- Knowledge management.
- Variety is the number of possible states of a system.
- Uncertainty is a measure of the amount of information needed to know the state of a system precisely. It is proportional to the variety of the system.
- Disturbance variety = VD; External variety = VE; Internal variety = VI. Law of requisite variety states that VR ≥ VD and VR ≥ VE + VI
Fundamentals of Organization Design
- Basic idea behind organization design is to break complex tasks apart and put it back together.
- Formal structures are represented by organizational chart. It involves division of labour, departmentalization, reporting/authority relationships and coordination/integration mechanisms.
- Centralized decision making are usually made higher up the authority hierarchy. Decentralized has more delegation of decisions.
- Mechanistic vs Organic structures
- Vertical differentiation spans control and increases communication difficulties. Parkinson's Law states that work expands to fill the time available, which suggests that hierarchy creates its own work.
- Horizontal differentiation increases specialization by dividing labour, and departmentalizes the company (Functional vs Product / service departments). It increases ease of training but also causes worker less worker commitment and increases difficulties of coordinationg interdependent tasks.
- Integration involves sharing information and coordinating activities. Structural mechanisms such as direct supervision, task forces, cross-functional teams, integrating roles and departments are created to assist the process. Other mechanisms such as mutual adjustment, standardization, socialization and information systems also exist to help.
- Informal structure can emerge due to task related social structures, informal authorities based on experties and other variantions of social networks. Informal structures may support formal structure.
- Basic Structural Configurations involve functional structure (input based), which is grouped by specizlization / function / inputs. It benefits from economies of scale, share knowledge, efficient use of resources. However, it is difficult to communicate and coordinate between functions; also, there is a lack of flexibility and responsiveness. Functional structure is best for small organizations and with stable environments.
- Divisional structure (output based) structure is grouped by products / services / geographic area / market sector or outputs. It is good for cross functional communication and coordination; increases flexibility and responsiveness; more attention to client needs. It decreases coordination between different products, specialists of the same functional area; increases possibility of duplication of functions, loss of standardization and loss of economies of scale. It is best for large organizations facing unstable environments.
- Matrix structure is grouped by both function and product output. It takes the best and worst of the two structures, it requires lots of coordination. It is good for unstable environment and when output goals and functional goals are equal importance.
- Hybrid structures combines functional, divisional, matrix in different parts of the organization. It applies the appropriate structure to specific areas of organization where fits. However, it is more confusing to understand and manage. It is good for large organizations with diverse environmental demands.
- Dynamic systems regulates and control their outputs by responding to disturbances.
- Law of requisite variety states that only variety can destroy variety.
- Requisite variety is the amount of varieties the system must generate to counter the disturbance caused by environment.
- Variety and uncertainty both deal with the amount of complexity and change encountered by a system, and are both based on "Information Theory".