Chapter 7

Designing Adaptive
Organizations
Major Concerns in Organizing
 Division of Labor (Differentiation)
 Coordination (Integration)
 In Reference to the
Organizational Chart,
Organizing Involves:
VERTICAL STRUCTURE
Coordination from Top to Bottom
HORIZONTAL STRUCTURE
Departmentalization
(Who works together?)
 Work Specialization
 Degree to which tasks are subdivided
into individual jobs
 A highly specialized job is narrow in
scope
 Increases efficiency up to a point
 With extreme specialization, workers
tend to become bored and alienated
 Chain of Command

The line of authority, shown in the

organization chart, that links all persons
and shows who reports to whom.

CEO

VP Marketing VP Production VP Finance

 Authority
 Managers have authority because of the positions
they hold (not who they are)
 To be effective, it must be accepted by
subordinates.

Responsibility
 Duty to perform the task an employee has been
assigned
 Authority should be commensurate with
responsibility.
 Delegation
 Process to transfer authority and
responsibility to positions below
 Delegation does not reduce responsibility
 Benefits both the organization and the
individual employee
 Common Practice is to:
 CENTRALIZE (authority at top)
– Accounting
– Finance
– Human Resources Management
– Information Systems
 DECENTRALIZE (much delegation)
– Production
– Marketing
 Span of Management
 Number of employees reporting to a
supervisor
 Tradition has recommended a span of
management of four to seven
subordinates
 What is best depends on the situation
 Departmentalization
Basis for grouping job positions into departments and departments
into the total organization.
 Internal Operations Oriented
– Functional
– Network (Virtual)
 Output Oriented
– Divisional
» Product
» Geographic
» Customer
– Team (Cluster)
 Combinations
– Hybrid (different types at different places in
an org.)
– Matrix (different types at simultaneous at
the same places in an org.)
 Functional Approach
Departments based on similar activities, skills
and resource use.
Advantages: Disadvantages:
 Efficient use of  Poor communication

resources among departments

 Slow response to
 Economies of Scale
external changes
 In-depth skill  Loyalty more to function
specialization than customer or the
whole organization
 Divisional Approach
 Departments are grouped together based
on organizational outputs (e.g., product,
geography, customer)
 Functions (e.g., marketing) are split
among the divisions
 Its advantages and disadvantages tend to
be the opposite of those of the functional
approach
 Divisions
Advantages: Disadvantages:
 Quicker changes in  Duplication
an unstable – Competition for
environment resources among
divisions
 More in touch with
– More managers
customers
needed
 Less professional
specialization
 Matrix Approach
 Functional and divisional chains of
command simultaneously
 Violates the unity of command concept.
 Matrix Structure - Why?
 To get the advantages of both Functional
and Divisional Structures
 Sophisticated technology, fast-changing
environment
 Diverse products and geographical areas
 Disadvantages of Matrix
 Many meetings to coordinate activities
 High conflict between two sides of matrix
 Need for extensive human relations
training
 Team Approach
 Cross-functional teams (Clusters) consist
of employees from various functional
departments
 Teams typically have more decision
making power than previously held by
workers at their levels.
 Team Approach
 Advantages
– Quicker response time
– Better morale
– Reduced administrative overhead
 Disadvantages
– Conflict
– Time and resources spent on meetings
Network (Virtual) Approach
 Organization divides major functions
among separate companies brokered by
a small headquarters organization
 Somewhat like a functional organization.
 Network Approach
 Advantages
– Increases competitiveness, especially of
small firms
– Flexibility
– Reduced Costs
 Disadvantages
– No hands-on control
– Loyalty weakened.
 Traditional vs. Learning
Organizations
 Vertical vs. Horizontal Structural Dominance
 Mechanistic vs. Organic
 Rigid vs. Flexible
 Specialized Jobs vs. Unspecialized
 Boss Control vs. Self-Control
 Centralized Decisions vs. Decentralized
 Bureaucratic vs. Non-bureaucratic
Departmentalization Types

(From most Vertical to most Horizontal)

 Functional
 Functional with integrators, cross-
functional committees, etc.
 Matrix
 Divisional
 Team
When the Vertical Approach is
most Appropriate:
External Environment is: Stable
Growth and Innovation Goals are:
Few or Nonexistent (Internal Stability)
The Organization’s Size is: Large
The Life Cycle Stage is: Late
The Technology is: Mass Production (or
involving low-level skills)
 Service Technology
 Output of the firm is intangible
 Production and consumption are
simultaneous
 Employees have direct contact with
customers
 Tends to be more Horizontal than
manufacturing