level strategy: When firm has more than one line of business, “In what set of businesses should we be?” , Determines the roles that each business in the organisation plays
Business-level strategy: tries to answer the question how the company should compete in each of its business units.
The beginnings- Chandler’s- structure thesis
He concluded that an organization’s structure should follow its strategy. When a company expands its product range from just a few to many products they will need a divisionalised structure.
But: Chandler only looked at very large & successful business firms which were prominent in their new technologies. So it is unaswered if his conclusion is applicable to small businesses
Miles & Snows four strategic types
(based on the rate at which firms change their products)
Defenders Obtain and maintain stability and efficiency. Limited set of products directed at a narrow market segment. Strive to prevent competitors from market share. Organizations are highly formalized and centralized.
Prospectors The goal is to be flexible in structure. Exploit new products and opportunities. Innovation & research is important , loose structure
Analyzers Organizations use knowledge to minimize risk and maximize profit. They don’t take any risk by copying innovations after they have been proven by others (Prospectors)
Reactors they represent the residual strategy, they respond inappropriately and perform poorly and they don’t want to make a clear strategy for the future.
Porter’s competitive strategies Porter: No firm can successfully perform by trying to be all things to all people
Cost-leaderships strategy: Want to have the lowest within the industry. For example, Aldi supermarket. Complex structure, high formalisation, centralisation
Differentiation strategy: aims to achieve a unique position in an industry in ways that are widely valued by buyers. For example, Mercedes-Benz (status). Flexibility is needed, low complexity, low formalisation, decentralized decisions
Focus strategy: aims at cost advantage or differentiation advantage in a narrow segment.
Stuck in the middle: Organizations that are unable to gain a competitive advantage through one of various strategies.
Strategy and globalisation The two researchers Barlett and Goshal proposed that the strategy depends on the interrelation between the pressure to reduce costs and the pressure for local respondsiveness. Each strategy requires a specific organizational structure
International strategy: transfer valuable skills and product knowledge to overseas markets, for example McDonalds (Franchise)
Multideomestic strategy: aims on maximum local responsiveness with products customized to meet local conditions
Global strategy: products can be sold in most markets without big modifications, lower costs by selling a common product on a global basis, e. Shell, GM
Transnational strategy: attempts to achieve maximum local responsiveness while achieving worldwide economies of scale
Chapter 6 – Organization size
An organization’s size is measured by it’s total number of employees.
Problems of defining organizational size Is a firm counting just the full-time working employees or all of the employees? Often when observing a firms the part-time workers are not taken into account, this may be a difficulty considering that some large companies have a great percentage of part-time workers. Yet another main problem is seasonal business, or seasonal employment. Indeed, number of employees often fluctuates. In addition, the total number of employees does not distinguish among different types of industry.
Advocates of the size imperative Peter Blau concluded on one of his studies that ‘size is the most important condition affecting the structure of organisations’. In one of his most cited studies, he found that increasing size promotes structural differentiation but at a decreasing rate.
Overall, researchers found that once an organization becomes large in size it develops a higher complexity it tends to be high in formalization and decentralized. Furthermore, it increases in the number of employees and have no noticeable further influence on the structure.
BUT: Chris Argyris, for example, analysed Blau’s data and questioned his measures and argued that civil service organsations are unique. They have budget limitations, disctinct geographical boundaries and predetermined size staff and are therefore not representative
The effect of size on:
- Complexity: o The impact of size on complexity is at a decreasing rate in
government organizations. For firms this is questionable. The relationship between size and spatial differentiation is also considered problematic.
- Formalization: o There appears to be a clear correlation that size affects formalization. One cannot ignore whether the organization is independent or is subsidiary. Thus, formalization increases with size.
- Centralization: o It is unrealistic to control organizations from the top. The correlation between size and centralization is not significantly different from zero.
Large size problems
- The growth of bureaucracy.
- Turning information into knowledge
- Adapting to changing technologies
- Long time frames for action
- Need for accurate costing information
- Managing over a wide geographic spread
- Bounded rationality
Solutions for the problems
- dividing the organization into manageable parts
- outsourcing
- finding a balance between what decisions to centralize and decentralize
- structuring to facilitate change
- ensuring that important tasks have someone responsible for them
- physically separate those areas of the organization which undertake different types of work
Organization theory and small businesses
The influence of the owner A small business is often a reflection of the owner’s personality and management style (‘management by walking around’). In these small businesses roles and responsibilities are not clearly defined, but the decision making, including the day-to-day decisions, is highly centralized. There is a close relationship between the management and the ownership in a small business.
The issues of reduced importance Small businesses tend to have a minimal degree of horizontal, vertical and spatial differentiation. Also are they characterized by low formalization and high centralization. In these businesses there are fewer barriers to communication. This should provide a competitive advantage to the small business. In addition to these structural issues, there are other concerns that take on reduced importance in these businesses. Such as, stimulating innovation, managing conflict and changing the organization’s structure.
Summary Organizational Structure - Chapter 5
Vak: Organizational Structure (EBP670C05)
Universiteit: Rijksuniversiteit Groningen
