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8/6/2019 Organisational Structure and Design
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Organizational Structureand Design
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Defining Organizational Structurey Organizational Structure
y The formal arrangement of jobs within an organization
y
Organizational Designy A process involving decisions about six key elements:
y Work specialization
y Departmentalization
y Chain of command
y Span of control
y Centralization and decentralization
y Formalization
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Purposes of Organizing
y Divides work to be done into specific jobs anddepartments
y
Assigns tasks and responsibilities associated withindividual jobs
y Coordinates diverse organizational tasks
y Establishes relationships among individuals,groups, and departments
y Establishes formal lines of authority
y Allocates organizational resources
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Designing Organizational Structure
yWork Specialization
y The degree to which tasks in the organization are
divided into separate jobs with each stepcompleted by a different person
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Departmentalization by Type
y Functional
y Grouping jobs by
functions performedy Product
y Grouping jobs byproduct line
yGeographicaly Grouping jobs on the
basis of territory orgeography
y Process
y Grouping jobs on the
basis of product orcustomer flow
y Customer
y Grouping jobs by type
of customer and needs
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Functional Departmentalization
Plant Manager
Manager,
Manufacturing
Manager,
Human Resources
Manager,
Accounting
Manager,
Engineering
Manager,
Purchasing
+ Efficiencies from putting together similar specialties and
people with common skills, knowledge, and orientations
+ Coordination within functional area
+ In-depth specialization
Poor communication across functional areas
Limited view of organizational goals
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Geographical
Departmentalization
Vice President
for Sales
Sales Director,Central Region
Sales Director,Southern Region
Sales Director,Western Region
Sales Director,Eastern Region
+ More effective and efficient handling of specific
regional issues that arise
+ Serve needs of unique geographic markets better
Duplication of functions
Can feel isolated from other organizational areas
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Product Departmentalization
+ Allows specialization in particular products and services
+ Managers can become experts in their industry
+ Closer to customers
Duplication of functions
Limited view of organizational goals Source: Bombardier Annual Report.
CEO.
Truck
Division
Car
Division
Bus
Division
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Process Departmentalization
+ More efficient flow of work activities
Can only be used with certain types of products
Plant
Manager
Spinning Dyeing Weaving Fininshing
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Customer Departmentalization
+ Customers needs and problems can be met by specialists
Duplication of functions
Limited view of organizational goals
Director
of Sales
Manager,
Wholesale Accounts
Manager,
Retail Accounts
Manager,
Government Accounts
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Organizational Structure (contd)
yChain of Command
y The continuous line of authority that extendsfrom upper levels of an organization to thelowest levels of the organization and clarifieswho reports to whom
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Organizational Structure (contd)y Authority
y The rights inherent in a managerial position to tell people whatto do and to expect them to do it
y
Responsibilityy The obligation or expectation to perform. Responsibility brings
with it accountability (the need to report and justify work tomanagers superiors)
y Unity of Commandy The concept that a person should have one boss and should
report only to that person
y Delegationy The assignment of authority to another person to carry out
specific duties
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Organizational Structure (contd)
y Line and Staff Authorityy Line managers are responsible for the essential
activities of the organization, includingproduction and sales. Line managers have theauthority to issue orders to those in the chainof commandy
The president, the production manager, and the salesmanager are examples of line managers
y Staff managers have advisory authority, andcannot issue orders to those in the chain ofcommand (except those in their own
department)
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Organizational Structure (contd)
y Span of Controly The number of employees who can be effectively and
efficiently supervised by a managery Width of span is affected by:
y Skills and abilities of the manager and the employeesy Characteristics of the work being doney Similarity of tasksy Complexity of tasks
y Physical proximity of subordinatesy Standardization of tasksy Sophistication of the organizations information systemy Strength of the organizations culturey Preferred style of the manager
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Organizational Structure (contd)
y Centralization
y The degree to which decision making is
concentrated at a single point in the organizationy Organizations in which top managers make all the
decisions and lower-level employees simply carry outthose orders
y Decentralization
y The degree to which lower-level employees provideinput or actually make decisions
y Employee Empowermenty Increasing the decision-making discretion of employees
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Factors that Influence the Amount of
Centralization
y More Centralizationy Environment is stable
y Lower-level managers are not as capable or experiencedat making decisions as upper-level managersy Lower-level managers do not want to have a say in
decisionsy Decisions are significanty
Organization is facing a crisis or the risk of companyfailurey Company is largey Effective implementation of company strategies
depends on managers retaining say over what happens
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Factors that Influence the Amount of
Decentralization
y More Decentralizationy Environment is complex, uncertainy
Lower-level managers are capable and experienced atmaking decisionsy Lower-level managers want a voice in decisionsy Decisions are relatively minory Corporate culture is open to allowing managers to have
a say in what happensy Company is geographically dispersedy Effective implementation of company strategies
depends on managers having involvement andflexibility to make decisions
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Organizational Structure (contd)
y Formalizationy The degree to which jobs within the organization
are standardized and the extent to whichemployee behaviour is guided by rules andproceduresy Highly formalized jobs offer little discretion over what is to
be done
y Low formalization means fewer constraints on howemployees do their work
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Organizational Design Decisionsy Mechanistic Organization
y A rigid and tightlycontrolled structurey
High specializationy Rigid departmentalizationy Narrow spans of controly High formalizationy Limited information network
(mostly downwardcommunication)
y Low decision participation bylower-level employees
y Organic Organizationy Highly flexible and
adaptable structurey
Nonstandardized jobsy Fluid team-based structurey Little direct supervisiony Minimal formal rulesy Open communication
networky Empowered employees
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Mechanistic Versus Organic
Organization
Mechanistic
High Specialization
Rigid Departmentalization
Clear Chain of Command
Narrow Spans of Control Centralization
High Formalization
Organic
Cross-Functional Teams
Cross-Hierarchical Teams
Free Flow of Information
Wide Spans of Control Decentralization
Low Formalization
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Structural Contingency Factors (contd)
y Strategy Frameworks:y Innovation
y Pursuing competitive advantage through meaningfuland unique innovations favours an organic structuring
y Cost minimizationy Focusing on tightly controlling costs requires a
mechanistic structure for the organization
y Imitationy Minimizing risks and maximizing profitability by
copying market leaders requires both organic andmechanistic elements in the organizations structure
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Structural Contingency Factors (contd)
y Strategy and StructureyAchievement of strategic goals is facilitated by
changes in organizational structure thataccommodate and support change
y Size and StructureyAs an organization grows larger, its structure
tends to change from organic to mechanisticwith increased specialization,departmentalization, centralization, and rulesand regulations
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Structural Contingency Factors (contd)
y Technology and Structurey Organizations adapt their structures to their
technologyyWoodwards classification of firms based on the
complexity of the technology employed:y Unit production of single units or small batches
y Mass production of large batches of output
y Process production in continuous process of outputs
y Routine technology = mechanistic organizations
y Nonroutine technology = organic organizations
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Structural Contingency Factors (contd)
y
Environmental Uncertainty and StructureyMechanistic organizational structures tend to
be most effective in stable and simpleenvironments
y The flexibility of organic organizationalstructures is better suited for dynamic andcomplex environments
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Common Organizational Designs
y Traditional Designsy Simple Structure
y Low departmentalization, wide spans of control, centralizedauthority, little formalization
y Functional Structurey Departmentalization by function
y Operations, finance, human resources, and product research anddevelopment
y Divisional Structurey Composed of separate business units or divisions with
limited autonomy under the coordination and control of theparent corporation
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Organizational Designs (contd)
yContemporary Organizational Designsy Team Structures
y The entire organization is made up of work groups orself-managed teams of empowered employees
yMatrix Structuresy Specialists for different functional departments are
assigned to work on projects led by project managers
y Matrix participants have two managers
y Project Structuresy Employees work continuously on projects, moving on
to another project as each project is completed
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A Matrix Organization in an
Aerospace Firm
DesignEngineering Manufacturing
ContractAdministration Purchasing Accounting
HumanResources (HR)
DesignGroup
AlphaProject
ManufacturingGroup
ContractGroup
PurchasingGroup
AccountingGroup
HRGroup
DesignGroup
BetaProject
ManufacturingGroup
ContractGroup
PurchasingGroup
AccountingGroup
HRGroup
Design
Group
Gamma
Project
Manufacturing
Group
Contract
Group
Purchasing
Group
Accounting
Group
HR
Group
DesignGroup
OmegaProject
ManufacturingGroup
ContractGroup
PurchasingGroup
AccountingGroup
HRGroup
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Organizational Designs (contd)y Contemporary Organizational Designs (contd)
y Boundaryless Organizationy A flexible and an unstructured organizational design that is
intended to break down external barriers between theorganization and its customers and suppliers
y Removes internal (horizontal) boundaries:y Eliminates the chain of command
y Has limitless spans of control
y Uses empowered teams rather than departmentsy Eliminates external boundaries:
y Uses virtual, network, and modular organizational structuresto get closer to stakeholders
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Removing Boundariesy Virtual Organization
yAn organization that consists of a small core offull-time employees and that temporarily hires
specialists to work on opportunities that arisey Network Organization
yA small core organization that outsources its majorbusiness functions (e.g., manufacturing) in orderto concentrate on what it does best
y Modular OrganizationyA manufacturing organization that uses outside
suppliers to provide product components for itsfinal assembly operations
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Outsourcing Issues
y Problems in Outsourcing
y Choosing the wrong activities to outsource
y Choosing the wrong vendory Writing a poor contract
y Failing to consider personnel issues
y Losing control over the activity
y Ignoring the hidden costsy Failing to develop an exit strategy (for either moving to
another vendor, or deciding to bring the activity backin-house)
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Organizational Designs (contd)
y Learning Organizationy An organization that has developed the capacity to
continuously learn, adapt, and change through thepractice of knowledge management by employees
y Characteristics of a learning organization:y An open team-based organization design that empowers
employees
y Extensive and open information sharing
y Leadership that provides a shared vision of the organizationsfuture; support; and encouragement
y A strong culture of shared values, trust, openness, and asense of community
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Characteristics of a Learning
Organization