Understanding

Organizational Structures
People, Process and Leadership: Session 10
Session Plan
• Previous class

• Fundamentals of Structure
• Bureaucracy
• Functional Structure
• Divisional Structure

• Video
• How Apple Is Organized for Innovation: The Functional Organization
Objectives
• Explain why a hierarchy of authority emerges in an organization and the
process of vertical differentiation

• Discuss the issues involved in designing a hierarchy to coordinate and motivate

organizational behavior most effectively

• Appreciate the principles of bureaucratic structure and explain their

implications for the design of effective organizational hierarchies

• Explain why organizations are flattening their hierarchies and making more use
of empowered teams of employees, both inside and across different functions
Organizational Size
The Relationship between Organizational Size The Relationship between Organizational Size
and Number of Hierarchical Levels and the Number of Managers
 Relative to the
Hierarchies number of
employees
Tall and flat organizations
Parkinson’s Law Problem
• Growth in the number of managers and
hierarchical levels is controlled by two principles:
3
• Managers seek to increase the number of their
subordinates
• Multiply subordinates, not rivals
• The greater the number of managers below them, the
higher their status 2

• Managers make work for one another

• More managers lead to more work
• Create unnecessary work
• As the number of levels increases, managers must 1
spend more of their time monitoring and controlling
the actions and behaviors of their subordinates
Spans of control: The number of subordinates a manager directly
manages

Principle of minimum
chain of command
• An organization
should choose the
minimum number
of hierarchical
levels consistent
with its goals and
the environment in
which it operates
Limit to a manager’s span of control
Complexity of subordinates’ tasks
• When subordinates’ tasks are
complex and dissimilar, a
manager’s span of control
needs to be small
• If tasks are routine and similar
so that all subordinates
Numberperform
of tasks
the same task, the span of
Task similarity
control can be widenedRoutine
Interrelatedness of subordinates’ tasks
• When subordinates’ tasks are closely
interrelated, what one person does has a
direct effect on what another person does
• Coordination and control are greater
challenges (for a manager)
• When subordinates’ tasks are not closely
interrelated
• The horizontal relationships between
subordinates become relatively unimportant
• The manager’s span of control can be
dramatically increased
Increasing Complexity as the Span of Control
Increases With three subordinates, the manager
has six relationships to handle
The manager has two subordinates
and must manage three relationships
Factors Affecting the Shape of the Hierarchy
Horizontal Differentiation
Horizontal Differentiation into Horizontal Differentiation within the
Functional Hierarchies R&D Functions
How Organizations Increase Control over
Their Activities?
Differentiation Integration

Combine or link
Authority and Control
• Managers should draw a new organizational
chart of their organization or department and
measure
• The number of current employees
• The number of levels in the hierarchy
• The span of control of managers at different levels
• Managers should periodically meet in teams to
consider how best to design and redesign the
hierarchy
• To create the most value at the lowest operating
cost
• Managers must make sure the organizational
hierarchy matches the current needs for
control of the organization
• If the hierarchy has grown too tall, managers
should…
• Combine managerial positions
• Eliminate levels in the hierarchy
• Reassigning the responsibilities of the eliminated
positions to managers in the level above
• Decentralize the responsibilities to managers or
employees in the levels below
• If the hierarchy does not provide the control they
need to maintain adequate supervision,
managers should consider…
• To add a level to the organizational hierarchy
• To increase standardization
• To increase decentralization
• To make better use of the norms and values of the
informal organization
Bureaucracy
• Bureaucracy
• A form of organizational structure in
which people can be held
accountable for their actions
because they are required to act in
accordance with rules and standard
operating procedures (SOP)
• Rational-legal authority
• The authority a person possesses
because of his or her position in an
organization
• Role conflict
• The state of opposition that occurs
when two or more people have
different views of what another
person should do and, as a result,
make conflicting demands on the
person
• Role ambiguity
• The uncertainty that occurs for a
person whose tasks or authority
are not clearly defined

The Principles of Bureaucratic Structure
• A bureaucracy is founded on the
concept of rational-legal authority
• Organizational roles are held on the
basis of technical competence
• A role’s task responsibility and
decision-making authority and its
relationship to other roles should be
clearly specified
To get the
advantages
• Each lower office in the hierarchy is
under the control and supervision of a
higher office
• Rules, standard operating procedures,
and norms should be used to control
the behavior and the relationship
between roles in an organization
• Administrative acts, decisions, and
rules should be formulated and put in
writing
Using Bureaucracy to Benefit the
Organization
• Managers and employees must follow
bureaucratic principles
• Employees and managers should realize that
they do not own their positions in an
organization
• It is their responsibility to use their authority
and control over resources to benefit
stakeholders and not themselves
• Managers should strive to make human
resource decisions as fair and equitable as
possible
• Managers should not let personalities or
relationships influence their decisions
• Reporting relationships are clear and
unambiguous and the rules that members are
using to make decisions meet current needs
• Managers and employees should adopt a
questioning attitude toward the way the
organization works to uncover the taken-for-
granted assumptions and beliefs on which it
operates
• “Is that rule or SOP really necessary?”
• “Who will read the report that I am writing?”
• Management by objectives (MBO) can help
managers evaluate the working of their
hierarchy
IT and the informal organization
• Empowerment
• The process of giving employees
throughout an organization the
authority to make important decisions
and to be responsible for their
outcomes
• Self-managed teams
• Work groups consisting of people who
are jointly responsible for ensuring
that the team accomplishes its goals
• Are empowered to lead themselves
• Cross-functional teams
• Formal work groups of employees
from across an organization’s
different functions
• Are empowered to direct and
coordinate the value-creation
activities
• Contingent workers
• Workers who are employed for
temporary periods by an organization
• Receive no indirect benefits such as
health insurance or pensions
Symptoms of Structural Deficiency
• Decision making is delayed or lacking in quality
• Lacks agility

• The organization does not respond to a changing environment

• Rigid, lacks flexibility

• Employee performance declines and goals are not being met

• Too many conflicts

• Unrelated to personality
• Related to roles and responsibilities
Functional structure
A design that groups people together on
the basis of their common expertise and
experience or because they use the same
resources
Strengths of functional
structures
• Allows economies of scale within
functional departments
• Use same resources
• Enables in-depth knowledge and skill
development
• Enables organization to accomplish
functional goals
• Is best with only one or a few products,
in one or a few locations, one or a few
markets
Exception?
• How Apple Is Organized for Innovation: The Functional Organization
• https://www.youtube.com/watch?v=5hENFA3CJUY
• 4m30
Changing Organizational Structures
• As an organization grows, it needs to change
its functional structure to improve the
control of organizational activities
• Weigh the benefits from moving to a new
structure against the costs
• See whether changing organizational structure
will increase organizational effectiveness
• Divisional structures
• To manage the production of a wide range of
products, markets, or customers
• Product division structure
• If the products are similar
• Centralized support functions
• Geographic structure
• To customize products to the needs of customers in
different geographic areas
• Market structure
• To coordinate the marketing of all of a company’s products
to several distinct groups of customers
• Product team structure
• To reduce product development time by increasing the
integration between support functions
• Multidivisional structure
• Hybrid structure*
• If the organization produces a wide range of different or
complex goods and services
• If the organization operates in more than one business or
industry
From Functional Structure to Divisional Structure
Control Problems in a Functional
Structure Three design choices
• Increase vertical differentiation
• Communication problems • Increase the number of levels in the hierarchy
• Leads to poor horizontal coordination among departments • Decide how much to centralize decision-making at the
top of the organization
• Measurement problems • Decide how much to use rules, SOPs, and norms to
standardize the behavior of low-level employees
• Each product?
• Each location?
• Each market? • Increase horizontal differentiation
• Creating sub-units
• Slow response time to environmental changes
• Location problems (head quarters)
• Customer problems • Increase integration
• The higher the level of differentiation, the more complex
the integrating mechanisms
• May cause decisions to pile on top, hierarchy overload • Complex integrating mechanisms include task forces, teams,
• Strategic problems and integrating roles (Chapter 4)
• Increase integration between subunits to increase
coordination activities and motivate employees
Summary
• The height of an organization’s structure is a function of…
• The number of levels in the hierarchy
• The span of control at each level
• The balance between centralization and decentralization of
authority
• The increase in the size of the managerial component is less
than proportional to the increase in the size of the organization
• Problems with tall hierarchies
• Communication
• Motivation
• Bureaucratic costs
• Principle of minimum chain of command
• An organization should choose the minimum number of hierarchical
levels consistent with the contingencies it faces
• Span of control
• Number of subordinates a manager directly manages
• The two main factors that affect the span of control are task
complexity and task interrelatedness
• Hierarchies are affected by…
• Span of control
• Horizontal differentiation
• Centralization versus decentralization
• Differentiation versus integration
• Standardization versus mutual adjustment
• The influence of the informal organization
• Six principles of bureaucratic theory
• Specify the most effective way to design the hierarchy of authority in
an organization
• Bureaucracy can be fair and equitable and promote organizational
effectiveness by improving organizational design
• Problems can arise if bureaucratic principles are not followed and if
managers allow the organization to become too tall and centralized
• The informal organization affects the way the formal hierarchy of
authority works
• Managers are increasingly making use of IT and creating self-
managed work teams of empowered workers and/or turning to
contingent workers
Next Session: Fundamentals of Structures

• Chapter 6

• Case Group 4: C&C Grocery Stores