1. Chapter 8
Organization
Structure

2. 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

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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. Williamson’s Structures
Functional or U-form (Unitary) Design
Organizational members and units are grouped into functional departments such as marketing and production
Coordination is required across all departments
Design approach resembles functional departmentalization in its advantages and disadvantages

30. Williamson’s Structures U-Form

31. Williamson’s Structures
Conglomerate or H-form (Holding) Design
Organization consists of a set of unrelated businesses with a general manager for each business
Holding-company design is similar to product departmentalization
Coordination is based on the allocation of resources across companies in the portfolio
Design has produced only average to weak financial performance; has been abandoned for other approaches

32. Williamson’s Structures H-Form

33. Williamson’s Structures
Divisional or M-form (Multidivisional) Design
An organizational arrangement based on multiple businesses in related areas operating within a larger organizational framework
The design results from a strategy of related diversification
Some activities are extremely decentralized down to the divisional level; others are centralized at the corporate level
The largest advantages of the M-form design are the opportunities for coordination and sharing of resources
Successful M-form organizations can out perform U-form and H-form organizations

34. Williamson’s Structures M-Form

35. Davis and Lawrence Matrix Design
An organizational arrangement based on two overlapping bases of departmentalization (e.g., functional departments and product categories)
A set of product groups or temporary departments are superimposed across the functional departments
Employees in the resulting matrix are members of both their departments and a project team under a project manager
The matrix creates a multiple command structure in which an employee reports to both departmental and project managers
A matrix design is useful when
There is strong environmental pressure
There are large amounts of information to be processed
There is pressure for shared resources

36. Davis and Lawrence Matrix Design

37. Davis and Lawrence Matrix Design Advantages
Enhances organizational flexibility
Involvement creates high motivation and increased organizational commitment
Team members have the opportunity to learn new skills
Provides an efficient way for the organization to use its human resources
Team members serve as bridges to their departments for the team
Useful as a vehicle for decentralization

38. Davis and Lawrence Matrix Design Disadvantages
Employees are uncertain about reporting relationships
Managers may view design as an anarchy in which they have unlimited freedom
The dynamics of group behavior may lead to slower decision making, one-person domination, compromise decisions, or a loss of focus
More time may be required for coordinating task-related activities

39. Hammer and Stanton Hybrid Designs
An organizational arrangement based on two or more common forms of organization design
An organization may have a mixture of related divisions and a single unrelated division
Most organizations use a modified form of organization design that permits it to have sufficient flexibility to make adjustments for strategic purposes

40. Mintzberg’s Structures
According to Henry Mintzberg the structural configuration of an organization can be differentiated by
Prime Coordinating Mechanism
Key Part of Organization
Type of Decentralization 

41. Mintzberg’s Structures
Prime Coordinating Mechanism
Direct Supervision
One individual is responsible for the work of others
Standardization of work processes
The content of the work is specified or programmed
Standardization of skills
Explicitly specifies the kind of training necessary to do the work
Standardization of outputs
Specifies the results, or output, of the work
 Mutual adjustment
Coordinates activities through informal communications

42. Mintzberg’s Structures
Key Part of Organization
Strategic apex- Top management and its support staff
Technostructure- Analysts such as industrial engineers, accountants, planners, and human resource managers
Operating core- Workers who actually carry out the organization’s tasks
Middle line- Middle and lower-level management
Support staff- Units that provide support to the organization outside of the operating workflow (for example, legal counsel, executive dining room staff, and consultants)

43. Mintzberg’s Structures
Types of Decentralization 
Vertical and horizontal centralization
Limited horizontal decentralization
Vertical and horizontal decentralization
Limited vertical decentralization
Selective decentralization

44. Mintzberg’s Structures
The Simple Structure
The simple structure uses direct supervision as its primary coordinating mechanism, has as its most important part its strategic apex, and employs vertical and horizontal centralization. Relatively small corporations controlled by aggressive entrepreneurs, new government departments, and medium-sized retail stores are all likely to exhibit a simple structure. These organizations tend to be relatively young. The CEO (often the owner) retains much of the decision-making power. The organization is relatively flat and does not emphasize specialization. Many smaller U-form organizations are structured in this fashion. Trilogy Software would be an example of a firm using this approach.

45. Mintzberg’s Structures
The Machine Bureaucracy
The machine bureaucracy uses standardization of work processes as its prime coordinating mechanism; the technostructure is its most important part; and limited horizontal decentralization is established. The machine bureaucracy is quite similar to Burns and Stalker’s mechanistic design discussed in Chapter 12 of Griffin’s Management, Seventh Edition. Examples include McDonald’s and most large branches of the U.S. government. This kind of organization is generally mature in age, and its environment is usually stable and predictable. A high level of task specialization and a rigid pattern of authority are also typical. Spans of management are likely to be narrow, and the organization is usually tall. Large U-form organizations are also likely to fall into this category.

46. Mintzberg’s Structures
The Professional Bureaucracy
The third form of organization design suggested by Mintzberg is the professional bureaucracy. Examples of this form of organization include universities, general hospitals, and public accounting firms. The professional bureaucracy uses standardization of skills as its prime coordinating mechanism, has the operating core as its most important part, and practices both vertical and horizontal decentralization. It has relatively few middle managers. Further, like some staff managers, its members tend to identify more with their professions than with the organization. Coordination problems are common.

47. Mintzberg’s Structures
The Divisionalized Form
The divisionalized form, Mintzberg’s fourth design, exhibits standardization of output as its prime coordinating mechanism, the middle line as its most important part, and limited vertical decentralization. This design is the same as both the H-form and the M-form described earlier. Limited and Disney are illustrative of this approach. Power is generally decentralized down to middle management—but no further. Hence each division itself is relatively centralized and tends to structure itself as a machine bureaucracy. As might be expected, the primary reason for an organization to adopt this kind of design is market diversity.

48. Mintzberg’s Structures
The Adhocracy
The adhocracy uses mutual adjustment as a means of coordination, has at its most important part the support staff, and maintains selective patterns of decentralization. Most organizations that use a fully-developed matrix design are adhocracies. An adhocracy avoids specialization, formality, and unit of command. Even the term itself, derived from “ad hoc,” suggests a lack of formality. Sun Microsystems is an excellent example of an adhocracy.

49. Mintzberg’s Structures

50. 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

51. 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

52. 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

53. 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

54. 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