Organization Theory Chapter 4 PowerPoint

Basic Challenges
of Organizational
Design
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 4-1

 Describe the four basic organizational
design challenges confronting managers
and consultants
 Discuss the way in which these challenges
must be addressed simultaneously if a
high-performing organizational structure is
to be created
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall

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 Distinguish among the design choices that
underlie the creation of either a mechanistic
or an organic structure
 Recognize how to use contingency theory
to design a structure that fits an
organization’s environment

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 Managers confront the following challenges as they
coordinate organizational activities
1.choose the right extent of vertical and horizontal
differentiation.
2. strike an appropriate balance between differentiation and
integration and use appropriate integrating mechanisms.
3.strike an appropriate balance between the centralization
and decentralization of decision-making authority.
4. strike an appropriate balance between standardization and
mutual adjustment by using the right amounts of
formalization and socialization.
5.strike an appropriate balance between mechanistic and
organic structures.

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 Differentiation is the process of establishing
and controlling the division of labor within an
organization.
 The process by which an organization allocates
people and resources to organizational tasks and
establishes the task and authority relationships
that allow the organization to achieve its goals

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 Division of labor is the process of
establishing and controlling the degree of
specialization in the organization.
 A simple organization has low division of
labor and few coordination problems.
 Growth makes an organization complex,
where both division of labor and
differentiation are high

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 Set of task-related behaviors required of a
person by his or her position in an
organization
A person who is given a role with identifiable tasks and
responsibilities can be held accountable for the resources
used to accomplish the duties of that role.
 As the division of labor increases, managers
specialize in some roles and hire people to
specialize in others
 Specialization allows people to develop their
individual abilities and knowledge within their
specific role
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 Because a manager holds employees
responsible for their behavior, the manager
has authority over the employees.
 Clearly defined roles and authority

relationships give organizations the control
to facilitate goal achievement.

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 Organizational structure is based on a
system of interlocking roles
 The relationship of one role to another is defined
by task-related behaviors

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 Authority: The power to hold people
accountable for their actions and to
make decisions about how to use and
invest organizational resources
When an individual clearly understands the responsibilities of
his/her role and what a superior can require of a person of
that role, the result within the organization is control
 Control: The ability to coordinate and
motivate people to work in the
organization’s interests

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 People with similar and related roles are
grouped into a subunit.
 The main subunits that develop in
organizations are functions( or
departments) and divisions.

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 Function: A subunit composed of a group of
people, working together, who possess
similar skills or use the same kind of
knowledge, tools, or techniques to perform
their jobs
 Division: A subunit that consists of a
collection of functions or departments that
share responsibility for producing a
particular good or service

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The number of different functions and
divisions that an organization possesses is a
measure of the organization’s complexity-it’s
degree of differentiation.
Differentiation into functions and divisions
increases an organization’s control over its
activities and allows the organization to
accomplish its tasks more efficiently.

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 As organizations grow, they differentiate into
five functional roles:
 Support functions:facilitate an organization’s control of
its relations with its environment and its stakeholders.
Support functions include purchasing, sales and marketing,
and public relations and legal affairs.
 Purchasing: handling the acquisition of inputs.
 Sales and marketing: handling the disposal of
outputs
 Public relations and legal affairs: respond to the
needs of outside stakeholders.

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 Production functions manage and improve the
efficiency of an organization’s conversion
processes so that more value is created.
Production functions include:
 production operations( control the manufacturing
process)
 production control ( decide on the most efficient
way to produce the goods at the lowest cost)
 quality control (monitor product quality)

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 Maintenance functions enable an organization to
keep its departments in operation.
Maintenance functions include:
 Personnel ( recruit and train employees and
improve skills)
 Engineering (repair broken machinery)
 Janitorial services (keep the work environment safe
and healthy)

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 Adaptive functions allow an organization to adjust
to changes in the environment. Adaptive functions
include research and development, market
research, and long-range planning.
 The functions allow the organization to learn from
and attempt to manage it’s environment and thus
increase it’s core competences.

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 Managerial functions facilitate the control and
coordination of activities within and among
departments.
 Managers at different organizational levels direct
the acquisition of, investment in and control of
resources to improve the organization’s ability to
create value
 Managers at different levels have different roles.
-Top managers formulate strategy and establishing policies the
organizations uses to control its environment.
-Middle managers use resources to meet goals.
-Lower-level managers oversee and direct the activities of the
workforce.

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 In the B.A.R. and Grille, differentiation at first was minimal. The
owners, with the help of one other person, did all the work.
 The restaurant saw unexpected success and felt the need to
differentiate activities into separate organizational roles and
functions to meet the demands of the growing organization.
 The B.A.R. and Grille developed various roles within their
organization:
 The services manager handled advertising and bought supplies, a
support role.
 Dividing labor between the kitchen and dining room facilitated
production, The chef was involved in the production role.
 The accountant, cashiers, and the cleaning staff performed
maintenance roles.
 Bob and Amanda ensured good customer service, an adaptive role,
and created task and functional relationships, a managerial role.

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The B.A.R. and Grille differentiated into divisions as additional
restaurants were added.
 Each division made use of support functions centralized at the
top of the organization.
In large organizations each division is likely to have its own set
of the five basic functions and is thus a self-contained division.
Functional skills and abilities are the source of an
organization’s core competences. A core competence of the
B.A.R. and Grille was the way Bob and Amanda took control of
the differentiation of their restaurant and increased its ability to
attract customers who appreciated the good food and good
service they received.

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 Every organizational role has a vertical and
horizontal dimension. (Refer to Figure 4.2)
 Organizational roles are vertically
differentiated according to the hierarchy of
authority. A classification of people according
to their relative authority and rank is called a
hierarchy.
 Hierarchy: A classification of people
according to their relative authority and
rank

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 An organizational chart is a drawing that
shows the end result of organizational
differentiation.
 Each box on the chart represents a role or
function in the organization.
 Each role has a vertical and horizontal
dimension.

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Vertical differentiation: The way an organization
designs its hierarchy of authority and creates
reporting relationships to link organizational roles
and subunits.
Vertical differentiation provides control over
activities.
Horizontal differentiation: The way an organization
groups organizational tasks into roles and roles into
subunits (functions and divisions).
Horizontal differentiation establishes the division of labor that
enables people in an organization to become more specialized
and productive and increases its ability to create value

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 Horizontal differentiation is supposed to
enable people to specialize and become
more productive
 Specialization limits communication between
subunits and prevents them from learning from
one another
 People develop subunit orientation
 Subunit orientation: a tendency to view one’s role
in the organization strictly from the perspective of
the time frame, goals, and interpersonal
orientations of one’s subunit

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To avoid the communication problems that can arise
from horizontal differentiation, organizations try to
find new or better ways to integrate functions, that is
to promote cooperation, coordination and
communication among different subunits.
Integration: The process of coordinating
various tasks, functions, and divisions so that
they work together and not at cross-
purposes.

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1. Hierarchy of authority: specifies reporting
relationships. The simplest mechanisms,
because it dictates who reports to whom, it
coordinates various organizational roles.
2. Direct contact: requires managers from
different functions to meet to coordinate
activities. Problematic that a manager in one
function has no authority over a manager in
another
3. Liaison roles: A specific manager is given
responsibility for coordinating with managers
from other subunits on behalf of their
subunits Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
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4. Task force: create a temporary cross-
functional committee set up to handle a
specific problem
 Task force members responsible for taking
coordinating solutions back to their respective
functions for further input and approval
5. Teams: require different functional
managers to coordinate activities.
 A permanent task force used to deal with
ongoing strategic or administrative issues

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6.Integrating role: coordinate two or more
functions or divisions.
- A full-time position established specifically
to improve communication between divisions
 Focused on company-wide integration
7.Integrating department: A new department
intended to coordinate the activities of
functions or divisions
 Created when many employees enact integrating
roles

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 Managers need to optimize integration and
differentiation.
1.Carefully guide the process of differentiation
so an organization build the core competences
that give it a competitive advantage.
2.Carefully integrate the organization by
choosing appropriate coordinating mechanisms
that allow subunits to cooperate and work
together to strengthen its core competences.

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 Establishing a hierarchy of authority is
supposed to improve the way an
organization functions because people can
be held accountable for their actions
 As responsibility and risk taking decline so
does organizational performance, because
its members do not take advantage of new
opportunities for using its core
competences

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 Centralized organization: Organizational setup in
which the authority to make important decisions
is retained by managers at the top of the
hierarchy
 Centralization keeps a company focused on
goals, but managers become involved in day-to-
day decisions and lose sight of strategic or long-
term decision making.
 Managers who want to discourage risk-taking
and maximize control over subordinates’
performance centralize authority

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 Decentralized organization: An organizational
setup in which the authority to make important
decisions about organizational resources and to
initiate new projects
 Decentralization offers flexibility and
responsiveness, making managers accountable
risk-takers. Opportunities to demonstrate skills
and competences motivate managers.
 Decentralization makes planning and coordination
difficult, and the company may lose control of
decision making.

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 Ideal balance entails:
 Enabling middle and lower managers who are at
the scene of the action to make important
decisions
 Allowing top managers to focus on long-term
strategy making

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 Standardization: Conformity to specific models
or examples that are considered proper in a
given situation
 Defined by rules and norms
 Mutual adjustment is the evolving process
through which people use their current best
judgment of events rather than standardized
rules to address problems, guide decision
making, and promote coordination.


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 Formalization: The use of written rules and
procedures to standardize operations
 Rules: Formal, written statement that specify the
appropriate means for reaching desired goals
 Norms: Standards or styles of behavior that are
considered acceptable or typical for a group of
people and which also regulate and govern their
behavior
 Socialization: Organizational members learn the
norms of an organization and internalize these
unwritten rules of conduct

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 Challenge facing managers is:
 To find a way of using rules and norms to
standardize behavior
at the same time
 To allow for mutual adjustment to give managers
opportunity to discover new and better ways to
achieve goals
 Integrating mechanisms, such as task forces and
teams, increase mutual adjustment. Complex,
uncertain tasks rely on mutual adjustment.
 An appropriate balance between standardization and mutual
adjustment promotes creative and responsible behavior.

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 Mechanistic structures are designed to induce
people to behave in predictable, accountable ways.
Decision-making authority is centralized,
subordinates are closely supervised, and
information flows mainly in a vertical direction
down a clearly defined hierarchy. (Refer to Figure
4.7a)
 Emphasis on the hierarchy makes the informal
organization aware of status. Promotion is slow
and one’s career path outlined. This rigid structure
is appropriate in stable, unchanging environments.

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 Organic structures encourage flexibility and
decentralize decision making. Roles are
loosely defined. Employees perform many
tasks and work with people from various
functions. (Refer to Figure 4.7b)

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 A management approach in which the design
of an organization’s structure is tailored to the
sources of uncertainty facing an organization
 Organization should design its structure to fit
its environment
 Mechanistic and organic structures are ideals,
useful for understanding the effect of structure
on behavior, but in reality, organizations mix
both structures.

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 Investigated how companies in different
industries differentiate and integrate their
structures to fit the environment
 Three industries that experienced different levels
of uncertainty:
 The plastics industry
 The food-processing industry
 The container or can-manufacturing industry

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1. In complex, unstable environments, attitudes vary
significantly. Each department creates its own
response to environmental issues.
2. In unstable, uncertain environments, informal and
decentralized organizations using mutual adjustment
are more effective.
3. In stable, certain environments, centralization,
formalization, and standardization are more effective.
4. Effective companies match levels of integration with
levels of differentiation. Highly differentiated
companies have complex integrating mechanisms.

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 Organizations need different kinds of structure to
control their activities based on the environment
Organic structures are more effective when the
environment is unstable and changing
A flat, decentralized structure increases communication,
information sharing, and customer responsiveness.
Mechanistic structures are more effective in stable
environments.
A stable environment makes complex decision making
unnecessary, transactions are managed easily, and
centralized authority is more effective.

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system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior written permission of the
publisher. Printed in the United States of America.
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Hall
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Basic Challenges

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 Clearly defined roles and authority

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