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Structure and Designof Organizations

Peter Drucker: While a poor structure makes a high performance impossible, the best structure in the world will not ensure good performance

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Organization structure

The way component parts and activities are grouped, controlled and coordinated to achieve specific aims and outcomes. How jobs tasks are formally divided, grouped

and coordinated Structure is a means for attaining the objectives

and goals of an organization

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The Organization ChartThe Organization Chart

The chart is an illustration in box and-lines informing about the formal lines of authority and the division of labor.

The Vertical The Vertical HierarchyHierarchy of of Authority: Authority: A glance up and a A glance up and a glance down shows the chain of glance down shows the chain of commandcommand

The Horizontal Specialization: The Horizontal Specialization: A A glance to the left and right on the glance to the left and right on the line of an organization chart line of an organization chart shows the different jobs or work shows the different jobs or work specializationspecialization

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Chart—Example for a HospitalChart—Example for a Hospital

Director of

Personnel

Director of

Admissions

Director of Nutrition &

Food Services

Director of X-Ray &

Laboratory Services

Chief Physician

Director of

Pharmacy

Director of Patient &

Public Relations

Director of Accounting

Director of Surgery

Director of Outpatient Services

Board of Board of DirectorsDirectors

Strategic Strategic Planning AdvisorPlanning Advisor

Chief Executive Chief Executive OfficerOfficer

Legal CounselLegal Counsel

PresidentPresidentCost Containment Cost Containment

StaffStaff

Executive Administrative

Director

Executive Medical Director

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Organization’s Major ElementsOrganization’s Major Elements

Authority Authority refers to the rights inherent in a managerial position to make decisions, give orders, and utilize resources.

Delegation Delegation is the process of assigning managerial authority and responsibility to managers and employees lower in the hierarchyResponsibility Responsibility is the obligation you have to perform the tasks assigned to youAccountability Accountability managers must report and justify work results to managers above them

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Key elements in org.structure

Work specialization: To what degree are tasks subdivided into separate jobs?

Departmentalization: On what basis will jobs be grouped together? By function, product, customer, By territory…

Chain of command: To whom individuals and groups report? Span of control: How many individuals can a manager direct?

Important factors: Required Contact. Degree of Specialization. Ability to Communicate…

Centralization and decentralization: Where does decision-making authority lie? CentralizedCentralized Authority: Authority: important decisions are made by higher-level managers. DecentralizedDecentralized Authority Authority: : important decisions are made by middle-level and supervisory-level managers

Formalization: To what degree will there be rules to direct employees and managers. Refers to the extent to which expectations regarding the means and ends of work are specified and written

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Spans of Control: Narrow versus WideSpans of Control: Narrow versus Wide

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NarrowNarrow

Key:Key:T = Top managerM = Middle managerF = First-line (supervisory) manager

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WideWide CEOCEO

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Contingency Design Contingency Design

Is the process of fitting the Is the process of fitting the organization to the environmentorganization to the environment.

Factors Affecting contingency Factors Affecting contingency Design are:Design are:

1.1. Mechanistic vs. OrganicMechanistic vs. Organic

2.2. Differentiation vs. Differentiation vs. IntegrationIntegration

3.3. SizeSize

4.4. TechnologyTechnology

5.5. Life CycleLife Cycle

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Characteristics of Mechanistic Characteristics of Mechanistic & Organic Organizations& Organic Organizations

Centralized hierarchy of authorityCentralized hierarchy of authority Decentralized hierarchy of authorityDecentralized hierarchy of authority

Many rules and proceduresMany rules and procedures Few rules and proceduresFew rules and procedures

Specialized tasksSpecialized tasks Shared tasksShared tasks

Formalized communicationFormalized communication Informal communicationInformal communication

Few teams or task forcesFew teams or task forces Many teams or task forcesMany teams or task forces

Narrow span of control, taller structureNarrow span of control, taller structure Wider span of control, flatter structureWider span of control, flatter structure

Organic Organic organizationsorganizations

Mechanistic Mechanistic organizationsorganizations

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Types of Organizational StructuresTypes of Organizational Structures

1.1. Simple StructureSimple Structure2.2. Functional StructureFunctional Structure3.3. Divisional StructureDivisional Structure4.4. Conglomerate StructureConglomerate Structure5.5. Hybrid StructureHybrid Structure6.6. Matrix StructureMatrix Structure7.7. Team-Based StructureTeam-Based Structure8.8. Network StructureNetwork Structure

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Simple StructureSimple Structure

There is only one hierarchical level of There is only one hierarchical level of management beneath the ownermanagement beneath the owner

OwnerOwner

Administrative Administrative AssistantAssistant

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Functional StructureFunctional Structure

Structure for Structure for a businessa business PresidentPresident

Vice Vice President, President, MarketingMarketing

ViceVicePresident, President,

FinanceFinance

ViceVicePresident, President, ProductionProduction

ViceVicePresident, President,

Human Human ResourcesResources

Structure for Structure for a hospitala hospital

ChiefChiefAdministratorAdministrator

Chief of Chief of MedicalMedicalServicesServices

Director ofDirector ofAdministrativeAdministrative

ServicesServices

Director of Director of OutpatientOutpatientServicesServices

Director of Director of Nutrition &Nutrition &

Food ServicesFood Services

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Divisional StructureDivisional Structure

1.1. FunctionProduct Divisions FunctionProduct Divisions group activities are arranged around similar products or services

2.2. Customer Divisions Customer Divisions group activities around common customers or clients

3.3. Geographic Divisions Geographic Divisions group activities around defined regional locations

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Divisional StructureDivisional Structure

PresidentPresident

Motion Motion Pictures & TVPictures & TV

DivisionDivision

Music Music DivisionDivision

Magazine &Magazine &Book Book

DivisionDivision

Internet Internet ProductsProductsDivisionDivision

Product Divisional Product Divisional StructureStructure

PresidentPresident

Consumer Consumer LoansLoans

Mortgage Mortgage LoansLoans

Business Business LoansLoans

Agriculture Agriculture LoansLoans

Customer Divisional Customer Divisional StructureStructure

PresidentPresident

WesternWestern RegionRegion

NorthernNorthernRegionRegion

SouthernSouthernRegionRegion

Eastern Eastern RegionRegion

Geographic Divisional Geographic Divisional StructureStructure

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Conglomerate StructuresConglomerate Structures

PresidentPresident

Lighting Lighting ProductsProducts AppliancesAppliances AircraftAircraft

EnginesEngines PlasticsPlastics FinancialFinancialServicesServices

Broad-Broad-castingcasting

This resembles the structure of General ElectricThis resembles the structure of General Electric

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Hybrid StructuresHybrid Structures

Vice-President, Production

Vice-President, Marketing

Vice-President,

Finance

Vice-President,

Human Resources

Functional Functional divisional divisional structurestructure

PresidentPresident

President President CadillacCadillac

PresidentPresidentBuickBuick

PresidentPresidentPontiacPontiac

PresidentPresidentChevroletChevrolet

Product Product Divisional Divisional StructureStructure

ManagerManagerRegion IRegion I

ManagerManagerRegion IIRegion II

ManagerManagerRegion IIIRegion III

ManagerManagerRegion IVRegion IV

Geographical Geographical divisional structuredivisional structure

A Hypothetical example of what GM might useA Hypothetical example of what GM might use

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Matrix StructureMatrix StructurePresidentPresident

Vice Vice President, President,

EngineeringEngineering

Vice Vice President,President,FinanceFinance

Vice Vice President, President, ProductionProduction

ViceVicePresident.President.MarketingMarketing

Project Manager,Taurus

Project Manager,Mustang

Project Manager,Explorer

Project Manager,

Expedition

Functional Functional StructureStructure

Subordinate reports to

both Vice President of marketing &

to project

Manager for Mustang

Project Project structurestructure

Example of Ford Motor CompanyExample of Ford Motor Company

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Advantages of Matrix Organization Efficient use or resources Flexibility in conditions of change and

uncertainty Technical excellence Freeing top management for long-run

planning Improving motivation and commitment Providing opportunities for personal

development

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Team-Based StructuresTeam-Based StructuresPresidentPresident

ViceVicePresident, President, Research &Research &

DevelopmentDevelopment

ViceVicePresident, President,

DesignDesign

ViceVicePresident, President,

EngineeringEngineering

ViceVicePresident, President, MarketingMarketing

Product TeamProduct TeamManager,Manager,

ManufacturingManufacturingLight TrucksLight Trucks

Product TeamProduct TeamManager,Manager,

ManufacturingManufacturingSedansSedans

Product TeamProduct TeamManager,Manager,

ManufacturingManufacturingSport CarsSport Cars

Project team members

Functional structure

Project teams

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Network StructureNetwork Structure

Core of Core of personal personal computer computer companycompany

USAUSA

Design Design StudioStudio

SwedenSweden

Engineering Engineering CompanyCompany

JapanJapan

Components Components AssemblyAssembly

Mexico, AsiaMexico, Asia

DistributionDistributionCompanyCompany

CanadaCanadaAccountingAccounting& Finance& Finance

USAUSA

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Organizational Life CycleOrganizational Life Cycle

• Birth Stage Birth Stage the nonbureaucratic stage in which the organization is created

• Youth Stage Youth Stage the organization is in a prebureaucratic stage, a stage of growth and expansion

• Midlife Stage Midlife Stage the organization becomes bureaucratic, a period of growth evolving into stability

• Maturity Stage Maturity Stage the organization becomes very bureaucratic, large and mechanistic

Consequences of Structural Deficiencies:•Motivation and morale can be affected•Decision making can be slow and of poor quality•Conflict and lack of coordination can occur•Failure to respond to changing circumstances•Rising costs