Chapter 12 Organizational Structures Keane Donaldson Candice Johnson Matt Rosenthal Shirley Yin

Organizational Structures Today’s companies, more team orientated. Organizational Structures, becoming more important. Defines how job tasks are coordinated.

Organizational Structures Many different physical layouts. Could be very tall, or very flat.

Organizational Structures Could be anywhere in-between those extremes. Flat Structure Team orientated. Open atmosphere. Problems solved quickly. More interaction between different hierarchical levels.

Organizational Structures Tall Structure More levels of organization Limited interaction. More personal responsibility. If you have a problem, you would talk to your manager, who would talk to their manager, etc. Often, the message that you told to your manager, is different from the one they portray to their manager

Organizational Structures When deciding which organizational structure is best for their company managers need to address six key elements: Work Specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization

Six Key Questions

Six Key Elements 1. Work Specialization or Division of Labor: The degree to which tasks in the organization are subdivided into separate jobs Ex. Henry Ford, assembly line Individuals specialize in doing part of an activity, rather than the whole thing May lead to boredom, fatigue, stress and increased absenteeism Raises employee productivity and efficiency, but lowers job satisfaction

Six Key Elements 2. Departmentalization: The basis on which jobs are grouped together Creates competitiveness between departments Narrow vision with respect to organizational goals 5 different kinds of departmentalization: Functional Product Geographic Process Customer

Six Key Elements: Types of Departmentalization A) Functional Functional Departmentalization groups activities by functions performed. More efficient to put together people with common skills and orientation into a common unit.

Six Key Elements: Types of Departmentalization B) Product: Grouping your organization depending on the type of product created is product departmentalization. Increases accountability for product performance. Also works with services.

Six Key Elements: Types of Departmentalization C) Geographic: Departmentalized on the basis of geography, or territory. Ex. International companies having different departments for each country. D) Process: Organizes departments by the processing that occurs. Ex. inspecting, packing, shipping… E) Customer: Departmentalize by the type of customer the organization seeks to reach. Ex. Corporate or individual customers.

Six Key Elements 3. Chain of Command: 4. Span of Control: Unbroken line of authority that extends form the top of the organization to the bottom. Designates where you go if you have a problem. Becoming less structured than it was in the past. 4. Span of Control: The number of employees a manager can efficiently and effectively direct. Generally determines the number of levels an organization has.

Six Key Elements 5. Centralization and Decentralization: The decision discretion is pushed down to lower-level employees. Take action quicker. More people provide input into decisions. Easier to address customer concerns. Centralization: The degree to which decision making is concentrated at a single point in the organization. Top management makes all the decisions.

Six Key Elements 6. Formalization The degree to which jobs within the organization are standardized. Low Formalization: Job behaviours are relatively non-programmed. Lots of employee freedom. Less standardization. High Formalization: Explicit job description. Lots or organizational rules. Clearly defined procedures for work processes.

Two Models of Organizations Mechanistic Model: A structure characterized by extensive departmentalization, high formalization, a limited information network and centralization. Organic Model: A structure that is flat, uses cross hierarchical and cross-functional teams, has low formalization, possesses a comprehensive information network, and relies on group decision making.

Mechanistic vs. Organic Models

Two Models of Organizations Which model is chosen depends on the members of the organization’s experience, personality, the work task and their cultural background. Mechanistic: People with a high degree of bureaucratic orientation Organic: People with a low degree of bureaucratic orientation

Traditional Organizational Designs There are three: The Simple Structure The Bureaucracy The Matrix Structure

Traditional Organizational Designs The Simple Structure: A structure with a low degree of departmentalization. It has wide spans of control, its power is centralized in a single person and there is little formalization. Characteristics: Flat, usually only two or three vertical levels. Widely used in small businesses, where the manager = owner. The strength is in its simplicity. Fast, flexible, inexpensive to maintain, direct accountability. Risky: Everything depends on one person.

Traditional Organizational Designs The Bureaucracy: An organization which uses standardization in a highly efficient manor. Characteristics: Routine operating tasks. Specialization. Clearly stated rules and regulations. Tasks that are grouped into functional departments. Centralized authority.

Traditional Organizational Designs The Bureaucracy Advantages: Perform standardized activities in a highly efficient manner. Can operate with lesser talented staff, which will have a smaller payroll. Rules and regulations instead of managerial discretion. Centralized decision making.

Traditional Organizational Designs The Bureaucracy Disadvantages: Each Functional Department can get a self-focus; they may forget that they are all inter-dependent. Obsessive concern for following the rules.

Traditional Organizational Designs The Matrix Structure: Dual lines of authority, which combine both functional and product departmentalization. Characteristics: Groups similar specialists – Functional. Facilitates coordination – Product. Employees of organization have two managers.

Traditional Organizational Designs The Matrix Structure Advantages: Does not become overloaded when complexity arises. Improves communication and flexibility. Eliminates the dreaded “bureau-pathologies”. Your specialists are grouped together. Disadvantages: Confusion and power struggles. Stress on employees. Unclear expectations.

New Design Options The Team Structure. The Modular Organization. The Virtual Organization. The Boundary-less Organization.

New Design Options The Team Structure: The use of teams as a central device to coordinate all work activities. Characteristics: Breaks down departmentalization. Teams are given decision making power. Teams generally consist of 3-20 people. The teams can be short or long term.

New Design Options The Modular Organization: A small core organization that outsourcers major business functions. Characteristics: Outsourcing employees and/or materials. Contracting allows job to be done better or cheaper. Organization devote their talent to their most important activities. There is an increased focus on customers and materials.

New Design Options The Virtual Organization: Characteristics: A continually evolving network of independent companies linked together to share skills, costs and access to one another’s markets. Characteristics: Different firms join together to accomplish common strategic objectives. Some firms relinquish control, and act inter-dependently. Sometimes blurred boundaries between companies. Companies create ‘win win’ deals by stimulating the market.

New Design Options The Boundary-less Organization: An organization that seeks to eliminate the chain of command, have limitless spans of control and replace departments with empowered teams. Characteristics: Replaces departments with ‘empowered’ teams. Uses a participative decision-making style. Heavy reliance on IT. Can be difficult to manage.

Why Do Structures Differ? 1. Strategy: Innovation: a strategy that emphasizes the introduction of major new products and services. Cost minimization: a strategy that emphasizes tight cost controls, avoidance of unnecessary innovation or marketing expenses and price cutting. Mechanistic imitation: a strategy that seeks to move into new products or new markets only after their viability has already been proven.

Why Do Structures Differ? 2. Organizational Size: Size affects structure at a decreasing rate. The impact of size is less important as the organization expanses (after 2000 employees). 3. Technology: The way in which an organization transfers its inputs into outputs. Degree of routine-ness. Related to formalization or centralization.

Why Do Structures Differ? 4. Environment: Those institutions or forces outside the organization that potentially affect the organization’s performance. Environmental uncertainty. Static environment vs. dynamic environment. 3 Dimensions to the environment: Capacity: the degree to which it can support growth Instability: volatility dimension Complexity: the degree of heterogeneity and concentration among environmental elements

Questions?