Organization Structure and Innovations

Organizational structure fulfils many functions—everyone in the organization knows who he or she reports to; how various repetitive/routine activities are to be discharged; who has what authority and responsibility; how personnel are grouped together (e.g., by departments or divisions); which individuals/groups have decision-making authority and which have primarily advisory functions (line versus staff functions); and what mechanisms are deployed primarily for reducing decision-making uncertainty, for ensuring differentiated or specialized responses to the operating environment, and for coordinating and integrating these differentiated or specialized responses. A well-designed structure that is compatible with strategy or is internally coherent and compatible with the organization’s operating environment tends to contribute to superior organizational performance.

Can organizational structure facilitate innovations? Possibly. Relatively flat managerial hierarchy and extensive decentralization or delegation of authority, including extensive use of profit centers and SBUs.

Certain kinds of structural changes, notably creating many self-contained, substantially autonomous units with stretch targets, extensive delegation of authority to lower level decision-makers, and delayering (removal of some of the managerial levels to reduce the number of approving authorities for innovation)  may increase the potential innovations of the organization.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Policies that Empower

Policies communicate guidelines to decisions. They are designed to control decisions while defining allowable discretion within which operational personnel can execute business activities. They do this in several ways:

1. Policies establish indirect control over independent action by clearly stating how things are to be done now. By defining discretion, policies in effect control decisions yet empower employees to conduct activities without direct intervention by top management.
2. Policies promote uniform handling of similar activities. This facilitates the coordination of work tasks and helps reduce friction arising from favoritism, discrimination, and the disparate handling of common functions—something that often hampers operating personnel.
3. Policies ensure quicker decisions by standardizing other policies that otherwise would recur and pushed up the management hierarchy again and  again—something that required unnecessary levels of management between senior decision makers and field personnel.
4. Policies institutionalize basic aspects of organizational behavior. This minimizes conflicting practices and establishes consistent patterns of action in attempts to make the strategy work—again, freeing operating personnel to act.
5. Policies reduce uncertainty in repetitive and day-to-day decision making, thereby providing a necessary foundation for coordinated, efficient efforts and freeing operating personnel to act.
6. Policies counteract resistance to or rejection of chosen strategies by organization members. When major strategic change is undertaken, unambiguous operating policies clarify what is expected and facilitate acceptance, particularly when operating managers participate in policy development.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

 

Fixed and Variabl Costs

The study of cost behavior in physical distribution is quite similar to that in manufacturing because most of the activities are repetitive in nature. Under such conditions physical measurements such as man-hours, units handled, and orders processed can be used to measure the activity. Changes in the level of cost incurred usually are caused by changes in the level of activity experienced.

The first step in understanding the cost behavior of physical distribution activities is to establish the relationship between the amount of each cost and an appropriate measurement of the level of activity. Variable costs are those costs that change in proportion to changes in volume and fixed costs. Examples of variable costs include the handling charges in a public warehouse and the cost of packing material used in a shipping department. Fixed costs include depreciation, security costs and taxes on company-owned warehouses, and the salary of transportation manager.

Some costs are mixed, that is, they contain both a fixed and a variable component. An example might be a warehouse labor. A basic crew of three may be required to cover the normal range of activity. However, if the volume of activity exceeds a certain amount, overtime or part-time employees may be necessary.

In some cases costs may be fixed over a relevant range but may increase in steps. These costs may be referred to as step variable cost or step fixed costs. The major distinction is the size of the steps. For example, in an order-processing department of twenty people labor may be considered a variable cost without making a serious error. This is because a relatively small percentage change in the number of orders could result in a change in the number of employees. However, in a department of three people the cost should be considered a fixed cost since a large percentage change in the number of orders processed usually would be required in order to eliminate an employee. Other examples of step fixed costs include the costs of management salaries, depreciation, and taxes associated with each warehouse that the company owns and operate.

Effective planning and control require that the total costs be separated into the fixed and variable components.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

The Japanese Philosophy

Everyone is aware, to some degree, of the major inroads the Japanese have made and are continuing to make in US markets, including automobiles, electronics, cameras, computer hardware, machine tools, and aerospace. In automobiles, the United States has fought back strongly.

There are many examples where the Japanese have taken over an American plant, kept the same workers, laid off half of management, and doubled productivity! Some of the elements of Japanese philosophy include:

1. 1. Worker Flexibility: Rather than being specialized, workers are trained to do many different tasks, making for a flexible process and reduced WIP.
2. 2. Jidoka Quality at the Source: If a bad unit is made, it is not set aside. The entire process is stopped, and everyone looks to find the problem. This again reduces WIP and does not allow continued production a bad goods.
3. 3. Just-in-Time Production: An item is produced exactly when it is needed. This works best for repetitive manufacturing, so all processes are designed to be repetitive manufacturing. Kanban control systems were developed for this situation.
4. 4. Uniform Plant Loading: Confusion and shock waves from changing things are avoided by having exactly the same thing made every day. One way to do this is to establish a standard mix of products to be made every day.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Structure, Roles, and Rules

What sort of structure would help the team function innovatively? The purpose of any structure is to make sure that certain essential tasks, especially repetitive tasks, get done. Structure need not be incompatible with creativity if it realeases time and energy for creative work rather than blocking creativity with excessive rules, specialization, centralization, etc. What, therefore, needs to be done is to make an inventory of tasks that must be performed more or less repitively, and allocate these tasks to individuals within or outside the team.

 However, the roles of team members should not be defined only in terms of these tasks;  there are only minimum elements of their roles. It is important to define roles broadly and not too strictly. Some ambiguity helps interaction and role clarification, not by the leader but by the situation. Indeed, it heps to have versatile team members, i.e., persons who can double for others should the need arise. Periodic interchange of roles within the team can help develop this verstality. Researchers have indicated some specific roles in innovative teams beyond those for effective teams. The creative scientist/engineer/idea man is one role. The entrepreneur (vis-à-vis the outer world) and the intrapreneur (vis-à-vis the team members) are further roles. The entrepreneur seeks new missions for the group. The intrapreneur seeks new activities within the broad mission for group members. The protector-defender-sponsor is a fourth role, whose function is to get the team the resources it needs for innovative work from the larger system of which it may be a part, and also to defend the team from external pressures or attacks. The gatekeeper is a fifth role, that of bringing to the team essential market, technical, or political intelligence from outside that can become the basis for meaningful divergent thinking. These roles need not be played by different individuals. The important point is that they should get played.

 My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight