Org Structure - Comprehensive

What
What Is
Is Organizational
Organizational Structure?
Structure?
Organizational Structure
Defines how job tasks are
formally divided, grouped, Key
KeyElements:
Elements:
and coordinated. 1.1. Work
Workspecialization
specialization
There are six key elements 2.2. Departmentalization
Departmentalization
that managers need to 3.3. Chain
Chainof
ofcommand
command
address when they design
4.4. Span
Spanof
ofcontrol
control
their org.’s structure.
5.5. Centralization
Centralizationand
and
decentralization
decentralization
6.6. Formalization
Formalization
© 2005 Prentice Hall Inc. All rights reserved. 15–1

1-Work
1-Work Specialization…..1
Specialization…..1
The degree to which tasks in the organization are

subdivided into separate jobs.
Division
Divisionof
oflabor:
labor:
• • Makes
Makesefficient
efficientuse
useof
ofemployee
employeeskills
skills
• • Increases
Increasesemployee
employeeskills
skillsthrough
throughrepetition
repetition
• • Less
Lessbetween-job
between-jobdowntime
downtimeincreases
increasesproductivity
productivity
• • Specialized
Specializedtraining
trainingisismore
moreefficient.
efficient.
• • Allows
Allowsuse
useof
ofspecialized
specializedequipment.
equipment.

Division
Division of
of Labor
Labor
 Benefits include:
– Increasing levels of skill
– Less time is wasted moving from job to job
– Training is less costly
– Increased focus
 Adam Smith’s pin factory
– “Men are much more likely to discover easier and readier methods of
attaining any object, when the whole attention of their minds is
directed towards that single object, than when it is dissipated among
a great variety of things.” WON p. 14

1-Work
1-Work Specialization…..2
Specialization…..2
 Work Specialization
– The degree to which tasks in the organization are divided
into separate jobs with each step completed by a different
person. (Adam Smith’s-Division of Labor)
– During the 1st half of the 20th century, managers viewed
work specialization as an unending source of increased
productivity, and , for a time, it was.
– However, by 1960, it became evident that a good thing
could be carried too far.
– The point reached in some jobs where “human
diseconomies” from work overspecialization resulted -
boredom, fatigue, stress, poor quality, increased
absenteeism, and higher turnover – more than offset the
economic advantages.

Economies and Diseconomies of
Work Specialization
High
Impact from
Productivity
human
Impact from diseconomies
economies
of specialization
Low
Low High
Work Specialization
1-Work
1-Work Specialization……Today’s
Specialization……Today’s View……3
View……3
 Most managers today see work specialization as
an important org. mechanism but not as a source
of ever-increasing productivity.
 They recognize the efficiencies it creates in
certain types of jobs, but they also recognize the
problems it creates when it’s carried to extremes.
 McDonald uses high work specialization to
efficiently make & sell its products.
 However, American Express & Ford Australia
have broadened the scope of employees’ jobs &
reduced work specialization.

2-
2- Departmentalization
Departmentalization
The basis by which jobs are grouped together.
Grouping
GroupingActivities
ActivitiesBy:
By:
•• Function
Function
•• Product
Product
•• Geography
Geography
•• Process
Process
•• Customer
Customer

2-
2- Departmentalization
Departmentalization by
by Type
Type
 The basis by which jobs are  Process
grouped together is called…. – Grouping jobs on the
 Functional basis of product or
– Grouping jobs by customer flow
functions performed  Customer
 Product – Grouping jobs by type
– Grouping jobs by of customer and
product line needs
 Geographical
– Grouping jobs on the
basis of territory or
geography

Departmentalization
Functional
Functional
Product
Product
Major
Major
Types
Types
of
of Customer
Customer
Department
Department
Organization
Organization
Geographic
Geographic
Process
Process
© 2005 Prentice Hall Inc. All rights reserved.
22 -Departmentalization…..continued
-Departmentalization…..continued
 Large orgs. Often combine most or all of these
forms of departmentalization.
 For example – a major Japanese electronic firm
organizes each of its divisions along functional
lines, its manufacturing units around processes,
its sales units around seven geographic regions,
and its sales regions into four customer
groupings.

Departmentalization
Departmentalization …..today’s
…..today’s view
view
 Two popular trends today in departmentalization are the
increasing use of customer departmentalization & the use
of cross-functional teams.
 customer departmentalization helps managers better
monitor customers’ needs & respond to changes in those
needs.
 Managers are using cross-functional teams, which are work
teams composed of individuals from various functional
specialties. For example at Ford’s material planning &
logistics division, a cross-functional team with employees
from finance, purchasing, engineering, and quality control
areas and with representatives from outside logistics
suppliers has made several work improvements.

Functional
FunctionalDepartmentalization
Departmentalization
• Advantages
• Efficiencies from putting together similar specialties and
people with common skills, knowledge, and orientations
• Coordination within functional area
• In-depth specialization
• Disadvantages
• Poor communication across functional areas
• Limited view of organizational goals

Geographical
GeographicalDepartmentalization
Departmentalization
• Advantages
• More effective and efficient handling of specific
regional issues that arise
• Serve needs of unique geographic markets better
• Disadvantages
• Duplication of functions
• Can feel isolated from other organizational areas

Product
Product Departmentalization
Departmentalization
+ Allows specialization in particular products and services

+ Managers can become experts in their industry
+ Closer to customers
– Duplication of functions
– Limited view of organizational goals

Process
ProcessDepartmentalization
Departmentalization
+ More efficient flow of work activities

– Can only be used with certain types of products

Customer
CustomerDepartmentalization
Departmentalization
+ Customers’ needs and problems can be met by specialists

- Duplication of functions
- Limited view of organizational goals

33 -- Chain
Chain of
of Command
Command
– The continuous line of authority that extends from

upper levels of an organization to the lowest levels of
the organization and clarifies who reports to whom.
Chain of Command involves three

other concepts:
•Authority
•Responsibility
•Unity of Command

33 -- Chain
Chain of
of Command……continued
Command……continued
 Authority
– Refers to the rights inherent in a managerial position to tell
people what to do and to expect them to do it.
– An org.’s managers, who are in the chain of command, are
granted a certain degree of authority to do their job of
coordinating & overseeing the work of others.
 Responsibility
– The obligation or expectation to perform any assigned duties.
– As managers assign work to employees, those employees
assume an obligation to perform any assigned duty.
 Unity of Command
– The concept that a person should have one boss and should
report only to that person.( Fayol’s 14 Principles of
Management)
– Without unity of command, conflicting demands & priorities
from multiple bosses can create problems.

3-
3- Chain
Chain of
of Command….today’s
Command….today’s view
view
 Early management theorists ( Fayol, Weber, Taylor, & others

) were enamored with the concepts of chain of command,
authority, responsibility, & unity of command.
 However, the above mentioned concepts are considered

less relevant today because of things like IT.
 With computers, employees communicate with anyone with

else anywhere in the org. without going through formal
channels- i.e., chain of command. Moreover, as more orgs.’
use self-managed & cross-functional teams as new org.
designs with multiple bosses are implemented, these
traditional concepts are less relevant.

44 -- Span
Span of
of Control
Control
The number of subordinates a manager can efficiently

and effectively direct.
Concept:
Concept:
Wider
Widerspans
spansof
ofmanagement
managementincrease
increaseorganizational
organizational
efficiency.
efficiency.
Narrow
NarrowSpan
SpanDrawbacks:
Drawbacks:
• •Expense
Expenseof
ofadditional
additionallayers
layersof
ofmanagement.
management.
• •Increased
Increasedcomplexity
complexityof
ofvertical
verticalcommunication.
communication.
• •Encouragement
Encouragementofofoverly
overlytight
tightsupervision
supervisionand
and
discouragement
discouragementof
ofemployee
employeeautonomy.
autonomy.
44 -- Span
Span of
of Control…….cont’d
Control…….cont’d
 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 org.’s information system
• Strength of the org. culture & preferred style of the manager

Contrasting
ContrastingSpans
Spansof
of Control
Control

44 -- Span
Span of
of Control
Control …..today’s
…..today’s view
view
 The trend in recent years has been toward larger
spans of control, which are consistent with
managers’ efforts to reduce costs, speed up
decision making, increase flexibility, get closer to
customers, and empower employees.
 However, to ensure that performance doesn’t
suffer because of these wider spans, orgs. are
investing heavily in employee training.
 Managers recognize that they can handle a wider
span when employees know their jobs well or can
turn to co-workers if they have Qs.

55 -- Centralization
Centralization &
& Decentralization
Decentralization
 Centralization
– The degree to which decision-making is concentrated
at a single point in the organizations.
• Organizations in which top managers make all the
decisions and lower-level employees simply carry out
those orders.
 Decentralization
– Organizations in which decision-making is pushed
down to the managers who are closest to the action.
 Employee Empowerment
– Increasing the decision-making authority (power) of
employees.

Factors
Factorsthat
thatInfluence
Influencethe
theAmount
Amountof
ofCentralization
Centralization
 More Centralization
– Environment is stable.
– Lower-level managers are not as capable or experienced at
making decisions as upper-level managers.
– Lower-level managers do not want to have a say in decisions.
– Decisions are relatively minor.
– Organization is facing a crisis or the risk of company failure.
– Company is large.
– Effective implementation of company strategies depends on
managers retaining say over what happens.

Factors
Factorsthat
thatInfluence
Influencethe
theAmount
Amountof
ofCentralization
Centralization
 More Decentralization
– Environment is complex, uncertain.
– Lower-level managers are capable and experienced at making
decisions.
– Lower-level managers want a voice in decisions.
– Decisions are significant.
– Corporate culture is open to allowing managers to have a say
in what happens.
– Company is geographically dispersed.
– Effective implementation of company strategies depends on
managers having involvement and flexibility to make decisions.

Centralization
Centralization&&Decentralization…….
Decentralization…….Today’s
Today’sview
view
 An org. have had to become more flexible & responsive,

there’s been a distinct trend toward decentralizing decision
making.
 In large companies, especially, lower-level managers are “
closer to the action” & typically have more detailed
knowledge about problems & how best to solve them than
do top managers.
 Honeywell Pacific, which moved from a hierarchical
management structure to one that is much flatter & team-
based.
 Result- increased revenues & more intimate knowledge of
the company’s major customers.

66--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.

Common
Common Organizational
Organizational Designs
Designs
Three of the more common org. designs in use: the simple

structure, the bureaucracy, and the matrix
Simple Structure
A structure characterized by a low degree of departmentalization, wide
spans of control, authority centralized in a single person, and little
formalization.
This structure is most widely practiced in small businesses in which the
manager & the owner are one & the same.
The strength of this structure lies in its simplicity. It is fast, flexible, &
inexpensive to maintain, and accountability is clear.
One major weakness is that it’s difficult to maintain in any other than small
orgs. As org. grows due to its low formalization & high centralization creates
information overload at the top.

Common
Common Organization
Organization Designs
Designs (cont’d)
(cont’d)
Bureaucracy
Standardization! that’s the key concept that underlies all
bureaucracies.
A structure of highly operating routine tasks achieved through
specialization, very formalized rules and regulations, tasks that are
grouped into functional departments, centralized authority, narrow
spans of control, and decision making that follows the chain of
command.
The primary strength of the bureaucracy lies in its ability to perform
standardized activities in a highly efficient manner.
Putting like specialties together in functional depts. results in
economies of scale, minimum duplication of personnel & equipment,
and employees who have the opportunity to talk “ the same language”
among their peers.
The
The Bureaucracy
Bureaucracy
 Strengths  Weaknesses
– Functional – Subunit conflicts with
economies of scale organizational goals
– Minimum duplication – Obsessive concern
of personnel and with rules and
equipment regulations
– Enhanced – Lack of employee
communication discretion to deal
– Centralized decision with problems
making

Common
Common Organization
Organization Designs
Designs (cont’d)
(cont’d)
Matrix Structure
Matrix management is a technique of managing an org.( or, more
commonly, part of an org.) through a series of dual-reporting
relationships instead of a more traditional linear management structure.
In its simplest form, a matrix configuration may be known as a cross-
functional work team, which brings together individuals who report to
different parts of the company in order to complete a particular project
or task.
A structure that creates dual lines of authority and combines functional
and product departmentalization.

Matrix
MatrixStructure
Structure

Matrix
Matrix Structure……continued
Structure……continued
 Matrix structure is used in aerospace firms, R&D
laboratories, construction companies, hospitals,
management consulting firms etc.
 Essentially, the matrix combines two forms of
departmentalization: functional & product.
 The strength of functional departmentalization
lies in putting like specialists together, which
minimizes the number necessary while allowing
the pooling & sharing of specialized resources
across products.
 Its major disadvantage is the difficulty of
coordinating the tasks of diverse functional
specialists so that their activities are completed
on time & within budget.
Matrix
Matrix Structure……continued
Structure……continued
 Product departmentalization, on the other hand, has exactly

the opposite benefits & disadvantages.
 It facilitates coordination among specialties to achieve on-
time completion & meet budget targets.
 It provides clear responsibility for all activities related to a
product, but with duplication of activities & costs.
 The matrix attempts to gain the strengths of each, while
avoiding their weaknesses.
 The most obvious structural characteristic of the matrix is
that it breaks the unity-of-command concept.
 Employees in the matrix have two bosses – their functional
dept. managers & their product managers. Therefore, the
matrix has a dual chain of command.

Matrix
Matrix Structure……continued…advantages
Structure……continued…advantages
 The strength of the matrix lies in its ability to facilitate
coordination when the org. has a multiplicity of complex &
interdependent activities.
 As an org. gets larger, its information-processing capacity
can become over-loaded.
 In a bureaucracy, complexity results in increased
formalization.
 The direct & frequent contact b/w different specialties in the
matrix can make for better communication & more
flexibility.
 Information permeates the org. & more quickly reaches the
people who need to take account of it.
 Matrix reduces “ bureau-pathologies” - the dual lines of
authority reduce the tendencies of dept. members to
become so busy protecting their little worlds that the org’s
overall goals become secondary.

Matrix
Matrix Structure……continued…advantages
Structure……continued…advantages
 Matrix also facilitates the efficient allocation of
specialists.
 When individuals with highly specialized skills
are stuck in one functional dept. or product
group, their talents are monopolized &
underused.
 The matrix achieves the advantages of
economies of scale by providing the org. with
both the best resources & an effective way of
ensuring their efficient deployment.

Matrix
Matrix Structure…conti…disadvantages
Structure…conti…disadvantages
 The major disadvantages of the matrix lie in the confusion
it creates, its propensity to foster power struggles, & the
stress it places on individuals.
 When unity-of-command concept is ignored, ambiguity
increases & ambiguity often leads to conflict.
 Confusion & ambiguity also create the seeds of power
struggles.
 Bureaucracy reduces the potential for power grabs by
defining the rules of the game. When those rules do not
exist, power struggles b/w functional & product managers
result.
 For individuals who desire security & absence from
ambiguity, this work climate can produce stress.
 Reporting to more than one boss introduces role conflict &
unclear expectations introduce role ambiguity.

New
New Design
Design Options
Options
Team Structure
The use of teams as the central device to coordinate
work activities.
Characteristics:
Characteristics:
• •Breaks
Breaksdown
downdepartmental
departmentalbarriers.
barriers.
• •Decentralizes
Decentralizesdecision
decisionmaking
makingto tothe
theteam
teamlevel.
level.
• •Requires
Requiresemployees
employeesto tobe
begeneralists
generalistsasaswell
wellas
as
specialists.
specialists.
• •Creates
Createsaa“flexible
“flexiblebureaucracy.”
bureaucracy.”

New
New Design
Design Options
Options (cont’d)
(cont’d)
Virtual Organization
A small, core organization that outsources its major
business functions.
Highly centralized with little or no
departmentalization.
Concepts:
Concepts:
Advantage:
Advantage:Provides
Providesmaximum
maximumflexibility
flexibilitywhile
while
concentrating
concentratingon
onwhat
whatthe
theorganization
organizationdoes
doesbest.
best.
Disadvantage:
Disadvantage:Reduced
Reducedcontrol
controlover
overkey
keyparts
partsof
of
the
thebusiness.
business.

New
New Design
Design Options
Options (cont’d)
(cont’d)
Boundaryless Organization
General Electric’s former chairman, Jack Welch, wanted to
eliminate vertical & horizontal boundaries within GE & break
down external barriers b/w the company & its customers &
suppliers.
The boundary-less organization seeks to eliminate the chain of
command, have limitless spans of control, and replace
departments with empowered teams.
And because such org. rely so heavily on IT, it is also
sometimes called the T-form ( or technology based) org.

T-form
T-formConcepts:
Concepts:
Eliminate
Eliminatevertical
vertical(hierarchical)
(hierarchical)and
andhorizontal
horizontal
(departmental)
(departmental)internal
internalboundaries.
boundaries.
Breakdown
Breakdownexternal
externalbarriers
barriersto
tocustomers
customersand
and
suppliers.
suppliers.

Why
Why Do
Do Structures
Structures Differ?
Differ?
Mechanistic Model
A structure characterized by extensive
departmentalization, high formalization, a limited
information network, and centralization.
Organic Model
A structure that is flat, uses cross-hierarchical and
cross-functional teams, has low formalization,
possesses a comprehensive information network, and
relies on participative decision making.

Mechanistic
Mechanisticversus
versusOrganic
OrganicOrganization
Organization
• High specialization • Cross-functional teams

• Rigid departmentalization • Cross-hierarchical teams
• Clear chain of command • Free flow of information
• Narrow spans of control • Wide spans of control
• Centralization • Decentralization
• High formalization • Low formalization

Organizational
Organizational Design
Design Decisions
Decisions
 Mechanistic Organization  Organic Organization
– A rigid and tightly – Highly flexible and
controlled structure adaptable structure
• High specialization • Non-standardized jobs
• Rigid • Fluid team-based
departmentalization structure
• Narrow spans of control • Little direct supervision
• High formalization • Minimal formal rules
• Limited information • Open communication
network (downward) network
• Low decision • Empowered employees
participation

Why
Why Do
Do Structures
Structures Differ?
Differ? –– Strategy
Strategy
Innovation Strategy
A strategy that emphasizes the introduction of major
new products and services.
Cost-minimization Strategy
A strategy that emphasizes tight cost controls,
avoidance of unnecessary innovation or marketing
expenses, and price cutting.
Imitation Strategy
A strategy that seeks to move into new products or
new markets only after their viability has already
been proven.
Why
Why Do
Do Structures
Structures Differ?
Differ? –– Size
Size
Size
How the size of an organization affects its structure.
As an organization grows larger, it becomes more
mechanistic.
Characteristics
Characteristicsof
oflarge
largeorganizations:
organizations:
• •More
Morespecialization
specialization
• •More
Morevertical
verticallevels
levels
• •More
Morerules
rulesand
andregulations
regulations

Why
Why Do
Do Structures
Structures Differ?
Differ? –– Technology
Technology
Technology
How an organization transfers its inputs into outputs.
Characteristics
Characteristicsof
ofroutineness
routineness(standardized
(standardizedor
or
customized)
customized)ininactivities:
activities:
• •Routine
Routinetechnologies
technologiesare
areassociated
associatedwith
withtall,
tall,
departmentalized
departmentalizedstructures
structuresand
andformalization
formalizationinin
organizations.
organizations.
• •Routine
Routinetechnologies
technologieslead
leadto
tocentralization
centralizationwhen
when
formalization
formalizationisislow.
low.
• •Nonroutine
Nonroutinetechnologies
technologiesare
areassociated
associatedwith
withdelegated
delegated
decision
decisionauthority.
authority.

Why
Why Do
Do Structures
Structures Differ?
Differ? –– Environment
Environment
Environment
Institutions or forces outside the organization that
potentially affect the organization’s performance.
Key
KeyDimensions-
Dimensions-
• • Capacity:
Capacity:the
thedegree
degreeto
towhich
whichan
anenvironment
environmentcan
can
support
supportgrowth.
growth.
• • Volatility:
Volatility:the
thedegree
degreeof
ofinstability
instabilityininthe
theenvironment.
environment.
• • Complexity:
Complexity:the
thedegree
degreeof
ofheterogeneity
heterogeneityand
and
concentration
concentrationamong
amongenvironmental
environmentalelements.
elements.

“Bureaucracy
“Bureaucracy Is
Is Dead”
Dead”
 Characteristics of  Why Bureaucracy
Bureaucracies Survives
– Specialization – Large size prevails.
– Formalization – Environmental
turbulence can be
– Departmentalization
largely managed.
– Centralization
– Standardization
– Narrow spans of control achieved through hiring
people who have
– Adherence to a chain of
undergone extensive
command.
educational training.
– Technology maintains
control.

Organizational
Designs and
and Employee
Employee
Behavior
Behavior
Research
ResearchFindings:
Findings:
• • Work
Workspecialization
specializationcontributes
contributesto
tohigher
higheremployee
employee
productivity,
productivity,but
butititreduces
reducesjob
jobsatisfaction.
satisfaction.
• • The
Thebenefits
benefitsof
ofspecialization
specializationhave
havedecreased
decreasedrapidly
rapidlyas
as
employees
employeesseek
seekmore
moreintrinsically
intrinsicallyrewarding
rewardingjobs.
jobs.
• • The
Theeffect
effectof
ofspan
spanof
ofcontrol
controlon
onemployee
employeeperformance
performanceisis
contingent
contingentupon
uponindividual
individualdifferences
differencesand
andabilities,
abilities,task
task
structures,
structures,and
andother
otherorganizational
organizationalfactors.
factors.
• • Participative
Participativedecision
decisionmaking
makinginindecentralized
decentralized
organizations
organizationsisispositively
positivelyrelated
relatedto
tojob
jobsatisfaction.
satisfaction.

Common
Common Organizational
Designs
 Traditional Designs
– Simple structure
• Low departmentalization, wide spans of control,
centralized authority, little formalization
– Functional structure
• Departmentalization by function
– Operations, finance, human resources, and product
research and development
– Divisional structure
• Composed of separate business units or divisions with
limited autonomy under the coordination and control the
parent corporation.

Strengths
Strengthsand
andWeaknesses
Weaknessesof
ofTraditional
TraditionalOrganizational
OrganizationalDesigns
Designs

Key
KeyElements:
Elements:
Gains
Gainsthe
theadvantages
advantagesof offunctional
functionaland
and
product
productdepartmentalization
departmentalizationwhile
while
avoiding
avoidingtheir
theirweaknesses.
weaknesses.
Facilitates
Facilitatescoordination
coordinationof ofcomplex
complexand
and
interdependent
interdependentactivities.
activities.
Breaks
Breaksdown
downunity-of-command
unity-of-command
concept.
concept.

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What

© 2005 Prentice Hall Inc. All rights reserved. 15–1

The degree to which tasks in the organization are

© 2005 Prentice Hall Inc. All rights reserved. 15–2

© 2005 Prentice Hall Inc. All rights reserved. 15–3

© 2005 Prentice Hall Inc. All rights reserved. 15–4

© 2005 Prentice Hall Inc. All rights reserved. 15–6

The basis by which jobs are grouped together.

© 2005 Prentice Hall Inc. All rights reserved. 15–7

© 2005 Prentice Hall Inc. All rights reserved. 15–8

© 2005 Prentice Hall Inc. All rights reserved. 15–10

© 2005 Prentice Hall Inc. All rights reserved. 15–11

© 2005 Prentice Hall Inc. All rights reserved. 15–12

© 2005 Prentice Hall Inc. All rights reserved. 15–13

+ Allows specialization in particular products and services

© 2005 Prentice Hall Inc. All rights reserved. 15–14

+ More efficient flow of work activities

© 2005 Prentice Hall Inc. All rights reserved. 15–15

+ Customers’ needs and problems can be met by specialists

© 2005 Prentice Hall Inc. All rights reserved. 15–16

– The continuous line of authority that extends from

Chain of Command involves three

© 2005 Prentice Hall Inc. All rights reserved. 15–17

© 2005 Prentice Hall Inc. All rights reserved. 15–18

 Early management theorists ( Fayol, Weber, Taylor, & others

 However, the above mentioned concepts are considered

 With computers, employees communicate with anyone with

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The number of subordinates a manager can efficiently

– Width of span is affected by:

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 An org. have had to become more flexible & responsive,

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– The degree to which jobs within the organization are

• Highly formalized jobs offer little discretion over what is

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Three of the more common org. designs in use: the simple

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 Product departmentalization, on the other hand, has exactly

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• High specialization • Cross-functional teams

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