1. ORGANIZATIONAL STRUCTURE AND DESIGN
CHAPTER 9
ORGANIZATIONAL STRUCTURE AND DESIGN
Copyright © 2005 Prentice Hall, Inc. All rights reserved.

2. Designing Organizational Structure
Few topics in management have undergone as much change in the past few years as organizing and organizational structure.
Managers are re-evaluating traditional approaches to find new structural designs that support and facilitate employees’ doing the work (mainly focussing on efficiency, effectiveness and flexibility).
Organizational Structure
The formal arrangement of jobs within an organization.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.

3. Defining Organizational Structure
Organizational Chart (Organogram)
Visual representation of organizational structure.
Organizational Design
A process involving decisions about six key elements:
Work specialization
Departmentalization
Chain of command
Span of control
Centralization and decentralization
Formalization
Copyright © 2005 Prentice Hall, Inc. All rights reserved.

4. Organizational Structure
Work Specialization
The degree to which tasks in the organization are divided into separate jobs with each step completed by a different person.
Overspecialization can result in human diseconomies from boredom, fatigue, stress, poor quality, increased absenteeism, and higher turnover.
Most managers today see work specialization as an important organizing mechanism as it helps employees to be more efficient.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.

5. EXAMPLE OF WORK SPECIALIZATION

6. Departmentalization
The way in which jobs are grouped together is called departmentalization.
There are 5 common forms of departmentalization.
Large organizations often combine most or all of these forms of departmentalization.
A popular trend today is cross-functional teams, which are work teams composed of individuals from various functional specialities.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.

7. Departmentalization by Type
Product departmentalization: organized based on the goods and services a company offers.
Geographical departmentalization: organized by geographical regions within a country or, for a multinational firm, by region throughout the world.
Customer departmentalization: organized by the different types of customers the organization serves.
Functional departmentalization: organized by business functions such as finance, marketing, human resources, and production.
Process departmentalization: organized by work processes necessary to complete production of goods or services.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.

8. Functional Departmentalization
Geographical Departmentalization
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Figure 10.2a

9. Product Departmentalization
Process Departmentalization
Figure 10.2c
Source: Bombardier Annual Report.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.

10. Customer Departmentalization
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Figure 10.2d

11. Different forms of Departmentalization
in a single company
Many companies combine the different types of departmentalization to build their structure.

12. Organization Structure (cont’d)
Chain of Command
The continuous line of authority that extends from upper levels of an organization to the lowest levels of the organization and clarifies who reports to who.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.

13. Organization Structure (cont’d)
Authority
The rights inherent in a managerial position to tell people what to do and to expect them to do it.
Responsibility
The obligation or expectation to perform.
Unity of Command
The concept that a person should have one boss and should report only to that person.
Early management theorists believed that chain of command, authority, responsibility and unity of command were essential, but times have changed.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.

14. Organization Structure (cont’d)
Span of Control
The number of employees who can be effectively and efficiently supervised by a manager.
Determining the span of control is important because to a large degree, it determines the number of levels and managers in an organization.
All other things being equal, the wider or larger the span, the more efficient (in terms of cost) the organization is.
But wider spans may reduce effectiveness.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.

15. Contrasting Spans of Control
Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Figure 10.3

16. Organization Structure (cont’d)
Width of span is affected by:
Skills and abilities of the manager
Employee characteristics
Characteristics of the work being done
Similarity of tasks
Complexity of tasks
Physical proximity of subordinates
Standardization of tasks
The trend in recent years has been towards larger spans of control. Managers are realizing that they can handle a wider span when employees know their jobs well and understand organizational processes.

17. Organization Structure (cont’d)
Centralization
The degree to which decision-making is concentrated at a single point in the organizations.
Organizations in which top managers make all the decisions and lower-level employees simply carry out those orders.
Decentralization
Organizations in which decision-making is pushed down to the managers who are closest to the action.
Employee Empowerment
Increasing the decision-making authority,
Copyright © 2005 Prentice Hall, Inc. All rights reserved.

18. Organization Structure (cont’d)
Formalization
The degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures.
Highly formalized jobs offer little discretion over what is to be done.
Low formalization means fewer constraints on how employees do their work.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.

19. Mechanistic versus Organic Organization
Mechanistic Organization
A rigid and tightly controlled structure
High specialization
Rigid departmentalization
Narrow spans of control
High formalization
Limited information network (downward)
Low decision participation
Organic Organization
Highly flexible and adaptable structure
Non-standardized jobs
Fluid team-based structure
Little direct supervision
Minimal formal rules
Open communication network
Empowered employees
Copyright © 2005 Prentice Hall, Inc. All rights reserved.

20. Structural Contingency Factors
Structural decisions are influenced by:
Overall strategy of the organization
Organizational structure follows strategy.
Size of the organization
Firms change from organic to mechanistic organizations as they grow in size.
Technology used by the organization
Firms adapt their structure to the technology they use.
Routine technology = mechanistic organizations
Non-routine technology = organic organizations
Degree of environmental uncertainty
Dynamic environments require organic structures; mechanistic structures need stable environments.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.

21. Common Organizational Designs
Traditional Designs
Simple structure
Low departmentalization, wide spans of control, centralized authority, little formalization
Functional structure
Departmentalization by function
Operations, finance, human resources, and product research and development
Divisional structure
Composed of separate business units or divisions with limited autonomy under the coordination and control of the parent corporation.
Copyright © 2005 Prentice Hall, Inc. All rights reserved.

22. Organizational Designs (cont’d)
Contemporary Organizational Designs