Chapte Chapte r r ORGANIZATIONAL STRUCTURE AND DESIGN Fourteen Fourteen
ChapterChapterChapterChapter
ORGANIZATIONAL STRUCTURE AND DESIGN
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After reading this chapter you should be able to:
1. Describe organizational structure and how it is revealed by an organizational chart.
2. Explain the basic characteristics of organizational structure as revealed in an organizational chart (hierarchy of authority, division of labor, span of control, line versus staff, and decentralization).
3. Describe different approaches to departmentalization, including functional organizations, product organizations, matrix organizations, and the boundaryless organization.
4. Distinguish classical from neoclassical approaches to organizational design.
5. Distinguish mechanistic organizations from organic organizations as described by the contingency approach to organizational design, and describe the conditions under which each is most appropriate.
6. Describe the five organizational forms identified by Mintzberg: simple structure, machine bureaucracy, professional bureaucracy, divisional structure, and adhocracy.
7. Characterize two forms of interorganizational design --conglomerates and strategic alliances.
Organizational Structure: The Basic Dimensions ofOrganizations (Pp. 518-524)
Organizational Structure - the formal configuration between individuals and groups regarding the allocation of tasks, responsibilities, and authorities within organizationsOrganizational chart - diagram representing the connections
between the various departments within an organization- provides information about the various tasks performed
within an organization and the formal lines of authority between them
Boardmember
Boardmember
Boardmember
Boardmember
ChiefExecutive
OfficerLegal
counsel
President
V.P Sales/Marketing
V.P HumanResources
V.P Production
V.P Researchand Development
IndustrialProductsDirector-
Sales
ConsumerProductsDirector-
Sales
IndustrialProductsDirector-Human
Resources
ConsumerProductsDirector-Human
Resources
IndustrialProductsDirector-
Production
ConsumerProductsDirector-
Production
IndustrialProductsDirector-
R&D
ConsumerProductsDirector-
R&D
WesternRegion
IndustrialProducts
SalesManager
EasternRegion
IndustrialProducts
SalesManager
WesternRegion
ConsumerProducts
SalesManager
EasternRegion
ConsumerProducts
SalesManager
etc. etc. etc. etc. etc. etc. etc. etc. etc. etc.
Figure 14.1Organization Chart
Hierarchy of Authority - a configuration of the reporting relationships withinorganizations (i.e., who reports to whom)Tall organizations - have many levels in the hierarchyFlat organizations - have few levels in the hierarchy
- many organizations have been restructuring by flatteningtheir hierarchy- results in job losses, particularly among middle-level
managers
Organizational Structure: The Basic Dimensions of Organizations (cont.)
Division of Labor - process of dividing the many tasks in an organizationinto specialized jobs- the more tasks are divided into separate jobs, the more those jobs are
specialized, i.e., the narrower the range of activitiesSpan of Control - the number of subordinates in an organization who are
required to report to each managerWide span - many subordinates report to a manager
- typical of flat organizationsNarrow span - few subordinates report to a manager
- typical of tall organizations
ChiefExecutive
Tal
l hie
rarc
hy
ChiefExecutive
Fla
t h
iera
rch
y
Relatively widespan of control
Figure 14.3
Relatively narrowspan of control
Organizational Structure: The Basic Dimensions of Organizations (cont.)
Line and Staff PositionsLine positions - positions in which people can make decisions related
to basic workStaff positions - positions in which people make recommendations to
others but are not involved in decisions concerning day-to-day operations
- line and staff personnel often hold different views about the organization- such differences may be conflict-arousing
Organizational Structure: The Basic Dimensions of Organizations (cont.)
Decentralization - extent to which authority and decision making are spreadthroughout all levels of an organization rather than being reserved fortop management (i.e., centralization)- although not always ideal, there has been a recent trend toward
decentralization
Low Decentralization High decentralization(High centralization) (low centralization)
Eliminates the additional Can eliminate levels of management,responsibility not desired by making a leaner organizationpeople performing routine jobs
Permits crucial decisions to be Promotes greater opportunities formade by individuals who have decisions to be made by people closestthe “big picture” to problems
Table 14.2
Departmentalization: Ways of Structuring Organizations(Pp. 524-530)
Functional Organizations - departmentalization based on the activities orfunctions performed (e.g., sales, finance)- structure usually adopted when starting an organization
Departmentalization - process of breaking organizations into coherent units
- limitations- functional units may lose perspective about overall goals of
the organization- tends to discourage innovation due to lack of coordination
and cross-fertilization among functional units
- advantages- takes advantage of potential economies scale- allows individuals to specialize and perform only those tasks
at which they are most expert
SalesDepartment
ProductionDepartment
Research &DevelopmentDepartment
AccountingDepartment
ChiefExecutive
Officer
President
Figure 14.4Functional Organization of a Typical Manufacturing Firm
Departmentalization: Ways of Structuring Organizations (cont.)
Product Organizations - departmentalization based on the products (orproduct lines) produced- separate divisions established that contain all of the resources
necessary to to develop, manufacture, and sell a product- organization is composed of separate divisions, each of which
operates independentlyCost centers
- advantage - managers from each division can devote their energiesto one particular business
- limitations - loss of economies of scale because of duplication of
resources- ability to attract and retain talented employees- problems of coordination across product lines may arise
Figure 14.5An Example of Product Organization
ProductGroup 2
ProductGroup 1
ProductGroup 3
President
ChiefExecutive
Officer
Prod. = production R&D = research and developmentActg. = accounting
Prod. Actg.Sales R&D Prod. Actg.Sales R&DProd. Actg.Sales R&D
Departmentalization: Ways of Structuring Organizations (cont.)
Matrix Organizations - departmentalization in which a product or project form is superimposed on a functional form- product (project) managers share authority with functional managers- may be either permanent or temporary structureDual authority - employees report to two bosses, one functional, the
other product (project)- three major roles in matrix design
Top leader - individual with authority over both functional and product (project) managers
Matrix bosses - people who head functional departments orspecific projects
Two-boss managers - people who must report to both productand functional managers and attempt to balance thedemands of each
- advantages- permits flexible use of an organization’s human resources- efficient means of responding to changed environment- enhances communication among managers
- limitation - frustration and stress experienced by two-boss managers
ProjectGammamanager
Productionsupportgroup
Legalsupportgroup
Engineeringsupportgroup
ProjectBeta
manager
Productionsupportgroup
Legalsupportgroup
Engineeringsupportgroup
ProjectAlpha
manager
Productionsupportgroup
Legalsupportgroup
Engineeringsupportgroup
Productiondepartment
Legaldepartment
Accountingdepartment
Engineeringdepartment
Farm MachineryDivision
President
Figure 14.7Matrix Organization
Accountingsupportgroup
Accountingsupportgroup
Accountingsupportgroup
Organizational Design (Pp. 530-541)
Organizational Design - process of coordinating the structural elements of anorganization in the most appropriate manner
Classical Organization Theory - approaches that assume there is a single best way to design organizations- effective organizations had a formal hierarchy, clear rules, highly
routine tasks, specialization of labor, narrow spans of control,and impersonal working environment
- fallen into disfavor because it is insensitive to human needs and isnot suited to a changing environment
Neoclassical organization theory - attempt to improve on classical organization theory by arguing that employee satisfaction as well as economic effectiveness are the goals of organizational structure- proposed a “one best way” to structure organizations
- design flat organizations and high degree of decentralization
Organizational Design (cont.)
Contingency Approach - recognizes that no one approach to organizationaldesign is best, but that the best design is the one that best fits withthe existing environmental conditions
External Environment - sum of all the forces with which an organizationmust deal effectively if it is to surviveHighly stable - unchanging environments, environmental demands
are predictableHighly unstable - turbulent environments, conditions change on a
daily basisMechanistic organization - an internal organizational structure in which
people perform specialized jobs, rigid rules are imposed, and authority is vested in a few, top-ranked officials- appropriate for stable environments
Organic organization - an internal organizational structure in which jobs tend to be very general, there are few rules, and decisions can bemade by lower-level employees- appropriate for unstable environments
Departmentfunction
Research
Manufacturing
Theorizedideal structure
Organic
Mechanistic
Organicstructureobserved
Highlyeffective
Ineffective
Mechanisticstructureobserved
Ineffective
Highlyeffective
When a group’s structure did not match the ideal design for
the task, the groups werenot very effective
When a group’s structurematched the ideal design for
the task, the groups werevery effective
Figure 14.8Matching Organizational
Design and Industry
Organizational Design (cont.)
Mintzberg’s Five Organizational Forms - organizations are composed offive basic elements or groups of individuals, any one of which maypredominateOperating core - employees who perform the basic work related to
the organization’s product or serviceStrategic apex - top-level executives responsible for running the
entire organizationMiddle line - managers who transfer information between the
strategic apex and the operating coreTechnostructure - specialists responsible for standardizing various
aspects of the organization’s activitiesSupport staff - individuals who provide indirect support services
Design Description Dominant Group Example
Simple structure Simple, informal Strategic apex Small,authority centralized entrepreneurialin a single person business
Machine bureaucracy Highly complex, formal Technostructure Government offices
environment with clearlines of authority
Professional Complex, decision- Operating core Universitiesbureaucracy making authority is
vested in professionals
Divisionalized Large, formal Middle line Multidivisionstructure organizations with` businesses such as
several separate divisions General Motors
Adhocracy Simple, informal, with Support staff Softwaredecentralized authority development firm
Table 14.4Mintzberg’s Five Organizational Forms
Organizational Design (cont.)
Boundaryless Organization - organization in which chains of command areeliminated, spans of control are unlimited, and rigid departments giveway to empowered teams- requires a great deal of trust to function effectively- traditional managerial power bases are weakened
- several variations of boundaryless organizations that involve only the elimination of external boundariesModular organization - surrounds itself with other
organizations to which it regularly outsources non-core functions- have a central hub that is surrounded by networks
of outside specialists who can be added orsubtracted as needed
Virtual organization - highly flexible, temporary organization formed by a group of companies to exploit a specific opportunity- each participating company contributes only its core
competencies
Interorganizational Designs (Pp. 542-544)
Conglomerates - organizational diversification in which an organization(usually a very large, multinational one) adds an entirely unrelatedbusiness or product to its organizational design- parent company can enjoy the benefits of diversification
- countercyclical business trends across different industries- may provide built-in markets and access to supplies as companies
typically support other companies in the conglomerateStrategic Alliance - organizational design in which two or more separate
companies combine forces to develop and operate a specific business- goal is to provide benefits to each individual organization that could
not be attained by operating separately- offer opportunities for commercial development in countries with
transforming economies- strategy to gain access to markets in foreign countries
Joint Ventures
(different companies work together tofulfill the same
opportunity, eachrequiring the other;
e.g., AT&T and TSYS’sUniversal Card)
Mutual ServiceConsortia
(similar companiespool resources to
share a joint benefit;e.g., hospitals share
expenses to build andoperate an MRI unit)
Value-ChainPartnerships
(different companiesthat rely on each
other for theirunique business;
e.g., customer-supplierrelationships)
Closeness of RelationshipWeak
anddistant
Strongandclose
Figure 14.13A Continuum of Strategic Alliances