Chapter 8: Organizational

Culture, Structure and Design

How an organizations culture and structure
are used to implement strategy
To implement a particular strategy, managers must determine the
right kind of
1) Organizational culture
2) Organizational structure

Organizational culture: the system of shared beliefs and

values
-

Edgar Schein: Organizational culture, sometimes called

corporate culture, is a system of shared beliefs and values
that develops within an organization and guides the behavior
of its members
o Social glue that binds members of the organization
together

Organizational structure: who reports to whom and who

does what
-

Organizational structure: A formal system of task and

reporting relationships that coordinates and motivate an
organizations members so that they can work together to
achieve the organizations goals

Regardless profit or non-profit, the challenge for top managers is to

create a culture and structure that will motivate its members to
work together and coordinate their actions to achieve the
organizations goals
A major point is that there must be consistency among all these
elements.

4 types of organizational culture: clan,

adhocracy, market, and hierarchy
Competing values framework:
Organizational culture can be divided into 4 types:
CHAM!
1)

Clan

C
A

Hierarchy
3) Adhocracy
4) Market
2)

M
H

Clan

Adhocracy

Thrust: Collaborate
Means: Cohesion, participation,
communication, empowerment
Ends: morale, people development,
commitment

Thrust: Create
Means: Adaptability, creativity,
agility
Ends: innovation, growth, cuttingedge output

Employee-focused culture
Has an internal focus, and
values flexibility, not stability
and control
A family-type organization
Encourages collaboration
among employees, striving to
encourage cohesion through
consensus and job satisfaction
Increase commitment through
employee commitment
Devote considerable resources
to hiring and developing their
employees, view customers
as partners

Has an external focus,

values flexibility
Create innovative products by
being adaptable, creative and
quick to respond to changes
in the marketplace
Employees are encouraged to
take risks and experiment
with new ways of getting
things done.
Well suited for startup
companies, those in
industries undergoing
constant change, and those in
mature industries that are in
need of innovation to
enhance growth

Hierarchy

Market

Thrust: Control
Means: Capable processes,
consistency, process control,
measurement
Ends: Efficiency, timeliness, smooth,
functioning

Thrust: Compete
Means: Customer focus,
productivity, enhancing
competitiveness
Ends: Market share, profitability,
goal achievement

Internal focus, values

stability and control over
flexibility
Have a formalized, structured
work environment aimed at
achieving effectiveness through
a variety of control mechanisms
that measure efficiency,
timeliness, reliability in the
creation and delivery of
products

External focus, values

stability and control.
Driven by competition and a
strong desire to deliver
results, customers,
productivity, and profits
take precedence over
employee development and
satisfaction
Employees are expected to
work hard, react fast, and
deliver quality work on time,
those who deliver results are

rewarded

Three levels of organizational culture

3 Layers of Organizational Culture

Observable artifacts
Observable artifacts
are the physical
manifestations of
culture

Physical manifestations such as

manner of dress, awards, myths and
stories about the company, rituals and
ceremonies, decorations, visible
behavior exhibited by managers and
employees

Espoused values
Espoused values are
explicitly stated
values and norms
preferred by an
organization

Put forth by the firms founders or top

managers
Employees dont always walk the
talk, frequently being more
influenced by enacted values, which
represent the values and norms
actually exhibited in the organization

Basic assumptions
Basic assumptions
represent the core
values of the
organization

Not observable
Represent the core beliefs that
employees have about their
organization- those that are taken for
granted and, as a result, are difficult to
change

How employees learn culture: symbols,

stories, heroes, rites and rituals

How Employees Learn Culture

Symbols

Stories

An object, act, quality or

event that conveys meaning
to others
In an organization, symbols
convey its most important
values
o E.g., one of the most
iconic products of IKEA
home furnishings, the
LACK table, sells for
only $9.99.
A narrative based on true
events, which is repeated
and sometimes embellished
upon- to emphasize a
particular value
Oral histories that are told
and retold about incidents in
the organizations history

Heroes

A person whose
accomplishments embody
the values of the
organization

Rites and rituals

Rite and rituals are the

activities and ceremonies,
planned and unplanned, that
celebrate important
occasions and
accomplishments in the
organizations life

The importance of culture (4

functions of organizational
culture)
Gives members
organizational
identity
It facilitates
collective
commitment
It promotes social
system stability

It shapes behavior
by helping
employees make
sense of their
surroundings
-

Celebrate employees who go beyond the

call of duty

No reason to leave

The more effectively conflict and change

are managed within an organization and
the more that employees perceive the
work environment to be positive and
reinforcing, the more stable the social
system within the organization

The culture helps employees understand

why the organization does what it does
and how it intends to accomplish its long
term goals

Sometimes, culture can be strong enough to replace structure

Developing high performance

cultures
Cultures for enhancing economic
performance:
-

Increase competitiveness and profitability

3 perspectives proposed:
1) Strength
2) Fit
3) Adaptive

Strength

Perspective: success results

when a firm has a strong culture
-

Assumes that the strength of a corporate culture is

related to a firms long term financial performance
o A culture is said to be strong when employees adhere
to the organizations values
because they believe in its purpose
o A culture is weak when employees are forced to
adhere to the organizations values

through extensive procedures and bureaucracies

Advantages

Weaknesses

-Strong cultures create goal

alignment, employee motivation,
and the appropriate structure and
controls needed to improve
organizational performance

Such financial success can so

reinforce cultural norms that
managers and employees become
arrogant , inwardly focused,
resistant to change, top managers
become blinded to the need for
new strategic plans

Fit

Perspective: success results when

culture fits with the firms business context
-

Assumes that an organizations culture must align, or fit

with its business or strategic context
A correct fit is expected to foster higher financial
performance

Adaptive

perspective: success results

when culture helps the firm adapt
-

Assumes that the most effective cultures help

organizations anticipate and adapt to environmental
changes
*** Adaptive perspective the most accurate

The process of culture change

1) Formal statements
o Use formal statements of organizational philosophy,
mission, vision, and values
o As well as materials used for recruiting, selecting and
socializing employees
E.g., Walmart: 1) Respect for the individual 2)
Service to customers 3) Striving for excellence

2) Slogans and sayings

o The desirable corporate culture can be expressed in
language, sayings, slogans, acronyms

3) Stories, legends and myths

4) Leaders reaction to crises
o How top managers respond to critical incidents and
organizational crises sends a clear cultural message

5) Role modeling, training and coaching

6) Physical design
7) Rewards, titles, promotion and bonuses
8) Organizational goals and performance criteria
o Develop organizational goals and criteria for recruiting,
selecting, developing, promoting, dismissing and retiring
people, all of which reinforce the desired organizational
culture

9) Measurable and controllable activities

o An organizations leaders can pay attention to, measure
and control a number of activities, processes or
outcomes that can foster a certain culture

10)

Organizational structure
o The hierarchical structure found in most traditional
organizations is more likely to reinforce a culture
oriented toward control and authority, as compared to a
flatter organization

11)

Organizational systems and procedures

o Companies are increasingly using electronic networks to
increase collaboration among employees and to
increase innovation, quality and efficiency.

How are for-profit, non-profit, and mutualbenefit organizations structured?

-

Organization: A system of consciously coordinated activities or

forces of 2 or more people

Organization: 3 types
For-profit organizations
Non-profit organizations

These are formed to make money,

or profits, by offering products or
services
These are formed to offer services
to some clients, not to make a

Mutual-benefit organizations

profit
Voluntary collectives whose
purpose is to advance members
interests

Organization chart: is a box and lines illustration

showing the formal lines of authority and the
organizations official positions or work specializations
-

Shows 2 kinds of information

o Vertical hierarchy of authority
who reports to whom
o The horizontal specialization
who specializes in what work

Common elements of organizations: 4

proposed by Edgar Schein
1) Common
purpose

2) Coordinated
effort

3) Division of
labor

4) Hierarchy of
authority

The means for unifying members

Gives everyone an understanding of the
organizations reason for being
The common purpose is achieved through
coordinated effort: the coordination of
individual efforts into a group or
organization-wide effort
Work specialization: arrangement of having
discrete parts of a task done by different
people
Also known as chain of command
Control mechanism for making sure the
right people do the right things at the right
time
Unity of command, in which an employee
should report to no more than one
manager in order to avoid conflicting
priorities and demands

Common elements of organizations: 3 more

that most authorities agree on
5) Span of control
6) Authority, responsibility, and delegation
7) Centralization vs. decentralization of authority
5) Span of
control

1) Narrow
2) Wide
-

Refers to the number of people reporting

directly to a given manager
1) Narrow: A manager has limited number of
people reporting: 3 vice presidents
reporting to a president. An organization is
said to be TALL when there are many levels
with narrow spans of control
2) Wide: A manager has several people
reporting An organization is said to be
flat when there are only a few levels with
wide spans of control. An organization

Todays emphasis on lean management staffs and

more efficiency means that spans of control need to
be as wide as possible while still providing adequate
supervision. Wider spans also fit in with the trend
toward allowing workers greater autonomy in
decision making.
6) Authority,
responsibilit
y, and
delegation:
line vs. staff
positions

Authority: Refers to the rights inherent in a

managerial position to make decisions, give orders,
and utilize resources
- Authority means accountability-managers
must report and justify work results to the
managers above them.
- Responsibility is the obligation you have to
perform the tasks assigned to you.
- Delegation is the process of assigning
managerial authority and responsibility to
managers and employees lower in the
hierarchy.

Line Position

7) Centralizatio
n vs.
decentraliza
tion of
authority

o Line managers have authority to make

decisions and usually have people
reporting to them.
Examples: the president, the vice
presidents, the director of
personnel, and the head of
accounting.
o Line positions are indicated on the
organization chart by a solid line
(usually a vertical line).
Staff Position
o Staff personnel have authority
functions; they provide advice,
recommendations, and research to line
managers.
Examples: specialists such as
legal counsels and special
advisers for mergers and
acquisitions or strategic planning.
o Staff positions are indicated on the
organization chart by a dotted line
(usually a horizontal line).

Centralized Authority
- With centralized authority, important
decisions are made by higher-level managers
- Very small companies tend to be the most
centralized
- Although nearly all organizations have at least
some authority concentrated at the top of the
hierarchy
Advantage
- Less duplication of work, because fewer
employees perform the same task
- The task is often performed by a department
of specialists
- Procedures are uniform and thus easier to
control, all purchasing may have to be put out
to competitive bids
Decentralized Authority
- Important decisions are made by middle-level
and supervisory-level managers
- Power has been delegated throughout the
organization
Advantages
- Authority managers are encouraged to solve
their own problems rather than buck decisions
to a higher level
- Decisions are also made more quickly,

increasing the organizations flexibility and

efficiency

1. Basic types of
Organizational Design
How would one describe the 3 types of organizational design?
Organizational design: Concerned with designing the optimal
structures of accountability and responsibility that an
organization uses to execute its strategies
3 types:
1) Traditional design
2) Horizontal designs
3) Designs that open boundaries between organizations

Traditional designs: Simple, functional,

divisional, and matrix structures
Traditional designs: Simple, Functional, Divisional, and Matrix
structures
- Organization with a simple structure has authority
Simple
centralized in a single person, a flat hierarchy,
few rules, and a low work specialization
- For the small firm
- Often found in a firms very early,
entrepreneurial stages, when the organization is
apt to reflect the desires and personality of the
owner

Functio
nal

Division
al

Grouping by similar work specialties into

formal groups
commonplace structure, seen in for-profit and nonprofit organizations
Grouping by similarity of purpose
People with diverse occupational specialties are
put together in formal groups by similar
products or services, customers or clients, or
geographic regions

Product divisions
- Grouping by
similar products
or services
Customer divisions
- Group activities
around
common
customers or
clients
Geographic
divisions
- Group activities around defined regional locations

Matrix

An organization combines functional and divisional

chains of command in a grid so that there are 2
command structures- vertical and horizontal
- Functional structure: Finance, marketing,
production, R&D
- Divisional structure: product, brand, customer,
geographic

2. Horizontal design: eliminate

functional barriers to solve
problems
-

In a horizontal design, teams or workgroups, either

temporary or permanent, are used to improve collaboration
and work on shared tasks by breaking down internal
boundaries
o E.g., the forming of cross-functional teams, breaking
down barriers between divisions
o Team members still formally report to their own
managers above them in the functional-division society

3. Designs that open

boundaries between
organizations: hollow,
modular, virtual structures
Boundary-less organization: a fluid, highly adaptive
organization whose members, linked by information technology,
come together to collaborate on common tasks
The collaborators may include not only coworkers, but also
suppliers, customers, and even competitors.
Hollow
Structu
re

Operating with a central core to outside firms and

outsourcing functions to outside vendors
o AKA network structure
o Such a firm may operate with extensive,
worldwide operations, yet its basic core could
remain small keep payrolls and overhead down
o The glue that holds everything together: IT, along
with strategic alliances and contractual
agreements with supplier companies

Modula
r

Outsourcing pieces of a product to outside firms.

o RATHER THAN an entire process, as seen in

Structu
re

Virtual
Structu
re

hollow structure.
o In a modular structure, a firm assembles product
chunks, or modules, provided by outside
contractors
-

Virtual Organization: An internet connected partner

for a temporary project
o An organization whose members are
geographically apart, usually working with
email, collaborative computing, and other
computer connections
The virtual organization allows the form of
boundaryless structure known as the virtual structure
o A company outside a company that is created
specifically to respond to an
exceptional market opportunity that is
often temporary
o Members meet and communicate via email/video
o Valuable for organizations that want to grow
through partnerships with other companies

Contingency design:

defined as the
process of fitting the organization to its
environment
4 factors to consider in designing the organizations
structure
Environment
- mechanistic vs. organic
Environment
- differentiation vs. integration
Life cycle
Link between strategy and
structure

Tom Burns and GM Stalker call

Macdonalds a mechanistic
organization (see below)

The Environment: Mechanistic versus Organic

Organizations-the Burns & Stalker Model
Mechanistic
Organic
Centralized authority
Tasks and rules clearly specified
(many)
Specialized tasks
Formalized communication
Few teams or task forces
Narrow span of control, taller
structures
Rigid rules, top down
communication
Employees are closely supervised

E.g. Nuclear power plant

Decentralized authority
Few rules and procedures
Shared tasks
Informal communication
Many teams or task forces
Wider span of control, flatter
structures
Ad hoc, improvise as they go
along
Employees are encouraged to
cooperate and respond quickly to
unexpected tasks
- E.g. Fast moving startup

The Environment: Differentiation versus

Integration the
Lawrence & Lorsch Model
-Instead of a mechanistic-organic model, they proposed a
differentiation-integration dimension
Differentiatio
n

Integration

Tendency of the parts of an organization to

disperse and fragment
o The more subunits into which an
organization breaks down, the more
highly differentiated it is
Tendency of the parts of the organization to
draw together to achieve a common
purpose
o Specialists work together, common goal
o Formal chain of command, standard rules,
cross-functional teams, computer
networks

Life Cycle: Four Stages in the Life of an

Organization
Birth, Youth, Midlife, Maturity
Birth

Youth

Midlif
e

Maturi
ty

Non-bureaucratic stage
o Stage at which organization is created
No written rules, little supporting staff
Pre-bureaucratic ,
o Stage of growth and expansion
People added to the payroll, (more clerical
than professional)
Division of labor, setting of rules
Bureaucratic,
o A period of growth evolving into stability
Staffs of specialists, decentralization of
functional divisions, many rules
Very bureaucratic
o Organization becomes large, mechanistic
Danger: lack of flexibility, innovation

The link between strategy and structure

Structure needs to change to support strategy

Most current structures tend to support strategies of
1) cost minimization (mechanistic structure)
2) innovation (organic structure)
3) imitation (mechanistic and organic)

What form of organizational structure

works best?
Function
al
Division
al
Matrix

Save money, group people together who need

similar materials and equipment

Increase employees focus on customers and

products

Network

Combine the advances of functional and

divisional structures, can also slow decision
making
Tap onto people with different specialties

Modular

Tap onto people with different specialiities