2. Chapter 8
Organization
Structure

3. Learning Objectives After studying Chapter 8, you will know:
how differentiation and integration influence your organization’s structure
how authority operates
the roles of the board of directors and the chief executive officer
how span of control affects structure and managerial effectiveness
how to delegate work effectively
the difference between centralized and decentralized organizations

4. Learning Objectives (cont.)
After studying Chapter 8, you will know:
how to allocate jobs to work units
how to manage the unique challenges of the matrix organization
the nature of important integrative mechanisms

5. Fundamentals Of Organizing
Organization chart
depicts the positions in the firm and how they are arranged
provides a picture of the reporting structure
conveys the following information
the boxes represent different work
the titles in the boxes represent the work performed by each unit
reporting and authority relationships indicated by solid lines showing superior-subordinate connections
levels of management indicated by the number of horizontal layers in the chart
all persons or units that are on the same rank and report to the same person are on one level

6. Conventional Organization Chart
Finance
R&D
Marketing
Personnel
Chemical
Products
Metal
President
Personnel
Finance
Manufacturing
Sales

7. Fundamentals Of Organizing (cont.)
Differentiation
means that the organization is comprised of many different units that work on different kinds of tasks
aspect of the organization’s internal environment
division of labor - assignment of different tasks to different people or groups
specialization - process in which different individuals and units perform different tasks
differentiation is high when there are many subunits and many kinds of specialists who think differently

8. Fundamentals Of Organizing (cont.)
Integration
degree to which differentiated units work together and coordinate their efforts
all the specialized tasks in an organization cannot be performed completely independently
coordination - procedures that link the various parts of the organization to achieve the organization’s overall mission
any job activity that links different work units performs an integrative function
the more a firm is differentiated, the greater the need for integration among the units

9. The Vertical Structure
Corporate governance
role of a corporation’s executive staff and board of directors in ensuring that the firm’s activities meet the goals of the firm’s stakeholders
Authority in organizations
authority - the legitimate right to make decisions and to tell other people what to do
resides in positions rather than people
in private business enterprises, owners have ultimate authority
traditionally authority has been the primary means of running an organization

10. The Vertical Structure (cont.)
Authority in organizations (cont.)
board of directors - elected by the stockholders to run the organization
led by a chair
performs three functions
selecting, assessing, rewarding, and perhaps replacing the CEO
determining the firm’s strategic direction and reviewing financial performance
assuring ethical, socially responsible, and legal conduct
inside directors - the firm’s top managers who sit on the board
outside directors - are likely run other companies
successful boards tend to be active, critical participants in determining company strategies

11. The Vertical Structure (cont.)
Authority in organizations (cont.)
chief executive officer (CEO) - occupies the top of the organizational pyramid
authority officially vested in the board of directors is assigned to the CEO
CEO personally accountable to the board and owners
top management team - typically comprised of the CEO, president, chief operating officer, chief financial officer, and other key executives
frequently meet with the CEO to make important decisions

12. The Vertical Structure (cont.)
Hierarchical levels
hierarchy - the authority levels of the organizational pyramid
top management - strategic managers in charge of the entire organization
middle management - in charge of plants or departments
lowest levels - made up of lower management and workers
called the operational level of the organization
trend in the U.S. is to reduce the number of hierarchical layers
subunits - subdivisions of an organization
subunits with fewer layers have higher operating efficiency

13. The Vertical Structure (cont.)
Span of control
the number of subordinates who report directly to a manager
narrow spans produce tall organizations
wide spans produce flat organizations

14. Factors Affecting The Optimal Span Of Control
Ambiguity
of work
Subordinate
preference for
autonomy
Subordinate
training and
access to
information
Optimal
span of
control
Similarity of jobs
and performance
measures
Capability and
supportiveness
of manager

15. The Vertical Structure (cont.)
Delegation
assignment of authority and responsibility to a subordinate
can occur between any two individuals in any type of structure with regard to any task
responsibility - assignment of a task that an employee is supposed to carry out
should delegate enough authority to complete the task
accountability - expectation that employees perform a job, take corrective action when necessary, and report upward on the status and quality of their performance
managers remain responsible and accountable for their own actions and those of their subordinates

16. The Vertical Structure (cont.)
Delegation (cont.)
advantages of delegation
permits getting work done through others
manager saves time
manager frees herself/himself to devote energy to other important, higher-level activities
provides subordinates with more important jobs
provides subordinates with the opportunity to develop new skills and to demonstrate potential
from the organization’s perspective, jobs are done more efficiently and cost-effectively
Dial Up User’s
High Speed User’s

17. Steps In Effective Delegation
Schedule checkpoints for
reviewing progress
Follow through by discussing
progress at appropriate intervals
Give the subordinate the authority, time, and resources
(people, money,equipment) to perform the assignment
Define the goal succinctly
Select the person for the task
Solicit the subordinate’s view
about suggested approaches

18. The Vertical Structure (cont.)
Decentralization
result of the delegation of responsibility and authority
centralized organization - high-level executives make most decisions and pass them down to lower levels for implementation
decentralized organization - lower-level managers make important decisions
ideally, decision making should occur at the level of the people who are most directly affected and have the most intimate knowledge about the problem
most U.S. executives understand the importance of decentralizing decision making to the point of the action

19. The Horizontal Structure
Basic concepts
departmentalization - subdividing the organization into smaller subunits
line departments - have responsibility for the principle activities of the firm
deal directly with the organization’s primary goods and services
line managers typically have:
substantial authority and power
ultimate responsibility for major operating decisions
accountability for “bottom-line” results
staff departments - provide specialized support for line units
moving toward a role focused on strategic support and expert advice

20. The Horizontal Structure (cont.)
Functional organization
jobs (and departments) are specialized and grouped according to business functions and the skills they require
e.g., production, marketing, R&D, human resources, and finance
at the most basic level, functional structure is organized around the company’s value chain
value chain - sequence of activities that flow from raw materials to the delivery of a product or service
common in both large and small organizations
may be most appropriate in rather simple, stable environments

21. The Horizontal Structure (cont.)
Functional organization (cont.)
advantages of functional structure include:
economies of scale can be realized
effective environmental monitoring
performance standards are better maintained
greater opportunity for specialized training and in-depth skill development
technical specialists are relatively free of administrative work
decision making and lines of communication are simple and clearly understood

22. The Horizontal Structure (cont.)
Functional organization (cont.)
disadvantages of functional structure
people may care more about their own function than about the company as a whole
may lose focus on overall product quality and customer satisfaction
managers do not develop knowledge of the other areas of the business
become specialists, not generalists
conflicts arise among functions and communications suffer accordingly
high differentiation may create barriers to coordination across functions

23. Generic Value Chain And Functional Structure
Support activities
Margin
Firm infrastructure
Human resource management
Technology development
Procurement
Margin
Service
Inbound
logistics
Operations
Marketing
and sales
Outbound
Primary activities

24. Functional Structure Staff departments Line departments Inbound
logistics
Operations
Outbound
Marketing
and sales
Service
President
Staff departments
Procurement
Human
resources
Information
technology
services
Line departments

25. The Horizontal Structure (cont.)
Divisional organization
units grouped around products, customers, or geographic regions
groups all functions into a single division
duplicates each function across all of the divisions
separate divisions may act almost as separate businesses
work autonomously to achieve the goals of the organization
several ways to create divisional structure

26. Examples Of Functional And Divisional Organizations
Functional organization
Divisional organization
A central purchasing department
Separate companywide marketing,
production, design, and
engineering departments
A central-city health department
Plantwide inspection, maintenance,
and supply departments
A university statistics department
teaches statistics for the entire
university
Each division has its own purchasing unit
Each product group has experts in
marketing, design, production, and
engineering
The school district and the prison have
their own health units
Production Team Y does its own
inspection, maintenance, and supply
Each department hires statisticians to
teach its own students

27. The Horizontal Structure (cont.)
Divisional organization (cont.)
product divisions - all functions that contribute to a given product are organized under one manager
advantages
information needs are managed more easily
people have full-time commitment to a particular product line
task responsibilities are clear
people receive broader training
flexibility of structure better suits it for unstable environments
disadvantages
difficult to coordinate across product lines
managers may not acquire depth of functional knowledge
duplication of effort is expensive

28. The Horizontal Structure (cont.)
Divisional organization (cont.)
customer and geographical divisions
build divisions around customer or geographical distinctions
advantages
can focus on customer needs
can provide faster and better service
disadvantage
duplication of activities across many customer groups and geographic areas is expensive

29. Geographical Organization
General
managers for:
New York
Philadelphia
Boston
Cleveland
Chicago
St. Louis
Raleigh
Atlanta
Orlando
Seattle
San Francisco
Los Angeles
Dallas
Houston
Albuquerque
Northeast
regional
manager
Midwest
Southeast
Pacific
Chairman
CEO
Southwest

30. The Horizontal Structure (cont.)
Matrix organization
hybrid form of organization in which functional and divisional forms overlap
have dual reporting relationships in which some managers report to two superiors rather than a single line of command
advantages
higher degree of flexibility and adaptability
disadvantages
violation of the unity of command principle
reporting to two superiors can create confusion

31. Matrix Organizational Structure
Accounting
Project
Manager A B
management
Production
Chairman
CEO
Engineering
Personnel
Functional
managers
Production
group
Two-boss
manager
Engineering
Personnel
Accounting
Production
group
Two-boss
manager
Engineering
Personnel
Accounting

32. The Horizontal Structure (cont.)
Matrix organization (cont.)
matrix survival skills
problems can be avoided if behavioral skills are learned
particular skills needed depend on position in the matrix
the matrix diamond illustrates needed skills

33. The Matrix Diamond Top Executive Needs to balance power
and emphasis between
functions and divisions
Functional Manager
Must collaborate and
manage conflicts with
product/division manager
Product Manager
functional manager
“2-Boss” Manager/Employee
Must learn how to respond to two
superiors and prioritize multiple
demands

34. The Horizontal Structure (cont.)
Matrix organization (cont.)
matrix form today - resurgence based on:
pressures to consolidate costs and be faster to market
need for better coordination across functions in the business
need for coordination across countries in global business
understanding of the matrix has increased
matrix is not a structure, but a process
relationships allow information to flow through the organization
norms, values, and attitudes shape how people think

35. Organizational Integration
Coordination by standardization
standardization - establishing common rules and procedures that apply uniformly to everyone
constrains actions
integrates various units by regulating what people do
formalization - reliance on rules and regulations to govern how people interact
should apply to most (if not all) situations
most appropriate in relatively stable and unchanging situations

36. Organization Integration (cont.)
Coordination by plan
interdependent units are required to meet deadlines and objectives that contribute to a common goal
does not require a high degree of stability and routinization
units free to modify their actions as long as they are able to meet deadlines and targets required for working with others
Coordination by mutual adjustment
involves feedback and discussion to jointly determine how to approach problems and devise mutually agreeable solutions
allows for flexible coordination to deal with novel problems
costly from the standpoint of time

37. Organization Integration (cont.)
Coordination and communication
substantial information flows to and from the environment
organizations need to develop structures for processing information
option one: reducing the need for information
slack resources - extra resources that can be used “in a pinch”
e.g., inventory reduces the need for information about sales demand
creating self-contained tasks - change from a functional organization to a product or project organization
each unit has the resources needed to perform its task
communications flow within each team rather than among a complex array of interdependent groups

38. Organization Integration (cont.)
Coordination and communication
option two: increasing information processing capability
invest in information systems - e.g., employing or expanding computer systems
create horizontal relationships - foster coordination across different units
horizontal processes include:
direct contact
liaison roles
task forces
teams
product, program, or project managers
matrix organization

39. Managing High Information-Processing Demands
Create
slack
resources
self-contained
tasks
Reduce the
need for
information
Process
more
High
information
processing
demands
Invest in
information
systems
Create
horizontal
relationships