L9

ORGANIZATIONAL
STRUCTURE
AND DESIGN
MIPA, UNTAN 10.1
LEARNING OBJECTIVES
 You should be able to:
 Define organizational structure and organizational

design
 Explain why structure and design are important to

an organization
 Describe the six key elements of organizational

structure
 Differentiate mechanistic and organic

organizational design
 Identify the four contingency factors that influence

organizational design

10.2
LEARNING OBJECTIVES
(CONTINUED)
 You should be able to (continued):
 Describe a simple structure, a functional structure,

and a divisional structure

 Explain team-based structures and why

organizations are using them

 Describe matrix structures, project structures,

autonomous internal units, and boundaryless

organizations
 Explain the concept of a learning organization and

how it influences organizational design

10.3
DEFINING ORGANIZATIONAL
STRUCTURE
 Organizing - the process of creating an
organization’s structure
 Organizational structure - the formal
framework by which job tasks are divided,
grouped, and coordinated
 Organizational design - process of
developing or changing an organization’s
structure

10.4
 KEY ELEMENTS
OF ORGANIZATIONAL DESIGN

Work
Departmentalization
Specialization

Chain Span
of Command of Control

Centralization and
Formalization
Decentralization
10.5
ELEMENTS OF
ORGANIZATIONAL DESIGN
 Work Specialization
 The degree to which tasks in an

organization are divided into separate

jobs

 Too
much specialization has created
human diseconomies.

10.6
ELEMENTS OF ORGANIZATIONAL DESIGN
(CONTINUED)
 Departmentalization
 The basis by which jobs are grouped

together
 functional - groups jobs by functions

performed
 geographical - groups jobs on the

basis of territory or geography

 product - groups jobs by product line

 process - groups jobs on the basis of

product or customer flow

 customer - groups jobs on the basis of

common customers 10.7

ELEMENTS OF ORGANIZATIONAL DESIGN
(CONTINUED)
 Departmentalization (continued)
 Large organizations combine most or all

forms of departmentalization
 Trends

 customer departmentalization is

increasingly being used

better able to monitor and respond to

customer needs
cross-functional teams are becoming

popular 10.8
 FUNCTIONAL
DEPARTMENTALIZATION
(Exhibit 10.2)
Plant Manager

Manager, Manager, Manager, Manager, Manager,

Engineering Accounting Manufacturing Human Resources Purchasing

© 2003 Pearson Education Canada Inc. 10.9

 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
DEPARTMENTALIZATION
(Exhibit 10.2)
Vice President
for Sales

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

Western Region Southern Region Midwestern Region Eastern Region

© 2003 Pearson Education Canada Inc. 10.10

 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 DEPARTMENTALIZATION
(Exhibit 10.2)
Bombardier, Ltd.

Mass Transit Recreational and Utility Rail Products

Sector Vehicles Sector Sector

Mass Transit Recreational Products

Division Division

Bombardier-Rotax Logistic Equipment

(Vienna) Division

Industrial Equipment
Division

Bombardier-Rotax
(Gunskirchen)
© 2003 Pearson Education Canada Inc. 10.11
 Advantages:
 Allows specialization in particular products
and services
 Managers can become experts in their
industry.

 Disadvantages:
 Duplication of functions
 Limited view organizational goals.
PROCESS DEPARTMENTALIZATION
(Exhibit 10.2)

Plant
Superintendent

Lacquering Inspection
Sawing Planning Assembling and Sanding Finishing and Shipping
Department and Milling Department Department Department Department
Manager Department Manager Manager Manager Manager

10.12
 Advantage:
 More efficient flow of work activities.

 Disadvantage:
 Can only be used with certain types of
products.
 CUSTOMER
DEPARTMENTALIZATION
(Exhibit 10.2)
Director
Of Sales

Manager, Manager, Manager,

Retail Accounts Wholesale Accounts Government Accounts

© 2003 Pearson Education Canada Inc. 10.13

 Advantage:
 Customers’ needs and problems can be met
by specialists

 Disadvantages:
 Duplication of functions
 Limited view organizational goals.
ELEMENTS OF ORGANIZATIONAL
DESIGN (CONTINUED)

 Chain of Command
 Continuous line of authority that extends from upper
organizational levels to the lowest levels and 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

 responsibility - the obligation to perform any assigned duties
 unity of command - a person should report to only one manager
 These concepts are less relevant today due to
information technology and employee empowerment

10.14
ELEMENTS OF ORGANIZATIONAL
DESIGN (CONTINUED)

 Span of Control
 Number of employees that a manager can efficiently and
effectively manage
 Determines the number of levels and managers in an

organization
 The wider the span, the more efficient the organization

10.15
 CONTRASTING SPANS OF CONTROL
(EXHIBIT 10.3)
Assuming Span of 4
Assuming Span of 8
1
2 1
3 2
4
Organizational Level

3
5 1 4
1
6 4 5
8
7 16 64
64 512
256 4096
1024
4096
Span of 8
Span of 4 Operatives = 4,096
Operatives = 4,096 Managers (levels 1-4) = 585
Managers (levels 1-6) =
1,365 10.16
ELEMENTS OF ORGANIZATIONAL
DESIGN (CONTINUED)
 Centralization
 The degree to which decision making is

concentrated at a single point in the

organization
 Decentralization
 The degree to which decisions are made by

lower-level employees
 Distinct trend toward decentralized decision

making

10.17
FACTORS INFLUENCING DEGREE OF
CENTRALIZATION OR
DECENTRALIZATION (EXHIBIT 10.4)

10.18
ELEMENTS OF ORGANIZATIONAL
DESIGN (CONTINUED)

 Formalization
 The degree to which jobs within the organization are
standardized
 Extent to which employee behaviour is guided by

rules and procedures

10.19
ORGANIZATIONAL DESIGN DECISIONS
 Mechanistic Organization
 Rigidly and tightly controlled structure
 Tries to minimize the impact of differing human behavior.
 Most large organizations have some mechanistic

characteristics

 Organic Organization
 Highly adaptive and flexible structure
 Permits organization to change when the need arises
 Employees are highly trained and empowered to handle

diverse job activities

 Minimal formal rules and little direct supervision

10.20
MECHANISTIC VERSUS
ORGANIC STRUCTURES

Mechanistic Organic

• High Specialization
• Cross-Hierarchical Teams
• Rigid Departmentalization
• Free Flow of Information
• Clear Chain of Command
• Wide Spans of Control
• Narrow Spans of Control
• Decentralization
• Centralization
• Low Formalization
• High Formalization

10.21
ORGANIZATIONAL DESIGN
DECISIONS (CONTINUED)

 Contingency Factors
 Strategy and Structure - structure

should facilitate the achievement of

goals
 Size and Structure - size affects

structure at a decreasing rate

10.22
ORGANIZATIONAL DESIGN
DECISIONS (CONTINUED)
 Contingency Factors (continued)
 Technology and Structure
 unit production - production of items in units or small
batches
 mass production - production of items in large batches
 process production - production of items in continuous
process
 Mechanistic structure supports routine technology
 Organic structure supports non-routine technology

10.23
 TECHNOLOGY, STRUCTURE, AND
EFFECTIVENESS (Exhibit 10.6)
Unit Mass Process
Production Production Production

Low vertical Moderate vertical High vertical

differentiation differentiation differentiation
Characteristics

Low horizontal High horizontal Low horizontal

Structural

differentiation differentiation differentiation

Low formalization High formalization Low formalization

Most effective Organic Mechanistic Organic

structure

© 2003 Pearson Education Canada Inc. 10.24

ORGANIZATIONAL DESIGN
DECISIONS (CONTINUED)
 Contingency Factors (continued)
 Environmental Uncertainty and Structure
 one way to reduce environmental uncertainty
is to adjust the organization’s structure
 with greater stability, mechanistic

structures are more effective

 the greater the uncertainty, the greater the

need for an organic structure

 organizations are being designed to be

more organic nowadays

10.25
COMMON ORGANIZATIONAL
DESIGNS
 Traditional Organizational Designs
 Simple Structure - low

departmentalization, wide spans of

control, authority centralized in a single
person, and little formalization
 Functional Structure - groups similar or

related occupational specialties

together
 Divisional Structure - composed of

separate divisions
10.26
COMMON ORGANIZATIONAL DESIGNS
(CONTINUED)
 Contemporary Organizational Designs
 Team-Based Structures - entire
organization is made up of work teams
 employee empowerment is crucial
 teams responsible for all work activity and

performance
 complements functional or divisional

structures in large organizations

10.28
COMMON ORGANIZATIONAL DESIGNS
(CONTINUED)
 Contemporary Organizational Designs
 Team-Based Structures - entire
organization is made up of work teams
 employee empowerment is crucial
 teams responsible for all work activity and

performance
 complements functional or divisional

structures in large organizations

10.28
COMMON ORGANIZATIONAL DESIGNS
(CONTINUED)

 Contemporary Organizational Designs (continued)

 Matrix Structure - assigns specialists from

different functional departments to work on

projects led by project managers
 adds vertical dimension to the traditional

horizontal functional departments

 creates a dual chain of command

10.29
A MATRIX ORGANIZATION IN AN
AEROSPACE FIRM (Exhibit 10.8)

© 2003 Pearson Education Canada Inc. 10.30

 COMMON ORGANIZATIONAL DESIGNS
(CONTINUED)
 Contemporary Organizational Designs (continued)
 Project Structure - employees work continuously on
projects
 employees do not return to a functional
department at the conclusion of a project
 all work performed by teams comprised of

employees with appropriate skills and

abilities
 tends to be very fluid and flexible

10.31
 COMMON ORGANIZATIONAL DESIGNS
(CONTINUED)
 Contemporary Organizational Designs (continued)
 Autonomous Internal Units –
independent, decentralized business
units
 each has its own products, clients,
competitors, and profit goals
 business units are autonomous

10.32
 COMMON ORGANIZATIONAL DESIGNS
(CONTINUED)
 Contemporary Organizational Designs (continued)
 Boundaryless Organization - design is not defined by,

or limited to, the horizontal, vertical, or external

boundaries imposed by a predefined structure
 strategic alliances break down barriers between the company and
its customers and suppliers
 seeks to eliminate the chain of command, to have limitless spans
of control, and to replace departments with empowered teams
 flattens the hierarchy by removing vertical boundaries
 horizontal boundaries removed by organizing work around
processes instead of functional departments

10.33
 COMMON ORGANIZATIONAL DESIGNS
(CONTINUED)
 Contemporary Organizational Designs (continued)
 Learning Organization - an organizational mind-set

rather than a specific organizational design

 has developed the capacity to continuously adapt

 all members take an active role in identifying and

resolving work-related issues

 practice knowledge management by continually

acquiring and sharing new knowledge

 environment is conducive to open communication

 empowered teams are important

 leadership creates a shared vision for the future

 organizational culture provides sense of community

10.34
CHARACTERISTICS OF A LEARNING
ORGANIZATION (Exhibit 10.9)
Organizational Design
• Boundaryless
• Teams
• Empowerment

Organizational Culture
• Strong Mutual Information Sharing
Relationships • Open
• Sense of Community The • Timely
• Caring Learning • Accurate
• Trust Organization

Leadership
• Shared Vision
• Collaboration
© 2003 Pearson Education Canada Inc. 10.35