MGMT6072

Introduction to Management and Business

Week 3

Designing Organizational Structure - Basic and

Adaptive Designs
1
 Outline

Designing Organizational Structure

Mechanistic and Organic Structures
Contingency Factors Affecting Structural Choice
Traditional Organizational Designs
Contemporary Organizational Designs
Organizing for Collaboration

Flexible Work Arrangements

Contingent Workforce
Today’s Organizational Design Challenges
 Designing
Organizational Structure

• Organizing - arranging and structuring work to

accomplish an organization’s goals.
• 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
 Exhibit 10-1:
Purposes of Organizing
 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.
– Overspecialization can result in human
diseconomies such as boredom, fatigue, stress,
poor quality, increased absenteeism, and higher
turnover.
 Exhibit 10-2:
Economies and
Diseconomies
of Work Specialization
 Departmentalization
by Type

• Functional • Process
– Grouping jobs by – Grouping jobs on the
functions performed basis of product or
• Product customer flow
– Grouping jobs by • Customer
product line – Grouping jobs by type
• Geographical of customer and needs
– Grouping jobs on the
basis of territory or
geography
 Organizational Structure
(cont.)
• Chain of Command - the continuous
line of authority that extends from upper
levels of an organization to the lowest
levels of the organization—clarifies who
reports to whom.
 Organizational Structure
(cont.)
• 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.
• Unity of Command - the concept that a
person should have one boss and
should report only to that person.
 Exhibit 10-3:
The Five Common
Forms of Departmentalization

Bina Nusantara University

 Exhibit 10-3:
The Five Common Forms of
Departmentalization
(cont.)
 Exhibit 10-3:
The Five Common Forms of
Departmentalization
(cont.)
 Exhibit 10-4:
Chain of Command
and Line Authority
 Exhibit 10-5:
Line vs. Staff Authority
 Span of Control
• 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
• Employee characteristics
• Characteristics of the work being done
• Similarity of tasks
• Complexity of tasks
• Physical proximity of subordinates
• Standardization of tasks
• Sophistication of the organization’s information
system
• Strength of the organization’s culture
• Preferred style of the manager
 Exhibit 10-6:
Contrasting Spans of Control
 Centralization

• Centralization - the degree to which

decision making is concentrated at
upper levels in the organization.
• This is common in organizations in which top
managers make all the decisions and lower-
level employees simply carry out those orders.
 Decentralization

• Decentralization - when an organization relegates

decision making to managers who are closest to the
action.
• Employee Empowerment
– Increasing the decision-making authority (power) of employees
 Exhibit 10-7:
Centralization or
Decentralization
 Formalization

• 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.
 Exhibit 10-8:
Mechanistic Versus
Organic Organizations
 Contingency Factors

• Structural decisions are influenced by:

– Overall strategy of the organization
– Size of the organization
– Technology use employed by the organization
– Degree of environmental uncertainty
 Contingency Factors
(cont.)
• Strategy Frameworks:
– Innovation
• Pursuing competitive advantage through
meaningful and unique innovations favors an
organic structuring
– Cost minimization
• Focusing on tightly controlling costs requires a
mechanistic structure for the organization
 Contingency Factors
(cont.)
• 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/regulations.
 Contingency Factors
(cont.)
• Technology and Structure
– Organizations adapt their structures to their
technology.
– Woodward’s classification of firms based on the
complexity of the technology employed:
• Unit production of single units or small batches
• Mass production of large batches of output
• Process production in continuous process of outputs
– Routine technology = mechanistic organizations
– Non-routine technology = organic organizations
 Contingency Factors
(cont.)
• 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.
 Exhibit 10-9:
Woodward’s Findings on
Technology and Structure
 Traditional Designs

• Simple structure
• Low departmentalization, wide spans of control,
centralized authority, little formalization
• Functional structure
• Departmentalization by function
• Operations, finance, marketing, 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
Exhibit 10-10: Traditional
Organizational Designs
 Chapter 6:
Change and Innovation

Learning Outcomes

• Compare and contrast views on the change

process
• Classify types of organizational change
• Explain how to manage resistance to change
• Discuss contemporary issues in managing
change
• Describe techniques for stimulating innovation
 The Change Process

• The Calm Waters Metaphor

– Lewin’s description of the change process as a
break in the organization’s equilibrium state.
• Unfreezing the status quo
• Changing to a new state
• Refreezing to make the change permanent
• White-Water Rapids Metaphor
– The lack of environmental stability and predictability
requires that managers and organizations
continually adapt (manage change actively) to
survive.
 Exhibit 6-1:
External and Internal
Forces for Change
 Organizational Change
and Change Agents

• Organizational Change - any

alterations in the people, structure, or
technology of an organization.
• Change Agents - persons who act as
catalysts and assume the responsibility
for managing the change process.
 Types of
Change Agents
• Managers: internal
entrepreneurs
• Non managers: change
specialists
• Outside consultants: change
implementation experts
 Exhibit 6-2:
The Three-Step
Change Process
 Types of Change

• Structure
– Changing an organization’s structural components or
its structural design
• Technology
– Adopting new equipment, tools, or operating methods
that displace old skills and require new ones
• Automation - replacing certain tasks done by people with
machines
• Computerization
• People
– Changing attitudes, expectations, perceptions, and
behaviors of the workforce
 Organizational
Development
• Organizational Development (OD) -
techniques or programs to change
people and the nature and quality of
interpersonal work relationships.
• Global OD - OD techniques that work
for U.S. organizations may be
inappropriate in other countries and
cultures.
 Exhibit 6-4:
Popular OD Techniques
 Managing Resistance
to Change
• Why People Resist Change
– The ambiguity and uncertainty that change
introduces
– The comfort of old habits
– A concern over personal loss of status, money,
authority, friendships, and personal convenience
– The perception that change is incompatible with
the goals and interest of the organization
Exhibit 6-5: Techniques for
Reducing Resistance
to Change
 Changing
Organizational Culture
• Cultures are naturally resistant to change.
• Conditions that facilitate cultural change:
– The occurrence of a dramatic crisis
– Leadership changing hands
– A young, flexible, and small organization
– A weak organizational culture
 Exhibit 6-6:
Changing Culture
 Stress and Stressors

• Stress - the adverse reaction people have

to excessive pressure placed on them
from extraordinary demands, constraints,
or opportunities.
• Stressors - factors that cause stress.
 What Causes Stress?

• Role Conflicts - work expectations

that are hard to satisfy.
• Role Overload - having more work to
accomplish than time permits.
• Role Ambiguity - when role
expectations are not clearly
understood.
 Personal Factors
Causing Stress
• Type A personality - people
who have a chronic sense of
urgency and an excessive
competitive drive.

• Type B personality - people

who are relaxed and easygoing
and accept change easily.
 Exhibit 6-7:
Symptoms of Stress
 Stimulating Innovation

• Creativity - the ability to combine ideas

in a unique way or to make an unusual
association.
• Innovation - turning the outcomes of
the creative process into useful
products, services, or work methods.
 Stimulating Innovation
(cont.)
• Idea Champions - individuals who
actively and enthusiastically support
new ideas, build support, overcome
resistance, and ensure that
innovations are implemented.
 Structural Variables

• Adopt an organic structure

• Make available plentiful resources
• Engage in frequent inter-unit communication
• Minimize extreme time pressures on creative
activities
• Provide explicit support for creativity
 Cultural Variables

• Accept ambiguity
• Tolerate the impractical
• Have low external controls
• Tolerate risk taking
• Tolerate conflict
• Focus on ends rather than means
• Develop an open-system focus
• Provide positive feedback
 Human Resource
Variables
• Actively promote training and development to
keep employees’ skills current
• Offer high job security to encourage risk taking
• Encourage individuals to be “champions” of
change
 Exhibit 6-10:
Innovation Variables
Thank You