Organizing:

Organizational
Structure and Design
 Lecture Outline
1. Organizational structure and the six
key elements
2. Organizational design decisions
3. Common organizational designs
Organizational Structure
• Organizing: arranging and structuring work to
accomplish organization’s goals.
• Organizational Structure
– The formal arrangement of jobs within
an organization.
• Organizational Design
– A process involving decisions about six key elements:
• 1. Work specialization | 2. Departmentalization | 3. Chain of command | 4.
Span of control | 5. Centralization and decentralization | 6. Formalization
Exhibit 11-1
Purposes of Organizing
Purposes

Divides work to be done into specific jobs and departments.

Assigns tasks and responsibilities associated with individual jobs.

Coordinates diverse organizational tasks.

Clusters jobs into units.

Establishes relationships among individuals, groups, and departments.

Establishes formal lines of authority.

Allocates and deploys organizational resources.

Organizational Design
• Work Specialization
– The degree to which tasks in the organization are
divided into separate jobs with each step completed by a
different person.
– Advantage: more efficient employees
– Disadvantages:
• Can lead to some problems: boredom, fatigue, stress,
poor quality, increased absenteeism, reduced
performance, and increased turnover.
Exhibit 11-2
Economies and Diseconomies of Work Specialization

Exhibit 11-2 shows the economies and diseconomies of work specialization.

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved
 Organizational Design (cont.)
• Departmentalization
How jobs are grouped together so work gets done in a coordinated and
integrated way.
• Functional
– Grouping jobs by functions performed
• Product
– Grouping jobs by product line
• Process
– Grouping jobs on the basis of product or customer flow
• Customer
– Grouping jobs by type of customer and needs
• Geographical
– Grouping jobs on the basis of territory or geography
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Organizational Design (cont.)
• Chain of Command
– 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 who.

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 Organizational Design (cont.)
Chain of command (cont.)
• Authority
– The rights inherent in a managerial position to tell
people what to do and to expect them to do it.
• Responsibility
– The obligation or expectation to perform.
– Employees: do the assigned duties
• Unity of Command
– The concept that a person should have one boss
and should report only to that person.

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 Organizational Design (cont.)
• Span of Control
– 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
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Organizational Design (cont.)

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 Organizational Design (cont.)
• Centralization and Decentralization
– Centralization: The degree to
which decision-making is
concentrated at a single point in
the organizations.
– 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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 Exhibit 11-5
Centralization or Decentralization
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 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.
Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved
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 a say
in what happens.
Company is geographically dispersed.
Effective implementation of company strategies
depends on managers having involvement and
flexibility to make decisions.
 Organizational Design (cont.)

• Formalization
– The degree to which jobs within the
organization are standardized and the
extent to which employee behavior is
guided by rules and procedures.

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 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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Selection of Organizational Structures

Contingency factors that influence the

selection of org’l structures:
• Overall strategy of the organization
• Size of the organization
• Technology use by the organization
• Degree of environmental uncertainty

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Strategy and Structure
● An organization’s structure should
facilitate goal achievement. Because goals
are an important part of the
organization’s strategies, it’s only logical
that strategy and structure are closely
linked.
Size and Structure
● There’s considerable evidence that an
organization’s size affects its structure, but
once an organization grows past a certain
size, size has less influence on structure.
Technology and Structure
● Unit production: the production of items in
units or small batches
● Mass production: the production of items
in large batches
● Process production: the production of
items in continuous processes
 Exhibit 11-7
Mechanistic Versus Organic Organizations
blank Unit Production Mass Production Process Production

Structural Low vertical differentiation Moderate vertical High vertical

characteristics: differentiation differentiation

blank Low horizontal High horizontal differentiation Low horizontal

differentiation differentiation

blank Low formalization High formalization Low formalization

Most effective structure: Organic Mechanistic Organic

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved
Environmental Uncertainty and Structure
● In stable and simple environments,
mechanistic designs can be more effective.
● The greater the uncertainty, the more an
organization needs the flexibility of an
organic design.
 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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 Common Organizational Designs (cont.)
Contemporary Designs
• Team structures
• The entire organization is made up of work groups or
self-managed teams of empowered employees.

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 Common Organizational Designs (cont.)
● Matrix and project structures
• Specialists from different functional departments
are assigned to work on projects led by project
managers.

Matrix
structure

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 Common Organizational Designs (cont.)
● Boundaryless Organization
• An flexible and unstructured organizational
design that is intended to break down external
barriers between the organization and its
customers and suppliers.
• To minimize these boundaries, managers
might use virtual or network structural
designs.

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Common Organizational Designs (cont.)

• Virtual Organization
– An organization that consists of a small core of full-time
employees and that temporarily hires specialists to work
on opportunities that arise.
• Network Organization
– A small core organization that outsources its major
business functions (e.g., manufacturing) in order to
concentrate what it does best.
- Modular Organization(for manufacturing organizations) A
manufacturing organization that uses outside suppliers
to provide product components for its final assembly
operations.
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● Task force (or ad hoc committee):
- a temporary committee or team formed to
tackle a specific short-term problem affecting
several departments
- Open innovation: opening up the search for
new ideas beyond the organization’s
boundaries and allowing innovations to easily
transfer inward and outward
 Exhibit 11-10
Benefits and Drawbacks of Open Innovation
Benefits Drawbacks
Gives customers what they want—a voice High demands of managing the process
Allows organizations to respond to complex problems Extensive support needed
Nurtures internal and external relationships Cultural challenges
Brings focus back to marketplace Greater need for flexibility
Provides way to cope with rising costs and uncertainties Crucial changes required in how knowledge is
of product development controlled and shared

Copyright © 2018, 2016, 2014 Pearson Education, Inc. All Rights Reserved
● Telecommuting: a work arrangement in
which employees work at home and are
linked to the workplace by computer
● Compressed workweek: a workweek where
employees work longer hours per day but fewer
days per week

● Flextime (or flexible work hours): a scheduling

system in which employees are required to work a
specific number of hours a week but are free to
vary those hours within certain limits

● Job sharing: the practice of having two or more

people split a full-time job
● Contingent workers: temporary, freelance,
or contract workers whose employment is
contingent on demand for their services
Review
● Describe six key elements in
organizational design.
1. Work specialization
2. Departmentalization
3. Chain of command
4. Span of control
5. Centralization/decentralization
6. Formalization
● Contrast mechanistic and organic
structures.
○ Mechanistic structure: rigid, tightly controlled
○ Organic structure: highly adaptable, flexible
● Discuss the contingency factors that favor either the
mechanistic model or the organic model of
organizational design.
○ An organization’s structure should support the
strategy.
○ Structure can be affected by size and technology.
○ Organic structure is most effective with unit
production and process production technology.
○ Mechanistic structure is most effective with mass
production technology.
● Describe traditional organizational design
options.
○ Simple structure: little departmentalization,
wide spans of control, authority centralized in
one person, and little formalization.
○ Functional structure
○ Divisional structure
● Discuss organizing for flexibility in the twenty-first
century.
○ Structures:
■ Team
■ Matrix
■ Project
○ Boundaryless organization
○ Virtual organization
○ Compressed workweeks, flextime, job sharing
○ Contingent workforce
 Terms to Know
• organizing
• organizational structure
• organizational design
• work specialization
• departmentalization
• functional departmentalization
• product departmentalization
• geographical departmentalization
• process departmentalization
• customer departmentalization
• cross-functional teams
• chain of command
• authority
• responsibility
• unity of command
• span of control
• centralization
• decentralization
• employee empowerment
• formalization
• mechanistic organization
• organic organization
• unit production
• mass production
• process production
• simple structure
• functional structure 40
 Terms to Know
• divisional structure
• team structure
• matrix structure
• project structure
• boundaryless organization
• virtual organization
• network organization
• learning organization
• organizational chart

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 Any
QUestions?