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Foundations of Organizational Structure
What is organizational structure,
Common Organizational Design,
Why do structure defer,
Organizational Design and Employ Behavior.
Organizational Structure- Key Elements-( Work
specialization, Departmentalization, Chain of
command, Span of control, Centralization and
decentralization, Formalization), CommonOrganization Designs- (Simple Structure, Bureaucracy,
Matrix structure, New design, Team structure, virtual
organization, Net work based), Why do structure
defer.16-0
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Chapter Learning Objectives
After studying this chapter, you should be able to:
Identify the six elements of an organizations structure.
Identify the characteristics of a bureaucracy.
Describe a matrix organization.
Identify the characteristics of a virtual organization. Show why managers want to create boundary less
organizations.
Demonstrate how organizational structures differ, and
contrast mechanistic and organic structural models.
Analyze the behavioral implications of different
organizational designs.
Show how globalization affects organizational structure.
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What Is Organizational Structure?
Organizational Structure
How job tasks are formally divided, grouped, and
coordinated
The formal allocation of work, roles and administrative
mechanism to control and integrate work activities including
those which cross formal organizational boundaries.
Need for organization structure.
It facilitate management
Encourage growth and diversification
Optimum use of technological improvement
Encourage proper use of HR
Stimulate creativity 16-2
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What Is Organizational Structure?
Key Elements:-
1. Work specialization
2. Departmentalization
3. Chain of command
4. Span of control
5. Centralization and decentralization
6. Formalization
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1.Work Specialization or Division of Labor
The degree to which tasks in the organization aresubdivided into separate jobs
Division of Labor
Breaks jobs into small task which could be performed over
and over again. Makes efficient use of employee skills
Increases employee skills through repetition
Less between-job downtime increases productivity
Specialized training is more efficient
Allows use of specialized equipment
Can create greater economies and efficiencies but not
always
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Work Specialization Economies and Diseconomies
Specialization can reach a point of diminishing returns
(boredom, fatigue, stress, low productivity, poor quality,absenteeism high turnover)
Then job enlargement gives greater efficiencies than
does specialization
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2. Departmentalization
The basis by which jobs are grouped together. Grouping Activities by:
Function-
Example- Manufacturing plant-
Engineering dept., Supply specialist dept., A/c dept.,
Manufacturing dept.,Hospital- Patient care dept, a/c, research
Product
Customer
Geography
Process-(processing customer, product processing ) Production-
Casting, press, tubing, finishing inspection, packaging,
shipping etc
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3.Chain ofCommand
Chain of Command
The unbroken line of authority that extends from the top of the
organization to the lowest echelon and clarifies who reports to whom.
(today it has become less important)
It has two elements 1. Authority 2. Unity of command
Authority
The rights inherent in a managerial position to give orders and to
expect the orders to be obeyed
It is the power of position to exercise discretion in market decisions
affecting other.
Existence of right given to position by their senior manager. Basic objective behind the use of authority is to influence the
behavior of subordinate in terms of doing right things at right time to
achieve organizational objective. It controls negative aspect of
behavior.
The use of authority is determine by the personality factor of possessor16-7
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3.Chain ofCommand (cont.)
Unity of Command A subordinate should have only one superior to whom he or
she is directly responsible.
Today technological boom has made chain of command
less important
1. Self managed and cross cultural teams and new structure
design are becoming more famous.
2. Communication to anyone without formal chair.
3. Information are easily available.
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3.Chain ofCommand- (Difference between authority and power)
Authority1.Right to command
2.It is legitimized by certain rules,
regulation, laws and practices
3.It is institutional and originate
because of structured
relationship
4.It is central element of formal
organization and systematiccommunication.
5.Authority exist in superior
subordinate relationship either
directly or otherwise
Power1. Capacity to command
2. No legitimization
3. Power emerges due to
personal factor and varies
with individual
4. Power reflect political
realities with organizationand relates pattern of action
and interaction that occur
5. Organizational relationship
may not be necessary 16-9
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4. Span ofControlThe number of subordinates a manager can efficiently and
effectively direct.
It determines no of levels-Wider spans of management
increase organizational efficiency.
Speedy decision making
Increase flexibility
Get closer to customer
Empower employee
Narrow span
Can maintain close control
drawbacks:
Expense of additional layers of management
Increased complexity of vertical communication
Encouragement of overly tight supervision and discouragement of
employee autonomy Isolate to m mt. and slow down decision makin
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Contrasting Spans ofControl
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5.Centralization and Decentralization
Centralization The degree to which decision making is concentrated at a
single point in the organization.
Decentralization
The degree to which decision making is spread throughoutthe organization.
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5.Centralization and Decentralization (cont.)
Centralization-1. Top management makes all decision with little or no input from lower
level.
2. The concept include only formal authority.
Decentralization1. Decision making is push down to the mgr, who are closest to
action.
2. Lower level provide input or actually given direction to make
decision (motivates and development)3. Quick to solve problem and reduce burden from top mgmt.
4. More input in decision making.
5. More flexible and responsive
6. Facilitate growth and diversification 16-13
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5.Centralization and Decentralization (cont.)
Demerit of decentralization-
1. Without proper control it can create chaos.
2. More need for good mgr..
3. High degree of self control and self motivation needed
Factor effecting the degree of centralization
1. Size of organization
2. History of organization (amalgamation. consolidation).
3. Management philosophy
4. Availability of manager
5. Pattern of planning
6. Control technique- (high use of control - decentralization)
7. Rate of change in organization
8. Environmental influence16-14
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6. Formalization (cont.)
There will be explicit-
1. Job description
2. Organizational rules
3. Clearly define procedure covering work process
4. Programmed employees job behavior
5. Less input the employees has into how his work is to be done.
They will not consider innovation or alternative.
Formalization varies widely between organization. Some department
needs to be more formalized than other. Also different job will have
different degree of formalization.
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Common Organization Designs: Simple Structure
Simple Structure Bureaucracy
Functional and divisional structure
Matrix structure
New design
Team structure
virtual organization
Net work based
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Common Organization Designs: Simple Structure
Simple Structure1. A structure characterized by a low degree of
departmentalization, wide spans of control, authority
centralized in a single person, and little formalization
2. Flat org. 2-3 vertical level, small org with 10-15 member.
3. Big company might adopt this model when they are in
survival mode.
4. Structure is flexible, inexpensive, clear accountability.
But as the business increases and no. of employee increases1. Decision making becomes difficult and slower.
2. Creates information overload at top
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Owner
Salesperson
Accountperson
Store
manager
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Common Organizational Designs: Bureaucracy
Bureaucracy
A structure of highly operating routine tasks achieved throughspecialization, very formalized rules and regulations, tasks that are
grouped into functional departments, centralized authority, narrow spans
of control, and decision making that follows the chain of command.
Advantages
1. Std. activity are performed in highly efficient manner
2. Economy of scale- minimum duplication
3. Work nicely with less talented people
Disadvantage
1. Fails incase of innovation and non std. decision making
2. Obsessive concern with rules and procedure
3. Cannot cope with non std problem 16-19
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An Assessment of Bureaucracies
Strengths
Functional economies of
scale
Minimum duplication ofpersonnel and equipment
Enhanced communication
Centralized decision
making
Weaknesses
Subunit conflicts with
organizational goals
Obsessive concern withrules and regulations
Lack of employee
discretion to deal with
problems
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Functional and divisional structure
It is the oldest & commonly used structure. In functional
structure org. is departmentalized on the basis of
function performed, like-
Product,
----------------------------------------------------------------------------
region,
__________________________________________________
customer
_________________________________________________
process.
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Product VP
Fueldivision
Lubricantdivision
Chemicaldivision
Process GMtextile
Castingdivision
PressingDivision
Finishing
Division
Marketing manager (customer)
Wholesale
Retailer export
Head office (Region)
East zone Central zone West zone
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Functional and divisional structure
It is the oldest & commonly used structure. In functional
structure org. is departmentalized on the basis of
function performed, like-
Product,
----------------------------------------------------------------------------
region,
__________________________________________________
customer
_________________________________________________
process.
16-22
Product VP
Fueldivision
Lubricantdivision
Chemicaldivision
Process GMtextile
Castingdivision
PressingDivision
Finishing
Division
Marketing manager (customer)
Wholesale
Retailer export
Head office (Region)
East zone Central zone West zone
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Functional and divisional Structure
Functional division
Advantage
1. Logical and efficient (by putting specialist together).
2. Economy of scale- By placing people with common skills &
orientation into common unit.
3. Delegation of authority is easy.
Disadvantage
1. Too much emphasis on specialization hamper the boarding of
out look of various people.
2. Co-ordination and controlproblem between different
department
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Functional and divisional Structure (cont.)
Product
Advantage
1. Co-ordination
2. Facilitates product expansion and diversification.
3. Take care of product line.
4. Fixes increased accountability for product performance.
5. Evaluation/comparison of performance easier.
6. Centralized control easy to achieve.
Disadvantage
1. Duplication of physical facilities and many function2. Under utilization of departments.
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Functional and divisional Structure (cont.)
Process
Advantage
1. Helps when equipment used requires special operating skill.
2. Benefit of specialization
3. Suitable for manufacturing enterprises.
Disadvantage
1. Co-ordination problem
2. Conflict between different manager of various level.
Regional
Advantage1. Benefit of local operation.
2. Co-ordination between zone-region
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Functional and divisional Structure (cont.)
Regional (cont.)
Disadvantage
1. Talented and willing people are always not available to take
charge of zone/region.
2. Integration of different zone difficult.
Customer
Advantage
1. Focused on customer demand.
2. Helps to attract customer
Disadvantage
1. May discriminate between rich and poor.
2. Co-ordination problem between sales and production.
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Common Organizational Designs: Matrix
Matrix Structure
A structure that creates dual lines of authority and combines
functional and product departmentalization.
Each department report simultaneously to both product manager
and functional manager and both manager have equal authority.
Key Elements
Advantage
1. Gains the advantages of functional and product departmentalization
while avoiding their weaknesses
2. Facilitates coordination of complex and interdependent activities
3. Economy of scale due to best allocation of resources and specialist.
4. Breaks down unity-of-command concept
Disadvantage
1. Power struggle
2. Ambiguity, conflict and stress on individual. 16-27
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Matrix Design
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New Design Options: Virtual Organization
1. A small, core organization thatoutsources major of its primary or
secondary business functions.
2. Highly centralized with little or nodepartmentalization.
3. An alliance of several org. for thepurpose of creating a product orservicing client.
Main activities of management-
1.Co-ordinate outsource activities.2.Quality checking
3.Control external relationship throughcomputer network.
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Networked Design
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New Design Options: Virtual Organization (cont.)
Advantage
Provides maximum flexibility while concentrating onwhat the organization does best.
Can realign with environmental requirement.
May become globally competitive.
Disadvantage
Reduced control over key parts of the business. Quality control difficult
Exposure to market force. (other company might bid upfor subcontract and may take away their outsourcer)
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New Design Options: Boundaryless Organization
An organization that seeks to eliminate internal and externalboundary like
1. the chain of command, (vertical boundary)
2. have limitless spans of control, (horizontal boundary) and
3. replace departments with empowered teams
4. T-form Concepts-Eliminate vertical (hierarchical) and
horizontal (departmental) internal boundaries
5. Breakdown external barriers to customers and suppliers.
6. It replaces department with empowered team.
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New Design Options: Boundary less Organization (cont.)
Replacing vertical boundaries by-
1. Flatten structure
2. Hierarchy, status and rankare minimized
3. Participative decision making.
4. 360 degree performance appraisal by senior, peer, subordinate &
customer.
Replacing functions, departments- vertical boundaries by-
1. Cross functional department or team
2. Organization activity around process.
3. Lateral transfer- rotating people.
4. This approach terns specialist into generalist.It also breaks external boundaries constituting supplier, customer, regulator
etc. barrier created by geography-
1. Globalization and strategic alliance
2. Customer org. link
3. Wide use of network, telecommunication16-33
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Team based
Definition- A type of departmentalization with a flat hierarchy
and relatively little formalization, consisting of self-directed
work team responsible for various work process. It uses teams as central device to co-ordinate work activities.
It breaks down dept. barriers.
Decentralized decision making, at the level of work team.
Team may have responsibility for most operational issues and client services.
It allows to achieve advantage of bureaucratic structure in terms ofstd.,
Specialization.
At the same time they have flexibility of team structure.
Activities are structured cross functional teams.
Disadvantage
1. Costly training(ongoing) and co-ordination problem
2. More stress to employee
3. Loss of functional power to leaders
4. Unclear career progression ladders
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Two Extreme Models of Organizational Design
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Four Reasons Structures Differ
1. Strategy2. Organizational Size
3. Technology
4. Environment
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Four Reasons Structures Differ1. Strategy
Innovation Strategy(Organic structure best)
A strategy that emphasizes the introduction of major newproducts and services
Low specialization and formalization.
Cross functional team and wide span of control
Decentralization and cross hierarchy teams
Free flow of information
Cost-minimization Strategy (Mechanistic model best)
A strategy that emphasizes tight cost controls, avoidance ofunnecessary innovation or marketing expenses, and price cutting
Imitation Strategy (Mixture of the two types of structure)
A strategy that seeks to move into new products or new marketsonly after their viability has already been proven
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Why Structures Differ
2. Organizational Size As organizations grow, they become more mechanistic,
more specialized, with more rules and regulations
3. Technology
How an organization transfers its inputs into outputs The more routine the activities, the more mechanistic the
structure with greater formalization
Custom activities need an organic structure
4. Environment
Institutions or forces outside the organization thatpotentially affect the organizations performance
Three key dimensions: capacity, volatility, and complexity
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Three-Dimensional Environment Model
Capacity The degree to which an environment can support growth
Volatility The degree of instability in the environment
Complexity The degree of heterogeneity and concentration among
environmental elements
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Complexity
Volatility
Capacity
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Organizational Designs and Employee Behavior
Impossible to generalize due to individual differences inthe employees
Research findings
Workspecialization contributes to higher employeeproductivity, but it reduces job satisfaction.
The benefits of specialization have decreased rapidly asemployees seek more intrinsically rewarding jobs.
The effect ofspan of control on employee performance iscontingent upon individual differences and abilities, taskstructures, and other organizational factors.
Participative decision making in decentralized organizationsis positively related to job satisfaction.
People seek and stay at organizations that match theirneeds.
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Global Implications
Culture and Organizational Structure Many countries follow the U.S. model
U.S. management may be too individualistic
Culture and Employee Structure Preferences
Cultures with high-power distance may prefer mechanisticstructures
Culture and the Boundary less Organization
May be a solution to regional differences in global firms
Breaks down cultural barriers, especially in strategic alliances
Telecommuting also blurs organizational boundaries
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Summary and Managerial Implications
Structure impacts both the attitudes and behaviors ofthe people within it
Impact of Technology Makes it easier to change structure to fit employee and
organizational needs
16-42
Associated
with