Designing

Organizational Structure
Chapter 7

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Learning Objectives
•7-1. Identify the factors that influence managers’ choice of an
organizational structure.

•7-2. Explain how managers group tasks into jobs that are motivating and
satisfying for employees.

•7-3. Describe the types of organizational structures.

•7-4. Explain why managers must coordinate jobs, functions, and divisions
using the hierarchy of authority and integrating mechanisms.

•7-5. Describe how information technology (IT) is helping managers to

increase efficiency and effectiveness.
 Designing Organizational Structure
Organizational
Organizing Organizational Design
Structure
• The process by which • Formal system of task • The process by which
managers establish the and reporting managers make
structure of working relationships that specific organizing
relationships among coordinates and choices
employees to achieve motivates • that result in a
goals organizational particular kind of
members organizational
• so that they work structure
together to achieve
organizational goals
 Factors Affecting Organizational Structure

• Figure 7.1

• Jump to Appendix 1 for long image description.

Topics for Discussion (1 of 5)
• Would a flexible or a more formal structure be appropriate for
these organizations:

• (a) a large department store,

• (b) a Big Four accountancy firm, or

• (c) a biotechnology company?

• Explain your reasoning. [LO 7-1, 7-2]
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 Job Design

Job Design The process by which managers decide how to divide tasks
into specific jobs

Job Simplification The process of reducing the number of tasks that each
worker performs

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

changing the division of labor

Job Enrichment Increasing the degree of responsibility a worker has over a

job
 Job Characteristics Model
Job Characteristic Description
Skill variety Employee uses a wide range of skills.
Task identity Worker is involved in all tasks of the job from the
beginning to end of the production process.

Task significance Worker feels the task is meaningful to organization.

Autonomy Employee has freedom to schedule tasks and carry

them out.
Feedback Worker gets direct information about how well the
job is done.
Topics for Discussion (2 of 5)
• Using the job characteristics model as a guide, discuss how a
manager can enrich or enlarge subordinates’ jobs [LO 7-2]
Grouping Jobs into Functions (1 of 2)
• Functional Structure
An organizational structure composed of all the departments
that an organization requires to produce its goods or services

• Advantages
• Encourages learning from others doing similar jobs
• Easy for managers to monitor and evaluate workers
• Disadvantages
• Difficult for departments to communicate with others
• Preoccupation with own department and losing sight of organizational
goals

• Copyright Tim Boyle/Getty Images

The Functional Structure of Pier 1 Imports

• Figure 7.2

• Jump to Appendix 2 for long image description.

 Divisional Structures
• Divisional Structure
An organizational structure composed of separate business units
within which are the functions that work together to produce a
specific product for a specific customer
Product Structure

Market Structure
Geographic Structure
Each product line Each region of a Each kind of
or business is country or area of customer served
handled by a self- the world is by a self-
contained division served by a self- contained division
contained Also called
division. customer
structure
 • Figure 7.3
Product, Market, and
Geographic Structures
• Advantages

• Allows functional managers to specialize in one product area.

• Division managers become experts in their area.

• Corporate managers do not need direct supervision of the division.

• Divisional management improves the use of resources.

• Jump to Appendix 3 long image
description.
Types of Divisional Structures
• Global Geographic Structure
• Managers locate different divisions in each of the world regions where
the organization operates.
• This structure used when managers are pursuing a multi-domestic
strategy.

• Global Product Structure

Each product division, not the country or regional managers,
takes responsibility for deciding where to manufacture its
products and how to market them in foreign countries.
Global Geographic and Global Product Structures

• Figure 7.4

• Jump to Appendix 4 for long image description.

Topics for Discussion (3 of 5)
• When and under what conditions might managers change
from a functional to

• (a) a product,
• (b) a geographic, or
• (c) a market structure?

• [LO 7-1, 7-3]

 Matrix and Product Team
Structures
• Matrix Structure
• Figure 7.5 An organizational structure
that simultaneously groups
people and resources by
function and product

• Product Team Structure

Employees are permanently
assigned to a cross-
functional team and report
only to the product team
manager or to one of his
• Jump to Appendix 5 for
long image description.
direct subordinates
Exercise

•Find a company you like and define its

type of organizational structure.

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 Product Team Structure

• Cross-Functional Team
Group of managers/employees brought together from
different departments to perform organizational tasks
Topics for Discussion (4 of 5)
• How do matrix structures and product team structures
differ?

• Why is the product team structure more widely used?

• [LO 7-1, 7-3, 7-4]

Coordinating Functions and Divisions
• Authority
The power to hold people accountable for their actions and
to make decisions concerning the use of organizational
resources

• Hierarchy of Authority
An organization’s chain of command, specifying the relative
authority of each manager
Allocating Authority
• Span of Control
The number of subordinates who report directly to a manager

• Line Manager
Someone in the direct line or chain of command who has formal
authority over people and resources

• Staff Manager
Someone responsible for managing a specialist function, such as
finance or marketing
The Hierarchy of Authority and Span of Control
at McDonald’s Corporation
• Figure 7.6

• Jump to Appendix 6 for

long image description.
 Tall and Flat Organizations (1 of 3)
•
• Tall Organization Flat Organization
Fewer levels of authority
Many levels of authority relative to company size
relative to company size
Centralization and Decentralization of Authority

• Decentralizing Authority
Giving lower-level managers and nonmanagerial employees
the right to make important decisions about how to use
organizational resources
 Integrating and Coordinating Mechanisms
• Integrating Mechanisms
Organizing tools that managers can use to increase
communication and coordination among functions and divisions

Types and Examples of

Integrating Mechanisms
Strategic Alliances
• Strategic Alliance
A formal agreement that commits two or more companies to exchange
or share their resources in order to produce and market a product

• B2B Network Structure

A series of strategic alliances that an organization creates with
suppliers, manufacturers, and distributors to produce and market a
product

• Outsource
To use outside suppliers and manufacturers to produce goods and
services
IT, efficiency and effectiveness

• Boundaryless Organization
An organization whose members are linked by computers,
email, computer-aided design systems, video-conferencing
and cloud-based software, and who, rarely, if ever, see one
another face-to-face

• Knowledge Management System

A company-specific virtual information system that
systematizes the knowledge of its employees and facilitates
the sharing and integration of their expertise
Topics for Discussion (5 of 5)
• As high-powered, low-cost wireless technologies continue to
grow, many managers soon may not need to come to an
office to do their jobs but may work at home.

• What are the pros and cons of such an arrangement? [LO 7-

5]
BE THE MANAGER
• Discuss ways in which you can improve how the current functional
structure operates so that it speeds website development.
Thank you!