No topic in management

No topic in management has undergone more change in the past decade than the area ot organization design. The reason is quite simple — the environment has become considerably more chaotic. In times of relative environmental stability, organizational effectiveness tends to focus on achieving high efficiency. How do you achieve high efficiency in a stable environment? Through standardization. So organizations created rigid structures, with lots of rules and regulations and tight controls. Rigid structures, however, are unable to respond rapidly to change. In dynamic times, organizations with rigid structures become vulnerable to more-flexible competitors. To meet and beat their rivals, managers have had to aggressively redesign their structures in ways that can make their organizations more adaptive. As a case in point, recent evidence indicates that more than 75 percent of large companies have significantly altered their structures in the past decade to make them more flexible.

In this chapter, we'll describe the key structural dimensions that managers control, show how those dimensions can be combined to create different structural options, and discuss the conditions that favor different options. We'll also present a description of how organization designs have evolved from efficiency machines to technology-based structures that better balance efficiency with flexibility.

WHAT IS ORGANIZATION STRUCTURE?

An organization structure defines how job tasks are formally divided, grouped, and coordinated. For instance, Johnson & Johnson groups activities into 168 semiautonomous companies organized around products (making everything from Tylenol to contact lenses) and allows managers of those companies considerable decision-making latitude. In contrast, Trufresh has grouped activities into parcels that can be easily outsourced and then coordinates them from a small central office.

There are six key elements that managers need to address when they design their organization's structure: work specialization, departmentalization, chain of command, span of control, centralization and decentralization, and formalization. Exhibit 8-1 presents each of those elements as an answer to an important structural question. The following sections describe the six elements of structure.