Management

Fifteenth Edition, Global Edition

Chapter 11
Designing Organizational
Structure

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Learning Objectives
1. Describe six key elements in organizational design.
2. Contrast mechanistic and organic structures.
3. Discuss the contingency factors that favor either the
mechanistic model or the organic model of
organizational design.
4. Describe traditional organizational design options.
5. Discuss organizing for flexibility in the twenty-first
century.

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Organizational Design
• Organizing: management function that involves arranging
and structuring work to accomplish the organization’s
goals.
Tasks are allocated among its members, relationships are
identified, and activities are integrated towards a common
objective.
Relationships are established among the employees so that they
can collectively contribute to the attainment of organization goal.
Example:
Its an important process during which managers design an
organization's structure.

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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.
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 Organizational Design
• Organizational structure: the formal arrangement of jobs
within an organization
• Organizational chart: the visual representation of an
organization’s structure
• Organizational design: creating or changing an
organization’s structure. A process that involves
decisions about six key elements: work
specialization, departmentalization, chain of
command, span of control, centralization and
decentralization, and formalization.
 Six elements of Organizational Design
Work Specialization
1. Work specialization: dividing work activities into separate job tasks.
• Individual employees “specialize” in doing part of an activity rather than the
entire activity in order to increase work output and quality.

• Early proponents of work specialization believed it could lead to great

increases in productivity. At the beginning of the twentieth century, that
generalization was reasonable. Because specialization was not widely
practiced, its introduction almost always generated higher productivity. But
11.2 illustrates, a good thing can be carried too far. At some point, the human
diseconomies from division of labor - boredom, fatigue, stress, low
productivity, poor quality, increased absenteeism, and high turnover exceed
the economic advantages.
Exhibit 11.2 Economies and Diseconomies of
Work Specialization

Exhibit 11.2 shows the economies and diseconomies of work specialization.

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

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Exhibit 11.3 The Five Common Forms of
Departmentalization (1 of 3)

Exhibit 11.3 illustrates each type of departmentalization as well as the advantages and
disadvantages of each.

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Exhibit 11.3 The Five Common Forms of
Departmentalization (2 of 3)

Exhibit 11.3 illustrates each type of departmentalization as well as the advantages and
disadvantages of each.

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Exhibit 11.3 The Five Common Forms of
Departmentalization (3 of 3)

Exhibit 11.3 illustrates each type of departmentalization as well as the advantages and
disadvantages of each.

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Today’s View on Departmentalization
• Two trends are:
– Cross-functional teams: a work team composed of
individuals from various functional specialties. This has
become more popular as tasks become more complex.
– Customer departmentalization: emphasizes
monitoring and responding to customers’ needs

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3. Chain of Command
• Chain of command: the line of authority extending from
upper organizational levels to the lowest levels, which
clarifies who reports to whom. In order to understand,
we have to understand three other important concepts-
authority, responsibility, and unity of command.

a. Authority
• Authority: the rights inherent in a managerial
position to tell people what to do and to expect
them to do it.
• Line authority: authority that entitles a manager to direct the
work of an employee.
• It is the employer-employee relationship that extends from the
top of the organization to the lowest echelon, according to the
chain of command.
• A manager with line authority has the right to direct the work of
employees and to make certain decisions without consulting
anyone.
• Staff authority: positions with some authority that have been
created to support, assist, and advise those holding line
authority.
• A human resource management director who cannot effectively
handle managing all the activities the department needs creates a
recruitment department, performance management department,
and compensation and rewards department, which are staff
functions.
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 B. Responsibility
• Responsibility: the obligation or expectation to perform
any assigned duties
• C. Unity of command: the management principle that
each person should report to only one manager

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4. Span of Control
• Span of control: the number of employees a manager can
efficiently and effectively manage

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Exhibit 11.4 Contrasting Spans of Controls

As Exhibit 11.4 shows, if one organization has a span of four and the other a span of eight,
the organization with the wider span will have two fewer levels and approximately 800
fewer managers.

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5. Centralization and Decentralization
• Centralization: the degree to which decision making is
concentrated at upper levels of the organization
• Decentralization: the degree to which lower-level
employees provide input or actually make decisions

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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.
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.
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Employee Empowerment
• Employee empowerment: giving employees more
authority (power) to make decisions

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 6. Formalization
• Formalization: how standardized an organization’s jobs
are and the extent to which employee behavior is guided
by rules and procedures
 In highly formalized organizations, there are explicit job
descriptions, numerous organizational rules, and clearly
defined procedures covering work processes.
 Employees have little discretion over what's done, when
it's done, and how it's done.
 However, where there is less formalization, employees
have more discretion in how they do their work.

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Mechanistic and Organic Structures
• Mechanistic organization: an organizational design that’s
rigid and tightly controlled
• Organic organization: an organizational design that’s
highly adaptive and flexible

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Exhibit 11.6 Mechanistic Versus Organic Organizations

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 Contingency factors affecting structural choice

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.
• The flexibility and free flowing of 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.

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Size and Structure
• There’s considerable evidence that an organization’s size
affects its structure.
• Large organizations typically considered to be those with
more than 2000 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.
• Essentially once there are around 2000 employees, its
already fairly mechanistic. Adding another 500 employees
wont impact the structure much.

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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 Woodward’s Findings on
Technology and Structure
Unit Production Mass Production Process
Production
Structural Low vertical Moderate vertical High vertical
characteristics: differentiation differentiation differentiation
Low horizontal High horizontal Low horizontal
differentiation differentiation differentiation
Low formalization High formalization Low
formalization
Most effective Organic Mechanistic Organic
structure:
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.

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Traditional Organizational Design Options
• Simple structure: an organizational design with little
departmentalization, wide spans of control, centralized
authority, and little formalization
• Functional structure: an organizational design that
groups together similar or related occupational specialties
• Divisional structure: an organizational structure made up
of separate, semiautonomous units or divisions
Simple structure/ Line organization

General Manager

Purchase manager Production manager Sales manager

Instrument Inspector

Foreman 1 Foreman 2 Foreman 3

Workers Workers Workers

Exhibit 11.8 Traditional Organizational Designs

A summary of the strengths and weaknesses of each type of organizational design can be
found in Exhibit 11.8.

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 Contemporary Organizational Designs

Team Structures
• Team structure: an organizational structure in which the
entire organization is made up of work teams

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Team Structure
Matrix and Project Structures
• Matrix structure: an organizational structure that assigns
specialists from different functional departments to work on
one or more projects.
• Project structure: an organizational structure in which employees
continuously work on projects

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Exhibit 11.9 Example of a Matrix Organization

Exhibit 11.9 shows an example of a matrix organization.

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The Boundary less Organization
An organization whose design is not defined by, or limited
to, the horizontal, vertical, or external boundaries
imposed by a predefined structure
The Virtual Organization
• Virtual organization: an organization that consists of a
small core of full-time employees and outside specialists
temporarily hired as needed to work on projects.
• Advantages:
• Improved employee satisfaction
• Improved efficiency
• Flexible hours
• Access to new markets
• Larger hiring market
• Disadvantages
• Difficulty developing company culture
• Increased importance of communication
• Potential compliance and security issues
Telecommuting
• Telecommuting: a work arrangement in which employees
work at home and are linked to the workplace by computer
Compressed Workweeks, Flextime, and Job Sharing

• 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

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The Contingent Workforce
• Contingent workers: temporary, freelance, or contract
workers whose employment is contingent on demand for
their services

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Review Learning Objective 11.1
• 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

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Review Learning Objective 11.2
• Contrast mechanistic and organic structures.
– Mechanistic structure: rigid, tightly controlled
– Organic structure: highly adaptable, flexible

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Review Learning Objective 11.3
• 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.

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Review Learning Objective 11.4
• 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

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Review Learning Objective 11.5
• Discuss organizing for flexibility in the twenty-first
century.
– Structures:
 Team
 Matrix
 Project
– Virtual organization
– Compressed workweeks, flextime, job sharing
– Contingent workforce

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