1. Foundations of Organization Structure
Chapter 15
Foundations of Organization Structure

2. What Is Organizational Structure?
Defines how job tasks are formally divided, grouped, and coordinated.
There are six key elements that managers need to address when they design their org.’s structure.
Key Elements:
Work specialization
Departmentalization
Chain of command
Span of control
Centralization and decentralization
Formalization
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3. 1-Work Specialization…..1
The degree to which tasks in the organization are subdivided into separate jobs.
Division of labor:
Makes efficient use of employee skills
Increases employee skills through repetition
Less between-job downtime increases productivity
Specialized training is more efficient.
Allows use of specialized equipment.
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4. Division of Labor Benefits include: Adam Smith’s pin factory
Increasing levels of skill
Less time is wasted moving from job to job
Training is less costly
Increased focus
Adam Smith’s pin factory
“Men are much more likely to discover easier and readier methods of attaining any object, when the whole attention of their minds is directed towards that single object, than when it is dissipated among a great variety of things.” WON p. 14
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5. 1-Work Specialization…..2
The degree to which tasks in the organization are divided into separate jobs with each step completed by a different person. (Adam Smith’s-Division of Labor)
During the 1st half of the 20th century, managers viewed work specialization as an unending source of increased productivity, and , for a time, it was.
However, by 1960, it became evident that a good thing could be carried too far.
The point reached in some jobs where “human diseconomies” from work overspecialization resulted - boredom, fatigue, stress, poor quality, increased absenteeism, and higher turnover – more than offset the economic advantages.
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6. Economies and Diseconomies of Work Specialization
Impact from
economies
of specialization
human
diseconomies
High
Low
Productivity
Work Specialization
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7. 1-Work Specialization……Today’s View……3
Most managers today see work specialization as an important org. mechanism but not as a source of ever-increasing productivity.
They recognize the efficiencies it creates in certain types of jobs, but they also recognize the problems it creates when it’s carried to extremes.
McDonald uses high work specialization to efficiently make & sell its products.
However, American Express & Ford Australia have broadened the scope of employees’ jobs & reduced work specialization.
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8. 2- Departmentalization
The basis by which jobs are grouped together.
Grouping Activities By:
Function
Product
Geography
Process
Customer
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9. 2- Departmentalization by Type
The basis by which jobs are grouped together is called….
Functional
Grouping jobs by functions performed
Product
Grouping jobs by product line
Geographical
Grouping jobs on the basis of territory or geography
Process
Grouping jobs on the basis of product or customer flow
Customer
Grouping jobs by type of customer and needs
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10. Departmentalization Functional Product Major Types Customer of
Organization
Functional
Product
Customer
Geographic
Process
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11. 2 -Departmentalization…..continued
Large orgs. Often combine most or all of these forms of departmentalization.
For example – a major Japanese electronic firm organizes each of its divisions along functional lines, its manufacturing units around processes, its sales units around seven geographic regions, and its sales regions into four customer groupings.
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12. Departmentalization …..today’s view
Two popular trends today in departmentalization are the increasing use of customer departmentalization & the use of cross-functional teams.
customer departmentalization helps managers better monitor customers’ needs & respond to changes in those needs.
Managers are using cross-functional teams, which are work teams composed of individuals from various functional specialties. For example at Ford’s material planning & logistics division, a cross-functional team with employees from finance, purchasing, engineering, and quality control areas and with representatives from outside logistics suppliers has made several work improvements.
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13. Functional Departmentalization
Advantages
Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations
Coordination within functional area
In-depth specialization
Disadvantages
Poor communication across functional areas
Limited view of organizational goals
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14. Geographical Departmentalization
Advantages
More effective and efficient handling of specific regional issues that arise
Serve needs of unique geographic markets better
Disadvantages
Duplication of functions
Can feel isolated from other organizational areas
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15. Product Departmentalization
+ Allows specialization in particular products and services
+ Managers can become experts in their industry
+ Closer to customers
– Duplication of functions
– Limited view of organizational goals
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16. Process Departmentalization
+ More efficient flow of work activities
– Can only be used with certain types of products
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17. Customer Departmentalization
+ Customers’ needs and problems can be met by specialists
- Duplication of functions
- Limited view of organizational goals
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18. 3 - Chain of Command Chain of Command involves three other concepts:
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 whom.
Chain of Command involves three
other concepts:
Authority
Responsibility
Unity of Command
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19. 3 - Chain of Command……continued
Authority
Refers to the rights inherent in a managerial position to tell people what to do and to expect them to do it.
An org.’s managers, who are in the chain of command, are granted a certain degree of authority to do their job of coordinating & overseeing the work of others.
Responsibility
The obligation or expectation to perform any assigned duties.
As managers assign work to employees, those employees assume an obligation to perform any assigned duty.
Unity of Command
The concept that a person should have one boss and should report only to that person.( Fayol’s 14 Principles of Management)
Without unity of command, conflicting demands & priorities from multiple bosses can create problems.
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20. 3- Chain of Command….today’s view
Early management theorists ( Fayol, Weber, Taylor, & others ) were enamored with the concepts of chain of command, authority, responsibility, & unity of command.
However, the above mentioned concepts are considered less relevant today because of things like IT.
With computers, employees communicate with anyone with else anywhere in the org. without going through formal channels- i.e., chain of command. Moreover, as more orgs.’ use self-managed & cross-functional teams as new org. designs with multiple bosses are implemented, these traditional concepts are less relevant.
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21. 4 - Span of Control
The number of subordinates a manager can efficiently and effectively direct.
Concept:
Wider spans of management increase organizational efficiency.
Narrow Span Drawbacks:
Expense of additional layers of management.
Increased complexity of vertical communication.
Encouragement of overly tight supervision and discouragement of employee autonomy.
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22. 4 - Span of Control…….cont’d
The number of employees who can be effectively and efficiently supervised by a manager.
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
Sophistication of org.’s information system
Strength of the org. culture & preferred style of the manager
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23. Contrasting Spans of Control
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24. 4 - Span of Control …..today’s view
The trend in recent years has been toward larger spans of control, which are consistent with managers’ efforts to reduce costs, speed up decision making, increase flexibility, get closer to customers, and empower employees.
However, to ensure that performance doesn’t suffer because of these wider spans, orgs. are investing heavily in employee training.
Managers recognize that they can handle a wider span when employees know their jobs well or can turn to co-workers if they have Qs.
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25. 5 - Centralization & Decentralization
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 (power) of employees.
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26. Factors that Influence the Amount of Centralization
More Centralization
Environment is stable.
Lower-level managers are not as capable or experienced at making decisions as upper-level managers.
Lower-level managers do not want to have a say in decisions.
Decisions are relatively minor.
Organization is facing a crisis or the risk of company failure.
Company is large.
Effective implementation of company strategies depends on managers retaining say over what happens.
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27. Factors that Influence the Amount of Centralization
More Decentralization
Environment is complex, uncertain.
Lower-level managers are capable and experienced at making decisions.
Lower-level managers want a voice in decisions.
Decisions are significant.
Corporate culture is open to allowing managers to have a say in what happens.
Company is geographically dispersed.
Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions.
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28. Centralization & Decentralization……. Today’s view
An org. have had to become more flexible & responsive, there’s been a distinct trend toward decentralizing decision making.
In large companies, especially, lower-level managers are “ closer to the action” & typically have more detailed knowledge about problems & how best to solve them than do top managers.
Honeywell Pacific, which moved from a hierarchical management structure to one that is much flatter & team-based.
Result- increased revenues & more intimate knowledge of the company’s major customers.
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29. 6 - 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.
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30. Common Organizational Designs
Three of the more common org. designs in use: the simple structure, the bureaucracy, and the matrix
Simple Structure
A structure characterized by a low degree of departmentalization, wide spans of control, authority centralized in a single person, and little formalization.
This structure is most widely practiced in small businesses in which the manager & the owner are one & the same.
The strength of this structure lies in its simplicity. It is fast, flexible, & inexpensive to maintain, and accountability is clear.
One major weakness is that it’s difficult to maintain in any other than small orgs. As org. grows due to its low formalization & high centralization creates information overload at the top.
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31. Common Organization Designs (cont’d)
Bureaucracy
Standardization! that’s the key concept that underlies all bureaucracies.
A structure of highly operating routine tasks achieved through specialization, very formalized rules and regulations, tasks that are grouped into functional departments, centralized authority, narrow spans of control, and decision making that follows the chain of command.
The primary strength of the bureaucracy lies in its ability to perform standardized activities in a highly efficient manner.
Putting like specialties together in functional depts. results in economies of scale, minimum duplication of personnel & equipment, and employees who have the opportunity to talk “ the same language” among their peers.
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32. The Bureaucracy Strengths Functional economies of scale
Minimum duplication of personnel and equipment
Enhanced communication
Centralized decision making
Weaknesses
Subunit conflicts with organizational goals
Obsessive concern with rules and regulations
Lack of employee discretion to deal with problems
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33. Common Organization Designs (cont’d)
Matrix Structure
Matrix management is a technique of managing an org.( or, more commonly, part of an org.) through a series of dual-reporting relationships instead of a more traditional linear management structure.
In its simplest form, a matrix configuration may be known as a cross-functional work team, which brings together individuals who report to different parts of the company in order to complete a particular project or task.
A structure that creates dual lines of authority and combines functional and product departmentalization.
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34. Matrix Structure
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35. Matrix Structure……continued
Matrix structure is used in aerospace firms, R&D laboratories, construction companies, hospitals, management consulting firms etc.
Essentially, the matrix combines two forms of departmentalization: functional & product.
The strength of functional departmentalization lies in putting like specialists together, which minimizes the number necessary while allowing the pooling & sharing of specialized resources across products.
Its major disadvantage is the difficulty of coordinating the tasks of diverse functional specialists so that their activities are completed on time & within budget.
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36. Matrix Structure……continued
Product departmentalization, on the other hand, has exactly the opposite benefits & disadvantages.
It facilitates coordination among specialties to achieve on-time completion & meet budget targets.
It provides clear responsibility for all activities related to a product, but with duplication of activities & costs.
The matrix attempts to gain the strengths of each, while avoiding their weaknesses.
The most obvious structural characteristic of the matrix is that it breaks the unity-of-command concept.
Employees in the matrix have two bosses – their functional dept. managers & their product managers. Therefore, the matrix has a dual chain of command.
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37. Matrix Structure……continued…advantages
The strength of the matrix lies in its ability to facilitate coordination when the org. has a multiplicity of complex & interdependent activities.
As an org. gets larger, its information-processing capacity can become over-loaded.
In a bureaucracy, complexity results in increased formalization.
The direct & frequent contact b/w different specialties in the matrix can make for better communication & more flexibility.
Information permeates the org. & more quickly reaches the people who need to take account of it.
Matrix reduces “ bureau-pathologies” - the dual lines of authority reduce the tendencies of dept. members to become so busy protecting their little worlds that the org’s overall goals become secondary.
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38. Matrix Structure……continued…advantages
Matrix also facilitates the efficient allocation of specialists.
When individuals with highly specialized skills are stuck in one functional dept. or product group, their talents are monopolized & underused.
The matrix achieves the advantages of economies of scale by providing the org. with both the best resources & an effective way of ensuring their efficient deployment.
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39. Matrix Structure…conti…disadvantages
The major disadvantages of the matrix lie in the confusion it creates, its propensity to foster power struggles, & the stress it places on individuals.
When unity-of-command concept is ignored, ambiguity increases & ambiguity often leads to conflict.
Confusion & ambiguity also create the seeds of power struggles.
Bureaucracy reduces the potential for power grabs by defining the rules of the game. When those rules do not exist, power struggles b/w functional & product managers result.
For individuals who desire security & absence from ambiguity, this work climate can produce stress.
Reporting to more than one boss introduces role conflict & unclear expectations introduce role ambiguity.
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40. New Design Options Team Structure
The use of teams as the central device to coordinate work activities.
Characteristics:
Breaks down departmental barriers.
Decentralizes decision making to the team level.
Requires employees to be generalists as well as specialists.
Creates a “flexible bureaucracy.”
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41. New Design Options (cont’d)
Virtual Organization
A small, core organization that outsources its major business functions.
Highly centralized with little or no departmentalization.
Concepts:
Advantage: Provides maximum flexibility while concentrating on what the organization does best.
Disadvantage: Reduced control over key parts of the business.
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42. New Design Options (cont’d)
Boundaryless Organization
General Electric’s former chairman, Jack Welch, wanted to eliminate vertical & horizontal boundaries within GE & break down external barriers b/w the company & its customers & suppliers.
The boundary-less organization seeks to eliminate the chain of command, have limitless spans of control, and replace departments with empowered teams.
And because such org. rely so heavily on IT, it is also sometimes called the T-form ( or technology based) org.
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43. Boundary-less Organization….continued
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44. T-form Concepts:
Eliminate vertical (hierarchical) and horizontal (departmental) internal boundaries.
Breakdown external barriers to customers and suppliers.
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45. Why Do Structures Differ?
Mechanistic Model
A structure characterized by extensive departmentalization, high formalization, a limited information network, and centralization.
Organic Model
A structure that is flat, uses cross-hierarchical and cross-functional teams, has low formalization, possesses a comprehensive information network, and relies on participative decision making.
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46. Mechanistic versus Organic Organization
• High specialization
• Rigid departmentalization
• Clear chain of command
• Narrow spans of control
• Centralization
• High formalization
• Cross-functional teams
• Cross-hierarchical teams
• Free flow of information
• Wide spans of control
• Decentralization
• Low formalization
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47. Organizational Design Decisions
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
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48. Why Do Structures Differ? – Strategy
Innovation Strategy A strategy that emphasizes the introduction of major new products and services.
Cost-minimization Strategy A strategy that emphasizes tight cost controls, avoidance of unnecessary innovation or marketing expenses, and price cutting.
Imitation Strategy A strategy that seeks to move into new products or new markets only after their viability has already been proven.
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49. Why Do Structures Differ? – Size
How the size of an organization affects its structure. As an organization grows larger, it becomes more mechanistic.
Characteristics of large organizations:
More specialization
More vertical levels
More rules and regulations
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50. Why Do Structures Differ? – Technology
How an organization transfers its inputs into outputs.
Characteristics of routineness (standardized or customized) in activities:
Routine technologies are associated with tall, departmentalized structures and formalization in organizations.
Routine technologies lead to centralization when formalization is low.
Nonroutine technologies are associated with delegated decision authority.
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51. Why Do Structures Differ? – Environment
Institutions or forces outside the organization that potentially affect the organization’s performance.
Key Dimensions-
Capacity: the degree to which an environment can support growth.
Volatility: the degree of instability in the environment.
Complexity: the degree of heterogeneity and concentration among environmental elements.
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52. “Bureaucracy Is Dead” Characteristics of Bureaucracies Specialization
Formalization
Departmentalization
Centralization
Narrow spans of control
Adherence to a chain of command.
Why Bureaucracy Survives
Large size prevails.
Environmental turbulence can be largely managed.
Standardization achieved through hiring people who have undergone extensive educational training.
Technology maintains control.
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53. Organizational Designs and Employee Behavior
Research Findings:
Work specialization contributes to higher employee productivity, but it reduces job satisfaction.
The benefits of specialization have decreased rapidly as employees seek more intrinsically rewarding jobs.
The effect of span of control on employee performance is contingent upon individual differences and abilities, task structures, and other organizational factors.
Participative decision making in decentralized organizations is positively related to job satisfaction.
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54. 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 the parent corporation.
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55. Strengths and Weaknesses of Traditional Organizational Designs
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56. Facilitates coordination of complex and interdependent activities.
Key Elements:
Gains the advantages of functional and product departmentalization while avoiding their weaknesses.
Facilitates coordination of complex and interdependent activities.
Breaks down unity-of-command concept.
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