1. Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Chapter 14 Organization Structure

2. 14 - 2 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives After completing Chapter 14, you should be able to:  Define The terms organization structure and organizational design.  Describe The relationships among the four managerial decisions of organization structure.  Discuss The relative advantages and disadvantages of centralization and decentralization of authority.

3. 14 - 3 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives (continued) After completing Chapter 14, you should be able to:  Compare The alternative bases for departmentalization.  Identify The circumstances that would cause management to consider the matrix organization structure.

4. 14 - 4 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Organization structure – the pattern of jobs and groups of jobs in an organization. It is an important cause of individual and group behavior.

5. 14 - 5 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. The Concept of Organization Structure Structure as an influence on behavior Structure as recurring activities

6. 14 - 6 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Organizational Design  Organizational design – management decisions and actions that result in a specific organization structure. Managers decide how to divide the overall task into successively smaller jobs. Managers decide how to divide the overall task into successively smaller jobs. Managers decide the bases by which to group the jobs. Managers decide the bases by which to group the jobs. Managers decide the appropriate size of the group reporting to each superior. Managers decide the appropriate size of the group reporting to each superior. Managers distribute authority among the jobs. Managers distribute authority among the jobs.

7. 14 - 7 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Division of Labor Departmentalization Span of Control High Low Homogeneous Heterogeneous Wide Narrow Authority Decentralized Centralized Specialization Basis Number Delegation The Four Key Design Decisions

8. 14 - 8 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Division of Labor  Division of labor – process of dividing work into relatively specialized jobs to achieve advantages of specialization.  Division of labor in organizations can occur by: Work can be divided into different personal specialties. Work can be divided into different personal specialties. Work can be divided into different activities necessitated by the natural sequence of the work the organization does. Work can be divided into different activities necessitated by the natural sequence of the work the organization does. Work can be divided along the vertical plane of the organization. Work can be divided along the vertical plane of the organization.

9. 14 - 9 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Departmentalization – process in which an organization is structurally divided by combining jobs in departments according to some shared characteristic or basis.

10. 14 - 10 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Departmentalization Bases Functional Territorial ProductCustomer Matrix

11. 14 - 11 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Departmental Bases: Functional Departmentalization  Jobs are combined according to the functions of the organization.  The principal advantage is efficiency. By having departments of specialists, management creates efficient units. By having departments of specialists, management creates efficient units.  A major disadvantage is that organizational goals may be sacrificed in favor of departmental goals.

12. 14 - 12 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. EngineeringEngineering ReliabilityReliability FinanceFinance ManufacturingManufacturingDistributionDistributionPersonnelPersonnel PublicrelationsPublicrelations PurchasingPurchasing Chief Executive Officer Functional-Base Organization: Manufacturing

13. 14 - 13 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Chief Executive Officer Loans Investments Trust Marketing Operations Functional-Base Organization: Banking

14. 14 - 14 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Chief Executive Officer Surgery unit Housekeeping unit Nursing unit Psychiatric unit PharmacyPharmacy Personnel unit Functional-Base Organization: Hospital

15. 14 - 15 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Departmental Bases: Territorial Departmentalization  Establish groups according to geographic area.  The logic is that all activities in a given region should be assigned to a manager.  Advantageous in large organizations because physical separation of activities makes centralized coordination difficult.  Provides a training ground for managerial personnel.

16. 14 - 16 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. General managers for: New York Philadelphia Boston General managers for: Cleveland Chicago St. Louis General managers for: Raleigh Atlanta Orlando General managers for: Seattle San Francisco Los Angeles General managers for: Dallas Houston Albuquerque Northeast regional manager Midwest regional manager Southeast regional manager Pacific regional manager Chairman CEO Southwest regional manager Example of Territorial Departmentalization

17. 14 - 17 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Departmental Bases: Product Departmentalization  All jobs associated with producing and selling a product or product line will be placed under the direction of one manager.  Product becomes the preferred basis as a firm grows by increasing the number of products it markets.  Concentrating authority, responsibility, and accountability in a specific product department allows top management to coordinate actions.

18. 14 - 18 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Vice President & General Manager Consumer Products Division Vice President & General Manager Consumer Products Division Division Vice President & General Sales Manager Division Vice President & General Sales Manager Division Vice President & President & General Manager Feminine Hygiene Products Division Vice President & President & General Manager Feminine Hygiene Products Division Vice President & General Manager HouseholdProducts Division Vice President & General Manager HouseholdProducts Division Vice President & General Manager CommercialProducts Division Vice President & General Manager CommercialProducts Vice President Manufacturing Vice President Manufacturing Director of Personnel Personnel MarketingStaffServices MarketingStaffServices MarketingResearch MarketingResearch Distribution&Planning Distribution&Planning QualityAssurance QualityAssuranceComptrollerComptroller Example of Product Departmentalization

19. 14 - 19 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Combined Bases for Departmentalization: The Matrix Organization  Matrix organization – attempts to maximize the strengths and minimize the weaknesses of both the functional and product bases.  Superimpose a horizontal structure of authority, influence, and communication on the vertical structure.  Facilitates the utilization of highly specialized staff and equipment.

20. 14 - 20 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Project or product A Project or product B Project or product C Project or product D Project or product E Manufacturing Marketing Engineering Finance Functions Projects, products Example of the Matrix Organization Base

21. 14 - 21 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Span of Control  Number of individuals who report to a specific manager. Narrow span Narrow span Wide span Wide span  The frequency and intensity of actual relationships is the critical consideration in determining the manager’s span of control.

22. 14 - 22 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. President Supervisor Supervisor Supervisor Example of Wide Span of Control

23. 14 - 23 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Department Head Supervisor Supervisor SupervisorSupervisor President Example of Narrow Span of Control

24. 14 - 24 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Delegation of Authority  Managers decide how much authority should be delegated to each job and to each jobholder.  Delegation of authority – process of distributing authority downward in an organization.

25. 14 - 25 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Reasons to Decentralize Authority  Relatively high delegation of authority encourages the development of professional managers.  High delegation of authority can lead to a competitive climate within the organization.  Managers who have relatively high authority can exercise more autonomy, and thus satisfy their desires to participate in problem solving.

26. 14 - 26 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Reasons to Centralize Authority  Managers must be trained to make the decisions that go with delegated authority. Formal training programs can be quite expensive.  Many managers are accustomed to making decisions and resist delegating authority to their subordinates.  Administrative costs are incurred because new control systems must be developed to provide top management with information about the effects of subordinates’ decisions.  Decentralization means duplication of functions.

27. 14 - 27 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Delegation Decision Guidelines  How routine and straightforward are the job’s or unit’s required decisions? The authority for routine decisions can be centralized. The authority for routine decisions can be centralized.  Are individuals competent to make the decision? Even if the decision is non-routine, if the local manager is not capable, then the decision should be centralized.. Even if the decision is non-routine, if the local manager is not capable, then the decision should be centralized.. Delegation of authority can differ among individuals depending upon each one’s ability to make the decision. Delegation of authority can differ among individuals depending upon each one’s ability to make the decision.

28. 14 - 28 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Delegation Decision Guidelines (continued)  Are individuals motivated to make the decision? Capable individuals are not always motivated individuals. Capable individuals are not always motivated individuals. Motivation must accompany competency to create conducive conditions for decentralization. Motivation must accompany competency to create conducive conditions for decentralization.  Do the benefits of decentralization outweigh its costs?

29. 14 - 29 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Mechanistic and Organic Models of Organization Design The Mechanistic Model  Emphasizes importance of achieving high levels of production and efficiency through: Extensive use of rules and procedures Extensive use of rules and procedures Centralized authority Centralized authority High specialization of labor High specialization of labor The Mechanistic Model  Emphasizes importance of achieving high levels of production and efficiency through: Extensive use of rules and procedures Extensive use of rules and procedures Centralized authority Centralized authority High specialization of labor High specialization of labor The Organic Model  Emphasizes importance of achieving high levels of production and efficiency through: Limited use of rules and procedures Limited use of rules and procedures Decentralized authority Decentralized authority Relatively low degrees of specialization Relatively low degrees of specialization The Organic Model  Emphasizes importance of achieving high levels of production and efficiency through: Limited use of rules and procedures Limited use of rules and procedures Decentralized authority Decentralized authority Relatively low degrees of specialization Relatively low degrees of specialization

30. 14 - 30 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Comparison of Mechanistic and Organic Structures Process Mechanistic Structure Organic Structure 1. Leadership Includes no perceived confidence and trust between superiors and subordinates. Includes perceived confidence and trust between superiors and subordinates. 2. Motivation Taps only physical, security, and economic motives, through use of fear and sanctions. Taps a full range of motives through participatory methods. 3. Communication Information flows downward and tends to be distorted, inaccurate, and viewed with suspicion by subordinates. Information flows freely: upward, downward, and laterally. The information is accurate and undistorted. 4. Interaction Closed and restricted. Subordinates have little effect on departmental goals, methods, and activities. Open and extensive. Both superiors and subordinates are able to affect departmental goals, methods, and activities.

31. 14 - 31 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Comparison of Mechanistic and Organic Structures (continued) Process Mechanistic Structure Organic Structure 5. Decision Relatively centralized. Occurs only at the top of the organization. Relatively decentralized. Occurs at all levels through group processes. 6. Goal setting Located at the top of the organization, discouraging group participation. Encourages group participation in setting high, realistic objectives. 7. Control Centralized. Emphasizes fixing blame for mistakes. Dispersed throughout the organization. Emphasizes self- control and problem solving. 8. Performance goals Low and passively sought by managers, who make no commitment to developing the organization’s human resources. High and actively sought by superiors, who recognize the need for full commitment to developing, through training, the organization’s human resources.

32. 14 - 32 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Contingency Design Theories  Contingency design theory – emphasizes the importance of fitting a design to demands of a situation, including Technology Technology Environmental uncertainty Environmental uncertainty Management choice Management choice  The essence of this approach is expressed by the question: Under what circumstances and in what situations is either the mechanistic or the organic design relatively more effective? Under what circumstances and in what situations is either the mechanistic or the organic design relatively more effective?

33. 14 - 33 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Environment and Organization Design Differentiation Integration Environment

34. 14 - 34 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. Differentiation Integration The degree of differences among organizational units due to individual and structural differences. Achieving unity of effort among different organizational units and individuals through rules, planning, and leadership.

35. 14 - 35 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. MarketSub-environmentTechnical-economicSub-environmentScienceSub-environment Integrative subsystem Marketingsubsystem ProductionsubsystemResearchsubsystem Conceptualization of the Lawrence and Lorsch Model