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ARE 112 – Summer 2016 Class Notes #4 – Organizational Structures and Business Processes
I.
Class Notes
1.
IBM book and reading notes
2.
Course pack
II. Review for New Topics
1. Case time
2. Targets for transformational change
a. Tasks
b. People
c. Culture
d. Technology
e. Structures
3. Driving forces
a. Globalization
b. Rapid change in technology
c. Changes on consumer demands
d. Changes in supply of raw materials
e. Shifts in asymmetric or symmetric
information
f. Competition
IV. What Gets Changed: Business Operations:
A. Comments
1. How the organization works compared to how organizations “behave” – tasks compared to
culture
2.
Applies to both public and private organizations
3.
Business operations – “How the Organization Works” – this is the part of the organization what
needs to be led. Let’s borrow some comments from history to get an example:1
Rome, like Egypt, Persia, and other empires before it, conquered the ancient world because it
had an organizational doctrine that made its soldiers far more effective than competing forces
- and because its legions were backed up by a sophisticated administrative system of supply
based on regular if not equitable taxes. The Roman Empire only fell when its legions
degenerated into corps of mercenaries and when its supply and tax bases were corrupted.
Napoleon was wrong. Armies do not "…march on their stomachs;' as he said; they
march on the proverbial backs of the tax collectors and on the roads built by
administrators. Regular pay allows for discipline. Strict discipline is what makes a mob
an army. And a disciplined military, obedient to the leaders of the state, is a
precondition for civilization. This is the classic chicken and egg problem. Which comes
first----effective public administration or an effective military? The rise and fall of ancient
Rome proved that you could not have one without the other.
“Introduction to Part I” by Jay M. Shafritz and Albert C. Hyde in Classics of Public Administration (2008) Wadsworth Cengage
Learning
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ARE 112 – Summer 2016 Class Notes #4 – Organizational Structures and Business Processes
B. Organizational topics:
1. Business process reengineering (BPR): Not a transformational process but an operational process
of identifying the “business processes” from a clean slate and determining how the processes
can be made more efficient and effective. Usually focused on the supply chain and enabling
information technology.
a. Examples: Enterprise resource planning (ERP) and customer relationship management
(CRM).
Example of ERP system:
Example of a CRM system:
b. Assumes the processes are the limiting factor and not the markets or the products/services
c. Has a focus on the status quo and not open to “change” - only reengineering current processes
d. Not holistic in looking at process-to-process interaction – just the individual process
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ARE 112 – Summer 2016 Class Notes #4 – Organizational Structures and Business Processes
2.
Restructuring: Reorganizing the legal, ownership, operational, or other structures of a
organization for optimizing reasons: profits, bankruptcy, mergers, spinoffs, government
regulations, financing, rebranding.
Examples: ATT breakup, Phillip Morris → Kraft Foods and tobacco products, even the “Race to
the Top” educational initiative can be seen as restructuring.
Tends to be a zero-sum game: “Running away, not running to”
3. Downsizing, rightsizing, Smartsizing – the “ing’s”: The “conscious use of permanent personnel,
structural, or strategy changes in an attempt to improve efficiency and/or effectiveness”:
a. Includes layoffs but needs to be coupled with some organizational change usually in reducing
the number of products or markets
b. Terminations, attrition, and elimination of positions.
c. Reorganizing lines of authority or business structures.
d. Generally applies
4. Suboptimization: Attempting to optimize a unit of a larger system that results in a suboptimal
result for the entire organization.
Examples: A team of rowers. If each were to do their individual best, the boat would splash around and go
nowhere. However, if each rower were to work in harmony, the scull would effortlessly glide across the river
(optimization of a system). Some would obviously not work as hard as others, but the net result of
everyone’s efforts would be more than any one person achievement (synergy). Company cafeterias are
another example.
V. Organizational Structures – General Comments
A. Processes
1. Supply chain - Physical and Conceptual Models
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ARE 112 – Summer 2016 Class Notes #4 – Organizational Structures and Business Processes
Example: February 29, 2008 - A Blood Thinner Might Be Linked to More Deaths by WALT
BOGDANICH - NYTimes
Amid indications that more people may have died or been harmed after being given a brand of the blood thinner
heparin, federal drug regulators said Thursday that they had found “potential deficiencies” at a Chinese plant that
supplied much of the active ingredient for the drug. Baxter International, which makes the brand of heparin
associated with the problems, and buys supplies from the Chinese plan. The F.D.A. emphasized that it had yet to
identify the root cause of the problem, and that it had not concluded that the Chinese plant was responsible. The
agency also said it was investigating two Chinese wholesalers — also called consolidators — that supplied
crude heparin to the Chinese plant, Changzhou SPL, as well as those that sold raw ingredients to the
consolidators. The New York Times reported Thursday that at least one of the consolidators received supplies
from small, unregulated family workshops that scraped mucous membrane from pig intestines and cooked it,
eventually producing a dry substance known as crude heparin. The F.D.A. admitted this month that it had
violated its own policy by failing to inspect SPL, located west of Shanghai, before the factory began shipping the
heparin ingredient to Baxter in 2004. China’s drug agency also did not inspect the plant. Last week, the F.D.A. sent
inspectors to the plant. Among the potential problems they found was a failure to properly follow the steps for
identifying impurities and deficiencies related to manufacturing equipment. According to a redacted
inspection report released by the agency, the SPL plant appeared to have made at least some heparin with
“material from an unacceptable workshop vendor.” Scientific Protein Laboratories, a Wisconsin company
that is the majority owner of the Chinese plant, issued a statement Thursday saying the F.D.A.’s finding did not
represent its final determination as to whether the plant complied with federal regulatory rules. S.P.L., the statement
said, is committed to finding the root cause of the adverse reactions… The Chinese heparin market has been in
turmoil over the last year, as pig disease has swept through the country, depleting stocks, leading some
farmers to sell sick pigs into the market and forcing heparin producers to scramble for new sources of raw
material. As a result, even big companies have been turning increasingly to small village workshops, which are
often unsanitary. In interviews this week at some of these workshops, employees told The Times that they had not
been inspected by the government. Scientific Protein Laboratories said it responded to the disease outbreak by
buying less raw material in China. Its president, David Strunce, said in an interview this week that the Chinese
plant bought supplies only from two reputable consolidators, and that its suppliers were audited.
2. Value chain – this is more of an architectural view of the supply chain process
3.
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3. The "component" business model in which business functions are specialized and modularized

Core competencies -- functions or capabilities that are most efficient, optimized, or that
provide the most competitive advantage

Outsourcing -- having external service providers perform some activity formerly carried out
by a functional organization -- is facilitated by componentization
Patterns in the enterprise – Three of them

"Buy Side" Patterns
o Deal with suppliers
o Procurement is the simplest business pattern; one buyer buys something from one seller
o Direct vs Indirect Procurement

Direct → that go into your products like direct materials and direct labor, generally
low number of suppliers and high value transactions

Indirect → that do not go into your product like overhead, generally high number of
suppliers and low value transactions

"Sell Side" Patterns
o Order Management and Fulfillment – offering product catalogs, taking orders, filling them
as promised
o Channel Management – working with distributors, retailers, other partners
o Customer Relationship Management – marketing, sales, customer service, field support

5.
Patterns "in the Middle"
o Design and Engineering – figuring out how to make their stuff, increasingly by
collaborating with people who make the materials and components
o Manufacturing – actually making the stuff, increasingly by collaborating with people who
are "downstream" toward the customer ("channel assembly")
o Human Resources, Finance, MIS – assembling and taking care of the people who do
everything else
o Information Systems – designing, deploying, supporting computing and communications
infrastructure
Demand chain as opposed to the supply chain
a. Example: Target marketing
C.
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ARE 112 – Summer 2016 Class Notes #4 – Organizational Structures and Business Processes
C. Sources of business processes
1. Formal – this is our focus
2. Informal – sometimes known as a shadow system
D. Control – generally in some form of planning such as budgeting or job design
1. Centralized
2. Decentralized
E. Decision making
1. Vertical
2. Horizontal
F. Matrix management
An organizational management structure in which people with similar skills are pooled for work
assignments. For example, all economists may be in one analysis department and report to an chief
economist, but these same economist may be assigned to different projects and report to a project
manager while working on that project. Therefore, each economist may have to work under several
managers
to get their
job done:
One for
function
and one for
the project.
IV. Analysis of the Organizational Behavior – Descriptive Lens
A. Lines of authority – how work gets “managed” but not necessarily “done”
1.
When looking at a system we want to identify the participants and determine what stake they
have in the project or the system or the process. Often times we will find overlap in these areas
of interest. A few terms and ideas related to who manages the work:
a. Delegation
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b.
Abdication
c.
Span of control: The number of subordinates or “reports” – usually between 1 and 10
d.
Authority – Directing the work
e.
Responsibility – Performing the work
f.
Stakeholder – has an interest in the work but varying degrees of authority and
responsibility
g.
Owner or ownership – has the primary authority and responsibility for the work
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B. Types of work:
1.
Projects:
a. defined end point
b. focus on effectiveness
2.
Process:
a. defined output or product
b. focus on efficiency
V. Behavior and Learning – Part of the Process of Changing Business Processes
#1. Classical Conditioning: One important type of learning, Classical Conditioning, was actually
discovered accidentally by Ivan Pavlov. Pavlov was a Russian physiologist who discovered this
phenomenon while doing research on digestion. His research was aimed at better understanding the
digestive patterns in dogs.
During his experiments, he would put meat powder in the mouths of dogs who had tubes inserted into
various organs to measure bodily responses. What he discovered was that the dogs began to salivate
before the meat powder was presented to them. Then, the dogs began to salivate as soon as the person
feeding them would enter the room. He soon began to gain interest in this phenomenon and abandoned
his digestion research in favor of his now famous Classical Conditioning study.
Basically, the findings support the idea that we develop responses to certain stimuli that are not naturally
occurring. When we touch a hot stove, our reflex pulls our hand back. It does this instinctually, no
learning involved. It is merely a survival instinct. But why now do some people, after getting burned, pull
their hands back even when the stove is not turned on? Pavlov discovered that we make associations
which cause us to generalize our response to one stimuli onto a neutral stimuli it is paired with. In other
words, hot burner = ouch, stove = burner, therefore, stove = ouch.
Pavlov began pairing a bell sound with the meat powder and found that even when the meat powder was
not presented, the dog would eventually begin to salivate after hearing the bell. Since the meat powder
naturally results in salivation, these two variables are called the unconditioned stimulus (UCS) and the
unconditioned response (UCR), respectively. The bell and salivation are not naturally occurring; the
dog was conditioned to respond to the bell. Therefore, the bell is considered the conditioned stimulus
(CS), and the salivation to the bell, the conditioned response (CR).
Did we see any of these Pavlovian events in The Goal?
#2. Operant Conditioning: Another type of learning, very similar to that discussed above, is called
Operant Conditioning. The term "Operant" refers to how an organism operates on the environment, and
hence, operant conditioning comes from how we respond to what is presented to us in our environment.
It can be thought of as learning due to the natural consequences of our actions.
The classic study of Operant Conditioning involved a cat who was placed in a box with only one way
out; a specific area of the box had to be pressed in order for the door to open. The cat initially tries to get
out of the box because freedom is reinforcing. In its attempt to escape, the area of the box is triggered
and the door opens. The cat is now free. Once placed in the box again, the cat will naturally try to
remember what it did to escape the previous time and will once again find the area to press. The more the
cat is placed back in the box, the quicker it will press that area for its freedom. It has learned, through
natural consequences, how to gain the reinforcing freedom.
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Explanations:
Conditioning
In classical conditioning you
"learn" to respond
automatically to some sort of
stimulus with fear, joy,
excitement, or anticipation you have become classically
conditioned. In fact, a basic
characteristic of classical
conditioning, in comparison
to another popular model,
operant conditioning, is that
the learning is automatic and
non-conscious. Pavlov
identified four basic
components in this classical conditioning model. The unconditioned stimulus is the stimulus that naturally
and instinctively elicits the target response, which, in the case of his classic experiment is the meat powder.
The conditioned stimulus is the stimulus that comes to elicit the target response, which was the tone in
Pavlov’s experiment. The unconditioned and conditioned responses are a little trickier to identify in that
they are often the exact same behavior. For example in Pavlov’s experiment they are both salivation. The
fundamental difference is that the unconditioned response occurs as a result of the unconditioned stimulus,
and the conditioned response occurs in response to the conditioned stimulus.
Operant Conditioning or Operant Learning
For example, if the cat would press a bar or pull on a
string, a door would open allowing the cat to escape.
Once the cat was outside of the box it would find some
food in close proximity, thereby reinforcing the
response. Thorndike continually repeated this activity
over and over again to formulate his theory. He also
discovered that the speed at which the cats escaped
from the box increased with each successful attempt,
proving that, not only did the learned behavior become
reinforced, but the desire for reward motivated the
performance. Thorndike formulated the Law of Effect
from the test studies which can be summarized as
"responses that produce satisfaction will be more likely
to recur and thus be strengthened."
"Success brings with it satisfaction and along with it a strengthening of the relation of the experiences.
Failure increases dissatisfaction and the absence of the relation among the experiences weakens them. Thus,
we may compare success to a reward or failure to a punishment and the desire to repeat success or avoid
failure as the inevitable antecedents."
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VI. Teams – Where Learning Occurs in the Modern Organization
1. Southwest Air and the Indy 500
2. Why have teams?
a. Scientific management
b.
Behavior school
3. Types of teams – examples only, there are more types
a. Formal and informal
b. Temporary and permanent
c. Cross-functional
d. Virtual team
e. Self-managed work team
f. Hierarchical team
4. Team tasks
a. Planning and scheduling work
b. Assigning tasks
c. Training
d. Performance evaluation
e. Quality control
5. Team characteristics
a. Trust
b. Feedback processes
c. Channels of communications
d. Approaches to decision making
e. Acceptance of goals
f. Shared values and beliefs
VII. A Few Comments on Strategy
A. Value Proposition
1.
Alex was in the operations
side of the value proposition.
2.
3.
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We see the Lou (Gerstner in
the IBM book) was on the
strategy side of the value
proposition.
Note: the “value” in the value
proposition is different from
the organizational values.
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