Organizational Structure Chapter Twelve Ed Kaiser/Edmonton Journal

Organizational Structure Division of labor and patterns of coordination, communication, workflow, and formal power that direct organizational activities. Division of labor 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 Formal hierarchy Direct supervision Assigns formal (legitimate) power to manage others Coordination strategy for departmentalization Standardization Processes -- formal instructions Outputs -- clear goals/output measures Skills -- training, learn precise role behaviors

Elements of Organizational Structure Department-alization Span of Control Organizational Structure Elements Formalization Centralization

Span of Control, Centralization, and Formalization Organizational Structure

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

Tall vs Flat Structures As companies grow, they: Build taller hierarchy Widen span, or both Problems with tall hierarchies Overhead costs Poorer upward information Focus power around managers, so staff less empowered

Trend Toward Flatter Structures Firms moving toward flatter structures (delayering) Cuts costs Puts decision makers closer to front-line information Supports empowerment Problem: risk of cutting too much middle management

Centralization and Decentralization Formal decision making authority is held by a few people, usually at the top Centralization Decision making authority is dispersed throughout the organization Decentralization

Formalization The degree to which organizations standardize behavior through rules, procedures, formal training, and related mechanisms. Formalization increases as firms get older, larger, and more regulated Problems Reduces organizational flexibility May undermine work efficiency Job dissatisfaction and work stress

Mechanistic vs. Organic Structures Narrow span of control High formalization High centralization Organic Wide span of control Little formalization Decentralized decisions

Organizational Departmentalization Organizational Structure

Effects of Departmentalization Establishes chain of command (supervision structure) Creates common mental models, measures of performance, etc Encourages staff to coordinate through informal communication

Functional Organizational Structure Organizes employees around specific knowledge or other resources (marketing, production) CEO Finance Production Marketing

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

Divisional Structure Organizes employees around outputs, clients, or geographic areas CEO Consumer Products Lighting Products Medical Systems

Divisional Structures Dynamics Different forms of divisional structure Geographic structure Product structure Client structure Best form depends on environment Movement away from geographic form Less need for local representation Reduced geographic variation More global clients

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

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

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.

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 Duplication of resources © Bill Kramer/ Bill Kramer Photography Inc.

Bioware’s Matrix Structure Ray Muzyka (left) and Greg Zeschuk (right) adopted a matrix organizational structure for their electronic games company, Bioware, because it balances the need for teamwork and information sharing. Ed Kaiser/Edmonton Journal

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

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

Contingencies of Organizational Structure

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

External Environment & Structure (con’t) Diverse • Several products, clients, regions • Use 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

Effects of Organizational Size As organizations grow, they have: More division of labor (job specialization) Greater use of standardization More hierarchy and formalization More decentralization

Technology and Structure Technology refers to mechanisms or processes by which an organization turns out its product or service Two contingencies: Variability -- the number of exceptions to standard procedure that tend to occur. Analyzability -- the predictability or difficulty of the required work

Organizational Strategy Structure follows strategy Strategy points to the environments in which the organization will operate Leaders decide which structure to apply Differentiation strategy Providing unique products or attracting clients who want customization Cost leadership strategy Maximize productivity in order to offer competitive pricing

Organizational Structure Chapter Twelve Ed Kaiser/Edmonton Journal