Basic Organizational Design: Inc. Publishing As Prentice Hall

Basic
Organizational
Design
Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-1
Inc. Publishing as Prentice Hall
Designing Organizational Structure
• Organizing - arranging and structuring work to

accomplish an organization’s goals.
• Organizational Structure - the formal
arrangement of jobs within an organization.
- The formal framework by which job tasks are
divided, grouped, and coordinated
• Organizational chart - the visual
representation of an organization’s structure.
• When managers create or change the structure,
they’re engaged in organizational design
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Exhibit 11-1
Purposes of Organizing
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Designing Organizational Structure
• Organizational Design - a process involving

decisions about six key elements:
• Work specialization
• Departmentalization
• Chain of command
• Span of control
• Centralization and decentralization
• Formalization
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Organizational Structure
• Work specialization - dividing work activities into separate job

tasks
• The degree to which tasks in the organization are divided into
separate jobs with each step completed by a different person
• Individuals specialize in doing part of an activity rather than the
entire activity
• Early proponents of work specialization believed it could lead to
great increases in productivity
• Overspecialization can result in human diseconomies such as
boredom, fatigue, stress, poor quality, increased absenteeism, and
higher turnover.
• An important organizing mechanism, though not a source of ever
increasing productivity
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Departmentalization
• Departmentalization - the basis by which jobs are

grouped together
- There are five common forms of departmentalization
• Functional • Process
– Grouping jobs by functions – Grouping jobs on the basis
performed of product or customer flow
• Product • Customer
– Grouping jobs by product – Grouping jobs by type of
line customer and needs
• Geographical
– Grouping jobs on the basis
of territory or geography
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Departmentalization
• Functional Departmentalization
• Efficiencies from putting together similar specialties and people
with common skills, knowledge and orientations
• Coordination with functional areas
• In-depth specialization
− Disadvantages:
• Poor communication across functional areas
• Limited view of organizational goals
Plant
Manager
Manager, Manager, Manager, Manager, Manager,

Engineerin Accountin Manufacturin Human Purchasin
g g g Resources g
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Departmentalization
• Product Departmentalization
− Advantages:
• Allows specialization in particular products and services
• Managers can become experts in their industry
• Closer to customers
− Disadvantages:
• Duplication of functions
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Departmentalization
• Product
Departmentalization Bombardier, Ltd.
Manager, Recreational and Utility Rail

Retail Accounts Vehicles Sector Products
Secto
r
Mass Transit Recreational

Division Products
Division
Bombardier- Logistic
Rotax(Vienna) Equipment
Division
Industrial
Equipment
Division
Bombadier-
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Rotax
(Gunskirchen
) as Prentice Hall
Inc. Publishing
Departmentalization
• Geographic Departmentalization
− Advantages:
• More effective and efficient handling of specific regional issues that
arise
• Serve needs of unique geographic markets better
− Disadvantages:
• Can feel isolated from other organizational areas
Vice President
for Sales
Sales Director, Sales Director, Sales Director, Sales Director,

Western Region Southern Midwestern Eastern
Region Region Region
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Departmentalization
• Process Departmentalization
− Advantages:
• More efficient flow of work activities
− Disadvantages:
Plant
Superintendent
Planning and Lacquering and Inspection and

Sawing Assembling Finishing
Milling Sanding Shipping
Department Department Department
Department Department department
Manager Manager Manager
Manager Manager Manager
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Departmentalization
• Customer Departmentalization
− Advantages:
• Customers’ needs and problems can be met by specialists
− Disadvantages:
• Can only be used with certain types of products
Director
of
Sales
Manager, Manager, Manager,

Retail Accounts Wholesale Accounts Government Accounts
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Chain of Command
• 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
• Authority - the rights inherent in a
managerial position to tell people what to
do and to expect them to do it.
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Authority (cont.)
• Line authority - authority that entitles a

manager to direct the work of an employee
• Staff authority - positions with some
authority that have been created to
support, assist, and advise those holding
line authority
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Exhibit 11-5
Line Versus Staff Authority
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Responsibility and Unity of Command
• Responsibility - the obligation or expectation to

perform.
• And employees should be held accountable for their
performance! Assigning work authority without responsibility
and accountability can create opportunities for abuse. Likewise,
no one should be held responsible or accountable for work
tasks over which he or she has no authority to complete those
tasks.
• Unity of command - the management principle
that each person should report to only one
manager
• Without unity of command, conflicting demands from multiple
bosses may create problems.
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Span of Control
• Span of Control - the number of employees who can be

effectively and efficiently supervised by a manager.
− determines the number of levels and managers in an organization
− the wider the span, the more efficient the organization
− appropriate span influenced 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
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Contrasting Spans of Control
Members at Each Level
1 1 1
2 4 8
Organizational
3 16 64
4 64 512
Level
5 256 4,096
6 1,024
7 4,096
Span of 4 Span of 8
Operatives = 4,096 Operatives = 4,096
Managers (levels 1-6) = Managers (levels 1-4) = 585
Centralization and Decentralization
• Centralization - the degree to which decision

making is concentrated at upper levels of the
organization
- Top level managers makes decision with little
input from subordinates in a centralized
organization
• Decentralization - the degree to which lower-level

employees provide input or actually make decisions
- Decision making is pushed down to the
managers who are closest to the action
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Centralization and Decentralization
• Employee empowerment - giving employees

more authority (power) to make decisions
• Concept of centralization and decentralization is

relative, not absolute – an organization is never
completely centralized or decentralized
• Distinct trend toward decentralized decision

making
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Factors that influence the amount of centralization & decentralization
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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.
• Standardization – removes the need for employees to
consider alternatives
• Highly formalized jobs offer little discretion over what is to
be done
−Explicit job descriptions
−Clearly defined procedures
• Low formalization means fewer constraints on how
employees do their work
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Mechanistic and Organic Structures
• Mechanistic organization - an organizational design

that’s rigid and tightly controlled
• The mechanistic organization (or bureaucracy) was the natural

result of combining the six elements of structure. Adhering to the
chain-of-command principle ensured the existence of a formal
hierarchy of authority, with each person controlled and supervised
by one superior. Keeping the span of control small at increasingly
higher levels in the organization created tall, impersonal structures.
As the distance between the top and the bottom of the organization
expanded, top management would increasingly impose rules and
regulations. Because top managers couldn’t control lower-level
activities through direct observation and ensure the use of standard
practices, they substituted rules and regulations.
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Mechanistic and Organic Structures
• Organic organization - an organizational design that’s

highly adaptive and flexible
• The organic organization is a highly adaptive form that is as loose

and flexible as the mechanistic organization is rigid and stable.
Rather than having standardized jobs and regulations, the organic
organization’s loose structure allows it to change rapidly as
required. It has division of labor, but the jobs people do are not
standardized. Employees tend to be professionals who are
technically proficient and trained to handle diverse problems. They
need few formal rules and little direct supervision because their
training has instilled in them standards of professional conduct.
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Exhibit 11-8 Mechanistic Versus
Organic Organizations
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Contingency Factors Affecting
Structural Choice
• Structural Contingency Factors
– Top managers of most organizations typically put
a great deal of thought into designing an
appropriate structure. What is the appropriate
structure depends on four contingency variables
• Strategy & Structure
• Size & Structure
• Technology & Structure
• Environmental uncertainty & structure
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Contingency Factors Affecting
Structural Choice
• Strategy and Structure
– Changes in corporate strategy should lead to changes in an
organization’s structure that support the strategy
– Certain structural designs work best with different
organizational strategies
– Strategy focuses on innovation, cost minimization and
imitation
• 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.
• Imitation - Minimizing risks and maximizing profitability by
copying market leaders requires both organic and
mechanistic elements in the organization’s structure.
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Contingency Factors (cont.)
• Size and Structure
- Size affects structure at a decreasing rate
- As an organization grows larger, its structure tends to
change from organic to mechanistic with increased
specialization, departmentalization, centralization, and
rules/regulations.
- Once there are around 2,000 employees in an
organization, it’s already fairly mechanistic. Adding another
500 employees won’t impact the structure much. On the
other hand, adding 500 employees to an organization with
only 300 employees is likely to make it more mechanistic.
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• 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
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• 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.
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Traditional Organizational Designs
• Simple structure - an organizational design

with low departmentalization, wide spans of
control, centralized authority, and little
formalization
• Functional structure - an organizational
design that groups together similar or related
occupational specialties
• Divisional structure - an organizational
structure made up of separate, semiautonomous
units or divisions
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Exhibit 11-10
Traditional Organizational Designs
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Adaptive
Organizational
Design
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Contemporary Organizational Designs
• Team Structure - an organizational structure in

which the entire organization is made up of work
teams
• Matrix Structure - an organizational structure

that assigns specialists from different functional
departments to work on one or more projects
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Exhibit 12-1 Contemporary
Organizational Designs
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Exhibit 12-2
Example of a Matrix Organization
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Contemporary Organizational
Designs (cont.)
• Project Structure - an organizational structure
in which employees continuously work on
projects. As one project is completed,
employees move on to the next project
• Boundaryless Organization - an organization

whose design is not defined by, or limited to, the
horizontal, vertical, or external boundaries
imposed by a predefined structure
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Designs (cont.)
• Virtual Organization -
an organization that
consists of a small
core of full-time
employees and
outside specialists
temporarily hired as
needed to work on
projects.
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Designs (cont.)
• Network Organization - an organization that uses
its own employees to do some work activities and
networks of outside suppliers to provide other
needed product components or work processes.
• This organizational form is sometimes called a
modular organization by manufacturing firms.
• Such an approach allows organizations to
concentrate on what they do best by contracting out
other activities to companies that do those activities
best.
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Designs (cont.)
• Learning Organization - an organization that has
developed the capacity to continuously learn, adapt,
and change
• It is an organizational mindset rather than a specific
organizational design.
A Final Thought
No matter what structural design managers choose for
their organizations, the design should help employees to
do their work in the best – the most efficient and effective
– way they can. The structure should aid and facilitate
organizational members as they carry out organization’s
work.
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Exhibit 12-1 Contemporary
Organizational Designs (cont.)
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Common Organizational Designs
• Characteristics of a Learning Organization
Organizational Design
• Boundaryless
• Teams
• Empowerment
Organizational Culture
• Strong Mutual Information Sharing
Relationships
The • Open
• Sense of Community Learning • Timely
• Caring Organization • Accurate
• Trust
Leadership
• Shared Vision
• Collaboration
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Basic

• Organizing - arranging and structuring work to

• Organizational Design - a process involving

• Work specialization - dividing work activities into separate job

• Departmentalization - the basis by which jobs are

Manager, Manager, Manager, Manager, Manager,

Manager, Recreational and Utility Rail

Mass Transit Recreational

Sales Director, Sales Director, Sales Director, Sales Director,

Planning and Lacquering and Inspection and

Manager, Manager, Manager,

• Chain of Command - the continuous line

• Line authority - authority that entitles a

• Responsibility - the obligation or expectation to

• Span of Control - the number of employees who can be

• Centralization - the degree to which decision

• Decentralization - the degree to which lower-level

• Employee empowerment - giving employees

• Concept of centralization and decentralization is

• Distinct trend toward decentralized decision

• Formalization - the degree to which jobs within the

• Mechanistic organization - an organizational design

• The mechanistic organization (or bureaucracy) was the natural

• Organic organization - an organizational design that’s

• The organic organization is a highly adaptive form that is as loose

• Environmental Uncertainty and Structure

• Simple structure - an organizational design

• Team Structure - an organizational structure in

• Matrix Structure - an organizational structure

• Boundaryless Organization - an organization

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