Managerial economics and organizational architecture 5e ch013

Methods of Grouping Jobs• U-form of organization unitary – group by functional specialty – each primary function in one major subunit... Finware as Functional Organization Chief Executiv

Managerial Economics and Organizational Architecture, 5e

Chapter 13: Decision

Rights: Bundling Tasks into

Jobs and Subunits

Task Assignment

• Specialized

– perform limited number of functions

• e.g traditional assembly line

• Broad

– perform multiple functions

• e.g professors

Specialized Task Assignment

Incentive Issues

• Depending on the compensation and

ability to measure different tasks,

individuals may put more effort into one

task over another

13-4

Bundling Jobs into Subunits

• Grouping people together reduces

communication and coordination costs

within the subunit

• Activities must be coordinated across

subunits

• incentive issues must be considered when

grouping

– it is easier to devise performance evaluation

and reward systems in some groupings than in

others

Methods of Grouping Jobs

• U-form of organization (unitary)

– group by functional specialty

– each primary function in one major subunit

Finware as Functional

Organization

Chief Executive Officer

Service Department Sales Department

FinWare, Inc.

Functional Subunits

• Advantages

– promotes effective coordination

– promotes functional expertise

– well-defined promotion path

• Disadvantages

– opportunity cost of senior management time

– coordination problems across departments

– employee focus on functions, not customers

Methods of Grouping Jobs

• M-form of organization (multidivisional)

– group by product

– group by geographic area

– each unit has multiple functions

Finware as Product and

Geographic Organization

Product Organization Geographic Organization

Business Products

Division

Consumer Products Division

West Coast Division

East Coast Division

Sales Department

Service Department

Sales Department Service Department

Sales Department Service Department

Sales Department Service Department

FinWare, Inc.

Product/Geographic Subunits

• Advantages

– decision rights tied to specific knowledge

– senior management able to focus on strategy

– promotes coordination pertinent to

product/area

• Disadvantages

– unit interdependencies may be ignored

– economies may be foregone

Functional Subunits

• Tend to work best

– in small firms with homogeneous products

– when technological change is slow

Methods of Grouping Jobs

• Matrix organization

– intersecting lines of authority

– functional departments address performance

reviews and professional development

– product/geographic subunits address

customer/client needs

Finware as Matrix Organization

Chief Executive Officer

Business Products Team

Business Products Team

Business Sales Department

Business Service Department

Consumer Sales Department

Consumer Service Department

IBM Credit Originally

• Originally organized around functions

– employees assigned specialized set of tasks

within functional area

– employees had limited decision authority

• Credit application processing took 6 days

as each functional area reviewed the

application

IBM Credit with Functional

A “Re-engineered” IBM Credit

• New technology and information systems

supported task reassignment and job

redesign

• As reorganized, empowered caseworkers

handle process in 4 hours

IBM Credit’s Revised

Case-Appendix

Battle of the Functional Managers

• Quick Motorcycle Company

Battle of the Functional Managers