Organization

Structures
and Design
> EMPOWERMENT
It takes a lot of trust to be comfortable
with empowerment—letting others
make decisions and exercise discretion
in their work. But if you aren’t willing
and able to empower others, you may
try to do too much on your own and
end up accomplishing too little.
How often are you stressed out by
11
with those in the upper left box in the
Insight
Empowerment Quick Test. Alterna- Learning
tively, you could be in the lower right
box and perhaps find that you work About Yourself
smarter and better while making
others happier, too.
EMPOWERMENT QUICK TEST
The beauty of organizations is In a team situation, which square best
synergy—bringing together the describes your beliefs and behaviors?

group projects at school, feeling like contributions of many people to

It’s faster to do things
you’re doing all the work? Do you have a achieve something that is much myself than explain how
problem “letting go,” or letting others do greater than what any individual to do them to others
Some things are
their share? The reason may be the fear of can accomplish alone. Empower- just too important
losing control. People with control anxi- ment gives synergy a chance. It not to do yourself ? People make
mistakes, but they
ety often end up trying to do too much. means joining with others to get also learn from them

This unfortunately raises the risks of Many people are ready to

things done; allowing and even take on more work, but
missed deadlines and poor performance. helping them to do things that are too shy to volunteer

If the prior description fits you, you might be very good at doing
your assumptions probably align yourself.

BUILD MANAGEMENT SKILLS AND COMPETENCIES <GET TO KNOW

AT END OF CHAPTER
YOURSELF BETTER
■ Engage in Further Reflection on Empowerment
■ Take the Self-Assessment—Empowering Others
■ Complete the Team Exercise—Designing a Network University
■ Solve the Career Situations for Organizing
■ Analyze the Case Study—“Nike: Spreading Out to Win the Race”
 LEARNING Organization Structures
DASHBOARD and Designs
TAKEAWAY 1 TAKEAWAY 2 TAKEAWAY 3 TAKEAWAY 4
11
Organizing as Traditional Horizontal Organizational
a Management Organization Organization Designs
Function Structures Structures • Contingency in
• What is organization • Functional structures • Team structures organizational design
structure? • Divisional structures • Network structures • Mechanistic and organic
• Formal structures designs
• Matrix structures • Boundaryless structures
• Informal structures • Trends in organizational
designs

LEARNING CHECK 1 LEARNING CHECK 2 LEARNING CHECK 3 LEARNING CHECK 4

It is much easier to talk about high-performing organizations than to actu-

ally create them. Going back to the opening example, we might just say that
it’s a lot harder to build an organization than to build a bear! And in true con-
tingency fashion there is no one best way to do things; no one organizational
form meets the needs of all circumstances. What works well at one moment
in time can quickly become outdated or even dysfunctional in another. This
is why you often read and hear about organizations making changes and
reorganizing in an attempt to improve their performance.

Management scholar and consultant Henry Mintzberg says that people

need to understand how their organizations work if they are to work well
within them.2 Whenever job assignments and reporting relationships
change, whenever the organization grows or shrinks, whenever old ways of
doing things are reconfigured, people naturally struggle to understand the
new ways of working. They ask questions such as: “Who’s in charge?” “How
do the parts connect to one another?” “How should processes and people
come together?” “Whose ideas have to flow where?” They also worry about
the implications of the new arrangements for their jobs and careers. These
are all critical issues about organization structures and how well they meet
an organization’s performance needs.

Organizing as a Management Function

Organizing arranges people and
resources to work toward a goal.
270
Organizing is the process of arranging people and other resources to work to-
gether to accomplish a goal. Its purpose as one of the basic functions of manage-
ment is to create a division of labor and then coordinate results to achieve a com-
mon purpose.
 Organizing as a Management Function 271

Figure 11.1 shows the central role that organizing

plays in the management process. Once plans are cre- Organizing—
to create structures
ated, the manager’s task is to see to it that they are car- • Divide up the work
ried out. Given a clear mission and strategy, organiz- • Arrange resources
• Coordinate activities
ing begins the process of implementation by clarifying
jobs and working relationships. It identifies who is to Planning— Controlling—
to set the direction to ensure results
do what, who is in charge of whom, and how different Leading—
people and parts of the organization relate to and work to inspire effort

with one another. All of this, of course, can be done in

different ways. The manager’s challenge is to choose
the best organizational form to fit the strategy and FIGURE 11.1 Organizing viewed
other situational demands. in relationship with the other
management functions.

What Is Organization Structure?

The way in which the various parts of an organization are arranged is usually re-
ferred to as the organization structure. It is the system of tasks, workflows, report- Organization structure is a system
ing relationships, and communication channels that link together the work of di- of tasks, reporting relationships, and
communication linkages.
verse individuals and groups. Any structure should do a good job of both allocating
tasks through a division of labor and providing for the coordination of performance
results. A structure that does both of these things well helps to implement an orga-
nization’s strategy.3 Unfortunately, it is easier to talk about good structures than it is
to actually create them.

Formal Structures
You may know the concept of structure best in the form of an organization chart. An organization chart describes the
arrangement of work positions within
It diagrams reporting relationships and the arrangement of work positions within an organization.
an organization.4 A typical organization chart identifies positions and job titles
as well as the lines of authority and communication between them. It shows the
formal structure, or how the organization is intended to function. Formal structure is the official
Reading an organization chart should help you learn the basics of an organiza- structure of the organization.

tion’s formal structure. This includes:

• Division of work—Positions and titles show work responsibilities.
• Supervisory relationships—Lines show who reports to whom.
• Communication channels—Lines show formal communication flows.
• Major subunits—Positions reporting to a common manager are shown.
• Levels of management—Vertical layers of management are shown.
Even though organization charts are supposed to be helpful, the reality is that they
sometimes don’t make sense. They may be out of date or they may be just plain
confusing. This happened to Carol Bartz when she took over as Yahoo!’s CEO. After
looking at the organization chart, she said: “It was like a Dilbert cartoon. It was very
odd.” Her response was: “You need management here.”5

Informal Structures
Informal structure is the set of
Behind every formal structure typically lies an informal structure. This is a “shadow” unofficial relationships among an
organization made up of the unofficial, but often critical, working relationships organization’s members.
272 O RGANIZATION STRUCTU R E S AND DESIGN
Informal Structures and
the Shadow Organization
Social network analysis identifies the
informal structures and their embedded
social relationships that are active in an
organization.
LEARNING CHECK 1
TAKEAWAY QUESTION 1 What is organizing as a management function?
Be sure you can • define organizing as a management function • explain the difference between formal and
informal structures • discuss the potential advantages and disadvantages of informal structures in organizations
between organizational members. If the informal structure could be drawn,
it would show who talks and interacts with whom, regardless of their for-
mal titles and relationships. The lines of the informal structure would cut
across levels and move from side to side. They would show people meeting
for coffee, in exercise groups, and in friendship cliques. No organization
can be fully understood without gaining insight into the informal structure
as well as the formal one.6
A tool known as social network analysis is one way of identifying in-
formal structures and their embedded social relationships. Such an analy-
sis asks people to identify others to whom they turn for help most often,
with whom they communicate regularly, and who give them energy and
motivation.7 Lines are then drawn from person to person according to fre-
quency and type of relationship maintained. The result is a social network
map that shows how a lot of work really gets done, in contrast to the formal
arrangements shown in the organization chart. This information can be
used to update the organization chart to better reflect the way things actually work.
It also legitimates the informal networks people use in their daily work.
Informal structures and social networks are in many ways essential to organi-
zational success. They allow people to make contacts with others who can help
them get things done. They stimulate informal learning as people work and interact
together throughout the workday. And, they are sources of emotional support and
friendship that satisfy members’ social needs.
Of course, informal structures also have potential disadvantages. They can be sus-
ceptible to rumor, carry inaccurate information, breed resistance to change, and even
divert work efforts from important objectives. The Society for Human Resource Man-
agement, for example, reported that when the bad economy caused massive job losses,
firms experienced an increase in workplace eavesdropping and in “gossip and rumors
about downsizings and layoffs.”8 Another problem sometimes found in informal struc-
tures is the existence of “in” and “out” groups. Those who perceive themselves as “out-
siders” may become less engaged in their work and more dissatisfied. Some American
managers of Japanese firms, for example, have complained about being excluded from
what they call the “shadow cabinet” consisting of Japanese executives who hold the real
power and sometimes interact with one another while excluding others.9
Traditional Organization Structures
A basic principle of organizing is that performance should improve when tasks are
divided up and people are allowed to become experts in specific jobs. But there are
different ways to accomplish this division of labor, and each has potential advan-
tages and disadvantages. The traditional alternatives are the functional, divisional,
and matrix structures.10
 Traditional Organization Structures 273

President

Business
Firm
Vice President Vice President Vice President Vice President

Marketing Finance Production Human Resources

Branch Manager

Branch
Bank
Manager Manager Manager Manager

Loans Investments Operations Trusts

Administrator

Community
Hospital
Director Director Director Director
Medical Staff Nursing Clinics Patient
Services

FIGURE 11.2 Functional structures in a business, branch bank, and community hospital.

Functional Structures
In functional structures, people with similar skills and performing similar tasks are A functional structure groups together
grouped together into formal work units. Members of functional departments share people with similar skills who perform
similar tasks.
technical expertise, interests, and responsibilities. The first example in Figure 11.2
shows a functional structure common in business firms, with top management ar-
ranged by the functions of marketing, finance, production, and human resources.
In this functional structure, manufacturing problems are the responsibility of the
production vice president, marketing problems are the responsibility of the market-
ing vice president, and so on. Figure 11.2 also shows how functional structures are
used in other types of organizations such as banks and hospitals.

Advantages of Functional Structures

The key point of the functional structure is to put together people within the same
expertise and help them work well together. If each function does its work properly,
the expectation is that the organization as a whole will operate successfully. These
structures work well for organizations dealing with only one or a few products or
services. They also tend to work best in relatively stable environments where prob-
lems are predictable and the demands for change and innovation are limited. The
major advantages of functional structures include the following:
• Economies of scale with efficient use of resources.
• Task assignments consistent with expertise and training.
• High-quality technical problem solving.
274 O RGANIZATION STRUCTU R E S AND DESIGN

• In-depth training and skill development within functions.

• Clear career paths within functions.

Disadvantages of Functional Structures

Common problems of functional structures include difficulties in pinpointing re-
sponsibilities for things like cost containment, product or service quality, and in-
novation. When each department or function focuses only on its own concerns,
the “big picture” issues can easily get neglected. This relates to
Functional Chimneys Problem something called the functional chimneys or functional silos
problem—a lack of communication, coordination, and prob-
lem solving across functions. This happens because the func-
tions become formalized not only on the organization chart, but
also in the mind-sets of people. A sense of common purpose gets
lost and self-centered, narrow viewpoints become prominent.11
Yahoo!’s former CEO Carol Bartz once described the functional
chimneys problem this way: “The homepage people didn’t want
• Too little communication across functions to drive traffic to the finance page because they wanted to keep
• Too many problems referred upward for solution them on the home page.”12 When problems like this occur, an
alert manager steps in to correct things before they can do per-
sistent harm to organizational performance.

A divisional structure groups together
people working on the same product, in
the same area, with similar customers,
or on the same processes.
Divisional Structures
A second organizing alternative is the divisional structure. As illustrated in Figure
11.3, it groups together people who work on the same product or process, serve
similar customers, or are located in the same area or geographical region.

Type Focus Example

General Manager
Product Good or
service produced
Grocery products Drugs and toiletries

President
Geographical Location of
activity
Asian division European division

Agency Administrator
Customer Customer or
client serviced
Problem youth Senior citizens

Catalog Sales Manager

Process Activities part
of same process
Product purchasing Order fulfillment

FIGURE 11.3 Divisional structures based on product, geography, customer, and process.
 Traditional Organization Structures 275

Divisional structures are common in complex organizations with diverse opera-

tions that extend across many products, territories, customers, and work processes.13
The idea is to use the divisional focus to overcome the disadvantages of a functional
structure, such as the functional chimneys problem. For example, Toyota changed
to a divisional structure in its North American operations. The new design brought
together the engineering, manufacturing, and sales functions under a common boss
instead of having each report to a top executive of its own. One analyst said: “The
problem is every silo reported back to someone different, but now they need some-
one in charge of the whole choir.”14

Product Structures
Product structures group together jobs and activities focused on a single product A product structure groups together
or service. They clearly link costs, profits, problems, and successes in a market area people and jobs focused on a single
product or service.
with a central point of accountability. This prompts managers to be responsive to
changing market demands and customer tastes.
Common in large organizations, product structures may even extend into global
operations. When Fiat took over Chrysler, for example, CEO Sergio Marchionne
said he wanted a “leaner, flatter structure” to decision making and to improve
communication flow.” His choice was to use product divisions. Each of the firm’s
three brands—Chrysler, Jeep, and Dodge—was given its own chief executive and
assigned responsibility for its own profits and losses.15 You’ll find this same approach
at General Motors, which is now organized around four product divisions—Buick,
Cadillac, Chevrolet, and GMC. The goal of these product structures is to focus the
technology and other firm resources on the core auto brands.16

Geographical Structures
Geographical structures, sometimes called area structures, group together jobs A geographical structure groups
and activities being performed in the same location. They are typically used when together people and jobs performed in
the same location.
there is a need to differentiate products or services in various locations, such as in
different parts of a country. They also help global companies focus attention on the
unique cultures and requirements of particular regions. As United Parcel Service
operations expanded worldwide, for example, the company announced a change
from a product structure to a geographical structure. Two geographical divisions
were created—the Americas and Europe/Asia. Each area was given responsibility
for its own logistics, sales, and other business functions.

Customer Structures
Customer structures group together jobs and activities that are serving the same A customer structure groups together
customers or clients. The goal is to best serve the special needs of the different people and jobs that serve the same
customers or clients.
customer groups. This is a common structure in the consumer products indus-
try. 3M Corporation structures itself to focus attention on such diverse markets
as consumer and office, specialty materials, industrial, health care, electronics
and communications, and safety. Customer structures are also useful in services.
Banks, for example, use them to give separate attention to consumer and com-
mercial customers for loans. If you look again at Figure 11.3 you’ll see that it also
shows a government agency using the customer structure to serve different client
populations.
276 O RGANIZATION STRUCTU R E S AND DESIGN
FOLLOW
THE STORY
Dancing Deer Baking Sweetens Growth with Values
Courtesy Dancing Deer Baking Company, Inc
D ancing Deer Baking sells about $10 million of confec-
tionary concoctions annually. Every product is made
with all natural ingredients and packaged in recycled materi-
als. And, they’re all produced in inner-city Boston.
The bakery’s story is entrepreneurship with social values. It
began with partners Patricia Karter, Suzanne Lombardi, and
Ayis Antoniou, a $20,000 investment, great recipes, and two
ovens located in a former pizza shop. After Dancing Deer was
recognized on national TV as having the “best cake in the na-
tion,” more expansion into mail-order sales quickly followed.
Growth like this can cause problems for any organization.
Managers have to adjust practices, structures, and staffing to
deal with increasing size. Dancing Deer is no exception. But
A work process is a group of related
tasks that collectively creates a valuable
work product.
A process structure groups jobs and
activities that are part of the same
processes.
> “KARTER NEVER SWAYED FROM THE FIRM’S CORE PRINCIPLES—
‘PASSIONATE ABOUT FOOD, NATURE, AESTHETICS, AND COMMUNITY ’”
its pathways to prosperity have been clear—let core values
be the guide.
When offered a chance to make a large cookie sale to
Williams-Sonoma, then-CEO Karter declined because the
contract would have required use of preservatives. But
Williams-Sonoma was so impressed with her products and
principles that it contracted for the sale of her bakery mixes.
Instead of lost opportunity, Karter’s principles guided the
firm to more sales and further growth.
Throughout Dancing Deer’s growth, Karter never swayed
from the firm’s core principles—“passionate about food,
nature, aesthetics, and community.” This legacy thrives even
though Karter has moved on to focus on community service
and Frank Carpetino is in as the new CEO. All of Dancing
Deer’s employees get stock options and free lunches; 35% of
profits from the firm’s Sweet Home cakes are donated to help
the homeless find accommodations and jobs. “There’s more
to life than selling cookies,” says the firm’s website, “but it’s
not a bad way to make a living.”
YOUR TAKE?
Tish Karter’s experiences at Dancing Deer Baking show how
business entrepreneurship and social values can combine for
real accomplishments. But, what about tipping points like
the first Williams-Sonoma offer? Isn’t it easy for the quest
for customers, contracts, and plain old cash to throw things
off balance? Is it easier to stay on course with values in a
small firm than in a large organization? And as an organiza-
tion grows, can it be structured to protect core values, or is
it really up to the leader and his or her day-to-day influence?
Process Structures
A work process is a group of related tasks that collectively creates something of
value to a customer.17 An example is order fulfillment by a catalog retailer, a process
that takes an order from point of initiation by the customer to point of fulfillment by
a delivered product. A process structure groups together jobs and activities that are
part of the same processes. Figure 11.3 shows how this might take the form of prod-
uct-purchasing teams and order-fulfillment teams for a mail-order catalog business.
Advantages and Disadvantages of Divisional Structures
Organizations use divisional structures for a variety of reasons, including the desire to
avoid the functional chimneys problem and other downsides of functional structures.
The potential advantages of divisional structures include:
• More flexibility in responding to environmental changes.
• Improved coordination across functional departments.
 Traditional Organization Structures 277

• Clear points of responsibility for product or service delivery.

• Expertise focused on specific customers, products, and regions.
• Greater ease in changing size by adding or deleting divisions.
As with other structural alternatives, divisional structures have potential disad-
vantages. They can reduce economies of scale and increase costs through the du-
plication of resources and efforts across divisions. They can also create unhealthy
rivalries as divisions compete for resources and top management attention, and as
they emphasize division needs over the goals of the organization as a whole.

Matrix Structures
The matrix structure, often called the matrix organization, combines the func-
tional and divisional structures. It is an attempt to gain the advantages and mini-
mize the disadvantages of each. This is accomplished by creating permanent teams
that cut across functions to support specific products, projects, or programs.18 As
shown in Figure 11.4, workers in a matrix structure belong to at least two formal
groups at the same time—a functional group and a product, program, or project
team. They also report to two bosses—one within the function and the other within
the team.
The matrix organization has gained a strong foothold in the workplace, with
applications in such diverse settings as manufacturing (e.g., aerospace, electron-
ics, pharmaceuticals), service industries (e.g., banking, brokerage, retailing),
professional fields (e.g., accounting, advertising, law), and the nonprofit sector
(e.g., city, state, and federal agencies, hospitals, universities). Matrix structures
are also found in multinational corporations, where they offer the flexibility to
deal with regional differences while still handling multiple product, program, or
project needs.

FIGURE 11.4 Matrix structure in a

General small, multiproject business firm.
Manager

Manager Manufacturing Engineering Sales

of Projects Manager Manager Manager

Project A
Manager

Project B
Manager

Project C
Manager

Persons assigned to both projects and functional departments

278 O RGANIZATION STRUCTU R E S AND DESIGN

Advantages and Disadvantages of Matrix Structures

The main benefits of matrix structures rest with the teams whose members work
closely together to share expertise and information in a timely manner. This goes
a long way toward eliminating functional chimneys problems and poor cross-
functional communication. The potential advantages of matrix structures include:
• Better communication and cooperation across functions.
• Improved decision making; problem solving takes place at the team level where
the best information is available.
• Increased flexibility in adding, removing, or changing operations to meet chang-
ing demands.
• Better customer service; there is always a program, product, or project manager
informed and available to answer questions.
• Better performance accountability through the program, product, or project
managers.
• Improved strategic management; top managers are freed from lower-level
problem solving to focus time on more strategic issues.
Predictably, matrix structures also have potential disadvantages. The two-boss
system is susceptible to power struggles if functional supervisors and team lead-
ers compete with one another to exercise authority. The two-boss system can be
frustrating if it creates task confusion and conflicting work priorities. Team meet-
ings in the matrix can take lots of time, and the teams may develop “groupitis”—
strong team loyalties that cause a loss of focus on larger organizational goals. The
requirement of adding the team leaders to a matrix structure can also result in
higher costs.

LEARNING CHECK 2

TAKEAWAY QUESTION 2 What are the traditional organization structures?

Be sure you can • explain the differences between functional, divisional, and matrix structures • list advantages
and disadvantages of a functional structure, divisional structure, and matrix structure • draw charts to show how
each type of traditional structure could be used in organizations familiar to you

Horizontal Organization Structures

The matrix structure is a step toward better cross-functional integration in an or-
ganization. But it is just one part of a broader movement toward more horizon-
tal structures that harness the powers of teams and information technology to
improve communication, collaboration, and flexibility. And as traditional vertical
structures give way to more horizontal ones, the two “Ts” of teams and technol-
ogy are used to decrease hierarchy, increase empowerment, and better mobilize
human talents.19 Consultant and scholar Gary Hamel says that today’s “younger
workers—the ‘digital natives’—are impatient with old hierarchies and value sys-
tems.”20 They are among the driving forces behind the movement toward more
horizontal organizations.
 Horizontal Organization Structures 279

Recommended
Reading

I=: GDC6AHDE The Trophy Kids Grow Up: How the Millennial Generation
From The Trophy Kids Grow Up: How the Mille-
nnial Generation Is Shaking Up the Workplace,
by Ron Alsop, Jossey-Bass, 2008. Reproduced

Is Shaking Up the Workplace (Jossey-Bass, 2008)

with permission of John Wiley and Sons.

IGDE=N by Ron Alsop

@>9H
_fnk_\d`cc\ee`Xc
^\e\iXk`fe`j Chances are you are one of them; if not, you are or will be managing them. Th ey’re
j_Xb`e^lgk_\
nfibgcXZ\ the Millennials, born 1980–2001, and they’re bringing a lot of changes to organiza-

<GDL
tions. Author Ron Alsop says that in their formative years members of this generation
received trophies and rewards for efforts, not accomplishments. They’re heavily into
text messages and social media; they’re informal, casual, and confident when it

JE comes to work; they value family and are socially aware. What are the implications of
this generation for traditional organizations and those who manage them?

Team Structures
Organizations with team structures make extensive use of both permanent and A team structure uses permanent and
temporary teams to solve problems, complete special projects, and accomplish temporary cross-functional teams to
improve lateral relations.
day-to-day tasks.21 As illustrated in Figure 11.5, these are often cross-functional
A cross-functional team brings
teams composed of members drawn from different areas of work responsibility.22 together members from different func-
Like the matrix structure, the intention is to break down functional chimneys and tional departments.
create more effective working relations around and across the organization.
Team structures use many project teams that are convened to complete a spe- Project teams are convened for a par-
cific task or “project.” An example is a team convened to guide the changeover to ticular task or project and disband once
it is completed.
a new information system. Such project teams are temporary and disband once
the task is completed. The intention is to convene a team of people who have the
needed talents, focus their efforts intensely to solve a problem or take advantage of
a special opportunity, and then release them once the project is finished.

Advantages and Disadvantages of Team Structures

The advantages of team structures trace to the fact that putting people into teams
and giving them common goals to work on together breaks down barriers and

Plant
Manager

Manufacturing Sales Engineering Human Resource

Manager Manager Manager Manager

New
Valuing
product
diversity
development
task force
team Team assignments

FIGURE 11.5 How a team structure uses cross-functional teams for improved lateral relations.
280 O RGANIZATION STRUCTU R E S AND DESIGN
A network structure uses information
technologies to link with networks of
outside suppliers and service
contractors.
A strategic alliance is a cooperation
agreement with another organization
to jointly pursue activities of mutual
interest.
FIGURE 11.6 A network
structure for a Web-based retail
business.
mobilizes talents. After a research team at Polaroid Corporation developed a new
medical imaging system in one-half the predicted time, a senior executive said: “Our
researchers are not any smarter, but by working together they get the value of each
other’s intelligence almost instantaneously.” 23 Because teams focus shared knowl-
edge and expertise on specific problems, they can improve performance by increas-
ing the speed and quality of decisions in many situations. They can also boost mo-
rale. People working in teams often experience a greater sense of task involvement
and identification, and this increases their enthusiasm for the job.
The complexities of teams and teamwork contribute to the potential disadvan-
tages of team structures. These include conflicting loyalties for persons with both
team and functional assignments. They also include issues of time management and
group process. By their very nature, teams spend a lot of time in meetings. Whether
these meetings are face-to-face or virtual, not all of the time spent together is pro-
ductive. The quality of outcomes depends a lot on how well tasks, relationships, and
overall team dynamics are managed. But, all of these challenges can be mastered
with the right team talents and leadership.
Network Structures
Organizations using a network structure, like the one in Figure 11.6, have a central
core of full-time employees surrounded by “networks” of outside contractors and part-
ners that supply essential services.24 Because the central core is relatively small and the
surrounding networks can be expanded or shrunk as needed, the network structure
helps lower costs and improve flexibility in dealing with changing environments.25
Instead of doing everything for itself with full-time employees, the network orga-
nization employs a minimum staff and contracts out as much work as possible. This
is done through strategic alliances, which are cooperation agreements with other
firms to pursue business activities of mutual interest. Some are outsourcing strategic
alliances in which they contract to purchase important services such as accounting
or document processing from another organization. Others may be supplier strategic
Offshore Port-of-entry
manufacturing and warehouse and
packaging firm Information distribution company
Technology
Business
Core
Mail-order lawn
and deck furniture
National accounting
Furniture
and financial
design studio
management firm
Other home
furnishing firms share
mail-order catalog
and website
 Horizontal Organization Structures 281

alliances that link businesses in preferred relationships that guarantee a smooth and
timely flow of quality supplies among the partners. An example of a step toward the
network organization is found in residential colleges and universities that tradition-
ally owned their own dormitories. Many are now getting out of the campus housing
business by entering public–private partnerships that turn dormitories over to pri-
vate businesses to operate.26
The example in Figure 11.6 shows how a network structure might work for a
mail-order company selling lawn and deck furniture through a catalog. The firm is
very small, consisting of relatively few full-time core employees. Beyond that, it is
structured as a network of outsourcing and partner relationships linked together
by the latest in information technology. Merchandise is designed on contract with a
furniture designer—which responds quickly as designs are shared and customized
via computer networking. The furniture is manufactured and packaged by subcon-
tractors located around the world—wherever materials are found at the lowest cost
and best quality. Stock is maintained and shipped from a contract warehouse—
ensuring quality storage and on-time expert shipping. Accounting and financial
details are contracted with an outside firm—providing better technical expertise
than the merchandiser could afford to employ on a full-time basis. The quarterly
catalog is produced in cooperation with two other firms that sell different home
furnishings with a related price appeal.

Advantages and Disadvantages of Network Structures

In respect to advantages, network structures are lean and streamlined. They help
organizations stay cost-competitive by reducing overhead and increasing operating
efficiency. Network concepts allow organizations to employ outsourcing strategies
and contract out specialized business functions. Within the operating core of a net-
work structure, furthermore, interesting jobs are created for those who coordinate
the entire system of relationships.
Network structures have potential disadvantages as well. The more complex the
business or mission of the organization, the more complicated it is to control and
coordinate the network of contracts and alliances. If one part of the network breaks
down or fails to deliver, the entire system suffers. The organization may lose con-
trol over activities contracted out. It may also experience a lack of loyalty among
contractors who are used infrequently rather than on a long-term basis. Some
worry that outsourcing can become so aggressive as to be dangerous to the firm,
especially when critical activities such as finance, logistics, and human resources
management are outsourced.27 Not too long ago, for example, Delta Air announced
that it was shutting down its call-center operations in India because too many cus-
tomers were complaining about communication difficulties with the Indian service
providers.28

Boundaryless Structures
It is popular today to speak about creating a boundaryless organization that A boundaryless organization
eliminates many of the internal boundaries among subsystems and external bound- eliminates internal boundaries among
subsystems and external boundaries
aries with the external environment.29 The boundaryless structure, as shown in Fig- with the external environment.
ure 11.7, can be viewed as a combination of the team and network structures just
described, with the added feature of “temporariness.” A photograph that documents
282 O RGANIZATION STRUCTU R E S AND DESIGN

Internal boundaries are eliminated

as people work together as needed

External boundaries vary as alliances

change with shifting needs/opportunities

A C
A C
Research and Time 1
Development B Time 3 E

Production Sales C

B Time 2
Purchasing Distribution

FIGURE 11.7 The boundaryless organization eliminates internal and external barriers.

A virtual organization uses IT and the
Internet to engage a shifting network of
strategic alliances.
this organization’s configuration today will look different from one taken tomorrow,
as the form naturally adjusts to new pressures and circumstances.
Spontaneous teamwork and communication replace formal lines of authority
within the boundaryless organization. Meetings and information sharing happen
continuously. People work together in teams that form and disband as needed.
There is little hierarchy but lots of empowerment and technology utilization. Im-
permanence is accepted. Knowledge sharing is both a goal and an essential compo-
nent. At consulting giant PricewaterhouseCoopers, for example, knowledge sharing
brings together 160,000 partners spread across 150 countries in a virtual-learning
and problem-solving network. Partners collaborate electronically through online
databases where information is stored, problems are posted, and questions are
asked and answered in real time by those with experience and expertise relevant
to the problem at hand.30
The virtual organization takes the boundaryless concept to the extreme.31 It op-
erates as a shifting network of alliances that are engaged as needed using IT and
the Internet. The virtual organization calls an alliance into action to meet specific
operating needs and objectives; when the work is complete, the alliance rests until
next called into action. This mix of mobilized alliances is continuously shifting, and
an expansive pool of potential alliances is always ready to be called upon. Do you see
similarities with the Facebook or LinkedIn communities? Isn’t the virtual organiza-
tion concept similar to how we manage our relationships online—signing in, signing
off, getting things done as needed with different people and groups, and all taking
place instantaneously, temporarily, and without the need for face-to-face contacts?

LEARNING CHECK 3

TAKEAWAY QUESTION 3 What are the types of horizontal organization structures?

Be sure you can • describe how organizations can be structured to use cross-functional teams and project
teams • define network structure • illustrate how a new retail venture might use a network structure to organize
its various operations • discuss the potential advantages and disadvantages of a network structure
• explain the concept of the boundaryless organization
 Organizational Designs 283

FACTS > “IT DOESN’T MATTER WHAT INDUSTRY YOU’RE IN. PEOPLE
FOR
FO ANALYSIS HAVE BLIND SPOTS ABOUT WHERE THEY ARE WEAK”

Bosses May Be Overestimating Their Managing Skills

A survey by Development Dimensions International, Inc.,

finds that managers may be overestimating their man-
aging skills. “It doesn’t matter what industry you’re in. Peo-
ple have blind spots about where they are weak,” says DDI
vice president Scott Erker. These results are from a sample of
1,100 first-year managers:
• 72% never question their ability to lead others.
• 58% claim planning and organizing skills as strengths.
• 53% say they are strong in decision making.
• 50% say they are strong in communication.
• 32% claim proficiency in delegating.
• Skills rated as needing most development were delegat-
ing, gaining commitment, and coaching.
YOUR THOUGHTS?
Would you, like managers in this survey, probably overestimate
your strengths in management skills? What might explain such
tendencies toward overconfidence? And among the skills
needing work, why would delegating be the one about which
even very confident managers still feel some inadequacy?

Organizational Designs
Organizational design is the process of choosing and implementing structures to Organizational design is the process
accomplish the organization’s mission and objectives.32 Because every organization of creating structures that accomplish
mission and objectives.
faces its own set of unique problems and opportunities, no one design applies in
all circumstances. The best design at any moment is the one that achieves a good
match between structure and situational contingencies—including task, technol-
ogy, environment, and people.33 The choices among design alternatives are broadly
framed in the distinction between mechanistic or bureaucratic designs at one ex-
treme, and organic or adaptive designs at the other.

Contingency in Organizational Design

A classic bureaucracy is a form of organization based on logic, order, and the legitimate A bureaucracy emphasizes formal
use of formal authority.34 It is a vertical structure, and its distinguishing features include authority, order, fairness, and efficiency.

a clear-cut division of labor, strict hierarchy of authority, formal rules and procedures,
and promotion based on competency.
According to sociologist Max Weber, bureaucracies were supposed to be orderly,
fair, and highly efficient.35 But the bureaucracies we know are often associated with
“red tape.” And instead of being orderly and fair, they are often seen as cumbersome
and impersonal to customer or client needs.36 Rather than view all bureaucratic
structures as inevitably flawed, however, management theory asks two contingency
questions. When is a bureaucratic form a good choice for an organization? When it
isn’t, what alternatives are available?
Pioneering research conducted in England during the early 1960s by Tom Burns
and George Stalker helps answer these questions.37 After investigating 20 manu-
facturing firms they concluded that two quite different organizational forms could
be successful, depending on the nature of a firm’s external environment. A more
284 O RGANIZATION STRUCTU R E S AND DESIGN

FIGURE 11.8 Organizational

Bureaucratic Adaptive
design alternatives: From organizations use organizations use
bureaucratic to adaptive mechanistic designs organic designs
organizations.
Predictability Goal Adaptability

Centralized Authority Decentralized

Many Rules and procedures Few

Narrow Spans of control Wide

Specialized Tasks Shared

Few Teams and task forces Many

Formal and Informal and

Coordination
impersonal personal

bureaucratic form, which Burns and Stalker called “mechanistic,” thrived when the
environment was stable. But it experienced difficulty when the environment was
rapidly changing and uncertain. In dynamic situations a much less-bureaucratic
form, called “organic,” performed best. Figure 11.8 portrays these two approaches as
opposite extremes on a continuum of organizational design alternatives.

Mechanistic and Organic Designs

A mechanistic design is centralized,
with many rules and procedures, a
clear-cut division of labor, narrow spans
of control, and formal coordination.
An organic design is decentralized,
with fewer rules and procedures, open
divisions of labor, wide spans of control,
and more personal coordination.
Organizations with more mechanistic designs are highly bureaucratic. As shown
in the figure, they are vertical structures that typically operate with centralized au-
thority, many rules and procedures, a precise division of labor, narrow spans of con-
trol, and formal means of coordination. They can be described as “tight” structures
of the traditional pyramid form.38
Mechanistic designs work best for organizations doing routine tasks in stable
environments. For a good example, visit your local fast-food restaurant. Each store
is a relatively small operation that operates quite like others in the franchise chain
and according to rules established by the corporate management. Service person-
nel work in orderly and disciplined ways, guided by training, rules and procedures,
and by close supervision of crew leaders who work alongside them. Even personal
appearance is carefully regulated, with everyone working in uniform. These mecha-
nistic restaurants perform well as they repetitively deliver items that are part of
their standard menus. You quickly discover their limits, however, if you try to order
something not on the menu. The chains also are slow to adjust when consumer
tastes change.
When organizations operate in dynamic and often uncertain environments, their
effectiveness depends on being able to change with the times. This requires the more
organic designs described in Figure 11.8.39 These are horizontal structures with de-
centralized authority, fewer rules and procedures, less precise division of labor, wider
spans of control, and more personal means of coordination.
 Organizational Designs 285

Organic designs create adaptive organizations that can perform well in en- An adaptive organization operates
vironments that demand flexibility in dealing with changing conditions. They are with a minimum of bureaucratic fea-
tures and encourages worker empower-
relatively “loose” systems where a lot of work gets done through informal structures ment and teamwork.
and networking.40 And, they are built on a foundation of trust that people will do the
right things on their own initiative. This means giving workers the freedom to use
their ideas and expertise to do what they can do best—get the job done.

Trends in Organizational Designs

The complexity, uncertainty, and change inherent in today’s environment are
prompting more and more organizations to shift toward horizontal and organic
structures. A number of trends in organizational design are evident as structures
and practices are adjusted to gain performance efficiency and effectiveness in chal-
lenging conditions. The growth of new technologies, particularly in information
systems and social media, is helping drive these trends by improving information
availability and ease of communication within organizations.

Fewer Levels of Management

A typical organization chart shows the chain of command, or the line of author- The chain of command links all per-
ity that vertically links each position with successively higher levels of management. sons with successively higher levels of
authority.
When organizations grow in size they tend to get taller and add more levels of man-
agement to the chain of command. But high-performing firms like Nucor, a North Car-
olina-based steel producer, show preferences for fewer management levels. Nucor’s
management hierarchy is flat and compact. Its structure is described as “simple” and
“streamlined” in order to “allow employees to innovate and make quick decisions.”41
One of the influences on management levels is span of control—the number of Span of control is the number of subor-
persons directly reporting to a manager. Narrow spans of control are characteristic dinates directly reporting to a manager.

of tall structures with many levels of management. Because tall organizations have Tall structures have narrow spans of
control and many hierarchical levels.
more managers, they are more costly. They also tend to be less efficient, less flex-
ible, and less customer-sensitive. Wider spans of control run with flat structures Flat structures have wide spans of
that have fewer levels of management. This not only reduces overhead costs, it also control and few hierarchical levels.

tends to give workers more empowerment and independence because less-direct

supervision is available.42 Tall Structure
When Procter & Gamble’s CEO, Robert McDonald, was appointed, one of his first (narrow span of control)
announcements was that he would be taking steps to “create a simpler, flatter and
more agile organization.” This involved cutting the number of levels of management
in the firm from nine to seven. McDonald stated that streamlining the organization
structure was important “because simplification reduces cost, improves productiv-
ity and enhances employee satisfaction.”43

Trend: Organizations are cutting unnecessary levels of management and shift- Flat Structure
ing to wider spans of control. Managers are taking responsibility for larger (wide span of control)
teams whose members operate with less direct supervision.

More Delegation and Empowerment

All managers must decide what work they should do themselves and what should
be left for others. At issue here is delegation—the process of entrusting work to Delegation is the process of distributing
others by giving them the right to make decisions and take action. A classical princi- and entrusting work to other persons.
286 O RGANIZATION STRUCTU R E S AND DESIGN

ETHICS > “I EVEN FEEL GUILTY NOW TAKING TIME TO WATCH MY DAUGHTER
ON THE LINE PLAY SOCCER ON SATURDAY MORNINGS”

Help! I’ve Been Flattened into Exhaustion

As my organization “restructures” and cuts back staff, it
puts a greater burden on those of us that remain. We get
exhausted, and our families get short-changed and even an-
gry. I even feel guilty now taking time to watch my daughter
play soccer on Saturday mornings. Sure, there’s some decent
pay involved, but that doesn’t make up for the heavy price in
terms of lost family time.
But you know what? My boss doesn’t get it. I never hear
her ask: “Camille, are you working too much? Don’t you think
it’s time to get back on a reasonable schedule?” No! What I
often hear instead is “Look at Andy; he handles our new man-
agement model really well, and he’s a real go-getter. I don’t
Sean Locke/iStockphoto

think he’s been out of here one night this week before 8 PM.”
What am I to do, just keep it up until everything falls
apart one day? Is a flatter structure with fewer managers
always best? Am I missing something in regard to this “new
management”?

Sincerely,
Overworked in Cincinnati

D ear Stress Doctor:

My boss has come up with this great idea of laying
off some managers, assigning more workers to those of us
ETHICS QUESTIONS

Is it ethical to restructure, cut management levels, and expect

who remain, and calling us “coaches” instead of supervisors.
She says this is all part of a new management approach to
operate with a flatter structure and more empowerment.
For me this means a lot more work coordinating the ac-
tivities of 17 operators instead of the six that I previously su-
pervised. I can’t get everything cleaned up on my desk most
days, and I end up taking a lot of work home.
the remaining managers to do more work? Or is it simply the
case that managers used to the “old” ways of doing things
need extra training and care while learning “new” management
approaches? And what about this person’s boss—is she on
track with her management skills? Aren’t managers supposed
to help people understand their jobs, set priorities, and fulfill
them, while still maintaining a reasonable work–life balance?

The authority-and-responsibility
principle is that authority should equal
responsibility when work is delegated.
ple of organization warns managers not to delegate without giving the other person
sufficient authority to perform. The authority-and-responsibility principle states
that authority should equal responsibility when work is delegated from a supervi-
sor to a subordinate. When done well the process of delegation involves these three
action steps.
• Step 1—The manager assigns responsibility by carefully explaining the work or
duties someone else is expected to do. This responsibility is an expectation for
the other person to perform assigned tasks.
• Step 2—The manager grants authority to act. Along with the assigned task, the
right to take necessary actions ( for example, to spend money, direct the work
of others, or use resources) is given to the other person.
 Organizational Designs 287

Management
in Popular Culture
Empowerment and Patch Adams
The movie Patch Adams is based on the true-life story of Hunter “Patch” Adams. It’s also
a lesson in organizational design. Adams (played by Robin Williams) is a doctor who
becomes increasingly disillusioned with medical bureaucracy. He’s inspired to create a
new kind of hospital, free from the usual constraints, and using unconventional methods
of treatment. At Patch’s hospital doctors and patients work side-by-side, with patients
taking responsibility for their own care. By empowering patients, Adams believed
medical treatment would be more effective.
© AF archive/Alamy

• Step 3—The manager creates accountability. By accepting an assignment,

the person takes on a direct obligation to the manager to complete the job
as agreed.
On those days when you complain that “I just can’t get everything done,” the real
problem may be that you are trying to do everything yourself. This unwillingness to
delegate is a common management failure. Whether this comes from a lack of trust
in others or from personal inflexibility, it can still be damaging. Too little delegation
overloads the manager with work that could be done by others; it also denies others
many opportunities to fully utilize their talents on the job.
Delegation that is done well leads to empowerment. This concept was defined Empowerment allows others to make
in the chapter opener as letting others make decisions and exercise discretion in decisions and exercise discretion in
their work.
their work. Empowerment occurs when delegation gives decision-making authority
to people who are most capable of doing the work. It builds performance potential
by allowing people freedom to use their talents, contribute ideas, and do their jobs
in the best possible ways. And because empowerment creates a sense of ownership,
it also increases commitment to decisions and work goals.

Trend: Managers are delegating more. They are finding ways to empower people
at all levels to make more decisions that affect themselves and their work.

Decentralization with Centralization

Should most decisions be made at the top levels of an organization, or should they
be dispersed by extensive delegation throughout all levels? The former approach is
referred to as centralization; the latter is called decentralization. But the man- Centralization is the concentration of
agement issue they represent isn’t necessarily an either/or choice. Today’s organi- authority for most decisions at the top
level of an organization.
zations can operate with greater decentralization without giving up centralized
Decentralization is the dispersion of
control.44 authority to make decisions throughout
High speed computer networks and advanced information systems allow man- all organization levels.
agers at higher levels to easily stay informed about a wide range of day-to-day
performance matters throughout an organization. Because they have information
so readily available, they can allow more decentralization in decision making. If
288 O RGANIZATION STRUCTU R E S AND DESIGN

RESEARCH
BRIEF

Making Schools Work Better with Organizational Design

S cholar and consultant William Ouchi believes that our

public schools can be improved through organizational
design. In his book, Making Schools Work: A Revolution-
Administrative Staffing Comparisons
School District A School District B
ary Plan to Get Your Children the Education They Need, Successful Less Successful

Ouchi points out that as organizations grow in size, they

tend to “bulk up” with staff personnel and higher-level
managers that are distant from customers and operating 22 central office staff 22,500 central office staff
for 120,000 students; for 1.2 million students;
workers. He finds many less-successful schools following 1 per 5,455 students 1 per 47 students
this pattern.
Ouchi’s study of 223 school districts suggests that add-
ing administrative weight and cost at the top does little Decentralized; Centralized;
to improve organizational performance and can actually schools have lots schools have little
of autonomy autonomy
harm it. Even though most school districts are highly cen-
tralized, he finds that decentralization is a characteristic of
the more successful ones. The better districts in his study
had fewer central office staff personnel per student and
allowed maximum autonomy to school principals. Ouchi
organizations that perform well with large staffs and lots of
advocates redesigning schools so that decision making
centralization?
is more decentralized. He believes in allowing principals
Don’t you wonder how School District B justifies its large
more autonomy to control school budgets and work with
administrative staff while School District A has a reputation
their staffs, and in allowing teachers more freedom to solve
for success? What is the ratio of administrative to instruc-
their own problems.
tional staff at your university? Could “performance” be im-
proved along lines suggested by Ouchi?
YOU BE THE RESEARCHER
Reference: William Ouchi, Making Schools Work: A Revolutionary Plan to Get Your
Does Ouchi offer us a general organizational design principle— Children the Education They Need (New York: Simon & Schuster, 2003); and Richard
Riordan, Linda Lingle, and Lyman Porter, “Making Public Schools Work: Manage-
systems perform best with streamlined designs and greater ment Reform as the Key,” Academy of Management Journal, vol. 48, no. 6 (2005),
decentralization? Or can you come up with examples of pp. 929–40.

something goes wrong, the information systems should sound an alarm and allow
corrective action to be taken quickly.

Trend: Delegation, empowerment, and horizontal structures are contributing

to more decentralization in organizations; at the same time, advances in infor-
mation technology help top managers maintain centralized control.

Reduced Use of Staff

Staff positions provide techni-
cal expertise for other parts of the
organization.
When it comes to coordination and control in organizations, the issue of line–staff
relationships is important. People in staff positions provide expert advice and guid-
ance to line personnel. In a large retail chain, for example, line managers in each
store typically make daily operating decisions regarding direct sales of merchandise.
But, staff specialists at the corporate or regional levels often provide direction and
 Organizational Designs 289

support so that all the stores operate with the same credit, purchasing, employ-
ment, marketing, and advertising procedures.
Problems in line–staff distinctions can and do arise, and organizations some-
times find that staff size grows to the point where it costs more than it is worth.
This is why cutbacks in staff positions are common during downsizing and other
turnaround efforts. There is no one best solution to the problem of how to divide
work between line and staff responsibilities. What is best for any organization will
be a cost-effective staff component that satisfies, but doesn’t overreact to, needs
for specialized technical assistance to line operations. But overall, the trend toward
reduced use of staff is quite clear.

Trend: Organizations are lowering costs and increasing efficiency by employing

fewer staff personnel and using smaller staff units.

LEARNING CHECK 4

TAKEAWAY QUESTION 4 How are organizational designs changing the workplace?

Be sure you can • define organizational design • describe the characteristics of mechanistic and organic designs
• explain when the mechanistic design and the organic design work best • describe trends in levels of management,
delegation and empowerment, decentralization and centralization, and use of staff