ORGANIZATIONAL

STRUCTURE AND CHANGE

CP – 201

13-1
Why organizational …
Structure….???

13-2
The 4 Essential Management
Functions
Designing organizational structures is part of organizing,
one of the four basic management functions.

Planning Organizing Leading Controlling

Lead to
Defining Determining Directing Monitoring
goals, estab- what needs and moti- activities Achieving the
lishing to be done, vating all to ensure organization’s
strategy, and how it will involved that they are stated
developing be done, parties and accomplished purpose
subplans to and who is resolving as planned
coordinate to do it conflicts
activities

13-3
Organizing

 The deployment of resources to achieve

strategic goals. It is reflected in:
• The organization’s division of labor that forms jobs
and departments (Who does what?)
• Formal lines of authority (Who reports to who?)
• The mechanisms used for coordinating diverse jobs
and roles in the organization.
 Strategy indicates what needs to be done.
 Organizing shows how to do it.

13-4
Structure Concepts

Hierarchy of Authority: A configuration of the

reporting relationships within organizations; that is,
who reports to whom.
Division of Labor: The process of dividing the many
tasks performed within an organization into
specialized jobs.
Span of Control: The number of subordinates in an
organization who are supervised by an individual
manager.

13-5
Basic Concepts

Organizational Structure: The formal configuration

between individuals and groups with respect to the
allocation of tasks, responsibilities, and authorities
within organizations.
Organizational Chart: A diagram representing the
connections between the various departments within
an organization: a graphic representation of
organizational design.

13-6
Elements of Organizational
Structure

Department- Span of
alization Control

Elements of
Organizational
Structure

Formalization Centralization

13-7
The Vertical Dimension of Organization
Structure: (continued)

 Span of control – the feature of vertical

structure that outlines:
• The number of subordinates who report to a
manager.
• The number of managers.
• The layers of management within an organization.

13-8
Span of Control or Tall vs. Flat
Organizations

13-9
The Vertical Dimension of Organization
Structure: (continued)

 Centralization – the location of decision

authority at the top of the organization
hierarchy.
 Decentralization – the location of decision
authority at lower levels in the organization.
 Formalization – the degree of written
documentation that is used to direct and
control employees.

13-10
The Horizontal Dimension of
Organization Structure:

 The organization structure element that is the basis

for:
• Dividing work into specific jobs and tasks.
• Assigning jobs into units such as departments or
teams.
 Departmentalization:
• Functional
• Divisonal
- Product
- Geograhical
• Matrix
13-11
Functional Organization
Structure

13-12
Advantages and Disadvantages of the
Functional Approach:
Advantages
 Decision authority is
centralized at the top of the
organization hierarchy
 Career paths foster
professional identity with the
business function
 High degree of efficiency
 Economies of scale help
develop specialized
expertise in employees
Disadvantages
 Communication barriers
 Conflict between departments
 Coordination of products and
services is difficult
 Diminished responsiveness to
customers’ needs
 Employees identify with
functional department goals
and not organization goals or
needs of the customer
13-13
Product Based
Organizational Structure

13-14
Advantages and Disadvantages of the
Product Based

Advantages
 Coordination among different
business functions
 Improved and speedier
service
 Accountability for
performance
 Development of general
manager and executive skills
Disadvantages
 Duplication of resources by
two or more departments
 Reduced specialization in
occupational skills
 Competition among divisions

13-15
Simplified Geographic-Based
Organization Structure

P r e s id e n t

U .S . a n d L a t in E u ro p e a n A s ia n
C anada A m e r ic a D iv is io n D iv is io n
D iv is io n D iv is io n

13-16
 PRESIDENT

MANUFAC-
MARKETING RESEARCH FINANCE PLANNING PERSONNEL
TURING

LINE MANAGEMENT

VICE-PRESIDENT VICE-PRESIDENT VICE-PRESIDENT

DOMESTIC DOMESTIC INTERNATIONAL
DIVISION A DIVISION C DIVISION
VICE-PRESIDENT VICE-PRESIDENT
DOMESTIC DOMESTIC
DIVISION B DIVISION D

ASIA/PACIFIC EUROPE/MIDDLE
LATIN AMERICA STAFF
EAST/AFRICA

COUNTRY COUNTRY COUNTRY

SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES

13-17
 PRESIDENT

CORPORATE STAFF

MANUFAC-
MARKETING RESEARCH FINANCE PLANNING PERSONNEL
TURING

LINE MANAGEMENT

AREA MANAGER AREA MANAGER

NORTH AMERICA EUROPE

AREA MANAGER
AREA MANAGER AREA MANAGER FAR EAST
LATIN AMERICA MIDDLE
EAST/AFRICA

Executives with total corporate and worldwide responsibilities. Corporate staff activities on a worldwide basis generally involve
policy matters, strategic planning, basic product planning, functional guidance to line geographic unit, and coordination of
activities between geographic units

Executives with line responsibility for all operations in a particular geographic area
13-18
 PRODUCT STRUCTURE
PRESIDENT

CORPORATE STAFF

PRESIDENT PRESIDENT PRESIDENT PRESIDENT PRESIDENT PRESIDENT PRESIDENT

Latin LINE MANAGEMENT

America
Europe
PRODUCT GROUP PRODUCT GROUP PRODUCT GROUP PRODUCT GROUP
Middle EXECUTIVE EXECUTIVE EXECUTIVE EXECUTIVE
East/Afri
ca
Far East
North
America

Product Group B Product Group C Product Group D

Product Group A
Executives with total corporate and worldwide responsibilities. Corporate staff activities on a worldwide basis involve policy
matters, over-all strategic planning, coordination between product groups, and specialized advice to product groups.

Executives with staff responsibilities in a particular geographic area, chiefly identifying potential investment opportunities and
providing information to individual affiliates and corporate management

Executives with worldwide responsibility for product groups

13-19
Matrix Organization

13-20
 Advantages and Disadvantages of the
Matrix Approach:
Advantages
 Efficient utilization of scarce,
expensive specialists
 Flexibility that allows new
projects to start quickly
 Development of cross-
functional skills by employees
 Increased employee
involvement in management
decisions affecting project or
product assignments
Disadvantages
 Employee frustration and
confusion as a result of the dual
chain of command
 Conflict between product and
functional managers over
deadlines and priorities
 Too much time spent in
meetings to coordinate
decisions
13-21
The Contingency Approach
 The contemporary approach that recognizes that no
one approach to organizational design is best, but
that the best design is the one that best fits with the
existing environmental conditions.
 Mechanistic Organization: An internal organizational
structure in which people perform specialized jobs,
many rigid rules are imposed, and authority is vested
in a few top-ranking officials.
 Organic Organization: An internal organizational
structure in which jobs tend to be very general, there
are few rules, and decisions can be made by lower-
level employees.
 Boundaryless Organization: An organization in which
chains of command are eliminated, spans of control
are unlimited, and rigid departments give way to
empowered teams 13-22
 Mechanistic, Organic, and Boundaryless Designs
Mechanistic Organic Boundaryless
Rigid hierarchical relationships Collaboration (both vertical Collaboration (vertical,
and horizontal) horizontal, customers, suppliers,
competitors)
High formalization Low formalization Low formalization

Top-down communication Informal communication Informal communication

Centralized decision authority Decentralized decision Decentralized decision authority

Narrowly defined specialized
jobs
Emphasis on individuals
working independently
authority
Broadly defined flexible jobs
Emphasis on teams
Broadly defined flexible jobs
Emphasis on teams that also
may cross organization
boundaries

13-23
Mechanistic vs. Organic Designs

13-24
Two Extremes for Organizational Types

Mechanistic Organic
Rigid hierarchical
relationships Vertical and horizontal
collaboration
Fixed duties
Adaptable duties
High formalization
Low formalization
Formalized
communication Informal
channels communication

Centralized Decentralized
decision authority decision authority

13-25
Woodward’s Findings on Technology, Structure,
and Effectiveness

Unit Mass Process

Production Production Production

Structural Low vertical Moderate vertical High vertical

characteristics differentiation differentiation differentiation
Low horizontal High horizontal Low horizontal
differentiation differentiation differentiation
Low High Low
formalization formalization formalization

Most effective Organic Mechanistic Organic

structure

13-26
Design Effectiveness

13-27
Boundaryless Organization

13-28
Boundaryless Organization
An organization in which chains of command
are eliminated, spans of control are unlimited,
and rigid departments give way to
empowered teams.
Modular Organization: An organization that
surrounds itself by a network of other
organizations to which it regularly outsources
noncore functions.
Virtual Organization: A highly flexible,
temporary organization formed by a group of
companies that join forces to exploit a
specific opportunity. 13-29
Technology and Structure

 Technology refers to mechanisms or

processes by which an organization turns out
its product or service
 Two contingencies:
• Variability -- the number of exceptions to standard
procedure that tend to occur.
• Analyzability -- the predictability or difficulty of the
required work

13-30
Organizational Strategy
 Structure follows strategy
• Strategy points to the environments in which the
organization will operate
• Leaders decide which structure to apply

 Differentiation strategy
• Providing unique products or attracting clients who
want customization
 Cost leadership strategy
• Maximize productivity in order to offer competitive
pricing

13-31
Classical vs. Neoclassical Theory
Classical Organizational Theory: The approach that assumes
that there is a single best way to design organizations.
• This approach assumes that managers need to have close
control over their subordinates and calls for designing
organizations with tall hierarchies and a narrow span of
control.
Neoclassical Organizational Theory: An attempt to improve on
the classical organizational theory that argues that not only
economic effectiveness, but also employee satisfaction, should
be goals of an industrial organization.
• This approach assumes that managers do not have to
carefully monitor their subordinates and calls for designing
organizations with flat hierarchies and a wide span of control.

13-32
Classical vs. Neoclassical Theory

13-33
Modern Trends: Delayering

As today’s organizations restructure, the middle layers of organizational hierarchies

tend to get removed. The result is a flatter organizational structure, which puts
managers closer to the issues about which they have to make decisions.

13-34
Inte-rorganizational
Designs
Organizational designs in which two or more
organizations come together.
Conglomerates: A form of organizational
diversification in which an organization (usually a
very large, multinational one) adds an entirely
unrelated business or product to its organizational
design.
Strategic Alliance: A type of interorganizational
design in which two or more separate companies
combine forces to develop and operate a specific
business.

13-35
Continuum of Alliances

13-36