Chap 18 - Organizational Structure and Design

8/6/2019 Chap 18 - Organizational Structure and Design

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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

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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.

2009 Prentice-Hall Inc. All rights reserved. 16-1


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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

2009 Prentice-Hall Inc. All rights reserved. 16-20


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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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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

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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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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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

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Associated

with

Chap 18 - Organizational Structure and Design

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