C H A P T E R: F I F T E E N

Organizational Structure

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Biowares Structural Dilemma

Ray Muzyka (left) and Greg Zeschuk (right) designed an organizational structure for their Edmonton-based electronic games company, Bioware, that balances the need for teamwork and information sharing.

Ed Kaiser/Edmonton Journal

Division of Labour
 Subdivision of work into separate jobs assigned to different people  Potentially increases work efficiency  Necessary as company grows and work becomes more complex

Ed Kaiser/Edmonton Journal

Forms of Work Coordination

Informal communication  Sharing information  High media-richness  Important in teams  Integrator roles in larger firms Formal hierarchy  Direct supervision  Common in larger firms  Problems -- costly, slow, less popular today with workforce Standardization  Processes -- formal instructions  Outputs -- clear goals/output measures  Skills -- training, learn precise role behaviours
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Elements of Organizational Structure

DepartmentDepartmentalization

Span of Control

Organizational Structure Elements

Formalization
Centralization

Span of Control
Number of people directly reporting to the next level

Assumes coordination

through direct supervision

Wider span of control possible with other coordinating mechanisms present

Trend Toward Flatter Structures

Firms moving toward flatter structures

 Cuts costs  Puts decision makers closer

to front-line information

 Supports empowerment
Problem: risk of cutting too much middle management

Centralization and Decentralization

Centralization
Formal decision making authority is held by a few people, usually at the top

Decision making authority is dispersed throughout the organization

Decentralization
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Formalization
The degree to which organizations standardize behaviour through rules, procedures, formal training, and related mechanisms. Formalization increases as firms get older, larger, and more regulated Problems

   

Reduces organizational flexibility Work rules can undermine productivity Employees feel disempowered Rules become focus of attention

Mechanistic vs. Organic Structures Mechanistic

Narrow span of control High formalization High centralization

Organic
Wide span of control Little formalization Decentralized decisions

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Servomax Outgrows its Structure

Servomax had a classic simple organizational structure when Arie Koifman (bottom right) first offered coffee services to Montreal business clients in the late 1990s. Today, as one of the largest providers of coffee services around Montreal, Servomax is replacing its simple structure to accommodate the companys increased specialization and complexity
R. Arless Jr./ The Gazette (Montreal)

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Effects of Departmentalization
1. Establishes chain of command (supervision structure) 2. Creates common mental models, measures of performance, etc 3. Encourages staff to coordinate through informal communication
R. Arless Jr./ The Gazette (Montreal)

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Features of Simple Structures

 Minimal hierarchy -- staff reports directly to owner  Roles are fairly loosely defined for flexibility  Informal communication for coordination  Centralized structure -owner makes most decisions
R. Arless Jr./ The Gazette (Montreal)

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Functional Organizational Structure

Organizes employees around specific knowledge or other resources (marketing, production)
CEO

Finance

Production

Marketing

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Evaluating Functional Structures

Benefits

      

Supports professional identity and career paths Permits greater specialization Easier supervision --similar issues Creates an economy of scale --common pool of talent

Limitations
More emphasis on subunit than organizational goals Higher dysfunctional conflict Poorer coordination -- requires more controls

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Divisional Structure
Organizes employees around outputs, clients, or geographic areas
CEO

Consumer Products

Lighting Products

Medical Systems

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Evaluating Divisional Structures

Benefits

 Building block structure -- accommodates growth  Better coordination in diverse markets

Limitations

 Duplication, inefficient use of resources  Specializations are dispersed, creating silos of 

knowledge Difficult to determine which divisional structure should have priority

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Matrix Structure (Project-based)

Employees ( )are temporarily assigned to a specific project team and have a permanent functional unit
CEO Engineering Marketing Design

Project A Manager Project B Manager Project C Manager

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Evaluating Matrix Structures

Benefits

       

Uses resources and expertise effectively Improves communication, flexibility, innovation Focuses specialists on clients and products Supports knowledge sharing within specialty across groups Solution when two divisions have equal importance

Limitations
Increases goal conflict and ambiguity Two bosses dilutes accountability More conflict, organizational politics, and stress

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W. L. Gores Team-Based Structure

W. L. Gore & Associates Inc. has an extreme team-based organizational structure that eliminates the traditional hierarchy. Associates are organized around selfdirected teams at dozens of manufacturing and sales offices around the world.
Bill Kramer/ Bill Kramer Photography Inc.

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Team-Based Structure Features

Self-directed work teams Teams organized around work processes Very flat hierarchy, few management levels Very little formalization Usually found within divisionalized structure
Bill Kramer/ Bill Kramer Photography Inc.

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Evaluating Team-Based Structures

Benefits

      

Responsive, flexible Lower admin costs More informed decisions

Limitations
Interpersonal training costs Slower during team development Stress due to ambiguous roles Problems with supervisor role changes
Bill Kramer/ Bill Kramer Photography Inc.

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Network Organizational Structure

Product developmen t partner (France) Call centre partner (Canada)

Core Firm
(Canada)
Accounting partner (Canada) Assembly partner (China) Package design partner (UK)

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Network Structure v. Virtual Corp.

Network structure

 An alliance of several organizations for the

Virtual corporation

purpose of creating a product or serving a client

 Several independent companies that form unique

partnership teams to provide customized products or services, usually to specific clients, for a limited time

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Evaluating Network Structures

Benefits

 Highly organic -- flexible design  Efficiencies from acquiring and discarding

resources as needed from partnerships

Limitations

 Exposes core firm to market forces -- shortages 

of facilities and talent Less control over non-core work processes

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External Environment & Structure

Dynamic
High rate of change Use team-based, network, or other organic structure

Stable
Steady conditions, predictable change Use mechanistic structure

Complex
Many elements (such as stakeholders) Decentralize

Simple
Few environmental elements Less need to decentralize

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External Environment & Structure (cont)

Diverse
Variety of products, clients, regions Divisional form aligned with the diversity

Integrated
Single product, client, place Use functional structure, or geographic division if global

Hostile
Competition and resource scarcity Use organic structure for responsiveness

Munificent
Plenty of resources and product demand Less need for organic structure

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Effects of Organizational Size

As organizations grow, they have:
1. 2. 3. 4. More division of labour (job specialization) Greater use of standardization More hierarchy and formalization More decentralization

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Technology and Structure

Technology

 Mechanisms or processes by which an

Variability

organization turns out its product or service

 The number of exceptions to standard procedure

that tend to occur.

Analyzability

 The predictability or difficulty of the required work

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Technology and Structure

High Analyzability

Assembly Line

Engineering Projects

Low Analyzability

Skilled Trades

Scientific Research
High Variety

Low Variety
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Organizational Strategy
Structure follows strategy Differentiation strategy

 Providing unique products or attracting clients

who want customization

Cost leadership strategy

 Maximize productivity in order to offer competitive

pricing

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C H A P T E R: F I F T E E N

Organizational Structure

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C H A P T E R: F I F T E E N

Chapter 15 Extras

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General Motors IT Matrix Structure

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