Part 3: Organizing

Chapter 5

Basic
Organization
Designs

PowerPoint Presentation by Charlie Cook

Copyright 2004 Prentice Hall, Inc.
All rights reserved.
 LEARNING OUTCOMES
After reading this chapter, I will be able to:
1. Identify and define the six elements of
organization structure.
2. Describe the advantages and disadvantages of
work specialization.
3. Contrast authority and power.
4. Identify the five different ways by which
management can departmentalize.
5. Contrast mechanistic and organic organizations.
6. Summarize the effect of strategy, size, technology,
and environment on organization structures.

Copyright 2004 Prentice Hall, Inc. All rights reserved. 52

 L E A R N I N G O U T C O M E S (contd)
After reading this chapter, I will be able to:
7. Contrast the divisional and functional
structures.
8. Explain the strengths of the matrix structure.
9. Describe the boundaryless organization and
what elements have contributed to its
development.
10. Explain what is meant by the term learning
organization.
11. Describe what is meant by the term
organization culture.
Copyright 2004 Prentice Hall, Inc. All rights reserved. 53
 Organization Design and Structure
Organization design
A process in which managers develop or change their
organizations structure
Work specialization
A component of organization structure that involves
having each discrete step of a job done by a different
individual rather than having one individual do the
whole job

Copyright 2004 Prentice Hall, Inc. All rights reserved. 54

 Economies and Diseconomies of Work
Specialization

EXHIBIT 5.1
Copyright 2004 Prentice Hall, Inc. All rights reserved. 55
 Organizational Structure: Control
Chain of command
The management principle that no person should
report to more than one boss
Span of control
The number of subordinates a manager can direct
efficiently and effectively

Copyright 2004 Prentice Hall, Inc. All rights reserved. 56

 Organizational Structure: Control
(contd)
Authority
The rights inherent in a managerial position to give
orders and expect them to be obeyed
Power
An individuals capacity to influence decisions
Responsibility
An obligation to perform assigned activities

Copyright 2004 Prentice Hall, Inc. All rights reserved. 57

 Types of Organizational Authority
Line authority
The position authority (given and defined by the
organization) that entitles a manager to direct the
work of operative employees
Staff authority
Positions that have some authority (e.g., organization
policy enforcement) but that are created to support,
assist, and advise the holders of line authority

Copyright 2004 Prentice Hall, Inc. All rights reserved. 58

 Chain of Command

EXHIBIT 5.2
Copyright 2004 Prentice Hall, Inc. All rights reserved. 59
 Line Versus Staff Authority

EXHIBIT 5.3
Copyright 2004 Prentice Hall, Inc. All rights reserved. 510
 Authority Versus Power

EXHIBIT 5.4a
Copyright 2004 Prentice Hall, Inc. All rights reserved. 511
 Authority Versus Power (contd)

EXHIBIT 5.4b
Copyright 2004 Prentice Hall, Inc. All rights reserved. 512
 Centralization And Decentralization
Centralization
A function of how much decision-making authority is
pushed down to lower levels in an organization; the
more centralized an organization, the higher the level
at which decisions are made
Decentralization
The pushing down of decision-making authority to the
lowest levels of an organization

Copyright 2004 Prentice Hall, Inc. All rights reserved. 513

 Types of Power

Coercive power Power based on fear.

Reward power Power based on the ability to distribute
something that others value.
Legitimate power Power based on ones position in the
formal hierarchy.
Expert power Power based on ones expertise,
special skill, or knowledge.
Referent power Power based on identification with a
person who has desirable resources or
personal traits.

EXHIBIT 5.5
Copyright 2004 Prentice Hall, Inc. All rights reserved. 514
 Types of Departmentalization

Functional
Product
Customer
Geographic
Process

EXHIBIT 5 .6
Copyright 2004 Prentice Hall, Inc. All rights reserved. 515
 Departmentalization
Functional departmentalization
The grouping of activities by functions performed
Product departmentalization
The grouping of activities by product produced
Customer departmentalization
The grouping of activities by common customers
Geographic departmentalization
The grouping of activities by territory
Process departmentalization
The grouping of activities by work or customer flow

Copyright 2004 Prentice Hall, Inc. All rights reserved. 516

 Mechanistic and Organic Organizations
Mechanistic organization
The bureaucracy; a structure that is high in
specialization, formalization, and centralization
Organic organization
An adhocracy; a structure that is low in specialization,
formalization, and centralization

Structure follows strategy

Copyright 2004 Prentice Hall, Inc. All rights reserved. 517

 Mechanistic versus Organic Organizations

Rigid hierarchical relationships Collaboration (both vertical and

Fixed duties horizontal)
Many rules Adaptable duties
Formalized communication Few rules
channels Informal communication
Centralized decision authority Decentralized decision authority
Taller structures Flatter structures
EXHIBIT 5.7
Copyright 2004 Prentice Hall, Inc. All rights reserved. 518
 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

Copyright 2004 Prentice Hall, Inc. All rights reserved. 519

 Organization Design Applications
Simple structure
An organization that is low in specialization and
formalization but high in centralization
Functional structure
An organization in which similar and related
occupational specialties are grouped together
Divisional structure
An organization made up of self-contained units

Copyright 2004 Prentice Hall, Inc. All rights reserved. 520

 Functional Structure

EXHIBIT 5.8
Copyright 2004 Prentice Hall, Inc. All rights reserved. 521
 Divisional Structure

EXHIBIT 5.9
Copyright 2004 Prentice Hall, Inc. All rights reserved. 522
 Other Organizational Structures
Matrix structure
An organization in which specialists from functional
departments are assigned to work on one or more
projects led by a project manager
Team-based structure
An organization that consists entirely of work groups
or teams
Boundaryless organization
An organization that is not defined or limited by
boundaries or categories imposed by traditional
structures
Copyright 2004 Prentice Hall, Inc. All rights reserved. 523
 Sample Matrix Structure

EXHIBIT 5.10
Copyright 2004 Prentice Hall, Inc. All rights reserved. 524
 Learning Organization
An organization that has developed the capacity
to continuously adapt and change because all
members take an active role in identifying and
resolving work-related issues.
Organization design
Information sharing
Leadership
Organizational culture

Copyright 2004 Prentice Hall, Inc. All rights reserved. 525

 Characteristics of a Learning Organization

Source: Based on P.M. Senge. The Fifth Discipline: The Art and Practice of Learning Organizations (New
York: Doubleday, 1990); and R. M. Hodgetts, F. Luthans and S. M. Lee. New Paradigm Organizations: EXHIBIT 5.11
From Total Quality to Learning to World Class, Organizational Dynamics (Winter 1994) pp. 419
Copyright 2004 Prentice Hall, Inc. All rights reserved. 526
 Organization Culture
Organization culture
A system of shared meaning within an organization
that determines, to a large degree, how employees
act
Shared values are shown in cultural elements:
Stories, rituals, material symbols, 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.

Copyright 2004 Prentice Hall, Inc. All rights reserved. 527

 Ten Characteristics of Organization Culture

Member identity Risk tolerance

Group emphasis Reward criteria
People focus Conflict tolerance
Unit integration Means-end orientation
Control Open-systems focus

EXHIBIT 5.12
Copyright 2004 Prentice Hall, Inc. All rights reserved. 528