Chapter 14 Foundations of Organization Structure

Organization Structure: How jobs, tasks and people are formally divided, grouped, and coordinated throughout a company.

Elements of Structure Specialization (of work duties) Standardization (or formalization) Centralization (of decision making) ----------------------------------------------------- Chain of command Span of control Departmentalization

To what degree are activities subdivided into separate jobs? Work Specialization To what degree are activities subdivided into separate jobs? Also called Division of Labor Degree to which work and other activities are partitioned into separate, individual tasks, duties and assignments for each employee.

Standardization (Formalization) To what degree will there be rules and regulations to direct employees and managers? Degree to which jobs are managed using highly specified and rigid rules, policies, procedures, etc. (see: micromanagement !)

Centralization (of Decisions) Where will organizational decision making authority reside? Centralization: Degree to which decision making is concentrated at a single point in the organization (usually higher up and in the center of the org. chart/hierarchy). Decentralization: Degree to which lower-level employees provide input and have actual authority or discretion to make decisions for the organization.

To whom do individuals and groups report? Chain of Command To whom do individuals and groups report? Refers to the line of authority (or command) from the top of the organization to the lowest “ranks”; clarifies who reports to whom. Should (ideally) follow the “unity of command” principle.

Span of Control Number of levels of managerial hierarchy: How many direct reports can a manager effectively and efficiently direct? Number of levels of managerial hierarchy: Current trend is toward wider/larger spans of control (by using teams, etc.) Wider spans are consistent with efforts to: reduce costs cut overhead speed up decision making increase flexibility get closer to customers empower employees

Contrasting Spans of Control

On what basis will organizational entities be grouped? Departmentalization On what basis will organizational entities be grouped? Basis on which units are “grouped” together: by Function? by Product? by Geography? by Process? by Customer? other?

Common Organization Structures 1. Simple Structures (are characterized by): low formalization centralized authority in a single person low departmentalization wider spans of control A Simple Structure: Gold’s Appliance Store

Common Structures (cont.) 2. Bureaucratic (Mechanistic) Structures: high specialization highly centralized decision making highly standardized policies, procedures, rules & regulations extensive departmentalization, typically by function narrow spans of control decision making that follows tight chain of command

Why Don’t Bureaucracies Die? Weaknesses: Increased subunit conflicts More rigid and inflexible: Obsessive concern for enforcing rules and regulations Lack of employee discretion to deal with problems Increased time to act Encourages autocratic leadership styles Fosters Q1/Q2 cultures Strengths: Gives you more control! (especially with bigger size) Centrally coordinated decision making preferred Economies of scale Environmental turbulence can be largely managed Enhanced management of communication & info. Technology can mitigate

Common Structures (cont.) 3. Matrix: A “hybrid” of departmentalization. Combines (usually) the following approaches to departmentalization: Functional Product

Example: A Matrix Structure Approach for a College of Business M. Stevens

Common Structures (cont.) 4. Team Structures: Use of teams as the central device to manage and coordinate work activities (a “simpler” structure for large organizations). 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.”

Common Structures (cont.) Team (Organic, Empowered) Structures: low specification (formalization) low specialization (lots of cross-training) highly decentralized, participative decision-making based on genuinely empowered employees uses cross-functional and cross-hierarchical teams flatter hierarchies and reporting structures comprehensive sharing of information networks

The Two Extremes of Structure E X H I B I T 14 – 6

Newer Approaches to Structure Virtual Organizations Boundaryless Organizations

Which Structure Is Best? What is the organization’s size? What technology is being used? How much environmental uncertainty? What is the firm’s business strategy: Creativity and Innovation? Cost-Minimization? Imitation? What is the organization’s culture?