Organization Structure and Design: Organizing

PART 3
Organizing
CHAPTER 6
Organization
Structure and
Design
© 2019 Cengage. All rights reserved.

Learning Objectives
After studying this chapter, you should be able to:
1. Identify the basic elements of organizations.
2. Describe the bureaucratic perspective on organization
design.
3. Identify and explain key situational influences on
organization design.
4. Describe the basic forms of organization design that
characterize many organizations.
5. Identify and describe emerging issues in organization
design.

Discussion Starter (1)
• Treehouse Island Inc. produces courses in web

development and programming and business
education, using such tools as videos and
interactive code challenges to teach students a
range of technology-related skills. Ryan Carson
and Alan Johnson decided to make Treehouse
a manager-less company.
– Morningstar Farms, Sun Hydraulics, and Zappos are
examples of companies that successfully operate
without any managers. What do you think some
benefits and drawbacks of working for such a
company would be?

6-1 The Basic Elements of Organizing
• Organization structure and design

– The overall set of elements that can be used to
configure an organization

6-1a Job Specialization (slide 1 of 5)
• Job specialization
– The degree to which the overall task of the
organization is broken down and divided into smaller
component parts
– To watch Mary Sue Milliken of Border Grill talk about
job specialization in the restaurant industry, visit
YouTube (
https://www.youtube.com/watch?v=TJzdIqoioZY).

• Benefits of • Limitations of
Specialization Specialization
– Workers can become – Workers who perform
proficient at a task. highly specialized jobs
– Transfer time between quickly become bored and
tasks is decreased. dissatisfied.
– Specialized equipment – Anticipated benefits of
can be more easily specialization do not
developed. always occur.
– Employee replacement
becomes easier.

• Alternatives to Specialization
– Job rotation
• An alternative to job specialization that involves
systematically moving employees from one job to another
– Job enlargement
• An alternative to job specialization that increases the total
number of tasks that workers perform
– Job enrichment
• An alternative to job specialization that attempts to increase
both the number of tasks a worker does and the control the
worker has over the job

• Alternatives to Specialization
– Job characteristics approach
• An alternative to job specialization that suggests that jobs
should be diagnosed and improved along five core
dimensions, taking into account both the work system and
employee preferences

Job Characteristics Approach:
Core Dimensions (slide 1 of 2)
Skill variety The number of things a person does in a job
The extent to which the worker does a complete or

Task identity
identifiable portion of the total job
Task significance The perceived importance of the task
The degree of control the worker has over how the work
Autonomy
is performed
The extent to which the worker knows how well the job
Feedback
is being performed

Job Characteristics Approach:
Core Dimensions (slide 2 of 2)
• Divide into small groups. Select a job you
observe regularly (e.g., retail clerk, fast-food
worker). Describe how much each of the five
core job dimensions is likely to exist now in that
job and how the job might be changed to
improve the core dimensions.

FIGURE 6.1 The Job Characteristics Approach

• Work teams
– An alternative to job specialization that allows an
entire group to design the work system it will use to
perform an interrelated set of tasks

6-1b Grouping Jobs: Departmentalization
• Departmentalization
– The process of grouping jobs according to some
logical arrangement

Functional Departmentalization
Grouping jobs involving the same or similar activities
• Advantages • Disadvantages
– Each department can be staffed – Decision making tends to
by experts in that functional become slower and more
area. bureaucratic.
– Supervision is facilitated – Employees may begin to
because an individual manager concentrate too narrowly on
needs to be familiar only with a their own function and lose sight
relatively narrow set of skills. of the total organizational
– Coordinating activities inside system.
each department is easier. – Accountability and performance
become increasingly difficult to
monitor.

Product Departmentalization
Grouping activities around products or product

groups
– All activities associated with one – Managers in each department
product or product group can be may focus on their own product
easily integrated and or product group to the
coordinated. exclusion of the rest of the
– The speed and effectiveness of organization.
decision making are enhanced. – Administrative costs rise
– The performance of individual because each department must
products or product groups can have its own functional-area
be assessed more easily and specialists.
objectively.

Customer Departmentalization
Grouping activities to respond to and interact with

specific customers or customer groups
• Advantage • Disadvantage
– Skilled specialists can deal – A fairly large administrative
with unique customers or staff is required to integrate
customer groups. activities of various
departments.

Location Departmentalization
Grouping jobs on the basis of defined geographic

sites or areas
• Advantage • Disadvantage
– It enables the organization – A large administrative staff
to respond easily to unique may be required to keep
customer and environmental track of units in scattered
characteristics. locations.

6-1c Establishing Reporting Relationships
(slide 1 of 3)
• Chain of command
– A clear and distinct line of authority among the
positions in an organization
– The chain of command has two components:
1. Unity of command
– Suggests that each person within an organization must have a
clear reporting relationship to one and only one boss
2. Scalar principle
– Suggests that there must be a clear and unbroken line of
authority that extends from the lowest to the highest position in
the organization

(slide 2 of 3)
• Span of management
– The number of people who report to a particular
manager
– There are no universal, cut-and-dried prescriptions
for an ideal or optimal span of management.

(slide 3 of 3)
• Tall Organizations • Flat Organizations

– Are more expensive – Lead to higher levels of
because of the larger employee morale and
number of managers productivity
involved – Create more
– Foster more administrative
communication problems responsibility because
because of the increased there are fewer managers
number of people through – Create more supervisory
whom information must responsibility because
pass there are more
subordinates reporting to
each manager

6-1d Distributing Authority (slide 1 of 3)
• Authority
– Power that has been legitimized by the organization
• The Delegation Process
– Delegation
• The process by which a manager assigns a portion of his or
her total workload to others
– The delegation process involves three steps:
1. The manager assigns responsibility or gives the
subordinate a job to do.
2. The individual is given the authority to do the job.
3. The manager establishes the subordinate’s accountability
—that is, the subordinate accepts an obligation to carry out
the task assigned by the manager.

• Decentralization and Centralization

– Decentralization
• The process of systematically delegating power and
authority throughout the organization to middle- and lower-
level managers
– Centralization
• The process of systematically retaining power and authority
in the hands of higher-level managers

• Decentralization and Centralization

– Factors that determine an organization’s position on
the decentralization–centralization continuum:
• The organization’s external environment
– In general, the greater the complexity and uncertainty of the
environment, the greater is the tendency to decentralize.
• The history of the organization
• The nature of the decisions
– The costlier and riskier the decisions, the more pressure there
is to centralize.

• Distinguish between centralization and

decentralization. What are their relative
advantages and disadvantages?

6-1e Coordinating Activities (slide 1 of 3)
• Coordination
– The process of linking the activities of the
various departments of the organization
• The Need for Coordination
– The primary reason for coordination is that
departments and work groups are interdependent—
they depend on one another for information and
resources to perform their respective activities.
• The greater the independence between departments, the
more coordination the organization requires if departments
are to be able to perform effectively.

• The Need for Coordination

– There are three major forms of interdependence:
1. Pooled interdependence
– When units operate with little interaction; their output is pooled
at the organizational level
2. Sequential interdependence
– When the output of one unit becomes the input for another in a
sequential fashion
3. Reciprocal interdependence
– When activities flow both ways between units

• How does the organization you work for now or

an organization you have worked for in the past
coordinate the work of different employees?

Management
Task Forces
Hierarchy
Structural
Rules and Integrating
Procedures
Coordination Departments
Techniques
Managerial Liaison Electronic

Roles Coordination

6-2 The Bureaucratic Model
of Organization Design (slide 1 of 3)
• Max Weber, a German sociologist, was a pioneer in
organization design; at the core of his writings was what
he called the bureaucratic model of organizations.
• Bureaucracy
– A model of organization design based on a legitimate and
formal system of authority
• Weber originally viewed the bureaucratic form of
organizations as logical, rational, and efficient.
• He offered the model as a framework to which all
organizations should aspire—the “one best way” of
doing things.

• According to Weber, the ideal bureaucracy exhibits five
basic characteristics:
1. A distinct division of labor with each position filled by an expert
2. A consistent set of rules to ensure uniformity in task
performance
3. A hierarchy of positions or offices that creates a chain of
command from the top of the organization to the bottom
4. Impersonal management with appropriate social distance
between managers and subordinates
5. Employment and advancement based on technical expertise,
and employees protected from arbitrary dismissal

– Improves efficiency – Results in inflexibility and
– Helps minimize favoritism rigidity
or bias – Making exceptions to or
– Makes procedures and changing rules is difficult
practices very clear to – Results in the neglect of
everyone human and social
processes within the
organization

6-3 Situational Influences
on Organization Design
• Situational view of organization design
– Based on the assumption that the optimal design for
any given organization depends on a set of relevant
situational factors
• Situational factors include:
– Technology
– Environment
– Organizational size and life cycle

6-3a Core Technology (slide 1 of 3)
• Technology
– Conversion process used to transform inputs to
outputs
• Most organizations use multiple technologies,
but an organization’s most important one is
called its core technology.

• The link between technology and organization design was first
recognized by Joan Woodward.
– Three basic forms of technology were identified by Woodward:
1. Unit or small-batch technology
– The product is custom-made to customer specifications or produced in small
quantities.
– Example: a printing shop that produces business cards
2. Large-batch or mass-production technology
– The product is manufactured in assembly-line fashion by combining component
parts into another part of finished product.
– Example: an automobile manufacturer
3. Continuous-process technology
– Raw materials are transformed to a finished product by a series of machine or
process transformations.
– Example: a chemical refinery

• Woodward found:
– Unit or small-batch technology and continuous-
process firms tend to have very little bureaucracy,
whereas large-batch or mass-production firms are
much more bureaucratic and also have a higher
level of specialization.
– Organizational success was related to the extent to
which organizations followed the typical pattern
appropriate to their technology.

6-3b Environment (slide 1 of 2)
• The first widely recognized analysis of environment–
organization design linkages was provided by Tom
Burns and G. M. Stalker.
– Their research focused on identifying extreme forms of
organizational environment.
• Stable environments that remain constant over time
• Unstable environments subject to uncertainty and rapid change
– Next they studied the designs of organizations in each type of
environment.
• Mechanistic organizations occur most frequently in stable
environments.
• Organic organizations are most often found in unstable and
unpredictable environments.

6-3b Environment (slide 2 of 2)
• These ideas were extended by Paul R. Lawrence and
Jay W. Lorsch.
– They predicted that each organizational unit has a unique
environment and responds by developing unique attributes.
– Lawrence and Lorsch suggested that organizations could be
characterized along two primary dimensions:
1. Differentiation
– Extent to which the organization is broken down into subunits
2. Integration
– Degree to which the various subunits must work together in a
coordinated fashion
– The degree of differentiation and integration needed by an
organization depends on the stability of the environments that
its subunits face.

6-3c Organizational Size and Life Cycle
• Organizational size
– Total number of full-time or full-time equivalent employees
• Research findings:
– Small firms tend to focus on their core technologies.
– Large firms tend to be characterized by higher levels of job
specialization, more standard operating procedures, more rules
and regulations, and a greater degree of decentralization.
• Organizational life cycle
– Progression through which organizations evolve as they grow
and mature—birth, youth, midlife, and maturity.

6-4 Basic Forms of Organization Design
• Most organization designs fall into one of four

basic categories:
1. Functional (U-form) design
2. Conglomerate (H-form) design
3. Divisional (M-form) design
4. Matrix design
• Others are hybrids based on two or more of the
basic forms.

6-4a Functional (U-Form) Design (slide 1 of 2)
• Functional design
– Based on the functional approach to
departmentalization
– Has been termed the “U-form” (for unitary) approach
– The members and units in the organization are
grouped into functional departments.
• For the organization to operate efficiently in this design,
there must be considerable coordination across
departments.

FIGURE 6.2 Functional (U-Form) Design for a Small Manufacturing Company

6-4a Functional (U-Form) Design (slide 2 of 2)
• The basic advantages are that it allows the

organization to staff all important positions with
functional experts, and it facilitates coordination
and integration.
• On the other hand, it promotes a functional,
rather than an organizational, focus and tends
to promote centralization.
• Functionally based designs are most commonly
used in small organizations.

6-4b Conglomerate (H-Form) Design
(slide 1 of 2)
• Conglomerate design
– Used by an organization made up of a set of
unrelated businesses
– Has been termed the “H-form” (for holding, as in
holding company) approach
– This approach is based loosely on the product form
of departmentalization.
• Each business or set of businesses is operated by a general
manager who is responsible for its profits or losses, and
each general manager functions independently of the
others.

FIGURE 6.3 Conglomerate (H-Form) Design at Samsung

6-4b Conglomerate (U-Form) Design
(slide 2 of 2)
• In an H-form organization, a corporate staff usually

elevates the performance of each business, allocates
corporate resources across companies, and shapes
decisions about buying and selling businesses.
• The basic shortcoming of the H-form design is the
complexity associated with holding diverse and
unrelated businesses.
– Managers usually find comparing and integrating activities
across a large number of diverse operations difficult.
• Research suggests that many organizations following
this approach achieve only average-to-weak financial
performance, and many firms have abandoned it for
other approaches.
6-4c Divisional (M-Form) Design (slide 1 of 2)
• Divisional design
– Based on multiple businesses in related areas
operating within a larger organizational framework
– Has been termed the “M-form” (for multidivisional)
approach
– This design results from a strategy of related
diversification.
• Some activities are decentralized down to the divisional
level; others are centralized at the corporate level.

FIGURE 6.4 Multidivisional (M-Form) Design at Hilton Hotels

6-4c Divisional (M-Form) Design (slide 2 of 2)
• The opportunities for coordination and shared

resources represent one of the biggest
advantages of the M-form design.
• The M-form design basic objective is to
optimize internal competition and cooperation.
– Healthy competition for resources among divisions
can enhance effectiveness, but cooperation should
also be promoted.

6-4d Matrix Design (slide 1 of 4)
• Matrix design
– Based on two overlapping bases of
departmentalization
– A set of product groups, or temporary departments,
is superimposed across the functional departments.
– Employees in a matrix are simultaneously members
of a functional department and of a project team.
– The matrix creates a multiple-command structure in
which an employee reports to both a functional
supervisor and one or more project managers.

FIGURE 6.5 A Matrix Organization

• The matrix form of organization design is most

often used in one of three situations:
1. When there is strong pressure from the
environment
2. When large amounts of information need to be
processed
3. When there is pressure for shared resources

– It enhances flexibility because – Employees may be uncertain
teams can be created, redefined, about reporting relationships.
and dissolved as needed. – Some managers may view the
– It fosters high motivation and matrix as an anarchy in which
increased organizational they have unlimited freedom.
commitment. – The dynamics of group behavior
– The matrix design provides may lead to slower decision
considerable opportunity for making, one-person domination,
employees to learn new skills. compromised decisions, or a loss
– It provides an efficient way for the of focus.
organization to take full – More time may be required for
advantage of its human coordinating task-related
resources. activities.
– It allows team members to serve
as bridges between their
functional unit and the team.
– The matrix design is a useful
device for decentralization.

6-4e Hybrid Designs
• Some organizations use a design that

represents a hybrid of two or more of the
common forms of organizational design.
• Few companies use a design in its pure form;
most firms have one basic organization design
as a foundation for managing the business but
maintain strategic flexibility so that temporary or
permanent modifications can be made for
strategic purposes.

6-5a The Team Organization
• Team organization
– An approach to organization design that relies
almost exclusively on project-type teams, with little
or no underlying hierarchy
– Within such an organization, people float from
project to project as necessitated by their skills and
the demands of those projects.

6-5b The Virtual Organization
• Virtual organization
– One that has little or no formal structure
– Such an organization typically has only a handful of
permanent employees and a very small staff and
administrative headquarters facility.
– As the needs of the organization change, its
managers bring in temporary workers, lease
facilities, and outsource basic support services to
meet the demands of each unique situation.
– Increasingly, virtual organizations are conducting
most—if not all—of their businesses online.
When do virtual offices work? Visit Inc. Magazine on
YouTube (
https://www.youtube.com/watch?v=z4WAoK-izxM).
6-5c The Learning Organization
• Learning organization
– One that works to facilitate the lifelong learning and
personal development of all its employees while
continually transforming itself to respond to changing
demands and needs
– The idea is that the most consistent and logical
strategy for achieving continuous improvement is by
constantly upgrading employee talent, skill, and
knowledge.

• What are the benefits of using the learning

organization approach to design? Now consider
that, to learn, organizations must be willing to
tolerate many mistakes because it is only
through the effort of understanding mistakes
that learning can occur. With this statement in
mind, what are some of the potential problems
with the use of the learning organization
approach?

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PART 3

© 2019 Cengage. All rights reserved.

© 2019 Cengage. All rights reserved.

• Treehouse Island Inc. produces courses in web

© 2019 Cengage. All rights reserved.