1. Basic Organization Designs
PART III: Organizing 5
Chapter 5
Basic Organization Designs
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2. Learning Outcomes After reading this chapter, I will be able to:
Identify and define the six elements of organization structure.
Describe the advantages and disadvantages of work specialization.
Contrast authority and power.
Identify the five different ways by which management can departmentalize.
Contrast mechanistic and organic organizations.
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3. Learning Outcomes (cont’d) After reading this chapter, I will be able to:
Summarize the effect of strategy, size, technology, and environment on organization structures.
Contrast the divisional and functional structures.
Explain the strengths of the matrix structure.
Describe the boundaryless organization and what elements have contributed to its development.
Explain what is meant by the term learning organization.
Describe what is meant by the term organization culture.
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4. The Elements of Structure
Organization design
A process in which managers develop or change their organization’s structure.
Work specialization
A component of organization structure that involves having each discrete step of a job done by a different individual rather than having one individual do the whole job.
Organizational design is the process by which managers alter the structure of their organization to meet the implementation demands of its chosen strategy.
Division of labor, or work specialization, describes the degree to which organizational tasks are subdivided into separate jobs. An entire job is not done by one person. Instead, it is divided into discrete steps, each one completed by a different person.
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5. Organizational Structure: Control
Chain of command
The continuous line of authority that extends from upper organizational levels to the lowest levels and clarifies who reports to whom.
Unity of Command
The management principle that no person should report to more than one boss.
Span of control
The number of subordinates a manager can direct efficiently and effectively.
How many employees can a manager efficiently and effectively direct?
Some advocate small spans of control because they help managers maintain close control; but, there are several drawbacks: they require more managers and are more costly, they retard vertical communication, and they foster tight controls and limited employee autonomy.
In contrast, wide spans of control reduce costs, cut overhead, expedite decision making, increase flexibility, empower employees, and promote customer contact.
All things being equal, the broader the span of control, the more efficient the organization.
Organizational variables that influence how a company will determine an appropriate span of control: similarity and complexity of employee tasks, the proximity of employees, the presence of standardized procedures, the capabilities of the information management system, the strength of the firm’s value system, and the preferred style of management.
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6. Organizational Structure: Control (cont’d)
Authority
The rights inherent in a managerial position to give orders and expect them to be obeyed.
Power
An individual’s capacity to influence decisions.
Responsibility
An obligation to perform assigned activities.
Authority refers to the rights inherent in a managerial position, such as giving orders and expecting that the orders will be obeyed. Authority, therefore, is related to one’s position within an organization and ignores the personal characteristics of the individual manager. When managers delegate authority, they must allocate commensurate responsibility to perform.
How does the contemporary view of authority and responsibility differ from the historical view? Early management scholars assumed that the authority and rights inherent in one’s formal position were the sole source of influence; so, managers were all powerful.
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7. Types of Organizational Authority
Line authority
The position authority (given and defined by the organization) that entitles a manager to direct the work of operative employees.
Staff authority
Positions that have some authority (e.g., organization policy enforcement) but that are created to support, assist, and advise the holders of line authority.
Early management writers distinguished between two forms of authority: line and staff.
Line authority entitles a manager to direct the work of an employee. It is the employer-employee relationship that extends from the top of the organization to the lowest echelon, according to the chain-of-command (see the following chart).
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8. Centralization And Decentralization
A function of how much decision-making authority is pushed down to lower levels in an organization; the more centralized an organization, the higher the level at which decisions are made
Decentralization
The pushing down of decision-making authority to the lowest levels of an organization
The term centralization refers to the degree to which decision making is concentrated at a single point in the organization. The term decentralization means that significant input is provided by lower-level personnel.
Traditional organizations were structured in a pyramid, with power and authority centralized at the top. In order to respond to the dynamics of the contemporary marketplace, organizations today are more decentralized to solve problems more quickly and to obtain increased employee input and commitment to organizational goals.
However, while many production decisions are pushed down to lower levels in the organization, or even outside to some suppliers, financial and product distribution decisions still remain in the hands of senior management
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9. Departmentalization Functional departmentalization
The grouping of activities by functions performed
Product departmentalization
The grouping of activities by product produced
Customer departmentalization
The grouping of activities by common customers
Geographic departmentalization
The grouping of activities by territory
Process departmentalization
The grouping of activities by work or customer flow
Activities can be grouped according to function to pursue economies of scale by placing employees with shared skills and knowledge into work-groups.
Tasks can also be grouped according to a specific product, thus placing all activities related to the product under one manager.
Jobs may be grouped according to the type of customer served by the organization.
If an organization’s customers are geographically dispersed, it can group jobs based on geography.
If each process requires different skills, process departmentalization allows homogenous activities to be categorized.
How does the contemporary view of departmentalization differ from the historical view? While most large organizations still use most of the traditional departmental groupings, rigid departmentalization is being complemented by the use of interdepartmental teams. Intense competition has refocused the attention of managers on monitoring the needs of customers and responding to them.
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10. Contingency Variables Affecting Structure
Mechanistic organization
The bureaucracy; a structure that is high in specialization, formalization, and centralization
Organic organization
An adhocracy; a structure that is low in specialization, formalization, and centralization
Structure follows strategy
The structure that an organization selects to achieve its objectives is based on strategy. After studying nearly 100 large companies, Alfred Chandler concluded that changes in corporate strategy foster changes in an organization’s structure. Specifically, he found that organizations usually begin with a single product or line. The simplicity of the strategy requires only a simple form of structure. As organizations grow, their strategies become more elaborate and ambitious. To exemplify this structure-strategy relationship, consider that organizations pursuing a differentiation strategy must innovate to survive; so, because it is flexible and adaptable, an organic structure complements this strategy. A cost-leadership strategy, on the other hand, seeks stability and efficiency. A mechanistic structure would be best for this type of strategy.
While the size of an organization significantly influences its structure, the relationship is non-linear. Large organizations (2,000+ employees) have more specialization, departmentalization, vertical levels, rules, and regulations than do smaller organizations. However, size affects the organization at a decreasing rate and becomes less important as an organization expands.
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11. Technology and Structure
Unit production
Production in terms of units or small batches
Mass production
Production in terms of large batch manufacturing
Process production
Production in terms of continuous processing
Organizations use technology to transform inputs into outputs. The British scholar, Joan Woodward, studied small manufacturing firms in England and categorized them based on the sizes of their production runs.
She reached two conclusions: (1) distinct relationships exist between a firm’s technology classification and its structure; (2) organizational effectiveness is contingent upon “fit” between technology and structure.
Her study, like many others, focused on the processes or methods that companies can use to transform inputs into outputs and how they differ according to degree of routineness.
Organic organizations are most effective in dynamic, uncertain environments. Mechanistic organizations are ill-equipped to function in such environments and are most effective in stable environments. To compete in the global village, many managers have redesigned their organizations to make them more organic.
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12. Organization Design Applications
Simple structure
An organization that is low in specialization and formalization but high in centralization
Functional structure
An organization in which similar and related occupational specialties are grouped together
Divisional structure
An organization made up of self-contained units
Placing organizations into only two categories—mechanistic and organic—does not capture the nuances and realities of modern organizations. The following slides present a number of practical organization design options. We will start with the simple structure—the form that almost all new organizations begin with and that continues to be used by managers of small businesses.
Popular in small businesses owned and managed by same person, the simple structure has several characteristics: a low degree of departmentalization, wide spans of control, centralized authority, little formalization, and a flat structure. This fast, flexible structure is inexpensive to maintain and promotes clear accountability. However, as the organization grows, low formalization and high centralization can cause information over-load at the top. And, this structure is risky because everything depends on one person.
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13. Other Organizational Structures
Matrix structure
An organization in which specialists from functional departments are assigned to work on one or more projects led by a project manager
Team-based structure
An organization that consists entirely of work groups or teams
Boundaryless organization
An organization that is not defined or limited by boundaries or categories imposed by traditional structures
The matrix structure assigns functional specialists to interdisciplinary teams that are supervised by project leaders. This structure combines product departmentalization and functional departmentalization.
In smaller companies, the team structure can define the entire organization. More often, especially in larger organizations, the team structure complements what is typically a bureaucracy. Such an arrangement allows the organization to achieve the efficiency of standardization while gaining flexibility.
The boundaryless organization is made possible by networked computers that expedite communication across intra-organizational and inter-organizational boundaries. The elimination of boundaries in contemporary organizations is being driven by global markets and competitors, innovative technology, and volatile business environments. This method minimizes the chain of command, limits spans of control, and replaces departments with empowered teams. Cross-hierarchical teams, participative decision making, and 360 degree performance appraisals dismantle vertical boundaries. Cross-functional teams, project-driven activities, lateral transfers, and job rotation minimize horizontal boundaries. Globalization, strategic alliances, customer-organization linkages, and telecommuting overcome external boundaries.
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14. Learning Organization
An organization that has developed the capacity to continuously adapt and change because all members take an active role in identifying and resolving work-related issues.
Organization design
Information sharing
Leadership
Organizational culture
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15. Organization Culture Organization culture
A system of shared meaning within an organization that determines, to a large degree, how employees act
Shared values are shown in cultural elements:
Stories, rituals, material symbols, and language unique to the organization
Results from the interaction between:
The founders’ biases and assumptions
What the first employees learn subsequently from their own experiences.
The term organization culture refers to a system of meaning that members share and that distinguishes the organization from others. This system strongly influences how employees will behave while they are at work. The culture of an organization can be analyzed based on how it rates on ten characteristics, which are relatively stable and predictable over time.
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