In the previous section we explained how firms divide themselves into subunits. Now we need to examine some means of coordinating those subunits. One way of achieving coordination is through centralization. If the coordination task is complex, however, centralization may not be effective. Higher-level managers responsible for achieving coordination can soon become overwhelmed by the volume of work required to coordinate the activities of various subunits, particularly if the subunits are large, diverse, or geographically dispersed.
When this is the case, managers look toward integrating mechanisms, both formal and informal, to help achieve coordination. Here we introduce the various integrating mechanisms managers use and discuss how the choice of integrating mechanism is determined by the strategy of the firm.
FORMAL INTEGRATING MECHANISMS
The formal integrating mechanisms used to coordinate subunits vary in complexity from simple direct contact and liaison roles, to teams, to a matrix structure. In general, the greater the need for coordination between subunits, the more complex formal integrating mechanisms need to be.
Direct contact between subunit managers is the simplest integrating mechanism: Managers of the various subunits just contact each other whenever they have a common concern. Direct contact may not be effective, however, if managers have differing orientations that impede coordination. Managers of various subunits may have different orientations partly because they have different tasks.
For example, production managers are typically concerned with production issues such as capacity utilization, cost control, and quality control, whereas marketing managers are concerned with marketing issues such as pricing, promotions, distribution, and market share.
These differences can inhibit communication between managers, who may not “speak the same language.” Managers can also become entrenched in “functional silos,” which can lead to a lack of respect between subunits and inhibit the communication required to achieve cooperation and coordination. For these reasons, direct contact may not be sufficient to achieve coordination between subunits when the need for integration is high.
Liaison roles are a bit more complex than direct contact. As the need for coordination between subunits increases, integration can be improved by assigning a person in each subunit to coordinate with another subunit. Through these roles, the people involved establish a permanent relationship. This helps attenuate any impediments to coordination.
When the need for coordination is greater still, firms use temporary or permanent teams composed of individuals from the subunits that need to achieve coordination. Teams often coordinate product development efforts, but they can be useful when any aspect of operations or strategy requires the cooperation of multiple subunits. Product development teams are typically composed of personnel from R&D, production, and marketing.
The resulting coordination aids the development of products that are tailored to consumer needs and that can be produced at a reasonable cost (through design for manufacturing). When the need for integration is very high, firms may institute a matrix structure, in which all roles are viewed as integrating roles. This structure is designed to maximize integration among subunits. As discussed earlier, common matrix organizations include structures based on functions and product development teams, as in high-technology firms,or on divisions and geographic areas, as in diversified multinational enterprises.
However, as we have already noted, matrix structures can bog down in a bureaucratictangle that creates as many problems as it solves. If not well managed, matrix structures can become bureaucratic, inflexible, and characterized by conflict rather than the hoped-for cooperation. For such a structure to work it needs to be somewhat flexible and to be supported by informal integrating mechanisms.
INFORMAL INTEGRATING MECHANISMS: KNOWLEDGE NETWORKS
In attempting to alleviate or avoid the problems associated with formal integrating mechanisms in general and matrix structures in particular, firms with a high need for integration have been experimenting with an informal integrating mechanism: knowledge networks supported by an organizational culture that values teamwork and cross-unit cooperation. A knowledge network is a network for transmitting information within an organization that is based not on formal organization structure, but on informal contacts between managers within an enterprise and on distributed information systems.
The great strength of such a network is that it can be a nonbureaucratic conduit for knowledge flows within an enterprise. For a network to exist, managers at different locations within the organization must be linked to each other at least indirectly. For example, Figure shows the simple networkrelationships between seven managers within a complex multinational firm. Managers A, B,and C all know each other personally, as do Managers D, E, and F.
Although Manager B doesnot know Manager F personally, they are linked through common acquaintances (Managers C and D). Thus Managers A through F are all part of the network. Manager G is not.
Imagine Manager B, a marketing manager in Spain, needs to know the solution to a technical problem to better serve an important European customer. Manager F, an R&D manager in theUnited States, has the solution to Manager B’s problem. Manager B mentions her problem to all of her contacts, including Manager C, and asks if they know anyone who might be able to provide a solution.
Manager C asks Manager D, who tells Manager F, who then calls Manager B with the solution. In this way coordination is achieved informally through the network ratherthan by formal integrating mechanisms such as teams or a matrix structure.
For such a network to function effectively it must embrace as many managers as possible. For example, if Manager G had a problem similar to Manager B’s, he would not be able to use the informal network to find a solution; he would have to resort to more formal mechanisms.
Establishing firmwide knowledge networks is difficult. Although network enthusiasts speak of networks as the “glue” that binds complex organizations together, it is unclear how successful firms have been at building companywide networks. Techniques that establish knowledge networks include information systems, management development policies, and conferences.
Firms are using distributed computer and telecommunications information systems to provide the foundation for informal knowledge networks. Electronic mail, videoconferencing, high-bandwidth data systems, and Web-based search engines make it much easier for managers scattered over the globe to get to know each other, to identify contacts that might help solve a particular problem, and to publicize and share best practices within the organization.
Wal- Mart, for example, uses its intranet to communicate ideas about merchandizing strategy between stores located in different countries. Firms are also using management development programs to build informal networks. Tactics include rotating managers through various subunits regularly so they build their own informal network and using management education programs to bring managers of subunits together so they can become acquainted.
In addition, some science-based firms use internal conferences to establish contact between people in different units of the organization. At 3M regular multidisciplinary conferences gather scientists from different business units and get them talking to each other. Apart from the benefits of direct interaction in the conference setting, after the conference the scientists may continue to share ideas, increasing knowledge flow within the organization.
3M has many stories of product ideas that were the result of such knowledge flow—including the ubiquitous Post-it note, whose inventor, Art Fry, first learned about its adhesive from a colleague working in another division of 3M, Spencer Silver, who had spent several years shopping his adhesive around 3M.
Knowledge networks by themselves may not be sufficient to achieve coordination if subunit managers pursue subgoals that are at variance with firmwide goals. For a knowledge network to function properly (and also for a formal matrix structure to work) managers must share a strong commitment to the same goals. To appreciate the nature of the problem, consider again the case of Managers B and F.
As before, Manager F hears about Manager B’s problem through the network. However, solving Manager B’s problem would require Manager F to devote considerable time to the task. If this would divert Manager F away from regular tasks—and the pursuit of subgoals that differ from those of Manager B—he may be unwilling to do it. Thus Manager F may not call Manager B, and the informal network would fail to solve Manager B’s problem.
To eliminate this flaw, organization managers must adhere to a common set of norms andvalues that override differing subunit orientations. In other words, the firm must have a strong organizational culture that promotes teamwork and cooperation. When this is the case, a manager is willing and able to set aside the interests of his own subunit when doing so benefits the firm as a whole. If Managers B and F are committed to the same organizational norms and value systems, and if these organizational norms and values place the interests of the firm as a whole above the interests of any individual subunit, Manager F should be willing to cooperate with Manager B on solving her subunit’s problems.
STRATEGY, COORDINATION, AND INTEGRATING MECHANISMS
All enterprises need coordination between subunits, whether those subunits are functions, businesses, or geographic areas. However, the degree of coordination required and the integrating mechanisms used vary depending on the strategy of the firm. Consider first enterprises that are active in just one business. In the single-business enterprise, the need for coordination between functions is greater in firms that are competing through product innovation.
As we discussed earlier, such organizations need to coordinate the R&D, manufacturing, and marketing functions of the firm to ensure that new products are developed in a timely manner, are designed to be efficiently manufactured, and match consumer demands. We saw that a matrix structure is one way of achieving such coordination. Another more common solution is to form temporary teams to oversee the development and introduction of a new product. Once the new product has been introduced, the team is disbanded and employees return to their usual functions or move to another team.
There is also a high need for coordination in firms that face an uncertain and highly turbulent competitive environment, where rapid adaptation to changing market conditions is required for survival. In such cases there is a need to make sure the different functions of the firm are all pulling in the same direction so that the firm’s response to a changing environment is coherent and embraces the entire organization.
Temporary teams are often used to effect such coordination. For example, in the mid-1990s the World Wide Web, which is based on a computer language known as HTML, emerged with stunning speed and in a way that was anticipated by very few managers.
The rise of the WWW produced a profound change in the environment facing computer software firms, such as Microsoft, where managers quickly realized that they needed to shift their strategy, make their products Web enabled, and position the marketing and sales activities of the firm to compete in this new landscape. At Microsoft the entire company quickly embraced the WWW, and all products were soon Web enabled.
Making this shift required tight coordination between different software engineering groups, such as those working on the software code for Windows, Office, and MSN, so that all of the products not only were Web enabled but also worked seamlessly with each other. Microsoft achieved this by forming cross-functional teams. In addition to formal integrating mechanisms, firms with a high need for coordination between subunits, such as those based in turbulent high-technology environments, would do well to foster informal knowledge networks to facilitate greater coordination between subunits.
In contrast, if a firm is based in a stable environment characterized by little or no change, and if developing new products is not a central aspect of the firm’s business strategy, the need for coordination between functions may be lower. In such cases a firm may be able to function with minimal integrating mechanisms, such as direct contact or simple liaison roles. These mechanisms, coupled with a strong culture that encourages employees to share the same goals and to cooperate with each other for the benefit of the entire organization, may be all that is required to achieve coordination between functions.
For multibusiness firms organized into product divisions, the need for coordination varies with the type of diversification strategy managers are pursuing. In particular, if a firm has diversified into related businesses and is trying to realize economies of scope by sharing inputs across product divisions, or is trying to boost profitability by leveraging valuable core competencies across product divisions, it will need integrating mechanisms to coordinate product division activities.
Liaison roles, temporary teams, and permanent teams can all be used to ensure such coordination. On the other hand, if top management is focusing primarily on boosting profitability through superior governance, and if each division is managed on a stand-alone basis with no attempt to leverage competencies or realize economies of scope, the firm may well operate well with minimal or no integrating mechanisms between divisions.
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