ChapterChapterChapterChapter

ORGANIZATIONAL STRUCTURE AND DESIGN

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After reading this chapter you should be able to:

1. Describe organizational structure and how it is revealed by an organizational chart.

2. Explain the basic characteristics of organizational structure as revealed in an organizational chart (hierarchy of authority, division of labor, span of control, line versus staff, and decentralization).

3. Describe different approaches to departmentalization, including functional organizations, product organizations, matrix organizations, and the boundaryless organization.

4. Distinguish classical from neoclassical approaches to organizational design.

5. Distinguish mechanistic organizations from organic organizations as described by the contingency approach to organizational design, and describe the conditions under which each is most appropriate.

6. Describe the five organizational forms identified by Mintzberg: simple structure, machine bureaucracy, professional bureaucracy, divisional structure, and adhocracy.

7. Characterize two forms of interorganizational design --conglomerates and strategic alliances.

Organizational Structure: The Basic Dimensions ofOrganizations (Pp. 518-524)

Organizational Structure - the formal configuration between individuals and groups regarding the allocation of tasks, responsibilities, and authorities within organizationsOrganizational chart - diagram representing the connections

between the various departments within an organization- provides information about the various tasks performed

within an organization and the formal lines of authority between them

Boardmember

Boardmember

Boardmember

Boardmember

ChiefExecutive

OfficerLegal

counsel

President

V.P Sales/Marketing

V.P HumanResources

V.P Production

V.P Researchand Development

IndustrialProductsDirector-

Sales

ConsumerProductsDirector-

Sales

IndustrialProductsDirector-Human

Resources

ConsumerProductsDirector-Human

Resources

IndustrialProductsDirector-

Production

ConsumerProductsDirector-

Production

IndustrialProductsDirector-

R&D

ConsumerProductsDirector-

R&D

WesternRegion

IndustrialProducts

SalesManager

EasternRegion

IndustrialProducts

SalesManager

WesternRegion

ConsumerProducts

SalesManager

EasternRegion

ConsumerProducts

SalesManager

etc. etc. etc. etc. etc. etc. etc. etc. etc. etc.

Figure 14.1Organization Chart

Hierarchy of Authority - a configuration of the reporting relationships withinorganizations (i.e., who reports to whom)Tall organizations - have many levels in the hierarchyFlat organizations - have few levels in the hierarchy

- many organizations have been restructuring by flatteningtheir hierarchy- results in job losses, particularly among middle-level

managers

Organizational Structure: The Basic Dimensions of Organizations (cont.)

Division of Labor - process of dividing the many tasks in an organizationinto specialized jobs- the more tasks are divided into separate jobs, the more those jobs are

specialized, i.e., the narrower the range of activitiesSpan of Control - the number of subordinates in an organization who are

required to report to each managerWide span - many subordinates report to a manager

- typical of flat organizationsNarrow span - few subordinates report to a manager

- typical of tall organizations

ChiefExecutive

Tal

l hie

rarc

hy

ChiefExecutive

Fla

t h

iera

rch

y

Relatively widespan of control

Figure 14.3

Relatively narrowspan of control

Organizational Structure: The Basic Dimensions of Organizations (cont.)

Line and Staff PositionsLine positions - positions in which people can make decisions related

to basic workStaff positions - positions in which people make recommendations to

others but are not involved in decisions concerning day-to-day operations

- line and staff personnel often hold different views about the organization- such differences may be conflict-arousing

Organizational Structure: The Basic Dimensions of Organizations (cont.)

Decentralization - extent to which authority and decision making are spreadthroughout all levels of an organization rather than being reserved fortop management (i.e., centralization)- although not always ideal, there has been a recent trend toward

decentralization

Low Decentralization High decentralization(High centralization) (low centralization)

Eliminates the additional Can eliminate levels of management,responsibility not desired by making a leaner organizationpeople performing routine jobs

Permits crucial decisions to be Promotes greater opportunities formade by individuals who have decisions to be made by people closestthe “big picture” to problems

Table 14.2

Departmentalization: Ways of Structuring Organizations(Pp. 524-530)

Functional Organizations - departmentalization based on the activities orfunctions performed (e.g., sales, finance)- structure usually adopted when starting an organization

Departmentalization - process of breaking organizations into coherent units

- limitations- functional units may lose perspective about overall goals of

the organization- tends to discourage innovation due to lack of coordination

and cross-fertilization among functional units

- advantages- takes advantage of potential economies scale- allows individuals to specialize and perform only those tasks

at which they are most expert

SalesDepartment

ProductionDepartment

Research &DevelopmentDepartment

AccountingDepartment

ChiefExecutive

Officer

President

Figure 14.4Functional Organization of a Typical Manufacturing Firm

Departmentalization: Ways of Structuring Organizations (cont.)

Product Organizations - departmentalization based on the products (orproduct lines) produced- separate divisions established that contain all of the resources

necessary to to develop, manufacture, and sell a product- organization is composed of separate divisions, each of which

operates independentlyCost centers

- advantage - managers from each division can devote their energiesto one particular business

- limitations - loss of economies of scale because of duplication of

resources- ability to attract and retain talented employees- problems of coordination across product lines may arise

Figure 14.5An Example of Product Organization

ProductGroup 2

ProductGroup 1

ProductGroup 3

President

ChiefExecutive

Officer

Prod. = production R&D = research and developmentActg. = accounting

Prod. Actg.Sales R&D Prod. Actg.Sales R&DProd. Actg.Sales R&D

Departmentalization: Ways of Structuring Organizations (cont.)

Matrix Organizations - departmentalization in which a product or project form is superimposed on a functional form- product (project) managers share authority with functional managers- may be either permanent or temporary structureDual authority - employees report to two bosses, one functional, the

other product (project)- three major roles in matrix design

Top leader - individual with authority over both functional and product (project) managers

Matrix bosses - people who head functional departments orspecific projects

Two-boss managers - people who must report to both productand functional managers and attempt to balance thedemands of each

- advantages- permits flexible use of an organization’s human resources- efficient means of responding to changed environment- enhances communication among managers

- limitation - frustration and stress experienced by two-boss managers

ProjectGammamanager

Productionsupportgroup

Legalsupportgroup

Engineeringsupportgroup

ProjectBeta

manager

Productionsupportgroup

Legalsupportgroup

Engineeringsupportgroup

ProjectAlpha

manager

Productionsupportgroup

Legalsupportgroup

Engineeringsupportgroup

Productiondepartment

Legaldepartment

Accountingdepartment

Engineeringdepartment

Farm MachineryDivision

President

Figure 14.7Matrix Organization

Accountingsupportgroup

Accountingsupportgroup

Accountingsupportgroup

Organizational Design (Pp. 530-541)

Organizational Design - process of coordinating the structural elements of anorganization in the most appropriate manner

Classical Organization Theory - approaches that assume there is a single best way to design organizations- effective organizations had a formal hierarchy, clear rules, highly

routine tasks, specialization of labor, narrow spans of control,and impersonal working environment

- fallen into disfavor because it is insensitive to human needs and isnot suited to a changing environment

Neoclassical organization theory - attempt to improve on classical organization theory by arguing that employee satisfaction as well as economic effectiveness are the goals of organizational structure- proposed a “one best way” to structure organizations

- design flat organizations and high degree of decentralization

Organizational Design (cont.)

Contingency Approach - recognizes that no one approach to organizationaldesign is best, but that the best design is the one that best fits withthe existing environmental conditions

External Environment - sum of all the forces with which an organizationmust deal effectively if it is to surviveHighly stable - unchanging environments, environmental demands

are predictableHighly unstable - turbulent environments, conditions change on a

daily basisMechanistic organization - an internal organizational structure in which

people perform specialized jobs, rigid rules are imposed, and authority is vested in a few, top-ranked officials- appropriate for stable environments

Organic organization - an internal organizational structure in which jobs tend to be very general, there are few rules, and decisions can bemade by lower-level employees- appropriate for unstable environments

Departmentfunction

Research

Manufacturing

Theorizedideal structure

Organic

Mechanistic

Organicstructureobserved

Highlyeffective

Ineffective

Mechanisticstructureobserved

Ineffective

Highlyeffective

When a group’s structure did not match the ideal design for

the task, the groups werenot very effective

When a group’s structurematched the ideal design for

the task, the groups werevery effective

Figure 14.8Matching Organizational

Design and Industry

Organizational Design (cont.)

Mintzberg’s Five Organizational Forms - organizations are composed offive basic elements or groups of individuals, any one of which maypredominateOperating core - employees who perform the basic work related to

the organization’s product or serviceStrategic apex - top-level executives responsible for running the

entire organizationMiddle line - managers who transfer information between the

strategic apex and the operating coreTechnostructure - specialists responsible for standardizing various

aspects of the organization’s activitiesSupport staff - individuals who provide indirect support services

Design Description Dominant Group Example

Simple structure Simple, informal Strategic apex Small,authority centralized entrepreneurialin a single person business

Machine bureaucracy Highly complex, formal Technostructure Government offices

environment with clearlines of authority

Professional Complex, decision- Operating core Universitiesbureaucracy making authority is

vested in professionals

Divisionalized Large, formal Middle line Multidivisionstructure organizations with` businesses such as

several separate divisions General Motors

Adhocracy Simple, informal, with Support staff Softwaredecentralized authority development firm

Table 14.4Mintzberg’s Five Organizational Forms

Organizational Design (cont.)

Boundaryless Organization - organization in which chains of command areeliminated, spans of control are unlimited, and rigid departments giveway to empowered teams- requires a great deal of trust to function effectively- traditional managerial power bases are weakened

- several variations of boundaryless organizations that involve only the elimination of external boundariesModular organization - surrounds itself with other

organizations to which it regularly outsources non-core functions- have a central hub that is surrounded by networks

of outside specialists who can be added orsubtracted as needed

Virtual organization - highly flexible, temporary organization formed by a group of companies to exploit a specific opportunity- each participating company contributes only its core

competencies

Interorganizational Designs (Pp. 542-544)

Conglomerates - organizational diversification in which an organization(usually a very large, multinational one) adds an entirely unrelatedbusiness or product to its organizational design- parent company can enjoy the benefits of diversification

- countercyclical business trends across different industries- may provide built-in markets and access to supplies as companies

typically support other companies in the conglomerateStrategic Alliance - organizational design in which two or more separate

companies combine forces to develop and operate a specific business- goal is to provide benefits to each individual organization that could

not be attained by operating separately- offer opportunities for commercial development in countries with

transforming economies- strategy to gain access to markets in foreign countries

Joint Ventures

(different companies work together tofulfill the same

opportunity, eachrequiring the other;

e.g., AT&T and TSYS’sUniversal Card)

Mutual ServiceConsortia

(similar companiespool resources to

share a joint benefit;e.g., hospitals share

expenses to build andoperate an MRI unit)

Value-ChainPartnerships

(different companiesthat rely on each

other for theirunique business;

e.g., customer-supplierrelationships)

Closeness of RelationshipWeak

anddistant

Strongandclose

Figure 14.13A Continuum of Strategic Alliances