Restructuring Organizations:Structural Design, Process-Based Structures

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Lesson 34

Restructuring Organizations

We begin to examine techno-structural interventions change programs focusing on the technology and

structure of organizations. Increasing global competition and rapid technological and environmental

changes are forcing organizations to restructure themselves from rigid bureaucracies to leaner more flexible

structures. These new forms of organizing are highly adaptive and cost efficient. They often result in fewer

managers and employees and iii streamlined work flows that break down functional barriers.

Interventions aimed at structural design include moving from more traditional ways of dividing the

organization's overall work, such as functional, self-contained-unit and matrix structures, to more

integrative and flexible forms, such as process-based and network-based structures. Diagnostic guidelines

help determine which structure is appropriate for particular organizational environments, technologies, and

conditions.

Downsizing seeks to reduce costs and bureaucracy by decreasing the size of the organization. This

reduction in personnel can be accomplished through layoffs, organization redesign, and outsourcing, which

involves moving functions that are not part of the organization's core competence to outside contractors.

Successful downsizing is closely aligned with the organization's strategy.

Reengineering radically redesigns the organization's core work processes to give tighter linkage and

coordination among the different tasks. This work-flow integration results in faster, more responsive task

performance. Reengineering often is accomplished with new information technology that permits

employees to control and coordinate work processes more effectively.

Structural Design:

Organization structure describes how the overall work of the organization is divided into subunits and how

these subunits are coordinated for task completion It is a key feature of an organization's strategic

orientation. Based on a contingency perspective shown in Figure 41, organization structures should be

designed to fit with at least five factors: the environment, organization size, technology, organization

strategy and worldwide operations. Organization effectiveness depends on the extent to which its structures

are responsive to these contingencies.

Organizations traditionally have structured themselves into one of three forms: functional departments that

are task specialized; self-contained units that are oriented to specific products, customers, or regions; or

matrix structures that combine both functional specialization and self-containment. Faced with accelerating

changes in competitive environments and technologies, however, organizations increasingly have

redesigned their structures into more integrative and flexible forms. These more recent innovations include

process-based structures that design subunits around the organization's core work processes, and network-

based structures that link the organization to other, interdependent organizations. The advantages,

disadvantages, and contingencies of the different structures are described below.

Figure 41. Contingencies Influencing Structural Design

The Functional Organization:

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Perhaps the most widely used organizational structure in the world today is the basic functional structure,

depicted in figure 42. The organization usually is subdivided into functional units, such as engineering,

research, operation, human resources, finance, and marketing. This structure is based on early management

theories regarding specialization line and staff relations, span of control, authority, and responsibility. The

major functional subunits are staffed by specialists in such disciplines as engineering and accounting. It is

considered easier to manage specialists if they are grouped together under the same head and if the head of

the department has training and experience in that particular discipline.

Table 12 lists the advantages and disadvantages of functional structures. On the positive side, functional

structures promote specialization of skills and resources by grouping people who perform similar work and

face similar problems. This grouping facilitates communication within departments and allows specialists to

share their expertise. It also enhances career development within the specialist, whether it is accounting,

finance, engineering, or sales. The functional structure reduces duplication of services because it makes the

best use of people and resources.

Figure 42. The Functional Organization

On the negative side, functional structures tend to promote routine tasks with a limited orientation.

Department members focus on their own tasks, rather than on the organization's total task. This can lead

to conflict across functional departments when each group tries to maximize its own performance without

considering the performance of other units. Coordination and scheduling among departments can be

difficult when each emphasizes its own perspective. As shown in Table 12, the functional structure tends to

work best in small-to medium-sized firms in environments that are relatively stable and certain. These

organizations typically have a small number of products or services, and coordination across specialized

units is relatively easy. This structure also is best suited to routine technologies in which there is

interdependence within functions, arid to organizational goals emphasizing efficiency and technical quality.

Table 12: Advantages, Disadvantages, and Contingencies of the Functional Form

Advantages

Disadvantages

Contingencies

· Emphasizes

· Stable

routine

and

certain

Promotes skill

tasks, which encourages

environment

specialization

· Small to medium size

short time horizons

Reduces duplication of

· Fosters

· Routine

parochial

technology,

scarce resources and uses

perspectives

interdependence within

resources full time

managers, which limit

functions

Enhances

career

their capabilities for top-

· Goals of efficiency and

development

for

management positions

technical quality

specialists within large

· Reduces communication

departments

and cooperation between

Facilitates

departments

communication

and

· Multiplies

the

performance

because

interdepartmental

superiors share expertise

dependencies, which can

with their subordinates

make coordination and

Exposes specialists to

scheduling difficult

others within the same

· Obscures accountability

specialty

for overall outcomes

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The Self-Contained-Unit Organization:

The self-contained-unit structure represents fundamentally different way of organizing. Also known as a

product or divisional structure, it was developed at about the same time by General Motors, Sears,

Standard Oil of New Jersey (Exxon), and DuPont. It groups organizational activities on the basis of

products, services, customers, or geography. All or most of the resources necessary to accomplish a specific

objective are set up as a self-contained unit headed by a product or division manager. For example, General

Electric has plants that specialize in making jet engines and others that produce household appliances. Each

plant manager reports to a particular division or product vice president, rather than to a manufacturing vice

president. In effect, a large organization may set up smaller (sometimes temporary) special purpose

organizations, each geared to a specific product, service, customer, or region. A typical product structure is

shown in Figure 43. It is interesting to note that, the formal structure within a self-contained unit often is

functional in nature.

Table 13 lists the advantages and disadvantages of self-contained-unit structures. These organizations

recognize key interdependencies and coordinate resources toward an overall outcome. This strong outcome

orientation ensures departmental accountability and promotes cohesion among those contributing to the

product. These structures provide employees with opportunities for learning new skills and expanding

knowledge because workers can move more easily among the different specialties contributing to the

product. As a result, self-contained-unit structures are well suited for developing general managers. Self-

contained-unit organizations do have certain problems. They may not have enough specialized work to use

people's skills and abilities fully. Specialists may feel isolated from their professional colleagues and may fai1

to advance in their career specialty. The structures may promote allegiance to department rather than

organization objectives. They also place multiple demands on people, thereby creating stress.

Table 13

Advantages, Disadvantages and contingencies of the Self-Contained-unit Form

Advantages

Disadvantages

Contingencies

· Unstable and uncertain

· May use skills and

Recognizes sources of

environments

resources inefficiently

interdepartmental

· Large size

· Limits

dependencies

career

· Technological

advancement

fosters an orientation

specialists to movements

interdependence across

toward overall outcomes

out of their departments

functions

and clients

· Impedes

specialists

· Goals

product

allows diversification and

esposure to others within

specialization

and

expansion of skills and

the same specialties

innovation

training

· Puts

multiple-role

ensures accountability by

demands on people and

departmental managers

so creates stress

and

promotes

· May

promote

delegation of authority

departmental objectives,

and responsibility

as opposed to overall

heightens departmental

organizational objectives

cohesion

and

involvement in work

The self-contained-unit structure works best in conditions almost the opposite of those favoring a

functional organization, as shown in Table 13. The organization needs to be relatively large to support the

duplication of' resources assigned to the units. Because each unit is designed to fit a particular niche, the

structure adapts well to uncertain conditions. Self-contained units also help to coordinate technical

interdependencies falling across functions and are suited to goals promoting product or service

specialization and innovation.

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Figure 43: The Self-Contained-Unit Organization

The Matrix Organization:

Some OD practitioners have focused on maximizing the strengths and minimizing the weaknesses of both

the functional and the self-contained-unit structures, and this effort has resulted in the matrix organization.

It superimposes the lateral structure of a product or project coordinator on the vertical functional structure,

as shown in Figure 44. Matrix organizational designs originally evolved in the aerospace industry where

changing customer demands and technological conditions caused managers to focus on lateral relationships

between functions to develop a flexible and adaptable system of resources and procedures, and to achieve a

series of project objectives. Matrix organizations now are used widely in manufacturing, service, and

nonprofit, governmental, and professional organizations.

Every matrix organization contains three unique and critical roles: the top manager, who heads and

balances the dual chains of command, the matrix bosses (functional, product, or area), who share

subordinates: and the two-boss managers, who report to two different matrix bosses. Each of these roles

has its own unique requirements.

For example, all engineers may be in one engineering department and report to an engineering manager,

but these same engineers may be assigned to different projects and report to a project manager while

working on that project. Therefore, each engineer may have to work under several managers to get his or

her job done.

In a matrix organization, each project manager reports directly to the vice president and the general

manager. Since each project represents a potential profit centre, the power and authority used by the

project manager come directly from the general manager.

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Figure 44. The Matrix Organization

Matrix organizations, like all organization structures, have both advantages and disadvantages, as shown in

Table 14. On the positive side, this structure allows multiple orientations. Specialized, functional knowledge

can be applied to all projects. New products or projects can be implemented quickly by using people

flexibly and by moving between product and functional orientations as circumstances demand. Matrix

organizations can maintain consistency among departments and projects by requiring communication

among managers. For many people, matrix structures are motivating and exciting.

On the negative side, these organizations can be difficult to manage. To implement and maintain them

requires heavy managerial costs and support. When people are assigned to more than one department,

there may be role ambiguity and conflict, and overall performance may be sacrificed if there are power

conflicts between functional departments and project structures. To make matrix organizations work,

organization members need interpersonal and conflict management skills. People can get confused about

how the matrix works, and that can lead to chaos and inefficiencies

Table 14

Advantages, Disadvantages and Contingencies of the Matrix Form

Advantages

Disadvantages

contingencies

· Make

· Can be very difficult

· Dual focus on unique

specialized,

introduce without a

functional

knowledge

product demands and

preexisting

supportive

available to all projects.

technical specialization

· Uses people flexibly,

· Pressure

management climate

for

high

· Increases role ambiguity,

because

departments

information processing

stress and anxiety by

maintain reservoirs of

capacity

· Pressure for shared

assigning people to more

specialists.

· Maintains

than one department

consistency

resources

· Without power balancing

between

different

between product and

departments and projects

functional forms, lowers

forcing

communication between

overall performance

· Makes

managers.

inconsistent

· Recognizes and provides

demands, which may

mechanisms for dealing

result in unproductive

with legitimate, multiple

conflicts and short-term

sources of power in the

crisis management

· May reward political

organization.

Organization Development MGMT 628

skills as opposed

Can

adapt

technical skills

environmental changes

by shifting emphasis

between project and

functional aspects

As shown in Table 14, matrix structures are appropriate under three important conditions. First, there must

be outside pressures for a dual focus. That is, a matrix structure works best when there are many customers

with unique demands on the one hand and strong requirements for technical sophistication on the other

hand. Second, a matrix organization is appropriate when the organization must process a large amount of

information. Circumstances requiring such capacity are few and include the following: when external

environmental demands change unpredictably and there is considerable uncertainty in decision making;

when the organization produces a broad range of products or services, or offers those outputs to a large

number of different markets, and there is considerable complexity in decision making: and when there is

reciprocal interdependence among the tasks in the organization's technical core and there is considerable

pressure on communication and coordination systems. Third, and finally, there must be pressures for

shared resources. When customer demands vary greatly and technological requirements are strict, valuable

human and physical resources are likely to be scarce. The matrix works well under those conditions because

in facilitates the sharing of scarce resources. If any of the foregoing conditions is not met, a matrix

organization is likely to fail.

Process-Based Structures:

A radically new logic for structuring organizations is to form multidisciplinary teams around core processes,

such as product development, order fulfillment, sales generation, and customer support. As shown in

Figure 45, process-based structures emphasize lateral rather than vertical relationships. All functions

necessary to produce a product or service are placed in a common unit usually managed by someone called

a "process owner." There are few hierarchical levels, and the senior executive team is relatively small,

typically consisting of the chair, the chief operating officer, and the heads of a few key support services

such as strategic planning, human resources, and finance.

Figure 45: The Process-Based Structure

Process-based structures eliminate many of the hierarchical and departmental boundaries that can impede

task coordination and slow decision making and task performance. They reduce the enormous costs of

Organization Development MGMT 628

managing across departments up and down the hierarchy. Process-based structures enable organization to

focus most of their resources on serving customers, both inside and outside the firm.

The use of process-based structures is growing rapidly in a variety of manufacturing and service companies.

Typically referred to as "horizontal" "boundary less," or "team-based" organization, they are used to

enhance customer service at such firm as American Express Financial Advisors, The Associates, Duke

Power. 3M, Xerox, General Electric Capital Services, at id the National b Provincial building Society in

time United Kingdom.

Although there is no one right way to design process- based structures, the following features characterize

this new form of organizing.

Processes drive structure. Process-based structures are organized around the three to five key processes

that define the work of the organization. Rather than products or functions, processes define the structure

and are governed by a "process owner." Each process has clear performance goals that drive task

execution.

Work adds value. To increase efficiency, process--based structures simplify and enrich work processes.

Work is simplified by eliminating nonessential tasks and reducing layers of management, and it is enriched

by combining tasks so that learns perform whole processes.

Teams are fundamental. Teams are the key organizing feature in a process- based structure. They manage

everything from task execution to strategic planning, are typically self-managing, and are responsible for

goal achievement.

· Customers define performance. The primary goal of any team in a process-based structure is customer

satisfaction. Defining customer expectations and designing team functions to meet those expectations

command much of the team's attention. The organization must value this orientation as the primary path to

financial performance.

Teams are rewarded for performance. Appraisal systems focus on measuring team performance against

customer satisfaction and other goals, and then provide real recognition for achievement. Team-based

rewards are given as much, if not more, weight than is individual recognition.

Teams are tightly linked to suppliers and customers. Through designated members, teams have timely

and direct relationships with vendors and customers to understand and respond to emerging concerns.

Team members are well informed and trained. Successful implementation of a process-based structure

requires team members who can work with a broad range of information, including customer and market

data, financial information, and personnel and policy matters. Team members also need problem solving

and decision-making skills and abilities to address and implement solutions.

Table 15 lists the advantages and disadvantages of process-based structures. The most frequently

mentioned advantage is intense focus on meeting customer needs, which can result in dramatic

improvements in speed, efficiency, and customer satisfaction. Process-based structures remove layers of

management, and consequently information flows inure quickly and accurately throughout the

organization. Because process teams comprise different functional specialties, boundaries between

departments are removed, thus affording organization members a broad view of the work flow and a clear

line of sight between team performance and organization effectiveness. Process-based structures also are

more flexible and adaptable to change than are traditional structures.

Table 15: Advantages, Disadvantages, and Contingencies of the Process-Based Form

Advantages

Disadvantages

Contingencies

· Focuses resources on customer · Can threaten middle managers · Uncertain and changing

satisfaction

and staff specialists

environments

· Improves speed and efficiency, · Requires changes in command- · Moderate to large size

often dramatically

and-control mindsets

· Non-routine and highly

· Adapts to environmental change · Duplicates scarce resources

interdependent technologies

rapidly

· Requires new skills and · Customer-oriented goals

· Reduces boundaries between knowledge to manage lateral

departments

relationships and teams

· Increases ability to see total · May take longer to make

work flow

decisions in teams

Enhances

employee · Can be ineffective if wrong

involvement

processes are identified

· Lowers costs because of less

overhead structure

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A major disadvantage of process-based structures is the difficulty of changing to this new organizational

form. These structures typically require radical shifts in mindsets, skills, and managerial roles -- changes

that involve considerable time and resources and can be resisted by functional managers and staff

specialists. Moreover, process-based structures may result in expensive duplication of scarce resources and,

if teams are not skilled adequately, in slower decision making as they struggle to define and reach

consensus. Finally, implementing process-based structures relies on properly identifying key processes

needed to satisfy customer needs. If critical processes are misidentified or ignored altogether, performance

and customer satisfaction are likely to suffer.

Table 15 shows that process-based structures are particularly appropriate for highly uncertain environments

where customer demands and market conditions are changing rapidly. They enable organizations to manage

non-routine technologies and coordinate work flows that are highly interdependent. Process-based

structures generally appear in medium- to large-sized organizations having several products or projects.

They focus heavily on customer-oriented goals and are found in both domestic and global organizations.

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