1. Designing Organizational Structure
Chapter Seven
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

2. Learning Objectives
LO1 Identify the factors that influence managers’ choice of an organizational structure
LO2 Explain how managers group tasks into jobs that are motivating and satisfying for employees
LO3 Describe the types of organizational structures managers can design, and explain why they choose one structure over another
LO4 Explain why managers must coordinate jobs, functions, and divisions using the hierarchy of authority and integrating mechanisms.

3. Designing Organizational Structure
Organizing
The process by which managers establish the structure of working relationships among employees to achieve goals

4. Designing Organizational Structure
Formal system of task and reporting relationships that coordinates and motivates organizational members so that they work together to achieve organizational goals

5. Designing Organizational Structure
Organizational Design
The process by which managers make specific choices that result in a particular type of organizational structure.

6. Factors Affecting Organizational Structure
The Organizational Environment
The quicker the environment changes, the more problems face managers.
Structure must be more flexible (i.e., decentralized authority) when environmental change is rapid.
Strategy
Different strategies require the use of different structures
A differentiation strategy needs a flexible structure, low cost may need a more formal structure
Increased vertical integration or diversification also requires a more flexible structure
Technology
The combination of skills, knowledge, tools, equipment, computers and machines used in the organization
More complex technology makes it harder for managers to regulate the organization
Managers must take into account all four factors (environment, strategy, technology and human resources) when designing the structure of the organization
Figure 7.1
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7. Factors Affecting Organizational Structure
Environment (1)
When the external environment is changing and uncertainty exists, managers face greater problems. In this situation, managers tend to use flexible structures and entrepreneurial cultures, to speed up decision making and communication.
When the external environment is stable, managers can establish more clearly defined hierarchies and detailed rules.
The Organizational Environment
The quicker the environment changes, the more problems face managers.
Structure must be more flexible (i.e., decentralized authority) when environmental change is rapid.
Strategy
Different strategies require the use of different structures
A differentiation strategy needs a flexible structure, low cost may need a more formal structure
Increased vertical integration or diversification also requires a more flexible structure
Technology
The combination of skills, knowledge, tools, equipment, computers and machines used in the organization
More complex technology makes it harder for managers to regulate the organization
Managers must take into account all four factors (environment, strategy, technology and human resources) when designing the structure of the organization
7-7

8. Factors Affecting Organizational Structure
Strategy (2)
Different strategies require the use of different organizational structures and cultures. Examples-
A “differentiation” strategy used to increase customer value might succeed best in a flexible structure, or one that values innovation.
A “low cost” strategy might be best in a structured environment where managers maintain control.
The Organizational Environment
The quicker the environment changes, the more problems face managers.
Structure must be more flexible (i.e., decentralized authority) when environmental change is rapid.
Strategy
Different strategies require the use of different structures
A differentiation strategy needs a flexible structure, low cost may need a more formal structure
Increased vertical integration or diversification also requires a more flexible structure
Technology
The combination of skills, knowledge, tools, equipment, computers and machines used in the organization
More complex technology makes it harder for managers to regulate the organization
Managers must take into account all four factors (environment, strategy, technology and human resources) when designing the structure of the organization
7-8

9. Factors Affecting Organizational Structure
Technology (3)
Combination of skills, knowledge and machines used to design and produce goods AND services.
The more complicated the technology, the need for a flexible structure and progressive culture.
The more routine the technology (mass production) the more a structured environment is needed so that tasks are done efficiently.
The Organizational Environment
The quicker the environment changes, the more problems face managers.
Structure must be more flexible (i.e., decentralized authority) when environmental change is rapid.
Strategy
Different strategies require the use of different structures
A differentiation strategy needs a flexible structure, low cost may need a more formal structure
Increased vertical integration or diversification also requires a more flexible structure
Technology
The combination of skills, knowledge, tools, equipment, computers and machines used in the organization
More complex technology makes it harder for managers to regulate the organization
Managers must take into account all four factors (environment, strategy, technology and human resources) when designing the structure of the organization
7-9

10. Factors Affecting Organizational Structure
Human Resources (4)
The final factor affecting an organizations choice of structure and culture.
The more highly skilled the workforce, and the great number of those who work in teams, the more likely the organization will use a flexible structure. Highly skilled employees desire greater freedom and dislike close supervision.
The Organizational Environment
The quicker the environment changes, the more problems face managers.
Structure must be more flexible (i.e., decentralized authority) when environmental change is rapid.
Strategy
Different strategies require the use of different structures
A differentiation strategy needs a flexible structure, low cost may need a more formal structure
Increased vertical integration or diversification also requires a more flexible structure
Technology
The combination of skills, knowledge, tools, equipment, computers and machines used in the organization
More complex technology makes it harder for managers to regulate the organization
Managers must take into account all four factors (environment, strategy, technology and human resources) when designing the structure of the organization
7-10

11. Job Design Job Design Job Simplification
The process managers use to divide tasks into specific jobs (job descriptions)
Job Simplification
Reducing the number of tasks a worker performs
When is it necessary to do this?
Production Lines (Subway, McDonalds, autos)
What is an undesired result of this process?
Boredom
When a worker is not doing a good job.
Job can get boring!!

12. Job Design Job Enlargement Job Enrichment
The process of increasing the number of different tasks in a job by changing the division of labor
Job Enrichment
The process of increasing the degree of responsibility a worker has over a job

13. Question?
What term below refers to increasing the degree of responsibility a worker has over his or her job?
Job Design
Job Simplification
Job Enlargement
Job Enrichment
The correct answer is “D” – job enrichment. See slide 7-20.

14. The Job Characteristics Model
Figure 7.2
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15. Job Characteristics Model
7-15

16. 1-Functional Structure
An organizational structure composed of all the departments that an organization requires to produce its goods or services
7-16

17. Grouping Jobs into Functions
Advantages
Encourages learning from others doing similar jobs
Easy for managers to monitor and evaluate workers
More control
Disadvantages
Difficult for departments to communicate with others
Preoccupation with own department and losing sight of organizational goals
Hard to grow
7-17

18. 2-Divisional Structures
An organizational structure composed of separate business units within which are the functions that work together to produce a specific product for a specific customer
3 Types: Product, Geographic and Market
Divisions create smaller, manageable parts of a firm
Divisions develop a business-level strategy to compete
Divisions have marketing, finance, and other functions
Functional managers report to divisional managers who then report to corporate management

19. a-Product Structure Product Structure For Example
Each product line or business is handled by a self-contained division
For Example
Pharmaceuticals
7-19

20. a-Product Structure-con’t
Advantages
Functional managers specialize in 1 product area
Division managers become experts in their area
No need for direct supervision by corporate mgrs
By using Divisional Managers, the use of resources improves

21. b-Geographic Structure
Each region of a country or area of the world is served by a self-contained division (FedEx)
Global Geographic Structure
Managers locate different divisions in each of the world regions where the organization operates
Generally, occurs when managers are pursuing a multi-domestic strategy (Nokia)

22. c-Market Structure Market Structure
Each kind of customer is served by a self-contained division
Also called “customer structure”
Dell serves: Corporations, small businesses, home computer users and government/state agencies

23. 3-Matrix Design Structure
Matrix Structure
An organizational structure that simultaneously groups people and resources by function and product
Works well when employees are grouped in teams to develop new products (R and D)
7-23

24. 4-Product Team Design Structure
Product Team Structure
Members are permanently assigned to a cross-functional team and report only to the product team manager or to one of his subordinates
Cross-functional team
Group of managers brought together from different departments to perform organizational tasks (automotive industry)

25. 5-Hybrid Structures Hybrid Structure
The structure of a large organization that has many divisions and simultaneously uses many different organizational structures
Managers can select the best structure for a particular division—one division may use a functional structure, another division may have a geographic structure.
The ability to break a large organization into smaller units makes it easier to manage.

26. Macy’s Hybrid Structure
Figure 7.7
7-26

27. Coordinating Functions and Divisions
Authority
The power to hold people accountable for their actions and to make decisions concerning the use of organizational resources
Hierarchy of Authority
An organization’s chain of command, specifying the relative authority of each manager

28. Allocating Authority Span of Control Line Manager Staff Manager
The number of subordinates that report directly to a manager
Line Manager
Someone in the direct line or chain of command who has formal authority over people and resources
Staff Manager
Someone responsible for managing a specialist function, such as finance or marketing

29. Tall and Flat Organizations
Figure 7.9
Tall structures have many levels of authority and narrow spans of control
Flat structures have fewer levels and wide spans of control
7-29

30. Tall and Flat Organizations
Decentralizing authority
Giving lower-level managers and non-managerial employees the right to make important decisions about how to use organizational resources.
When organizations are too “tall”
The numbers of managers increase
Managers are costly for the organization
In an economic downturn, middle managers are laid off

31. Types of Integrating Mechanisms
Organizing tools that managers can use to increase communication and coordination among functions and divisions. Managers can use:
Direct Contact
Task Forces
Cross-functional Teams

32. Strategic Alliances Strategic Alliance
An agreement in which managers pool or share firm’s resources and know-how with a foreign company. The two firms share in the rewards and risks of starting a new venture.
Outsource
To use outside suppliers and manufacturers to produce goods and services

33. Strategic Alliances Network Structure
A series of strategic alliances that an organization creates with suppliers, manufacturers, and distributors to produce and market a product
Network structures allow firms to bring resources together in a boundary-less organization

34. Strategic Alliances Boundary-less Organization
An organization whose members are linked by computers, faxes, computer-aided design systems, and video-conferencing and who, rarely, if ever, see one another face-to-face