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CHAPTER 7

Designing
Organizational
Structures
The Future of Business
The Essentials 4th Edition
Gitman & McDaniel
Chapter 7
Copyright 2009 by South-Western, a division of Cengage Learning. All rights reserved

Prepared by
Deborah Baker

1 What are the five traditional forms of

departmentalization?
2 What contemporary organizational structures
are companies using?

CHAPTER 7

Learning Goals

3 Why are companies using team-based

organizational structures?
4 What tools do companies use to establish
relationships within their organizations?

5 How can the degree of centralization/

decentralization be altered to make an
organization more successful?
6 How do mechanistic and organic organizations
differ?

CHAPTER 7

Learning Goals (continued)

7 How does the informal organization affect the

performance of the company?
8 What trends are influencing the way businesses
organize?

Departmentalization

What are the five traditional forms of

departmentalization?

The Organizing Process

Determining
Determiningwork
work
activities
activitiesand
and
dividing
dividingup
uptasks
tasks

(division
(divisionof
oflabor)
labor)

Grouping
Groupingjobs
jobsand
and
employees
employees

(departmentalization)
(departmentalization)

Assigning
Assigningauthority
authority
and
andresponsibilities
responsibilities

(delegation)
(delegation)

Departmentalization

formal organization
The order and design of relationships with a firm;
consists of two or more people working together
with a common objective and clarity of purpose.

Division of Labor
division of labor
The process of dividing work into separate jobs
and assigning tasks to workers.

specialization
The degree to which tasks are subdivided into
smaller jobs.

Departmentalization

departmentalization
The process of grouping jobs together so that
similar or associated tasks and activities can be
coordinated.

Organization Chart
President

Vice-Presidents

Finance
Manager,
accounting

Manager,
allocations &
inventory control

Operations
Production
manager

Manager,
financial
planning

Marketing
Sales
manager

Director
of human
resources

Distribution
manager

Director
of customer
service

Basic Types of Departmentalization

Functional
Functional

Based
Based on
on the
the primary
primary
functions
functions performed
performed

Product
Product

Based
Based on
on the
the goods/services
goods/services
produced
produced or
or sold
sold

Process
Process

Based
Based on
on the
the production
production
process
process used
used

Customer
Customer

Based
Based on
on the
the primary
primary type
type of
of
customer
customer served
served

Geographic
Geographic

Based
Based on
on the
the geographic
geographic
segmentation
segmentation of
of organizational
organizational units
units
10

Functional Departmentalization
President

Legal

Personnel

Manufacturing

Engineering

Exhibit 7.2

Marketing

Finance

11

Product Departmentalization
Administrator
and CEO

Head of
outpatient /
emergency

Head of
pediatrics

Head of
cardiology

Exhibit 7.2

Head of
orthopedics

Head of
obstetrics /
gynecology

12

Process Departmentalization
Plant
superintendent

Lumber cutting
and
treatment

Furniture
assembly

Furniture
finishing

Exhibit 7.2

Shipping

13

Customer Departmentalization
Vice president,
marketing

Marketing manager,
railroad customers

Marketing manager,
aircraft customers

Marketing manager,
automotive
customers

Exhibit 7.2

Marketing manager,
military customers

14

Geographic Departmentalization
Vice president,
marketing

Director,
U.S. and Canadian
marketing

Director,
European
marketing

Exhibit 7.2

Director,
South American
marketing

15

Line-and-Staff Organization
Line functions

President

Corporate
attorney

Vice president
of marketing

Marketing
research
specialist
Sales
manager

Sales
manager

Assistant to
president

Vice president
of manufacturing

Vice president
of finance

Qualitycontrol
engineer

Advertising
specialist

Sales
manager

Staff functions

Supervisor

Supervisor

Exhibit 7.3

Supervisor

Internal
auditor

Cost
accountant

Credit
analyst

16

CONCEPT check

How does specialization lead to greater

efficiency and consistency in production?
What are the five types of departmentalization?

17

Contemporary Structures

What contemporary organizational

structures are companies using?

18

Contemporary Structures

Matrix
MatrixStructure
Structure
Committee
CommitteeStructure
Structure

19

Contemporary Structures

matrix structure
An organizational structure that combines
functional and product departmentalization by
bringing together people from different
functional areas to work on a special project.

20

Matrix Structure
Advantages
Advantages

Disadvantages
Disadvantages

Teamwork

Power struggles

Efficient use of
resources

Confusion among
team members

Flexibility

Lack of cohesiveness

Ability to balance
conflicting objectives

Higher performance

Opportunities for
development

21

Matrix Structure

22
Exhibit 7.4

Contemporary Structures

committee structure
An organizational structure in which authority
and responsibility are held by a group rather
than an individual.

23

Committee Structure
Advantages
Advantages

Coordination of tasks
is easier

Disadvantages
Disadvantages

Slow to reach decisions

Sometimes dominated
by a single individual

Bring diverse
viewpoints to a problem
Expand possible
solutions

Difficult to hold
individuals accountable
Meetings seem slow
and unproductive

24

CONCEPT check

Why does the matrix structure have a dual

chain of command?
How does a matrix structure increase power
struggles or reduce accountability?
What are advantages of a committee structure?
Disadvantages?

25

Using Teams

Why are companies using team-based

organizational structures?

26

Group Behavior

Formal
Informal

Organizational strategy
Company policies and procedures
Available resources
Corporate culture
Member characteristics
Roles and norms of group members
Size and cohesiveness of group

27

Group Behavior
group cohesiveness
The degree to which group members want to
stay in the group and tend to resist outside
influences.
Increases when:
the size of the group is small
goals are congruent
group has high status
rewards are group based
group competes with other groups

28

Group Decision Making

Strengths
Strengths

Groups bring more information and knowledge

Groups offer a diversity of perspectives and a

greater number of alternatives

Results in a higher-quality decision

Participation increases likelihood of decision

acceptance
29

Group Decision Making

Weaknesses
Weaknesses

Groups take a longer time to reach a solution

Group members may pressure others to

conform

The process may be dominated by one or a

small number of participants

Groups lack accountability

30

Work Groups versus Work Teams

work groups
Share resources and coordinate efforts to help
members better perform individual duties and
responsibilities.

work teams
Require coordination and collaboration. Requires
the pooling of knowledge, skills, abilities, and
resources to achieve a common goal.
A work team creates synergy, causing the
performance of a team to be greater than the sum of
individual contributions.

31

Building High-Performance Teams

Employees
Employees willing
willing to
to work
work together
together
Members
Members possess
possess aa variety
variety of
of skills
skills
Teams
Teams have
have clearly
clearly defined
defined goals
goals
Teams
Teams practice
practice good
good communication
communication
Great
Great teams
teams have
have great
great leaders
leaders

32

Team Leaders

Divide up work so that tasks are not repeated

Help members set and track goals
Monitor their teams performance
Communicate openly
Remain flexible

33

CONCEPT check

What is the difference between a work team and

a work group?
Identify and describe three types of work
teams.
What are some ways to build a highperformance team?

34

Authority
Establishing Organizational Relationships

What tools do companies use to establish

relationships within their organizations?

35

Managerial Hierarchy

managerial hierarchy
The levels of management within an organization;
typically, includes top, middle, and supervisory
management.

36

Managerial Hierarchy

authority
Legitimate power, granted by the organization and
acknowledged by employees, that allows an
individual to request action and expect compliance.

delegation of authority
The assignment of some degree of authority and
responsibility to persons lower in the chain of
command.

37

Span of Control

span of control
The number of employees a manager directly
supervises; also called span of management.

38

Chain of Command

chain of command
The line of authority that extends from one level of
an organizations hierarchy to the next, from top to
bottom, and makes clear who reports to whom.

39

Narrow Span of Control

Advantages
Advantages

Higher degree of
control

More management levels,

more expensive

Manager is more
familiar with
individuals

Slower decision making

Isolation of top
management

Discourages employee
autonomy

Disadvantages
Disadvantages

Close supervision can

provide immediate
feedback

40

Wide Span of Control

Advantages
Advantages

Less control

Quicker decision
making

Possible lack of
familiarity

Managers spread thin

Greater flexibility

Higher levels of job

satisfaction

Lack of coordination
or synchronization

Increased efficiency
and reduced costs

Disadvantages
Disadvantages

41

Optimal Span of Control

Factors
Factors Determining
Determining Optimal
Optimal Span
Span of
of Control
Control
1.
2.
3.
4.
5.

Nature of task
Location of workers
Ability of manager to delegate responsibility
Interaction and feedback between workers and manager
Level of skill and motivation of workers

42

CONCEPT check

How does the chain of command clarify reporting

relationships?
What is the role of a staff position in a line-and-staff
organization?
What factors determine the optimal span of control?

43

Degree of Centralization

How can the degree of centralization/

decentralization be altered to make an
organization more successful?

44

Degree of Centralization

centralization
The degree to which formal authority is
concentrated in one area or level of an
organization.

decentralization
The process of pushing decision-making authority
down the organizational hierarchy.

45

Degree of Centralization
Centralization
Centralization

Top management makes most key decisions

Managers have broad view of operations and

exercise tight financial controls

Reduces costs by eliminating redundancy

Lower level personnel dont get leadership

opportunities

Organization is less responsive to customer

demands

46

Degree of Centralization
Decentralization
Decentralization

Quicker decision making

Increased levels of innovation and creativity
Greater organizational flexibility
Faster development of lower-level managers
Increased job satisfaction and employee commitment
Lower-level personnel may make costly mistakes
Increases likelihood of inefficient communication,
competing objectives, and duplication of effort

47

Factors Influencing Decision-Making Authority

Size of the organization
Speed of change in environment
Managers willingness to give up authority
Employees willingness to accept more authority
Organizations geographic dispersion

48

Degree of Centralization
Decentralization
Decentralization is
is desirable
desirable when
when
Organization
Organization is
is very
very large
large
Firm
Firm is
is in
in aa dynamic
dynamic environment
environment
where
where quick
quick decisions
decisions must
must be
be made
made
Managers
Managers are
are willing
willing to
to share
share
power
power with
with subordinates
subordinates
Employees
Employees are
are willing
willing and
and able
able
to
to take
take more
more responsibility
responsibility

Company
Company is
is spread
spread out
out
geographically
geographically

49

CONCEPT check

What are the characteristics of a centralized

organization?
What are the benefits of a decentralized
organization?
What factors should be considered when choosing
the degree of centralization?

50

Organizational Design Considerations

How do mechanistic and organic

organizations differ?

51

Organizational Design Considerations

Mechanistic
MechanisticOrganization
Organization

Relatively high degree of job specialization

Rigid departmentalization
Many layers of management
Narrow spans of control
Centralized decision making
Long chain of command
Tall organizational structure

52

Organizational Design Considerations

Organic
OrganicOrganization
Organization

Relatively low degree of job specialization

Loose departmentalization
Few layers of management
Wide spans of control
Decentralized decision making
Short chain of command
Flat organizational structure

53

Mechanistic versus Organic Structures

Firms
Firmsoverall
overall strategy
strategy

Size
Size of
of the
the organization
organization

Stability
Stability of
of its
its external
external environment
environment

54

CONCEPT check
Compare and contrast mechanistic and organic
organizations.
What factors determine whether an organization
should be mechanistic or organic?

55

The Informal Organization

How does the informal organization affect the

performance of the company?

56

The Informal Organization

Functions
Functionsof
of the
theInformal
InformalOrganization
Organization
Provides a source of friendships and social contact
for organization members
Helps employees feel better informed about and
connected with what is going on
Provides status and recognition not available from
the formal organization
Aids the socialization of new employees
Helps employees to be more aware of what is happening
in the workplace

57

CONCEPT check

What is the informal organization?

How can informal channels of communication be
used to improve operational efficiency?

58

Trends in Organizational Structure

What trends are influencing the way businesses

organize?

59

Reengineering
Organizational Structure
reengineering
The complete redesign of business structures and
processes in order to improve operations.
Starting over
If we were a new company, how would we run
this place?

60

Attributes of a Virtual Corporation

Technology
Opportunism
Excellence
Trust
No borders

61

Keeping a Virtual Team on Track

Make conversations more personal to build relationships
Be attuned to the mood and nuances of virtual meetings
Keep staff engaged and focused
Establish one-on-one time with each team member

62

Reasons for Outsourcing

Cost reduction
Labor needs

63

Steps for Outsourcing Success

Identify a specific business problem

Consider all possible solutions
Decide if sending work offshore is the appropriate
answer
Look for offshore providers with high-caliber
systems in place
Find an offshore provider that understands their
business

64

CONCEPT check

How does technology enable firms to organize as

virtual corporations?
What are some organizational issues that must be
addressed when two large firms merge?

65