Organizational Structure and

Design

Chapter 5

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 Learning Objectives
1. Tell What are the major elements of
organizational structure?

2. Define What factors affect organizational

structure?

3. Describe Beyond traditional organizational

designs, how else can organizations be
structured?
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 Defining Organizational Structure
• Organizing is the process of creating a structure that
supports the achievement of the organization’s
objectives.
• An organizational structure is how job tasks are
formally divided, grouped, and coordinated within an
organization.
• Structure follows strategy.
– Set the strategy first, and then design the structure to
achieve the strategy.
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 Purposes of Organizing

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 The Major Elements Of
Organizational Structure
1. Work Specialization
2. Departmentalization
• Functional departmentalization
• Product departmentalization
• Geographical departmentalization
3. Chain of Command
• Line and Staff Authority
4. Span of Control
5. Centralization and Decentralization
6. Formalization
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 The Major Elements Of
Organizational Structure
1. Work Specialization
2. Departmentalization
3. Chain of Command
4. Span of Control
5. Centralization and Decentralization
6. Formalization

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 Work Specialization
• The degree to which tasks are subdivided
into separate jobs.
• Individuals specialize in doing part of a job,
rather than the entire job.
• Human diseconomies such as boredom,
fatigue, stress, poor quality, increased
absenteeism, and higher turnover can occur
from overspecialization.

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 Departmentalization
• Functional Departmentalization
– Grouping jobs by functions performed

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 Departmentalization
• Product Departmentalization
– Grouping jobs by product line

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 Departmentalization
• Geographical Departmentalization
– Grouping jobs on the basis of territory or geography

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 Departmentalization
• Process Departmentalization
– Grouping jobs on the basis of product or customer flow

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 Departmentalization
• Customer
– Grouping jobs by type of customer and needs

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 Chain of Command
• A continuous line of authority that extends from
upper organizational levels to the lowest levels
and clarifies who reports to whom.
• Related concepts:
– Authority (Line vs. Staff)
– Responsibility
– Accountability
– Unity of Command
– Delegation
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 Span of Control
• The number of subordinates a manager can
supervise effectively and efficiently
• Span of control determines the levels and number
of managers in an organization.
• Span of control is also affected by:
– Skills and abilities of the manager and employees
– Characteristics of the work being done

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 Contrasting Spans of Control

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 Centralization & Decentralization
• Centralization
– The degree to which decision making is concentrated at a
single point within the organization
– Usually concentrated at upper levels of management
• Decentralization
– Decision-making authority is handed down to lower levels in
the organization.
– Decentralization is also known as employee empowerment.

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 Formalization
• Formalization
– The degree to which jobs are standardized and the level
of discretion that employees enjoy
• Formalized organizations have explicit job
descriptions, lots of organizational rules, and
clearly defined procedures.
• Less formalized organizations allow employees a
lot of freedom to exercise discretion in the way
they do their work.

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 What Factors Affect
Organizational Structure?
Mechanistic versus Organic Organizational Structures

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Mechanistic Organizational Structure

• Characterized by:
– High specialization
– Rigid departmentalization
– Narrow spans of control
– High formalization
– Limited information network
– Limited participation in decision making by employees

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 Organic Organizational Structure

• Characterized by:
– Highly adaptive
– Flexible
– Little work specialization
– Minimal formalization
– Little direct supervision of employees

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 What Factors Affect Organizational
Structure?
• Strategy
– Simple strategy = simple organizational structure
– Complex strategy = complex organizational structure
– Innovation = Organic organizational structure
– Cost control = mechanistic organizational structure
• Size
– Large organizations (>2000 employees) gravitate toward
specialized, departmentalized, formalized and centralized
mechanistic organizational structures.
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 Factors Affecting Organizational
Structure (cont’d)
• Technology
– Unit production = organic organizational structure
– Mass production = mechanistic organizational structure
– Process production = organic organizational structure
• Environment
– The more dynamic and uncertain the environment, the
more flexibility required in the structure.
– The more stable the environment, the more rigid and
mechanistic the organizational structure can be.

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 How Else Can Organizations
be Structured?
Traditional Organizational Designs
– Simple Structure
• Low departmentalization
• Wide spans of control
• Authority is centralized in a single person
• Little formalization
– Functional Structure
• Groups similar or related occupational specialties together
– Divisional Structure
• Contains separate business units

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 Traditional Organizational Designs

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Contemporary Organizational Designs
• Team Structures
• Matrix and Project Structures
• Boundaryless Organizations
• Virtual Organizations
• Network Organizations

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Contemporary Organizational Designs

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 Organizational Design Challenges
• Designing office space
• Keeping employees connected
• Building a learning organization
• Managing global structural issues

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