Organizational Structure

session -18
 Organizational Design

The process of constructing and adjusting

an organization’s structure to achieve its

goals.
 Organizational Design

The linking of departments within an

organization
 Key Organizational Design
© 2011
Cengage
Learning. All
rights
reserved.
Processes
Differentiation
The process of deciding how to
divide the work in an organization

• Manager’s goal orientation

• Time orientation
• Interpersonal orientation
•Formality of structure
 Differentiation
Horizontal differentiation
Degree of differentiation between organizational
subunits.
Vertical differentiation
The difference in authority and responsibility
in the organizational hierarchy
Longitudinal differentiation
Geographic dispersion of an organization’s
offices,
plants and personnel
 Key Organizational Design
Processes
Integration
The process of coordinating the different parts of
an organization

Supports dynamic equilibrium, in which all the

parts of an organization are interrelated and
balanced
 Integration
Vertical integration
•Hierarchical referral
•Rules and procedures
•Plans and schedules
•Positions added to the
organization structure
•Management information systems
Horizontal integration
•Liaison roles
•Task forces
•Integrator positions
•Teams
What Is Organizational Structure?
 Organizational Structure
 How job tasks are formally divided, grouped, and
coordinated
 Key Elements:
1. Work specialization
2. Departmentalization
3. Chain of command
4. Span of control
5. Centralization and decentralization
6. Formalization
 1. Work Specialization
 The degree to which tasks in the organization are
subdivided into separate jobs

 Division of Labor
 Makes efficient use of employee skills
 Increases employee skills through repetition
 Less between-job downtime increases productivity
 Specialized training is more efficient
 Allows use of specialized equipment

 Can create greater economies and efficiencies – but

not always…
 2. Departmentalization
15-10

 The basis by which jobs are grouped together

 Grouping Activities by:
 Function
 Product
 Geography
 Process
 Customer
 3. Chain of Command
Chain of Command
 The unbroken line of authority that extends from the
top of the organization to the lowest echelon and
clarifies who reports to whom
 Authority
 The rights inherent in a managerial position to give
orders and to expect the orders to be obeyed
 Unity of Command
 A subordinate should have only one superior to
whom he or she is directly responsible

15-11
 4. Span of Control
The number of subordinates a manager can efficiently and
effectively direct
 Wider span of management control increases
organizational efficiency

 Drawbacks of narrow span of control:

 Expense of additional layers of management
 Increased complexity of vertical communication
 Encouragement of overly tight supervision and
discouragement of employee autonomy
Contrasting Spans of Control
 5. Centralization & Decentralization
15-14

 Centralization
 The degree to which decision making is
concentrated at a single point in the organization.

 Decentralization
 The degree to which decision making is spread
throughout the organization.
 6. Formalization
The degree to which jobs within the
organization are standardized.
 High formalization
 Minimum worker discretion in how to get the job
done
 Many rules and procedures to follow

 Low formalization
 Job behaviors are nonprogrammed
 Employees have maximum discretion
 Common Organization
Designs: Simple Structure
 Simple Structure
 A structure characterized by a low degree of
departmentalization, wide spans of control,
authority centralized in a single person, and
little formalization
 Common Organizational
Designs: Bureaucracy

 Bureaucracy
 A structure of highly routine operating 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
An Assessment of Bureaucracies
Strengths Weaknesses

 Results in economies of  Subunit conflicts with

scale organizational goals
 Minimum duplication of  Obsessive concern with
personnel and rules and regulations
equipment  Lack of employee
 Enhanced discretion to deal with
communication problems
 Centralized decision
making
 Common Organizational
15-19
Designs: Matrix
Matrix Structure
 A structure that creates dual lines of authority and
combines functional and product departmentalization
 Key Elements
 Gains the advantages of functional and product
departmentalization while avoiding their weaknesses
 Facilitates coordination of complex and
interdependent activities
 Breaks down unity-of-command concept

 Phillips, Caterpillar, and Texas Instruments

 New Design Options: Virtual
Organization
 A small, core organization
that outsources its major
business functions

 Highly centralized with

little or no
departmentalization
 Provides maximum
flexibility while
concentrating on what the
organization does best
 Reduced control over key
parts of the business
 New Design Options:
Boundaryless Organization
 An organization that seeks to eliminate the chain
of command, have limitless spans of control, and
replace departments with empowered teams
 T-form Concepts
 Eliminate vertical (hierarchical) and horizontal
(departmental) internal boundaries
 Breakdown external barriers to customers and
suppliers
Two Extreme Models of
Organizational Design
 Four Reasons Structures Differ
1. Strategy
 Innovation Strategy

 A strategy that emphasizes the introduction of major new products

and services
 Organic structure is best for the implementation of this strategy
 Cost-minimization Strategy
 A strategy that emphasizes tight cost controls, avoidance of
unnecessary innovation or marketing expenses, and price cutting
 Mechanistic model is best for the implementation of this strategy.
 Imitation Strategy
 A strategy that seeks to move into new products or new markets
only after their viability has already been proven
 Mixture of the organic and mechanistic structure is best for the
implementation of this strategy
 Four Reasons Structures Differ
(Contd..)
2. Organizational Size
 As organizations grow, they become more
mechanistic, more specialized, with more rules and
regulations
3. Technology
How an organization transfers its inputs into outputs
 The more routine the activities, the more mechanistic the
structure, and the greater the formalization
 Custom activities need an organic structure
4. Environment
 Institutions or forces outside the organization that
potentially affect the organization’s performance
 Three key dimensions: capacity, volatility, and complexity
 Summary and Managerial
Implications
 Structure impacts both the attitudes and
behaviors of the people within it
Associated
with

 Impact of Technology
 Makes it easier to change organizational structure to
fit employee and organizational needs
Organizational Culture
 Organizational Culture

 Organizational Culture
 A common perception held by the
organization’s members; a system of shared
meaning
 Seven primary characteristics
1. Innovation and risk taking
2. Attention to detail
3. Outcome orientation
4. People orientation
5. Team orientation
6. Aggressiveness
7. Stability
 Do Organizations Have Uniform
Cultures?
Culture is a descriptive term: it may act as a substitute
for formalization

 Dominant Culture
 Expresses the core values that are shared by a majority of
the organization’s members
 Subcultures
 Minicultures within an organization, typically defined by
department designations and geographical separation
 Core Values
 The primary or dominant values that are accepted
throughout the organization
 Strong Culture
 A culture in which the core values are intensely held and
widely shared
 What Do Cultures Do?
 Culture’s Functions
1. Defines the boundary between one
organization and others
2. Conveys a sense of identity for its members
3. Facilitates the generation of commitment to
something larger than self-interest
4. Enhances the stability of the social system
5. Serves as a sense-making and control
mechanism for fitting employees in the
organization
 Culture as a Liability
 Institutionalization
 A company can become institutionalized where it is valued
for itself and not for the goods and services it provides
 Barrier to change
 Occurs when culture’s values are not aligned with the
values necessary for rapid change
 Barrier to diversity
 Strong cultures put considerable pressure on employees to
conform, which may lead to institutionalized bias
 Barrier to acquisitions and mergers
 Incompatible cultures can destroy an otherwise successful
merger

16-30
 How Culture Begins

Stems from the actions of the founders:

 Founders hire and keep only employees who
think and feel the same way they do.
 Founders indoctrinate and socialize these
employees to their way of thinking and feeling.
 The founders’ own behavior acts as a role model
that encourages employees to identify with them
and thereby internalize their beliefs, values, and
assumptions.
 Keeping a Culture Alive
Three forces play a particularly important role in
sustaining a culture:
 Selection
 Identify and select individuals who are high
performers and whose values are consistent with at
least a good portion of the organization’s values
 Top Management
 Through words and behaviors, senior executives
establish norms that filter through the organization
 Socialization
 The process that helps new employees adapt to the
prevailing organizational culture
Stages in the Socialization Process
 Prearrival
 The period of learning prior to a new employee joining the
organization
 Encounter
 The stage at which the new employee sees what the
organization is really like and confronts the possibility that
expectations and reality may diverge
 Metamorphosis
 The stage at which the new employee changes and adjusts to
the work, work group, and organization
 Socialization Program Options

 Choose the appropriate alternatives:

 Formal versus Informal
 Individual versus Collective
 Fixed versus Variable
 Serial versus Random
 Investiture versus Divestiture
 Socialization outcomes:
 Higher productivity
 Greater commitment
 Lower turnover
 Summary: How Organizational
Cultures Form
 Organizational cultures are derived from the
founder
 They are sustained through the selection
process, managerial action, and socialization
methods
 How Employees Learn Culture
 Stories
 Anchor the present into the past and provide explanations
and legitimacy for current practices
 Rituals
 Repetitive sequences of activities that express and reinforce
the key values of the organization
 Material Symbols
 Acceptable attire, office size, opulence of the office
furnishings, and executive perks that convey to employees
who are important in the organization
 Language
 Jargon and special ways of expressing one’s self to indicate
membership in the organization
Creating an Ethical Organizational
Culture
 Characteristics of Organizations that Develop High
Ethical Standards
 Has high tolerance for risk
 Low to moderate in aggressiveness
 Focused on means as well as outcomes
 Managerial Practices Promoting an Ethical Culture
 Being a visible role model
 Communicating ethical expectations
 Providing ethical training
 Visibly rewarding ethical acts and punishing unethical
ones
 Providing protective mechanisms
Creating a Positive Organizational
Culture
Positive Organizational Culture
 A culture that:
 Builds on employee strengths
 Focus is on discovering, sharing, and building on the
strengths of individual employees
 Rewards more than it punishes
 Articulating praise and “catching employees doing
something right”
 Emphasizes individual vitality and growth
 Helping employees learn and grow in their jobs and careers
 Limits of Positive Culture:
 May not work for all organizations or everyone
within them
 Spirituality and Organizational
Culture

 Workplace Spirituality
 Recognizes that people have an inner life that
nourishes and is nourished by meaningful
work in the context of the community

 NOT about organized religious practices

 Why Spirituality Now?
 It helps to counterbalance the pressures and stress
of a turbulent pace of life and caters to the
increased need for involvement and connection
 Job demands have made the workplace dominant
in many people’s lives; yet they continue to
question the meaning of work
 People feel the need to integrate personal life
values with one’s professional life
 An increasing number of people are finding that
the pursuit of more material acquisitions leaves
them unfulfilled
 Characteristics of a Spiritual
Organization
 Concerned with helping people develop and
reach their full potential
 Directly addresses problems created by work–
life conflicts
 Four characteristics of spiritual organizations:
1. Strong sense of purpose
2. Trust and respect
3. Humanistic work practices
4. Toleration of employee expression
 Criticisms of Spirituality
 What is the scientific foundation?
 We still don’t have an answer; there is very little
research on the subject
 Are spiritual organizations legitimate – do they
have the right to impose values on employees?
 The goal of spirituality is to help employees find
meaning and value in their work
 Spirituality is not about God or any religious values
 Are spirituality and profits compatible?
 Initial evidence suggests that they are
 Spirituality may result in greater productivity and
dramatically lower turnover

16-42
 Global Implications
 Organizational cultures, while strong, can’t
ignore local culture
 Managers should be more culturally
sensitive by:
 Adjusting speech to cultural norms
 Listening more
 Avoiding discussions of controversial topics
 All global firms need to be more culturally
sensitive
 Culture as an Intervening
Variable
 Employees form an overall subjective perception
of the organization based on these objective
factors mentioned in the diagram

 The opinions formed affect employee

performance and satisfaction.
 Summary and Managerial
Implications
 Strong cultures are difficult for managers to
change
 Strong cultures tend to be stable over time
 Selecting new hires that fit well in the
organizational culture is critical for motivation,
job satisfaction, commitment, and a low turnover
 Socialization into the corporate culture is
important
 As a manager, your actions as a role model help
create the cultural values of ethics, spirituality,
and a positive culture