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Organization Development

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Organization Development ­ MGMT 628
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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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Organization Development ­ MGMT 628
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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
by
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
by
fosters  an  orientation
specialists to movements
interdependence  across
toward overall outcomes
out of their departments
functions
and clients
·  Impedes
specialists
·  Goals
·
of
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
so
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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Organization Development ­ MGMT 628
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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
by
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.
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·
skills  as  opposed
to
Can
adapt
to
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
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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.
Table of Contents:
  1. The Challenge for Organizations:The Growth and Relevance of OD
  2. OD: A Unique Change Strategy:OD consultants utilize a behavioral science base
  3. What an “ideal” effective, healthy organization would look like?:
  4. The Evolution of OD:Laboratory Training, Likert Scale, Scoring and analysis,
  5. The Evolution of OD:Participative Management, Quality of Work Life, Strategic Change
  6. The Organization Culture:Adjustment to Cultural Norms, Psychological Contracts
  7. The Nature of Planned Change:Lewin’s Change Model, Case Example: British Airways
  8. Action Research Model:Termination of the OD Effort, Phases not Steps
  9. General Model of Planned Change:Entering and Contracting, Magnitude of Change
  10. The Organization Development Practitioner:External and Internal Practitioners
  11. Creating a Climate for Change:The Stabilizer Style, The Analyzer Style
  12. OD Practitioner Skills and Activities:Consultant’s Abilities, Marginality
  13. Professional Values:Professional Ethics, Ethical Dilemmas, Technical Ineptness
  14. Entering and Contracting:Clarifying the Organizational Issue, Selecting an OD Practitioner
  15. Diagnosing Organizations:The Process, The Performance Gap, The Interview Data
  16. Organization as Open Systems:Equifinality, Diagnosing Organizational Systems
  17. Diagnosing Organizations:Outputs, Alignment, Analysis
  18. Diagnosing Groups and Jobs:Design Components, Outputs
  19. Diagnosing Groups and Jobs:Design Components, Fits
  20. Collecting and Analyzing Diagnostic information:Methods for Collecting Data, Observations
  21. Collecting and Analyzing Diagnostic information:Sampling, The Analysis of Data
  22. Designing Interventions:Readiness for Change, Techno-structural Interventions
  23. Leading and Managing Change:Motivating Change, The Life Cycle of Resistance to Change
  24. Leading and managing change:Describing the Core Ideology, Commitment Planning
  25. Evaluating and Institutionalizing Organization Development Interventions:Measurement
  26. Evaluating and Institutionalizing Organization Development Interventions:Research Design
  27. Evaluating and Institutionalizing Organization Development Interventions
  28. Interpersonal and Group Process Approaches:Group Process
  29. Interpersonal and Group Process Approaches:Leadership and Authority, Group Interventions
  30. Interpersonal and Group Process Approaches:Third-Party Interventions
  31. Interpersonal and Group Process Approaches:Team Building, Team Building Process
  32. Interpersonal and Group Process Approaches:Team Management Styles
  33. Organization Process Approaches:Application Stages, Microcosm Groups
  34. Restructuring Organizations:Structural Design, Process-Based Structures
  35. Restructuring Organizations:Downsizing, Application Stages, Reengineering
  36. Employee Involvement:Parallel Structures, Multiple-level committees
  37. Employee Involvement:Quality Circles, Total Quality Management
  38. Work Design:The Engineering Approach, Individual Differences, Vertical Loading
  39. Performance Management:Goal Setting, Management by Objectives, Criticism of MBO
  40. Developing and Assisting Members:Career Stages, Career Planning, Job Pathing
  41. Developing and Assisting Members:Culture and Values, Employee Assistance Programs
  42. Organization and Environment Relationships:Environmental Dimensions, Administrative Responses
  43. Organization Transformation:Sharing the Vision, Three kinds of Interventions
  44. The Behavioral Approach:The Deep Assumptions Approach
  45. Seven Practices of Successful Organizations:Training, Sharing Information