Organizational Structure

and Design

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

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
Establishes relationships among
individuals, groups, and departments
Establishes formal lines of authority
Allocates organizational resources
Cluster jobs in to units

Designing 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

Departmentalization by Type
Functional
Grouping jobs by

functions performed

Product
Grouping jobs by

product line

Geographical
Grouping jobs on

the basis of territory

or geography

Process
Grouping jobs on

the basis of product

or customer flow

Customer
Grouping jobs by

type of customer
and needs

Functional
Departmentalization
Plant Manager

Manager,
Engineering

Manager,
Accounting

Manager,
Manufacturing

Manager,
Human Resources

+ Efficiencies from putting together similar specialties and

people with common skills, knowledge, and orientations
+ Coordination within functional area
+ In-depth specialization
Poor communication across functional areas
Limited view of organizational goals

Manager,
Purchasing

Geographical
Departmentalization
Vice President
for Sales
Sales Director,
Western Region

Sales Director,
Southern Region

Sales Director,
Central 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

Sales Director,
Eastern Region

Product Departmentalization
CEO.

Car
Division

+
+
+

Truck
Division

Bus
Division

Allows specialization in particular products and services

Managers can become experts in their industry
Closer to customers
Duplication of functions
Source: Bombardier Annual Report.
Limited view of organizational goals

Process
Departmentalization
Manager

Spinnin
g

Dyeing

Plant

Weaving

Fininshi
ng

+ More efficient flow of work activities

Can only be used with certain types of products

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

Organizational Structure (contd)

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

Organizational Structure (contd)

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.
Responsibility brings with it accountability (the need
to report and justify work to managers 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

Organizational Structure (contd)

Line and Staff Authority
Line managers are responsible for the

essential activities of the organization,

including production and sales. Line
managers have the authority to issue
orders to those in the chain of command
The

president, the production manager, and the

sales manager are examples of line managers

Staff managers have advisory authority,

and cannot issue orders to those in the

chain of command (except those in their
own department)

Organizational Structure (contd)

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 organizations information system
Strength of the organizations culture
Preferred style of the manager

Organizational Structure (contd)

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

employees

the decision-making discretion of

Organizational Structure (contd)

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

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 lowerlevel 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

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

Structural Contingency Factors

(contd)
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, its
structure tends to change from organic to
mechanistic with increased specialization,
departmentalization, centralization, and
rules and regulations

Structural Contingency Factors

(contd)
Technology and Structure
Organizations adapt their structures to

their technology
Routine technology = mechanistic
organizations
Nonroutine technology = organic
organizations

Structural Contingency Factors

(contd)

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

Organizational Designs

Common Organizational Designs

Traditional Designs
Simple Structure
Low departmentalization, wide spans of control,
centralized authority, little formalization
Functional Structure

Departmentalization by function

Operations, finance, human resources, 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

Organizational Designs (contd)

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, moving

on to another project as each project is completed

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

Organizational Designs (contd)

Contemporary Organizational

Designs (contd)

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 and vertical)
boundaries
Eliminates external boundaries

Organizational Designs
(contd)
Learning Organization
An organization that has developed the capacity

to continuously learn, adapt, 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
organizations future; support; and encouragement
A strong culture of shared values, trust, openness, and
a sense of community

Co-ordination
Linking of two or more organizational

members and/or work units so that they

function well together
Two main types of co-ordination are:
Vertical coordination
Horizontal Coordination

Vertical Coordination:

Linking work units (individual, team,

departments) separated by hierarchical level
Horizontal Coordination:
Linking work units (individual, team,
departments) at the same hierarchical level

Techniques for effective

coordination

Coordination by chain of command

Coordination by leadership
Coordination by committees
Staff meetings
Special Coordinators
Self- coordination

Differentiation
Differences in attitudes and working styles,

arising naturally among members of different

departments,
that
can
complicate
coordination of an organization's activities.

Integration
The degree to which members of various

departments
manner.

work

together

in

unified

Power
The ability to exert influence; that is,
the ability to change the attitudes or
behavior of individuals or groups . A
capacity that A has to influence
the behavior of B so that B acts
in accordance with As wishes.
Dependency
Bs relationship to A
when A possesses
something that B
requires.

Legitimate Power
The power a person receives as a result of his
or her position in the formal hierarchy of an
organization.
Coercive Power
A power base dependent on
fear.
Reward Power
Compliance achieved based
on the ability to distribute
rewards that others view as
valuable

Expert Power
Influence based on
special skills or
knowledge.
Referent Power
Influence based on
possession by an individual
of desirable resources or
personal traits.

Dependency: The Key To

Power
The General Dependency Postulate
The greater Bs dependency on A, the greater the

power A has over B.

Possession/control of scarce organizational resources
that others need makes a manager powerful.
Access to optional resources (e.g., multiple
suppliers) reduces the resource holders power.

What Creates Dependency

Importance of the resource to the organization
Scarcity of the resource
Nonsubstitutability of the resource

Authority (mainly) derives

from
role

Authority is the right to make an ultimate

decision, and in an organisation it refers to
the right to make decisions which are binding
on others (Obholzer, 1994).

Line & Staff Authority

Line authority is the relationship in

which a superior exercises direct

supervision over a subordinate
Staff relationship is advisory

Difference between
Authority & Power
Authority

Power

It is a ability to command &

influence behavior of another

It rests with persons, in their
individual capacities
It doesn't follow any hierarchy
Power, being personalized
attribute, can not be
delegated
Emerges because of personal
factors
May exist between any 2
persons

It is institutional right to

command
It lies in managerial
position
It is hierarchical in nature
It can be delegated
Institutional & originates

from structural relationship

Superior-subordinate
relationship

Delegation
Transfering formal authority from one position

to another is known as delegation

Assign Tasks

Transfer task responsibility

Acceptan
ce
Condition
Accept
Creation of responsibility

Reject

Blocks to effective
delegation
Factors in delegator:
Love for authority
Maintenance of tight control
Fear of subordinates growth
Fear of exposure
Attitude towards subordinates
Personality of superior

Guides for Overcoming Weak

Delegation
1. Define assignments and delegate
2.
3.
4.
5.

authority in light of results expected

Select the person in light of the job to be
done
Maintain open lines of communication
Establish proper controls
Reward effective delegation and
successful assumption of authority

Definition of Staffing
Staffing is filling, and keeping filled, positions

in the organization structure

SITUATIONAL FACTORS AFFECTING

STAFFING
External factors include the level of

education, the prevailing attitudes in society

(such as the attitude toward work), the many
laws and regulations that directly affect
staffing, the economic conditions, and the
supply of and demand for managers outside
the enterprise

SITUATIONAL FACTORS
AFFECTING STAFFING cont.
Internal factors that affect staffing include,

for example, organizational goals, tasks,

technology, organization structure, the
kinds of people employed by the
enterprise, the demand for and the supply
of managers within the enterprise, the
reward system, and various kinds of
policies

Environment
Human
Resource
Planning

Recruitment

Selection

Identification and Selection

of Competent Employees

Decruitment

Orientation

Performance
Management

Training

Compensation
and
Benefits

Adapted and competent

employees with up-to-date
skills and knowledge

Career
Development

Environment

Competent and high-performing employees who

are capable of sustaining high performance over
the long term