HND – 12. Organization Structure

HND – 12. Organization StructureLim Sei Kee @ cK

All businesses have to organize what they do

A clear structure makes it easier to see which part of the business does what

Organization Structure - How job tasks are formally divided, grouped and coordinated

Intro- Why Have a Structure?

The key question The answer is provided by

1. To what degree are activities subdivided into separate jobs?

Work Specialization

2. On what basis will jobs be grouped together?

Departmentalization

3. To whom do individuals and groups report?

Chain of Command

4. How many individuals can a manager efficiently and effectively direct?

Span of Control

5. Where does decision-making authority lie?

Centralization and decentralization

6. To what degree will there be rules and regulations to direct employees and managers?

Formalization

Key design questions and answers for designing the proper organizational structure

The degree to which activities in the

organization are subdivided into separate

jobs.

Efficient use of employees skills

Efficient use of organizational resources

Work specialization

The basis by which jobs are grouped together.

Functional◦ The grouping of activities by functions performed

Product◦ The grouping of activities by product produced

Customer◦ The grouping of activities by common customers

Geographic◦ The grouping of activities by territory

Process◦ The grouping of activities by work or customer flow

Departmentalization

EngineeringEngineering ReliabilityReliability FinanceFinance

ManufacturingManufacturing DistributionDistribution HumanResources

HumanResources

PublicRelations

PublicRelations

PurchasingPurchasing

OBM CompanyOBM Company

Functional Departmentalization Structure

OBM CompanyOBM Company

SmallHouseholdAppliances

SmallHouseholdAppliances

LargeHouseholdAppliances

LargeHouseholdAppliances

CommercialAppliances

CommercialAppliances

BuildingMaterials and

Products

BuildingMaterials and

Products

Lawn andGarden

Products

Lawn andGarden

Products

AutomotiveProducts

AutomotiveProducts

Product Departmentalization Structure

The unbroken line of authority that extends from

the top of the organization to the lowest level

and clarifies who reports to whom.

Authority – the rights inherent in a managerial position

to give orders and to expect the orders to be obeyed

Unity of command – a subordinate should have only

one superior to whom he or she is directly responsible

Chain of command

Chain of Command

The number of subordinates a manager can

efficiently and effectively direct.

Narrow - can maintain close supervision

Expensive, as they add levels to management

Vertical communication more complex

Encourage tight supervision and discourage employee

autonomy

Wider – reduce costs, cut overhead, speed up

decision making, increase flexibility

Investing heavily on training

Span of control

Contrasting Spans of Control

The degree to which decision making is

concentrated at a single point in the

organization

The degree to which decision making requires

multiple parties to make their own independent

decisions.

Centralization and decentralization

The degree to which jobs within the organization

are standardized.

High – minimum amount of discretion over what is to

be done, when it is to be done, and how he/she should

do it

Low – non-programmed job, employees have a great

deal of freedom to exercise discretion in their work.

Formalization

Simple structure

Bureaucracy

Matrix structure

Organizational designs

A structure characterized by a low degree

of departmentalization, wide spans of

control, authority centralized in a single

person, and a little formalization.

Simple structure

Owner - Manager

Salesperson

Salesperson

Salesperson

Salesperson

Cashier

Strength

Fast, flexible and accountability is clear

Weakness

As organization grows, it become inadequate

Simple structure

◦ A structure of highly operating routine tasks achieved through specialization, 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

Bureaucracy

Strength

Ability to perform standardized activity in a highly

efficient manner

Economies of scale, minimum duplication of personnel

and equipment

Weakness

Specialization creates subunit conflicts

Obsessive concern with following the rules

Bureaucracy

Matrix Structure◦ A structure that creates dual lines of authority and

combines functional and product departmentalization

Key Elements◦ Gains the advantages of functional and product

departmentalization while avoiding their weaknesses◦ Facilitates coordination of complex and

interdependent activities◦ Breaks down unity-of-command concept

Matrix Structure

Matrix Structure (College of Business Administration)

(Dean)

(Director)

Employee

Strength Facilitate the efficient allocation of specialists

and sharing of specialized resources across products.

Facilitate coordination when the organization has a multiplicity of complex activities   

Weakness

Creates confusion

The matrix structure

Team structure

Virtual organization

Boundaryless organization

New structural options

Team Structure

Characteristics:• Breaks down departmental barriers.• Decentralizes decision making to the team level.• Requires employees to be generalists as well as

specialists.• Creates a “flexible bureaucracy.”

Characteristics:• Breaks down departmental barriers.• Decentralizes decision making to the team level.• Requires employees to be generalists as well as

specialists.• Creates a “flexible bureaucracy.”

The use of teams as the central device to coordinate work activities.

Benefits◦ Responsive, flexible◦ Lower admin costs◦ Quicker, more informed decisions

Limitations◦ Interpersonal training costs◦ Slower during team development◦ Role ambiguity increases stress◦ Problems with supervisor role changes◦ Duplication of resources

Evaluating Team-Based Structures

Virtual Organization

Concepts:

Advantage: Provides maximum flexibility while concentrating on what the organization does best.

Disadvantage: Reduced control over key parts of the business.

Concepts:

Advantage: Provides maximum flexibility while concentrating on what the organization does best.

Disadvantage: Reduced control over key parts of the business.

A small, core organization that outsources its major business functions.

Highly centralized with little or no departmentalization.

Virtual Organization

Boundaryless Organization

T-form Concepts:

Eliminate vertical (hierarchical) and horizontal (departmental) internal boundaries.

Breakdown external barriers to customers and suppliers.

T-form Concepts:

Eliminate vertical (hierarchical) and horizontal (departmental) internal boundaries.

Breakdown external barriers to customers and suppliers.

An organization that seeks to eliminate the chain of command, have limitless spans of control, and replace departments with empowered teams.

Mechanistic organization◦ The bureaucracy; a structure that is high in

specialization, formalization, and centralization

Organic organization◦ An adhocracy; a structure that is low in

specialization, formalization, and centralization

Structure follows strategy

Mechanistic and Organic Organizations

Mechanistic Versus Organic Models

Strategy

Size

Technology

Environment

Why do structures differ?

1. Strategy

◦ Innovation Strategy A strategy that emphasizes the introduction of major new

products and services Organic structure best

◦Cost-minimization Strategy A strategy that emphasizes tight cost controls, avoidance

of unnecessary innovation or marketing expenses, and price cutting Mechanistic model best

◦ Imitation Strategy A strategy that seeks to move into new products or new

markets only after their viability has already been proven Mixture of the two types of structure

Four Reasons 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 that

potentially affect the organization’s performance◦ Three key dimensions: capacity, volatility, and

complexity

Why Structures Differ