Bm 07 Organization design

Organization

Design

Prof.dr.dr.dr.h.c. Constantin Bratianu

Faculty of Business Administration

Academy of Economic Studies

Learning objectives

Define and explain the process of

organizational structuring

Define and explain the process of

functional structuring

Identify forces that influence organization design

Compare tall and flat organizational structures

Describe the main types of organizational structures

Structure

A structure represents a certain arrangement of elements in a given entity and their connections

In natural and technological systems this arrangement is in concordance with a physical or mathematical law. Example: the law of gravity

In organizational systems there is no such specific law. The field of gravity is built up by management

In any organization there are 2 types of structures:

- organizational structure

- functional structure

Organizational structure

Organizational structure is the result of defining organizational entities (divisions, branches, plants, departments, centers, offices) and hierarchical connections.

The organizational structure is represented by a chart

A university has as organizational entities: faculties, chairs, departments, administration offices.

Each entity contains a group of people having similar jobs. It can be described by a certain work homogeneity

There is no perfect structure for a given organization

Functional structure

Functional structure is the result of defining functional entities, with respect to a given production process.

It is the result of breaking down any process into sub-processes, and these into activities and tasks.

This a result of the specialization theory developed by Adam Smith.

Specialization is the key of increasing efficiency, and it has been developed first in industrial organizations.

Specialization

Vertical specialization refers to the extent to which responsibilities at different levels are defined

Vertical specialization reflects the field of decision making process

Horizontal specialization is the degree to which tasks are divided among separate people or departments

Horizontal specialization is done at the same level of decision power, and reflects the breaking down of the production process – division of labor

Division of labor – making a pin(Adam Smith – The Wealth of Nations, 1993, p.12)

“One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which in some manufactories are all performed by distinct hands.”

Illustration forvertical specialization

Decision making process

Top management

Middle management

Line management

Structure in five – Design effcetive organizations(Henry Mintzberg, 1993, p. 2)

“Every organized activity – from the making of pots to the placing of a man on the moon – gives rise to two fundamental and opposing requirements: the division of labor into various tasks to be performed, and the coordination of these tasks to accomplish the activity. The structure of an organization can be defined simply as the sum total of the ways in which its labor is divided into distinct tasks and then its coordination is achieved among these tasks.”

Structure in five(Henry Mintzberg , 1993, p. 3)

The elements of a structure should be selected to achieve an internal consistency or harmony, as well as a basic consistency with the organization’s situation – its size, its age, the kind of environment in which it functions, the technical systems it uses, and so on.

Five coordinating mechanisms(Henry Mintzberg, 1993, p. 4)

Five coordinating mechanisms seem to explain the fundamental ways in which organizations coordinate their work: mutual adjustment, direct supervision, standardization of work processes, standardization of work outputs, and standardization of worker skills.

These should be considered the most basic elements of structure, the glue that holds organization together

Five coordinating mechanisms(Henry Mintzberg, 1993, p. 4)

Mutual adjustment achieves the coordination of work by simple process of informal communication

Direct supervision achieves coordination by having one person take responsibility for the work of others, issuing instructions to them and monitoring their actions

Work processes are standardized when the contents of the work are specified, or programmed

Outputs are standardized when the results of the work are specified

Skills and knowledge are standardized when the kind of training required to performed the work is specified

Authority (I)

Authority is the right that o person in a specified role has to make decisions, allocate resources or give instructions

Authority comes from the managerial position. It goes with the job

Delegation occurs when one person gives another the authority to undertake specific activities or decisions

Power is the individual capacity to influence decisions. Authority is only a part of the power a certain person may have.

The difference between power and authority may come from individual personality, or from his informal relations with those who have formal authority

Authority (II)

Authority is vested in organizational positions, not people. Managers have authority because of the position they hold, and other people in their position would have the same authority.

Authority is accepted by subordinates.

Authority flows down the vertical hierarchy. Positions at the top of the hierarchy are vested with more formal authority than are positions at the bottom

Types of Power

Coercive power – Power based on fear

Reward power – Power based on the ability to distribute something that others value

Legitimate power – Power based on one’s position in the formal hierarchy

Expert power – Power based on one’s experise, special skills, or knowledge

Referent power – Power based on identification with a person who has desirable resources or personal traits

Responsibility

Responsibility. The duty to perform the task or activity an employee has been assigned. Responsibility is the flip side of the authority coin. When managers have more responsibility than authority, the job is difficult and managers must rely on persuasion. When managers have less responsibility than authority, they may become dictators.

Accountability. The fact that the people with authority and responsibility are subject to reporting and justifying task outcomes to those above them in chain of control.

Command & Control

Chain of command= a continuous line of authority that extends from the highest levels in an organization to the lowest levels and clarifies whoreports to whom

Unity of control= the management principle that each person should report to only one boss

Span of control/Span of management = The number of subordinates a manager can control directly. In vertical structures SC= 7-9; in flat structures SC= 30-40.

Hierarchy structures

Vertical/Tall structure = A management structure characterized by an overall narrow span of management and a relatively large number of hierarchical levels.

Horizontal/ Flat structure = A management structure characterized by an overall broad span of control and relatively few hierarchical levels.

Centralization vs. Decentralization

Centralization = the concentration of authority in the top management level. It comes from the will to control everything

Centralization is characteristic for industry type organizations (mechanical type), and small organizations

Decentralization = pushing down to the lower managerial levels of the decision making process

Decentralization is characteristic for the new emerging type of organizations (organic type)

Departmentalization

Departmentalization = The basis on which individuals are grouped into departments and departments into the total organization.

Functional structure = the grouping of positions into departments based on similar skills, expertise, work activities and resource use. A functional structure can be thought of as departmentalization by organizational resources, because each type of functional activity – accounting, human resources, engineering, manufacturing – represents specific resources for performing the organization’s tasks.

Illustration forhorizontal specialization

S1 S2 S3 S4 S5

Execution responsibilities

Flow of the production process

The golden triangle

Individual objectives

Tasks

Management as a process

Process of management

Process of production

Internal environment

People

Finance

Materials

Energy

Knowledge

Goods

Services

Reputation

Knowledge

Waste

External environmentInterface

Correlations

The functional structure is generated by the production process

The organizational structure is generated by the management process

Theoretically, these 2 structures should be interdependent and correlated in a unique way

Practically, for a given functional structure there are many possible ways of generating the organizational structure

Tall/Vertical structures

Flat/Horizontal structures

Functional design

Production Purchasing HR

Board

Divisional design

Product Division A Product Division B

Prod

Purch

HR Prod HR

Purch

Board

Geographic-Based design

Western US Division Eastern US Division

Prod

Purch

HR Prod HR

Purch

Board

Matrix design

Board

Prod Purch HR

Product Div.A

Product Div.B

Teams design

Board

Network design

Entrepreneur

Manufacturing companies

Distribution companies

Purchasing agencies

HR agency

Modular approach

Modular approach

A manufacturing company uses outside suppliers to provide large components of the product, which are then assembled into a final product by a few workers.

Mechanistic organization

Rigid hierarchical relationships

Fixed duties

Many rules

Formalized communication channels

Centralized decision authority

Taller structures

Organic organization

Collaboration (both vertical and horizontal)

Adaptable duties

Few rules

Informal communication

Decentralized decision authority

Flatter structures

Factors to influence structures

The size of the company

The dynamics of the external business environment

The strategies to be implemented

The specific of processes and technologies

The role of IT