Chapter Seven: Designing Organizational Structure University of Bahrain College of Business Administration Management & Marketing Department Dr. Mahmood AsadMGT230: Chapter71

Designing Organizational Structure Organizing is the process by which managers establish the structure of working relationships among employees to allow them to achieve organizational goals efficiently and effectively. Organizational structure is a formal system of task and reporting relationships that coordinates and motivates organizational members so that they work together to achieve organizational goals. MGT230: Chapter72Dr. Mahmood Asad

Designing Organizational Structure Organizational design is the process by which managers make specific organizing choices that result in a particular kind of organizational structure. MGT230: Chapter73Dr. Mahmood Asad

Designing Organizational Structure Four factors are important determinants of the type of organizational structure or organizing method managers select: – The nature of the organizational environment – The type of strategy the organization pursues – The technology (IT) the organization uses – The characteristics of the organization HR MGT230: Chapter74Dr. Mahmood Asad

MGT230: Chapter75 Figure 7.1: Factors Affecting Organizational Structure Dr. Mahmood Asad

Grouping Tasks into Jobs: Job Design The first step in organizational design is job design. Job design: is the process by which managers decide how to divide tasks into specific jobs. MGT230: Chapter76Dr. Mahmood Asad

Grouping Tasks into Jobs: Job Design Job simplification: is the process of reducing the number of tasks that each worker performs. MGT230: Chapter77Dr. Mahmood Asad

Job Enlargement and Job Enrichment In an attempt to create a division of labor and design individual jobs to encourage workers to perform at a higher level and be more satisfied with their work, several researchers have proposed ways other than job simplification to group tasks into jobs: – Job enlargement – Job enrichment MGT230: Chapter78Dr. Mahmood Asad

Job Enlargement and Job Enrichment Job enlargement: is increasing the number of different tasks in a given job by changing the division of labor. MGT230: Chapter79Dr. Mahmood Asad

Job Enlargement and Job Enrichment Job enrichment: is increasing the degree of responsibility a worker has over his/her job. For example: 1.Empowering workers 2.Encouraging workers to develop new skills 3.Allowing workers to decide how to do the work and giving them the responsibility 4.Allowing workers to monitor and measure their own performance MGT230: Chapter710Dr. Mahmood Asad

The Job Characteristics Model – Skill variety. The extent to which a job requires that an employee use a wide range of different skills, abilities, or knowledge. MGT230: Chapter711 ◦ Task identity. The extent to which a job requires that a worker perform all the tasks necessary to complete the job, from the beginning to the end of the production process. Dr. Mahmood Asad

The Job Characteristics Model – Task significance. The degree to which a worker feels his/her job is meaningful because of its effect on people inside the organization (coworkers) or outside the organization (customers). MGT230: Chapter712 ◦ Autonomy. The degree to which a job gives an employee the freedom and discretion needed to schedule different tasks and decide how to carry them out. Dr. Mahmood Asad

The Job Characteristics Model – Feedback. The extent to which actually doing a job provides a worker with clear and direct information about how well he/she performed the job. MGT230: Chapter713Dr. Mahmood Asad

MGT230: Chapter714 Figure 7.2: The Job Characteristics Model Dr. Mahmood Asad

Grouping Jobs into Functions and Divisions: Designing Organizational Structure Once managers have decided which tasks to allocate to which jobs, they face the next organizing decision: how to group jobs together to best match the needs of the organization’s environment, strategy, technology, and human resources. MGT230: Chapter715Dr. Mahmood Asad

Functional Structure A function is a group of people, working together, who possess similar skills or use the same kind of knowledge, tools, or techniques to perform their jobs (e.g., manufacturing and sales). Functional structure: is an organizational structure composed of all the departments that an organization requires to produce its goods or services. MGT230: Chapter716Dr. Mahmood Asad

MGT230: Chapter717 Figure 7.3: The Functional Structure of Pier 1 Imports Dr. Mahmood Asad

Functional Structure AdvantagesDisadvantages 1. Employees learn from observing one another and become more specialized and can perform at a higher level 1. It is difficult for managers to communicate and coordinate with one another 2. It is easier for managers to monitor and evaluate their performance 2. Managers become preoccupied with supervising their departments and achieving their goals that they lose sight of organizational goals 3. Allows managers to create the set of functions they need to scan and monitor the competitive environment MGT230: Chapter718Dr. Mahmood Asad

Divisional Structures: Product, Market, and Geographic Divisional structure: is an organizational structure composed of separate business units within which are the functions that work together to produce a specific product for a specific customer. MGT230: Chapter719Dr. Mahmood Asad

Divisional Structures: Product, Market, and Geographic Division is a collection of functions or departments that work together to produce the product. The goal behind the change to a divisional structure is to create smaller, more manageable units within the organization. MGT230: Chapter720Dr. Mahmood Asad

MGT230: Chapter721 Figure 7.4: Product, Market, and Geographic Structure Dr. Mahmood Asad

PRODUCT STRUCTURE Product structure: is an organizational structure in which each product line or business is handled by a self-contained division. MGT230: Chapter722Dr. Mahmood Asad

GEOGRAPHIC STRUCTURE Geographic structure: is an organizational structure in which each region of a country or area of the world is served by a self-contained division. MGT230: Chapter723Dr. Mahmood Asad

GEOGRAPHIC STRUCTURE Global geographic structure – Managers locate different divisions in each of the world regions where the organization operates, thus it is suitable for pursuing multidomestic strategy. – Customize products to meet the needs of Customers in different regions MGT230: Chapter724Dr. Mahmood Asad

GEOGRAPHIC STRUCTURE Global product structure – Each product division, not the country or regional managers, takes responsibility for deciding where to manufacture its products and how to market them in countries worldwide. – It is for pursuing a global strategy, since customers abroad are willing to buy the same kind of product, or slight variations thereof. MGT230: Chapter725Dr. Mahmood Asad

MGT230: Chapter726 Figure 7.5: Global Geographic and Global Product Structures Dr. Mahmood Asad

MARKET STRUCTURE Market structure: is an organizational structure in which each kind of customer is served by a self-contained division; also called customer structure. MGT230: Chapter727Dr. Mahmood Asad

Matrix and Product Team Designs When information technology or customer needs are changing rapidly and the environment is very uncertain, managers must design the most flexible kind of organizational structure available: – Matrix structure – Product team structure MGT230: Chapter728Dr. Mahmood Asad

MATRIX STRUCTURE Matrix structure: is an organizational structure that simultaneously groups people and resources by function and by product. Each person in a product team reports to two managers (two-boss employees): – Functional boss who assigns individuals to a team and evaluates their performance from a functional perspective – Boss of the product team who evaluates their performance on the team. MGT230: Chapter729Dr. Mahmood Asad

MGT230: Chapter730 Figure 7.6A: Matrix Structure Dr. Mahmood Asad

MATRIX STRUCTURE Functional employees assigned to product teams change over time as the specific skills that the team needs change. To keep the matrix structure flexible, product teams are empowered and team members are responsible for making most of the important decisions involved in product development. The product team manager acts as a facilitator, controlling the financial resources and keep the project on time and within budget. MGT230: Chapter731Dr. Mahmood Asad

PRODUCT TEAM STRUCTURE Problems with matrix structure: – Difficult to deal with the dual reporting relationships for managers and employees – Conflict demands on team members from functional and product bosses – Conflict between functional and product bosses on who is in charge of which team members and for how long. Product team structure overcome these problems. MGT230: Chapter732Dr. Mahmood Asad

PRODUCT TEAM STRUCTURE Product team structure is an organizational structure in which employees are permanently assigned to a cross- functional team and report only to the product team manager or to one of his/her direct subordinates. Cross-functional team is a group of managers brought together from different departments to perform organizational tasks. MGT230: Chapter733Dr. Mahmood Asad

MGT230: Chapter734 Figure 7.6B: Product Team Structure Dr. Mahmood Asad

Hybrid Structure Hybrid structure is the structure of a large organization that has many divisions and simultaneously uses many different organizational structures. Most large organizations use product division structures and create self-contained divisions; then each division’s managers select the structure (functional, geographic, product team) that best meets the needs of the particular environment, strategy, and so on. MGT230: Chapter735Dr. Mahmood Asad

MGT230: Chapter736 Figure 7.7: Macy’s Hybrid Structure Dr. Mahmood Asad

Hybrid Structure The outer layer provides the overarching organizational framework-most commonly a product or market division structure-and each inner layer is the structure that each division selects for itself in response to the contingencies it faces-such as a geographic or product team structure. MGT230: Chapter737Dr. Mahmood Asad

Coordinating Functions and Divisions The more complex the structure a company uses to group its activities, the greater are the problems of linking and coordinating its different functions and divisions. Coordination becomes a problem because each function or division develops a different orientation toward the other groups that affects the way it interacts with them. MGT230: Chapter738Dr. Mahmood Asad

Allocating Authority Authority is the power to hold people accountable for their actions and to make decisions concerning the use of organizational resources. Hierarchy of authority is an organization’s chain of command, specifying the relative authority of each manager. MGT230: Chapter739Dr. Mahmood Asad

Allocating Authority Every manager, at every level of the hierarchy, supervises one or more subordinates. Span of control is the number of subordinates who report directly to a manager. MGT230: Chapter740Dr. Mahmood Asad

Allocating Authority Line manager is someone in the direct line or chain of command who has formal authority over people and resources at lower levels. Staff manager is someone responsible for managing a specialist function, such as finance or marketing. MGT230: Chapter741Dr. Mahmood Asad

MGT230: Chapter742 Figure 7.8: The Hierarchy of Authority and Span of Control at McDonald’s Corporation Dr. Mahmood Asad

TALL AND FLAT ORGANIZATIONS As an organization grows in size, its hierarchy of authority normally lengthens, making the organizational structure taller. Tall organization has many levels of authority relative to company size Flat organization has fewer levels relative to company size MGT230: Chapter743Dr. Mahmood Asad

MGT230: Chapter744 Figure 7.9B: Tall Organization Dr. Mahmood Asad

MGT230: Chapter745 Figure 7.9A: Flat Organization Dr. Mahmood Asad

THE MINIMUM CHAIN OF COMMAND Top managers follow a basic organization principle-which state that top managers should always construct a hierarchy with the fewest levels of authority necessary to efficiently and effectively use organizational resources. Effective managers constantly scrutinize their hierarchies to see whether the number of levels can be reduced-eliminating one level and giving the responsibilities of managers at that level to managers above and empower employees below. MGT230: Chapter746Dr. Mahmood Asad

CENTRALIZATION AND DECENTRALIZATION OF AUTHOIRTY Another way to keep the organizational hierarchy flat. Decentralizing authority is giving lower-level managers and nonmanagerial employees the right to make important decisions about how to use organizational resources. MGT230: Chapter747Dr. Mahmood Asad

Integrating and Coordinating Mechanisms Integrating mechanisms are organizing tools that managers can use to increase communication and coordination among functions and divisions. MGT230: Chapter748Dr. Mahmood Asad

MGT230: Chapter749 Figure 7.10: Types and Examples of Integrating Mechanisms Dr. Mahmood Asad

MGT230: Chapter750Dr. Mahmood Asad

LIAISON ROLES When the volume of contacts between two functions increases, one way to improve coordination is to give one manager in each function or division the responsibility for coordinating with the other. MGT230: Chapter751Dr. Mahmood Asad

LIAISON ROLES Coordinating is part of the liaison’s full-time job, and usually an informal relationship develops between the people involved, greatly easing strains between functions. MGT230: Chapter752Dr. Mahmood Asad

TASK FORCES When more than two functions or divisions share many common problems a more complex integrating mechanism may be appropriate. Task force is a committee of managers from various functions or divisions who meet to solve a specific, mutual problem; also called ad hoc committee. They called ad hoc committee because they are temporary; they may meet on a regular basis or only a few times. MGT230: Chapter753Dr. Mahmood Asad

TASK FORCES When the problem is solved, the task force is no longer needed; members return to their normal roles in their departments or are assigned to other task forces. Typically, task force members also perform many of their normal duties while serving on the task force. MGT230: Chapter754Dr. Mahmood Asad

CROSS-FUNCTIONAL TEAMS To address recurring problems effectively, managers are increasingly using permanent integrating mechanisms such as cross-functional teams. Example, new product development committee. In product team structure people and resources are grouped into permanent cross-functional teams to speed products to market. These teams assume long- term responsibility for all aspects of development and making the product. MGT230: Chapter755Dr. Mahmood Asad

INTEGRATING ROLES It is a role whose only function is to increase coordination and integration among functions or divisions to achieve performance gains from synergies. Usually, managers who perform integrating roles are experienced senior managers who can envisage how to use the resources of the functions or divisions to obtain new synergies. MGT230: Chapter756Dr. Mahmood Asad

MATRIX STRUCTURE When managers must be able to respond quickly to the task and general environment, they often use a matrix structure. It contains many of the integrating mechanisms: – The two-boss employees integrate between functions and product teams – The matrix is build on the basis of temporary teams or task forces – Each member of a team performs a liaison role The matrix structure is flexible because it is formed from complex integrating mechanisms. MGT230: Chapter757Dr. Mahmood Asad