1. Organizational Structure
MGT Principles of Management and Business
Organizational Structure
Faisal AlSager
Week 8

2. Objectives Describe six key elements in organizational design
Identify the contingency factors that favor the mechanistic model or the organic model
Compare and contrast traditional and contemporary organizational designs

3. Organizational Design
Organizing
The function management that creates the organization’s structure
Organizational Design
When managers develop or change the organization’s structure

4. Elements of the Organizational Structure
The six basic elements of organizational structure are:
work specialization,
departmentalization,
authority and responsibility,
span of control,
centralization versus decentralization, and
formalization

5. Work Specialization Definition
dividing work activities into separate job tasks.
Also known as division of labor

6. Economies and Diseconomies of Work SpecializationU C T I V Y
High
Impact from
human
diseconomies
Impact from
economies
of specialization
Low
Low
High
WORK SPECIALIZATION

7. Departmentalization Departmentalization: how jobs are grouped together
Departmentalization Type
Definition
Examples
Functional Departmentalization
Grouping activities by functions performed
Engineering Department
Human Resources Department
Product Departmentalization
Grouping activities by major product area
Women’s Footwear
Accessories
Customer Departmentalization
Grouping activities by customer
Wholesale Department
Government
Geographic Departmentalization
Grouping activities on the basis of geography
North
Middle East
Process Departmentalization
Grouping activities on the basis of work or customer flow
Testing
Payment

8. Cross-Functional Teams
Definition
Teams made up of individuals from various departments and that cross traditional departmental lines

9. Authority and Responsibility
Chain of Command
The line of authority extending from upper organizational levels to lower levels, which clarifies who report to whom
Authority
The rights inherent in a managerial position to give orders and respect the orders to be obeyed
Responsibility
An obligation to perform assigned duties

10. Types of Authority Relationships
Line Authority: authority that entitles a manager to direct the work of an employee
Staff Authority: positions with some authority that have been created to support, assist, and advise those holding of authority

11. Power: an individual’s capacity to influence decisions
Coercive Power
Power based on fear
Reward Power
Power based on the ability to distribute something that others value
Legitimate Power
Power based on one’s position in the formal hierarchy
Expert Power
Power based on one’s expertise, special skill, or knowledge
Reference Power
Power based on identification with a person who has desirable resources or personal traits

12. Span of Control Span of Control
The number of employees a manager can efficiently and effectively supervise
Most managerial authors favored a small number; no more than 6
Organizational level is a contingency variable (top managers less than middle managers and so on)
Training and experience of employees is important

13. Centralization Versus Decentralization
Centralization: the degree to which decision making takes place at upper levels of the organization
Decentralization: the degree to which lower-level managers provide input or actually make decisions

14. Formalization Formalization
How standardized an organization’s jobs are and the extent to which employee behavior is guided by rules and procedures
Today’s companies rely less on rules and standards especially if these rules and standards put obstacles in achieving goals and higher profits

15. Organization Structure Models
There are two generic organization structure models:
Mechanistic Organization: a bureaucratic organization; a structure that’s high in specialization, formalization, and centralization
Organic Organization: a structure that’s low in specialization, formalization, and centralization

16. Mechanistic Versus Organic
Rigid hierarchical relationships
Fixed duties
Many rules
Formalized communication channels
Centralized decision authority
Taller structures
Collaboration (both vertical and horizontal)
Adaptable duties
Few rules
Informal communication
Decentralized decision authority
Flatter structures

17. Contingency Variables Affecting the Organization Structure
Strategy
Single-Line Product: high centralization and low formalization
Bigger Organizations: less centralization and higher formalization
Meaningful and Unique Innovations: flexibility and free-flowing information
Size
Small-Size Organizations: more organic
Bigger Organization: more mechanistic
Technology
Technology used to convert inputs into outputs
Environment
Stable Environments: Mechanistic organizations are more effective here
Dynamic and uncertain environment: organic organizations are more effective here

18. Technology (Woodward’s Findings)
Unit Production: the production of items in units or small batches
Mass Production: large production manufacturing
Process Production: continues flow of products being produced
UNIT PRODUCTION
MASS PRODUCTION
PROCESS PRODUCTION
Structural Characteristics
Low vertical differentiation
Moderate vertical differentiation
High vertical differentiation
Low horizontal differentiation
High horizontal differentiation
Low formalization
High formalization
Most Effective Structure
Organic
Mechanistic

19. Common Organizational Designs
Traditional Organizational Designs (more mechanistic):
Simple Structure, Functional Structure, Divisional Structure
More Contemporary Designs (more organic):
Team Structure, Matrix-Project Structure, Boundaryless Structure

20. Traditional Organizational Designs
Simple Structure: an organizational design with low departmentalization, wide spans of control, authority centralized in a single person and little formalization
Functional Structure: an organizational design that groups similar or related occupational specialities together
Divisional Structure: an organizational structure made up of separate business units or divisions

21. More Contemporary Designs
Team Structure: a structure in which the entire organization is made up of work teams
Matrix Structure: a structure in which specialities from different functional departments are assigned to work on projects led by a project manager
Project Structure: a structure in which employees continuous work on projects
Boundaryless Structure: an organization whose design is not defined by, or limited to, boundaries imposed by a predefined structure

22. Boundaryless Organizations
Virtual Organization: an organization that consists of a small core of full- time employees and outside specialists temporarily hired as needed to work on projects
Network Organization: an organization that uses its own employees to do some work activities and networks of outside suppliers to provide other needed product components or work processes

23. Today’s Organizational Design Challenges
How do we keep employees connected?
How do global differences affect organizational structure?

24. Learning Outcomes
There are six elements that affect the organizational design
There are two generic organization structure models: mechanistic and organic
The organization structure model choice is affected by strategy, size, technology, and environment
The two common organizational designs are: the traditional and more contemporary