Organizational

Structure

McGrawHill/Irwin
McShane/VonGlinowOB5e

Copyright2010byTheMcGrawHillCompanies,Inc.Allrightsreserved.

Choosing an Organizational
Structure at BioWare
Ray Muzyka (left) and Greg
Zeschuk (right) designed an
organizational structure for
their electronic games
company, Bioware, that
balances the need for
teamwork and information
sharing.

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Organizational Structure
Defined
Division of labor and patterns of
coordination, communication,
workflow, and formal power that
direct organizational activities.
Relates to many OB topics
e.g. job design, teams, power,

org culture, org change

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Division of Labor

Subdividing work into separate

jobs assigned to different
people

Division of labor is limited by

ability to coordinate work

Potentially increases work

efficiency

Necessary as company grows

and work becomes more
complex
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Coordinating Work
Activities
Informal communication

1.

Sharing information, forming common mental

models
Allows flexibility
Vital in nonroutine and ambiguous situations
Easiest in small firms
Applied in team-based structures
Includes integrator roles

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Coordinating Work
Activities
2.

Formal hierarchy
Direct supervision
Assigns formal (legitimate) power to manage

others
Coordination strategy for departmentalization
3.

Standardization
a) Standardized processes (e.g., job descriptions)
b) Standardized outputs (e.g., sales targets)
c) Standardized skills (e.g., training)

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Elements of Organizational
Structure
Span of
Control

Departmentalization

Elements of
Organizational
Structure
Formalization

Centralization

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Span of Control
Number of people directly
reporting to the next level
Assumes coordination through

direct supervision

Wider span of control possible

when:
Other coordinating

mechanisms present
Routine tasks
Low employee
interdependence
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Tall vs Flat Structures

As companies grow, they:
Build taller hierarchy
Widen span, or both

Problems with tall hierarchies

Overhead costs
Worse upward information
Focus power around managers,

so staff less empowered

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Issues with Tall vs Flatter

Structures

Firms moving toward flatter structures

(delayering) because taller hierarchies have:
Higher mgt overhead costs
Less information flow
Less staff empowerment

But also problems with flatter hierarchies

Undermines management functions
Increases workload and stress
Restricts management career development

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Centralization and
Decentralization
Centralization
Formal decision making authority is held
by a few people, usually at the top

Decision making authority is

dispersed throughout the organization

Decentralization
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Formalization

The degree to which organizations standardize

behavior through rules, procedures, formal training,
and related mechanisms.

Formalization increases as firms get older, larger,

and more regulated

Problems with formalization

Reduces organizational flexibility
Discourages organizational learning/creativity
Reduces work efficiency
Increases job dissatisfaction and work stress

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Growing an Organic Taxi

Award-winning TAXI relies on an
organic structure to maintain its
creative advantage. TAXI cofounder
Paul Lavoie (bottom right in this
New York City office photo) says
that most firms are so layered that
a great idea was easily crushed
We needed a flexible infrastructure,
able to move with the pace of
change. TAXI started lean and
nimble, and remains so today.

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Mechanistic vs. Organic

Structures

Organic Structure
Wide span of control
Little formalization
Decentralized decisions

Mechanistic Structure
Narrow span of control
High formalization
High centralization

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Departmentalization
Specifies how employees and their activities
are grouped together
Three functions of departmentalization
1. Establishes chain of command
2. Creates common mental models, measures of

performance, etc
3. Encourages coordination through informal

communication

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Functional Organizational
Structure
Organizes employees around specific knowledge
or other resources (e.g., marketing, production)
CEO

Finance

Production

Marketing

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Evaluating Functional
Structures

Benefits
Economy of scale
Supports professional identity and career paths
Easier supervision

Limitations
More emphasis on subunit than organizational

goals
Higher dysfunctional conflict
Poorer coordination -- requires more controls
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Divisional Structure
Organizes employees around outputs,
clients, or geographic areas
CEO

Healthcare

Lighting
Products

Consumer
Lifestyle

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Divisional Structure

Different forms of divisional structure

Geographic structure
Product structure
Client structure

Best form depends on environmental diversity

or uncertainty

Movement away from geographic form

Less need for local representation
Reduced geographic variation
More global clients
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Evaluating Divisional
Structures

Benefits
Building block structure -- accommodates growth
Focuses on markets/products/clients

Limitations
Duplication, inefficient use of resources
Specializations are dispersed--silos of knowledge
Politics/conflict when two forms of equal value

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Team-Based Structure

Self-directed work teams

Teams organized around work processes

Typically organic structure

Wide span of control many employees work

without close supervision

Decentralized with moderate/little formalization

Usually found within divisionalized structure

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Evaluating Team-Based
Structures

Benefits
Responsive, flexible
Lower admin costs
Quicker, more informed decisions

Limitations

Interpersonal training costs

Slower during team development
Role ambiguity increases stress
Problems with supervisor role changes
Duplication of resources
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Biowares Matrix Structure

Ray Muzyka (left) and Greg
Zeschuk (right) adopted a
matrix organizational
structure for their electronic
games company, Bioware,
because it balances the need
for teamwork and information
sharing.

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Matrix Structure (Projectbased)

Employees ( ) are temporarily assigned to a specific
project team and have a permanent functional unit
CEO
Game1
Project Leader

Game2
Project Leader

Game3
Project Leader

Art Dept
Leader
Software
Dept Leader
Audio Dept
Leader
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Evaluating Matrix
Structures

Benefits

Uses resources and expertise effectively

Improves communication, flexibility, innovation
Focuses specialists on clients and products
Supports knowledge sharing within specialty
Solution when two divisions have equal importance

Limitations
Increases goal conflict and ambiguity
Two bosses dilutes accountability
More conflict, organizational politics, and stress
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Network Organizational
Structure

Alliance of firms
creating a product or
service
Supporting firms
beehived around a
hub or core firm

Product
development
partner
(U.S.A.)

Callcenter
partner
(Philippines)

Core
Firm
Package
design
partner
(UK)

Accounting
partner
(U.S.A.)
Assembly
partner
(Mexico)

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Evaluating Network
Structures

Benefits
Highly flexible
Potentially better use of skills and technology
Not saddled with same resources for all products

Limitations
Exposed to market forces
Less control over subcontractors than in-house

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External Environment &

Structure
Dynamic
High rate of change
Use team-based, network, or
other organic structure

Complex
Many elements (such as
stakeholders)
Decentralize

Stable
Steady conditions,
predictable change
Use mechanistic structure

Simple
Few environmental elements
Less need to decentralize

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External Environment &

Structure (cont)
Diverse
Several products, clients,
regions
Use divisional form aligned
with the diversity

Hostile
Competition and resource
scarcity
Use organic structure for
responsiveness

Integrated
Single product, client, place
Use functional structure, or
geographic division if global

Munificent
Plenty of resources and
product demand
Less need for organic
structure

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Effects of Organizational
Size
As organizations grow, they have:

More division of labor (job specialization)

Greater use of standardization
More hierarchy and formalization
More decentralization

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Technology and Structure

Technology refers to mechanisms or

processes by which an organization turns out
its product or service

Two contingencies:
Variability -- the number of exceptions to standard

procedure that tend to occur.

Analyzability -- the predictability or difficulty of the
required work

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Organizational Strategy

Structure follows strategy

Strategy points to the environments in which the

organization will operate

Leaders decide which structure to apply

Differentiation strategy
Providing unique products or attracting clients who

want customization

Cost leadership strategy

Maximize productivity in order to offer competitive

pricing
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Organizational
Structure

McGrawHill/Irwin
McShane/VonGlinowOB5e

Copyright2010byTheMcGrawHillCompanies,Inc.Allrightsreserved.

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