Organizational Structure and Design Chapter 6 Organizational Structure and Design PowerPoint Presentation by Charlie Cook Copyright © 2005 South-Western. All rights reserved.

Organizing and Organizational Structure The process of structuring both human and physical resources to accomplish organizational objectives. Organizational structure The framework of jobs and departments that directs the behavior of individuals and groups toward achieving the organization’s objectives. Management’s responsibility is to develop a structure that enhances the organization’s overall strategy. Copyright © 2005 South-Western. All rights reserved.

Determining Organizational Structure The four major decisions: Specialization of jobs Delegation of authority Departmentalization Span of control Copyright © 2005 South-Western. All rights reserved.

Determining Organizational Structure (cont’d) Designing Organization Structure Specialization of jobs High Low Delegation of authority Centralized Decentralized Departmentalization Homogeneous Heterogeneous Span of control Narrow Wide Copyright © 2005 South-Western. All rights reserved. Exhibit 6 . 1

Determining Organizational Structure (cont’d) Scientific Management versus Craftsmanship Copyright © 2005 South-Western. All rights reserved. Management Highlight

Determining Organizational Structure (cont’d) Teams and quality circles Problem-solving team: knowledgeable workers who gather to solve a specific problem and then disband. Work team: a group of employees who work closely together to pursue common objectives. Self-managed work teams: workers who become their own managers, which increases reliance on their creative and intellectual capabilities besides their labor. Quality circle: a group of fewer than ten workers who do similar work and meet weekly to discuss their work, identify problems, and present possible solutions. Copyright © 2005 South-Western. All rights reserved.

Determining Organizational Structure (cont’d) Delegation of authority Decentralization: the process of distributing authority throughout the organization. Centralization: the process of retaining authority in the hands of high-level managers, who make all the decisions. Empowerment: giving employees who are responsible for hands-on production or service activities the authority to make decisions or take action without prior approval. Copyright © 2005 South-Western. All rights reserved.

Determining Organizational Structure (cont’d) Delegation of authority (cont’d) Chain of command Delegation of authority creates a formal channel that defines the lines of authority from the top to the bottom of an organization. Line position: a position in the direct chain of command that contributes directly to achieving the organization’s goals. Staff position: a position not in the direct chain of command that facilitates or provides advice to line positions. Copyright © 2005 South-Western. All rights reserved.

Determining Organizational Structure (cont’d) Chain of Command Copyright © 2005 South-Western. All rights reserved. Exhibit 6 . 2

Determining Organizational Structure (cont’d) Differentiating between Line and Staff Positions Line position ——— Staff position -------- Copyright © 2005 South-Western. All rights reserved. Exhibit 6 . 3

Determining Organizational Structure (cont’d) Departmentalization The process of grouping jobs according to some logical arrangement. As organizations grow in size and job specialization increases, it becomes necessary to determine how to best to arrange and group jobs. Common bases for departmentalization Functional Product Customer Geographic Mixed Matrix organization Copyright © 2005 South-Western. All rights reserved.

Determining Organizational Structure (cont’d) Functional Departmentalization Copyright © 2005 South-Western. All rights reserved. Exhibit 6 . 4

Determining Organizational Structure (cont’d) Product Departmentalization Copyright © 2005 South-Western. All rights reserved. Exhibit 6 . 5

Determining Organizational Structure (cont’d) Customer Departmentalization Copyright © 2005 South-Western. All rights reserved. Exhibit 6 . 6

Determining Organizational Structure (cont’d) Geographic Departmentalization Copyright © 2005 South-Western. All rights reserved. Exhibit 6 . 7

Determining Organizational Structure (cont’d) Mixed Departmentalization Exhibit 6 . 8 Copyright © 2005 South-Western. All rights reserved.

Determining Organizational Structure (cont’d) Matrix Organization Copyright © 2005 South-Western. All rights reserved. Exhibit 6 . 9

Determining Organizational Structure (cont’d) Wide versus Narrow Span of Control A. Wide Span of Control B. Narrow Span of Control Copyright © 2005 South-Western. All rights reserved. Exhibit 6 . 10

Determining Organizational Structure (cont’d) Factors to consider in determining span of control Competence of both the manager and the subordinates. Degree of interaction required among the units to be supervised. Extent to which the manager must carry out nonmanagerial tasks. Relative similarity or dissimilarity of the jobs being supervised. Extent of standardized procedures. Degree of physical dispersion of subordinates. Copyright © 2005 South-Western. All rights reserved.

Dimensions of Organizational Structure Formalization The extent to which organizational communications and procedures are written down and filed. Centralization How much the authority to make decisions is dispersed throughout the organization. Complexity The number of different job titles and the number of different departments in an organization. Copyright © 2005 South-Western. All rights reserved.

Organizational Design The process by which managers develop an organizational structure. Issues affecting organizational design Specialization of jobs Centralization and delegation of authority Departmentalization Span of control Models of organization design Mechanistic model Organic model Copyright © 2005 South-Western. All rights reserved.

Organizational Design (cont’d) Mechanistic model Mechanistic organization: a rigid organization that attempts to achieve production and efficiency through rules, specialized jobs, and centralized authority. Max Weber’s bureaucracy: an organization based on a formal system of legitimate authority. Copyright © 2005 South-Western. All rights reserved.

Organizational Design (cont’d) Characteristics of a bureaucracy Tasks are divided into highly specialized jobs. Each task is performed according to a standardized set of rules that ensures uniformity. Each member of the organization is accountable to a single manager. Business is conducted impersonally, and managers maintain a social distance from workers. Employment and advancement are based on merit and technical qualifications, and workers are protected from arbitrary dismissal. Copyright © 2005 South-Western. All rights reserved.

Organizational Design (cont’d) Organic model Organic organization: an organization that is decentralized with communication flows throughout the organization rather than through the chain of command. Seeks to maximize flexibility and adaptability. Encourages greater utilization of human potential. Deemphasizes specialization of jobs, status, and rank to encourage horizontal and lateral relationships. Provides individuals with a supportive work environment and builds a sense of personal worth and importance. Copyright © 2005 South-Western. All rights reserved.

Organizational Design (cont’d) Contingency approach Designing an organization to effectively function in the face of the unique contingencies or circumstances of its competitive environment. Contingencies that influence this decision include: Technology used to produce good or service Environmental stability or instability Strategy chosen Copyright © 2005 South-Western. All rights reserved.

Organizational Design (cont’d) Contingencies affecting design Technology Routine technologies = mechanistic organization Nonroutine technologies = organic organization Environment Stable environment = mechanistic organization Unstable environment = organic organization Strategy Structure follows strategy Single product/market = organic structure Diversification = mechanistic structure Copyright © 2005 South-Western. All rights reserved.

Other Forms of Organizational Design Multidivisional organization A high-performance organization whose operating units or divisions are partially interdependent. Each division is different, but all divisions share common technology, skill, and information. Network organization A flexible, temporary relationship between manufacturers, buyers, suppliers, and customers. The design is dynamic in that the major components can be assembled or reassembled to meet changing competitive conditions. Copyright © 2005 South-Western. All rights reserved.

Other Forms of Design (cont’d) Network organization (cont’d) Virtual corporation A temporary series of partnerships of organizations, linked by information technology, that come together quickly to exploit fast-changing opportunities and terminate once an opportunity is met. Modular corporation A hub surrounded by a network of the best suppliers in the world. The hub is the center of activities, such as research and development; the network is made up of outside specialists. Copyright © 2005 South-Western. All rights reserved.