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An organizational structure defines how job tasks are formally divided, grouped, and coordinated. There are six key elements that managers need to address when they design their organization’s structure: work specialization, departmentalization, and formalization. Exhibit 16-1 presents each of these elements as answers to an important structural question. The following sections describe these six elements of structure.
Early in twentieth century, Henry Ford became rich and famous by building automobiles on an assembly line. Every Ford worker was assigned a specific, repetitive task. For instance, one person would just put on the right-front wheel, and someone else would install the right-front door. By breaking jobs up into small standardized tasks, which could be performed over and over again, Ford was able to produce cars at the rate of one every 10 seconds, while using employees who had relatively limited skills. Ford demonstrated that work can be performed more efficiently if employees are allowed to specialize. Today we use the term work specialization, or division of labor, to describe the degree to which activities in the organization are subdivided into separated jobs. The essence of work specialization is the rather than an entire job being done by one individual, it is broke down into a number of steps, with each step being completed by separate individual. In essence, individuals specialize in doing part of an activity rather than entire activity. By the late 1940s, most manufacturing jobs in industrialized countries were being done with high work specialization. Because not all employees in an organization have same skills, management saw specialization as a means to make the most efficient use of its employees’ skills. Managers also saw other efficiencies that could be achieved through work specialization. Employee skills at performing a task successfully increase through repetition. Less time is spent in changing tasks, in putting away one’s tools and equipment from a prior step in the work process, and in getting ready for another. Equally important, training for specialization is more efficient from organization’s perspective. It’s easier and less costly to find and train worker to do specific and repetitive tasks. This is especially true of highly sophisticated and complex operations. For example, could Cessna produce one Citation jet a year if one person had to build the entire plane alone? Not likely! Finally, work specialization increases efficiency and productivity by encouraging the creation of special inventions and machinery. For much of the first half of twentieth century, managers viewed work specialization as an unending source of increased productivity. And they were probably right. Because specialization was not widely practiced, It’s introduction almost always generated higher productivity. But by the 1960s, there came increasing evidence that good thing can be carried too far. The point had be reached in some jobs at which the human diseconomies from
fatigue. Pampers. and Travel and Accommodations. If an organization’s costumers are scattered over a . and so forth. stress. patient care accounting. companies such as Saturn Corporation have had success by broadening the scope of jobs and reducing specialization. Each major product—such as Tide. personnel. for instance. rather than narrowing. A manufacturing manager might organize a plant by separating engineering. Functional departmentalization seeks to achieve economies of scale by placing people with common skills and orientations into common units. they often achieved significantly higher output. the scope of job activities. If an organization’s activities were service related rather than product related. The major advantage to this type of grouping is obtaining efficiencies from putting like specialists together. manufacturing. you need to group these jobs together so that common task can be coordinated.specialization—which surfaced as boredom. each service would be autonomously grouped. You’ll find. or territory. The sales function. for instance. with increased employee satisfaction. In addition. and high turnover—more than offset the economic advantages (see Exhibit 16-2). In such cases. and Pringles—is placed under the authority of an executive who has complete global responsibility for that product. accounting. departmentalizations by functions change to reflect the organization’s objectives and activities. The basis by which jobs are grouped together is called departmentalization. The major advantage to this type of grouping is increased accountability for product performance since all activities related to a specific product are under the direction of a single manager. for example. Of course. managers recognize the economies it provides in certain types of jobs and the problems it creates when it’s carried too far. allowing them to do a whole and complete job. Charmin. low productivity. Departmentalization Once you’ve divided jobs up through work specialization. Most managers today see work specialization as neither obsolete nor an unending source of increased productivity. a department organized around geography. poor quality increased absenteeism. A professional football franchise might have department entitled Player Personnel. and supply specialists into common departments. a number of companies found that by giving employees a variety of activities to do. productivity could be increased by enlarging. is organized along these lines. Each of these regions is. On the other hand. A hospital might have departments devoted to research. One of the most popular ways to group activities is by functions performed. Ticket Sales. Another way to departmentalize is on the basis of geography. and putting them into teams with interchangeable skills. high work specialization being used by McDonald’s to efficiently make and sell hamburgers and fries and by medical specialist in most health maintenance organizations. Procter & Gamble. Rather. may be organized by regions. Jobs can also be departmentalized by the type of product the organization produces. in effect.
It states that a person should have one and only one superior to whom that person is directly responsible. Chain of Command Thirty-five years ago. for instances. The unity-ofcommand principle helps preserve the concept of an unbroken line of authority.large geographic area and have similar needs based on their location. Authority refers to the rights inherent in a managerial position to give orders and expect the orders to be obeyed. It answers questions for employees such as “To whom do I go if I have a problem?” and “To whom am I responsible? You can’t discuss the chain of command without discussing two complementary concepts: authority and unity of command. is organized around four costumer markets: consumers. organizes each of its divisions along functional lines and its manufacturing units around processes. In one state. Microsoft. for instance. As you’ll see. The assumption underlying costumer departmentalization is that costumers in each department have a common set of problems and needs that can best met by having specialists for each. one strong trend has developed over the past decade. as task have become more complex and more diverse skills are needed to accomplish those tasks. each handled by a separate department: (1) validation by motor vehicles division. As we describe in Chapter 10. Process departmentalization can be used for processing costumers as well as products. and small businesses. (2) processing by the licensing department. the chain-of-command concept was a basic cornerstone in the design of organizations. you probably went through several departments before receiving your license. The chain of command is an unbroken line of authority that extends from the top of the organization to the lowest echelon and clarifies who report to whom. management has turned cross-functional teams. applicants must go through three steps. . A major Japanese electronics firm. and (3) payment collection by the treasury department. If you’ve ever been to a state motor vehicle office to get a driver’s your license. To facilitate coordination. Large organizations may use all of forms of departmentalization that we’ve described. large corporations. Rigid. it has far less importance today. A final category of departmentalization is to use the particular type of customer the organization seeks to reach. it departmentalizes sales around seven geographic regions and divides each sales region into four customer groupings. Across organizations of all size. software developers. then this form of departmentalization can be valuable. functional departmentalization is being increasingly complemented by teams that cross over traditional departmental lines. and each manager given a degree of authority in order to meet his or her responsibilities. each managerial position is given a place in the chain of command. But contemporary manager should still consider its implications when they decide how best structure their organization.
They’re consistent with recent efforts by companies to reduce cost. For instance. as already described. Times change. wider spans reduce effectiveness. they make vertical communication in the organization more complex. an employee might have to cope with conflicting demands or priorities from several superiors. The added levels of hierarchy slow down decision making and tend to isolate upper management. a low-level employee today can access information in second that 35 years ago was available only to top managers. it determines the number of levels and managers an organization has. increase flexibility. The trend in recent years has been toward wider spans of control. or small. the concepts of authority and maintaining the chain of command are increasingly less relevant as operating employees are being empowered to make decisions that previously were reserved for management. of course. if one has a uniform span of four and the other a span of eight. they’re expensive because they add levels of management. the wider span would have two fewer levels and approximately 800 fewer managers. All things being equal. . and unity of command have substantially less relevance today because of advancements in information technology and the trend toward empowering employees. speed up decision making. still many organizations that find they can be most productive by enforcing the chain of command. employee performance suffers because supervisors no longer have the time to provide the necessary leadership and support. But narrow spans have three major drawbacks. organizations have been investing heavily in employees know their jobs inside and out or can turn to their coworkers when they have questions.000 a year. Assume that we have two organizations. Narrow. That is. Similarly. There are. the wider of large the span. Moreover.100 operative-level employees. get closer to costumers. spans have their advocates. The concepts of chain of command. when the span becomes to large. the wider span would save $40 million a year in management salaries! Obviously. and empower employees. By keeping the span of control to five or six employees. There just seem to be fewer of them today. to ensure that performance doesn’t suffer because of these wider spans. authority. An example can illustrate the validity of this statement.If the unity of command is broken. each of which has approximately 4. and so do the basic tenets of organizational design. Add to this the popularity of self-managed and cross-functional teams and the creation of new structural designs that include multiple bosses. the more efficiently the organization. to a large degree. Third. However. networked computers increasingly allow employees anywhere in an organization to communicate with anyone else without going through formal channels. First. cut overhead. As Exhibit 16-3 illustrates. If the average manager made $50. a manager can maintain close control. Second. Span of Control How many employees can a manager efficiently and effectively direct? This question of span of control is important because. narrow spans of control encourage overly tight supervision and discourage employee autonomy. and the unity-of-command concept takes on less relevance.
If a job is highly formalized. There are explicit job descriptions. lower-level managers are closer to “the action” and typically have more detailed knowledge about problems than do top managers. Consistent with recent management effort to make organizations more flexible and responsive. the more decentralized from those who make the decisions that affect their work lives.Centralization and Decentralization In some organizations. it’s said that if top management makes the organization’s key decisions with little or no input from lower-level personnel provide input or are actually given the discretion to make decisions. there are clerical and editorial positions in the same publishing houses for which employees are . then the job incumbent has minimum amount of discretion over what is to be done. big retailers such as Sears and JCPenney have given their store managers considerably more discretion in choosing what merchandise to stock. the greater the standardization. the less input the employee has into how the work is to be done. and employees have a great deal of freedom to exercise discretion in their work. resulting in a consistent and uniform output. the latter are decentralized. top managers make all the decisions. and clearly defined procedure covering work process in organizations in which there is high formalization. At the other extreme. lots of organizational rules. Where formalization is low. Formalization Formalization refers to the degree to which jobs within the organization are standardized. and how it is to be done. To concept includes only formal authority—that is. College book travelers—the representatives of publishers who call on professors to uniform them o f their company’s new publications—have a great deal of freedom in their jobs. Employees can be expected always to handle the same input in exactly the same way. Typically. Lower-level managers merely carry out top management’s directives. job behaviors are relatively nonprogrammed. Because an individual’s discretion on the job is inversely related to the amount of behavior in that job that is preprogrammed by the organization. the right inherent in one’s position. are well known to have little formalization. For instance. but it even removes the need for employees to consider alternatives. for instance. The degree of formalization can vary widely between organizations and within organizations. The former organizations are highly centralized. Standardization not only eliminates the possibility of employee engaging in alternative behavior. This allows those stores to complete more effectively against local merchants. They have no standard sales “spiel. there has been a marked trend toward decentralizing decision making. there are organizations in which decision making is pushed down to the managers who are closest to the actions to the action. At the other extreme. In large companies.” and the extent of rules and procedures governing their behavior may be a little more than the requirement that they submit a weekly sales report and some suggestions on what to emphasize for the various new titles. The term centralization refers to the degree to which decision making is concentrated at a single point in the organization. when it is to be done. Certain jobs.
and extra personnel for weekends and holidays. she says. it usually has only two or three vertical levels. the firm often loses momentum and can eventually fail. The simple structure’s other weakness is that it’s . Flexible. cutting corporate overhead by 26 percent. and one individual in whom the decision-making authority is centralized. it’s very difficult for the owner-manager to make all the choices. once at the desk. It becomes increasingly inadequate as an organization grows because its low formalization and high centralization tend to create information overload at the top. authority centralized in a single person. When an organization begin to employ 50 or 100 people.” The strength of simple structure lies in its simplicity. In such times of crisis. It has a low degree of departmentalization. in times of crisis.” But large companies. This. She simplified both. a cashier. and an airline in the midst of a companywide pilot’s strike have in common? They probably all use the simple structure.M. decision making typically becomes slower and can eventually come to a standstill as the single executive tries to continue making add the decisions. For example. The simple structure is said to be characterized most by what it is not rather than by what it is. and accountability is clear. The Simple Structure What do a small retail store. Common organizational design We now turn to describing three of the more common organizational designs found in use: the simple structure. As size increases. its product mix and management structure were overly complex. the bureaucracy. and inexpensive to maintain. If the structure isn’t changed and made more elaborate. It’s fast. is illustrated in Exhibit 16-4. Jack Gold owns and manages this store. often simplify their structures as a means of focusing their resources. and the matrix structure. an organization chart for a retail men’s store. wide spans of control. an electronics firm run by a hard-driving entrepreneur. This often proves to be the undoing of many small businesses. or be docked a half-hour’s pay and. “It’s a case of placing your bets in a few areas. he “runs the show. a loose body of employees. Although he employs five full-time sales people. The simple structure is most widely practiced is small businesses in which the manager and the owner are one and the same. for example. The simple structure is a “flat” organization.required to be at their desks by 8:00 A. One major weakness is that it’s difficult to maintain in anything other than small organizations. when Anne Mulcahy took over Xerox. and little formalization. The simple structure is not elaborate. to follow a set of precise procedures dictated by management.
One heart attack can literally destroy the organization’s information and decision-making centre.risky—everything depends on the one person. .