Part 3: Organizing

Chapter 5

Basic
Organization
Designs

PowerPoint Presentation by Charlie Cook

Copyright © 2004 Prentice Hall, Inc.
All rights reserved.
 LEARNING OUTCOMES
After reading this chapter, I will be able to:
1. Identify and define the six elements of
organization structure.
2. Describe the advantages and disadvantages of
work specialization.
3. Contrast authority and power.
4. Identify the five different ways by which
management can departmentalize.
5. Contrast mechanistic and organic organizations.
6. Summarize the effect of strategy, size, technology,
and environment on organization structures.

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–2

 L E A R N I N G O U T C O M E S (cont’d)
After reading this chapter, I will be able to:
7. Contrast the divisional and functional
structures.
8. Explain the strengths of the matrix structure.
9. Describe the boundaryless organization and
what elements have contributed to its
development.
10. Explain what is meant by the term learning
organization.
11. Describe what is meant by the term
organization culture.
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–3
 Organization Design and Structure
• Organization design
 A process in which managers develop or change their
organization’s structure
• Work specialization
 A component of organization structure that involves
having each discrete step of a job done by a different
individual rather than having one individual do the
whole job

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–4

 Economies and Diseconomies of Work
Specialization

EXHIBIT 5.1
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–5
 Organizational Structure: Control
• Chain of command
 The management principle that no person should
report to more than one boss
• Span of control
 The number of subordinates a manager can direct
efficiently and effectively

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–6

 Organizational Structure: Control
(cont’d)
• Authority
 The rights inherent in a managerial position to give
orders and expect them to be obeyed
• Power
 An individual’s capacity to influence decisions
• Responsibility
 An obligation to perform assigned activities

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–7

 Types of Organizational Authority
• Line authority
 The position authority (given and defined by the
organization) that entitles a manager to direct the
work of operative employees
• Staff authority
 Positions that have some authority (e.g., organization
policy enforcement) but that are created to support,
assist, and advise the holders of line authority

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–8

 Chain of Command

EXHIBIT 5.2
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–9
 Line Versus Staff Authority

EXHIBIT 5.3
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–10
 Authority Versus Power

EXHIBIT 5.4a
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–11
 Authority Versus Power (cont’d)

EXHIBIT 5.4b
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–12
 Centralization And Decentralization
• Centralization
 A function of how much decision-making authority is
pushed down to lower levels in an organization; the
more centralized an organization, the higher the level
at which decisions are made
• Decentralization
 The pushing down of decision-making authority to the
lowest levels of an organization

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–13

 Types of Power

Coercive power Power based on fear.

Reward power Power based on the ability to distribute
something that others value.
Legitimate power Power based on one’s position in the
formal hierarchy.
Expert power Power based on one’s expertise,
special skill, or knowledge.
Referent power Power based on identification with a
person who has desirable resources or
personal traits.

EXHIBIT 5.5
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–14
 Types of Departmentalization

Functional
Product
Customer
Geographic
Process

EXHIBIT 5 .6
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–15
 Departmentalization
• Functional departmentalization
 The grouping of activities by functions performed
• Product departmentalization
 The grouping of activities by product produced
• Customer departmentalization
 The grouping of activities by common customers
• Geographic departmentalization
 The grouping of activities by territory
• Process departmentalization
 The grouping of activities by work or customer flow

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–16

 Mechanistic and Organic Organizations
• Mechanistic organization
 The bureaucracy; a structure that is high in
specialization, formalization, and centralization
• Organic organization
 An adhocracy; a structure that is low in specialization,
formalization, and centralization

Structure follows strategy

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–17

 Mechanistic versus Organic Organizations

• Rigid hierarchical relationships • Collaboration (both vertical and

• Fixed duties horizontal)
• Many rules • Adaptable duties
• Formalized communication • Few rules
channels • Informal communication
• Centralized decision authority • Decentralized decision authority
• Taller structures • Flatter structures
EXHIBIT 5.7
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–18
 Technology and Structure
• Unit production
 Production in terms of units or small batches
• Mass production
 Production in terms of large batch manufacturing
• Process production
 Production in terms of continuous processing

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–19

 Organization Design Applications
• Simple structure
 An organization that is low in specialization and
formalization but high in centralization
• Functional structure
 An organization in which similar and related
occupational specialties are grouped together
• Divisional structure
 An organization made up of self-contained units

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–20

 Functional Structure

EXHIBIT 5.8
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–21
 Divisional Structure

EXHIBIT 5.9
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–22
 Other Organizational Structures
• Matrix structure
 An organization in which specialists from functional
departments are assigned to work on one or more
projects led by a project manager
• Team-based structure
 An organization that consists entirely of work groups or
teams
• Boundaryless organization
 An organization that is not defined or limited by
boundaries or categories imposed by traditional
structures

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–23

 Sample Matrix Structure

EXHIBIT 5.10
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–24
 Learning Organization
• An organization that has developed the capacity
to continuously adapt and change because all
members take an active role in identifying and
resolving work-related issues.
 Organization design
 Information sharing
 Leadership
 Organizational culture

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–25

 Characteristics of a Learning Organization

Source: Based on P.M. Senge. The Fifth Discipline: The Art and Practice of Learning Organizations (New
York: Doubleday, 1990); and R. M. Hodgetts, F. Luthans and S. M. Lee. “New Paradigm Organizations: EXHIBIT 5.11
From Total Quality to Learning to World Class,” Organizational Dynamics (Winter 1994) pp. 4–19
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–26
 Organization Culture
• Organization culture
 A system of shared meaning within an organization
that determines, to a large degree, how employees
act
 Shared values are shown in cultural elements:
 Stories, rituals, material symbols, and language unique
to the organization
 Results from the interaction between:
 The founders’ biases and assumptions
 What the first employees learn subsequently from their
own experiences.

Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–27

 Ten Characteristics of Organization Culture

• Member identity • Risk tolerance

• Group emphasis • Reward criteria
• People focus • Conflict tolerance
• Unit integration • Means-end orientation
• Control • Open-systems focus

EXHIBIT 5.12
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 5–28