Lecture 6

Designing
Organizational
Structure

Chapter 7
Designing Organizational
Structure

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Learning Objectives
1. Identify the factors that influence managers
choice of an organizational structure
2. Describe the types of organizational structures
managers can design, and explain why they
choose one structure over another
3. Explain why managers must coordinate jobs,
functions, and divisions using the hierarchy of
authority

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Designing Organizational Structure

Organizing
The process by which managers establish the structure of
working relationships among employees to achieve goals.

Organizational Structure
Formal system of task and reporting relationships that
coordinates and motivates organizational members so
that they work together to achieve organizational goals.

Organizational design
The process by which managers make specific choices
that result in a particular kind of organizational structure.
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Overall Organizational Structures

Stable, mechanistic structure
An organizational structure in which authority is
centralized, tasks and rules are clearly specified,
and employees are closely supervised.

Flexible, organic structure

An organizational structure in which authority is
decentralized to middle and first-line managers
and tasks and roles are left ambiguous to
encourage employees to cooperate and respond
quickly to the unexpected.
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Factors Affecting Overall

Organizational Structure
The organizational environment
stable and low uncertainty vs. dynamic and high
uncertainty

Strategy
low-cost strategy vs. differentiation strategy

Technology
routine vs. complicated

Human resources
low skilled employees vs. highly skilled employees
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Grouping Jobs into Functions

Functional Structure
An organizational structure composed of all the
departments that an organization requires to
produce its goods or services

Figure 7.3

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Grouping Jobs into Functions

Advantages
Encourages learning
from others doing
similar jobs
Easy for managers to
monitor and
evaluate workers

Disadvantages
Difficult for
departments to
communicate with
others
Preoccupation with
own department
and losing sight of
organizational goals
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Divisional Structures
Divisional Structure
An organizational structure composed of
separate business units within which are the
functions that work together to produce a
specific product for a specific customer

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Types of Divisional Structures

Product Structure
Each product line or business is handled by a
self-contained division

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Product Structure
Advantages

Allows functional managers to specialize in one

product area
Division managers become experts in their area
Removes need for direct supervision of division
by corporate managers
Puts divisional managers close to their
customers and lets them respond quickly and
appropriately to the changing task environment
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Types of Divisional Structures

Global Product Structure
Each product division, not the country or regional
managers, takes responsibility for deciding where
to manufacture its products and how to market
them in foreign countries

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Types of Divisional Structures

Geographic Structure
Each region of a country or area of the world is
served by a self-contained division

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Types of Divisional Structures

Global geographic structure
Managers locate different divisions in each of the
world regions where the organization operates
Generally, occurs when managers are
pursuing a multi-domestic strategy

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Types of Divisional Structures

Market Structure
Each kind of customer is served by a selfcontained division
Also called customer structure

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Matrix Structure
An organizational structure that
simultaneously groups people and resources
by function and product

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Product Team Structure

Employees are permanently assigned to a cross-

functional team and report only to the product team

manager or to one of his direct subordinates

Cross-functional team
group of managers brought together from different
departments to perform organizational tasks

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Coordinating Functions and Divisions

No matter which structure managers choose,
they must decide how to distribute authority in
the organization, how many levels to have in the
hierarchy of authority, and what balance to
strike between centralization and
decentralization to keep the number of levels in
the hierarchy to a minimum.

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Coordinating Functions and Divisions

As organizations grow, managers must increase
integration and coordination among functions
and divisions. Six integrating mechanisms are
available:

Direct contact
Liaison roles
Task forces
Cross-functional teams
Integrating roles
Matrix structure
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Reference
McGraw-Hill Education (2014). BUS10306
Management customized text, Chapter 6.

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