Ch. 10 Organization Structure and Design

Learning Objectives Organization structure and design Work specialization – traditional and contemporary views Five types of departmentalization Cross-functional teams Chain of command, authority, responsibility, unity of command Span of control Centralization vs. decentralization Formalization Mechanistic vs. organic designs Relationship between strategy and structure Organizational size and structure Technology and structure Environmental uncertainty and structure Simple, functional, divisional, matrix, team-based structures 2

What Type of Organizational Structure Do You Prefer? 1 = Strongly disagree 2 = Inclined to disagree 3 = Neither agree or disagree 4 = Inclined to agree 5 = Strongly agree I prefer to work in an organization where: Goals are defined by those at higher levels. Clear job descriptions exist for every job. Top management makes important decisions. Promotions and pay increases are based as much on length of service as on level of performance. Clear lines of authority and responsibility are established. My career is pretty well planned out for me. 1 have a great deal of job security. I can specialize. My boss is readily available. Organization rules and regulations are clearly specified. Information rigidly follows the chain of command. There is a minimal number of new tasks for me to learn. Work groups incur little turnover in members. People accept authority of a leader's position. I am part of a group whose training and skills are similar to mine.

What Type of Organizational Structure Do You Prefer? 60 – you prefer a mechanistic design Below 45 – you prefer organic design Between 45 and 60 – no clear preference Remember which you prefer!

Organization Structure Organization Design The formal arrangement of jobs within an organization The process of developing or changing an organization’s structure

Elements of Organizational Design Work specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization

Specialization To what degree are activities divided into separate jobs? Traditional vs. contemporary views

Departmentalization – Five Types

Line Authority: The Chain of Command Chief Executive Officer President Vice Region 3 District D Executive Vice President 1 2 4 5 B E F G C Vice President District A

Contrasting Spans of Control Members at Each Level (Highest) Assuming Span of 4 Assuming Span of 8 1 1 1 2 4 8 16 64 3 Organization Level 64 512 4 256 4,096 5 6 1,024 7 4,096 (Lowest) Span of 4: Operatives: Managers (levels 1-6) Span of 8: Operatives: Managers (levels 1-4) = 4,096 = 1,365 = 4,096 = 585

Centralized vs. Decentralized Structures

Formalization How standardized are the jobs? How much discretion do employees have? How “rule-bound” are people?

What Type of Organizational Structure Do You Prefer? Scoring Scores above 60 suggest that you prefer a mechanistic design (stable, rule-oriented, more bureaucratic organizations). Scores below 45 indicate a preference for an organic design (small, innovative, flexible, team-oriented organizations. Scores between 45 and 60 suggest no clear preference. Recent trend has been toward more organic designs. But, are few pure organic structures. Many organizations are somewhat bureaucratic. Very low score – you may be frustrated by overly rigid structures of rules, regulations, and boss-centered leadership Very high score – you may be frustrated by loose, informal, vague, boss-less organization

Mechanistic vs. Organic Organizations High specialization Rigid departmentalization Clear chains of command Narrow spans of control Highly centralized Highly formalized “Bureaucracy” “Well-oiled machine” Cross-functional teams Cross-hierarchical teams Free flow of information Wide spans of control Decentralized Low formalization “Adhocracy” Adaptable “amoeba”

Contingency Factors and Organization Design Strategy Environmental Uncertainty Size Technology 7

Strategy and Structure Cost minimizers Differentiation (innovation) Imitator Mechanistic Organic Both

Size and Structure Structure 10 300 500 2000 2500 Size Mechanistic Organic 10 300 500 2000 2500 Size

Environmental Uncertainty and Structure Stable, simple environment Unstable, complex environment Mechanistic structure Organic structure

Technology and Structure Italian suits, furniture restoration, high-tech Organic Oil, chemicals, beer, water filtration Structure Mechanistic Autos, computers Process Unit Mass Technology

Design Your Restaurant (the one that will make you rich and famous) Environment – stable vs. uncertain (Who is your clientele? How stable are their tastes? Strategy? – cost, differentiator, both? Technology? Mass, batch? Size? – how many employees? Span of control? How many employees per manager? Specialization? What job titles? How many? How narrow/specialized will each job title be? Chain of command? – Who will report to who? How many bosses Centralization/decentralization – Who will make decisions? What decisions will they make? Formalization? How strict/rule-bound will the organization be? What will the rules be? Overall - Organic or mechanistic?

Some Popular Types of Structures Simple Functional Divisional Team Matrix Project

Simple Structure Low departmentalization Wide spans of control Commonly used by small businesses Strengths Fast, flexible, inexpensive, clear accountability Weaknesses Impractical as organizational grows Reliance on one person risky

Functional Structure Groups occupational specialties (functions) together Strengths Economies of scale Weaknesses Formation of functional “silos” that lose sight of what’s best for organization overall

Divisional Structure Separate business units or divisions All functions under one roof Each has P/L responsibility Strengths Focused on results Weaknesses Duplication of activities and resources

Team Structure Entire organization made up of work teams Employee empowerment crucial Authority rests in team, not chain of command Strengths: Employees more involved and empowered Reduced barriers among functional areas Weaknesses No clear chain of command Pressure on teams to perform Can take YEARS to develop!

Matrix Structure Matrix Structures Specialists from functions work on projects as needed Dual chain of command – two managers! Strengths Better use of resources Fluid and flexible Weaknesses Complexity of having two bosses

Project Structures No formal departments Employees jump from project to project! Fluid and flexible

Santa Clara Division Restructuring GM GM R&D Mktg. Manuf. Lasers Clocks Counters R&D Mktg. Manuf. Before After