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Don Hellriegel

Susan E. Jackson
John W. Slocum, Jr.

11th Edition

Chapter 11—Designing Organizations

Prepared by
Argie Butler
Texas A&M University
Learning Goals

1. Explain the two fundamental principles

of designing organizations
2. State the major concepts of vertical
organizational design
3. Describe four types of horizontal
organizational design
4. Describe the major options for achieving
organizational integration
Chapter 11: PowerPoint 11.1
 Organization chart: a diagram that illustrates
the reporting lines between units and people
within the organization
 The organization chart conveys four kinds of
 Boxes represent different units
 Titles in each box show the work performed
by that person
 Reporting relationships are shown by the lines
connecting superiors and subordinates
 Levels of the organization are indicated by the
number of vertical layers in the chart
Chapter 11: PowerPoint 11.2
Chairman, President and CEO

Sr. Vice President, Executive Vice Executive Vice

Human Resources President, Logistics President, Store
& Distribution Operations


South Central South East Western
Division Division Division

Region Region Region

1 2 3

District District District

Manager Manager Manager
Chapter 11: PowerPoint 11.3 (Adapted from Figure 11.1)
“I’ve often thought that after you
get organized, you ought to throw
away the organization chart. It
really doesn’t show who has the
power and how things really work.”

David Packard, Cofounder, Hewlett-Packard

Chapter 11: PowerPoint 11.4
 Organization is composed of units that
work on specialized tasks using different
work methods and requiring employees
with unique competencies
 Division of labor: work of the organization
is divided into smaller tasks
 Specialization: process of identifying
particular tasks and assigning them to
departments, teams, or divisions

Chapter 11: PowerPoint 11.5

 Various units coordinate their work to achieve common

 Snapshot

“Coordination is like professional sports: It looks easy,

but when you’re on the field, you see how difficult it is.
The more people need to work with each other to reach
the organization’s goal, the more coordination is
needed. However, there is a cost (meeting time, travel,
uniform policies) to achieving integration.”

Mike Lazaridis, President, Research in Motion,

Waterloo, Ontario, Canada
Chapter 11: PowerPoint 11.6
Vertical Design

 Hierarchy: a pyramid showing relationships

among levels
 Span of control: the number of employees
directly reporting to a person
1. Competence of both the manager and the employee
2. Similarity or dissimilarity of tasks being
3. Incidence of new problems in the manager’s
4. Extent of clear operating standards and rules

Chapter 11: PowerPoint 11.7 (continued)

Vertical Design

 Authority: right to make a decision

 Responsibility: an employee’s duty to

perform the assigned task

 Accountability: manager’s expectation that

the employee will accept credit or blame for
his or her work

Chapter 11: PowerPoint 11.8

“Ken Lay, you have completely failed
at the job you were hired to perform. If
this lack of accountability would have
occurred farther down the
organization, no one would hesitate to
fire the person.”

Jim Schwieger, former Enron Employee

Chapter 11: PowerPoint 11.9
Vertical Design

 Delegation: process of giving authority to a

person (or group or team) to make decisions
and act in certain situations

 Barriers to delegation

 Failure to define authority and responsibility

 Managers fear to delegate to others
 Cultural values
Chapter 11: PowerPoint 11.10
Vertical Design: Building Blocks
for Effective Delegation

Establish goals Ensure clarity

and standards

Involvement Expect completed


Provide training Timely feedback

Chapter 11: PowerPoint 11.11

 Centralization: concentration of authority
at the top of an organization or department

 Decentralization: delegation of authority to

lower level employees or departments

 No absolutes for centralization versus


Chapter 11: PowerPoint 11.12

Desire for uniformity
of policy

Environmental Competency
influences that Cost of levels of
require decisions managers and
uniformity employees
Need for
formal control

Chapter 11: PowerPoint 11.13

Functional Product
design design

Network Geographical
design design

Chapter 11: PowerPoint 11.14

 Grouping managers and employees
according to their areas of expertise
and the resources they use to
perform their jobs

Chapter 11: PowerPoint 11.15


Chief Chief
Financial Operating Treasurer
Officer Officer

Financial Strategic Styling Human

Services Planning Officer Resources

Chapter 11: PowerPoint 11.16 (Adapted from Figure 11.2)

Potential Benefits Potential Pitfalls
 Supports skill specialization  Inadequate communication
 Reduces duplication of across functional areas
resources & increases  Conflicts over product
coordination with the priorities
function  Focus on departmental
 Enhances career rather than organizational
development & training issues and goals
within functional area
 Develops managers who are
 Allows superiors and
experts only in a narrow
subordinates to share
common expertise
 Promotes high-quality
technical decision making
Chapter 11: PowerPoint 11.17
 All functions that contribute to a
product are organized under one

 Divides the organization into self-

contained units

Chapter 11: PowerPoint 11.18

Chairman & Chief
Executive Officer

Combat Marine
Systems & Aerospace
Systems Systems

Land Armament Aviation
& Tactical
Systems Systems Services

Chapter 11: PowerPoint 11.19 (Adapted from Figure 11.3)
Potential Benefits Potential Pitfalls
 Permits fast changes in a  Inefficient utilization of
product line skills and resources
 Allows greater product line  Not fostering coordination
visibility of activities across product
 Fosters a concern for lines
customer demand  Encourages politics and
 Clearly defines conflicts in resource
responsibilities for each allocation across product
product line lines
 Develops managers who  Limits career mobility for
can think across functional personnel outside their own
lines product lines

Chapter 11: PowerPoint 11.20

 Organizes activities around location

 Helps to develop competitive advantage in

each region according to that area’s
customers, competitors, and other factors

Chapter 11: PowerPoint 11.21

Potential Benefits Potential Pitfalls
 Facilities and the equipment  Duplication of functions, to
used for production and/or varying degrees, at each
distribution all in one place, regional or individual unit
saving time and costs location
 Able to develop expertise in  Conflict between each
solving problems unique to location’s goals and the
one location organization’s goals
 Understanding of  Adds levels of management
customers’ problems and and extensive use of rules
desires in the location and regulations to
 Getting production closer to coordinate and ensure
raw materials and suppliers uniformity of quality among
Chapter 11: PowerPoint 11.22
Network Design

 Subcontracts some or many of its

operations to other firms and coordinates
them to accomplish specific goals

 Sometimes called virtual organizations

 Connects people regardless of their


Chapter 11: PowerPoint 11.23

Potential Benefits Potential Pitfalls
 Ability to gain special  Other organizations may fail
knowledge and skills of to live up to established
others without having to deadlines
hire employees  Managers must constantly
 Allows managers the monitor the quality of work
flexibility to work with a provided by other
wide variety of different organizations
suppliers, customers, and  Employees in the outsourced
other organizations organization may not hold
the same values and sense of
time urgency to which
employees in the
organization are committed
Chapter 11: PowerPoint 11.24
Legal Hardware
Software Marketing
Senior Managers of Future
Costume DreamWorks, SKG Games

Agents Technicians

Talent Relations
Chapter 11: PowerPoint 11.25 (Adapted from Figure 11.4)
Organic Mechanistic
 Tasks tend to be ill  Tasks are highly
defined specialized
 Tasks are continually  Tasks tend to remain
adjusted and redefined rigidly defined unless
through communication changed by top
as situations change management
 Network structure of  Specific roles are
control, authority, and prescribed for each
communication employee

Chapter 11: PowerPoint 11.26 (Adapted from Table 11.1) (continued)

Organic Mechanistic
 Communication and  Hierarchical structure of
decision making are control, authority, and
both vertical and communication
horizontal, depending  Communication and
on where information decision making are
and expertise reside primarily vertical, top-
 Communication down
emphasizes the form of  Communication
mutual influence and emphasizes directions
advice among all levels and decisions issued by
Chapter 11: PowerPoint 11.27 (Adapted from Table 11.1)
 Interdependence: the degree of coordination required
between individuals and units to transform information
and raw materials into goods and services
 Pooled interdependence: little sharing of information or
resources among individuals within a unit or among
units in the performance of tasks (e.g., golf teams)

Input Input Input

Chapter 11: PowerPoint 11.28
Organizational Integration: Types
of Interdependence (cont’d)

 Sequential interdependence: the orderly step-

by-step flow of information, tasks, and resources
from one individual or team to another within
the same unit or from one unit to another (e.g.,
football teams)

Input Output

Chapter 11: PowerPoint 11.29

Organizational Integration: Types
of Interdependence (cont’d)
 Reciprocal interdependence: the need for every
individual and unit to work with every other individual
and unit; information and resources flow back and
forth freely until the goal is achieved (e.g., volleyball
Input Output Input Output

Input Output
Chapter 11: PowerPoint 11.30