BA5018

Organizational Theory, Design & Development

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  Organizing can be defined as arranging and structuring work to
accomplish organizational goals. It’s an important process during
which managers design an organization’s structure.
 Organizational structure is the formal arrangement of jobs
within an organization. This structure, which can be shown
visually in an organizational chart, also serves many purposes.

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 o Divides work to be done into specific jobs and departments.
o Assigns tasks and responsibilities associated with individual
jobs.
o Coordinates diverse organizational tasks.
o Clusters jobs into units.
o Establishes relationships among individuals, groups, and
departments.
o Establishes formal lines of authority.
o Allocates and deploys organizational resources.

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  When managers create or change the structure, they’re engaged
in organizational design, a process that involves decisions
about six key elements: work specialization, departmentalization,
chain of command, span of control, centralization and
decentralization, and formalization.
 Organizational design is the process by which managers select
and manage various dimensions and components of
organizational structure and culture so that an organization can
achieve its goals.

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  An Organization’s design comprises of two fundamental
dimensions, the first step is to understand the different contexts
under which the organization is intended to perform
[Contextual dimensions].
 The second step is to apply the parameters of the context to
various structural parameters and formulate a new or changed
organizational model [Structural dimensions].

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 a. Purpose: The purpose of organization is defined by the
leadership; it articulates the vision and the mission of the
organization.
 Differentiation: The organization intends to create a radically
different and innovative product or service that is clearly
differentiated from others in the industry.
 Efficiency: The organization intends to offer existing product or
services at lower cost, perhaps through better manufacturing
process, management, cost-cutting, restructuring etc.
 Focus: The organization targets a small focused group of
customers with very specific needs. It intends to compete in the
narrow domain with either differentiation or efficiency.

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 b. External Environment: The organization has to devise
strategies to cope with the changes external to the organization;
there are four possible approaches as described below:
 Innovate: The organization tries to follow the risky and unknown
path of innovation through investing in research and promoting
collaboration across its various components.
 Survive: The organization doesn’t take the risk of investing in new
products, but rather tries to hold on its current market position by
boosting its internal efficiency and promotes its position on quality
and reliability.

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  Balance: The organization tries to put its primary focus on survival
while initiating innovation in the background. Thus, it tries to have a
balanced approach that not only defends it from the current
competition but ensures that it emerges as a stronger organization.
 Reactive: The organization solves the external environmental
changes as they emerge in a ad-hoc manner, it fails to analyse the
extent of external changes and lacks any definitive strategy. Reactive
approach is only successful when the external changes are for
shorter duration and does not lead to subsequent changes.

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 c. Technology: It is the core utility that is used to produce the
product or the output of the organization. The technology used
by the organization is dependent upon the type of products it
produces.
 R&D: Organization’s core business is in research and development
of innovative products or technologies; it needs to obtain resources
both as intellectual property and specialists.
 Service: The organization that provides service focuses on the
efficiency, cost-effectiveness and internal processes to be
competitive.
 Manufacturing: The organization produces products that require
mass production with infrequent changes; again this is very much a
process oriented organization.

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 d. Culture: It is the unwritten norms, rules and values that are
shared between all employees. The culture of the organization
indicates of its holistic health; it’s a direct measure of the
internal effectiveness.
e. Size: It is simply the total number of employees it takes to
sustain and grow the organization. The size greatly influences
how the organization is structured or requires restructure; the
only thing simple about size is its measurement.

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 a. Formalization: It is the amount of written documents in the
organization.
 Processes: It is the description of the routine or repeatable
functions of the organization, like hiring, performance review,
expense reporting, software engineering process etc.
 Regulations: These are written policies regarding various legal and
other procedures of the organization.
b. Task Division: It is the degree to which a task is sub-divided
into smaller tasks. If the tasks are divided into narrow job functions,
the skill an employee requires is less and it’s easy to hire and
train a new employee. If the task division is shallow, each employee
performs a wide range of tasks; the employee’s skill level is
relatively high.

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 c. Reporting and Control: The hierarchy structure determines
how tasks are delegated and tracked.
d. Decision Authority: It is the level in the organization hierarchy
that has the decision making power. It determines what kinds of
decisions are ―centralized versus de-centralized‖.
e. Skill/Experience: It is the amount of formal education and
experience the employees require to fulfil their job
responsibilities.
f. Personnel ratios: It is the ratio of core-employees to their
supporting staff. It can be managers’ versus employees’ in the
organization’s hierarchy.

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 1. Work Specialization is dividing work activities into separate job
tasks. Individual employees ―specialize‖ in doing part of an
activity rather than the entire activity in order to increase work
output. It’s also known as division of labor. Most managers
today continue to see work specialization as important because it
helps employees be more efficient.
◦ For example, McDonald’s uses high work specialization to get its
products made and delivered to customers efficiently and quickly—
that’s why it’s called ―fast‖ food. One person takes orders at the
drive-through window, others cook and assemble the hamburgers,
another works the fryer, another gets the drinks, another bags
orders, and so forth.

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 2. Departmentalization explains how jobs are grouped together.
Five common forms of departmentalization are used, although
an organization may develop its own unique classification. Most
large organizations continue to use combinations of most or all
of these types of departmentalization. One specific type of
team that more organizations are using is a cross-functional
team, which is a work team composed of individuals from
various functional specialties.
◦ For example, Black & Decker organizes its divisions along
functional lines, its manufacturing units around processes, its sales
around geographic regions, and its sales regions around customer
groupings.

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 3.Chain of command is the line of authority extending from
upper organizational levels to lower levels, which clarifies who
reports to whom. To understand the chain of command, you
have to understand three other important concepts: authority,
responsibility, and unity of command.
o Authority refers to the rights inherent in a managerial position to
tell people what to do and to expect them to do it.
o This obligation or expectation to perform is known as
responsibility.
o Finally, the unity of command principle states that a person
should report to only one manager.
◦ For example, at the Michelin plant in Tours, France, managers have
replaced the top-down chain of command with ―birdhouse‖
meetings, in which employees meet for five minutes at regular
intervals throughout the day at a column on the shop floor and
study simple tables and charts to identify production bottlenecks.

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 4. Span of Control explains how many employees can a manager
efficiently and effectively manage. Determining the span of
control is important because to a large degree, it determines the
number of levels and managers in an organization—an
important consideration in how efficient an organization will be.

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 5. Centralization and Decentralization. Centralization is the
degree to which decision making takes place at upper levels of
the organization. On the other hand, the more that lower-level
employees provide input or actually make decisions, the more
decentralization there is.

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 6. Formalization refers to how standardized an organization’s
jobs are and the extent to which employee behavior is guided by
rules and procedures.
o In highly formalized organizations, there are explicit job
descriptions, numerous organizational rules, and clearly defined
procedures covering work processes.
o Employees have little discretion over what’s done, when it’s done,
and how it’s done.
o However, where formalization is low, employees have more
discretion in how they do their work.

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 In 2004, Bob and Amanda Richards (hence B.A.R.) trained as chefs and
obtained the capital they needed to open their own restaurant, the B.A.R. and
Grille, a 1950s-style restaurant specializing in hamburgers, hot dogs, french fries,
fresh fruit pies, and fountain drinks. At the beginning, with the help of one
additional person hired to be a server, Bob and Amanda took turns cooking and
waiting on tables (see Figure A).
The venture was wildly successful. The combination of good food, served in a
―Happy Days‖ atmosphere, appealed to customers, who swamped the restaurant
at lunchtime and every night. Right away Bob and Amanda were overloaded.
They worked from dawn to midnight to cope with all the jobs that needed to be
done: buying supplies, preparing the food, maintaining the property, taking in
money, and figuring the accounts. It was soon clear that both Bob and Amanda
were needed in the kitchen and that they needed additional help. They hired
servers, bussers, and kitchen help to wash the mountains of dishes. The staff
worked in shifts, and by the end of the third month of operations, Bob and
Amanda were employing 22 people on a full- or part-time basis (Figure B).

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 With 22 staff members to oversee, the Richardses confronted a new problem.
Because both of them were working in the kitchen, they had little time to
oversee what was happening in the dining room. The servers, in effect, were
running the restaurant. Bob and Amanda had lost contact with the customers
and no longer received their comments about the food and service. They
realized that to make sure their standards of customer service were being met,
one of them needed to take control of the dining room and supervise the
servers and bussers while the other took control of the kitchen. Amanda took
over the dining room, and she and Bob hired two chefs to replace her in the
kitchen. Bob oversaw the kitchen and continued to cook. The business
continued to do well, so they increased the size of the dining room and hired
additional servers and bussers (Figure C).

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 It soon became clear that Bob and Amanda needed to employ additional people
to take over specific tasks because they no longer had the time or energy to
handle them personally. To control the payment system, they employed full-time
cashiers. To cope with customers’ demands for alcoholic drinks, they hired a
lawyer, got a liquor license, and employed full-time bartenders. To obtain
restaurant supplies and manage restaurant services such as cleaning and
equipment maintenance, they employed a restaurant manager. The manager was
also responsible for overseeing the restaurant on days when the owners took a
well-deserved break. By the end of its first year of operation, the B.A.R. and
Grille had 50 full- and part-time employees, and the owners were seeking new
avenues for expansion (Figure D).

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 Eager to use their newly acquired skills to create yet more value, the Richardses
began to search for ideas for a new restaurant. Within 18 months they opened a
waffle and pancake restaurant, and a year later they opened a wood-fired
pizza/pasta bistro. With this growth, Bob and Amanda left their jobs in the
B.A.R. and Grille. They hired shift managers to manage each restaurant, and
they spent their time managing central support functions such as purchasing,
marketing, and accounting, training new chefs, and developing menu and
marketing plans (Figure E). To ensure that service and quality were uniformly
excellent at all three restaurants, they developed written rules and procedures
that told chefs, servers, and other employees what was expected of them—for
example, how to prepare and present food and how to behave with customers.
After five years of operation, they employed more than 150 full- or part-time
people in their three restaurants, and their sales volume was over $5 million a
year and a few years later, it was over $8 million.

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 1. Differentiation
2. Integration,
3. Centralization,
4. Decentralization,
5. Standardization,
6. Mutual adjustment

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 1. Differentiation is the process by which an organization
allocates people and resources to organizational tasks and
establishes the task and authority relationships that allow the
organization to achieve its goals. In short, it is the process of
establishing and controlling the division of labor, or degree of
specialization, in the organization.
 Building Blocks of Differentiation
◦ Organizational Roles The basic building blocks of differentiation
are organizational roles. An organizational role is a set of task-
related behaviors required of a person by his or her position in an
organization.

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 o For example, the organizational role of a B.A.R. and Grille server is to
provide customers with quick, courteous service to enhance their dining
experience.
◦ A function is a subunit composed of a group of people, working
together, who possess similar skills or use the same kind of
knowledge, tools, or techniques to perform their jobs.
 For example, in the B.A.R. and Grille, chefs are grouped together as the
kitchen function, and servers grouped together as the dining room
function.
◦ A division is a subunit that consists of a collection of functions or
departments that share responsibility for producing a particular
good or service.
 Take another look at Figure E. Each restaurant is a division composed
of just two functions—dining room and kitchen—which are responsible
for the restaurant’s activities.

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 ◦ As organizations grow in size, they differentiate into five different
kinds of functions.
 Support functions facilitate an organization’s control of its
relations with its environment and its stakeholders.
 Bob and Amanda Richards hired a manager to oversee
purchasing for all three restaurants and an accountant to
manage the books (see Figure E).
 Production functions manage and improve the efficiency of an
organization’s conversion processes so that more value is created.
 At Ford, the production operations department controls the
manufacturing process, production control decides on the most
efficient way to produce cars at the lowest cost, and quality
control monitors product quality.

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  Maintenance functions enable an organization to keep its
departments in operation.
 Maintenance functions include personnel, to recruit and train
employees and improve skills; engineering, to repair broken
machinery; and janitorial services, to keep the work environment
safe and healthy—conditions that are very important to a
restaurant like the B.A.R. and Grille.
 Adaptive functions allow an organization to adjust to changes in
the environment.
 At the B.A.R. and Grille, developing new menu choices to keep
up with customers’ changing tastes is an important adaptive
activity.
 Managerial functions facilitate the control and coordination of
activities within and among departments.

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 ◦ Vertical and Horizontal Differentiation
◦ Figure 4.3 shows the organizational chart that emerged in the B.A.R.
and Grille as differentiation unfolded.
◦ An organizational chart is a drawing that shows the end result of
organizational differentiation.
◦ Vertical differentiation refers to the way an organization designs
its hierarchy of authority and creates reporting relationships to link
organizational roles and subunits.
◦ Horizontal differentiation refers to the way an organization
groups organizational tasks into roles and roles into subunits
(functions and divisions).

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  Horizontal differentiation is supposed to enable people to
specialize and thus become more productive.
 However, companies have often found that specialization limits
communication between subunits and prevents them from
learning from one another.
 As a result of horizontal differentiation, the members of
different functions or divisions develop a subunit
orientation—a tendency to view one’s role in the organization
strictly from the perspective of the time frame, goals, and
interpersonal orientations of one’s subunit.

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  To avoid the communication problems that can arise from
horizontal differentiation, organizations try to find new or better
ways to integrate functions—that is, to promote cooperation,
coordination, and communication among separate subunits.
 Most large companies today use advanced forms of IT that
allow different functions or divisions to share databases, memos,
and reports, often on a real-time basis.
 Increasingly, companies are using electronic means of
communication like email, teleconferencing, and enterprise
management systems to bring different functions together.
 For example, Nestlé uses advanced enterprise management
systems that supply all functions with detailed information about
the ongoing activities of other functions.

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 2. Integration is the process of coordinating various tasks,
functions, and divisions so they work together, not at cross
purposes. Table 4.1 lists seven integrating mechanisms or
techniques that managers can use as their organization’s level of
differentiation increases. The simplest mechanism is a hierarchy
of authority; the most complex is a department created
specifically to coordinate the activities of diverse functions or
divisions.

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  The design issue facing managers is to establish a level of
integration that matches the organization’s level of
differentiation.
 Managers must achieve an appropriate balance between
differentiation and integration.
 A complex organization that is highly differentiated needs a high
level of integration to coordinate its activities effectively.
 By contrast, when an organization has a relatively simple, clearly
defined role structure, it normally needs to use only simple
integrating mechanisms.

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  Differentiation and integration are both expensive in terms of
the number of managers employed and the amount of
managerial time spent on coordinating organizational activities.
 Managers facing the challenge of deciding how and how much
to differentiate and integrate must do two things:
1. Carefully guide the process of differentiation so an
organization builds the core competences that give it a
competitive advantage; and
2. Carefully integrate the organization by choosing appropriate
coordinating mechanisms that allow subunits to cooperate
and work together to strengthen its core competences.

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 3. Centralization and Decentralization
 When the authority to make important decisions is retained by
managers at the top of the hierarchy, authority is said to be
highly centralized.
 By contrast, when the authority to make important decisions
about organizational resources and to initiate new projects is
delegated to managers at all levels in the hierarchy, authority is
highly decentralized.

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  In discussing vertical differentiation, we note that establishing a
hierarchy of authority is supposed to improve the way an
organization functions because people can be held accountable
for their actions: The hierarchy defines the area of each person’s
authority within the organization.
 Many companies, however, complain that when a hierarchy
exists, employees are constantly looking to their superiors for
direction.
 The issues of how much to centralize or decentralize the
authority to make decisions offers a basic design challenge for all
organizations.

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  At Levi Strauss, for example, employees often told former CEO Roger
Sant that they felt they couldn’t do something because ―They wouldn’t
like it.”
 When asked who “they” were, employees had a hard time saying;
nevertheless, the employees felt they did not have the authority or
responsibility to initiate changes.
 Sant started a ―Theybusters‖ campaign to renegotiate authority and
responsibility relationships so employees could take on new
responsibilities.
 The solution involved decentralizing authority; that is, employees at
lower levels in the hierarchy were given the authority to decide how to
handle problems and issues that arose while they performed their jobs.

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  Authority gives one person the power to hold other people
accountable for their actions and the right to make decisions
about the use of organizational resources.
 As we saw in the B.A.R. and Grille example, vertical
differentiation involves choices about how to distribute
authority.
 But even when a hierarchy of authority exists, the problem of
how much decision-making authority to delegate to each level
must be solved.

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  The ideal situation is a balance between centralization and
decentralization of authority so that middle and lower managers
who are at the scene of the action are allowed to make
important decisions, and top managers’ primary responsibility
becomes managing long-term strategic decision making.
 Decisions about how to distribute decision-making authority in
an organization change as an organization changes—that is, as it
grows and differentiates.
 How to balance authority is not a design decision that can be
made once and forgotten; it must be made on an on-going basis
and is an essential part of the managerial task.

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 5. Standardization and Mutual Adjustment
 Standardization is conformity to specific models or
examples—defined by well-established sets of rules and
norms—that are considered proper in a given situation.
Standardized decision-making and coordination through rules
and procedures make people’s actions routine and predictable.
 Mutual adjustment, on the other hand, is the evolving process
through which people use their current best judgment of events
rather than standardized rules to address problems, guide
decision making, and promote coordination.

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  Formalization: Written Rules
◦ Formalization is the use of written rules and procedures to
standardize operations.
◦ Rules are formal written statements that specify the appropriate
means for reaching desired goals.
 Socialization: Understood Norms
◦ Norms are standards or styles of behavior that are considered
typical or representative of a certain group of people and which
also regulate and govern their behavior.
◦ Socialization, the process by which organizational members learn
the norms of an organization and internalize these unwritten rules
of conduct.

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  Written rules and Standard Operating Procedures (SOPs) and
unwritten values and norms are important forms of behavior
control in organizations.
 They specify how employees are to perform their organizational
roles, and they set forth the tasks and responsibilities associated
with each role.
 The right balance makes many actions predictable so that
ongoing organizational tasks and goals are achieved, yet it gives
employees the freedom to behave flexibly so they can respond to
new and changing situations creatively.

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  Dell, for example, was well known as a company that strived to be
close to its customers and responsive to their needs. But as Dell grew
in the 2000s it developed a standardized response to customers’
requests; it only offered customers a limited range of PCs and a
limited number of options to keep its costs low. Standardizing
operations to reduce costs had become more important than giving
customers what they wanted, for example, more powerful laptops that
came in a range of colors—something that was driving increasing sales
at Apple and HP. Dell has still not recovered from this problem. In
2011 its new lines of computers still were not attracting enough
customers and it was losing market share to Apple, which seemed to
be able to anticipate what customers wanted from new computing
devices, such as tablet computers. Apple moves quickly to design new
models because a focused team of employees was in charge of each of
its different products lines, for example, iPhones and iPads, and were
continually searching for ways to improve their performance.

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  The design challenge facing managers is to find the best ways to use
rules and norms to standardize behavior while, at the same time,
allowing for mutual adjustment to provide employees with the
opportunity to discover new and better ways of achieving
organizational goals.
 Managers facing the challenge of balancing the need for
standardization against the need for mutual adjustment need to keep in
mind that people at higher levels in the hierarchy and in functions that
perform complex, uncertain tasks rely more on mutual adjustment
than on standardization to coordinate their actions.

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  For example, an organization wants its accountants to follow standard
practices in performing their tasks, but in R&D the organization wants
to encourage creative behavior that leads to innovation.
 For all organizational roles, however, the appropriate balance between
these two variables is one that promotes creative and responsible
employee behavior as well as organizational effectiveness

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 1. To see whether there is enough integration between your department
and the departments that you interact with the most create a map of
the principal integrating mechanisms in use.
2. Determine which levels in the managerial hierarchy have responsibility
for approving which decisions. Use your findings to decide how
centralized or decentralized decision making is in your organization.
3. Make a list of your principal tasks and role responsibilities, and then
list the rules and SOPs (Standard Operating Procedures) that specify
how you are to perform your duties.
4. Be aware of the informal norms and values that influence the way
members of your work group or department behave.

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 Mechanistic structures
 Mechanistic structures are designed to induce people to behave in
predictable, accountable ways.
 Decision-making authority is centralized.
 Subordinates are closely supervised.
 Information flows in a vertical direction.
 Tasks associated with a role are also clearly defined.
 One-to-one correspondence between a person and a task.
 Each person is individually specialized.
 The hierarchy is the principal integrating mechanism both within and
between functions.

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  Tasks and roles are
coordinated primarily
through standardization.
 Formal written rules and
procedures specify role
responsibilities.
 Standardization, together
with the hierarchy, are the
main means of
organizational control.

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 Organic Structures
 Organic structures promote flexibility, so people initiate change and
can adapt quickly to changing conditions.
 Organic structures are decentralized;
 Roles are loosely defined and people continually develop new kinds of
job skills to perform continually changing tasks.
 The result is joint specialization and increased productivity.
 Employees from different functions work together to solve problems.
 A high level of integration is needed so that employees share
information.

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  The integration of functions is
achieved by task forces and teams.
 Coordination is achieved through
mutual adjustment.
 Informal rules and norms emerge
from the ongoing interaction of
organizational members.

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  The decision about whether to design an organic or a mechanistic
structure depends on the particular context or situation an organization faces:
the environment it confronts, its technology and the complexity of the
tasks it performs, and the skills of the people it employs—and how
fast these are changing.
 Contingency Approach – A management approach in which the
design of an organization’s structure is tailored to the sources of
uncertainty facing an organization.
 An organization must design its internal structure to control the external
environment.
 A poor fit between structure and environment leads to failure; a close
fit leads to success.

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  Support for contingency theory comes from two studies of the
relationship between structure and the environment.
 These studies, conducted by Paul Lawrence and Jay Lorsch, and by
Tom Burns and G. M. Stalker.

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  The strength and complexity of the forces in the general and specific
environments have a direct effect on the extent of differentiation
inside an organization.
 The number and size of an organization’s functions mirror the
organization’s needs to manage exchanges with forces in its
environment. [Refer next slide]
 Paul Lawrence and Jay Lorsch investigated how companies in different
industries differentiate and integrate their structures to fit the
characteristics of the industry environment in which they compete.
 They selected three industries; (1) the plastics industry, [greatest
uncertainty]; (2) the food-processing industry; and (3) the container or
can-manufacturing industry, [least uncertainty].

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  Lawrence and Lorsch measured the degree of differentiation in the
production, R&D, and sales departments of a set of companies in
each industry.
 They also measured how companies in different industries integrated
their functional activities.
 They found that when the environment was perceived by each of the
three departments as very complex and unstable, the attitudes and
orientation of each department diverged significantly.
 The extent of differentiation between departments was greater in
companies that faced an uncertain environment than in companies
that were in stable environments.

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  Lawrence and Lorsch also found that when the environment is
perceived as unstable and uncertain, organizations are more effective
if they are less formalized, more decentralized, and more reliant on
mutual adjustment.
 When the environment is perceived as relatively stable and certain,
organizations are more effective if they have a more centralized,
formalized, and standardized structure.
 In the uncertain plastics industry, highly effective organizations were
highly differentiated but were also highly integrated.
 In the relatively stable container industry, highly effective companies
had a low level of differentiation, which was matched by a low level of
integration.
 Companies in the moderately uncertain food-processing industry had
levels of differentiation and integration in between the other two.

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  Moreover, they found that effective companies in different industries
had levels of integration that matched their levels of differentiation.
 The message of Lawrence and Lorsch’s study was that organizations
must adapt their structures to match the environment in which they
operate if they are to be effective.

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  Tom Burns and G.M. Stalker also found that organizations need
different kinds of structure to control activities when they need to
adapt and respond to change in the environment.
 They found that companies with an organic structure were more
effective in unstable, changing environments than were companies
with a mechanistic structure, the reverse was true in a stable
environment.
 Burns and Stalker’s conclusion was that organizations should design
their structure to match the dynamism and uncertainty of their
environment.
 Most organizations are a mixture of the two types.

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  Indeed, the most successful organizations are those that have achieved
a balance between the two, so that they are simultaneously mechanistic
and organic.
 The army, for example, is well known for having a mechanistic structure in which
hierarchical reporting relationships are clearly specified. However, in wartime, this
mechanistic command structure allows the army to become organic and flexible as it
responds to the uncertainties of the quickly changing battlefield.
 Studies by Lawrence and Lorsch and by Burns and Stalker indicate that
organizations should adapt their structure to reflect the degree of
uncertainty in their environment.
 Companies with a mechanistic structure tend to fare best in a stable
environment.
 Those with an organic structure tend to fare best in an unstable,
changing environment.

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  Technology – The combination of skills, knowledge, abilities,
techniques, materials, machines, computers, tools, and other equipment
that people use to convert or change raw materials into valuable goods
and services.
 Although we usually think of technology only at the conversion stage,
technology is present in all organizational activities: input, conversion,
and output.
 At the input stage, technology—skills, procedures, techniques, and
competences—allows each organizational function to handle
relationships with outside stakeholders so that the organization can
effectively manage its specific environment.

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 Input, Conversion, and Output Processes

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  The human resource function, for example, has techniques such as
interviewing procedures and psychological testing that it uses to recruit
and select qualified employees.
 At the conversion stage, technology—a combination of machines,
techniques, and work procedures—transforms inputs into outputs.
 At the output stage, technology allows an organization to effectively
dispose of finished goods and services to external stakeholders.
 To be effective, an organization must possess competences in testing
the quality of the finished product, in selling and marketing the
product, and in managing after-sales service to customers.

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  An organization taking the external resource approach uses technology to
increase its ability to manage and control external stakeholders.
 An organization taking the internal systems approach uses technology to
increase the success of its attempts to innovate; to develop new
products, services, and processes; and to reduce the time needed to
bring new products to market.
 An organization taking the technical approach uses technology to
improve efficiency and reduce costs while simultaneously enhancing
the quality and reliability of its products.

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  There are three theories of technology which are attempts to capture
the way different departmental and organizational technologies work
and affect organizational design.
 These three theories are complementary i.e., each illuminates some
aspects of technology that the others don’t.
 Managers, at all levels and in all functions, use these theories to
1. Choose the technology that will most effectively transform inputs
into outputs and
2. Design a structure that allows the organization to operate the
technology effectively.

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  Programmed technology - A technology in which the procedures
for converting inputs into outputs can be specified in advance so that
tasks can be standardized and the work process can be made
predictable.
 Technical complexity - A measure of the extent to which a
production process can be programmed so that it can be controlled
and made predictable.
 High technical complexity exists when conversion processes can be
programmed in advance and fully automated.
 Low technical complexity exists when conversion processes depend
primarily on people and their skills and knowledge and not on
machines.

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  Joan Woodward identified ten levels of technical complexity, which
she associated with three types of production technology:
1. Small-batch and unit technology, [Organizations make one-of-a-
kind customized products or small quantities of products, such as
furniture maker, printer, and teams of surgeons]
2. Large-batch and mass production technology, [Organizations
that produce massive volumes of standardized products, such as
cars, razor blades, aluminum cans, and soft drinks.] and
3. Continuous-process technology [Organizations that make oil-
based products and chemicals, such as Exxon, DuPont, and Dow,
and brewing companies, such as Anheuser-Busch and Miller
Brewing.]

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 Technical Complexity and Three Types of Technology

79
 Technical Complexity and Organizational Structure
 One of Woodward’s goals was to see whether effective organizations
had structures that matched the needs of their technologies.
 On the basis of her findings, Woodward argued that each technology
is associated with a different structure because each technology
presents different control and coordination problems.
 Organizations with small-batch technology have three levels in their
hierarchy; organizations with mass production technology, four levels;
and organizations with continuous-process technology, six levels.
 As technical complexity increases, organizations become taller, and the
span of control of the CEO widens.

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  The main coordination problem associated with small-batch
technology is the impossibility of programming conversion activities
because production depends on the skills and experience of people
working together.
 The most appropriate structure for unit and small-batch technology is
an organic structure in which managers and employees work closely to
coordinate their activities to meet changing work demands, which is a
relatively flat structure.
 In an organization that uses mass production technology, the ability
to program tasks in advance allows the organization to standardize the
manufacturing process and make it predictable.

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  A mechanistic structure becomes the appropriate structure to control
work activities in a mass production setting, and the organizational
structure becomes taller and wider.
 In an organization that uses continuous-process technology, tasks
can be programmed in advance and the work process is predictable
and controllable in a technical sense, but there is still the potential for a
major systems breakdown.
 Thus an organic structure is the appropriate structure for managing
continuous-process technology because the potential for unpredictable
events requires the capability to provide quick, flexible responses.
 Accidents at a nuclear power plant, another user of continuous-
process technology, can also have catastrophic effects, as accidents at
Three Mile Island, Chernobyl, and most recently the meltdown at the
Fukushima nuclear plant in Japan in 2011 following a disastrous
tsunami have shown.

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 The Technological Imperative
 Woodward’s results strongly suggest that technology is a main factor
that determines the design of organizational structure.
 The argument that technology determines structure is known as the
technological imperative.
 Other researchers also interested in the technology–structure
relationship became concerned that Woodward’s results may have been
a consequence of the sample of companies she studied and may have
overstated the importance of technology.
 They acknowledge that technology may have a major impact on
structure in a small manufacturing company.
 In a series of studies known as the Aston Studies, researchers agreed
that technology has some effect on organizational structure.

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  But, the Aston Studies concluded, organizational size is more
important than technology in determining an organization’s choice of
structure.
 The Aston researchers argue that although technology may strongly
affect the structure of small organizations, the structure adopted by
large organizations may be a product of other factors that cause an
organization to grow and differentiate.
 Thus the strategic choices that an organization—especially a large
organization—makes about what products to make for which markets
affect the design of an organization’s structure as much as or more
than the technology the organization uses to produce the outputs.
 For small organizations or for functions or departments within large
organizations, the importance of technology as a predictor of
structure may be more important than it is for large organizations.

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  To understand why some technologies are more complex [more
unpredictable and difficult to control] than others, it is necessary to
understand why the tasks associated with some technologies are more
complex than the tasks associated with other technologies.
 Why, for example, do we normally think the task of serving
hamburgers in a fast-food restaurant is more routine than the task of
programming a computer or performing brain surgery?
 According to Charles Perrow, two dimensions underlie the difference
between routine and nonroutine or complex tasks and technologies:
task variability and task analyzability.

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  Task variability – The number of exceptions—new or unexpected
situations—that a person encounters while performing a task.
 Task variability is high when a person can expect to encounter many
new situations or problems when performing his or her task.
 In a hospital operating room during the course of surgery, for
example, there is much opportunity for unexpected problems to
develop.
 Task variability is low when a task is highly standardized or repetitious
so a worker encounters the same situation time and time again.
 In a fast-food restaurant, for example, the number of exceptions to a
given task is limited. In fact, the menu in a fast-food restaurant is
designed for low task variability, which keeps costs down and
efficiency up.

86
  Task analyzability – The degree to which search and information-
gathering activity is required to solve a problem.
 The more analyzable a task, the less search activity is needed; such
tasks are routine because the information and procedures needed to
complete it have been discovered, rules have been worked out and
formalized, and the way to perform a task can be programmed in
advance.
 For example, although a customer may select thousands of
combinations of food from a menu at a fast-food restaurant, the order
taker’s task of fulfilling each customer’s order is relatively easy.

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  Tasks are hard to analyze when they cannot be programmed—that is,
when procedures for carrying them out and dealing with exceptions
cannot be worked out in advance.
 For example, a scientist trying to develop a new cancer-preventing
drug that has no side effects or a software programmer working on a
program to enable computers to understand the spoken word has to
spend considerable time and effort collecting data and working out the
procedures for solving problems.
 When a great deal of search activity is required to find a solution to a
problem and procedures cannot be programmed in advance, tasks are
complex and nonroutine.

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  For tasks that are routine, there are, in Perrow’s words, ―well-
established techniques which are sure to work and these are applied to
essentially similar raw materials. That is, there is little uncertainty about
methods and little variety or change in the task that must be
performed.‖
 For tasks that are complex, ―there are few established techniques; there
is little certainty about methods, or whether or not they will work. But
it also means that there may be a great variety of different tasks to
perform.‖

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 Four Types of Technology
 Perrow used task variability and task analyzability to differentiate
among four types of technology.
1. Routine Manufacturing Routine manufacturing is characterized
by low task variability and high task analyzability.
2. Craftswork With craft technology, task variability is low, and task
analyzability is also low.
3. Engineering Production With engineering production
technology, task variability is high and task analyzability is high.
4. Nonroutine Research Nonroutine research technology is
characterized by high task variability and low task analyzability.

90
 Routine Technology and Organizational Structure
 Perrow and others have suggested that an organization should move
from a mechanistic to an organic structure as tasks become more
complex and less routine.
 When technology is routine, employees perform clearly defined tasks
according to well-established rules and procedures.
 The work process is programmed in advance and standardized.
 The organizational hierarchy is relatively tall and decision making is
centralized.
 For example, McDonald’s uses written rules and procedures to train
new personnel so the behavior of all McDonald’s employees is
consistent and predictable. Each new employee learns the right way to
greet customers, the appropriate way to fulfill customer orders, and the
correct way to make Big Macs.

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  If an organization makes these design choices, it is using a mechanistic
structure to operate its routine technology.
 De-skill tasks, meaning that they simplify jobs by using machines to
perform complex tasks and by designing the work process to minimize
the degree to which workers’ initiative or judgment is required.
 This certainly is the choice of huge global outsourcing companies such
as Foxconn and Flextronics, whose factories in China extend over
thousands of acres.
 Flextronics’ main plant in China, for example, employs over 40,000
workers who work in three shifts for six days a week to assemble flat-
screen TVs, Bluray players, and so on.
 Control is rigid in these factories; workers are only motivated by the
prospect of earning three times the normal wage for such work, but
even this was not enough, as the experience of Foxconn.

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  At a Sony camcorder plant in Kohda, Japan, for example, Sony
dismantled its previous assembly-line production system in which 50
workers worked sequentially to build a camcorder, and replaced it with
a spiral arrangement in which four workers perform all the operations
necessary to assemble the camcorder.
 Sony found this new way of organizing is 10% more efficient than the
old system because it allows the most efficient assemblers to perform
at a higher level.
 In the United States too, these new production layouts, normally
referred to as cell layouts, have become increasingly common.
 Bayside Controls Inc., for example, a small gear-head manufacturer in
Queens, New York, converted its 35-person assembly line into a four-
cell design where seven to nine workers form a cell.

93
  The members of each cell perform all the operations involved in
making the gear heads, such as measuring, cutting, and assembling the
new gear heads.
 Bayside’s managers say that the average production time necessary to
make a gear has dropped to two days from six weeks, and it now
makes 75 gear heads a day—up from 50 before the change—so costs
have decreased significantly

94
 Nonroutine Technology and Organizational Structure
 Organizations operating a nonroutine technology face a different set
of factors that affect the design of the organization.
 As tasks become less routine and more complex, an organization has
to develop a structure that allows employees to respond quickly to and
manage an increase in the number and variety of exceptions and to
develop new procedures to handle new problems.
 An organic structure allows an organization to adapt rapidly to
changing conditions.
 The more complex an organization’s work processes, the more likely
the organization is to have a relatively flat and decentralized structure
that allows employees the authority and autonomy to cooperate to
make decisions quickly and effectively.

95
  In general, departments performing nonroutine tasks are likely to have
organic structures, and those performing routine tasks are likely to
have mechanistic structures.
 An R&D department, for example, is typically organic, and decision
making in it is usually decentralized; but the manufacturing and sales
functions are usually mechanistic, and decision making within them
tends to be centralized.
 The kind of technology employed at the departmental level
determines the choice of structure.

96
97
  Woodward focused on how an organization’s technology affects its
choice of structure.
 Perrow’s model of technology focuses on the way in which the
complexity of tasks affects organizational structure.
 Another view of technology, developed by James D. Thompson,
focuses on the way in which task interdependence, the method used to
relate or sequence different tasks to one another, affects an
organization’s technology and structure.
 Task interdependence – The manner in which different
organizational tasks are related to one another.

98
  When task interdependence is low, people and departments are
individually specialized—that is, they work separately and
independently to achieve organizational goals.
 When task interdependence is high, people and departments are jointly
specialized—that is, they depend on one another for supplying the
inputs and resources they need to get the work done.
 Thompson identified three types of technology: mediating, long
linked, and intensive.
 Each of them is associated with a different form of task
interdependence.

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100
 1. Mediating Technology and Pooled Interdependence
 Mediating technology is characterized by a work process in which
input, conversion, and output activities can be performed
independently of one another.
 Mediating technology is based on pooled task interdependence,
which means that each part of the organization—whether a person,
team, or department—contributes separately to the performance of
the whole organization.
 Each person or department—X,Y, and Z—performs a separate task.
 With mediating technology, task interdependence is low because
people do not directly rely on others to help them perform their tasks.
 The success of the organization as a whole, however, depends on the
collective efforts of everyone employed.

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  The activities of a gymnastic team also illustrate pooled task
interdependence. Each team member performs independently and can
win or lose a particular event, but the collective score of the team
members determines which team wins.
 Mediating technology has implications for organizational structure at
both the departmental and the organizational level.
 At the departmental level, piecework systems best characterize the
way this technology operates.
 In a piecework system, each employee performs a task independently
from other employees.
 The success of a sales department depends on how well each
salesperson performs their activities independently.

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  At the organizational level, mediating technology is found in
organizations where the activities of different departments are
performed separately and there is little need for integration between
departments to accomplish organizational goals.
 For example, each McDonald’s franchise or Walmart store operates
essentially independently. The performance of one store does not
affect another store, but together all stores determine the performance
of the whole organization.
 In a bank, for example, the activities of the loan department and the
checking account department are independent. The routines involved
in lending money have no relation to the routines involved in receiving
money—but the performance of the bank as a whole depends on how
well each department does its job.

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  Over the past decades the use of mediating technology has been
increasing because it is relatively inexpensive to operate and manage.
 Costs are low because organizational activities are controlled by
standardization.
 Bureaucratic rules are used to specify how the activities of different
departments should be coordinated, and SOPs control the way a
department operates to ensure its activities are compatible with those
of other departments.
 SOPs and advanced IT including electronic inventory control provide
the coordination necessary to manage the business.

104
  Walmart, for example, coordinates its stores through advanced IT that
provides store managers with realtime information about new product
introductions, store deliveries, and changes in marketing and sales
procedures.
 Nike designs its shoes but then uses IT to contract its manufacturing,
marketing, and other functional activities out to other organizations
around the globe. Nike constantly monitors production and sales
information from its network by means of a sophisticated global IT
system to ensure its global network follows the rules and procedures
that specify the required quality of input materials and the way its
shoes should be manufactured to ensure the quality of the finished
product.

105
 2. Long-Linked Technology and Sequential Interdependence
 Long-linked technology, the second type of technology that
Thompson identified, is based on a work process where input,
conversion, and output activities must be performed in series.
 Long-linked technology is based on sequential task
interdependence, which means that the actions of one person or
department directly affect the actions of another.
 X’s activities directly affect Y’s ability to perform her task, and in turn
the activities of Y directly affect Z’s ability to perform.
 Mass production technology is based on sequential task
interdependence.

106
  One result of sequential interdependence is that any error that occurs
at the beginning of the production process becomes magnified at later
stages.
 In football, for example, the performance of the defensive line
determines how well the offense can perform. If the defense is unable
to secure the ball, the offense cannot perform its task: scoring
touchdowns.
 The organization can program the conversion process to standardize
the procedures used to transform inputs into outputs.
 The organization can also use planning and scheduling to manage
linkages among input, conversion, and output processes.

107
108
  To reduce the need to coordinate these stages of production, an
organization often creates slack resources—extra or surplus
resources that enhance its organization’s ability to deal with
unexpected situations.
 For example, a mass production organization stockpiles inputs and
holds inventories of component parts so the conversion process is not
disrupted if there is a problem with suppliers.
 Similarly, an organization may stockpile finished products so it can
respond quickly to an increase in customer demand without changing
its established conversion processes.
 Another strategy to control the supply of inputs or distribution of
outputs is vertical integration, which involves a company taking over
its suppliers or distributors to control the supply and quality of inputs.

109
  Long-linked technology can provide an organization with advantages
stemming from specialization and the division of labor associated with
sequential interdependence.
 Changing the method of production in a pin factory from a system
where each worker produces a whole pin to a system where each
worker is responsible for only one aspect of pin production, such as
sharpening the pin, for example, can result in a major gain in
productivity.
 Long-linked technology, however, has two major disadvantages.
Employees do not become highly skilled (they learn only a narrow
range of simple tasks), and do not develop the ability to improve their
skills because they must follow the specified procedures necessary to
perform their specific task.

110
  At the organizational level, sequential interdependence means that the
outputs of one department become the inputs for another, and one
department’s performance determines how well another department
performs.
 The performance of the manufacturing department depends on the
ability of the materials management department to obtain adequate
amounts of high-quality inputs in a timely manner.
 The ability of the sales function to sell finished products depends on
the quality of the products coming out of the manufacturing
department.
 Many organizations are moving toward the product team structure to
increase interdepartmental coordination, which lead to greater
production innovation and efficiency.

111
 3. Intensive Technology and Reciprocal Interdependence
 Intensive technology, is characterized by a work process where input,
conversion, and output activities are inseparable.
 Intensive technology is based on reciprocal task interdependence,
which means that the activities of all people and all departments fully
depend on one another.
 Not only do X’s actions affect what Y and Z can do, but the actions of
Z also affect Y’s and X’s performance. The task relationships of X, Y,
and Z are reciprocally interdependent.
 Reciprocal interdependence makes it impossible to program in
advance a sequence of tasks or procedures to solve a problem

112
  Reciprocal interdependence and intensive technology has two effects:
Technical complexity declines as the ability of managers to control and
predict the work process lessens, and tasks become more complex and
nonroutine.
 On a departmental level, R&D departments operate with an intensive
technology, the sequence and content of their activities are determined
by the problems the department is trying to solve—for example, a
cure for lung cancer.
 A pharmaceutical company like Merck, for example, creates many
different R&D teams. Every team is equipped with whatever
functional resources it needs in the hope that at least one team will
stumble onto the wonder drug that will justify the immense resource
expenditures (each new drug costs over $500 million to develop).

113
  Mutual adjustment replaces programming and standardization as the
principal method of coordination.
 Product team and matrix structures are suited to operating intensive
technologies because they provide the coordination and the
decentralized control that allow departments to cooperate to solve
problems.
 At Google and Accenture, for example, each company is organized
into product teams so it can quickly move its specialists to the projects
that seem most promising.
 Also, mutual adjustment and a flat structure allow an organization to
quickly take advantage of new developments and areas for research
that arise during the research process itself.
 Another way is to use self-managed teams.

114
  Organizations do not voluntarily use intensive technology to achieve
their goals because it is so expensive to operate.
 Like IBM and Accenture, they are forced to use it because of the
nature of the products they choose to provide customers.
 Whenever possible, organizations attempt to reduce the task
interdependence necessary to coordinate their activities and revert to a
long-linked technology, which is more controllable and predictable.
 Similarly, in R&D, an organization like Microsoft needs to develop
decision-making rules that allow it to decide when to stop investing in
a line of research that is showing little promise of success, and how to
best allocate resources among projects to try to maximize potential
returns from the investment—especially when aggressive competitors
like Google and Facebook exist.

115
  Another strategy that organizations can pursue to reduce the costs
associated with intensive technology is specialism, producing only a
narrow range of outputs.
 A hospital that specializes in the treatment of cancer or heart disease
narrows the range of problems to which it is exposed and can target
all its resources to solving those problems. It is the general hospital
that faces the most uncertainty.
 Similarly, a pharmaceutical company typically restricts the areas in
which it does research. A company may decide to focus on drugs that
combat high blood pressure or diabetes or depression.
 This specialist strategy allows the organization to use its resources
efficiently and reduces problems of coordination.

116
 1. Analyze an organization’s or a department’s input-conversion-output
processes to identify the skills, knowledge, tools, and machinery that
are central to the production of goods and services.
2. Analyze the level of technical complexity associated with the
production of goods and services.
3. Analyze the level of task variety and task analyzability associated with
organizational and departmental tasks.
4. Analyze the form of task interdependence inside a department and
between departments.
5. After analyzing an organization’s or a department’s technology,
analyze its structure, and evaluate the fit between technology and
structure.

117
 a) The ability of the company is greatly affected to deal with
contingencies.
b) It provides competitive advantage, so as to create more value.
c) It affects the diversity in workforce.
d) It influences an organization’s ability to be innovative and
efficient.

118
 1. Dealing with Contingencies:
 A contingency can be explained as an event that might occur without
any expectation, and the management should properly plan to meet
such contingencies.
 One such contingency is the changing business environment.
 The design of an organization determines how efficiently it can
control various factors in its environment.
 Ability of an organization to attract skilled employees, permanent
customers and government contracts are the examples of the degree
to which it can control those three environmental factors.
 The structure of an organization should be designed in such a manner
so as to increase control over its environment.

119
 2. Competitive Advantage:
 In the modern competitive age, every organisation wants to design its
structure in such a way as to have the maximum sustained competitive
advantage.
 Competition allows a company to develop a business strategy to
outperform competitors by producing better products and services.
 The method of designing an organisational structure is the important
determinant in the implementation of an organization's strategy.

120
 3. Diversity in Workforce:
 Diversity in workforce on account of differences in race, gender, and
the place or origin of workers has an important impact on
organization’s effectiveness.
 Change in the characteristics of workers such as an influx of
immigrant workers and retirement of current workforce require
effective planning in advance.
 The organization’s structure should be designed in such a manner so
as to make the optimal use of talent of a diverse workforce with
different culture backgrounds.
 They should be encourages to work together.

121
 4. Innovation and Efficiency:
 The design and use of new and more efficient organisational structure
is equally important in producing quality goods and services.
 In today’s competitive environment, countries with low labour costs
are compelling organisations all over the world to become more
efficient and competent and reduce costs and also increase quality as
per the requirements of the customers.
 Designs, research and innovations are being undertaken to attain the
desired efficiency in producing the good and the services.
 Organisational design plays a crucial role in innovation and research.

122
  Mistake #1: The strategy changes but the structure does
not
◦ Every time the strategy changes — including when there’s a shift to
a new stage of the execution lifecycle — there is a need to re-
evaluate and change to the structure. The classic mistake made in
restructuring is that the new form of the organization follows the
old one to a large degree. When it comes to restructuring, there is a
need to make a clean break from the status quo and help the staff
look at things with fresh eyes. For this reason, restructuring done
wrong will exacerbate attachment to the status quo and natural
resistance to change. Restructuring done right, on the other hand,
will address and release resistance to structural change, helping those
affected to see the full picture, as well as to understand and
appreciate their new roles in it.

123
  Mistake #2: Functions focused on effectiveness [sales,
marketing, people development, account management, and strategy] report to
functions focused on efficiency [operations, quality control,
administration, and customer service].
◦ For example, imagine a company predominantly focused on
achieving Six Sigma efficiency (which is doing things “right”). Over
time, the processes and systems become so efficient and tightly
controlled, that there is very little flexibility or margin for error. By
its nature, effectiveness (which is doing the right thing), which includes
innovation and adapting to change, requires flexibility and margin
for error. Keep in mind, therefore, that things can become so
efficient that they lose their effectiveness.

124
  Mistake #3: Functions focused on long-range development
[branding, strategy, R&D, people development, etc.] report to functions
focused on short-range results [sales, running current marketing
campaigns, administration, operations, etc.]
◦ For example, what happens if the marketing strategy function (a
long-range orientation focused on branding, positioning, strategy,
etc.) reports into the sales function (a short-range orientation
focused on executing results now)? It’s easy to see that the
marketing strategy function will quickly succumb to the pressure of
sales and become a sales support function. Sales may get what it
thinks it needs in the short run but the company will totally lose its
ability to develop its products, brands, and strategy over the long
range as a result.

125
  Mistake #4: Not balancing the need for autonomy [functions
like sales and account management] vs. the need for control [functions like
accounting, legal, and HR]
◦ For example, if Sales is forced to follow a bunch of bureaucratic
accounting and legal procedures to win a new account, sales will
suffer. However, if the sales team sells a bunch of underqualified
leads that can’t pay, the whole company suffers. Therefore, Sales
should be able to sell without restriction but also bear the burden of
underperforming accounts. At the same time, Accounting and Legal
should be centralized because if there’s a loss of cash or a legal
liability, the whole business is at risk. So the structure must call this
inherent conflict out and make it constructive for the entire
business.

126
  Mistake #5: Having the wrong people in the right functions
◦ In the race for market share, however, companies make the mistake
of mis-fitting styles to functions because of perceived time and
resource constraints. For example, imagine a company that just lost
its VP of Sales who is a PsIu (Producer/Innovator) style. They also
have an existing top-notch account manager who has a pSiU
(Stabilizer/Unifier) style. Because management believes they can’t
afford to take the time and risk of hiring a new VP of Sales, they
move the Account Manager into the VP of Sales role and give him a
commission-based sales plan in the hope that this will incentivize
him to perform as a sales person. Will the Account Manager be
successful? No. It’s not in his nature to hunt new sales. It’s his nature
to harvest accounts, follow a process, and help customers feel happy
with their experience. As a result, sales will suffer and the Account
Manager, once happy in his job, is now suffering too.

127
  The chart below shows how each basic management style
compares to the others.
 It compares the pace (slow to fast) of how a style tends to act,
think, and speak; the time frame (short view to long view) of
how a style tends to perceive a situation, trend, or idea; the
orientation (process-oriented to results-oriented) of how a style
tends to relate to people and situations; and the approach
(structured to unstructured) of how a style tends to operate in
daily tasks.

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 One way to intuitively grasp the basic characteristics of each management style is
to recognize who it tends to view as friends (those they admire, respect, value,
etc.) versus foes (those they devalue, discount, disrespect, etc.) as well as what
tends to cost it energy (emotional drains like stress, anxiety, frustration, etc.)
versus give it more energy (emotional gains like satisfaction, happiness,
confidence, etc.).

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  The first step in designing the new structure is to identify the core
functions that must be performed in support of the business strategy,
what each function will have authority and be accountable for, and
how each function will be measured.
 Once this is completed, the structure acts as a blueprint for an
organizational chart that calls out individual roles and (hats).
 A role is the primary task that an individual performs.
 A (hat) is a secondary role that an individual performs.
 Every individual in the organization should have one primary role and
— depending on the size, complexity, and resources of the business
— may wear multiple (hats).

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  For example, a startup founder plays the CEO role and also wears the
hats of (Business Development) and (Finance).
 As the company grows and acquires more resources, she will give up
hats to new hires in order to better focus on her core role.
 Getting an individual to gracefully let go of a role or a hat that has
outgrown them can be challenging.
 One thing that can help this transition is to focus not on the job titles
but on the PSIU requirements of each function.
 Then help the individual to identify the characteristics of the job that
they’re really good at and that they really enjoy and seek alignment
with a job that has those requirements.
 A structural diagram may look similar to an organization chart but
there are some important differences.

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  An organization chart shows the reporting functions between people,
the functions that need to be performed by the business and where
authority will reside in the structure.
 The goal is to first design the structure to support the strategy
(without including individual names) and then to align the right people
within that structure.
 Once this is accomplished, individual names are added into roles and
(hats) within the structure.
 The most important aspect of bringing a structure to life, however,
isn’t the structure itself, but rather the process of decision making and
implementation that goes along with it.
 If structure is the bones or shape of an organization, then the process
of decision making and implementation is the heart of it.

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