Chapter 11: Organizational Structure Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

Chapter 11: Organizational Structure

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

Organizational Structure

• Organizational structure formally dictates how jobs and tasks are divided and coordinated between individuals and groups within the company.

• An organizational chart is a drawing that represents every job in the organization and the formal reporting relationships between those jobs.

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Elements of Organizational Structure

• Work specialization is the way in which tasks in an organization are divided into separate jobs.» Also known as division of labor.» Assembly line worker.

• Chain of command within an organization essentially answers the question “Who reports to whom?”» Specific flow of authority down through the levels of an

organization’s structure.

• Span of control represents how many employees the manager is responsible for in the organization. » Narrow spans of control allow managers to be much more

hands-on with employees.

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Elements of Organizational Structure, Cont’d

• Centralization reflects where decisions are formally made in organizations.

• A company is high in formalization when there are many specific rules and procedures used to standardize behaviors and decisions.» Necessary coordination mechanism that

organizations rely on to get a standardized product or deliver a standardized service.

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Elements in Combination

• Mechanistic organizations are efficient, rigid, predictable, and standardized organizations that thrive in stable environments.» Rigid and hierarchical chain of command, high

degrees of work specialization, centralization of decision making, and narrow spans of control.

• Organic organizations are flexible, adaptive, outward-focused organizations that thrive in dynamic environments.» Low levels of formalization, weak or multiple chains of

command, low levels of work specialization, and wide spans of control.

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Organizational Design

• Organizational design is the process of creating, selecting, or changing the structure of an organization.» An organizations business environment consists of

its customers, competitors, suppliers, distributors, and other factors external to the firm, all of which have an impact on organizational design.

– Stable environments do not change frequently, and any changes that do occur happen very slowly.

– Dynamic environments change on a frequent basis and require organizations to have structures that are more adaptive.

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Organizational Design, Cont’d

» A company strategy describes an organization’s objectives and goals and how it tries to capitalize on its assets to make money.

Low-cost product strategy rely on selling products at the lowest possible cost.

Differentiation strategy believes that people will pay more for a product that is unique in some way.

– An organization’s technology is the method by which it transforms inputs into outputs.

– Company size refers to the total number of employees, and structure.

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Common Organizational Forms

• Simple structures are perhaps the most common form of organizational design, primarily because there are more small organizations than large ones.

• A bureaucratic structure is an organizational form that exhibits many of the facets of the mechanistic organization. » Designed for efficiency and rely on high levels of work

specialization, formalization, centralization of authority, rigid and well-defined chains of command, and relatively narrow spans of control.

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Bureaucratic Structures

• Functional structure is an organizational form in which employees are grouped by the functions they perform for the organization.

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Multi-Divisional Structures

• Multi-divisional structures are bureaucratic organizational forms in which employees are grouped into divisions around products, geographic regions, or clients.» Product structures group business units around

different products that the company produces.

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Multi-Divisional Structures, Cont’d

» Geographic structures are generally based around the different locations where the company does business.

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Multi-Divisional Structures, Cont’d

» Client structure is an organizational form in which employees are organized around serving customers.

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Matrix Structures

• Matrix structures are a more complex form of organizational design that tries to take advantage of two types of structures at the same time.» The matrix represents a combination of a functional structure

and a product structure.

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Restructuring

• The process of changing an organization’s structure is called restructuring.» Steps in restructuring

– Recognize the need to change– Restructure

• Helping restructuring to succeed» Manage layoff survivors (employees that remain with

the company following a layoff)» One of the best ways to help layoff survivors adjust is to

do things that give them a stronger sense of control.

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How Important is Structure?

• Restructuring has a small negative effect on task performance, likely because changes in specialization, centralization, or formalization may lead to confusion about how exactly employees are supposed to do their jobs, which hinders learning and decision making.

• Restructuring has a more significant negative effect on organizational commitment however.

• Restructuring efforts can increase stress and jeopardize employees’ trust in the organization.

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