ORGANIZATION STRUCTURE & DESIGNS

Organization Design and Structure

Organization design
A process in which managers develop or change their organizations structure

Work specialization
A component of organization structure that involves having each discrete step of a job done by a different individual rather than having one individual do the whole job

Key Concepts
Organizing
Deciding how to best group organizational activities and resources

Organization Structure
Set of building blocks that can be used to configure an organization

Organizational Structure
Chain of command
The management principle that no person should report to more than one boss

Span of control
The number of subordinates a manager can direct efficiently and effectively

Organizational Structure
Authority
The rights inherent in a managerial position to give orders and expect them to be obeyed

Power
An individuals capacity to influence decisions

Responsibility
An obligation to perform assigned activities

Types of Organizational Authority

Line authority
The position authority (given and defined by the organization) that entitles a manager to direct the work of operative employees

Staff authority
Positions that have some authority (e.g., organization policy enforcement) but that are created to support, assist, and advise the holders of line authority

Chain of Command

Line Versus Staff Authority

Centralization And Decentralization

Centralization
A function of how much decision-making authority is pushed down to lower levels in an organization; the more centralized an organization, the higher the level at which decisions are made

Decentralization
The pushing down of decision-making authority to the lowest levels of an organization

6 Basic Building Blocks

1. 2. 3. 4. 5. 6. Designing Jobs (Job Specialization) Grouping Jobs (Departmentalization) Establishing Reporting Relationships Distributing Authority Coordinating Activities Differentiating Between Positions

1. Job Design
The determination of an individuals work-related responsibilities.

Job Specialization
Degree to which the overall task of the organization is broken down into smaller components Benefits
1. 2. 3. 4. Workers can become proficient at a task Transfer time between tasks decrease Specialized equipment can be developed Employee replacement becomes easier

Limitations
1. Employee boredom and dissatisfaction 2. Anticipated benefits do not always occur

2. Grouping Jobs: Departmentalization

The process of grouping jobs according to some logical arrangement. Rationale for Departmentalization
Organizational growth exceeds the owner-managers capacity to personally supervise all of the organization. Additional managers are employed and assigned specific employees to supervise.

Departmentalization 4 Basic Types:

Functional Product Customer Location

Functional Departmentalization

President
Computers Manufacturing Finance Marketing

Functional Departmentalization Form

Advantages
Department can be staffed by experts Supervision is facilitated Coordination within department is easier

Disadvantages
Decision making becomes slow and bureaucratic Lose sight of organizational goals/issues Accountability and performance are difficult to monitor

Product Departmentalization

President
Computers Manufacturing Printers Finance Software Marketing

Product Departmentalization
Advantages
Activities with one product can be integrated Speed and effective-ness of decision making Performance of these individual products can be assessed

Disadvantages
Focus on product at the exclusion of the rest of the organization Administrative costs may increase

Customer Departmentalization Form

President
Computers Manufacturing
Dallas Phoenix

Finance

Marketing
Industrial Sales Consumer Sales

Customer Departmentalization

Advantage
Skilled specialists can deal with unique customer needs

Disadvantage
Large administrative staff needed to integrate activities of various departments

Location Departmentalization Form

President

Computers

Software

Manufacturing

Marketing

Marketing

Design

Chicago

St. Louis

Location Departmentalization
Advantage The organization can respond to unique customer and regional/ environmental characteristics Disadvantage Large administrative staff may be needed

3. Establishing Reporting Relationships

Chain of Command: a clear and distinct line of

authority among the positions in an organization.
1. Unity of Command

Each person within an organization must have a clear reporting relationship to one and only one boss.
2. Scalar Principle

A clear and unbroken line of authority must extend from the bottom to the top of the organization.

Establishing Reporting Relationships (cont.)

Span of Management (Span of Control)
The number of people who report to a particular manager. Narrow versus wide

Establishing Reporting Relationships:

Tall versus Flat Organizations

Tall Organizations

Flat Organizations

More expensive Communication can be difficult because of the number of channels through which it must pass

higher levels of employee morale and productivity More administrative responsibility for managers

Tall Versus Flat Organizations

Tall Organization

President

Flat Organization

President

Factors Influencing the Span of Management

Competence of the supervisor or subordinates Physical dispersion of subordinates Extent of non supervisory work in managers job Degree of required interaction Extent of standardized procedures Similarity of tasks being supervised Frequency of new problems Preferences of supervisors and subordinates

4. Distributing Authority
Authority
Power that has been legitimized by the organization.

Delegation
The process by which managers assign a portion of their total workload to others.

Reasons for Delegation

To enable the manager to get more work done by utilizing the skills and talents of subordinates. To foster the development of subordinates by having them participate in decision making and problem solving that allows them to learn about overall operations and improve their managerial skills.

Parts of the Delegation Process

Part 1: Assigning responsibility Part 2: Granting authority Part 3: Creating accountability

Manager

Manager

Manager

Subordinate

Subordinate

Subordinate

Delegation
Problems in the Delegation Process Superior
Reluctance Disorganization Subordinates success threatens superiors advancement Trust

Subordinate
Reluctance No rewards for the acceptance of delegated tasks Risk avoidance

5. Coordinating Activities
Coordination
The process of linking the activities of the various departments of the organization.

The Need for Coordination

Departments and work groups are interdependent; the greater the interdependence, the greater the need for coordination.

Structural Coordination Techniques

1. The Managerial Hierarchy 2. Rules and Procedures 3. Task Forces 4. Integrating Departments

6. Differentiating Between Positions

Line Positions
Positions in the direct chain of command that are responsible for the achievement of an organizations goals

Staff Positions
Intended to provide expertise, advice, and support to line positions

Administrative Intensity
The degree to which managerial positions are concentrated in staff positions

Differentiating Between Positions

Line and Staff Structure at Toys R Us
Corporate Staff
Finance and Administration Real Estate MIS Architecture and Construction Treasurer Controller Attorney

CEO

President

President India

Senior Vice President Marketing

Senior Vice President Store Merchandising

Vice President Planning

Vice President Physical Distribution

Vice President Divisional Merchandising

Vice President Divisional Merchandising

Organization Design Applications

Organization Design Applications

Simple structure
An organization that is low in specialization and formalization but high in centralization

Functional structure
An organization in which similar and related occupational specialties are grouped together

SBU Type Structure

An organization made up of self-contained units

Functional Structure

Functional Organizational Structures: Strategic

Advantages/Disadvantages

Strategic Advantages Permits centralized control of strategic results Very well-suited for structuring a single business Promotes in-depth functional expertise Well suited to developing a functionalbased distinctive competence Enhances operating efficiency where tasks are routine and repetitive

Strategic Disadvantages Poses problems of functional coordination Can lead to inter functional rivalry, conflict, and empire-building May promote overspecialization and narrow management viewpoints Hinders development of managers with cross-functional experience because the ladder of advancement is up the ranks within the same functional area

SBU Type of Organization Structure

Chief Executive Officer Corporate Staff Services/Functions
R&D Finance and Corporate Accounting Marketing Services Planning Personnel Legal Affairs Public Relations and Communications

Group Vice President SBU I

Group Vice President SBU II

Group Vice President SBU III

Business Units/Divisions

Business Units/Divisions

Business Units/Divisions

SBU Type Organization Structure: Strategic

Advantages/Disadvantages

Strategic Advantages Provides a strategically relevant way to organize large numbers of different business units Improves coordination between the role and authority of the business with similar strategies, markets, and growth opportunities Helps allocate corporate resources to areas with greatest growth opportunities Facilitates the coordination of related activities within an SBU, thus helping to capture the benefits of strategic fits in the SBU.

Strategic Disadvantages It is easy for the definition and grouping of businesses into SBUs to be so arbitrary that the SBU serves no other purpose than administrative convenience. If the criteria for defining SBUs are rationalizations and have little to do with the nitty-gritty of strategy coordination, then the groupings lose real strategic significance. Unless the SBU head is strong willed, very little strategy coordination is likely to occur across business units in the SBU.

Other Organizational Structures

Matrix structure
An organization in which specialists from functional departments are assigned to work on one or more projects led by a project manager

Team-based structure
An organization that consists entirely of work groups or teams

Boundaryless organization
An organization that is not defined or limited by boundaries or categories imposed by traditional structures

Sample Matrix Structure

Matrix Organization Structures: Strategic

Advantages/Disadvantages

Strategic Advantages Gives formal attention to each dimension of strategic priority Facilitates capture of functionality based strategic fits in diversified companies Promotes making trade-off decisions on the basis of whats best for the organization as a whole Encourages cooperation, consensus-building, conflict resolution, and coordination of related activities

Strategic Disadvantages Very complex to manage Hard to maintain balance between the two lines of authority So much shared authority can result in a transaction logjam and disproportionate amounts of time being spent on communications