fit between the elements of the diamond model is called
internal fit
fit between the elements and the environment is called
external fit
why fit approach is relevant
Used very often
Mintzberg: most used organizational perspective on organizational design
Also used by Burton et al.
on what premises is the information processing perspective (based on Galbraith) built
- An organization uses information to coordinate and control its activities
- By processing information, the organization sees what is “happening”, analyzes problems and makes choices on what to do
- The more uncertain the organizational environment, the more information needs to be processed within the organization, but the quicker a response has to be (paradox)
the transformation process can be done in different ways
On the nature of their specific function in the primary process (functional specialization)
Or on the basis of outputs (products markets and services)
choices in design determine
Organizational complexity: width and height of the hierarchy
Horizontal differentiation: width of units across hierarchy
Vertical differentiation: height, how many “layers” of management exist?
Span of control: how many subordinates fall under particular hierarchical responsibilities?
The more complex an organization,
the better it fits environmental complexity because information can be shared/ processed better (controversial point)
simple structure
- Low both on p/s/c orientation and functional specialization
- Low vertical differentiation
- Low organizational complexity
- the executive tells the others what to do and manages the ongoing procedures
- no well-defined job descriptions;
- tasks are assigned on an as-needed basis;
- the coordination of the activities is also done by the executive;
- little is fixed;
- the executive is the main contact with the market, customers, suppliers, and clients of the firm;
- usually not efficient or effective as the employees are asked to do many tasks for which they may not be fully skilled;
- depends heavily upon the vision of the executive for its effectiveness orientation;
- usually family company, startup, small company
Example: syndio social, foodapp
Problems of simple structures
- Simple structures are easiliy overflown with information
- Information processing capacity is low
- Not suitable for turbulent environment
- it can be difficult for the executive to take time to adjust the firm’s direction or seek innovative opportunities.
functional structure
- Low on p/s/c orientation, High on functional specialization
- High vert. diff, High hor. diff, Large span of control
- Aimed at economies of specialization, reaching efficiency through specialization (based on Adam Smith, 1776) - making it the most common
- more complex with respect to information processing than the simple configuration
- there are department managers with specified subunits, each of which has well-defined jobs;
- the total firm task is broken down and assigned to subunits;
- the coordination, or putting together, is accomplished by the hierarchy, which uses a combination of rules and directives;
- much is fixed;
- information flows to and from the top;
- there could also be functions such as operations, marketing, finance, and human resources. Operations and marketing are usually called line functions and departments like finance and human resources are called staff functions;
- each department processes information on its own;
- most firms have about five subunits and rarely should they have more than seven (NK complexity theory shows that where N is the number of subunits and K is the degree of interdependent information flows going through the top, e.g., K ¼ N1, the coordination demands become overwhelming quickly as the number of subunits increases);
- efficient for unchanging activities (however, that efficiency is lost when rapid change is required);
- good choice if you want the organization to operate with high efficiency and precision (works well for tasks that are repeated frequently and in high volume).
Example: Hospitals, Lego, many “machine bureaucracies”
problems of the functional structure
- Information sharing needs increase exponentially with the number of units, not good in dealing with much variation
- High vertical differentiation results in high overhead costs
- there is a strong reliance on the skill of the executive
divisional structure
high on p/s/c orientation, low on functional specialization
- Large span of control
- High horizontal differentiation
- Low vertical differentiation
- subunits are relatively independent of each other and have limits on their contact with the headquarters;
- each division is externally focused and has its own markets and customers;
- the most important relationship is financial, where each division has its financial goals, receives its operating monies as well as its long-term investment funds;
- the top executive sets policy for the divisions;
- the extent of involvement by the top executive can vary
- works best when there is limited coordination from the top and each division is left to run its own business;
- the advantage is that it aims to be effective with its external focus on the product, customer, or region;
- dividing the firm into product or brand groups is another way to create divisions that can grow or die depending on their success in the marketplace;
Example: General Electric
problems of the divisional structure
“Information sharing problems of connections between divisions”
“But good at dealing with changes in environment per division”
if a division is driven from the top, the headquarters is likely to become overloaded with large information flows and many decisions to make; performance suffers
each division is relatively independent of the other in its operations and markets; does not handle interdivisional dependencies well. If a division becomes less effective, it can be sold off in the marketplace.
There is a strong reliance on the divisions and their own executives to relate to their own markets with products and services.
matrix structure
high on both product/service/ customer and functional specialization
- Organizational complexity high
- suitable for dealing with uncertain environment
- Very common organizational form
- need for a high information-processing capacity to achieve the twin goals of efficiency and effectiveness;
- there is both the functional hierarchy and the divisional hierarchy for the same firm;
- the top executive is: responsible for both the functional and divisional dimensions – to set policy, set priorities and resolve conflicts among the subunits; is not involved in the details of operations, but does oversee the entire firm.
- most of the difficult coordination problems are handled by the matrix managers, i.e., those that act as a link between the lateral divisions and the functional hierarchy;
- when there is a change in the timing of an activity, it ripples across the whole of the firm – called the jello effect;
- can be very flexible, dealing with new information and adjusting to the new situations quickly to utilize limited resources to meet firm priorities;
- management must invest in developing cross organizational coordination. This is realized in many ways: lateral relations, liaison roles, various coordinating committees;
- the size is the number of functions multiplied by the number of divisions. Given the jello effect, the degree of interdependency, the matrix can include only a small number of subunits (four or five on each dimension);
Example: Procter & Gamble, Nike
problems of the matrix structure
- when the matrix is not well managed, it can be neither efficient nor effective;
- the challenges of managing a matrix include reconciling conflicts between the lateral and vertical subunits, information overload, excessive meetings, and decision delay;
- the firm does not move;
- requires managerial skills that include a focus on the entire firm as well as one’s own function or division, the acceptance of uncertainty, the willingness to consider complicated tradeoffs and negotiate realistic solutions, and a focus on results;
- it can also lead to poor performance because the dual coordination across the functions and the divisions can lead to conflicts of priorities between the managers of subunits.
A poor choice of configuration leads to
opportunity losses which can be a threat to the organization’s short-term efficiency and effectiveness as well as its long-term viability
Configuration involves two complementary problems:
(1) how to partition a big task of the whole organization into smaller basic tasks of the subunits, and (2) how to coordinate these smaller subunit tasks so that they fit together to efficiently realize the bigger task or organizational goals.
Organizational complexity
the horizontal (the degree of task specialization across the hierarchy) and vertical differentiation (the depth of the hierarchy – top to bottom). More “modern” dimensions of the classic configurations include the degree of virtualization and the extent to which IT systems are embedded in the configuration.
Two fundamental dimensions have been used to distinguish the basic configurations:
1) product/service/ customer orientation - suggests that the total firm task will be partitioned by the outputs of the firm, which give it an external focus. If the firm has divisions or departments with product or customer names, then it has an external focus and is high on this dimension.
2) functional specialization dimension - indicates that the work will be divided by specialized activities. If the firm has departments with function names, such as production and marketing, then it has a more internal focus and is high on this dimension.
Four basic configurations
Simple, functional, divisional and matrix
