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Organizational Structure and Design

Defining Organizational Structure The formal arrangement (system of task and reporting relationships showing how workers use resources) of jobs within an organization. Structure as an influence on behavior Structure as recurring activities

Organization structure – the pattern of jobs and groups of jobs in an organization. It is an important cause of individual and group behavior.

How do we organize jobs into departments How do we organize jobs into departments? How do we answer the questions “who does what” and “who reports to whom” in the chain of command? How do we coordinate all of these people and duties? Organizational Structure is the framework for answering these questions and more.

Purposes of Organizing Divides work to be done into specific jobs and departments. Assigns tasks and responsibilities associated with individual jobs. Coordinates diverse organizational tasks. Clusters jobs into units. Establishes relationships among individuals, groups, and departments. Establishes formal lines of authority. Allocates and deploys organizational resources.

Organization Structure: Its Determinants and Outcomes

Why Do Structures Differ Why Do Structures Differ? – Strategy Organizations have different strategies in order to cope with competition, growth, and environment. Innovation Strategy: emphasizes the introduction of major new products and services. Cost-minimization Strategy: emphasizes tight cost controls, avoidance of unnecessary innovation or marketing expenses, and price cutting. Imitation Strategy: seeks to move into new products or new markets only after their viability has already been proven.

Why Do Structures Differ? – Size How the size of an organization affects its structure. As an organization grows larger, it becomes more mechanistic. Characteristics of large organizations: More specialization More vertical levels More rules and regulations

Why Do Structures Differ? – Technology How an organization transfers its inputs into outputs. Characteristics of routineness (standardized or customized) in activities: Routine technologies are associated with tall, departmentalized structures and formalization in organizations. Routine technologies lead to centralization when formalization is low. Nonroutine technologies are associated with delegated decision authority.

Why Do Structures Differ? – Environment Institutions or forces outside the organization that potentially affect the organization’s performance. Key Dimensions- Capacity: the degree to which an environment can support growth. Volatility: the degree of instability in the environment. Complexity: the degree of heterogeneity and concentration among environmental elements. Volatility Capacity Complexity

Common Organizational Designs Tall structure Long chain of command As an organization grows, the number of management levels increases and the structure grows taller. In a tall structure, managers form many ranks and each has a small area of control. Tall structure Long chain of command As an organization grows, the number of management levels increases and the structure grows taller. In a tall structure, managers form many ranks and each has a small area of control

Flat structure focus on empowering employees rather than adhering to the chain of command. fewer management levels, with each level controlling a broad area or group.

Disadvantage is reduced control over key parts of the business. Virtual structure an organization uses information and communication technologies to replace or augment some aspect of the organization. Concepts: Provides maximum flexibility while concentrating on what the organization does best. Disadvantage is reduced control over key parts of the business.

Boundary-less organization structure A contemporary approach in Organizational design. It is an organization that is not defined by, or limited to the horizontal, vertical or external boundaries imposed by a pre-defined structure. It behaves more like an organism encouraging better integration among employees and closer partnership with stakeholders.

Matrix structure An organization in which specialists from functional departments are assigned to work on one or more projects led by a project manager

Breaks down departmental barriers. Characteristics: Breaks down departmental barriers. Decentralizes decision making to the team level. Requires employees to be generalists as well as specialists. Creates a “flexible bureaucracy.”

Two extreme models of organizational design

Mechanistic Structure Process Mechanistic Structure Organic Structure 1. Leadership No perceived confidence and trust between superiors and subordinates. Perceived confidence and trust between superiors and subordinates. 2. Motivation Taps physical, security, and economic motives, through fear and sanctions. Taps a full range of motives through participatory methods. 3. Communication Information flows downward and tends to be distorted, inaccurate, and viewed with suspicion by subordinates. Information flows freely: upward, downward, and laterally and is accurate and undistorted. 4. Interaction Closed and restricted. Subordinates have little effect on departmental goals, methods, and activities. Open and extensive. Both superiors and subordinates are able to affect departmental goals, methods, and activities. 5. Decision Relatively centralized. Occurs only at the top of the organization. Relatively decentralized. Occurs at all levels through group processes. 6. Goal setting Located at the top of the organization, discouraging group participation. Encourages group participation in setting high, realistic objectives. 7. Control Centralized. Emphasizes fixing blame for mistakes. Dispersed throughout the organization. Emphasizes self-control /problem solving. 8.Performance goals Low and passively sought by managers, who make no commitment to developing the organization’s HR. High and actively sought by superiors, who recognize the need for full commitment to developing, through training, the organization’s HR.

Organizational Design Centralization and decentralization A process involving decisions about six key elements: Work specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization To create a specific type of organizational structure and culture so that a company can operate in the most efficient and effective way

Key Design Questions and Answers for Designing the Proper Organization Structure

Makes efficient use of employee skills Division of labor: Makes efficient use of employee skills Increases employee skills through repetition Less between-job downtime increases productivity Specialized training is more efficient Allows use of specialized equipment

Departmentalization The process through which an organization’s activities are grouped together and assigned to managers; the organization wide division of work. Process Grouping jobs on the basis of product or customer flow Customer Grouping jobs by type of customer and needs Functional Grouping jobs by functions performed Product Grouping jobs by product line Geographical Grouping jobs on the basis of territory or geography

Functional Departmentalization Advantages Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations Coordination within functional area In-depth specialization Disadvantages Poor communication across functional areas Limited view of organizational goals

Geographical Departmentalization Advantages More effective and efficient handling of specific regional issues that arise Serve needs of unique geographic markets better Disadvantages Duplication of functions Can feel isolated from other organizational areas

Product Departmentalization Advantages Allows specialization in particular products and services Managers can become experts in their industry Closer to customers Disadvantages Duplication of functions Limited view of organizational goals

Process Departmentalization Advantages More efficient flow of work activities Disadvantages Can only be used with certain types of products

Customer Departmentalization Advantages Customers’ needs and problems can be met by specialists Disadvantages Duplication of functions Limited view of organizational goals

Narrow Span Drawbacks: Expense of additional layers of management. Increased complexity of vertical communication. Encouragement of overly tight supervision and discouragement of employee autonomy. Concept: Wider spans of management increase organizational efficiency.

Span of Control Width of span is affected by: Skills and abilities of the manager Employee characteristics Characteristics of the work being done Similarity of tasks Complexity of tasks Physical proximity of subordinates Standardization of tasks

Centralization: The degree to which decision making is concentrated at a single point in the organization. DEGREE OF CENTRALIZATION DEGREE OF DECENTRALIZATION Decentralization: The degree to which decision making is spread throughout the organization.

More Decentralization More Centralization Environment is stable. Lower-level managers are not as capable or experienced at making decisions as upper-level managers. Lower-level managers do not want to have a say in decisions. Decisions are relatively minor. Organization is facing a crisis or the risk of company failure. Company is large. Effective implementation of company strategies depends on managers retaining say over what happens More Decentralization Environment is complex/uncertain. Lower-level managers are capable and experienced at making decisions. Lower-level managers want a voice in decisions. Decisions are significant. Corporate culture is open to allowing managers to have a say in what happens. Company is geographically dispersed. Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions

Delegation Decision Guidelines How routine and straightforward are the job’s or unit’s required decisions? Are individuals competent to make the decision? Are individuals motivated to make the decision? Do the benefits of decentralization outweigh its costs?

To whom I am responsible? To whom I go with my problems? Chain of Command The unbroken line of authority that extends from the top of the organization to the lowest echelon and clarifies who reports to whom. To whom I am responsible? To whom I go with my problems? Authority: The rights inherent in a managerial position to give orders and to expect the orders to be obeyed. Unity of Command: A subordinate should have only one superior to whom he or she is directly responsible.

Formalization The degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures. Highly formalized jobs offer little discretion over what is to be done. Low formalization means fewer constraints on how employees do their work. HIGH LEVELS minimum amount of discretion over what, when, and how consistent output explicit job descriptions organizational rules clearly defined procedures LOW LEVELS unprogrammed behaviors exercise discretion great deal of freedom less standardization consider alternatives

Organizational design and employee behavior Structure and design have significant effects on employees. It shapes the work environment. This relationship tell us something about job performance, job satisfaction and motivation of employees. Work specialization: contributes higher employee productivity, but at the price of reduced job satisfaction. Repetitive and narrow work has a negative effect. Span of control: large spans might lead to higher employee performance by more distant supervision and more opportunity for personal initiative. On the other hand, some people like to be left alone. Centralization: some value dependency and freedom, some not. Participative decision making in decentralized organizations is positively related to job satisfaction.

Today we manage & shape our organizations differently than past In order to fit in the environment better!. © 2007 Prentice Hall, Inc. All rights reserved.