1. Foundations of Organizational Structure16
Foundations of Organizational Structure
© 2009 Prentice-Hall Inc. All rights reserved.

2. Chapter Learning Objectives
After studying this chapter, you should be able to:
Identify the six elements of an organization’s structure.
Identify the characteristics of a bureaucracy.
Describe a matrix organization.
Identify the characteristics of a virtual organization.
Show why managers want to create boundaryless organizations.
Demonstrate how organizational structures differ, and contrast mechanistic and organic structural models.
Analyze the behavioral implications of different organizational designs.
Show how globalization affects organizational structure.
© 2009 Prentice-Hall Inc. All rights reserved.

3. What Is Organizational Structure?
How job tasks are formally divided, grouped, and coordinated
Key Elements:
Work specialization
Departmentalization
Chain of command
Span of control
Centralization and decentralization
Formalization
© 2009 Prentice-Hall Inc. All rights reserved.

4. 1. Work Specialization
The degree to which tasks in the organization are subdivided into separate jobs
Division of Labor
Makes efficient use of employee skills
Increases employee skills through repetition
Less between-job downtime increases productivity
Specialized training is more efficient
Allows use of specialized equipment
Can create greater economies and efficiencies – but not always…
E X H I B I T 16-1
© 2009 Prentice-Hall Inc. All rights reserved.

5. Work Specialization Economies and Diseconomies
Specialization can reach a point of diminishing returns
Then job enlargement gives greater efficiencies than does specialization
E X H I B I T 16-2
© 2009 Prentice-Hall Inc. All rights reserved.

6. 2. Departmentalization The basis by which jobs are grouped together
Grouping Activities by:
Function
Product
Geography
Process
Customer
© 2009 Prentice-Hall Inc. All rights reserved.

7. 3. Chain of Command Authority Chain of Command Unity of Command
The rights inherent in a managerial position to give orders and to expect the orders to be obeyed
Chain of Command
The unbroken line of authority that extends from the top of the organization to the lowest echelon and clarifies who reports to whom
Unity of Command
A subordinate should have only one superior to whom he or she is directly responsible
© 2009 Prentice-Hall Inc. All rights reserved.

8. 4. Span of Control
The number of subordinates a manager can efficiently and effectively direct
Wider spans of management increase organizational efficiency
Narrow span drawbacks:
Expense of additional layers of management
Increased complexity of vertical communication
Encouragement of overly tight supervision and discouragement of employee autonomy
© 2009 Prentice-Hall Inc. All rights reserved.

9. Contrasting Spans of Control
E X H I B I T 16-3
© 2009 Prentice-Hall Inc. All rights reserved.

10. 5. Centralization and Decentralization
The degree to which decision making is concentrated at a single point in the organization.
Decentralization
The degree to which decision making is spread throughout the organization.
© 2009 Prentice-Hall Inc. All rights reserved.

11. 6. Formalization
The degree to which jobs within the organization are standardized.
High formalization
Minimum worker discretion in how to get the job done
Many rules and procedures to follow
Low formalization
Job behaviors are nonprogrammed
Employees have maximum discretion
© 2009 Prentice-Hall Inc. All rights reserved.

12. Common Organization Designs: Simple Structure
A structure characterized by a low degree of departmentalization, wide spans of control, authority centralized in a single person, and little formalization
E X H I B I T 16-4
© 2009 Prentice-Hall Inc. All rights reserved.

13. Common Organizational Designs: Bureaucracy
A structure of highly operating routine tasks achieved through specialization, very formalized rules and regulations, tasks that are grouped into functional departments, centralized authority, narrow spans of control, and decision making that follows the chain of command
© 2009 Prentice-Hall Inc. All rights reserved.

14. An Assessment of Bureaucracies
Strengths
Weaknesses
Functional economies of scale
Minimum duplication of personnel and equipment
Enhanced communication
Centralized decision making
Subunit conflicts with organizational goals
Obsessive concern with rules and regulations
Lack of employee discretion to deal with problems
© 2009 Prentice-Hall Inc. All rights reserved.

15. Common Organizational Designs: Matrix
Matrix Structure
A structure that creates dual lines of authority and combines functional and product departmentalization
Key Elements
Gains the advantages of functional and product departmentalization while avoiding their weaknesses
Facilitates coordination of complex and interdependent activities
Breaks down unity-of-command concept
E X H I B I T 16-5
© 2009 Prentice-Hall Inc. All rights reserved.

16. New Design Options: Virtual Organization
A small, core organization that outsources its major business functions
Highly centralized with little or no departmentalization
Provides maximum flexibility while concentrating on what the organization does best
Reduced control over key parts of the business
E X H I B I T 16-6
© 2009 Prentice-Hall Inc. All rights reserved.

17. New Design Options: Boundaryless Organization
An organization that seeks to eliminate the chain of command, have limitless spans of control, and replace departments with empowered teams
T-form Concepts
Eliminate vertical (hierarchical) and horizontal (departmental) internal boundaries
Breakdown external barriers to customers and suppliers
© 2009 Prentice-Hall Inc. All rights reserved.

18. Two Extreme Models of Organizational Design
E X H I B I T 16-7
© 2009 Prentice-Hall Inc. All rights reserved.

19. Four Reasons Structures Differ
Strategy
Innovation Strategy
A strategy that emphasizes the introduction of major new products and services
Organic structure best
Cost-minimization Strategy
A strategy that emphasizes tight cost controls, avoidance of unnecessary innovation or marketing expenses, and price cutting
Mechanistic model best
Imitation Strategy
A strategy that seeks to move into new products or new markets only after their viability has already been proven
Mixture of the two types of structure
E X H I B I T 16-8
© 2009 Prentice-Hall Inc. All rights reserved.

20. Why Structures Differ Organizational Size Technology Environment
As organizations grow, they become more mechanistic, more specialized, with more rules and regulations
Technology
How an organization transfers its inputs into outputs
The more routine the activities, the more mechanistic the structure with greater formalization
Custom activities need an organic structure
Environment
Institutions or forces outside the organization that potentially affect the organization’s performance
Three key dimensions: capacity, volatility, and complexity
© 2009 Prentice-Hall Inc. All rights reserved.

21. Three-Dimensional Environment Model
Volatility
Capacity
Complexity
Capacity
The degree to which an environment can support growth
Volatility
The degree of instability in the environment
Complexity
The degree of heterogeneity and concentration among environmental elements
E X H I B I T 16-9
© 2009 Prentice-Hall Inc. All rights reserved.

22. Organizational Designs and Employee Behavior
Impossible to generalize due to individual differences in the employees
Research findings
Work specialization contributes to higher employee productivity, but it reduces job satisfaction.
The benefits of specialization have decreased rapidly as employees seek more intrinsically rewarding jobs.
The effect of span of control on employee performance is contingent upon individual differences and abilities, task structures, and other organizational factors.
Participative decision making in decentralized organizations is positively related to job satisfaction.
People seek and stay at organizations that match their needs.
© 2009 Prentice-Hall Inc. All rights reserved.

23. Global Implications Culture and Organizational Structure
Many countries follow the U.S. model
U.S. management may be too individualistic
Culture and Employee Structure Preferences
Cultures with high-power distance may prefer mechanistic structures
Culture and the Boundaryless Organization
May be a solution to regional differences in global firms
Breaks down cultural barriers, especially in strategic alliances
Telecommuting also blurs organizational boundaries
© 2009 Prentice-Hall Inc. All rights reserved.

24. Summary and Managerial Implications
Structure impacts both the attitudes and behaviors of the people within it
Impact of Technology
Makes it easier to change structure to fit employee and organizational needs
Associated with
E X H I B I T 16-10
© 2009 Prentice-Hall Inc. All rights reserved.

25. Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.
Copyright ©2009 Pearson Education, Inc.  Publishing as Prentice Hall