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Group Members

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Organizational Theory, Design, and Change

Fifth Edition
Gareth R. Jones

Chapter 3
Designing
Organizational
Structure: Authority
and Control
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Learning Objectives
1. Explain why a hierarchy of authority
emerges in an organization, and the
process of vertical differentiation
2. Discuss the issues involved in designing
a hierarchy to coordinate and motivate
organizational behavior most effectively
3. Discuss the way in which the design
challenges discussed in Chapter 4
provide methods of control that
substitute for the direct, personal control
that managers provide and affect the
design of the organizational hierarchy
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Learning Objectives
(cont.)
4. Appreciate the principles of
bureaucratic structure and explain
their implications for the design of
effective organizational hierarchies
5. Explain why organizations are
flattening their hierarchies and
making more use of empowered
teams of employees, both inside
and across different functions
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TOP Managers and

Organizational Theory
Authority:

The power to hold people

accountable for their actions and to make
decisions concerning the use of
organizational resources

Shareholders:

The ultimate
authority over the use of corporations
resources
They own the company
They exercise control over it through their
responsibilities
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Top Managers and

Organizational Theory
The Board of Directors:

Monitor
Corporate managers activities and reward
managers who pursue activities that satisfy
stakeholder goals
Inside Directors: Hold offices in a companys
formal hierarchy
Out side Directors: Not full time employees

Corporate Level Management:

The inside stakeholder group that has ultimate
responsibility for setting company goals and
allocating organizational resources
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The Chief Executive

Officers (CEO)

Responsible for setting the organizations goals and

designing its structure
Selects key executives to occupy the topmost levels of
the managerial hierarchy
Determines top managements rewards and incentives
Control the allocation of scare resources such as
money and Decision making power among the
organizations functional areas or business divisions
The CEOs actions and reputation have a major impact
on inside and outside stakeholders views of the
organization and affect the organizations ability to
attract resources from its environment

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Top Management Role

CEO- He has primary responsibility
for managing the organization
relationship with external
stakeholders
COO- Responsible for managing the
organization internal operations
Exec. Vice President- Oversees and
manages the companys most
significant line and staff role
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The Top Management

Team
Line Role:

Managers who have direct

responsibility for the production of goods and
services

Staff Role:

Managers who are in charge

of a specific organization functions such as
sales or Research and Development(R&D)

Are Advisory only

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Top Management Team

Top Management Teams : A group
of managers who report to the CEO
and COO and help the CEO Set the
company strategy and its long term
goals and objectives
Corporate Managers: The
members of top management team
whose responsibility is to set strategy
for the corporation as a whole
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Other Managers
Divisional Managers: Managers
who set the policy for the division they
head

Functional Managers: Managers

who are responsible for developing the
functional skills and capabilities that
collectively provide the core
competencies that gives the
organization its competitive edges

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Authority: How and Why

Vertical Differentiation
The hierarchy begins to emerge
Occurs
when the organization experiences
problems in coordinating and
motivating employees
Division of labor and specialization
makes it hard to determine how
well an individual performs
Almost impossible to assess
individual contributions to
performance when employees
cooperate

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Authority: How and Why

Vertical Differentiation
Occurs
To deal(cont.)
with coordination and

motivation problems, the

organization can:

Increase the number of

managers it uses to monitor,
evaluate, and reward
employees

Increase the number of levels

in its managerial hierarchy,
thereby making the hierarchy
of authority taller.

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Authority: How and Why

Vertical Differentiation

Size and
height limitations
Occurs
(cont.)

Tall organization: an organization

in which the hierarchy has many
levels relative to the size of the
organization
Flat organization: an
organization that has few levels in
its hierarchy relative to its size

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Figure 5-1: Flat and Tall

Organizations

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Authority: How and Why

Vertical Differentiation
Occurs
(cont.)
By the time
an organization has

1,000 members, it has 4 levels in its

hierarchy
At 3,000 members, it likely has 7
levels
After 10,000 to 100,000,
organizations have 9 or 10 levels
Increase in size of the managerial
component is less than proportional
to increase in size of the organization
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Figure 5-2: Relationship Between

Organizational Size and Number of
Hierarchical Levels

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Figure 5.3: Types of

Managerial Hierarchies

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Figure 5.4: Relationship Between

Organizational Size and The Size of the
Managerial Component

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Authority: How and Why

Vertical Differentiation

Problems
with tall hierarchies:
Occurs
(cont.)

Communication problems:
communication takes longer and is
likely to be distorted
Motivation problems: as hierarchy
increases, the relative difference in the
authority possessed managers at each
level decreases, as does their area of
responsibility

Less responsibility and authority could

reduce motivation

Bureaucratic costs: managers cost

money
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Authority: How and Why

Vertical Differentiation Occurs
(cont.)
Parkinsons Law Problem

Argues that the number of

managers and hierarchies are
based on two principles

An official wants to multiply

subordinates, not rivals
Officials make work for one another

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Authority: How and Why

Vertical Differentiation

Ideal number
of hierarchical levels
Occurs
(cont.)
determined by:

Principle of minimum chain of

command: an organization should
choose the minimum number of
hierarchical levels consistent with is goals
and the environment in which it operates
Span of control: the number of
subordinates a manager directly
manages

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Figure 5-5: Spans of

Control

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Authority: How and Why

Vertical Differentiation

Factors that
determine the appropriate
Occurs
(cont.)
span of control

Most important factor limiting span of

control is the managers inability to
supervise increasing number of subordinates
adequately
There seems to be a limit to how wide a
managers span of control should be
Dependent on the complexity and
interrelatedness of the subordinates tasks
Complex and dissimilar tasks small span
of control
Routine and similar tasks (e.g., mass
production) large span of control
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Figure 5-6: Increasing Complexity of

Managers Job as the Span of
Control Increases

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Figure 5-7: Factors

Affecting the Shape of the
Hierarchy

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Control: Factors Affecting

the Shape of the
Horizontal differentiation: an
Hierarchy
organization that is divided into
subunits has many different
hierarchies, not just one

Each function or division has its own

hierarchy

Horizontal differentiation is the

principal way an organization retains
control over employees without
increasing the number of hierarchical
levels
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Figure 5-8: Horizontal

Differentiation into Functional
Hierarchies

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Figure 5.9: Horizontal

Differentiation Within the R&D
Functions

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Control: Factors Affecting

the Shape of the Hierarchy

Centralization: with
(cont.)

decentralization, less direct

managerial supervision is needed
Authority is delegated to the
lower levels
Decentralization does not
eliminate the need for many
hierarchical levels in large,
complex organizations

Assists relatively tall structures to be

more flexible
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Copyright 2007 Prentice Hall

Control: Factors Affecting

the Shape of the Hierarchy
(cont.)
Standardization: reduces the
need for levels of management
because rules substitute for
direct supervision

Gain control over employees by

making their behavior and actions
more predictable

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The Principles of
Bureaucracy
Max Weber designed a hierarchy
so that it effectively allocates
decision-making authority and
control over resources
Bureaucracy: a form of
organizational structure in which
people can be held accountable
for their actions because they are
required to act in accordance with
rules and standard operating
procedures
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The Principles of
Bureaucracy (cont.)
Principle one: a bureaucracy is
founded on the concept of
rational-legal authority

Rational-legal authority: the

authority a person possesses
because of his or her position in an
organization
Hierarchy should be based on the
needs of the task, not on personal
needs
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The Principles of
Bureaucracy (cont.)

Principle two: Organizational

roles are held on the basis of
technical competence, not
because of social status, kinship,
or heredity
Principles one and two establish
the organizational role as the
basic component of organization
structure
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The Principles of
Bureaucracy (cont.)

Principle three: A roles task

responsibility and decision-making
authority and its relationship to
other roles in the organization
should be clearly specified

Role conflict: the state of opposition

that occurs when two or more people
have different views of what another
person should do, and as a result,
make conflicting demands on that
person
Role ambiguity: the uncertainty that
occurs for a person whose tasks or
authority are not clearly defined
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The Principles of
Bureaucracy (cont.)

Principle four: the organization

of roles in a bureaucracy is such
that each lower office in the
hierarchy is under the control
and supervision of a higher
office

Organizations should be arranged

hierarchically so that people can
recognize the chain of command

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The Principles of
Bureaucracy (cont.)

Principle five: rules, standard

operating procedures, and norms
should be used to control the
behavior and the relationships
among roles in an organization

Rules and SOPs are written

instructions that specify a series of
actions intended to achieve a given
end
Norms are unwritten
Rules, SOPs, and norms clarify
peoples expectations and prevent
misunderstanding
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The Principles of
Bureaucracy (cont.)

Principle six: administrative

acts, decisions, and rules should
be formulated and put in writing

Bureaucratic structure provides an

organization with memory
Organizational history cannot be
altered

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Advantages of
Bureaucracy

It lays out the ground rules for

designing an organizational hierarchy
that efficiently controls interactions
between organizational members
Written rules regarding the reward and
punishment of employees reduce the
costs of enforcement and evaluating
employee performance
It separates the position from the
person
It provides people with the opportunity
to develop their skills and pass them on
their successors
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The Problems of
Bureaucracy

Over time managers fail to properly

control the development of the
organizational hierarchy
Organizational members come to rely
too much on rules and standard
operating procedures (SOPs) to make
decisions
Such over reliance makes them
unresponsive to the needs of customers
and other stakeholders
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Management by
Objectives
Management by objectives
(MBO): a system of evaluating
subordinates on their ability to
achieve specific organizational
goals or performance standards
and to meet operating budgets

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Steps in Management by
Objectives

Step 1: Specific goals and

objectives are established at
each level of the organization
Step 2: Managers and their
subordinates together determine
the subordinates goals
Step 3: Managers and their
subordinates periodically review
the subordinates progress
toward meeting goals
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The Influence of the

Informal Organization

Decision making and coordination

frequently takes place outside the
formally designed channels as people
interact
Rules and norms sometimes emerge from
the interaction of people and not from the
formal rules blueprint
Managers need to consider the informal
structure when they make changes as it
may disrupt informal norms that work
Informal organization can actually
enhance organizational performance
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IT, Empowerment, and

Self-managed Teams
The use of information technology
(IT) is making it easier to cost
effectively design structures to
control subordinates
IT provides people with the
information they need at all levels
IT is encouraging decentralization
and use of teams
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IT, Empowerment, and

Self-managed Teams

Empowerment: the process of

(cont.)

giving employees the authority to

make important decisions and to
be responsible for their outcomes
Self-managed teams: self-lead
work groups consisting of people
who are jointly responsible for
ensuring that the team
accomplishes its goals
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IT, Empowerment, and

Self-managed Teams
Cross-functional teams: groups of
(cont.)
employees from across an
organizations different functions
who are empowered to direct and
coordinate the value-creation
activities
Contingent workers: workers who
are employed temporarily by an
organization and who receive no
indirect benefits such as health
insurance or pensions
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