CHAPTER 6 | ORGANIZATIONAL STRUCTURE AND DESIGN 141

WHAT CONTINGENCY VARIABLES

AFFECT STRUCTURAL CHOICE? Identify
the contingency
The most appropriate structure to use will depend on contingency factors that favor
factors. In this section, we address two generic organization either the
structure models and then look at the more popular contingency 6.2
mechanistic model
variables—strategy, size, technology, and environment. or the organic model
of organizational
How Is a Mechanistic Organization design.
Different from an Organic Organization?
Exhibit 6–7 describes two organizational forms.18 The mechanistic organization (or
bureaucracy) was the natural result of combining the six elements of structure.
Adhering to the chain-of-command principle ensured the existence of a formal hierar-
chy of authority, with each person controlled and supervised by one superior. Keeping
the span of control small at increasingly higher levels in the organization created tall,
impersonal structures. As the distance between the top and the bottom of the organiza-
tion expanded, top management would increasingly impose rules and regulations.
Because top managers couldn’t control lower-level activities through direct observation
and ensure the use of standard practices, they substituted rules and regulations. The
early management writers’ belief in a high degree of work specialization created jobs
that were simple, routine, and standardized. Further specialization through the use of

centralization formalization mechanistic organization

The degree to which decision making takes place at How standardized an organization’s jobs are and the A bureaucratic organization; a structure that’s high in
upper levels of the organization extent to which employee behavior is guided by specialization, formalization, and centralization
rules and procedures
decentralization
The degree to which lower-level managers provide
input or actually make decisions
142 PAR T 3 | ORGANIZING

EXHIBIT 6–7 Mechanistic Versus Organic Organizations

ORGANIC
MECHANISTIC

Rigid hierarchical relationships Collaboration (both vertical and horizontal)

Fixed duties Adaptable duties
Many rules Few rules
Formalized communication channels Informal communication
Centralized decision authority Decentralized decision authority
Taller structures Flatter structures

departmentalization increased impersonality and the need for multiple layers of

management to coordinate the specialized departments.
The organic organization is a highly adaptive form that is as loose and flexible as
the mechanistic organization is rigid and stable. Rather than having standardized jobs
and regulations, the organic organization’s loose structure allows it to change rapidly as
required. 19 It has division of labor, but the jobs people do are not standardized.
Employees tend to be professionals who are technically proficient and trained to handle
diverse problems. They need few formal rules and little direct supervision because their
training has instilled in them standards of professional conduct. For instance, a
petroleum engineer doesn’t need to be given procedures on how to locate oil sources
miles offshore. The engineer can solve most problems alone or after conferring with
colleagues. Professional standards guide his or her behavior. The organic organization
is low in centralization so that the professional can respond quickly to problems and
because top-level managers cannot be expected to possess the expertise to make
necessary decisions.
Top managers typically put a great deal of thought into designing an appropriate
structure. What that appropriate structure is depends on four contingency variables: the
organization’s strategy, size, technology, and degree of environmental uncertainty. Let’s
look at these contingency variables.

How Does Strategy Affect 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. Alfred Chandler initially researched this relationship.20 He studied
several large U.S. companies and concluded that changes in corporate strategy led to
changes in an organization’s structure that supported the strategy. Specifically, he found
that organizations usually begin with a single product or line. The simplicity of the
strategy required only a simple or loose form of structure to execute it. As such,
decisions could be centralized in the hands of a single senior manager, and complexity
and formalization were low. However, as organizations grew, their strategies become
more ambitious and elaborate.
Research has shown that certain structural designs work best with different organiza-
tional strategies.21 For instance, the flexibility and free-flowing information of the organic
structure works well when an organization is pursuing meaningful and unique innovations.
The mechanistic organization with its efficiency, stability, and tight controls works best for
companies wanting to tightly control costs.
 CHAPTER 6 | ORGANIZATIONAL STRUCTURE AND DESIGN 143

How Does Size Affect Structure?

There’s considerable evidence that an organization’s size affects its structure.22 Large
organizations—typically considered to be those with more than 2,000 employees—tend to
have more specialization, departmentalization, centralization, and rules and regulations
than do small organizations. However, once an organization grows past a certain size, size
has less influence on structure. Why? Essentially, once there are around 2,000 employees,
it’s already fairly mechanistic. Adding another 500 employees won’t impact the structure
much. On the other hand, adding 500 employees to an organization that has only 300
employees is likely to make it more mechanistic.

How Does Technology Affect Structure?

Every organization uses some form of technology to convert its inputs into outputs. For
instance, workers at Whirlpool’s Brazilian facility build microwave ovens and air condi-
tioners on a standardized assembly line. Employees at FedEx Kinko’s do custom design
and print jobs for individual customers. And employees at Bayer’s facility in Pakistan
make pharmaceutical products using a continuous-flow production line. The initial
research on technology’s effect on structure can be traced to Joan Woodward.23 For more
information on her ground-breaking work, see the From the Past to the Present box.

Joan Woodward, a British management scholar, studied small
manufacturing firms in southern England to determine the extent
to which structural design elements were related to organiza-
tional success.24 She couldn’t find any consistent pattern until
she divided the firms into three distinct technologies that had
increasing levels of complexity and sophistication. The first cate-
gory, unit production, described the production of items in units
or small batches. The second category, mass production,
described large-batch manufacturing. Finally, the third and
most technically complex group, process production, included
continuous-process production. A summary of her findings
regarding technology and appropriate organizational structure is
shown in Exhibit 6–8.
Woodward’s study of technology and organizational structure is
one of the earliest studies of contingency theory. Her answer to the
“it depends on” question would be that appropriate organizational
design depends on what the organization’s technology is. Other
more recent studies also have shown that organizations adapt their
structures to their technology depending on how routine their tech-
nology is for transforming inputs into outputs. In general, the more
routine the technology, the more mechanistic the structure can be,
and organizations with more nonroutine technology are more likely
to have organic structures.
Think About:
• Give some examples of products produced by each of the three
distinct technologies.
• Why would a mechanistic structure be more appropriate for an
organization with a routine technology?
• Likewise, why would an organic structure be more appropriate for
an organization with a nonroutine technology?
• Do you think Woodward’s framework would still apply to today’s
organizations? Why or why not?

EXHIBIT 6–8 Woodward’s Findings on Technology and Structure

UNIT PRODUCTION MASS PRODUCTION PROCESS PRODUCTION

Structural characteristics: Low vertical differentiation Moderate vertical differentiation High vertical differentiation
Low horizontal differentiation High horizontal differentiation Low horizontal differentiation
Low formalization High formalization Low formalization
Most effective structure: Organic Mechanistic Organic

organic organization mass production process production

A structure that’s low in specialization, formalization, Large-batch manufacturing Continuous flow or process production
and centralization
unit production
The production of items in units or small batches
144 PAR T 3 | ORGANIZING

How Does the Environment Affect Structure?

In Chapter 2, we discussed the organization’s environment as a constraint on managerial
discretion. It also has a major effect on an organization’s structure. Essentially, mechanis-
tic organizations are most effective in stable environments. Organic organizations are best
matched with dynamic and uncertain environments.
The evidence on the environment–structure relationship helps to explain why so many
managers have restructured their organizations to be lean, fast, and flexible.25 Global
competition, accelerated product innovation by competitors, knowledge management, and
increased demands from customers for higher quality and faster deliveries are examples of
dynamic environmental forces.26 Mechanistic organizations tend to be ill equipped to
respond to rapid environmental change. As a result, managers, such as those at Samsung
Electronics, are redesigning their organizations in order to make them more organic.27

WHAT ARE SOME COMMON

Compare ORGANIZATIONAL DESIGNS?
and contrast In making structural decisions, managers have some common designs
traditional and from which to choose: traditional ones and more contemporary ones. Let’s
6.3
contemporary look at some of the various types of organization designs.
organizational
designs.
What Traditional Organizational Designs Can
Managers Use?
When designing a structure, managers may choose one of the traditional organizational
designs. These structures—simple, functional, and divisional—tend to be more mechanistic
in nature. (See Exhibit 6–9 for a summary of the strengths and weaknesses of each.)

WHAT IS THE SIMPLE STRUCTURE? Most companies start as entrepreneurial ventures

using a simple structure, which is an organizational design with low departmentalization,
wide spans of control, authority centralized in a single person, and little formalization.28
The simple structure is most widely used in smaller businesses and its strengths should be
obvious. It’s fast, flexible, and inexpensive to maintain, and accountability is clear.
However, it becomes increasingly inadequate as an organization grows, because its few
policies or rules to guide operations and its high centralization result in information
overload at the top. As size increases, decision making becomes slower and can eventually
come to a standstill as the single executive tries to continue making all the decisions. If the

EXHIBIT 6–9 Traditional Organization Designs

Simple Structure
• Strengths: Fast; flexible; inexpensive to maintain; clear accountability.
• Weaknesses: Not appropriate as organization grows; reliance on one person is risky.

Functional Structure
• Strengths: Cost-saving advantages from specialization (economies of scale, minimal
duplication of people and equipment); employees are grouped with others who have
similar tasks.
• Weaknesses: Pursuit of functional goals can cause managers to lose sight of what’s best
for the overall organization; functional specialists become insulated and have little
understanding of what other units are doing.

Divisional Structure
• Strengths: Focuses on results—division managers are responsible for what happens to
their products and services.
• Weaknesses: Duplication of activities and resources increases costs and reduces
efficiency.
 CHAPTER 6 | ORGANIZATIONAL STRUCTURE AND DESIGN 145

structure is not changed and adapted to its size, the firm can lose momentum and is likely
to eventually fail. The simple structure’s other weakness is that it’s risky: Everything
depends on one person. If anything happens to the owner-manager, the organization’s
information and decision-making center is lost. As employees are added, however, most
small businesses don’t remain as simple structures. The structure tends to become more
specialized and formalized. Rules and regulations are introduced, work becomes
specialized, departments are created, levels of management are added, and the
organization becomes increasingly bureaucratic. Two of the most popular bureaucratic
design options grew out of functional and product departmentalizations and are called the
functional and divisional structures.

WHAT IS THE FUNCTIONAL STRUCTURE? A functional structure is an organizational

design that groups similar or related occupational specialties together. You can think of
this structure as functional departmentalization applied to the entire organization. For
example, Revlon, Inc., is organized around the functions of operations, finance, human
resources, and product research and development.
The strength of the functional structure lies in the advantages that accrue from work
specialization. Putting like specialties together results in economies of scale, minimizes
duplication of personnel and equipment, and makes employees comfortable and satisfied
because it gives them the opportunity to talk the same language as their peers. The most
obvious weakness of the functional structure, however, is that the organization frequently
loses sight of its best interests in the pursuit of functional goals. No one function is totally
responsible for results, so members within individual functions become insulated and have
little understanding of what people in other functions are doing.

WHAT IS THE DIVISIONAL STRUCTURE? The divisional structure is an organizational

structure made up of separate business units or divisions.29 In this structure, each division
has limited autonomy, with a division manager who has authority over his or her unit and
is responsible for performance. In divisional structures, however, the parent corporation
typically acts as an external overseer to coordinate and control the various divisions, and
often provides support services such as financial and legal. Health care giant Johnson &
Johnson, for example, has three divisions: pharmaceuticals, medical devices and
diagnostics, and consumer products. In addition, it has several subsidiaries that also
manufacture and market diverse health care products.
The chief advantage of the divisional structure is that it focuses on results. Division
managers have full responsibility for a product or service. The divisional structure also
frees the headquarters staff from being concerned with day-to-day operating details so that
they can pay attention to long-term and strategic planning. The major disadvantage of the
divisional structure is duplication of activities and resources. Each division, for instance,
may have a marketing research department. If there weren’t any divisions, all of an organi-
zation’s marketing research might be centralized and done for a fraction of the cost that
divisionalization requires. Thus, the divisional form’s duplication of functions increases
the organization’s costs and reduces efficiency.

simple structure functional structure divisional structure

An organizational design with low An organizational design that groups similar or An organizational structure made up of separate
departmentalization, wide spans of control, related occupational specialties together business units or divisions
authority centralized in a single person, and little
formalization