Organizational Structure McGraw-Hill/Irwin McShane/Von Glinow OB 5e Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Nov 08, 2014
Organizational Structure
McGraw-Hill/IrwinMcShane/Von Glinow OB 5e Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
13-2
Choosing an Organizational Structure at BioWare
Ray Muzyka (left) and Greg
Zeschuk (right) designed an
organizational structure for
their electronic games
company, Bioware, that
balances the need for
teamwork and information
sharing.
13-3
Organizational Structure Defined
Division of labor and patterns of coordination, communication, workflow, and formal power that direct organizational activities.
Relates to many OB topics• e.g. job design, teams, power,
org culture, org change
13-4
Division of Labor
Subdividing work into separate jobs assigned to different people
Division of labor is limited by ability to coordinate work
Potentially increases work efficiency
Necessary as company grows and work becomes more complex
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Coordinating Work Activities
1. Informal communication• Sharing information, forming common mental
models• Allows flexibility• Vital in nonroutine and ambiguous situations• Easiest in small firms• Applied in team-based structures• Includes integrator roles
13-6
Coordinating Work Activities
2. Formal hierarchy• Direct supervision• Assigns formal (legitimate) power to manage others • Coordination strategy for departmentalization
3. Standardizationa)Standardized processes (e.g., job descriptions)
b)Standardized outputs (e.g., sales targets)
c) Standardized skills (e.g., training)
13-7
Elements ofElements ofOrganizational Organizational
StructureStructure
Span of Span of ControlControl
CentralizationCentralization
Department-Department-alizationalization
FormalizationFormalization
Elements of Organizational Structure
13-8
Span of Control
Number of people directly reporting to the next level
• Assumes coordination through direct supervision
Wider span of control possible when:
• Other coordinating mechanisms present
• Routine tasks• Low employee
interdependence
13-9
Tall vs Flat Structures
As companies grow, they:• Build taller hierarchy• Widen span, or both
Problems with tall hierarchies• Overhead costs• Worse upward information• Focus power around managers,
so staff less empowered
13-10
Issues with Tall vs Flatter Structures Firms moving toward flatter structures
(delayering) because taller hierarchies have:• Higher mgt overhead costs• Less information flow• Less staff empowerment
But also problems with flatter hierarchies• Undermines management functions• Increases workload and stress• Restricts management career development
13-11
Formal decision making authority is held by Formal decision making authority is held by a few people, usually at the topa few people, usually at the top
Centralization
Decision making authority isdispersed throughout the organization
Decentralization
Centralization and Decentralization
13-12
Formalization
The degree to which organizations standardize behavior through rules, procedures, formal training, and related mechanisms.
Formalization increases as firms get older, larger, and more regulated
Problems with formalization• Reduces organizational flexibility• Discourages organizational learning/creativity• Reduces work efficiency• Increases job dissatisfaction and work stress
13-13
Growing an Organic Taxi
Award-winning TAXI relies on an organic structure to maintain its creative advantage. TAXI cofounder Paul Lavoie (bottom right in this New York City office photo) says that most firms are “so layered that a great idea was easily crushed…We needed a flexible infrastructure, able to move with the pace of change. TAXI started lean and nimble, and remains so today.”
13-14
Mechanistic vs. Organic Structures
Organic Structure• Wide span of control• Little formalization• Decentralized decisions
Mechanistic Structure• Narrow span of control• High formalization• High centralization
13-15
Departmentalization
Specifies how employees and their activities are grouped together
Three functions of departmentalization
1. Establishes chain of command
2. Creates common mental models, measures of performance, etc
3. Encourages coordination through informal communication
13-16
Organizes employees around specific knowledge or other resources (e.g., marketing, production)
CEOCEO
FinanceFinance ProductionProduction MarketingMarketing
Functional Organizational Structure
13-17
Evaluating Functional Structures
Benefits• Economy of scale• Supports professional identity and career paths• Easier supervision
Limitations• More emphasis on subunit than organizational
goals • Higher dysfunctional conflict• Poorer coordination -- requires more controls
13-18
Organizes employees around outputs,clients, or geographic areas
Divisional Structure
CEOCEO
HealthcareHealthcare LightingLightingProductsProducts
ConsumerConsumer Lifestyle Lifestyle
13-19
Divisional Structure
Different forms of divisional structure• Geographic structure• Product structure• Client structure
Best form depends on environmental diversity or uncertainty
Movement away from geographic form• Less need for local representation• Reduced geographic variation• More global clients
13-20
Evaluating Divisional Structures
Benefits• Building block structure -- accommodates growth• Focuses on markets/products/clients
Limitations• Duplication, inefficient use of resources• Specializations are dispersed--silos of knowledge• Politics/conflict when two forms of equal value
13-21
Team-Based Structure
Self-directed work teams
Teams organized around work processes
Typically organic structure• Wide span of control – many employees work
without close supervision• Decentralized with moderate/little formalization
Usually found within divisionalized structure
13-22
Evaluating Team-Based Structures
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
13-23
Bioware’s Matrix Structure
Ray Muzyka (left) and Greg Zeschuk (right) adopted a matrix organizational structure for their electronic games company, Bioware, because it balances the need for teamwork and information sharing.
13-24
Audio DeptAudio DeptLeaderLeader
SoftwareSoftwareDept LeaderDept Leader
Art DeptArt DeptLeaderLeader
Game1Game1Project LeaderProject Leader
Game2Game2Project LeaderProject Leader
Game3Game3Project LeaderProject Leader
Matrix Structure (Project-based)
CEOCEO
Employees ( ) are temporarily assigned to a specificproject team and have a permanent functional unit
13-25
Evaluating Matrix Structures Benefits
• Uses resources and expertise effectively• Improves communication, flexibility, innovation • Focuses specialists on clients and products• Supports knowledge sharing within specialty• Solution when two divisions have equal importance
Limitations• Increases goal conflict and ambiguity• Two bosses dilutes accountability• More conflict, organizational politics, and stress
13-26
CoreFirm
ProductProductdevelopment development
partnerpartner(U.S.A.)(U.S.A.)
CallCallcentercenterpartnerpartner
(Philippines)(Philippines)
Accounting Accounting partnerpartner(U.S.A.)(U.S.A.)
Package Package design design partnerpartner
(UK)(UK)
Assembly Assembly partnerpartner
(Mexico)(Mexico)
Network Organizational Structure
Alliance of firms creating a product or service
Supporting firms beehived around a “hub” or “core” firm
13-27
Evaluating Network Structures
Benefits• Highly flexible• Potentially better use of skills and technology• Not saddled with same resources for all products
Limitations• Exposed to market forces• Less control over subcontractors than in-house
13-28
External Environment & Structure
DynamicDynamic
• High rate of change• Use team-based, network, or
other organic structure
StableStable
• Steady conditions, predictable change
• Use mechanistic structure
ComplexComplex
• Many elements (such as stakeholders)
• Decentralize
SimpleSimple
• Few environmental elements• Less need to decentralize
13-29
DiverseDiverse
• Several products, clients, regions
• Use divisional form aligned with the diversity
HostileHostile
• Competition and resource scarcity
• Use organic structure for responsiveness
IntegratedIntegrated
• Single product, client, place• Use functional structure, or
geographic division if global
MunificentMunificent
• Plenty of resources and product demand
• Less need for organic structure
External Environment & Structure (con’t)
13-30
Effects of Organizational Size
As organizations grow, they have: More division of labor (job specialization) Greater use of standardization More hierarchy and formalization More decentralization
13-31
Technology and Structure
Technology refers to mechanisms or processes by which an organization turns out its product or service
Two contingencies:• Variability -- the number of exceptions to standard
procedure that tend to occur. • Analyzability -- the predictability or difficulty of the
required work
13-32
Organizational Strategy
Structure follows strategy• Strategy points to the environments in which the
organization will operate• Leaders decide which structure to apply
Differentiation strategy• Providing unique products or attracting clients who
want customization
Cost leadership strategy• Maximize productivity in order to offer competitive
pricing
Organizational Structure
13-33McGraw-Hill/IrwinMcShane/Von Glinow OB 5e
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.