Organizational Structure MGT 101 - Principles of Management and Business Organizational Structure Faisal AlSager Week 8

Objectives Describe six key elements in organizational design Identify the contingency factors that favor the mechanistic model or the organic model Compare and contrast traditional and contemporary organizational designs

Organizational Design Organizing The function management that creates the organization’s structure Organizational Design When managers develop or change the organization’s structure

Elements of the Organizational Structure The six basic elements of organizational structure are: work specialization, departmentalization, authority and responsibility, span of control, centralization versus decentralization, and formalization

Work Specialization Definition dividing work activities into separate job tasks. Also known as division of labor

Economies and Diseconomies of Work Specialization U C T I V Y High Impact from human diseconomies Impact from economies of specialization Low Low High WORK SPECIALIZATION

Departmentalization Departmentalization: how jobs are grouped together Departmentalization Type Definition Examples Functional Departmentalization Grouping activities by functions performed Engineering Department Human Resources Department Product Departmentalization Grouping activities by major product area Women’s Footwear Accessories Customer Departmentalization Grouping activities by customer Wholesale Department Government Geographic Departmentalization Grouping activities on the basis of geography North Middle East Process Departmentalization Grouping activities on the basis of work or customer flow Testing Payment

Cross-Functional Teams Definition Teams made up of individuals from various departments and that cross traditional departmental lines

Authority and Responsibility Chain of Command The line of authority extending from upper organizational levels to lower levels, which clarifies who report to whom Authority The rights inherent in a managerial position to give orders and respect the orders to be obeyed Responsibility An obligation to perform assigned duties

Types of Authority Relationships Line Authority: authority that entitles a manager to direct the work of an employee Staff Authority: positions with some authority that have been created to support, assist, and advise those holding of authority

Power: an individual’s capacity to influence decisions Coercive Power Power based on fear Reward Power Power based on the ability to distribute something that others value Legitimate Power Power based on one’s position in the formal hierarchy Expert Power Power based on one’s expertise, special skill, or knowledge Reference Power Power based on identification with a person who has desirable resources or personal traits

Span of Control Span of Control The number of employees a manager can efficiently and effectively supervise Most managerial authors favored a small number; no more than 6 Organizational level is a contingency variable (top managers less than middle managers and so on) Training and experience of employees is important

Centralization Versus Decentralization Centralization: the degree to which decision making takes place at upper levels of the organization Decentralization: the degree to which lower-level managers provide input or actually make decisions

Formalization Formalization How standardized an organization’s jobs are and the extent to which employee behavior is guided by rules and procedures Today’s companies rely less on rules and standards especially if these rules and standards put obstacles in achieving goals and higher profits

Organization Structure Models There are two generic organization structure models: Mechanistic Organization: a bureaucratic organization; a structure that’s high in specialization, formalization, and centralization Organic Organization: a structure that’s low in specialization, formalization, and centralization

Mechanistic Versus Organic Rigid hierarchical relationships Fixed duties Many rules Formalized communication channels Centralized decision authority Taller structures Collaboration (both vertical and horizontal) Adaptable duties Few rules Informal communication Decentralized decision authority Flatter structures

Contingency Variables Affecting the Organization Structure Strategy Single-Line Product: high centralization and low formalization Bigger Organizations: less centralization and higher formalization Meaningful and Unique Innovations: flexibility and free-flowing information Size Small-Size Organizations: more organic Bigger Organization: more mechanistic Technology Technology used to convert inputs into outputs Environment Stable Environments: Mechanistic organizations are more effective here Dynamic and uncertain environment: organic organizations are more effective here

Technology (Woodward’s Findings) Unit Production: the production of items in units or small batches Mass Production: large production manufacturing Process Production: continues flow of products being produced UNIT PRODUCTION MASS PRODUCTION PROCESS PRODUCTION Structural Characteristics Low vertical differentiation Moderate vertical differentiation High vertical differentiation Low horizontal differentiation High horizontal differentiation Low formalization High formalization Most Effective Structure Organic Mechanistic

Common Organizational Designs Traditional Organizational Designs (more mechanistic): Simple Structure, Functional Structure, Divisional Structure More Contemporary Designs (more organic): Team Structure, Matrix-Project Structure, Boundaryless Structure

Traditional Organizational Designs Simple Structure: an organizational design with low departmentalization, wide spans of control, authority centralized in a single person and little formalization Functional Structure: an organizational design that groups similar or related occupational specialities together Divisional Structure: an organizational structure made up of separate business units or divisions

More Contemporary Designs Team Structure: a structure in which the entire organization is made up of work teams Matrix Structure: a structure in which specialities from different functional departments are assigned to work on projects led by a project manager Project Structure: a structure in which employees continuous work on projects Boundaryless Structure: an organization whose design is not defined by, or limited to, boundaries imposed by a predefined structure

Boundaryless Organizations Virtual Organization: an organization that consists of a small core of full- time employees and outside specialists temporarily hired as needed to work on projects Network Organization: an organization that uses its own employees to do some work activities and networks of outside suppliers to provide other needed product components or work processes

Today’s Organizational Design Challenges How do we keep employees connected? How do global differences affect organizational structure?

Learning Outcomes There are six elements that affect the organizational design There are two generic organization structure models: mechanistic and organic The organization structure model choice is affected by strategy, size, technology, and environment The two common organizational designs are: the traditional and more contemporary