OB &L (Lecture 4.

MBA)

The tip for today:

“Structure follows the Strategy”

 Plan 4
 Introduction
 Discussion:
 Organizational Structure
 Presentations – in groups
 Quiz analysis
 Check HW- slide 10, St. Luke
 Practical questions
 HW
 Elements of organizational structure
 Span of Control
– Tall vs flat
 Centralization (de-)
 Formalization
– Mechanistic vs organic structure
 Departmentalization
– Simple; -Functional; -Divisional; -Matrix; -Hybrid; -
Network.
– Functional; Geographic; Customers; Products
 Qs
1. What are the advantages and disadvantages of
decentralization?
2. All else being equal, would you prefer to work in a tall
or flat organization? Why?
3. What are the advantages of departmentalization by
product/geo area/ client?
4. Have you ever reported to more than one manager?
What were the challenges of such a situation?
 Merits and demerits (Tall)

Adv Disadvantages
more opportunities for promotion many levels of hierarchy
which can lead to greater staff span of control is narrow,
motivation the chain of command is long,
making communication slower as
staff gain more support from their instructions take longer to travel
line manager through the levels of the
organization
there is a higher degree of
supervision as each line manager longer lines of communication
has a limited number of people can make the firm less responsive
they are responsible for to change

can be expensive to run due to

high wage costs
 merits and demerits (Flat)
 Advantages
 few levels of hierarchy lines of
communication are short,
making the firm responsive to
change and decision-making
quicker
 staff working in a flat
management structure can be
empowered to work
independently and take on more
responsibility
 Disadvantages
 wide span of control
means that tasks must be
delegated, which can lead
to employees feeling
stressed and managers
feeling overstretched
 less promotion
opportunities within a flat
structure, which may lead
to the company losing
staff to other
organizations
 Tall vs Flat
Tall vs Flat Structure
Tall structure is an organizational structure with many levels of Flat structure is an organizational structure with a limited
hierarchy. number of levels of hierarchy.

Span of Control
A narrow span of control is seen in a tall structure. In a flat structure, the span of control is wide.

Structure
More time is taken to make decisions in a tall structure since Speed of decision making high in flat structures due to the wide
there are many levels of personnel to consider. span of control.

Costs
Cost of managing a tall structure is costly since there are more Costs related to a flat structure is relatively low compared to a
layers of staff tall structure.

Opportunity
Opportunity for promotion is high in a tall structure. Limited opportunities are available for promotion in a flat
structure.
 Centralization vs Decentralization

Decision making authority is retained Decision making authority is

by top MNG delegated to subordinates
The process is slow as it passes via a The process is fast a decision are
long chain of line from the taken by subordinates according to
subordinates to the top their experience and situation

It does not enable subordinates to Subordinates have a chance to utilize

work freely their capacity and knowledge

A lot of burden to the top mng Fewer burdens on the top mng
 Students examples
 Centralized Co (Why? Facts?)
 Decentralized companies
 Apple?
 Formalization
 ….is the degree to which organizations
standardize behavior by means of rules,
procedures, training and other mechanisms
 Merits: increased efficiency, ensuring security
 Demerits: reduced flexibility, decreased
productivity, feeling powerless
 Mechanistic vs organic structure
 Narrow span of  Wide..
command
 High degree of  Little formalization
formalization
 High degree of
 Decentralization
centralization
 Mainly flat
 Tall hierarchy
 Values knowledge
 Tasks are defined
 More suitable for
 Valuable is stable env .
changing environment
 Formalization
 Comparison of Mechanistic and Organic
structuresMechanistic
Process Organic

Leadership Includes no perceived confidence and trust includes

between superiors and subordinates

Motivation Taps only physical, security, economic Full range of motives

motives (fear and sanctions) (participatory methods)

Communication Downward flow, tends to be distorted, Freely flow, info is accurate,

inaccurate, viewed with suspicion by undistorted
subordinated
Interaction Closed and restricted, subordinates have Open and extensive. Influence
little effect on goals, methods, activity by both: superiors and
subordinates
 Formalization
Process Mechanistic Organic

Decision Relatively centralized; occurs at Relatively decentralized. Occurs at

the top of the org all levels though group processes

Goal setting Located at the top of the org, Encourages group participation in
discouraging group participation setting realistic obj.

Control Centralized. Emphasizes fixing Non centralized. Emphasizes self-

blame for mistakes control and problem solving

Performance Low and passively sought by High and actively sought by

goal mngs, no commitment to develop mngs, who recognize the need for
HR commitment via development of
HR
 Departmentalization

– Simple;
– Functional (Geographic; Customers; Products)
– Divisional;
– Matrix;
– Hybrid;
– Network.
 Structures. Functional
 Foster prof identity  Emphasis:
 Identifies career – a) on subunits goals over org
 Skill development goals and priorities (transfer
 Specialization employees…)
– b) differences - conflicts
 Direct supervision
 Poor coordination
 Pools of talents (serve the Co)
  Requires substantial control
Economy of scale
  Department work is given
One mng- avoid confusion
priority
Functional
 Structures. Divisional (SBU)
(around geo areas, clients, outputs)
 More autonomy  Potential of conflict between
 Better coordination mng
 Max utilization of recourses  Competing for resources
 It accommodates growth  Communication complexity
(clients, products are added)  It duplicate recourses
 It is employed when a C expands  Knowledge is not shared
to certain products, services  Reduces cooperation
 Extra product /client can be  Increase of costs
added
 It increases knowledge
 Project format (accountability
and transparency)
Divisional
 Structure. Matrix
 It overlays 2 structures to get benefits (division
(projects) and function)
 2 types: overlaps a functional structure with
project team; balance between 2 divisional
groups (e.g. products and clients or geo and
product divisions)
 Employees are assigned to cross functional team
and belong to functional unit, i.e. 2 bosses
 Structures. Matrix
 Visible objectives (projects)
 Improved control over
recourses
 Support from functional
area
 Better utilization of
recourses
 Better coordination and info
dissemination
 Improved project flexibility,
innovation
 Reduced response time to
customers
 Extra administration
 More then 1 boss
 Complex monitoring and control
systems; Extensive policies and
procedures
 Problems with resources allocation
 Mng should have
coordination/negotiation skills
 Functional mng and project mng
have different priorities
 Potential for conflict
 Economies of scale
 …refer to the cost advantage experienced by a firm when it increases its
level of output. The advantage arises due to the inverse relationship
between per-unit fixed cost and the quantity produced. The greater the
quantity of output produced, the lower the per-unit fixed cost.
 …also result in a fall in average variable costs (average non-fixed costs)
with an increase in output. This is brought about by operational efficiencies
and synergies as a result of an increase in the scale of production.
 …can be realized by a firm at any stage of the production process. In this
case, production refers to the economic concept of production and involves
all activities related to the commodity, not involving the final buyer. Thus,
a business can decide to implement economies of scale in its marketing
division by hiring a large number of marketing professionals. A business
can also adopt the same in its input sourcing division by moving from
human labor to machine labor.


 Types of Economies of Scale

1. Internal Economies of Scale

2. External Economies of Scale
 Sources of Economies of Scale

 1. Purchasing
 2. Managerial
 3. Technological
 Planning for a Change in Org Structure
 Imagine that your company is switching to a matrix structure.
Before, you were working in a functional structure. Now, every
employee is going to report to a team leader as well as a
department manager.
• Draw a hypothetical organizational chart for the previous and
new structures.
• Create a list of things that need to be done before the change
occurs.
• Create a list of things that need to be done after the change
occurs.
• What are the sources of resistance you foresee for a change
such as this? What is your plan of action to overcome this
potential resistance?
 Quiz analysis
 I. True/ False statement (0.5*10=5)
1. Behavioral Bias reflects the tiny view at the other end of the “tunnel” while missing the broader
landscape.
2. Organizations come in many shapes, sizes, and mandates, e.g. for- profit, privately owned etc.
3. OB is defined as a mono-shaped discipline which examines how groups act within the
organization where they work.
4. Motivation and personality topics are from the field of anthropology.
5. OB finds excuses for failure rather than take responsibility for progress.
6. A concern about OB is that its knowledge and techniques can be used to treat people unethically
as well as to help them develop their potential.
7. The social system of the organization consists of individuals and groups and groups may be large
and small, formal and informal.
8. There is a tendency to eliminate layers within a company to make organizational structures flatter.
9. OB helps to learn about thyself and how to deal with others.
10. Organizational Behavior is monodisciplinary and it helps us in the specific way.
 Quiz analysis
 II. Multiple choice (10 points) 
.
5 Among main objectives of OB you cannot
1. What challenges are for OB?: find:
i. ethics i. high productivity
ii. lack of employee engagement ii. understanding employees
iii. Board structure and membership iii. finding right people/// iv. strategic planning
iv. i and ii
 6. Among MNG functions one cannot find:
v. all above
i. planning/ ii. organizing
 2. What is not among the factors affecting OB
implementation? iii. Motiv/ iv. developing good leaders
i. people  7. Well- known limitations of OB are, excluding:
ii. technology i. manipulation of people
iii. environment ii. law of diminishing return
iv. managerial style iii. controlling people/ iv. behavioral bias
v. none above 8. Identifies stages of history of OB development, apart from
 3. Core topics are, except: i. industrial revolution/ ii. HR movement
i. motivation
iii. development of democracy theories
ii. leader behavior and power
iv. all above/ v. none above
iii. interpersonal communication
 9. Roles of MNG (clusters):
iv. penetrating a new market
 4. There are some determinates of behavior in org:
i. marketing, production, operational
i. individuals ii. interpersonal, information processing, decision making
ii. groups iii. decision making, conflict resolution, liaison
iii. structures iv. leader, resource allocator, entrepreneur
iv. all above  10. OB development was not influenced by:
v. none above i. anthropology/ ii. sociology
iii. political science/ iv. juridical science
8 Objectives of Organizational Behavior
 A. Job Satisfaction
 B. Finding the Right People
 C. Organizational Culture
 D. Leadership and Conflict Resolution
 E. Understanding the Employees Better
 F. Understand how to Develop Good Leaders
 G. Develop a Good Team
 H. Higher Productivity
 I. Job Satisfaction
 Topics
 Psychology: personality, motivation, dynamics,
conflicts
 Sociology: leadership, team processes
 Communication theory: interpersonal and business
communication
 MNG- work design, motivation, control etc
 Anthropology: attitude development
 Political science: influence and power, group
structure
 Medical science: stress, its effect
 What OB studies?
 … the power and organizational politics. If you don’t
understand these topics, you will struggle as an
employee, especially in large organizations.
 …and applies the knowledge gained from individuals,
groups, and the effect of structure on behavior in order to
make organizations work more effectively.
 … what people do in an organization and how that
behavior affects the performance of the organization.
 … the interrelation between an individual and an
organization
 Studies interrelation (an individual and
an organization) in the following way:
1. OB helps to learn about thyself and how to deal with others
2. Organizational Behavior is a way of thinking.
3. Organizational Behavior is multidisciplinary and it
helps us multiple ways.
4. The field of organizational behavior is performance
oriented.
5. Organizational Behavior satisfies the need to
understand and predict.
6. It helps us to test personal theories.
 2
7. OB helps the mngs to understand the basis of
motivation and what he should do to motivate his
subordinates.
8. OB helps to maintain cordial industrial relations,
which help to increase the overall productivity.
9. The subject of OB is useful in the field of marketing.
10. This helps greatly in improving bur inter-personal
relations in the organizations and create friendly work
environment.
 Roles of a Manager
 Interpersonal relations
– Supervisor/ figurehead role
– Leader
– Intermediary/ Liaison role

 Information processing
– Receiver /monitor role
– Distributor/ disseminator role
– Representative/ Spokesperson role

 Decision making
– Entrepreneur (role)
– Resource allocator (role)
– Negotiator (role)
 Ethical Dilemma
 Imagine that you are a manager at a consumer products company.
Your company is in negotiations for a merger. If and when the two
companies merge, it seems probable that some jobs will be lost, but
you have no idea how many or who will be gone. You have five
subordinates. One is in the process of buying a house while
undertaking a large debt. The second just received a relatively
lucrative job offer and asked for your opinion as his mentor. You feel
that knowing about the possibility of this merger is important to them
in making these life choices. At the same time, you fear that once you
let them know, everyone in the company will find out and the
negotiations are not complete yet. You may end up losing some of
your best employees, and the merger may not even happen. What do
you do? Do you have an ethical obligation to share this piece of news
with your employees? How would you handle a situation such as this?
 Key Takeaway
 The degree to which a company is centralized and formalized, the number of levels in the
company hierarchy, and the type of departmentalization the company uses are key
elements of a company’s structure. These elements of structure affect the degree to which
the company is effective and innovative as well as employee attitudes and behaviors at
work. These elements come together to create mechanistic and organic structures. Rigid
and bureaucratic, mechanistic structures help companies achieve efficiency, while
organic structures, which are decentralized and flexible, aid companies in achieving
innovativeness. The changing environment of organizations creates the need for newer
forms of organizing. Matrix structures are a cross between functional and product-based
divisional structures. They facilitate information flow and reduce response time to
customers but have challenges, because each employee reports to multiple managers.
Boundaryless organizations blur the boundaries between departments or the boundaries
between the focal organization and others in the environment. These organizations may
take the form of a modular organization, strategic alliance, or self-managing teams.
Learning organizations institutionalize experimentation and benchmarking.
 HW
 All ppt
 Ch. 17
 Planning for a change- in groups!
 Self-assessment , p.535 if you are interested
 Harv Bus Rev . 2000 Sep-Oct;78(5):142-50, 200.
Creating the most frightening company on earth. An interview with Andy Law of
St. Luke's. Interview by Diane L. Coutu
Abstract A Law; PMID: 11143150
Though only five years old, employee-owned St. Luke's Communications has become one of the
most talked about advertising agencies in the United Kingdom, winning numerous awards--though
it doesn't enter contests--and increasing its profits eightfold. Chairman and cofounder Andy Law
attributes the firm's success to its determination to continuously reinvent itself in a world populated
by dot-coms and mega-ad agencies. St Luke's intends to revolutionize the way business is done
and provide a credible alternative to the capitalism of both the old economy and the new. To that
end, it pushes its people to take enormous risks. As Law says in this candid interview, "We're
fundamentally convinced that there is a connection between co-ownership, creativity,
collaboration, and competitive advantage." In this interview, Law comments on topics ranging
from dot-coms--he calls them old-fashioned--to the hazards of St. Luke's environment. "When I
see ... paranoia," he says, "it's a sign there's been too much change." Along the way, he provides
concrete examples of how St. Luke's fosters its brand of "confrontative, angry creativity" and
manages an organization that is run "like a radical democracy." Safety and fear play key roles. No
one has ever been fired for poor performance, so employees can feel secure about their jobs, but
the firm requires people "to peel away all the levels of their personalities.... That's truly
frightening." Self-knowledge, Law says, "is the DNA of a creative company in the creative age."