Organizational structures, internal and external network cooperation Ondřej Částek castek@econ.muni.cz Content 1. 1.Basics of organizational structure design 2. 2.Trends from hierarchy to holocracy 3. 3.Trends from outsourcing to clusters 2 GE – development of organizational structure n1930s – 40s: functional approach, high and rigid structure n1950s: decentralization, smaller departments/divisions n1970s: from 190 divisions into 43 SBU n1980s: J. Welch n3 top managers, 3 operative managers nfrom 240 industries into 14 n10-15 subordinates n n n 1930s – 40s: economy of scales, high-level pyramid 1950s: reorganization based on decentralization, smaller departments „departments so large that one manager can lead them“ -The company grew and despite its large size worked smoothly (information from the top management to operations and from operations to the top management flew flawlessly) -The company was perfect, but the conditions changed, therefore need for change of the company -190 departments, managing style „face to face“ -With the growth of the company problems grew as well 1969: McKinsey analysis -Despite the decentralization the hierarchy is too high and complicated -The corporate planning is weak -The staff functions are busy with operative decision making, they do not have time to think strategically -There are no priorities nor basic goals given 1970s: reorganization to divisions and formation of SBUs (from 190 divisions to 43 SBUs) -New evaluation of autonomous departments and new strategic planning (application of BCG matrix) 1980s: Jack Welch -Sharing of information, trust, speed, simplicity -10-15 subordinates instead of previous 5 Process structure n 4 Department structure n 5 Departmentalization n a b c d 6 Traditional structures skr16 skr17 skr18 7 Line and staff functions (liniové a štábní útvary) Contemporary structures – project coordination 8 Contemporary structures – project structure CEO Manager Manager Project manager Procurement R & D 9 Contemporary structures – matrix structure n 10 Principles of structure design 1.Hierarchy of authority 2.Unity of command 3.Task specialization (product or function) 4.Responsibilities and job description (formalization) 5.Line and staff functions 6.Span of control 11 Three points: division of labor, division of authority and span of control. Contingency Theory n- no ONE best structure (unlike classical scholars) n- the best structure depends on many things: 1.strategy ndifferentiation x cost leadership 2.size nsmall x large 3.technology/task nunit production/small batch x mass production/large batch x continuous nexceptions analyzable x un-analyzable; few x many 4.environment nstable x turbulent 5.suppliers and distributors nmarket factors; bargaining power n n 12 3. not only for goods, but also for services! Factors influencing organization structure n 13 Relationships between causes and effects Note the incentives and actions depending on organizational architecture From hierarchies to networks 14 From hierarchies to networks nDivisions nSBU´s nTeams n Amebas n Holacracy n ROWE, CLOU nVirtual organizations nOutsourcing nHolding structures nStrategic alliances nOther networks n 15 Divisions, SBU´s nDecentralization of decision making nStrive for flexibility and lower costs 16 Teams nFortune 1,000 companies longitudinal study: n n1980: 20% had team-based structures n1990: 50% n2000: 80% n n„Especially in chaotic industries, it pays for the CEO to delegate as much authority as possible in order to encourage experimentation.“ n n 17 Ameba nKnown from Kyocera Group n nSimilar structure in other companies n nSpecific competitive environment in which the teams operate 18 Holacracy nStructure of „circles“, „subcircles“ and „supercircles“ n nEmpowerment, delegation, self-evaluation, self-government, democracy n nStill, leaders have to be designated n n„I think flexibility and adaptability is what’s actually going to be the competitive advantage. And holacracy allows for faster flexibility and adaptability.“ Hsieh, Zappos n nZappos: 14 % out of 1500 employees left 19 ROWE, CLOU nResults-Only Work Environment -only results matter. Not when, where and how they are achieved. n nColleague Letter of Understanding -instead of a labour contract -enumerates goals, rights, responsibilities of an individual -formulated in discussion with colleagues - 20 Virtual organizations nUse of IT to be able to operate without the attachment to a physical place. n nFrom work from home to complicated structures involving not only individual employees or independent contractors, but even whole companies. 21 Outsourcing nContracting out tasks or processes nKey terms: costs, transaction costs, quality, flexibility, dependability, competitive advantage n nSometimes involves transfer of employees or even whole departments or division. n n 22 Departments or divisions can get legal personality (be legally independent) or can join an existing supplier Holding structures nLegal independence nEconomic dependence n of parent and subsidiary companies nKeiretsu, concern 23 Strategic alliances nLegal independence nEconomic cooperation: close – loose nUsually formed for one or more of these reasons: 1.Sharing resources 2.Reduction of competition 3.Transfer and use of knowledge n nMultilateral agreements, franchising, joint ventures… 24 Clusters nRegional networks nFormed to boost competitiveness in national or internatinal scale nTypically both horizontal, vertical and other cooperations nExamples: shoe industry in Italy, wine-makers in Southern Moravia n nKey benefit: development of infrastructure nKey problem: trust 25 Thanks for attention 26