You are on page 1of 47

Chapter 5

Basic Organization Designs

Chapter 5, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright © 2008 Pearson Education Canada

5-1

LEARNING OUTLINE
Follow this Learning Outline as you read and study this chapter

• Defining Organizational Structure
– Discuss the traditional and contemporary view of work specialization – Describe each of the five forms of departmentalization. – Explain cross-functional teams – Define chain of command, authority, responsibility, and unity of command – Discuss the traditional and contemporary views of chain of command – Discuss the traditional and contemporary views of span of control
Chapter 5, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright © 2008 Pearson Education Canada

5-2

LEARNING OUTLINE (cont’d)
Follow this Learning Outline as you read and study this chapter

Defining Organizational Structure (cont’d)
– Explain what factors influence the amount of centralization and decentralization in an organization

– Explain how formalization is used in organizational design

Organizational Design Decisions
– Contrast mechanistic and organic organizations – Explain the relationship between an organization’s strategy and structure – Explain how an organization’s size affects its structure

Chapter 5, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright © 2008 Pearson Education Canada

5-3

LEARNING OUTLINE (cont’d)
Follow this Learning Outline as you read and study this chapter

Organizational Design Decisions (cont’d)
– Discuss Woodward’s findings on the relationship of technology and structure – Explain how environmental uncertainty affects an organization’s structure

Common Organizational Designs
– Contrast the three traditional organizational designs – Explain team-based, matrix, and project structures – Discuss the design of virtual, network, and modular organizations – Describe the characteristics of a learning organization

Chapter 5, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright © 2008 Pearson Education Canada

5-4

and coordinating work the structure of an organization .Organization Structure The framework for dividing. Organization Design Developments in or changes to assigning.

Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-6 . and Nancy Langton. Stephen P. Mary Coulter.Exhibit 5. Fundamentals of Management. and departments • Establishes formal lines of authority • Allocates and deploys organizational resources Chapter 5. groups.1 Purposes of Organizing • 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. Robbins.

Defining Organizational Structure • Organizational Structure – The formal arrangement of jobs within an organization • Organizational Design – A process involving decisions about six key elements: • • • • • • Work specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization 5-7 Chapter 5. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada . Mary Coulter. Robbins. Stephen P. Fundamentals of Management. and Nancy Langton.

Responsibility) Span of Control Departmentalization .Key Elements of Organization Structure (142) Work Specialization Centralization & Decentralization Formalization Chain of Command (Authority vs.

fatigue.Organizational Structure • Work Specialization – The degree to which tasks in the organization are divided into separate jobs with each step completed by a different person • Overspecialization can result in human diseconomies from boredom. Fundamentals of Management. increased absenteeism. poor quality. and Nancy Langton. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-9 . and higher turnover Chapter 5. Stephen P. stress. Mary Coulter. Robbins.

Fundamentals of Management. Mary Coulter. Stephen P. and Nancy Langton. Robbins. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-10 .Organizational Structure (cont’d) • Formalization – The degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures • Highly formalized jobs offer little discretion over what is to be done • Low formalization means fewer constraints on how employees do their work Chapter 5.

Fundamentals of Management. Robbins. Mary Coulter. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-11 . Stephen P.Organizational Structure (cont’d) • 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 whom Chapter 5. and Nancy Langton.

Responsibility • Rights inherent in managerial position to give orders and expect them to be followed • Related to one’s position-not the characteristics of person • Obligation to perform • Goes hand-in-hand with authority .Authority vs.

. Inc. All rights reserved. • Power – An individual’s capacity to influence decisions. • Responsibility – An obligation to perform assigned activities.Organizational Structure: Control (cont’d) • Authority – The rights inherent in a managerial position to give orders and expect them to be obeyed. 5–13 Copyright © 2005 Prentice Hall.

Coercive Referent Reward Power Expert Legitimate .

Organizational Structure (cont’d) • 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. and Nancy Langton. Mary Coulter. Fundamentals of Management. Stephen P. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-15 . Responsibility brings with it accountability (the need to report and justify work to manager’s superiors) • Unity of Command – The concept that a person should have one boss and should report only to that person • Delegation – The assignment of authority to another person to carry out specific duties Chapter 5. Robbins.

the production manager.Organizational Structure (cont’d) • Line vs. and cannot issue orders to those in the chain of command (except those in their own department) Chapter 5. Line managers have the authority to issue orders to those in the chain of command • The president. Fundamentals of Management. Robbins. p. and Nancy Langton. Staff Authority (Exhibit 5-3. Mary Coulter. and the sales manager are examples of line managers – Staff managers have advisory authority.146) – Line managers are responsible for the essential activities of the organization. including production and sales. Stephen P. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-16 .

Mary Coulter.Organizational Structure (cont’d) • Centralization – The degree to which decision making is concentrated at a single point in the organization • Organizations in which top managers make all the decisions and lower-level employees simply carry out those orders • Decentralization – The degree to which lower-level employees provide input or actually make decisions – Employee Empowerment • Increasing the decision-making discretion of employees Chapter 5. Robbins. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-17 . and Nancy Langton. Stephen P. Fundamentals of Management.

4a Factors that Influence the Amount of Centralization • 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 to have a say in decisions – Decisions are significant – 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 Chapter 5. Mary Coulter. Robbins.Figure 5. Stephen P. Fundamentals of Management. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-18 . and Nancy Langton.

uncertain – Lower-level managers are capable and experienced at making decisions – Lower-level managers want a voice in decisions – Decisions are relatively minor – Corporate culture is open to allowing managers to have a say in what happens – Company is geographically dispersed – Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions Chapter 5. Stephen P. Mary Coulter.Figure 5. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-19 . Robbins. Fundamentals of Management.4b Factors that Influence the Amount of Decentralization • More Decentralization – Environment is complex. and Nancy Langton.

Fifth Canadian Edition Copyright © 2008 Pearson Education Canada . Mary Coulter. Robbins.Organizational Structure (cont’d) • 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 and the employees Characteristics of the work being done Similarity of tasks Complexity of tasks Physical proximity of subordinates Standardization of tasks Sophistication of the organization’s information system Strength of the organization’s culture Preferred style of the manager 5-20 Chapter 5. and Nancy Langton. Fundamentals of Management. Stephen P.

Stephen P.3 Contrasting Spans of Control Members at Each Level (Highest) Organizational Level Assuming Span of 4 1 4 16 64 Assuming Span of 8 1 8 64 512 1 2 3 4 5 6 7 (Lowest) 256 1024 4096 Span of 4: Employees: = 4096 Managers (level 1–6) = 1365 4096 Span of 8: Employees: Managers (level 1–4) = 4096 = 585 Chapter 5. Mary Coulter. Fundamentals of Management. and Nancy Langton.Exhibit 5. Robbins. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-21 .

Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-22 . Robbins. and Nancy Langton. Stephen P. Fundamentals of Management.Departmentalization by Type • Functional – Grouping jobs by functions performed • Process – Grouping jobs on the basis of product or customer flow • Product – Grouping jobs by product line • Customer – Grouping jobs by type of customer and needs • Geographical – Grouping jobs on the basis of territory or geography Chapter 5. Mary Coulter.

Robbins.2a Functional Departmentalization Plant Manager Manager Engineering Manager Manager Manufacturing Manager Human Resources Manager Purchasing Accounting + Efficiencies from putting together similar specialties and people with common skills. Stephen P. Fundamentals of Management. Mary Coulter. knowledge. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-23 . and Nancy Langton.Exhibit 5. and orientations + Coordination within functional area + In-depth specialization – Poor communication across functional areas – Limited view of organizational goals Chapter 5.

Stephen P. Fundamentals of Management. Mary Coulter. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-24 . Robbins.2b Geographical Departmentalization Vice-President for Sales Sales Director Western Region Sales Director Prairies Region Sales Director Central Region Sales Director Eastern Region + More effective and efficient handling of specific regional issues that arise + Serve needs of unique geographic markets better – Duplication of functions – Can feel isolated from other organizational areas Chapter 5.Exhibit 5. and Nancy Langton.

Ltd. Limited view of organizational goals Chapter 5. Fundamentals of Management. and Nancy Langton.Exhibit 5. Stephen P. Mary Coulter. Robbins. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-25 . Mass Transit Sector Recreational & Utility Vehicles Sector Rail Products Sector Rail and Diesel Products Division Mass Transit Division Recreational Products Division Bombardier-Rotax (Vienna) Logistic Equipment Division Industrial Equipment Division Bombardier–Rotax (Gunskirchen) + + + – – Allows specialization in particular products and services Managers can become experts in their industry Closer to customers Duplication of functions Source: Bombardier Annual Report.2c Product Departmentalization Bombardier.

2d Process Departmentalization Plant Superintendent Sawing Department Manager Planning and Milling Department Manager Assembling Department Manager Lacquering and Sanding Department Manager Finishing Department Manager Inspection and Shipping Department Manager + More efficient flow of work activities – Can only be used with certain types of products Chapter 5. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-26 . Stephen P.Exhibit 5. Mary Coulter. Robbins. Fundamentals of Management. and Nancy Langton.

Exhibit 5. Stephen P. Fundamentals of Management. Robbins. and Nancy Langton.2e Customer Departmentalization Director of Sales Manager Retail Accounts Manager Wholesale Accounts Manager Government Accounts + Customers’ needs and problems can be met by specialists – Duplication of functions – Limited view of organizational goals Chapter 5. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-27 . Mary Coulter.

Robbins. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-28 . and Nancy Langton. Mary Coulter.Organizational Design Decisions • Mechanistic Organization – A rigid and tightly controlled structure • • • • • High specialization Rigid departmentalization Narrow spans of control High formalization Limited information network (mostly downward communication) • Low decision participation by lower-level employees • Organic Organization – Highly flexible and adaptable structure • • • • • Nonstandardized jobs Fluid team-based structure Little direct supervision Minimal formal rules Open communication network • Empowered employees Chapter 5. Stephen P. Fundamentals of Management.

Mary Coulter. Robbins. Fundamentals of Management. and Nancy Langton.5 Mechanistic Versus Organic Organization Mechanistic • High Specialization • Rigid Departmentalization • Clear Chain of Command • Narrow Spans of Control • Centralization • High Formalization Organic • Cross-Functional Teams • Cross-Hierarchical Teams • Free Flow of Information • Wide Spans of Control • Decentralization • Low Formalization Chapter 5. Stephen P. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-29 .Exhibit 5.

and Nancy Langton.Structural Contingency Factors • Structural decisions are influenced by: – Overall strategy of the organization • Organizational structure follows strategy – Size of the organization • Firms change from organic to mechanistic organizations as they grow in size – Technology use by the organization • Firms adapt their structure to the technology they use – Degree of environmental uncertainty • Dynamic environments require organic structures. mechanistic structures need stable environments Chapter 5. Robbins. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-30 . Mary Coulter. Stephen P. Fundamentals of Management.

Stephen P. Fundamentals of Management.• Strategy Frameworks: – Innovation Structural Contingency Factors (cont’d) • Pursuing competitive advantage through meaningful and unique innovations favours an organic structuring – Cost minimization • Focusing on tightly controlling costs requires a mechanistic structure for the organization – Imitation • Minimizing risks and maximizing profitability by copying market leaders requires both organic and mechanistic elements in the organization’s structure Chapter 5. Robbins. and Nancy Langton. Mary Coulter. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-31 .

its structure tends to change from organic to mechanistic with increased specialization.Structural Contingency Factors (cont’d) • Strategy and Structure – Achievement of strategic goals is facilitated by changes in organizational structure that accommodate and support change • Size and Structure – As an organization grows larger. Stephen P. and rules and regulations Chapter 5. and Nancy Langton. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-32 . Fundamentals of Management. Robbins. centralization. departmentalization. Mary Coulter.

Structural Contingency Factors (cont’d) • Technology and Structure – Organizations adapt their structures to their technology – Woodward’s classification of firms based on the complexity of the technology employed: • Unit production of single units or small batches • Mass production of large batches of output • Process production in continuous process of outputs – Routine technology = mechanistic organizations – Non–routine technology = organic organizations Chapter 5. and Nancy Langton. Stephen P. Mary Coulter. Robbins. Fundamentals of Management. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-33 .

. All rights reserved.Technology and Structure • Unit production – Production in terms of units or small batches • Mass production – Production in terms of large batch manufacturing • Process production – Production in terms of continuous processing 5–34 Copyright © 2005 Prentice Hall. Inc.

and Nancy Langton.Exhibit 5.6 Woodward’s Findings on Technology. Stephen P. Mary Coulter. and Effectiveness Chapter 5. Fundamentals of Management. Structure. Robbins. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-35 .

Robbins. and Nancy Langton. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-36 . Fundamentals of Management. Mary Coulter.Structural Contingency Factors (cont’d) • Environmental Uncertainty and Structure – Mechanistic organizational structures tend to be most effective in stable and simple environments – The flexibility of organic organizational structures is better suited for dynamic and complex environments Chapter 5. Stephen P.

Fundamentals of Management. centralized authority. and product research and development – Divisional Structure • Composed of separate business units or divisions with limited autonomy under the coordination and control of the parent corporation Chapter 5.Common Organizational Designs • Traditional Designs – Simple Structure • Low departmentalization. little formalization – Functional Structure • Departmentalization by function – Operations. Robbins. wide spans of control. Stephen P. Mary Coulter. and Nancy Langton. finance. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-37 . human resources.

Exhibit 5.7 Strengths and Weaknesses of Common Traditional Organizational Designs Chapter 5. and Nancy Langton. Mary Coulter. Stephen P. Robbins. Fundamentals of Management. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-38 .

Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-39 .Organizational Designs (cont’d) • Contemporary Organizational Designs – Team Structures • The entire organization is made up of work groups or self-managed teams of empowered employees – Matrix Structures • Specialists for different functional departments are assigned to work on projects led by project managers • Matrix participants have TWO managers – Project Structures • Employees work continuously on projects. and Nancy Langton. Robbins. Mary Coulter. Fundamentals of Management. moving on to another project as each project is completed Chapter 5. Stephen P.

Fundamentals of Management. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-40 .Exhibit 5. Robbins.9 A Matrix Organization in an Aerospace Firm Design Engineering Manufacturing Contract Administration Purchasing Accounting Human Resources (HR) Alpha Project Design Group Manufacturing Group Contract Group Purchasing Group Accounting Group HR Group Beta Project Design Group Manufacturing Group Contract Group Purchasing Group Accounting Group HR Group Gamma Project Design Group Manufacturing Group Contract Group Purchasing Group Accounting Group HR Group Omega Project Design Group Manufacturing Group Contract Group Purchasing Group Accounting Group HR Group Chapter 5. Mary Coulter. Stephen P. and Nancy Langton.

Organizational Designs (cont’d) – Boundaryless Organization • A flexible and an unstructured organizational design that is intended to break down external barriers between the organization and its customers and suppliers • Removes internal (horizontal) boundaries: – Eliminates the chain of command – Has limitless spans of control – Uses empowered teams rather than departments • Eliminates external boundaries: – Uses virtual. Fundamentals of Management. Stephen P. and Nancy Langton. and modular organizational structures to get closer to stakeholders Chapter 5. Mary Coulter. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-41 . Robbins. network.

manufacturing) in order to concentrate on what it does best • Modular Organization – A manufacturing organization that uses outside suppliers to provide product components for its final assembly operations Chapter 5. Mary Coulter. Robbins. and Nancy Langton.. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-42 .g.Removing Boundaries • Virtual Organization – An organization that consists of a small core of fulltime 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. Stephen P. Fundamentals of Management.

Robbins.Outsourcing Issues • Problems in Outsourcing – – – – – – – Choosing the wrong activities to outsource Choosing the wrong vendor Writing a poor contract Failing to consider personnel issues Losing control over the activity Ignoring the hidden costs Failing to develop an exit strategy (for either moving to another vendor. or deciding to bring the activity back inhouse) 5-43 Chapter 5. Mary Coulter. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada . and Nancy Langton. Stephen P. Fundamentals of Management.

Fundamentals of Management.Organizational Designs (cont’d) • Learning Organization – An organization that has developed the capacity to continuously learn. and encouragement • A strong culture of shared values. Mary Coulter. and a sense of community Chapter 5. and Nancy Langton. Robbins. trust. adapt. openness. Stephen P. support. and change through the practice of knowledge management by employees – Characteristics of a learning organization: • An open team-based organization design that empowers employees • Extensive and open information sharing • Leadership that provides a shared vision of the organization’s future. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-44 .

and Nancy Langton. Stephen P. Robbins. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-45 . Mary Coulter.Exhibit 5. Fundamentals of Management.10 Characteristics of a Learning Organization Chapter 5.

Robbins. Mary Coulter.8 Contemporary Organizational Designs Chapter 5. Stephen P.Exhibit 5. Fifth Canadian Edition Copyright © 2008 Pearson Education Canada 5-46 . and Nancy Langton. Fundamentals of Management.

material symbols. .160) – A system of shared meaning within an organization that determines. All rights reserved. Inc. rituals. and language unique to the organization – Results from the interaction between: • The founders’ biases and assumptions • What the first employees learn subsequently from their own experiences. to a large degree. p. how employees act – Shared values are shown in cultural elements: • Stories. 5–47 Copyright © 2005 Prentice Hall.Organization Culture • Organization culture (10 Characteristics.