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Organizational Structure McGraw-Hill/Irwin McShane/Von Glinow OB 5e Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
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Page 1: Organizational Behavior Chapter 13

Organizational Structure

McGraw-Hill/IrwinMcShane/Von Glinow OB 5e Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Page 2: Organizational Behavior Chapter 13

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.

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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

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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

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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)

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Elements ofElements ofOrganizational Organizational

StructureStructure

Span of Span of ControlControl

CentralizationCentralization

Department-Department-alizationalization

FormalizationFormalization

Elements of Organizational Structure

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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

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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

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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

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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

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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

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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.”

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Mechanistic vs. Organic Structures

Organic Structure• Wide span of control• Little formalization• Decentralized decisions

Mechanistic Structure• Narrow span of control• High formalization• High centralization

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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

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Organizes employees around specific knowledge or other resources (e.g., marketing, production)

CEOCEO

FinanceFinance ProductionProduction MarketingMarketing

Functional Organizational Structure

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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

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Organizes employees around outputs,clients, or geographic areas

Divisional Structure

CEOCEO

HealthcareHealthcare LightingLightingProductsProducts

ConsumerConsumer Lifestyle Lifestyle

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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

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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

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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

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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

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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.

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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

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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

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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

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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

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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

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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)

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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

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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

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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

Page 33: Organizational Behavior Chapter 13

Organizational Structure

13-33McGraw-Hill/IrwinMcShane/Von Glinow OB 5e

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