1. ORGANIZATIONAL STRUCTURE AND DESIGN
Chapter 10
ORGANIZATIONAL
STRUCTURE
AND DESIGN
© 2003 Pearson Education Canada Inc.
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2. LEARNING OBJECTIVES You should be able to:
Define organizational structure and organizational design
Explain why structure and design are important to an organization
Describe the six key elements of organizational structure
Differentiate mechanistic and organic organizational design
Identify the four contingency factors that influence organizational design
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3. LEARNING OBJECTIVES (continued)
You should be able to (continued):
Describe a simple structure, a functional structure, and a divisional structure
Explain team-based structures and why organizations are using them
Describe matrix structures, project structures, autonomous internal units, and boundaryless organizations
Explain the concept of a learning organization and how it influences organizational design
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4. DEFINING ORGANIZATIONAL STRUCTURE
Organizing - the process of creating an organization’s structure
Organizational structure - the formal framework by which job tasks are divided, grouped, and coordinated
Organizational design - process of developing or changing an organization’s structure
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5. KEY ELEMENTS OF ORGANIZATIONAL DESIGN
Work
Specialization
Departmentalization
Chain
of Command
Span
of Control
Centralization and
Decentralization
Formalization
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6. ELEMENTS OF ORGANIZATIONAL DESIGN
Work Specialization
The degree to which tasks in an organization are divided into separate jobs
Too much specialization has created human diseconomies
An important organizing mechanism, though not a source of ever-increasing productivity
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7. ELEMENTS OF ORGANIZATIONAL DESIGN (continued)
Departmentalization
The basis by which jobs are grouped together
functional - groups jobs by functions performed
geographical - groups jobs on the basis of territory or geography
product - groups jobs by product line
process - groups jobs on the basis of product or customer flow
customer - groups jobs on the basis of common customers
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8. ELEMENTS OF ORGANIZATIONAL DESIGN (continued)
Departmentalization (continued)
Large organizations combine most or all forms of departmentalization
Trends
customer departmentalization is increasingly being used
better able to monitor and respond to customer needs
cross-functional teams are becoming popular
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9. © 2003 Pearson Education Canada Inc.
FUNCTIONAL DEPARTMENTALIZATION (Exhibit 10.2)
Plant Manager
Manager,
Engineering
Manager,
Accounting
Manager,
Manufacturing
Manager,
Human Resources
Manager,
Purchasing
© 2003 Pearson Education Canada Inc.
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10. © 2003 Pearson Education Canada Inc.
GEOGRAPHICAL DEPARTMENTALIZATION (Exhibit 10.2)
Vice President
for Sales
Sales Director,
Western Region
Sales Director,
Southern Region
Sales Director,
Midwestern Region
Sales Director,
Eastern Region
© 2003 Pearson Education Canada Inc.
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11. © 2003 Pearson Education Canada Inc.
PRODUCT DEPARTMENTALIZATION (Exhibit 10.2)
Bombardier, Ltd.
Recreational Products
Division
Logistic Equipment
Industrial Equipment
Bombardier-Rotax
(Gunskirchen)
Recreational and Utility
Vehicles Sector
Mass Transit
Division
Bombardier-Rotax
(Vienna)
Sector
Rail Products
Sector
© 2003 Pearson Education Canada Inc.
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12. PROCESS DEPARTMENTALIZATION
(Exhibit 10.2)
Plant
Superintendent
Sawing Department Manager
Planning and Milling Department
Assembling
Department Manager
Lacquering and Sanding Department Manager
Finishing Department Manager
Inspection and Shipping Department Manager
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13. © 2003 Pearson Education Canada Inc.
CUSTOMER DEPARTMENTALIZATION (Exhibit 10.2)
Director
Of Sales
Manager,
Retail Accounts
Manager,
Wholesale Accounts
Manager,
Government Accounts
© 2003 Pearson Education Canada Inc.
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14. ELEMENTS OF ORGANIZATIONAL DESIGN (continued)
Chain of Command
Continuous line of authority that extends from upper organizational levels to the lowest levels and clarifies who reports to whom
authority - the rights inherent in a managerial position to tell people what to do and to expect them to do it
responsibility - the obligation to perform any assigned duties
unity of command - a person should report to only one manager
These concepts are less relevant today due to information technology and employee empowerment
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15. ELEMENTS OF ORGANIZATIONAL DESIGN (continued)
Span of Control
Number of employees that a manager can efficiently and effectively manage
Determines the number of levels and managers in an organization
The wider the span, the more efficient the organization
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16. CONTRASTING SPANS OF CONTROL (Exhibit 10.3)
Assuming Span of 4
Assuming Span of 8 1 4 16 64
256
1024
4096 1 2 3 4 5 6 7 1 8 64
512
4096 1 2 3 4 5
Organizational Level
Span of 8
Operatives = 4,096
Managers (levels 1-4) = 585
Span of 4
Operatives = 4,096
Managers (levels 1-6) = 1,365
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17. ELEMENTS OF ORGANIZATIONAL DESIGN (continued)
Centralization
The degree to which decision making is concentrated at a single point in the organization
Decentralization
The degree to which decisions are made by lower-level employees
Distinct trend toward decentralized decision making
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18. FACTORS INFLUENCING DEGREE OF CENTRALIZATION OR DECENTRALIZATION (Exhibit 10.4)
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19. ELEMENTS OF ORGANIZATIONAL DESIGN (continued)
Formalization
The degree to which jobs within the organization are standardized
Extent to which employee behaviour is guided by rules and procedures
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20. ORGANIZATIONAL DESIGN DECISIONS
Mechanistic Organization
Rigidly and tightly controlled structure
Tries to minimize the impact of differing human traits
Most large organizations have some mechanistic characteristics
Organic Organization
Highly adaptive and flexible structure
Permits organization to change when the need arises
Employees are highly trained and empowered to handle diverse job activities
Minimal formal rules and little direct supervision
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21. MECHANISTIC VERSUS ORGANIC STRUCTURES
High Specialization
Rigid Departmentalization
Clear Chain of Command
Narrow Spans of Control
Centralization
High Formalization
Cross-Hierarchical Teams
Free Flow of Information
Wide Spans of Control
Decentralization
Low Formalization
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22. ORGANIZATIONAL DESIGN DECISIONS (continued)
Contingency Factors
Strategy and Structure - structure should facilitate the achievement of goals
Size and Structure - size affects structure at a decreasing rate
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23. ORGANIZATIONAL DESIGN DECISIONS (continued)
Contingency Factors (continued)
Technology and Structure
unit production - production of items in units or small batches
mass production - production of items in large batches
process production - production of items in continuous process
Mechanistic structure supports routine technology
Organic structure supports non-routine technology
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24. © 2003 Pearson Education Canada Inc.
TECHNOLOGY, STRUCTURE, AND EFFECTIVENESS (Exhibit 10.6)
Mass
Production
Moderate vertical
differentiation
High horizontal
High formalization
Process
Production
High vertical
differentiation
Low horizontal
Low formalization
Unit
Production
Low vertical
differentiation
Low horizontal
Low formalization
Characteristics
Structural
Most effective
structure
Organic
Mechanistic
© 2003 Pearson Education Canada Inc.
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25. ORGANIZATIONAL DESIGN DECISIONS (continued)
Contingency Factors (continued)
Environmental Uncertainty and Structure
one way to reduce environmental uncertainty is to adjust the organization’s structure
with greater stability, mechanistic structures are more effective
the greater the uncertainty, the greater the need for an organic structure
organizations are being designed to be more organic nowadays
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26. COMMON ORGANIZATIONAL DESIGNS
Traditional Organizational Designs
Simple Structure - low departmentalization, wide spans of control, authority centralized in a single person, and little formalization
Functional Structure - groups similar or related occupational specialties together
Divisional Structure - composed of separate divisions
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27. COMPARISON OF COMMON TRADITIONAL DESIGNS (Figure 10.7)
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28. COMMON ORGANIZATIONAL DESIGNS (continued)
Contemporary Organizational Designs
Team-Based Structures - entire organization is made up of work teams
employee empowerment is crucial
teams responsible for all work activity and performance
complements functional or divisional structures in large organizations
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29. COMMON ORGANIZATIONAL DESIGNS (continued)
Contemporary Organizational Designs (continued)
Matrix Structure - assigns specialists from different functional departments to work on projects led by project managers
adds vertical dimension to the traditional horizontal functional departments
creates a dual chain of command
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30. © 2003 Pearson Education Canada Inc.
A MATRIX ORGANIZATION IN AN AEROSPACE FIRM (Exhibit 10.8)
© 2003 Pearson Education Canada Inc.
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31. COMMON ORGANIZATIONAL DESIGNS (continued)
Contemporary Organizational Designs (continued)
Project Structure - employees work continuously on projects
employees do not return to a functional department at the conclusion of a project
all work performed by teams comprised of employees with appropriate skills and abilities
tends to be very fluid and flexible
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32. COMMON ORGANIZATIONAL DESIGNS (continued)
Contemporary Organizational Designs (continued)
Autonomous Internal Units – independent, decentralized business units
each has its own products, clients, competitors, and profit goals
business units are autonomous
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33. COMMON ORGANIZATIONAL DESIGNS (continued)
Contemporary Organizational Designs (continued)
Boundaryless Organization - design is not defined by, or limited to, the horizontal, vertical, or external boundaries imposed by a predefined structure
strategic alliances break down barriers between the company and its customers and suppliers
seeks to eliminate the chain of command, to have limitless spans of control, and to replace departments with empowered teams
flattens the hierarchy by removing vertical boundaries
horizontal boundaries removed by organizing work around processes instead of functional departments
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34. COMMON ORGANIZATIONAL DESIGNS (continued)
Contemporary Organizational Designs (continued)
Learning Organization - an organizational mind-set rather than a specific organizational design
has developed the capacity to continuously adapt
all members take an active role in identifying and resolving work-related issues
practice knowledge management by continually acquiring and sharing new knowledge
environment is conducive to open communication
empowered teams are important
leadership creates a shared vision for the future
organizational culture provides sense of community
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35. © 2003 Pearson Education Canada Inc.
CHARACTERISTICS OF A LEARNING ORGANIZATION (Exhibit 10.9)
Organizational Design
Boundaryless
Teams
Empowerment
Organizational Culture
Strong Mutual
Relationships
Sense of Community
Caring
Trust
The
Learning
Organization
Information Sharing
Open
Timely
Accurate
Leadership
Shared Vision
Collaboration
© 2003 Pearson Education Canada Inc.
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