Chapter Twelve

Managing
Organizational
Design
Slide content created by Charlie Cook, The University of West Alabama
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 Learning Objectives
After studying this chapter, you should be able to:
1. Describe the basic nature of organization design.
2. Identify and explain the two basic universal
perspectives on organization design.
3. Identify and explain several situational influences on
organization design.
4. Discuss how an organization’s strategy and its
design are interrelated.
5. Describe the basic forms of organization design.
6. Describe emerging issues in organization design.

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 The Nature of
Organization Design
• Organization Design
– The overall set of structural elements and the
relationships among those elements used to manage the
total organization.
– A means to implement strategies and plans to achieve
organizational goals.
• Organization Design Concepts
– Organizations are not designed and then left intact.
– Organizations are in a continuous state of change.
– Designs for larger organizations are extremely complex
and have many nuances and variations.

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 Universal Perspectives on
Organization Design
• Bureaucratic Model (Max Weber)
– A logical, rational, and efficient organization design
based on a legitimate and formal system of authority.
– Characteristics
• A division of labor with each position filled by an expert.
• A consistent set of rules that ensure uniformity in task
performance.
• A hierarchy of positions which creates a chain of command.
• Impersonal management; with the appropriate social distance
between superiors and subordinates.
• Employment and advancement is based on technical expertise,
and employees are protected from arbitrary dismissal.

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 Bureaucratic Model
• Advantages
– Efficiency in function due to well-defined practices and
procedures.
– Organizational rules prevent favoritism.
– Recognition of and requirement for expertise stresses the value
of an organization’s employees.
• Disadvantages
– Organizational inflexibility and rigidity due to rules and
procedures.
– Neglects the social and human processes within the
organization.
– Belief in “one best way” to design an organization does not
apply to all organizations and their environments.

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 Table 12.1:
System 1 and
System 4
Organizations

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 Situational Influences on
Organization Design
• Core Technology
– Is the conversion processes used to transform
inputs into outputs.
– Is an organization’s most important technology.
• Joan Woodward
– Initially sought a correlation between organization
size and design; instead, she found a potential
relationship between technology and design:
• As the complexity of technology increases, so do the
number of levels of management.

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 Situational Influences on
Organization Design (cont’d)
• Woodward’s Basic Forms of Technology
– Unit or small-batch technology
• Produces custom-made products to customer
specifications, or else produces in small quantities,
similar to Likert’s System 4 organization.
– Large batch/mass production
• Uses assembly-line production methods to manufacture
large quantities of products; resembles Likert’s System 1.
– Continuous process
• Uses continuous-flow processes to convert raw materials
by process or machine into finished products; resembles
Likert’s System 4.

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 Situational Influences on
Organization Design (cont’d)
• Burns and Stalker
– Forms of the organizational environment
• Stable environments that remain constant over time.
• Unstable environments subject to uncertainty and rapid
change.
– Organization Designs
• Mechanistic organizations that are similar to bureaucratic
or System 1 models; found most frequently in stable
environments.
• Organic organizations that are flexible and informal
models; usually found in unstable and unpredictable
environments.

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 Situational Influences on
Organization Design (cont’d)
• Lawrence and Lorsch
– Differentiation
• The extent to which the organization is broken
down into subunits.
– Integration
• The degree to which the various subunits must
work together in a coordinated fashion.

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 Situational Influences on
Organization Design (cont’d)
• Organizational Size
– Defined as the total number of full-time or full-time
equivalent employees
– Research findings:
• Small firms tend to focus on their core technology.
• Large firms have more job specialization, standard operating
procedures, more rules and regulations, and are more
decentralized.
• Organizational Life Cycle
– A progression through which organizations evolve as
they grow and mature—birth, youth, midlife, and
maturity.

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 Strategy and
Organization Design
• Corporate-Level Strategy
– Single-product strategy
– Related or unrelated diversification
– Portfolio approach to managing strategic
business units

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 Strategy and
Organization Design (cont’d)
• Business-Level Strategy
– Defender
– Prospecting
– Analyzer
• Generic Competitive Strategies
– Differentiation
– Cost leadership
– Focus

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 Strategy and Organization
Design (cont’d)
• Organizational Functions
– Major functions of the organization
influence an organization’s design.

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 Basic Forms of
Organization Design
• Functional or U-form (Unitary) Design
– Organizational members and units are grouped
into functional departments such as marketing and
production.
– Coordination is required across all departments.
– Design approach resembles functional
departmentalization in its advantages and
disadvantages.

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 Figure 12.1: Functional or U-
form Design for a Small
Manufacturing Company

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 Basic Forms of Organization
Design (cont’d)
• Conglomerate or H-form (Holding) Design
– Organization consists of a set of unrelated
businesses with a general manager for each
business.
– Holding-company design is similar to product
departmentalization.
– Coordination is based on the allocation of
resources across companies in the portfolio.
– Design has produced only average to weak
financial performance; has been abandoned for
other approaches.

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 Figure 12.2: Conglomerate (H-
form) Design at Samsung

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 Basic Forms of Organization
Design (cont’d)
• Divisional or M-form (Multidivisional) Design
– Multiple businesses in related areas operating within a
larger organizational framework.
– Results from a strategy of related diversification.
– Some activities are decentralized down to the divisional
level; others are centralized at the corporate level.
– M-form design advantages are the opportunities for
coordination and sharing of resources.
– Successful M-form organizations can out perform U-
form and H-form organizations.

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Figure 12.3: Multidivisional (M-
form) Design at Limited Brands

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 Basic Forms of Organization
Design (cont’d)
• Matrix Design
– Two overlapping bases of departmentalization:
• A set of product groups or temporary departments are
superimposed across the functional departments.
– Employees in the matrix belong to their departments
and the project team:
• A multiple command structure in which an employee reports to
both departmental and project managers.
– A matrix design is useful when:
• There is strong environmental pressure.
• There are large amounts of information to be processed.
• There is pressure for shared resources.

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 Basic Forms of Organization
Design (cont’d)
• Matrix Design Advantages
– Enhances organizational flexibility.
– Creates high motivation and increased organizational
commitment for team members.
– Gives team members opportunity to learn new skills.
– Provides an efficient way for the organization to use its
human resources.
– Uses team members as bridges to their departments
for the team.
– Useful as a vehicle for decentralization.

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 Basic Forms of Organization
Design (cont’d)
• 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.

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 Figure 12.4: A Matrix
Organization

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 Basic Forms of Organization
Design (cont’d)
• Hybrid Designs
– Based on two or more common forms of
organization design—may have a mixture
of related divisions and a single unrelated
division.
– Most organizations use a modified form of
organization design that permits them to
have sufficient flexibility to make
adjustments for strategic purposes.

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 Emerging Issues in
Organization Design
• The Team Organization
– Relies almost exclusively on project-type teams, with little or
no underlying functional hierarchy.
• The Virtual Organization
– Has little or no format structure with few permanent
employees, leased facilities, and outsourced basic support
services.
– May conduct its business entirely on-line and exists only to
meet for a specific and present need.
• The Learning Organization
– Works to facilitate the lifelong learning and development of
its employees while transforming itself to respond to
changing demands and needs.

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 Issues in International
Organization Design
• The trend toward internationalization of
business
– How to design a firm to deal most
effectively with international forces and to
compete in global markets:
• Create an international division?
• Establish an international operating group?
• Make international operations an autonomous
subunit?

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 Figure 12.5: Common
Organization Designs for
International Organizations

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 Key Terms
• organization design • integration
• bureaucracy • organization size
• behavioral model • organizational life cycle
• System 1 design • functional design
• System 4 design • conglomerate design
• situational view of • divisional design
organization design • matrix design
• technology • hybrid design
• mechanistic organization • team organization
• organic organization • virtual organization
• differentiation • learning organization

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