Chapter 5: Organizing- Organizational

structure and design

1. Organizational structure

2. Organizational design

3. Factors shaping structure

 Some purposes of organizing

• Divides work to be done into specific jobs and

departments
• Assign tasks and responsibilities associated with
individual jobs
• Coordinates diverse organizational tasks
• Clusters jobs into units
• Establishes relationships between individual
groups and departments
• Establishes formal lines of authority
• Allocates and deploys organizational resources
 OUTLINE
Organizing
– Arranging and structuring work to accomplish
organizational goals.

I. Defining organizational structure

II. II. Organizational design decisions
 I. Organizational Structure

• Defining Organizational Structure

– The formal arrangement of jobs within an
organization.
Pyramidal Organizational Structure Flat Organizational Structure
Six Key Questions for Organizational Structure
1. To what degree are tasks subdivided into separate jobs?

2. On what basis will jobs be grouped

together?

3. To whom do individuals & groups report?

4. How many individuals can a manager efficiently and

effectively handle?

5. Where does decision-making authority lie?

6. To what degree will there be rules and regulations to direct

employees and managers
 Key Elements
of Organization Structure

Work Authority and

Specialization Responsibility

Chain Centralization vs.

of Command Decentralization

Span of Control Departmentalization

 1. Work specialization
• Work specialization
Sometimes called division of labor, is the degree to which
organizational tasks are subdivided into separate jobs.
Managing
Director

Finance Director Human Production Director

Director Resource Manager Marketing

Maintenance
Supervisor

Quality Control
Manager

Bottling Plant
Superintendent

Bottling
supervisor
 2. Chain of command
• The Chain of command is the continuous line of authority
that extends from the upper levels to the lowest levels
and clarifies who reports to whom
Chief Executive
Officer

Executive Executive
President
Vice President Vice President

Vice Vice Vice Vice Vice

President President President President President

Region Region Region Region Region

1 2 3 4 5

District District District District District District District

A B C D E F G
 2. Chain of command
• The chain of command is based in 3 other concepts:
- Authority
Authority is the rights inherent in a managerial position to tell
people what to do and to expect them to do it
- Responsibility
Responsibility is the obligation to perform any assigned duties
- Unity of command
Unity of command helps to preserve the concept of a
continuous line of authority
 Authority vs. Responsibility

• Rights inherent in • Obligation to perform

managerial position to
give orders and expect
them to be followed • Goes hand-in-hand
with authority
• Related to one’s
position--not the
characteristics of
person
 Line Authority

• Level of authority that entitles manager to direct the work of an

employee
• Contributes directly to the achievement of organizational objectives
 3. Span of control

Narrow Span Drawbacks:

• Expense of additional
layers of management.

• Increased complexity of
vertical communication.
Concept:
• Encouragement of overly
Wider spans of tight supervision and
management increase discouragement of
organizational efficiency. employee autonomy.
3. Span of control
 3. Span of control

– 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
 Reorganization to increase span of control for Managing
Director of an international metals company
Managing Director
a. Old, Tall structure

Executive Executive Executive Executive

Staff Operating Operating Operating

specialists (6) managers (5) managers (4) managers (10)

Staff specialists (3) Staff specialists (5) Staff specialists (5)

b. New, Flat structure Managing Director

Operating managers (10) Staff specialists (9)

 4. Centralization and decentralization
Centralized decision making
- Decision-making is concentrated at
a single point in the organizations
- Top managers make all the
decisions and lower-level employees
simply carry out those orders
Decentralized
decision making
- Decision-making is pushed down to
the managers who are closest to the
action
- Increasing the decision-making
authority (power) of employees-
Employee Empowerment
 4. Centralization and decentralization

Higher
Lower

Decentralization

Employee Empowerment
Top Management Control

Centralization

Lower
Higher
 5. Formalization

• How standardized are the jobs?

– High formalization means employees have
little discretion
– Low formalization means employees have
more freedom
 6. Departmentalization by Type

 Traditional  Contemporary
organization design organizational design
 6. Departmentalization by Type

a. Functional approach c. Matrix and project

b. Divisional approach approach
- geographic, d. Team-based
- product, approach
- customer e. Network approach
 Traditional  Contemporary
organization design organizational design
 a. Functional Departmentalization
Functional structure is the grouping of positions into departments based on
similar skills, expertise and resource use.

• 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
 b. Divisional departmentalization
The divisional structure groups departments together based
on organizational outputs.
Managing Director

Division 1 Division 2 Division 3

R&D Manufacturing R&D Manufacturing R&D Manufacturin

g

Finance Marketing Finance Marketing Finance Marketing

 b. Divisional departmentalization
• Advantages
+ Fast response, flexibility in an unstable environment
+ Foster concern for customers’ needs
+ Excellent coordination across functional departments
+ Easy pinpointing of responsibility for product problems
+ Emphasis on overall product and division goals
+ Development of general management skills

• Disadvantages
+ Duplication of resources across divisions
+ Less technical depth and specialization in divisions
+ Poor coordination across divisions
 b. Divisional departmentalization

• Product
– Grouping jobs by product line
• Geographical
– Grouping jobs on the basis of territory or geography
• Process
– Grouping jobs on the basis of product or customer
flow
• Customer
– Grouping jobs by type of customer and needs
 b. Divisional departmentalization
 Geographical 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
 b. Divisional departmentalization
 Product 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
 b. Divisional departmentalization

 Process Departmentalization

+ More efficient flow of work activities

– Can only be used with certain types of products
 b. Divisional departmentalization

 Customer Departmentalization

+ Customers’ needs and problems can be met by specialists

- Duplication of functions
- Limited view of organizational goals
 c. Matrix and project structure
 The matrix structure
It is an organizational structure that assigns specialists
from different functional departments to work on one or
more projects.
Cross-Functional Clear
Coordination Accountability

The Matrix
Structure

Dual Chain Allocation

of Command of Specialists
 c. Matrix and project structure
 Project structure
• A project structure has no formal departments that employees return to
at the completion of a project
• Project structures tend to be very fluid and flexible organizational
designs
• Advantages
- More efficient use of human resources than single hierarchy
- Flexibility, adaptability to changing environment
- Development of both general and specialist management skills
- Interdisciplinary cooperation, expertise available to all divisions
- Enlarged tasks for employees
• Disadvantages
- Frustration and confusion from dual chain of command
- High conflict between two sides of matrix
- Many meetings, more discussion than action
- Human relations training needed
- Power dominance by one side of matrix
 d. Cross-functional structure
• Cross-functional teams consist of employees from
various functional departments who are responsible for
meetings as a team and resolving mutual problems

Design Manufacturing Supply Accounting Marketing

Project
Project manager
manager
 d. Team-based structure

• Advantages
- Some advantages of functional structure
- Reduced barriers among departments, increased compromise
- Less response time, quicker decisions
- Better morale, enthusiasm from employee involvement
- Reduced administrative overhead

• Disadvantages
- Dual loyalties and conflicts
- Time and resources spent on meetings
- Unplanned decentralization
 e. Network structure
• The network structure means that the firm subcontracts
many of its major functions to separate organizations and
coordinates their activities from a small headquarters
organization.

Design Company (Canada) Accounts Receivable

(Australia)

Company
core (Hub)

Distribution Company
(Europe)
Transportation Company
(Korea)

Manufacturing Company
(Asia)
 e. Network structure
• Advantages
- Global competitiveness
- Workforce flexibility/challenge
- Reduced administrative overhead

• Disadvantages
- No hands-on control
- Can lose organizational part
- Employee loyalty weakened
 II. Organizational design decisions

1. Mechanistic and organic organization

2. Factors shaping structure
 1. Mechanistic and organic organization
The mechanistic model The organic model

•
• 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
 2. Factors shaping structure
a. Structure follows strategy

• Contingency factors that influence organization structure

Contingency factors

Traditional Vertical
Structure or
Strategy
Flexible Horizontal
Environment Structure

Technology

+ The vertical functional structure uses task specialization and a strict

chain of command
+ The horizontal teams are appropriate when the primary goals are
innovation and flexibility.
 2. Factors shaping structure
a. Structure follows strategy
• Relationship of strategic goals to structural approach

Functional with
Functional Interdepartmental Divisional Horizontal
Structure Task Forces, Integrators Structure Teams

Strategic Goals:
Differentiation, innovation, flexibility

Strategic
goals

Strategic Goals:
Cost leadership, efficiency, stability
 b. Structure reflects the environment
• An uncertain environment causes
- Increased differences occur among departments
- The organization needs increased coordination to keep departments
working together
- The organization must adapt to change

STRUCTURE
Vertical Horizontal

Uncertain Incorrect Fit: Correct Fit:

(Unstable)
Vertical structure in uncertain Horizontal structure in uncertain
environment environment
Mechanistic structure too tight
ENVIRONMENT
Correct Fit: Incorrect Fit:

Certain Vertical structure in certain Horizontal structure in certain

(Stable) environment environment
Organic structure too large