Bundling tasks into jobs and subunits
Bundling tasks into jobs
– second aspect of a job is variety of tasks
– managers face economic tradeoffs when they bundle tasks
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Specialised versus broad task assignment
Example: financial software distributor
– two primary activities (functions) – selling software
– after-sales service
– two types of customers
ECOS3003 Lecture 4 1
Customer type
Individuals
ECOS3003 Lecture 4
Each task takes 4 hours, so need two employees to work per day Structuring the jobs
1. Could specialise in functions
– Specialised task asssignment
2. Specialise in customer-type (provide sales& service to individuals or biz – Broad task assignment
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Benefits of specialised task assignment
1. exploiting comparative advantage
– match people with jobs based on skills, training; employees concentrate on
speciality
– principle of comparative advantage suggests specialisation often will produce higher output then employees producing a broad set of tasks: eco of scale
2. Lower cross-training expenses
– train employees to complete on basic function; more broad tasks, more training – level of education may need to be higher across employees (wages higher)
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Costs of specialised task assignment
1. Forgone complementarities across tasks
– sometimes performing one task can lower cost of same person doing another – costly to transfer info between people
– some tasks go naturally together
2. Coordination costs
– activities of specilised employees have to be coordinated
(ie sales order to service dept) 3. Reduced flexibility
– ie someone on holiday/sick leave
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Incentive issues
– sometimes specialised task assignment better – sometimes broad task assignment better
With broad task assignment incentive contract needs to provide motivation as to – how hard to work
– but also how to allocate time among tasks; need to balance between tasks
– sometimes some effort more easily measured than others (an incentive scheme that rewards one tasks skews effort into that area)
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Could make tasks specialised
– eg salesperson get high-powered incentive scheme; service provider’s
performance not measured by output (other measures)
– sometimes ‘joint’ output important, so assign all tasks to an individual who is accountable for final output.
– door and lock – repeat sales
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Overall, what is the productive bundling of tasks?
– choice between specialised & broad tasks assignment depends on technological, informational and incentive issues
– relative degree of complementarity among tasks within, versus across, functional areas
(ie how related is selling to business & consumers?)
– little info needs to be passed between sales and service (complementarities low) little lost by having single function
– how specialised is the knowledge (transferring difficult?); also tech used in production
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Bundling of jobs into subunits
– similar tradeoff when bundling jobs into subunits (depts, divisions subsidiaries)
Grouping people together within a subunit lowers communications& coordination Costs among people within the subunit
– report to the same manager
– form closer working relationship
But managers must work out how to coordinate activities across subunits
– coordinate activities across interdependent subunits (managers required for exceptions)
Tradeoff between the benefits that come from grouping people together and the costs of Coordinating their activities with those performed within other subunits
Also incentive issues: some groups make it easier to evaluate and reward performance
ECOS3003 Lecture 4 9
Tradeoff between the benefits that come from grouping people together and the costs of coordinating their activities with those performed within other subunits
Also incentive issues: some groups make it easier to evaluate and reward performance
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Grouping jobs by function
Sales Dept Service Dept
ECOS3003 Lecture 4
Grouping jobs by functional specialty (engineering dept, sales dept, etc) U-form (Unitary form)
– places each primary function in one major subunit (rather than multiple units Individual job – specialised task assignment
Senior management important role
– defining the architecture
– coordinating activities across dept – making key operating decisions
– setting strategy
Need rules for coordinating activities across functions
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Business Div Sales dept Sevice dept
Consumer Div Sales dept
Grouping jobs by product
ECOS3003 Lecture 4
Sevice dept
Grouping jobs by product or geography
– group jobs into a collection of business units based on product or geography
Multidivisional form (M-form)
Operating decisions (products, prices) decentralised to the business unit level
Senior management responsible for:
– major strategy decisions, including org architecture – allocation of capital among the business unit
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Tradeoff between functional & product/geographic subunits
Benefits of functional subunits
1. promotes effective coordination within functional areas 2. promotes functional expertise
– supervisors knowledgeable, helps training employees 3. Well-defined promotion path
– reduces uncertainty about career path
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Problems with functional subunits
1. Opportunity cost of senior managers
– coordinating and making operating decisions (ie not strategy planning)
2. Coordination problems across depts
– time to communicate across depts (lengthen delays for consumer)
3. Employees concentrate too much on functional specialties – at cost of end goal
ECOS3003 Lecture 4 16
Benefits of product/geographic subunits
1. Decision rights assigned to individuals with specific knowledge (lower in organisation) – mangers of business units rewarded on performance to give incentives
2. Allows senior managers to use time more productively – strategic decisions 3. Promotes coordination among functions in product/geographic unit
Problems with M-form subunits
1. Business unit managers focus on own unit’s performance, not that of the overall company
– focus consistent with overall objective provided business units independent (firm sum of the parts)
– mitigate problem by forming groups of interrelated business units and basing a component of unit manger’s compensation on overall group performance
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When functional subunits work best
– small firms with homogenous products and markets
– this makes coordination by senior manager easier (more diverse, less specific
knowledge senior manager has)
Rate of technological change
– functional subunits more effective in stable environments
– communication/coordination between functions can be handles in
routine manner
– senior manager more likely to have specific knowledge
– with rapid tech changes, communication between functions important and complicated
– specific knowledge held in different areas within the firm
– rapidly changing environment, more uncertainty about appropriate
architecture; M-form allows for more experimentation
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Matrix organisation
Employees from functional divisions assigned to subunits based around products/geography or special projects
Individuals report to both functional manager and product manager
– functional manager often primary manager
– examples nurses, defence firms, construction, management consulting (employees assigned to project requires people from different functions)
– intersecting lines of authority
– communication/cooperation not immediate – disputes between managers
ECOS3003 Lecture 4 19
Recent trends in assignment of decision rights
Traditional, jobs had limited decision making authority and narrow task assignment – jobs grouped by functional speciality either at firm or business unit level)
1990s – shift to more decision authority to employees and less specialised task assignment
Driving force – global competition and technological changes
– incentive and performance evaluation system changed as well
ECOS3003 Lecture 4 20
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