Organization Structure and

Management Systems

OUTLINE

• Evolution of the corporation

• Principles of organizational design
• The role of hierarchy: bureaucratic
control vs. modular integration
• Alternative structural forms
• Management systems
 Evolution of the Modern Corporation

The business Strategic Organizational

environment changes consequences

Early Local markets Firms specialized & Small firms.

19th Transport slow focused on local Simple manage-
century Limited mechanization markets ment structures

Late Introduction of Geographical and Functional struct-

19th railroads, telegraph vertical expansion ures. Line/staff
industrialization separation. Accou-
century
nting systems

Early Excess capacity in Product & Development of

20th distribution. Growth multinational multidivisional
century of financial institut- diversification corporation
ions & world trade
 General Motors’ Organization Structure, 1921

Board of Directors

President Executive Committee

Financial GM Acceptance Legal General

Staff Corporation Department Advisory Staff

Chevrolet Sheridan Canadian Oldsmobile Buick Cadillac GM Export

Division Division Division Division Division Division Company

GM Truck Samson Oakland Inter- Scripps

Division Tractor Division company Booth
Division Parts Corp.
Division

Source: A.P. Sloan, My Years with General Motors, Orbit Publishing, 1972, p. 57.
 The Basic Tasks of Organization
Achieving high levels of productivity requires SPECIALIZATION

Specialization by individuals necessitates COORDINATION

For coordination to be effective requires COOPERATION

But goals of employees == goals of owners

THE AGENCY PROBLEM

THE ORGANIZATIONAL CHALLENGE:

To design structure & systems that:
 Permit specialization
 Facilitate coordination by grouping individuals & link
groups with systems of communication, decision
making, & control
 Create incentives to align individual & firm goals
 Hierarchy Economizes on Coordination

(a) Self Organizing Team: (b) Hierarchy:

10 interactions 4 interactions

But what about effectiveness of coordination?

--Depends upon the organization’s task
 Hierarchy of Loosely-Coupled
Modules Allows Flexible Adaptation

Tightly-coupled, integrated Loose-coupled, modular

system: Change in any part
of the system requires
system-wide adaptation
hierarchy: partially-
autonomous modules linked
by standardized interfaces
permits decentralized
adaptation and innovation
 Weber’s Principles of Bureaucracy

• Rational-legal authority
• Specialization of labor
• Hierarchical structure
• Coordination and control through rules and
standard operating procedures
• Standardization employment practices
• Separation of jobs and people
• Formalization of administrative acts, decisions
and rules
 Mechanistic and Organic Forms

FEATURE MECHANISTIC ORGANIC

Task definition Rigid & highly Flexible; less

specialized specialized

Coordination Rules & directives Mutual adjustment.l

& control imposed from the top Cultural control

Communication Mainly vertical Horizontal & vertical

Commitment To immediate superior To the organization & its

& loyalty goals & values

Environmental Stable with low tech- Dynamic, ambiguous,

context nological uncertainty high technological
uncertainty
 Designing the Hierarchy: The Basis for Defining
Organizational Units and their Relationships

Units may be defined on the basis of Common Tasks, Products,

Geographical Proximity, or Process/Function

Critical issue: Intensity of Coordination—Employees with the greatest

interdependence should be grouped into same organizational unit.

Additional criteria: Economies of Scale, Economies of Utilization,

Learning, Standardization of Control Systems
 General Motors’ Organization Structure, 1997

Board of Directors

President’s Council Corporate Functions

North Delphi GM International Hughes

American Automotive Acceptance Operations Electronics
Operations Systems Corporation

GM Europe
Midsize Small GM Vehicle Development
& Car Power Sales, & & Technical Asian &
Luxury Group Train Marketing Cooperation Pacific
Car Group Group Group Operations
Group
Latin
American,
African, &
Middle East
Operation
 Corporate Executive Office
Chairman & CEO

Corporate Staff
Service Divisions Finance Business R&D Human Legal
Development Resources

GE GE GE
GE Aircraft GE Trans- GE
Industrial Appliances Supply
Engines portation Plastics
Systems

GE
GE Power GE Medical GE GE
Specialty NBC
Systems Systems Lighting Capital
Materials

26 businesses organized into 5 segments:

Consumer Mid-market Specialized Specialty Equipment
Services Financing Financing Insurance Management

General Electric’s Organization Structure, 2002

 Mobil Corporation, 1997

Board of Directors

CEO
Executive Office

Corporate Center Support Services

North New Worldwide Technology

America Exploration LNG & IPP

Asia/ Europe Africa & South

Pacific & CIS Middle America
East North
America Worldwide
Shipping M&R Chemicals
Royal Dutch/Shell Group, 1994: A Matrix Structure
 The Generic Strategic Planning Cycle

Corporate
Draft Discuss Revised
Guidelines Approval
Business with Business
by
Plans Corporate Plans
Board
Forecasts/
Scenarios/
Planning Corporate
assumptions
Plan

Capex
Performance Annual Budget
Performance
Review
Targets