McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-1
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-2
Chapter
Organizational Structure and
Design
16
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-3
Organization structure the pattern
of jobs and groups of jobs in an
organization.
It is an important cause of individual
and group behavior.
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-4
The Concept of Organization Structure
Structure as an
influence on
behavior
Structure as
recurring activities
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-5
Organization design management
decisions and actions that result in a
specific organization structure.
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-6
Organizational Design Decisions
1. Managers decide how to divide the overall
task into successively smaller jobs
2. Managers decide the bases by which to group
the jobs
3. Managers decide the appropriate size of the
group reporting to each superior
4. Managers distribute authority among the jobs
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-7
Division of Labor:
Departmentalization:
Span of Control:
High
Low
Homogeneous Heterogeneous
Many Few
Authority:
Low High
Specialization
Basis
Number
Delegation
The Four Key Design Decisions
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-8
Division of Labor
Division of labor concerns the extent
to which jobs are specialized

It is the process of dividing work into
relatively specialized jobs to achieve
advantages of specialization
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-9
Division of Labor Occurs in Three
Different Ways:
1. Personal specialties
e.g., accountants, software engineers, graphic
designers, scientists, etc.
2. Natural sequence of work
e.g., dividing work in a manufacturing plant into
fabricating and assembly (horizontal specialization)
3. Vertical plane
e.g., hierarchy of authority from lowest-level manager
to highest-level manager
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-10
Delegation of Authority
Managers decide how much authority
should be delegated to each job and to
each jobholder

Delegation of authority process of
distributing authority downward in an
organization
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-11
Reasons to Decentralize Authority
1. Relatively high delegation of authority
encourages the development of professional
managers
2. High delegation of authority can lead to a
competitive climate within the organization
3. Managers who have relatively high authority
can exercise more autonomy, and thus satisfy
their desires to participate in problem solving
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-12
Reasons to Centralize Authority (1 of 2)
1. Managers must be trained to make the
decisions that go with delegated authority

2. Many managers are accustomed to making
decisions and resist delegating authority to
their subordinates
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-13
Reasons to Centralize Authority (2 of 2)
3. Administrative costs are incurred because new
control systems must be developed to provide
top management with information about the
effects of subordinates decisions

4. Decentralization means duplication of
functions
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-14
Delegation Decision Guidelines (1 of 2)
How routine and straightforward are the jobs or
units required decisions?
The authority for routine decisions can be
centralized
Are individuals competent to make the decision?
Even if the decision is non-routine, if the local
manager is not capable, then the decision should be
centralized
Delegation of authority can differ among individuals
depending upon each ones ability to make the
decision
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-15
Delegation Decision Guidelines (2 of 2)
Are individuals motivated to make the decision?
Capable individuals are not always motivated
individuals
Motivation must accompany competency to create
conducive conditions for decentralization
Do the benefits of decentralization outweigh its
costs?
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-16
Departmentalization process in
which an organization is
structurally divided by combining
jobs in departments according to
some shared characteristic or
basis.
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-17
Functional Geographic
Product Customer
Departmentalization Bases
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-18
Departmental Bases:
Functional Departmentalization
Jobs are combined according to the functions
of the organization
The principal advantage is efficiency
By having departments of specialists,
management creates efficient units
A major disadvantage is that organizational
goals may be sacrificed in favor of
departmental goals
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-19
Engineering Reliability Finance
Manufacturing Distribution
Human
Resources
Public
Relations
Purchasing
OBM Company
Functional Departmentalization Structure
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-20
Departmental Bases:
Geographic Departmentalization
Establish groups according to geographic
area
The logic is that all activities in a given
region should be assigned to a manager
Advantageous in large organizations
because physical separation of activities
makes centralized coordination difficult
Provides a training ground for managerial
personnel
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-21
Northeast Midwest Southeast Pacific
OBM
Company
Southwest
Geographic Departmentalization Structure
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-22
Departmental Bases:
Product Departmentalization
All jobs associated with producing and selling a
product or product line will be placed under the
direction of one manager
Product becomes the preferred basis as a firm
grows by increasing the number of products it
markets
Concentrating authority, responsibility, and
accountability in a specific product department
allows top management to coordinate actions
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-23
OBM Company
Small
Household
Appliances
Large
Household
Appliances
Commercial
Appliances
Building
Materials and
Products
Lawn and
Garden
Products
Automotive
Products
Product Departmentalization Structure
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-24
Departmental Bases:
Customer Departmentalization
The importance of customer satisfaction has
stimulated firms to search for creative ways to
serve people better

Organizations with customer-based departments
are better able to satisfy customer-identified
needs than organizations that base departments
on non-customer factors
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-25
Retail
Stores
Mail Order
On-Line
Sales
Government
Contracts
OBM
Company
Institutional
Sales
Customer Departmentalization Structure
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-26
Span of Control (1 of 2)
Number of individuals who report to a
specific manager
Narrow span
Wide span

The frequency and intensity of actual
relationships is the critical consideration
in determining the managers span of
control
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-27
Span of Control (2 of 2)
If we shift our attention
from potential to actual
relationships as the bases
for determining optimum
span of control, three
factors appear to be
important:
Key Factors
Required Contact
Degree of
Specialization
Ability to
Communicate
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-28
Dimensions of Structure
Formalization the extent to which expectations
regarding the means and ends of work are
specified, written, and enforced
Centralization the location of decision-making
authority in the hierarchy
Complexity the direct outgrowth of dividing
work and creating departments
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-29
Organization Design Models
The Mechanistic Model
Emphasizes importance
of achieving high levels of
production and efficiency
through:
Extensive use of rules
and procedures
Centralized authority
High specialization of
labor
The Organic Model
Emphasizes importance
of achieving high levels of
production and efficiency
through:
Limited use of rules and
procedures
Decentralized authority
Relatively low degrees of
specialization
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-30
Comparison of Mechanistic and Organic
Structures (1 of 3)
Process Mechanistic Structure Organic Structure
1. Leadership Includes no perceived
confidence and trust between
superiors and subordinates.
Includes perceived confidence
and trust between superiors
and subordinates.
2. Motivation Taps only physical, security,
and economic motives,
through use of fear and
sanctions.
Taps a full range of motives
through participatory methods.
3. Communication Information flows downward
and tends to be distorted,
inaccurate, and viewed with
suspicion by subordinates.
Information flows freely:
upward, downward, and
laterally. The information is
accurate and undistorted.
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-31
Comparison of Mechanistic and Organic
Structures (2 of 3)
Process Mechanistic Structure Organic Structure
4. Interaction Closed and restricted.
Subordinates have little effect
on departmental goals,
methods, and activities.
Open and extensive. Both
superiors and subordinates are
able to affect departmental
goals, methods, and activities.
5. Decision Relatively centralized.
Occurs only at the top of the
organization.
Relatively decentralized.
Occurs at all levels through
group processes.
6. Goal setting Located at the top of the
organization, discouraging
group participation.
Encourages group
participation in setting high,
realistic objectives.
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-32
Comparison of Mechanistic and Organic
Structures (3 of 3)
Process Mechanistic Structure Organic Structure
7. Control Centralized. Emphasizes
fixing blame for mistakes.
Dispersed throughout the
organization. Emphasizes
self-control and problem
solving.
8. Performance
goals
Low and passively sought
by managers, who make no
commitment to developing
the organizations human
resources.
High and actively sought by
superiors, who recognize the
need for full commitment to
developing, through training,
the organizations human
resources.
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-33
Organization Design Models:
The Matrix Model
Matrix organization attempts to maximize
the strengths and minimize the weaknesses
of both the functional and product bases
Superimpose a horizontal structure of
authority, influence, and communication on
the vertical structure
Facilitates the utilization of highly specialized
staff and equipment
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-34



Project or product A

Project or product B

Project or product C

Project or product D

Project or product E
Manufacturing Marketing Engineering Finance
Functions
Projects, products
Example of the Matrix Organization Model
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-35
Advantages of Matrix Organization
Efficient use of resources
Flexibility in conditions of change and uncertainty
Technical excellence
Freeing top management for long-range planning
Improving motivation and commitment
Providing opportunities for personal development
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-36
Task Force
Teams
Product
Managers
Product
Management Depts.
(1)
(2)
(3)
(4)
Evolutionary Steps to the Matrix Model
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-37
Multinational Structure and Design
Multinational corporation consists of a
group of geographically dispersed
organizations with different national
subsidiaries
Multinational corporations frequently exist in
very divergent environments
The most prevalent departmental basis is
geographic
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-38
Multinational Corporations: Implications
for Organizational Design (1 of 2)
1. National boundaries are an important force in
defining organizational environments

2. Subsidiaries or affiliates of multinational
corporations can act as conduits that introduce
changes into the host countrys environment
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-39
Multinational Corporations: Implications
for Organizational Design (2 of 2)
3. Subsidiaries of multinational corporations can
act as conduits through which features of the
host country culture are introduced throughout
the multinational organization
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-40
Virtual Organizations
Virtual organization a collection of
geographically distributed, functionally
and/or culturally diverse aggregations of
individuals that is linked by electronic
forms of communication

Assembled and disassembled according
to needs
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-41
Virtual Organizations:
Factors in Design Considerations
Personnel distributed geographically
Electronically connected
Differences in expertise and function
Culturally diverse
Work schedule differences
Horizontally arranged with little emphasis on
command and control authority
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-42
Virtual Organizations:
Design Implications
Contractual relationships
Constant change and reconfiguration
No rigid boundaries
Flexible
Little or personal and social contact
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-43
Virtual Organizations:
Consequences
Increase in overall communication and messages
Relationships are tenuous
Continual surety of roles, tasks, and assignments
Caution needed in managing feedback,
discussion, performance review, and reward
systems
Greater equity of participation
McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-44
Boundaryless Organizations
Organizations in which:
the hierarchy and chain of command are
minimized
rigidly structured departments are
eliminated

Implemented to reduce barriers between
people and constituencies