Organizational Structure and Design

Defining Organizational Structure

Organizational Structure
The formal arrangement of jobs within an organization

Organizational Design
A process involving decisions about six key elements:

Work specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization

Purposes of Organizing
Divides work to be done into specific jobs and

departments Assigns tasks and responsibilities associated with individual jobs Coordinates diverse organizational tasks Establishes relationships among individuals, groups, and departments Establishes formal lines of authority Allocates organizational resources Cluster jobs in to units

Designing Organizational Structure

Work Specialization
The degree to which tasks in the organization are

divided into separate jobs with each step completed by a different person

Departmentalization by Type
Functional
Grouping jobs by

Process
Grouping jobs on the

functions performed

Product
Grouping jobs by

basis of product or customer flow

Customer
Grouping jobs by type

product line

Geographical
Grouping jobs on the

of customer and needs

basis of territory or geography

Functional Departmentalization
Plant Manager

Manager, Engineering

Manager, Accounting

Manager, Manufacturing

Manager, Human Resources

Manager, Purchasing

+ Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations + Coordination within functional area + In-depth specialization Poor communication across functional areas Limited view of organizational goals

Geographical Departmentalization
Vice President for Sales Sales Director, Western Region Sales Director, Southern Region Sales Director, Central Region Sales Director, Eastern Region

+ More effective and efficient handling of specific regional issues that arise + Serve needs of unique geographic markets better

Duplication of functions
Can feel isolated from other organizational areas

Product Departmentalization
CEO.

Car Division

Truck Division

Bus Division

+ + +

Allows specialization in particular products and services Managers can become experts in their industry Closer to customers Duplication of functions Source: Bombardier Annual Report. Limited view of organizational goals

Process Departmentalization
Manager
Plant

Spinning

Dyeing

Weaving

Fininshing

+ More efficient flow of work activities

Can only be used with certain types of products

Customer Departmentalization
Director of Sales Manager, Retail Accounts Manager, Wholesale Accounts Manager, Government Accounts

+ Customers needs and problems can be met by specialists Duplication of functions Limited view of organizational goals

Organizational Structure (contd)

Chain of Command
The continuous line of authority that extends

from upper levels of an organization to the lowest levels of the organization and clarifies who reports to whom

Organizational Structure (contd)

Authority The rights inherent in a managerial position to tell people what to do and to expect them to do it Responsibility The obligation or expectation to perform. Responsibility brings with it accountability (the need to report and justify work to managers superiors) Unity of Command The concept that a person should have one boss and should report only to that person Delegation The assignment of authority to another person to carry out specific duties

Organizational Structure (contd)

Line and Staff Authority
Line managers are responsible for the essential

activities of the organization, including production and sales. Line managers have the authority to issue orders to those in the chain of command

The president, the production manager, and the sales manager are examples of line managers

Staff managers have advisory authority, and

cannot issue orders to those in the chain of command (except those in their own department)

Organizational Structure (contd)

Span of Control
The number of employees who can be effectively and

efficiently supervised by a manager Width of span is affected by:

Skills and abilities of the manager and the employees Characteristics of the work being done Similarity of tasks Complexity of tasks Physical proximity of subordinates Standardization of tasks Sophistication of the organizations information system Strength of the organizations culture Preferred style of the manager

Organizational Structure (contd)

Centralization The degree to which decision making is concentrated at a single point in the organization

Organizations in which top managers make all the decisions and lower-level employees simply carry out those orders

Decentralization The degree to which lower-level employees provide input or actually make decisions Employee Empowerment

Increasing the decision-making discretion of employees

Organizational Structure (contd)

Formalization
The degree to which jobs within the organization

are standardized and the extent to which employee behavior is guided by rules and procedures

Highly formalized jobs offer little discretion over what is to be done Low formalization means fewer constraints on how employees do their work

Organizational Design Decisions

Mechanistic Organization
A rigid and tightly

Organic Organization
Highly flexible and

controlled structure

adaptable structure

High specialization Rigid departmentalization Narrow spans of control High formalization Limited information network (mostly downward communication) Low decision participation by lower-level employees

Nonstandardized jobs Fluid team-based structure Little direct supervision Minimal formal rules Open communication network Empowered employees

Mechanistic Versus Organic Organization

Mechanistic High Specialization Rigid Departmentalization Clear Chain of Command Narrow Spans of Control Centralization High Formalization Organic Cross-Functional Teams Cross-Hierarchical Teams Free Flow of Information Wide Spans of Control Decentralization Low Formalization

Structural Contingency Factors (contd)

Strategy and Structure
Achievement of strategic goals is facilitated by

changes in organizational structure that accommodate and support change

Size and Structure

As an organization grows larger, its structure

tends to change from organic to mechanistic with increased specialization, departmentalization, centralization, and rules and regulations

Structural Contingency Factors (contd)

Technology and Structure
Organizations adapt their structures to their

technology Routine technology = mechanistic organizations Nonroutine technology = organic organizations

Structural Contingency Factors (contd)

Environmental Uncertainty and Structure
Mechanistic organizational structures tend to

be most effective in stable and simple environments

The flexibility of organic organizational

structures is better suited for dynamic and complex environments

Organizational Designs
Organizational Designs

Traditional

Contemporary

-Simple Structure -Functional -Divisional

-Team
-Matrix-Project -Boundary less Learning Organization

Common Organizational Designs

Traditional Designs
Simple Structure Low departmentalization, wide spans of control, centralized authority, little formalization Functional Structure Departmentalization by function

Operations, finance, human resources, and product research and development

Divisional Structure Composed of separate business units or divisions with limited autonomy under the coordination and control of the parent corporation

Organizational Designs (contd)

Contemporary Organizational Designs
Team Structures The entire organization is made up of work groups or self-managed teams of empowered employees Matrix Structures Specialists for different functional departments are assigned to work on projects led by project managers Matrix participants have two managers Project Structures Employees work continuously on projects, moving on to another project as each project is completed

A Matrix Organization in an Aerospace Firm

Design Engineering
Alpha Project Beta Project Gamma Project Omega Project Manufacturing Design Group Design Group Design Group Design Group

Contract Administration

Purchasing Purchasing Group Purchasing Group Purchasing Group Purchasing Group

Accounting

Human Resources (HR)

HR Group HR Group HR Group HR Group

Manufacturing Group Manufacturing Group Manufacturing Group Manufacturing Group

Contract Group Contract Group Contract Group Contract Group

Accounting Group Accounting Group Accounting Group Accounting Group

Organizational Designs (contd)

Contemporary Organizational Designs (contd)
Boundaryless Organization A flexible and an unstructured organizational design that is intended to break down external barriers between the organization and its customers and suppliers Removes internal (horizontal and vertical) boundaries Eliminates external boundaries

Organizational Designs (contd)

Learning Organization An organization that has developed the capacity to continuously learn, adapt, and change through the practice of knowledge management by employees Characteristics of a learning organization:

An open team-based organization design that empowers employees Extensive and open information sharing Leadership that provides a shared vision of the organizations future; support; and encouragement A strong culture of shared values, trust, openness, and a sense of community

Co-ordination
Linking of two or more organizational members

and/or work units so that they function well together Two main types of co-ordination are:
Vertical coordination Horizontal Coordination

 Vertical Coordination:

Linking work units (individual, team, departments) separated by hierarchical level Horizontal Coordination: Linking work units (individual, team, departments) at the same hierarchical level

Techniques for effective coordination

Coordination by chain of command
Coordination by leadership Coordination by committees Staff meetings Special Coordinators Self- coordination

Differentiation
Differences in attitudes and working styles, arising

naturally among members of different departments, that can complicate coordination of an organization's activities.

Integration
The degree to which members of various departments

work together in a unified manner.

A Definition of Power
Power The ability to exert influence; that is, the ability to change the attitudes or behavior of individuals or groups . A capacity that A has to influence the behavior of B so that B acts in accordance with As wishes. Dependency A B

Bs relationship to A when A possesses something that B requires.

Sources of Power
Legitimate Power
The power a person receives as a result of his or her position in the formal hierarchy of an organization. Coercive Power A power base dependent on fear. Reward Power Compliance achieved based on the ability to distribute rewards that others view as valuable

Sources of Power
Expert Power
Influence based on special skills or knowledge. Referent Power Influence based on possession by an individual of desirable resources or personal traits.

Dependency: The Key To Power

The General Dependency Postulate The greater Bs dependency on A, the greater the power A has over B. Possession/control of scarce organizational resources that others need makes a manager powerful. Access to optional resources (e.g., multiple suppliers) reduces the resource holders power. What Creates Dependency Importance of the resource to the organization Scarcity of the resource Nonsubstitutability of the resource

Authority (mainly) derives from role

Authority is the right to make an ultimate decision,

and in an organisation it refers to the right to make decisions which are binding on others (Obholzer, 1994).

Line & Staff Authority

Line authority is the relationship in which a superior exercises direct supervision over a subordinate Staff relationship is advisory

Difference between Authority & Power

Power
It is a ability to command &

Authority
It is institutional right to

influence behavior of another It rests with persons, in their individual capacities It doesn't follow any hierarchy Power, being personalized attribute, can not be delegated Emerges because of personal factors May exist between any 2 persons

command It lies in managerial position

It is hierarchical in nature It can be delegated Institutional & originates from

structural relationship Superior-subordinate relationship

Delegation
Transfering formal authority from one position to

another is known as delegation

The Delegation Process

Assign Tasks

Transfer task responsibility

Reject

Acceptance Condition

Accept
Creation of responsibility

Blocks to effective delegation

Factors in delegator: Love for authority Maintenance of tight control Fear of subordinates growth Fear of exposure Attitude towards subordinates Personality of superior

Guides for Overcoming Weak Delegation

1. 2. 3. 4. 5.

Define assignments and delegate authority in light of results expected Select the person in light of the job to be done Maintain open lines of communication Establish proper controls Reward effective delegation and successful assumption of authority

Definition of Staffing
Staffing is filling, and keeping filled, positions in the

organization structure

SITUATIONAL FACTORS AFFECTING STAFFING

External factors include the level of education, the

prevailing attitudes in society (such as the attitude toward work), the many laws and regulations that directly affect staffing, the economic conditions, and the supply of and demand for managers outside the enterprise

SITUATIONAL FACTORS AFFECTING STAFFING cont.

Internal factors that affect staffing include, for

example, organizational goals, tasks, technology, organization structure, the kinds of people employed by the enterprise, the demand for and the supply of managers within the enterprise, the reward system, and various kinds of policies

The Human Resources Management Process

Environment Human Resource Planning Recruitment Selection Identification and Selection of Competent Employees

Decruitment

Orientation

Training

Adapted and competent employees with up-to-date skills and knowledge

Performance Management

Compensation and Benefits

Career Development

Competent and high-performing employees who are capable of sustaining high performance over the long term

Environment