Course: Organizational Behavior

FOUNDATIONS OF ORGANIZATION
STRUCTURE

Course instructors:
Prof. Marjan I. Bojadjiev, PhD
Prof. Makedonka Dimitrova, MPPM
Prof. Miodraga Stefanovska, PhD

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Organization is a consciously coordinated social unit, composed of two or more people that
functions on a relatively continuous basis to achieve goal; or set of goals.

• Definitions:
• Organization is a group (collection) of people who work together and coordinate
their actions to achieve its goals.
• . Organizing=Determining what tasks are to be done, who is to do them, how the
tasks are to be grouped, who reports to whom and where decisions are made.
Organizing is the process that managers use to establish a structure of working
relationships that allow organizational members to interact and cooperate to
achieve organizational goals.
• The outcome of this process is the creation of organizational structure, as a
formal system of task and reporting relationships that coordinates and motivates
members so that they work together to achieve organizational goals.Fixed /
relatively fixed
• O.S. defines how job tasks are formally divided, grouped and coordinated.

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 The six key elements

• Work specialization
• Departmentalization
• Chain of command
• Span of control
• Centralization and decentralization
• Formalization

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1.Work Specialization=the degree to which tasks are subdivided into separate
jobs

• 1900-1960 –Specialization /Ford / Division of labor /

• Advantages: Skills, Training, Operations
• After 1960, Conts-Combination with more human and market approaches

• Job design is the process by which managers group tasks into jobs.
• Mac Donalds= chefs and servers / Subway sandwich=no division

Job Enlargement= Increasing the number of different tasks in a given job by

changing the division of labour. ( Mac Donalds)

• Enrich jobs= increasing the level of responsibility

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• Job Description
• Job Holder:
• Job Title:
• Department or Branch:
• Division:
• Reporting to:
• Brief Description of Job:
• Key Responsibilities:
• Other Responsibilities:
• Committee Membership:
• Scope of Job (Location, Number of Subordinates, Budget Available):
• Required Experience:
• Measures of Performance Success:
• Signed (Employee)………………. Signed (Employee’s Manager)……………….
• Date:………………

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 2.Departmentalization-the basis by which jobs are grouped together

• Once the tasks are being allocated into jobs, the managers have to choose the next
organizing decision:
• How to group jobs together to best match the needs of the organization's
environment, strategy, technology and human resources.
• The result is organizational structure.
• At the beginning most of the managers choose to group the function together in a
functional organisational structure .
• Functional Departmentalization /
• Process Departmentalisation
• Other forms are:
• geography,
• product,
• market

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 Functional OS /Divisional OS

• Functional organizational structure=advantages: Learn, Monitor,

Easily deal with the task and general environment.
• Divisional structure
• As the organization grows, most managers decide to move into
Divisional structure=create separate business units for a
specific kind of product or for a specific kind of customer.
• Divisional structure can be:
• Product
• Geographic
• Market
• Process

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 FUNCTIONAL OS

Clark Johnson
CEO

Exec. V.P. Senior V. P. Senior V.P.

Finance & Admin. Stores Logistics

V.P. Tax V.P. Controller V.P.

Distribution

V.P. MIS Director

Corp. Planning Director
Transportation

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 Divisional types of structure
Product structure
CEO
Corporation

Corporate
Managers

Washing Machine Lighting Television

Division Division Division

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 Divisional types of structure
Geographic structure

CEO
Corporation

Corporate
Managers

Northern Western Southern Eastern

Region Region Region Region

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 Divisional types of structure
Market structure

CEO
Corporation

Corporate
Managers

Large Business Small Business Educational Individual

Customers Customers Institutions Customers

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3.CHAIN OF COMMAND –UNBROKEN LINE OF AUTHORITY CLARIFING WHO REPORTS
TO WHOM
Hierarchy of authority =chain of command, specifying the relative authority of each
manager.

• COORDINATING FUNCTIONS AND DIVISIONS

• No matter which structure a manager choose he/she must decide how to
distribute authority in the organization;
• How many levels to have in the hierarchy of authority;
• Balance between centralization and decentralization.
• ALLOCATING AUTHORITY
• Authority = the power to hold people accountable for their actions and to
make decisions concerning the use of resources /
• The rights to give orders and to expect the orders to be obeyed / inherent
for managerial position
• Unity of command –Unbroken line of authority, one superior be
responsible to

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 4. Span ( width) of control

• The number of subordinates who report directly to a manager.

Why it is important:
• Efficiency; / Accuracy; Operations processes; Costs
1)How many employees to be managed?
Depends on the:
Task structure
Skills
The department position within the organization
a) Small spans: more control, higher costs, more complex communication
channels
b) Wider spans: less control: empowerment, reduce costs

• Line manager-direct line with a number of people "under "

Staff manager=specialists function ( finance, marketing)

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 5. CENTRALIZATION / DECENTRALIZATION

• TALL AND FLAT ORGANIZATION / As company grows it becomes taller, more

complicated, and taller
• The minimum chain of command is a basic principle- always construct a hierarchy
with the fewest possible levels of authority necessary to efficiently and effectively
use organisations resources.

• :
Centralization and decentralization of authority The degree to which decision
making is concentrated at a single point in the organization, or pushed down to
lower – level employees.

• 6.FORMALIZATION =THE DEGREE TO WHICH JOBS ARE STANDARDIZED

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 ORGANIZATIONAL DESIGN
SIMPLE STRUCTURE, BUREAUCRACY AND MATRIX

• Simple structure: low degree of departmentalization, wide spans of

control, centralized authority=defined through what is not, then through
what it is.
• Bureaucracy= Administrative management theory Max Weber-
Bureaucracy-Routine operation tasks, specialization and formalization
• Rules-formal written instructions that specify actions under different
circumstances; SOP-more detailed, norms- unwritten, informal codes of
conduct.
• Matrix structure For environment that is dynamic, divisional structures are
not enough –therefore:
• Matrix team-cross matrix: Function and product / dual reporting /
conflicts

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 Matrix Structure
Figure 8.7a
CEO

Func.
Managers

Sales Design Production

Product
Team Managers

team A

Product
team B
Product Team
Product
team C

= two boss employee

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 NEW DESIGN OPTIONS I
Team, Virtual, Boundaryless

• Team structure-Use of teams as the central device for coordination

• Breaks down departments, Decision making within teams
• An organizational structure in which employees are permanently
assigned to a cross functional team and report only to the product team
manager.
• Cross functional team is a group of managers brought together from
different departments to perform specific tasks.
• Result:
– introduce a new model in 2 years, down from 5
– Black & Decker can innovate new products in months, not years.

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Product Team Structure
CEO

Func.
Managers

Sales Design Production

Manufacturing Manufacturing Manufacturing

= Product Team Manager = Team member

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 NEW DESIGN OPTIONS II

Virtual organization= small core organization that outsourcers major

business functions (movies, VAR, SME – the role of services)

Shamrock organization = firms that operate with employees at three

levels:
1) Core group
2) Part time
3) Outsource

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 NEW DESIGN OPTIONS III

Boundary less organization = seeks to eliminate the

chain of command, have limitless span of control,
and replace departments with empowered reams
( GE is trying to be one).
BO seeks to eliminate ‘boundaries’ with:
Suppliers
Customers
• Supply of “solution” rather than a product or service

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 SBU – ORGANIZATIONAL STRUCTURE

• Organized through strategic business units (SBUs). Such units

generally are set up like separate companies, with full profit and
loss responsibility invested in the top management of the unit—
often the president of the unit and/or a senior vice president of the
larger corporation. This manager is responsible to the top
management of the corporation. This arrangement can be seen as
taking any of the aforementioned departmentalization schemes one
step further. The SBU s might be based on product lines, geographic
markets, or other differentiating factors.

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 Why do structures differ?
• Contingency theory=The idea that the organisational structure is dependent
( contingent) on the features of the environment in which the organization
operates.
• Mechanistic structure
• Centralized authority;
• Tasks are Clearly specified
• Organic structure
• Decentralized;
• Freedom for the employees to respond quickly to unexpected
FACTORS
1. External environment;
2. Strategy;
3. Technology;
4. Human resources and organization size.

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 Environment

• Capacity to support growth

• Instability level The more quickly the environment is changing
creates greater uncertainty, and more problems for managers are raised to
obtain scarce (limited) resources. Uncertainty is the result of the
factors that influence the organizational structure:
• The higher the level of uncertainty, the more appropriate is a flexible
OS. Result organic structure!

• Complexity
• Task environment: suppliers, distributors, competitors,
customers
• General Environment: Economic, Technological, Sociocultural,
demographic, Political and legal and Global Forces

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 STRATEGY 1 A cluster of decisions about what goals to pursues, what actions to take,
and how to use resources to achieve goals.

•
• Strategies on the corporate level:
• Concentration on a single business
• Diversification=expanding into a new business or industry, and producing
new goods and services
•
• Business ( divisional ) level strategies
• Michael Porter: 2 basic strategies
• Low cost
• Differentiation strategy
• ( Stuck in the middle)
• It can be:
•

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• Types of organisational structure according to strategies applied
• Corporate level
– Differentiation strategy (Corporate) works the best in a flexible
structure
– Concentration-(mechanic)
– Integration –Both Vertical and Horizontal integration
(Corporate)=flexible
– Diversification (Corporate) -flexible
– International expansion Multidomestic ( Corporate)=flexible
– International Expansion- Global=mechanic structure
• Business level
• Differentiation ( flexible)
• Low Cost ( mechanic)

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 STRATEGY 2

• Innovation Strategy
A strategy that emphasizes the introduction of major new products and
services

• Cost minimization
• A strategy that emphasizes tight cost controls, avoidance of unnecessary
innovation or marketing expenses, and price cutting

• Imitation
• A strategy that seeks to move into new products or new markets only after
their viability has already been proven

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 STRATEGY 3 –OTHER STRATEGIES

• Market penetration
• Market skimming
• Retention
• Niche markets strategy

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 Human resources and organization size

• Size Large versus Small organization

• Stopanska banka vs. Inter Falco Stedilnica

• Human Resources
• The more skilled and experienced=the more flexible structure
• Example of Clinical centre – skilled labour force

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Strategic alliances and Networks
• Strategic alliance: a formal agreement committing two
or more firms to exchange resources to produce a
good.
• Network Structure: a whole series of strategic
alliances.
– Created between suppliers, manufacturers, and distributors.
• Toyota and Honda use many such alliances.

– Network structures allow firms to bring resources together in a

boundary-less organization

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