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Chapter 10: Organisational structure

Note: these slides are significantly edited from the material in the chapter; read the chapter carefully for more detail. Four main sections in this presentation: 1.Overview of organisational structure 2.Effects of strategy, environment and technology on structure 3.Vertical structure and span of control 4.Five types of organisational structure: functional, divisional, horizontal matrix, team-based and network structures.

Definition of organisational structure.

The framework in which the organisation

defines how tasks are divided, resources are deployed and departments are coordinated and is therefore essential to understanding how the organisation works/doesnt work.
1. 2. 3.

Set of formal tasks assigned to individuals and departments. Formal reporting relationships: power structure. Design of systems to ensure effective coordination of employees across departments.

Organisational chart (two examples shown below:

functional and divisional. There are many good examples of various org charts in the textbook, chapter 10)

Factors shaping structure

Structure should follow strategy (doesnt always) Structure should reflect the operating environment

(doesnt always) Structure should fit the technology (again, doesnt always in practice)

Structure follows strategy

Structure should reflect the operating environment

Environmental uncertainty causes three things to occur in an organisation. Examples: GFC; carbon tax; high AUD; US debt problems etc.

Increased differences among departments. Increased coordination to keep departments working together. Greater need for adaptation to change and innovation.

Structure should reflect the operating environment

Mechanistic structures:
Used in stable environments. Have rigid, vertical, centralised structures with most decisions made

at the top. Highly specialised, many rules and a clear hierarchy. Extensive policies and procedures Often slower/resistant to change and innovation.

Organic structures:
Used in rapidly changing environments.

Have a looser, free flowing and adaptive structure.

Horizontal structure with decentralised decision making. More fluid and adaptable to change. More likely to result in innovation

Structure should fit the technology

Technology includes the knowledge, tools, techniques

and activities used to transform the organisations inputs into outputs. Service technology, eg: cafes, health services, supermarkets, banks etc.:
Direct contact with customers. Service firms tend to be flexible (?), informal (?) and centralised

in structure.

Digital technology:
Characterised by the use of the internet and other digital

processes to conduct or support business online. Organisations tend to be flexible and decentralised (?).

Organising the vertical structure

Organisational chart (see next slide for e.g.) Work specialisation The degree to which organisational tasks are subdivided into individual jobs, also called division of labour. e.g. Automobile assembly line; McDonalds production in the local franchise. Specialisation results in efficiency (Taylor). However, specialisation reduces motivation (?). Scalar principle: Line of authority includes all employees from bottom to top of the organisation

Organisational chart (two examples shown below:

functional and divisional. There are many good examples of various org charts in the textbook, chapter 10)

Organising the vertical structure

Authority, responsibility and delegation

The formal and legitimate right of a manager to make decision, issue orders and allocate resources to achieve organisationally desired outcomes.
Authority is vested in organisational positions, not people. Authority is accepted by employees. Authority flows down the vertical hierarchy.

1 2 3

These reasons are why structure is so important to understanding how management works/doesnt work in an organisation.

Organising the vertical structure

Span of management: The number of employees who report to a supervisor; also called the span of control. Traditional: Seven employees per manager. Lean organisations: As high as 30 to 40.

Factors that influence larger span of management

1. 2. 3. 4. 5. 6. 7. 8. 9.

Employees work is stable and routine. Employees perform similar work tasks. Employees are concentrated in a single location. Employees are highly trained (need little direction). Rules and procedures defining task activities are available. Little time is required in non-supervisory activities (e.g. coordination across other departments or planning). Managers personal preferences and styles favour a larger span. Attempt to decrease costs of middle/supervisory management Attempt to up-skill those promoted into supervisory positions.

Organising the vertical structure

Tall versus flat structures: Tall structures

Narrow spans More hierarchical levels

Flat structures Wide span Horizontally dispersed Trend towards wider spans to delegate more work

(authority and accountability)

Organising the vertical structure

The location of decision authority near top organisational


The location of decision authority near lower

organisational levels.

Trend toward greater decentralisation

Lowers burden on top managers.

Utilises skills and ability of workers.

Allows rapid responses to external change.

Organising the vertical structure

Two factors influencing centralisation and decentralisation

1 Greater change and uncertainty in the environment

Decentralisation? Or perhaps centralise?

The firms strategy

Should fit with need for centralisation or decentralisation, e.g. international expansion; e-commerce; need for central warehouse? Costs of centralising/decentralising. 3. Need or desire for executive management to have greater or lesser control; reflective of management style? Theory X or Theory Y?

Organising the vertical structure

Formalisation The written documentation used to direct and control employees, i.e. policies and procedures. Bureaucratic form of organisation (Weber).

Advantages in rationality and logical operation. However, red tape can cause problems and resistance to change and innovation.

Different organisational structures

or type of departmentalisation - how Samson & Daft describe types of structure.

The basis on which individuals are grouped into departments and departments into total organisations.

1 2 3 4 5

Functional structure Divisional structure Horizontal matrix structure Team-based structure Network structure

Functional structure
standard org chart structure see slide 2 for an example.

Economies of scale and efficient resource use Expertise (in-depth skills) Internal career progress Centralised chain of command Top manager direction and control Excellent coordination within functions High-quality technical problem solving

Poor communication across functional departments Slow response to external changes Decisions concentrated at top leading to delay Responsibility for problems difficult to pinpoint Limited view of organisational goals by employees Limited general management training for employees

Divisional structure e.g. next slide

An organisational structure in which departments are grouped based on similar organisational outputs. Sometimes called a product structure, program structure or self-contained unit structure. Encourages decentralisation (to divisions). Can group by geography.

Example of divisional structure

Divisional structure
Fast response, flexible in

Duplication of resources

uncertain environment Focus on customer Excellent coordination across functional departments Easy to pinpoint responsibility for product problems Emphasis on overall product and division goals Develops general management skills

across divisions Less technical depth and specialisation Poor coordination across divisions Less top management control Competition for corporate resources (among divisions)

Horizontal matrix structure

(e.g. next slide)

An organisation structure that utilises functional and divisional chains of command simultaneously in the same part of the organisation. Balances traditional control of functional departments with horizontal coordination across departments. Problem for two-boss employee.

Horizontal matrix structure

Horizontal matrix structure


Frustration and confusion

More efficient use of resources than single hierarchy Flexible, adaptable to changing environment Develop generalists and specialists Interdisciplinary cooperation, expertise available to all divisions Enlarged tasks for employees

from dual chain of command High conflict between two sides of matrix Many meetings, more discussion than action Human relations training needed Power dominance by one side of matrix

Team-based structure

Cross-functional team

Group of employees (from various functional departments) that report to both team and functional departments that meet as a team to resolve mutual problems.

Permanent team

Participants from several functions who are permanently assigned to solve ongoing problems of common interest.

Often used in business process re-engineering: a radical redesign of business processes to achieve dramatic improvements in cost, quality, service and speed. Eg. TQM

Team-based structure

Dual loyalties and conflicts Time and resources spent on

Some advantages of functional structure Reduced barriers among departments Quicker decisions Involvement increases morale and enthusiasm Reduced administrative overhead

meetings Unplanned decentralisation People simply get confused about whats going on and how things work; can therefore be a bit easier to hide not take responsibility for work done/not done.

Network structure e.g. on next slide

An organisation structure that disaggregates major functions into separate organisations that are brokered by a small headquarters organisation. Can subcontract major functions to separate organisations and control from a central hub. Focus on what they do best, outsource the rest.

Network structure

Network stucture
Advantages Global competitiveness Workforce flexibility/challenge Reduced administrative overhead Disadvantages No hands-on control Can lose organisational part Employee weakened (no cohesive corporate culture)

Read chapter 10 and consider how management

authority (organisational power) may change with each of the structures.