1. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

2. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15 CHAPTERCHAPTERCHAPTERCHAPTER Organizational Structure and Design IDENTIFY the choices which must be made in designing an organization. DEFINE what is meant by the term division of labor. DISCUSS the role of delegation of authority in design decisions. DESCRIBE several forms of departmentalization. EXPLAIN the importance of span of control. DEFINE three important dimensions of structure. COMPARE mechanistic and organic organizational design. IDENTIFY the major advantages of matrix organizational design. DISCUSS multinational organizational structure and design issues. EXPLAIN the meaning of the term virtual organization.

3. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-3 Organizational Structure and Design Organizational Design Purposeful and goal-oriented process Decisions/actions to predetermine the way employees do their work Organizational Structure Relatively stable relationships and processes of the organization. “The anatomy of the organization, providing a foundation within which the organization functions.” Purpose is to regulate, or at least reduce, uncertainty.

4. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-4 Organizational Design Decision Process Managers must decide how to divide the overall tasks of the organization into successively smaller jobs. Managers must decide the basis by which to group the individual jobs. Managers must decide the appropriate size of the group reporting to each supervisor. Managers must distribute authority among the jobs.

5. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-5 Organizational Design Components Components Specialization HighLow Division of Labor Number FewMany Span of Control Basis HomogenousHeterogeneous Departmentalization Delegation HighLow Authority Design Decisions

6. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-6 Division of Labor Ways that Division of Labor Can Occur: Work can be divided into different personal specialties. Occupational and professional specialties Work can be divided into different activities necessitated by the natural sequence of the work the organization does. Horizontal specialization Work can be divided along the vertical plane of an organization. Hierarchy of authority The Extent to Which Jobs Are Specialized

7. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-7 Reasons to Delegate or Decentralize Authority Encourages management development Leads to a more competitive climate Enables managers to exercise more autonomy Delegation of Authority Extent to which managers allow subordinates to make decisions without approval of higher management and exact obedience from others Reasons to Centralize Authority Increases training costs Heightens fear and resistance Raises administrative costs Duplicates efforts and some functions

8. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-8 Functional Departmentalization Major Advantage Creating efficiency and more cost effective units Engineering Finance Personnel Major Disadvantage Sacrificing organizational goals for departmental ones Manufacturing OMB Company OMB Company Marketing

9. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-9 Territorial Departmentalization Southern Eastern Rocky Mountain Rocky Mountain Pacific Midwestern OMB Company OMB Company

10. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-10 Product Departmentalization Small Household Appliances Small Household Appliances Commercial Appliances Commercial Appliances Major Advantages Creating profit responsibility Fostering innovation and autonomy Major Disadvantages Creating redundant functions Increasing administrative costs OMB Company OMB Company Large Household Appliances Large Household Appliances

11. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-11 Customer Departmentalization Retail Stores Retail Stores Mail Order Mail Order Government Contracts Government Contracts OMB Company OMB Company Institutional Sales Institutional Sales

12. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-12 Span of Control The number of jobs to be included in a specific group determines the frequency and intensity of interpersonal relationships required of a manager. Potentially Creates Three Types of Relationships: Direct single Between a manager and each subordinate individually Direct group Between a manager and each possible permutation of subordinates Cross Between subordinates and other subordinates

13. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-13 Critical Factors Affecting Span of Control Required Contact Degree of Specialization Ability to Communicate

14. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-14 Dimensions of Structure Formalization The extent to which expectations regarding the means and ends of work are specified, written, and enforced. Centralization The location of decision- making authority in the hierarchy of the organization. Complexity The number of distinctly different job titles, or occupational groupings, and the number of distinctly different units, or departments.

15. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-15 High Formalization Dimensions of Structure DimensionsDecisions 1. High specialization 2. Delegated authority 3. Functional departments 4. Wide spans of control High Centralization High Complexity 1. High specialization 2. Centralized authority 3. Functional departments 4. Wide spans of control 1. High specialization 2. Delegated authority 3. Territorial, customer, and product departments 4. Narrow spans of control

16. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-16 Organization Design Models The Organic Model The Matrix Model The Mechanistic Model

17. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-17 The Mechanistic Model Organizations should function in a machinelike way to accomplish the organization’s goals in a highly efficient manner. It’s highly complex because of its emphasis on specialization of labor. It’s highly centralized because of its emphasis on authority and accountability. It’s highly formalized because of its emphasis on function as the basis of departments.

18. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-18 The Organic Model It’s relatively simple because of its de-emphasis on specialization and its emphasis on increasing job range. It’s relatively decentralized because of its emphasis on delegation of authority and increasing job depth. It’s relatively informal because of its emphasis on product and customer as bases for departments. Organizations should seek designs that maximize satisfaction, flexibility, and development.

19. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-19 The Matrix Model Advantages Efficient Use of Resources Flexibility in Conditions of Change and Uncertainty Technical Excellence Freeing Top Management for Long-Range Planning Improving Motivation and Commitment Providing Opportunities for Personal Development Organizations should combine functional and product departmental bases to maximize the strengths and minimize the weaknesses of each.

20. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-20 Multinational Structure and Design National boundaries help define organizational environments National boundaries are of varying importance for different elements of organizational structure and processes. Subsidiaries of multinational corporations can act as conduits that introduce changes into the host country’s environment. Subsidiaries of multinational corporations can act as conduits through which features of the host country’s environment are introduced throughout the organization. Factors with Important Implications for Multinational Structure and Design:

21. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-21 Virtual Organizations One of the fastest developing practices in business throughout the world. Involves firms in cooperative relationships with their suppliers, distributors, and even competitors. Virtual units are assembled and disassembled according to needs. Characteristics flexible enough to accommodate a wide range of organizations. (See Exhibit 15.7) A collection of geographically distributed, functionally and/or culturally diverse aggregations of individuals linked by electronic forms of communication.

22. Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 15-22 “Boundaryless Organizations” Barrier-Breaking Features: Creating flatter hierarchies Increasing participative decision-making Developing multiple-hierarchy teams Encouraging team building Facilitating coordination Promoting telecommuting or teleworking Attempts to minimize and, in some cases, eliminate vertical and horizontal structures, tightly defined work roles, and top-down control.