SOMMAIRE

FUNDAMENTALS OF
ORGANIZATION
 SOMMAIRE

1.PARTIE
1. The Objects 1
of Organization Design

2. The Structural Dimensions

2.PARTIE 2
3. The Evolution of Organization Theory
3.PARTIE 3
and Design

4. Organization Structures
4.PARTIE 4
 1.
The Object of
Organization Design
What is an Organization Design?
 Definition: set of choices regarding the allocation and combination of
resources and activities.

 The allocation of the activities to the units (labor division).

 The coordination of the activities allocated to different units (coordination).

 The incentives in doing the assigned activities (mechanisms

and culture).

Objects

– Structure (solution of the labor division and coordination)

– Mechanisms
– Culture
4
 TITRE
Staff and Line Units
DU DOCUMENT

- Lines = units in the

hierarchical line (generally
activities related to the
productive/service process).

- Staff = units out of the

hierarchical line.
 2.
The Structural
Dimensions
Structural Dimensions
 TITRE DU
Formalization DOCUMENT

Definition: Degree to which jobs within the organization are

standardized.

- High formalization : explicit job descriptions, lots of

organization rules, clearly defined procedures.

- Low formalization : relatively non-programmed job

behaviors, discretion in task development.
 Centralization

Definition: Degree to which jobs decision making is

concentrated at a single point in the organization

- Centralization : the center/ top management makes all

decisions with little or no input from the peripheries/ lower-
level personnel.

- Decentralization : the peripheries / lower-level personnel

can make decisions autonomously.
 Specialization &
Hierarchy of authority
Definition (Specialization): Degree to which organizational tasks are
subdivided into separate jobs.

Extreme specialization: each employee performs only a narrow range of tasks.

Definition (Hierarchy of authority): informs on who reports to whom,

and the span of control of each manager.

Vertical differentiation (VD): number of hierarchical levels.

 TITRE DU DOCUMENT
Vertical Dimension vs Span of control

Span of control 4, 7 levels  Span of control 8, 5 levels 

1
1
4
8
16
64 64
256 512
1024

4096 workers 4096 workers

 TITRE DU DOCUMENT
Professionalism &
Personnel ratios
Definition (Professionalism): Level of formal education and training
of the employees.

Definition (Personnel ratios): Share of people to various functions

and departments.
Ex. 1 HRM person / 200 people
 3.
The Evolution of
Organization
Theory and Design
 Historical Perspective
Efficiency is Everything !
Scientific Management pioneered by Frederick Winslow Taylor.
How to Get Organized ?
Administrative Principles contributed to bureaucratic organizations (H.FAYOL)
What about People?
Hawthorne Studies
Don’t Forget the Context
Contingency: there must be a ‘goodness of fit’ between ‘structural’
and ‘contextual’ dimensions.
 HistoricalTITRE DU DOCUMENT
Perspective
Scientific Management (F.W.Taylor)

1. Study each part of a task and develop the One best way of performing it.
2. Select the best person to do the job.
3. Train, teach and develop the worker.
4. Provide financial incentives for following the procedures.
5. Divide work and responsibility so that managers are responsible for
planning the work.
6. Methods and workers are only responsible for
executing the work accordingly.
 HistoricalTITRE DU DOCUMENT
Perspective
Classical Management (H. Fayol)
Division of Work (employees specialized and efficient)
Authority (managers must have the authority to give orders)
Discipline (discipline must be upheld in organizations) 
Unity of Command (employees under only one supervisor)
Unity of Direction (teams with same objective working under the direction of one manager)
Subordination of Individual Interests to the General ones
Remuneration (fair remuneration for everyone)
Centralization 
Scalar Chain (employees should be aware of hierarchy)
Order (everything should have its place)
Equity (managers should be fair to staff at all times)
Stability of Tenure of Personnel (minimize employee turnover)
Initiative (employees should be given the necessary level of freedom)
Esprit de Corps (promote team spirit and unity)
 HistoricalTITRE DU DOCUMENT
Perspective
Hawthorne Studies (E. Mayo)

What about people ?

- 1927-1932 Western Electric’s Hawthorne Works of Chicago.

Experiments on two groups of factory

- Group A, variation of the levels of light / frequency or length of breaks (treatment group)
- Group B, no variation (control group)

Productivity gains were due to the motivational effect (interest being shown in them).

Positive treatment of employees generates increase in productivity.

Hawthorne effect: https://www.youtube.com/watch?v=o4XX90lqT6E

HistoricalTITRE DU DOCUMENT
Perspective
Contingency & Organic design
 4.
Organization
Structures
 Coordination: Vertical Information Linkages

Vertical linkages coordinate activities between the top and the bottom of the organization.

Hierarchical referral are the vertical lines which identify the chain of command.

Rules and Plans

Rules enabling employees to be coordinated.

Plans provides standing information for employees.

Vertical information systems is a strategy for increasing vertical information capacity.

It includes reports, computer-based communication and written information.

 Coordination: Horizontal Information Linkages

Horizontal linkages refer to communication and coordination of activities across

departments.

Information Systems enable information exchange throughout the organization.

Direct Contact is a higher level of horizontal linkage (i.e. liaison role).

Task Forces is a temporary committee composed of representative from each department.

Full-Time Integrator responsible for coordination.

 Comparative Models

Functional Modified- Matrix Divisional Divisional

Structure Functional Structure with Structure
Structure Central Functions
 Functional Structure (F-grouping)

The first level units are specialized by

functions or input. CEO

Function = a set of activities grouped Operation Department Marketing Department Style Department

together by technical similarities.

The interdependencies among functions

are managed by rules, procedures,
hierarchy (orders by the CEO).

Great deal of information processing,

procedures to manage inventories and
cash, to coordinate product development
and design changes.
 Functional Structure (F-grouping)
Strengths Weaknesses

• Clear responsibilities and labor division. • Emergence of organizational politics.

• Economies of scales within departments. • May cause decisions to pile on top.

• In-depth knowledge and skill development. • Leads to poor horizontal coordination.

• Accomplish functional goals. • Less innovation or responsiveness.

• Best with only one or a few products. • Involves restricted view of goals.
 Divisional Structure (P/G/M-grouping)

The first level units are specialized by

output - strategic business areas CEO
(division).
Activities are grouped together by Product/Mkt/Customer A
Division
Product/Mkt/Customer B Product/Mkt/Customer C
product (P-grouping), geographical Division Division
area (G-grouping) , market/customers Production Marketing
(M-grouping).
The first level units are profit and loss
centres (P&L).
At the second level, there are the
functions specialized by products,
markets, customers, professions
 Divisional Structure (P/G/M-grouping)
Strengths
• Suited to fast change in unstable environment.
• Customer satisfaction, greater accountability.
• Involves high coordination: employee identify
with their division rather than the function.
• Allows units to adapt to differences.
• Best in large organizations with several foci
(e.g. products).
• Decentralizes decision making.
Weaknesses
• Reduces economies of scale in departments.
• Leads to poor coordination across divisions.
• Competition among divisions and
unwillingness to share resources.
• Makes integration and standardization across
foci (e.g. products) difficult.
 Divisional Structure with central functions
Divisional structure with central functions:
Decentralize to business units the functions that are specific for each product/market.
Centralize functions that are common and require economies of scale (e.g. operations,
purchasing) and the functions that need an unitary control (e.g. R&D, marketing).

CEO

Product A Product B
Operations
Division Division

R&D Marketing R&D Marketing

 Modified Functional Structure

Functional Structure + Integrator/s

=
Modified-Functional Structure

The introduction of the integrators (i.e. product manager, key account

manager) makes a structural modification, changing the structure from a
functional structure to a modified-functional one.
 Modified Functional Structure
Integration
a. Degree of mechanisms:
differentiation  Procedures
Integration  Hierarchy Resulting degree
need  HR and IS of coordination
 Team
+ cost
+ complexity Structural
change: Full-
b. Interdependencies
time integrators

The more the differentiation and the more the The more the integration need, the more
interdependencies among the functions, the complex and expensive the integration
more the integration need
 Modified Functional Structure
Two Possible positions of Integrator
without authority: CEO

The first line integrator reports First line

Operation Marketing &Sales Product & Style

Integrator
directly to the CEO and integrate the
first line units.
CEO
The second line integrator reports to
a first line unit (e.g.: Marketing) and Operation Marketing &Sales Product & Style
integrate the sub-departments in that
unit Second line
Integrator
 Full time Integrators
They span the boundaries between departments and must be able to group
people together, maintain their trust.

They do not have formal authority over team members with respect to giving pay
raises, hiring, firing.

Formal authority: the managers of the functional departments.

Integrators need excellent skills: they have to use expertise and persuasion to
achieve coordination.
 Matrix Structure

Business units: projects, products. CEO

Production Marketing R&D

There are two differentiated first Department Department Department

levels specialized the ones by Business

business areas (division), the Units A

others by techniques (function).

Business

Functions are the ‘sources’ of Units B

skills, divisions are profit centres.

Business
People are ‘two-boss’ managers. Units C

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 Matrix Structure
Conditions for Matrix:
Condition 1: Share resources across the organization.
Condition 2: Two or more critical outputs required: products and technical
knowledge.
Condition 3: Environment is complex and uncertain.

A dual-authority structure can help to ensure a balance between vertical and

horizontal aspects of organizations.
 Matrix Structure
Strengths Weaknesses
• Coordination to meet dual demands. • Dual authority cause confusion.
• Flexible sharing of HRs across products. • Need good interpersonal skills and extensive
• Suited to complex decisions and unstable training.
environment. • Time consuming.
• Promote functional and product skill • Need common understanding among
development. participants.
• Best in organizations with multiple • Requires great effort to maintain power
products. balance.
 Case Study
Georgia Inc. Simulation
 Comparing the Archetypes
Functional Divisional Hybrid/Matrix
Division of Labor By Inputs By Outputs Both, equally weighted

Coordination Functional specialities (craft) GM’s role and staff Dual reporting (specific role)
Hierarchical channels Team-based processes Negotiation
Written procedures Functional links

Decision Rights Highly centralized and Decentralized but focus on Shared

comprehensive local/product-market strategy

Importance of Low Modest High (consensus-building is key)

Informal Structure

Politics Inter-functional Corporate Division & Along matrix & resources

Inter-Divisional

Basis of Authority Specialization and Hierarchy GM/Integrative Interpersonal skills

Key resource appropriation Argumentation / Negotiation
Customer-sensitive

Ref: Nohria, Note on Org. Structure HBS9-491-083

 Comparing the Archetypes
Functional Divisional Hybrid/Matrix

Resource Efficiency Strong Weak Moderate

Technical Excellence Strong Weak/Moderate Moderate

Customer-Responsive Weak/Moderate Strong Strong

Coordination/Time Efficiency Weak Strong Moderate

Accountability Strong Very Strong Moderate

Ideal Environment Stable Heterogeneous Heterogeneous but

requiring integration

Caution: Matrix structures look appealing because they avoid the glaring weaknesses Ref: Nohria, Note on Org. Structure HBS9-491-083
of the other forms (shaded areas), but they are difficult to implement, requiring a lot of
natural collaboration.
 Horizontal Structure
Organization around core processes.

A process is an organized group of related tasks and activities that work together to transform
inputs into outputs that create value for customers.

Business process re-engineering involves the redesign of a vertical organization along its
horizontal workflows and processes.

Key characteristics:
- Structure is created around cross-functional processes.
- Self-directed teams are the basis of organization design and performance.
- Process owners are responsible for entire process.
- People on the team are given authority for decisions.
- Can increase organization’s flexibility.
- The culture promotes openness, trust and collaboration.
 Horizontal Structure
Strengths Weaknesses

• Flexibility and responsiveness. • Determining core processes is difficult and

• Focus on the production and value added. time consuming.

• Broaden employees’ view of organization • Several adjustments.

goals. • Traditional managers may baulk when they

• Focus on teamwork and collaboration. have to give up power and authority.

• Improve quality of life for employees. • Requires significant training of employees.

• Can limit in-depth skill development.
 Virtual Networks and Outsourcing
It extends the concept of horizontal coordination and collaboration beyond the boundaries of the
organization.

It includes vendors, customers and competitors.

Most common strategy is outsourcing

- Contract out certain tasks/functions.

Virtual or modular structures subcontract most of its major functions to separate companies and
coordinates activities from a small headquarters organization.

The virtual network organization serves as a central hub with contracted experts.
 Virtual Networks and Outsourcing
Strengths
• Enables organizations to obtain talent and
resources worldwide.
• Gives a company immediate scale and reach
without huge investments.
• Enables the organization to be highly flexible
and responsive to changing needs.
• Reduces administrative cost.
Weaknesses
• Managers do not have hands-on control over
many activities and employees.
• Requires a great deal of time to manage
relationships.
• Risk of organizational failure.
• Employee loyalty and corporate culture might
be weak.
Structural Design: Efficiency versus Learning
Structural Design: Symptoms of Deficiency
Structural alignment aligns structure with organizational goal.

Symptoms of Structural Deficiency:

• Decision making is delayed or lacking quality.

• Organization does not respond innovatively to a changing environment.

• Employee performance declines, goals are not being met.

• Too much conflict.

 Implications – Design Process

• Once you know what your primary objectives are, and the way to pursue them,
then you can design the structure.

• Other factors that matter are: the culture of the organization, the type of
employees working there – organizational design comes after the organization has
developed ways of doing things, traditions, expectations.

• Structural change is costly, so you should be careful and take into consideration
also people adaptability and learning curves, their need for a predictable work
environment.
 Problems of Re-Designing
Disruption
New procedures, new relations…

Stress
Will I lose my job, friends, power, status?

Skepticism
Are executives competent?

Chronic instability
People need to recuperate…

Distracted management
Opportunity costs…