Commerce 2BA3 Organizational Structure Week 12 Dr. T. McAteer DeGroote School of Business McMaster University

What is Org Structure? The manner in which an organization divides its labour into specific tasks and achieves coordination among these tasks To achieve its goals, an organization has to: –Divide labour among its members –Coordinate what has been divided

Division of Labour Labour must be divided because everyone cannot do everything Two dimensions: Horizontal and Vertical

Vertical Division of Labour Assigning authority for planning and decision making “Who gets to tell whom what to do?” Autonomy –Domain of authority is decreased as the number of levels in the hierarchy increases Communication –With more levels, communication and coordination are harder to achieve

Horizontal Division of Labour Groups the basic tasks that must be performed into jobs and then into departments so that the organization can achieve its goals Implications for job design and degree of coordination Differentiation –As horizontal division increases, so does differentiation –Tendency for managers in separate functions or departments to differ in terms of goals, styles, time etc.

Departmentation Functional departmentation –Ees with closely related skills and responsibilities are assigned to the same department (e.g. Marketing, Finance) –Works best in medium-sized firms with few product lines –Advantages? Efficiency Resources can be allocated more efficiently Enhanced communication Easier to measure and evaluate performance –Disadvantages? High degree of differentiation between departments Leads to poor coordination, conflict

Departmentation Product departmentation –Departments are formed on the basis of a particular product, product line or service (e.g. shampoo division) –Advantages? Better coordination Fewer barriers to communication Can be evaluated as profit centres Can serve the customer better –Disadvantages? Economies of scale are threatened

Departmentation Matrix Departmentation –Ees remain members of a functional department while also reporting to a product or project manager –Attempt to capitalize on strengths of other forms –Advantages? Provides a degree of balance Flexible Better communication –Disadvantages? Managers may not see eye to eye Can create conflict

Departmentation Other forms –Geographic Departmentation –Customer Departmentation –Hybrid Departmentation

Coordinating Divided Labour Direct supervision –Chain of command Standardization of work processes –Routinization of tasks –Rules and regulations Standardization of outputs –Physical or economic standards –Budgets Standardization of Skills –Technicians and professionals

Other forms of coordination Liaison Roles –A person in one department is assigned to achieve coordination with another department Task Forces –Temporary groups set up to solve coordination problems across several departments Integrators –Org members permanently assigned to facilitate coordination between departments

Traditional Structural Characteristics Span of control –# of subordinates supervised by a manager Flat vs. Tall –Flat (few levels) –Tall (many levels in hierarchy) Formalization –Extent to which work roles are highly defined by an organization

Traditional Structural Characteristics Centralization –Extent to which decision making power is localized in a particular part of an organization –Decentralized – decision making power is dispersed down the hierarchy and across departments Complexity –Extent to which an organization divides labour vertically, horizontally and geographically

Organic vs Mechanistic Structure Mechanistic –Org structures characterized by tallness, specialization, centralization and formalization Organic –Org structures characterized by flatness, low specialization, low formalization and decentralization

Organic vs Mechanistic Structure ORGANICMECHANISTIC Span of control # of levels Centralization Formalization Range of compensation WideNarrow Few Many Wide High Narrow Low High

Contemporary Structures Virtual organization –A network of continually evolving independent organizations that share skills, costs, and access to one another’s markets (e.g. broker) Modular organization –An organization that performs a few core functions and outsources non-core functions to specialists

Case How do McDonald’s and the Ritz Carlton differ in their structural characteristics? Would each organization be organic or mechanistic and why?

Exercise: Organizational Structure Preference Scale