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Chapter

16
Organizational Structure and Design

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Organization structure the pattern

of jobs and groups of jobs in an organization.
It is an important cause of individual and group behavior.

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The Concept of Organization Structure

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Structure as an influence on behavior

Structure as recurring activities

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Organization design management

decisions and actions that result in a specific organization structure.

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Organizational Design Decisions

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1. Managers decide how to divide the overall task into successively smaller jobs 2. Managers decide the bases by which to group the jobs 3. Managers decide the appropriate size of the group reporting to each superior 4. Managers distribute authority among the jobs
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The Four Key Design Decisions

Division of Labor:
High
Specialization

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Low
Basis

Departmentalization:

Homogeneous
Number

Heterogeneous

Span of Control:
Few

Many
Delegation

Authority:
High
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Low
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Division of Labor
Division of labor concerns the extent to which jobs are specialized It is the process of dividing work into relatively specialized jobs to achieve advantages of specialization

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Division of Labor Occurs in Three Different Ways:

1. Personal specialties
e.g., accountants, software engineers, graphic designers, scientists, etc.

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2. Natural sequence of work

e.g., dividing work in a manufacturing plant into fabricating and assembly (horizontal specialization)

3. Vertical plane
e.g., hierarchy of authority from lowest-level manager to highest-level manager
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Delegation of Authority
Managers decide how much authority should be delegated to each job and to each jobholder
Delegation of authority process of distributing authority downward in an organization

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Reasons to Decentralize Authority

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1. Relatively high delegation of authority encourages the development of professional managers 2. High delegation of authority can lead to a competitive climate within the organization 3. Managers who have relatively high authority can exercise more autonomy, and thus satisfy their desires to participate in problem solving
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Reasons to Centralize Authority (1 of 2)

1. Managers must be trained to make the decisions that go with delegated authority 2. Many managers are accustomed to making decisions and resist delegating authority to their subordinates

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Reasons to Centralize Authority (2 of 2)

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3. Administrative costs are incurred because new control systems must be developed to provide top management with information about the effects of subordinates decisions
4. Decentralization means duplication of functions

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Delegation Decision Guidelines (1 of 2)

How routine and straightforward are the jobs or units required decisions?
The authority for routine decisions can be centralized

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Are individuals competent to make the decision?

Even if the decision is non-routine, if the local manager is not capable, then the decision should be centralized Delegation of authority can differ among individuals depending upon each ones ability to make the decision

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Delegation Decision Guidelines (2 of 2)

Are individuals motivated to make the decision?
Capable individuals are not always motivated individuals Motivation must accompany competency to create conducive conditions for decentralization

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Do the benefits of decentralization outweigh its costs?

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Departmentalization process in
which an organization is structurally divided by combining jobs in departments according to some shared characteristic or basis.

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Departmentalization Bases

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Functional

Geographic

Product

Customer

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Departmental Bases: Functional Departmentalization

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Jobs are combined according to the functions of the organization The principal advantage is efficiency
By having departments of specialists, management creates efficient units

A major disadvantage is that organizational goals may be sacrificed in favor of departmental goals

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Functional Departmentalization Structure

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OBM Company

Engineering

Reliability

Finance

Public Relations Purchasing

Manufacturing

Distribution

Human Resources

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Departmental Bases: Geographic Departmentalization

Establish groups according to geographic area The logic is that all activities in a given region should be assigned to a manager Advantageous in large organizations because physical separation of activities makes centralized coordination difficult Provides a training ground for managerial personnel
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Geographic Departmentalization Structure

OBM Company

Northeast

Midwest

Southeast

Southwest

Pacific

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Departmental Bases: Product Departmentalization

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All jobs associated with producing and selling a product or product line will be placed under the direction of one manager Product becomes the preferred basis as a firm grows by increasing the number of products it markets Concentrating authority, responsibility, and accountability in a specific product department allows top management to coordinate actions
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Product Departmentalization Structure

OBM Company

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Small Household Appliances

Large Household Appliances

Commercial Appliances

Building Materials and Products

Lawn and Garden Products

Automotive Products

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Departmental Bases: Customer Departmentalization

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The importance of customer satisfaction has stimulated firms to search for creative ways to serve people better
Organizations with customer-based departments are better able to satisfy customer-identified needs than organizations that base departments on non-customer factors
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Customer Departmentalization Structure

OBM Company

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Retail Stores

Mail Order

On-Line Sales

Institutional Sales

Government Contracts

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Span of Control (1 of 2)
Number of individuals who report to a specific manager
Narrow span Wide span

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The frequency and intensity of actual relationships is the critical consideration in determining the managers span of control
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Span of Control (2 of 2)
If we shift our attention from potential to actual relationships as the bases for determining optimum span of control, three factors appear to be important:
Key Factors
Required Contact Degree of Specialization
Ability to Communicate

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Dimensions of Structure

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Formalization the extent to which expectations regarding the means and ends of work are specified, written, and enforced Centralization the location of decision-making authority in the hierarchy Complexity the direct outgrowth of dividing work and creating departments
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Organization Design Models

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The Mechanistic Model The Organic Model Emphasizes importance Emphasizes importance of achieving high levels of of achieving high levels of production and efficiency production and efficiency through: through:
Extensive use of rules and procedures Centralized authority High specialization of labor
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Limited use of rules and procedures Decentralized authority Relatively low degrees of specialization
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Comparison of Mechanistic and Organic Structures (1 of 3)

Process
1. Leadership

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Mechanistic Structure

Organic Structure

Includes no perceived Includes perceived confidence confidence and trust between and trust between superiors superiors and subordinates. and subordinates. Taps only physical, security, and economic motives, through use of fear and sanctions. Information flows downward and tends to be distorted, inaccurate, and viewed with suspicion by subordinates. Taps a full range of motives through participatory methods.

2. Motivation

3. Communication

Information flows freely: upward, downward, and laterally. The information is accurate and undistorted.

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Comparison of Mechanistic and Organic Structures (2 of 3)

Process
4. Interaction

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Mechanistic Structure
Closed and restricted. Subordinates have little effect on departmental goals, methods, and activities.

Organic Structure
Open and extensive. Both superiors and subordinates are able to affect departmental goals, methods, and activities.

5. Decision

Relatively centralized. Relatively decentralized. Occurs only at the top of the Occurs at all levels through organization. group processes. Located at the top of the organization, discouraging group participation. Encourages group participation in setting high, realistic objectives.

6. Goal setting

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Comparison of Mechanistic and Organic Structures (3 of 3)

Process Mechanistic Structure Organic Structure

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7. Control

Centralized. Emphasizes fixing blame for mistakes.

Dispersed throughout the organization. Emphasizes self-control and problem solving. High and actively sought by superiors, who recognize the need for full commitment to developing, through training, the organizations human resources.

8. Performance goals

Low and passively sought by managers, who make no commitment to developing the organizations human resources.

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Organization Design Models: The Matrix Model

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Matrix organization attempts to maximize the strengths and minimize the weaknesses of both the functional and product bases Superimpose a horizontal structure of authority, influence, and communication on the vertical structure Facilitates the utilization of highly specialized staff and equipment

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Example of the Matrix Organization Model

Functions Projects, products
Project or product A Project or product B

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Manufacturing

Marketing

Engineering

Finance

Project or product C
Project or product D Project or product E

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Advantages of Matrix Organization

Efficient use of resources

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Flexibility in conditions of change and uncertainty

Technical excellence
Freeing top management for long-range planning

Improving motivation and commitment

Providing opportunities for personal development
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Evolutionary Steps to the Matrix Model

Task Force
(1)

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Teams

(2)

Product Managers

(3)

Product (4) Management Depts.

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Multinational Structure and Design

Multinational corporation consists of a group of geographically dispersed organizations with different national subsidiaries Multinational corporations frequently exist in very divergent environments The most prevalent departmental basis is geographic

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Multinational Corporations: Implications for Organizational Design (1 of 2)

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1. National boundaries are an important force in defining organizational environments 2. Subsidiaries or affiliates of multinational corporations can act as conduits that introduce changes into the host countrys environment

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Multinational Corporations: Implications for Organizational Design (2 of 2)

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3. Subsidiaries of multinational corporations can act as conduits through which features of the host country culture are introduced throughout the multinational organization

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Virtual Organizations
Virtual organization a collection of geographically distributed, functionally and/or culturally diverse aggregations of individuals that is linked by electronic forms of communication

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Assembled and disassembled according to needs

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Virtual Organizations: Factors in Design Considerations

Personnel distributed geographically Electronically connected Differences in expertise and function Culturally diverse Work schedule differences Horizontally arranged with little emphasis on command and control authority
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Virtual Organizations: Design Implications

Contractual relationships Constant change and reconfiguration No rigid boundaries Flexible Little or personal and social contact

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Virtual Organizations: Consequences

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Increase in overall communication and messages Relationships are tenuous Continual surety of roles, tasks, and assignments Caution needed in managing feedback, discussion, performance review, and reward systems Greater equity of participation
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Boundaryless Organizations
Organizations in which:
the hierarchy and chain of command are minimized rigidly structured departments are eliminated

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Implemented to reduce barriers between people and constituencies

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