Chapter

8 Organization
Structure
 Overview
• Organization structure
• Fundamentals of Organizing
• Differentiation
• Integration
• Differentiation
• Vertical Dimensions of Structure
• Features of Vertical Organizational Structure: Authority,
Centralization, Decentralization
• Horizontal Dimensions of Structure
• Types of Horizontal Organizational Structure: Functional,
Divisional, Matrix, and Network type of Organization.
• Integration
• Coordination By Standardization
• Coordination By Planning
• Coordination By Mutual Adjustment.
 Conventional Organization Chart

President

Finance R&D Marketing Personnel

Chemical Metal
Products Products

Personnel Finance Personnel Finance

Manufacturing Sales Manufacturing Sales

Organization Structure
• An overall system which ensures that the activities
(and behaviors) in (and of) an organization are
directed toward achieving organizational goals.

• An organization structure may include:

• Rules & Regulations
• Roles
• Procedures
• Positions
• Authority
• Norms
• Culture
• Etc.
 Fundamentals Of Organizing (cont.)
Two fundamental concepts for understanding any organization’s structure
are Differentiation and Integration

 Differentiation
 means that the organization is comprised of many
different units that work on different kinds of tasks
 division of labor – A given work is subdivided into smaller
tasks.
 specialization - process in which different individuals and
units perform different tasks
 differentiation is high when there are many subunits and
many kinds of specialization areas in an organization.
 Fundamentals Of Organizing (cont.)

 Integration
 degree to which differentiated units work together and
coordinate their efforts
 all the specialized tasks in an organization cannot be performed
completely independently
 coordination - procedures that link the various parts of the
organization to achieve the organization’s overall mission
 any job activity that links different work units performs an
integrative function
 the more a firm is differentiated, the greater the need for
integration among the units
 The Vertical Structure

 Authority in organizations
 authority - the legitimate right to make decisions and to tell
other people what to do
 resides in positions rather than people
 in private business enterprises, owners have ultimate authority
 traditionally authority has been the primary means of running an
organization
 The Vertical Structure (cont.)

 Decentralization
 result of the delegation of responsibility and authority
 centralized organization - high-level executives make most
decisions and pass them down to lower levels for implementation
 decentralized organization - lower-level managers make
important decisions
 ideally, decision making should occur at the level of the
people who are most directly affected and have the most
intimate knowledge about the problem
Manager A: “Call Tom Burton at Cavalier Computer. Ask him to give you the price list on
an upgrade for our personal computers. I want to move up to a quad-core processor with
8 gigs of RAM and at least a 1.5-terabyte hard drive. Ask them to give you a
demonstration of the Windows 8 operating system and Microsoft Office 365. I want to be
able to establish collaboration capability for the entire group. Invite Cochran and Snow to
the demonstration and let them try it out. Have them write up a summary of their needs
and the potential applications they see for the new systems. Then prepare me a report
with the costs and specifications of the upgrade for the entire department. Oh, yes, be
sure to ask for information on service costs.”

Manager B: “I’d like to do something about our personal computer system. I’ve been
getting some complaints that the current systems are too slow, can’t run current software,
and don’t allow for networking. Could you evaluate our options and give me a
recommendation on what we should do? Our budget is around $2,000 per person, but I’d
like to stay under that if we can. Feel free to talk to some of the managers to get their
input, but we need to have this done as soon as possible.”
 The Horizontal Structure

 Basic concepts
 departmentalization - subdividing the organization into
smaller subunits
 line departments - have responsibility for the principle activities
of the firm
 deal directly with the organization’s primary goods and services
 line managers typically have:
 substantial authority and power

 ultimate responsibility for major operating decisions

 accountability for “bottom-line” results

 staff departments - provide specialized support for line units

 moving toward a role focused on strategic support and expert advice
 The Horizontal Structure (cont.)

 Functional organization

 jobs (and departments) are specialized and grouped according

to business functions and the skills they require
 e.g., production, marketing, R&D, human resources, and finance

 common in both large and small organizations

 may be most appropriate in rather simple, stable environments

 Functional Structure

President
Staff departments

Information
Human
technology Procurement
resources
services

Inbound Outbound Marketing

Operations Service
logistics logistics and sales

Line departments
 The Horizontal Structure (cont.)

 Functional organization (cont.)

 advantages of functional structure include:
 economies of scale can be realized
 performance standards are better maintained
 greater opportunity for specialized training and in-depth skill
development
 technical specialists are relatively free of administrative work
 decision making and lines of communication are simple and
clearly understood
 The Horizontal Structure (cont.)

 Functional organization (cont.)

 disadvantages of functional structure
 people may care more about their own function than about the
company as a whole
 may lose focus on overall product quality and customer
satisfaction
 managers do not develop knowledge of the other areas of the
business
 become specialists, not generalists
 conflicts arise among functions and communications suffer
accordingly
 high differentiation may create barriers to coordination across
functions
 The Horizontal Structure (cont.)

 Divisional organization
 units grouped around products, customers, or geographic
regions
 groups all functions into a single division
 duplicates each function across all of the divisions
 separate divisions may act almost as separate businesses
 work autonomously to achieve the goals of the organization
 several ways to create divisional structure
 The Horizontal Structure (cont.)

 Divisional organization (cont.)

 product divisions - all functions that contribute to a given
product are organized under one manager
 advantages
 information needs are managed more easily
 people have full-time commitment to a particular product line
 task responsibilities are clear
 people receive broader training
 flexibility of structure better suits it for unstable environments
 disadvantages
 difficult to coordinate across product lines
 managers may not acquire depth of functional knowledge
 duplication of effort is expensive
 The Horizontal Structure (cont.)

 Divisional organization (cont.)

 customer and geographical divisions
 build divisions around customer or geographical distinctions
 advantages
 can focus on customer needs
 can provide faster and better service
 disadvantage
 duplication of activities across many customer groups and
geographic areas is expensive
 Geographical Organization

Chairman
CEO

Northeast Midwest Southeast Southwest Pacific

regional regional regional regional regional
manager manager manager manager manager

General General General General General

managers for: managers for: managers for: managers for: managers for:
New York Cleveland Raleigh Dallas Seattle
Philadelphia Chicago Atlanta Houston San Francisco
Boston St. Louis Orlando Albuquerque Los Angeles
 The Horizontal Structure (cont.)

 Matrix organization
 hybrid form of organization in which functional and divisional
forms overlap
 have dual reporting relationships in which some managers
report to two superiors rather than a single line of command
 advantages
 higher degree of flexibility and adaptability
 disadvantages
 violation of the unity of command principle
 reporting to two superiors can create confusion
Matrix Organization
 Matrix Organization (contd.)

 Matrix Design Advantages

 Enhances organizational flexibility
 Involvement creates high motivation and increased
organizational commitment
 Team members have the opportunity to learn new skills
 Provides an efficient way for the organization to use its
human resources
 Team members serve as bridges to their departments for the
team
 Useful as a vehicle for decentralization
 Matrix Organization (contd.)

 Matrix Design Disadvantages

 Employees are uncertain about reporting relationships
 Managers may view design as an anarchy in which they have
unlimited freedom
 The dynamics of group behavior may lead to slower decision
making, one-person domination, compromise decisions, or a
loss of focus
 More time may be required for coordinating task-related
activities
Network Organization
 Collection of independent mainly single function firms.
 A web of relationship among many firms
 A flexible arrangement between designers, suppliers, producers,
distributors, and customers.
 Each firm is able to pursue its own distinctive competence
 Boundaries of the organization become blurred.
 A network of organization has the
 Technical specialization of the functional structure

 Market responsiveness of the product structure

 Balance and flexibility of the matrix

 Advantages : Flexibility, innovation, quick response, reduced cost.

 Disadvantages : Choosing the Goal, Coordination, Communication, Trust,
Control.
 The role of manager is that of a broker
 Network Structures

Characteristics :High operating efficiency, high revenue to size ratio, firms can
focus on core competencies while outsourcing the rest, complex structures, high
reliance on other partners in the network
 Organizational Integration

 Coordination by standardization
 standardization - establishing common routines and
procedures that apply uniformly to everyone
 constrains actions
 integrates various units by regulating what people do
 formalization - reliance on rules and regulations to govern
how people interact
 should apply to most (if not all) situations
 most appropriate in relatively stable and unchanging
situations
 E.g., Steel/Automobile manufacturing
Organization Integration (cont.)
 Coordination by plan
 interdependent units are required to meet deadlines and
objectives that contribute to a common goal
 does not require a high degree of stability and routinization

 units free to modify their actions as long as they are able to meet
deadlines and targets required for working with others
 E.g., writing a course text book
 Coordination by mutual adjustment
 involves feedback and discussion to jointly determine how to
approach problems and devise mutually agreeable solutions
 allows for flexible coordination to deal with novel problems or

during crisis situations.

 costly from the standpoint of time

 E.g., fighting terrorism, fighting pandemics.

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