Organizational Structure

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2

3

4

5

What are the key elements of organizational structure?

How flexible can organizational structures be?

What are some examples of traditional organizational designs?

What do newer organizational structures look like?

Why do organizational structures differ?

CHAPTER 13

Organizational Structure

What happens when an activity, such as

filming a movie, needs to bring large groups

of people together for a limited time? How

do you design an organizational structure

that will be flexible enough, yet ensure the

work gets done?

PART 5 TOWARD REORGANIZING THE WORKPLACE

475

WHAT IS ORGANIZATIONAL STRUCTURE?An organizational structure defines how job tasks are formally divided, grouped,and coordinated. The structure can represent a tall pyramid, or it can be relatively flat.For instance, Exhibit 13-1 on page 476 shows a pyramidal organization with five layers(and some organizations have even more), while Exhibit 13-2 shows a flatter organi-zation, with only three layers. The organizational structure can also be something inter-mediate between pyramid and flat. Among other things, the structure determines thereporting relationships of people. Thus, in a flat organization, if you have a problem, youcan easily talk to the person at the top of the organization. In a pyramidal structure,you would talk to your manager, who might talk to his or her manager, who might talkto the manager above, until finally, if the message did actually reach the top of the organ-ization, it might be very different from the original message you told your manager.

There are six key elements that managers need to address when they design theirorganization’s structure: work specialization, departmentalization, chain of command,span of control, centralization and decentralization, and formalization.2 Exhibit 13-3 onpage 477 presents all of these elements as answers to an important structural question.The following sections describe these six elements of structure. Organizations do changetheir structures from time to time, which is known as restructuring. Often this involveslayoffs. Despite the profound impact restructuring has on employees (discussed indetail in this chapter’s HR Implications on page 503), managers realize that in a dynamic

rollywood, the affectionate name

given to the “new Hollywood

North” located in Vancouver

because of the frequent need for

umbrellas (brollies) in the city, is just

behind Los Angeles and New York in the

size of its movie industry.1 It’s big in

every way imaginable: more than a bil-

lion dollars a year, standard 60-hour

weeks, substantial rewards. But, unlike

the American cities or Toronto or

Montreal, Brollywood has no major

entertainment company or television

network attached to it.

Vancouver’s film industry represents a new and

unique form of organization. The entire industry is

“made up of self-employed individuals, niche suppliers

and production companies that start up and shut

down in a matter of months.” Companies don’t get

things done in Vancouver’s film industry; teams of free

agents do.

Brollywood’s organizational structure is unique,

although more organizations are developing flexible

structures and developing long- and short-term partner-

ships to get specific tasks done.

The theme of this chapter is that organizations have

different structures, determined by specific forces, and that

these structures have a bearing on employee attitudes and

behaviour. Organizations need to think carefully about the

best way to organize how people inside and outside the

organization are connected to each other. These connec-

tions form the basis for organizational structure.

B

organizational structure Howjob tasks are formally divided,grouped, and coordinated.

1 What are the keyelements oforganizationalstructure?

and changing environment, inflexible organizations end up as bankruptcy statistics.This chapter’s Case Incident—Ajax University Needs a New Structure on page 507 pro-vides an opportunity for you to consider how to change an organizational structure inorder to resolve some of the problems the organization faces.

Work SpecializationWe use the term work specialization, or division of labour,to describe the degree to which tasks in the organization aresubdivided into separate jobs.

The essence of work specialization is that, rather than anentire job being completed by one individual, it’s brokendown into a number of steps, with each step being completedby a separate individual. In essence, individuals specialize in

doing part of an activity rather than the entire activity.Specialization can be efficient. Employee skills at performing a task improve through

repetition. Less time is spent in changing tasks, in putting away tools and equipment froma prior step in the work process, and in preparing for another. It’s easier and less costlyto find and train workers to do specific and repetitive tasks. This is especially true of

476 Part 5 Toward Reorganizing the Workplace

EXHIBIT 13-1 Pyramidal Organizational Structure

EXHIBIT 13-2 Flat Organizational Structure

Wouldn’t it be better if each personjust did his or hersame job over andover again?

work specialization The degreeto which tasks in the organizationare subdivided into separate jobs.

highly sophisticated and complex operations. For example, could Montreal-basedBombardier produce even one Canadian regional jet a year if one person had to buildthe entire plane alone? Not likely! Finally, work specialization increases efficiency andproductivity by encouraging the creation of special inventions and machinery.

Specialization can lead to boredom, fatigue, stress, low productivity, poor quality,increased absenteeism, and high turnover, so it is not always the best way to organizeemployees. Giving employees a variety of activities to do, allowing them to do a wholeand complete job, and putting them into teams with interchangeable skills can result insignificantly higher output and increased employee satisfaction.

Organizations today exhibit a range of specialization. You will find, for example, highwork specialization being used by McDonald’s to make and sell hamburgers and fries effi-ciently, and by medical specialists in hospitals. On the other hand, companies such asSaturn have had success by broadening the scope of jobs and reducing specialization.

Individual Responses to Work SpecializationThe evidence generally indicates that work specialization contributes to higher employeeproductivity but at the price of reduced job satisfaction. However, this statement ignoresindividual differences and the type of job tasks people do.

As we noted previously, productivity begins to suffer when the human diseconomiesof doing repetitive and narrow tasks overtake the economies of specialization. As theworkforce has become more highly educated and desirous of jobs that are intrinsicallyrewarding, the point where productivity begins to decline seems to be reached morequickly than in decades past.

However, some individuals want work that makes minimal intellectual demandsand provides the security of routine. For these people, high work specialization is asource of job satisfaction.

Departmentalization Once you’ve divided up jobs through work specialization, you need to group these jobstogether so that common tasks can be coordinated. The basis on which jobs aregrouped together is called departmentalization. One of the concerns in creating depart-mental groups is to prevent the creation of silos within the organization. Often depart-ments start protecting their own turf, and not interacting well with other departments.This can lead to narrow vision with respect to organizational goals.

Chapter 13 Organizational Structure 477

Bombardierwww.bombardier.com

McDonald’s Canadawww.mcdonalds.ca/en/

Saturn Canadawww.saturncanada.com

departmentalization The basison which jobs are grouped together.

EXHIBIT 13-3 Six Key Questions That Managers Need to Answer in Designing

the Proper Organizational Structure

The Key Question The Answer Is Provided By

1. To what degree are tasks 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 Formalizationand managers?

http://www.bombardier.com

http://www.mcdonalds.ca/en/

http://www.saturncanada.com

Functional DepartmentalizationOne of the most popular ways to group activities is by functions performed. For exam-ple, a manufacturing company might separate engineering, accounting, manufactur-ing, human resource, and purchasing specialists into common departments. Similarly,a hospital might have departments devoted to research, patient care, accounting, and soforth. The major advantage to functional groupings is obtaining efficiencies from put-ting people with common skills and orientations together into common units. Exhibit13-4 illustrates how the City of Kingston, in Ontario, organizes its departments by func-tion. Note that the chart reveals four main functions: community services; operations;planning and development; and corporate services.

Product DepartmentalizationTasks can also be departmentalized by the type of product the organization produces. EstéeLauder, whose product lines include Clinique, Prescriptives, Origins, Canadian-createdMAC Cosmetics, and Estée Lauder, operates each line as a distinct company. The majoradvantage to this type of grouping is increased accountability for product performance,


Estée Lauderwww.esteelauder.com

Mayor and City Council

Chief Administrative Officer

Director of Strategic Initiatives & Communications

Department of Community Services

Department of Operations

Manager of Program DeliverySocial Services (Division)

Manager of Admin Services Social Services (Division)

Manager of Housing(Division)

Manager of Cultural Services (Division)

Fire & Rescue (Division)Fire Chief

Manager of Long-Term Care(Rideaucrest)

Manager of Transit (Division)

Manager of Roads (Division)

Manager of Solid Waste(Division)

Manager of Properties(Division)

Manager of Fleet(Division)

Manager of Parking(Division)

Airport ManagerAirport (Division)

Manager of Planning (Division)

Manager of Building & Licensing (Division)

Manager of Engineering(Division)

Manager of Environment(Division)

Manager of Finance(Division)

Director of HumanResources (Division)

Director of InformationSystems (Division)

Director of LegalServices (Division)

Manager of Council Support/City Clerk (Division)

Manager of Client Services

Department of Planning & Development Services

Department of Corporate Services

Commissioner ofCommunity Services

Commissioner of Operations

Commissioner of Planning & Development Services

Commissioner of Corporate Services

EXHIBIT 13-4 Departmentalization by Function

Source: www.cityofkingston.ca/pdf/cityhall/CityOrgChart2005.pdf. Reprinted by permission of the City of Kingston.

http://www.esteelauder.com

http://www.cityofkingston.ca/pdf/cityhall/CityOrgChart2005.pdf

since all activities related to a specific product line are under thedirection of a single manager. If an organization’s activities are serv-ice—rather than product—related, each service would be groupedautonomously. For instance, many of the big accounting firms nowcall themselves “professional services firms” to reflect the variety ofservices they offer, including tax, management consulting, auditing,and the like. Each of the different services is under the direction of aproduct or service manager.

Exhibit 13-5 illustrates Brampton, Ontario-based NortelNetworks’ four separate businesses, which are organized by prod-uct lines to make it easier to service very different customer needs.Wireless Networks is concerned with servicing wireless technolo-gies and mobile networks. Enterprise Networks services Nortel’senterprise customers. Wireline Networks provides services toNortel’s service provider customers. Optical Networks providesoptical transport and switching solutions and service to broad-band services.

Geographic DepartmentalizationAnother way to departmentalize is on the basis of geography, or ter-ritory. The sales function, for instance, may be divided regionallywith departments for British Columbia, the Prairies, Central Canada,and Atlantic Canada. Each of these regions is, in effect, a departmentorganized around geography. If an organization’s customers are scat-tered over a large geographic area and have similar needs based ontheir location, then this form of departmentalization can be valu-able. Exhibit 13-6 on page 480 illustrates how the Royal Bank ofCanada organizes itself by regional units (not all of its regional units are included in theexhibit, however).

Process DepartmentalizationSome companies organize departments by the processing that occurs. For example, analuminum tubing manufacturer might have the following departments: casting; press;tubing; finishing; and inspecting, packing, and shipping. This is an example of processdepartmentalization, because each department specializes in one specific phase in theproduction of aluminum tubing. Since each process requires different skills, this methodoffers a basis for the homogeneous categorizing of activities.

Process departmentalization can be used for processing customers, as well as prod-ucts. For example, in some provinces, you may go through a series of steps handled byseveral departments before receiving your driver’s licence: (1) validation by motor vehi-cles division; (2) processing by the licensing department; and (3) payment collection bythe treasury department.


Hydro-Québecwww.hydroquebec.com/en/

Nortel Networkswww.nortelnetworks.com

Royal Bank of Canadawww.royalbank.com

Until the mid-1990s, Montreal-based Hydro-Québec hadbeen organized geographically, with each territory havingits own business units responsible for production, trans-mission, and distribution for a total of 40 business units.However, they decided that being organized functionallymade more sense. Now they have only six business units (Hydro-Québec Production, Hydro-Québec Pétroleet gaz, Hydro-Québec TransÉnergie, Hydro-QuébecDistribution, Hydro-Québec Équipement, and Hydro-Québec Technologie et développement industriel). Theyexpect this change in structure will lead to greater growthin business both inside and outside Quebec.

OpticalNetworks

WirelineNetworks

EnterpriseNetworks

WirelessNetworks

Nortel Networks

EXHIBIT 13-5 Departmentalization by Product

http://www.hydroquebec.com/en/

http://www.nortelnetworks.com

http://www.royalbank.com

Customer DepartmentalizationYet another way to departmentalize is on the basis of the particular type of customerthe organization seeks to reach. The sales activities in an office supply firm, for instance,can be broken down into three departments to provide specialized service to differentcustomer categories: service retail, wholesale, and government customers. A large lawoffice can segment its staff on the basis of whether they service corporate or individ-ual clients. The assumption underlying customer departmentalization is that customersof each department have a common set of problems and needs that can best be metby having specialists for each. Exhibit 13-7 illustrates how Dell Canada is divided intosales marketing units, according to the type of customer serviced.

Organizational Variety in DepartmentalizationLarge organizations sometimes change their departmentalization to reflect new needsor emphases. In February 2002, Toronto-based TD Canada Trust announced that itwould combine three of its businesses (full-service, discount brokerage, and financialplanning) under the TD Waterhouse banner. The bank said that this move would helpit better meet its customer needs. The former structure—with separate units for full-service, discount brokerage, and financial planning needs—was a product-orientedstructure. Changing the structure to bring all of these units together to focus on cus-tomer needs may cause problems, some industry insiders have predicted, however. “Theeasy part is altering the structure. The challenge, however, is changing the behaviour offull-service brokers and other financial advisors. That behaviour is driven by compen-sation schemes.”3

Not all changes in departmentalization end up meeting customer needs, however, asOB in the Workplace shows.


Dell Canadawww.dell.ca

TD Canada Trustwww.tdcanadatrust.com

Royal Bank of Canada

Canada Asia Europe United States

EXHIBIT 13-6 Departmentalization by Geography

Small BusinessUsers

Medium/LargeBusiness Users

Government,Education,

Health Care

Dell Canada

IndividualSystems

BusinessSystems

EXHIBIT 13-7 Departmentalization by Customer

http://www.dell.ca

http://www.tdcanadatrust.com

Xerox Goes From Geography to Industry

Does it matter whether your customers are organized by geography or industry?Xerox found out the hard way that sometimes it does.4 In 2000, then CEO RichardThoman consolidated the company’s 36 billing centres into 3. Then he changed thereporting relationships of sales managers and field representatives. Previously, thesegroups had been assigned to geographical areas. Over a large number of years, the salesmanagers and representatives had built up close relationships with their customers.

Thoman proposed that efficiency would improve if customers could have spe-cialized sales managers and field reps who knew the industry of their customers.Thus, representatives were assigned by industry, such as financial services or educa-tion. Thoman was trying to change Xerox from “an old-economy firm . . . [that] soldor leased copiers to familiar customers, to a 21st century company” with a techno-logically sophisticated salesforce that was expert in given business sectors.

Unfortunately, lack of communication in making the changes left customersuncertain of whether their representatives cared about building the relationshipsnecessary to move forward. Previously, customers could ask their representatives tohandle any problem. By contrast, new procedures had decisions going through manylayers of decision makers, and not through each customer’s representative. Thus thechange in departmentalization came at great cost to customers and Xerox alike.

Large organizations may also use all of the forms of departmentalization that wehave described—at the same time. A major Japanese electronics firm, for instance, organ-izes each of its divisions along functional lines and its manufacturing units aroundprocesses; it departmentalizes sales around seven geographic regions, and divides eachsales region into four customer groupings. Two general trends, however, seem to begaining momentum. First, many organizations have given greater emphasis to customerdepartmentalization. Second, rigid, functional departmentalization is being increas-ingly complemented by teams that cross over traditional departmental lines. As wedescribed in Chapter 6, as tasks have become more complex, and more diverse skills areneeded to accomplish those tasks, management has turned to cross-functional teams.

Organizations may choose to go a step further than departmentalization and actuallyturn departments into divisions that are separate profit centres. For instance, withinEstée Lauder’s product-based departmentalization (discussed earlier), the Clinique,Prescriptives, Origins, MAC Cosmetics, and Estée Lauder product lines are each separateprofit centres, responsible for setting their own strategic goals.

Chain of CommandThe chain of command is an unbroken line of authority that extends from the top ofthe organization to the lowest echelon and clarifies who reports to whom. It answersquestions for employees such as, “To whom do I go if I have a problem?” and “To whomdo I report?”

Twenty-five years ago, the chain-of-command concept was a basic cornerstone inthe design of organizations. Today’s workplace is substantially different.

Because managers have limited time and knowledge, they may choose to delegatesome of their responsibilities to other employees. Delegation is the assignment ofauthority to another person to carry out specific duties, allowing the employee to makesome of the decisions. Delegation is an important part of a manager’s job, as it canensure that the right people are part of the decision-making process.

O B I N T H E W O R K P L A C E


Xerox Canadawww.xerox.ca

chain of command The unbrokenline of authority that extends fromthe top of the organization to thelowest echelon and clarifies whoreports to whom.

delegation Assignment of authorityto another person to carry out spe-cific duties, allowing the employeeto make some of the decisions.

http://www.xerox.ca

Through delegation, employees are being empowered to make decisions that previ-ously were reserved for management. This chapter’s From Concepts to Skills on page 508presents strategies to be a better delegator.

Self-managed and cross-functional teams, along with new structural designs thatinclude multiple bosses, have decreased the relevance of the chain-of-command concept.There are, of course, still many organizations that find they can be most productive byenforcing the chain of command. There just seem to be fewer of them nowadays.

Span of ControlSpan of control refers to the number of employees that report to a manager. This num-ber will vary by organization, and by unit within an organization, and is determined bythe number of employees a manager can efficiently and effectively direct. In an assembly-

line factory, a manager may be able to direct numerousemployees, because the work is well defined and con-trolled by machinery. A sales manager, by contrast,might have to give one-on-one supervision to indi-vidual sales reps, and, therefore, fewer would report tothe sales manager. All things being equal, the wider orlarger the span, the more efficient the organization.An example can illustrate the validity of this statement.

Assume that we have two organizations, both ofwhich have approximately 4100 operative-levelemployees. As Exhibit 13-8 illustrates, if one has a uni-form span of 4 and the other a span of 8, the widerspan would have 2 fewer levels and approximately800 fewer managers. If the average manager earned$56 000 a year, the wider span would save about $45 million a year in management salaries! Obviously,wider spans are more efficient in terms of cost.However, at some point wider spans reduce effective-ness. That is, when the span becomes too large,employee performance suffers because managers nolonger have the time to provide the necessary leader-ship and support.


span of control The number ofemployees that report to a manager.

Computer technology is increasing sales managers’ span of control atOwens-Corning, a building-supply manufacturer and retailer. The companyhas equipped its salespeople with computers loaded with software thatprovides up-to-date information about products, customers, and market-place trends. The information empowers salespeople to manage their terri-tory by making on-the-spot decisions on their own. Regional sales managerCharles Causey (left) expects the computer system to increase his span ofcontrol from 9 salespeople to 15.

1

2

3

4

5

6

7

(Highest)

Assuming span of 4

OperativesManagers (Levels 1–6) = 1365

= 4096 OperativesManagers (Levels 1–4) = 585

= 4096

1

4

16

64

256

1024

4096

Assuming span of 8

4096

512

64

8

1

Members at each level

Org

aniz

atio

nal

lev

el

(Lowest)

EXHIBIT 13-8 Contrasting Spans of Control

Narrow or small spans have their advocates. Bykeeping the span of control to 5 or 6 employees, amanager can maintain close control.5 But narrowspans pose three major drawbacks. First, as alreadydescribed, they are expensive because they add levelsof management. Second, they make vertical commu-nication in the organization more complex. The addedlevels of hierarchy slow down decision making andtend to isolate upper management. Third, narrowspans of control encourage overly tight supervisionand discourage employee autonomy.

The trend in recent years has been toward widerspans of control, in part because of downsizing andthe move to teamwork in some organizations.6 Widerspans of control are also consistent with recent effortsby companies to reduce costs, cut overhead, speed updecision making, increase flexibility, get closer to cus-tomers, and empower employees. However, to ensurethat performance does not suffer because of thesewider spans, organizations have been investing heav-ily in employee training. Managers recognize that theycan handle a wider span when employees know theirjobs inside and out or can turn to their co-workerswhen they have questions.

Individual Responses to Span of ControlA review of the research indicates that it’s probably safe to say that there is no evidenceto support a relationship between span of control and employee performance. While itis intuitively attractive to argue that large spans might lead to higher employee per-formance because they provide more distant supervision and more opportunity forpersonal initiative, the research fails to support this notion. At this point it’s impossibleto state that any particular span of control is best for producing high performance or highsatisfaction among employees. The reason is, again, probably individual differences.That is, some people like to be left alone, while others prefer the security of a managerwho is quickly available at all times. Consistent with several of the contingency theoriesof leadership discussed in Chapter 11, we would expect factors such as employees’ expe-riences and abilities, and the degree of structure in their tasks, to explain when wideor narrow spans of control are likely to contribute to employees’ performance and jobsatisfaction. However, there is some evidence to indicate that a manager’s job satisfac-tion increases as the number of employees he or she supervises increases.

Centralization and DecentralizationThe term centralization refers to the degree to which decision making is concentratedat a single point in the organization. The concept includes only formal authority, thatis, the rights inherent in one’s position. Typically, it’s said that if top management makesthe organization’s key decisions with little or no input from lower-level employees,then the organization is centralized. In contrast, the more that lower-level employees pro-vide input or are actually given the discretion to make decisions, the more decentrali-zation there is. As Dilbert points out in Exhibit 13-9, however, some organizations donot seem able to decide upon an appropriate level of decentralization.

An organization characterized by centralization is a much different structural animalfrom one that is decentralized. In a decentralized organization, action can be taken more


centralization The degree to whichdecision making is concentrated at asingle point in the organization.

decentralization The degree towhich decision making is distributedto lower-level employees.

When Surrey, BC, RCMP decentralized their offices, the results were positive.Merchants, local politicians, and police in Surrey say they are happy with theresults. Some crime statistics have dropped, and the police feel that they arecloser to the people they serve. The RCMP split their force into five unitsoperating at regional stations, rather than out of one headquarters oppositeSurrey’s city hall. The advantage is that “regional offices can concentrate onthe unique problems of the various areas.”

BC RCMPwww.rcmp-grc.gc.ca/bc/

http://www.rcmp-grc.gc.ca/bc/

quickly to solve problems, more people provide input into decisions, and employeesare less likely to feel alienated from those who make the decisions that affect their worklives. Decentralized departments make it easier to address customer concerns as well.

Consistent with recent management efforts to make organizations more flexible andresponsive, there has been a marked trend toward decentralizing decision making. Asurvey of 100 international corporations found that 36 percent of them are centrallystructured today, compared with 53 percent in 1990.7 The reason for decentralization inlarge companies is that lower-level managers are closer to “the action” and typicallyhave more detailed knowledge about problems than do top managers. Big retailerssuch as The Bay and Sears Canada have given their store managers considerably morediscretion in choosing what merchandise to stock. This allows those stores to competemore effectively against local merchants.

Individual Responses to CentralizationWe find fairly strong evidence linking centralization and job satisfaction. In general,organizations that are less centralized have a greater amount of participative decisionmaking. The evidence suggests that participative decision making is positively related tojob satisfaction. But, again, individual differences surface. The decentralization-


Hudson’s Bay Companywww.hbc.com

Sears Canadawww.sears.ca

EXHIBIT 13-9

Source: S. Adams, Dogbert’s Big Book of Business, DILBERT reprinted by permission of United FeatureSyndicate, Inc.

http://www.hbc.com

http://www.sears.ca

satisfaction relationship is strongest with employeeswho have low self-esteem. Because individuals withlow self-esteem have less confidence in their abilities,they place a higher value on shared decision making,which means that they are not held solely responsiblefor decision outcomes.

FormalizationFormalization refers to the degree to which jobswithin the organization are standardized. If jobs arehighly formalized, there are explicit job descriptions,lots of organizational rules, and clearly defined pro-cedures covering work processes in organizations.Employees can be expected always to handle the sameinput in exactly the same way, resulting in a consistentand uniform output where there is high formaliza-tion. Where formalization is low, job behaviours arerelatively nonprogrammed, and employees have agreat deal of freedom to exercise discretion in theirwork. Because an individual’s discretion on the jobis inversely related to the amount of behaviour in thatjob that is preprogrammed by the organization, the greater the standardization, theless input the employee has into how his or her work is to be done. Standardizationnot only eliminates the possibility of employees engaging in alternative behaviours,but it also removes the need for employees to consider alternatives.

McDonald’s is an example of a company where employee routines are highly for-malized. Employees are instructed in such things as how to greet the customer (smile,be sincere, make eye contact), ask for and receive payment (state amount of orderclearly and loudly, announce the amount of money customer gives to the employee,count change out loud and efficiently), and thank the customer (give a sincere thankyou, make eye contact, ask customer to come again). McDonald’s includes this infor-mation in training and employee handbooks, and managers are given a checklist of thesebehaviours so that they can observe their employees to ensure that the proper proce-dures are followed.8

The degree of formalization can vary widely between organizations and within organ-izations. Certain jobs, for instance, are well known to have little formalization. Universitytextbook sellers—the representatives of publishers who call on professors to informthem of their company’s new publications—have a great deal of freedom in their jobs.They have no standard sales “spiel,” and the extent of rules and procedures governingtheir behaviour may be little more than the requirement that they submit a weeklysales report and some suggestions on what to emphasize for the various new titles. Atthe other extreme, there are clerical and editorial positions in the same publishinghouses where employees are required to “clock in” at their workstations by 8 a.m. or bedocked a half-hour’s pay and, once at that workstation, to follow a set of precise pro-cedures dictated by management.

MECHANISTIC AND ORGANIC ORGANIZATIONS

When working in Vancouver, Hollywood film producers rely on line producers who manage thefinancial and logistical details of productions. Line producer Warren Carr sees himself as a facilitatorof foreign productions. If a Hollywood studio decides to film in Vancouver, people like Carr hire heads


formalization The degree to whichjobs within the organization arestandardized.

Employees’ jobs at McDonald’s restaurants are highly formalized. To providecustomers with consistent product quality and fast service, workers areexpected to follow defined food-preparation procedures. Learning theseprocedures is an important part of employee training at McDonald’sHamburger University training centre, shown here.

of departments, who then hire staff. He sets up short-term office and studio space. He then over-sees the project, and the executive producers may never come up from Hollywood at all. In otherwords, Carr sets up a very flexible operation to help get the filming done. Is a flexible organizationreally more effective than a highly structured organization?

In the previous section, we described six elements of organizational structure. If youthink of these as design decisions that an owner or CEO makes about his or her organ-ization, you begin to realize that a variety of organizational forms might emerge basedon individual responses to each of the structural questions. Management in some firmsmay choose a highly formalized and centralized structure, while others might choose astructure that is looser and more amorphous. A variety of other designs exist some-where between these two extremes.

Exhibit 13-10 presents two extreme models of organizational design. One extremewe will call the mechanistic model. It has extensive departmentalization, high formal-ization, a clear chain of command, narrow spans of control, a limited information net-work (mostly downward communication), and little participation by lower-level membersin decision making. Historically, government bureaucracies have tended to operate at amore mechanistic level. At the other extreme is the organic model. This model is flat, usescross-hierarchical and cross-functional teams, has low formalization, possesses a com-prehensive information network (utilizing lateral and upward communication, as wellas downward), and involves high participation in decision making.9 High-tech firms,particularly those in their early years, operate in a more organic fashion, with individu-als collaborating on many of the tasks. You may want to explore how different struc-tures affect performance in this chapter’s Working With Others Exercise on page 505.

Individual Responses to Organizational StructureAs we review the different design possibilities of organization, you might want to thinkabout how organizational design would affect you. Your response to organizationaldesign will be affected by factors such as your experience, personality, and the worktask. For simplicity’s sake, it might help to keep in mind that individuals with a highdegree of bureaucratic orientation (see the Learning About Yourself Exercise on page 504)tend to place a heavy reliance on higher authority, prefer formalized and specific rules,and prefer formal relationships with others on the job. These people seem better suited


mechanistic model A structurecharacterized by extensive depart-mentalization, high formalization,a clear chain of command, narrowspans of control, a limited informa-tion network, and centralization.

organic model A structure that isflat, uses cross-hierarchical andcross-functional teams, has low for-malization, possesses a comprehen-sive information network, andinvolves high participation in deci-sion making.

2 How flexible canorganizationalstructures be?

The mechanistic model The organic model

• High specialization• Rigid departmentalization• Clear chain of command• Narrow spans of control• Centralization• High formalization

• Cross-functional teams• Cross-hierarchical teams• Free flow of information• Wide spans of control• Decentralization• Low formalization

EXHIBIT 13-10 Mechanistic vs. Organic Models

to mechanistic structures. Individuals with a low degree of bureaucratic orientationwould probably fit better in organic structures. Additionally, cultural background influ-ences preference for structure. Thus, employees from high power distance countries,such as Russia, Spain, and Thailand, will be much more accepting of mechanistic struc-tures than will employees who come from low power distance countries. So you needto consider cultural differences along with individual differences when making predic-tions on how structure will affect employee performance and satisfaction. These samefactors should be considered if you are ever in the position to design a new organization,for instance, if you choose to become an entrepreneur. Musicians with the EdmontonSymphony Orchestra were unhappy enough with their organizational structure thatthey went on strike for a month in early 2002, as OB in the Workplace discusses.

Musicians Given More Control Over Decisions

Do symphony orchestra members care about their organizational structure? Musicianswith the Edmonton Symphony Orchestra were so frustrated that their views on howthe orchestra should be run were not being heard that they went on strike in February2002.10 Decisions for the symphony orchestra were made by the Edmonton SymphonySociety, which had 10 000 voting members, including subscribers, donors, musi-cians, and volunteers. The symphony also had a board of directors that made mostmanagement decisions without consulting with the members of the orchestra. Themusicians argued that this structure gave too much control to outsiders, and no con-trol to the musicians who had to perform.

During the dispute, the orchestra’s CEO, Elaine Calder, said that the musicianswere asking for too much change in the structure of the Edmonton SymphonyOrchestra. The musicians’ request for seats on the board would “disenfranchise ourentire community and give them complete control of our orchestra.”

After a month-long strike, the musicians were granted more involvement in the run-ning of the orchestra. Following the lead of both the Toronto and the Winnipegorchestras, musicians were to be added to the board, giving them more say in whatperformances would be held each year. With the strike over, Calder conceded somepositive side to the changes. “Allowing musicians into the decision-making processwill allow orchestras to use all their creativity. There’s going to be a left-brain, right-brain aspect to that board and that can only help.”

Bill Dimmer, a trumpeter with the orchestra, is also positive about the new struc-ture. “Where I hope this goes is a new kind of structure with some really meaningfulinput from musicians, especially on artistic matters, and some real meaningful inputfrom the community so the board is appropriately accountable to the musiciansand the community.”

The Edmonton Symphony Orchestra’s structure is very different from many organi-zations in that the board—rather than an inside management team—makes many of thedecisions. The conductor actually directs the musicians. Next we consider a variety ofstructures used by organizations.

TRADITIONAL ORGANIZATIONAL DESIGNSWith the extremes of mechanistic and organic models in mind, we now turn to describ-ing some of the more common organizational designs found in use: the simple structure,the bureaucracy, and the matrix structure.

O B I N T H E W O R K P L A C E


Edmonton Symphony Orchestrawww.edmontonsymphony.com

3 What are someexamples of traditionalorganizational designs?

http://www.edmontonsymphony.com

The Simple StructureWhat do a small retail store, a start-up electronics firm run by a hard-driving entrepre-neur, a new Planned Parenthood office, and an airline in the midst of a company-widepilots’ strike have in common? They probably all use the simple structure.

The simple structure is said to be characterized most by what it is not rather than bywhat it is. The simple structure is not elaborated.11 It has a low degree of departmen-talization, wide spans of control, authority centralized in a single person, and little for-malization. The simple structure is a “flat” organization; it usually has only two or threevertical levels, a loose body of employees, and one individual in whom the decision-making authority is centralized.

The simple structure is most widely practised in small businesses in which the man-ager and the owner are one and the same, such as the local corner grocery store.

The strength of the simple structure lies in its simplicity. It’s fast, flexible, inexpensiveto maintain, and accountability is clear. One major weakness is that it’s difficult to main-tain in anything other than small organizations. It becomes increasingly inadequate as anorganization grows because its low formalization and high centralization tend to createinformation overload at the top. As size increases, decision making typically becomesslower and can eventually come to a standstill as the single executive tries to continuemaking all the decisions. This often proves to be the undoing of many small businesses.When an organization begins to employ 50 or 100 people, it’s very difficult for the owner-manager to make all the choices. If the structure is not changed and made more elaborate,the firm often loses momentum and can eventually fail. The simple structure’s otherweakness is that it’s risky—everything depends on one person. One serious illness canliterally destroy the organization’s information and decision-making centre. This chapter’sCBC Video Case shows some of the difficulties of a simple structure.

The Family BusinessFamily businesses represent 70 percent of Canadian employment and more than 30 per-cent of the gross domestic product. Some of the most prominent family businesses inCanada over the past 50 years include the Seagram Company (the Bronfman family),Eaton’s (the Eaton family), Birks (the Birk family), Irving Paper (the Irving family), MolsonBreweries (the Molson family), and McCain Foods (the McCain family). Not all familybusinesses are as large as these, however, and many have relatively simple structures.

Family businesses have more complex dynamics than nonfamily businesses, becausethey face both family/personal relations and business/management relations. Thesecompanies generally have shareholders (family members and perhaps others), althoughthe businesses may or may not be public companies listed on the stock exchange. Unlikenonfamily businesses, family businesses must manage the conflicts found within fam-ilies, as well as the normal business issues that arise for any business. As John Davis ofHarvard Business School notes, “In a family business, the business, the family, and theownership group all need governance.”

Good governance structures can help family businesses manage the conflicts thatmay arise. Good governance includes “a sense of direction, values to live by or workby, and well-understood and accepted policies that tell organization members how theyshould behave.”12

One area in which governance can play a key role is in CEO succession. Family busi-nesses need to figure out rules of succession for when the CEO retires, and also rules forwho in the family gets to work in the business. Succession in family-owned businessesoften does not work “because personal and emotional factors determine who the nextleader will be,” rather than suitability.13 For instance, a father may want his first-born sonto take over the business, even if one of the daughters might make a better CEO.

The issues become more complex when second- and third-generation family mem-bers become involved in the family business. OB in the Street shows the difficulties the


simple structure An organiza-tional design characterized by a lowdegree of departmentalization,wide spans of control, authority centralized in a single person, andlittle formalization.

Growing Big Can Be Hard To Do

McCain brothers had in deciding who would succeed them as head of McCain Foods andthe fallout of their relationship as a consequence.

Brothers’ Feud Leads to Breakup of Family

Does blood come before business? For 37 years, Wallace McCain and his olderbrother Harrison shared command of McCain Foods, the Florenceville, NewBrunswick-based french-fry empire they had built together.14 In August 1993, how-ever, that partnership came to an end, after the Financial Post profiled Wallace’s sonMichael, referring to him as “the leading candidate to become the potato king.”Apparently, it was that reference to Michael as successor that started what the news-papers called “the feud of the century.”

The public display of animosity came as somewhat of a surprise. The brothersstarted McCain Foods in 1956, and “one brother never made a decision withoutconsulting the other.” Their offices were linked by an unlocked door. They seemedsuited to working together. Harrison was the outgoing salesperson. Wallace was qui-eter, the number cruncher who managed the books. The partnership worked. In thefirst year, sales were $152 678. Sales of McCain Foods products are still growing;while the core of the business remains french fries, nonfood subsidiaries include alarge trucking division and a national courier company.

What brought these two brothers down was a conflict, which had simmered qui-etly for 20 years, over who would succeed the brothers to run the family business.Harrison convinced other family members that Wallace and his sons would notshare the business with the other McCains. The dispute ended up in a New Brunswickarbitration court, where Wallace was ousted as co-CEO. Eighteen months after theFinancial Post article appeared, Wallace left McCain Foods and moved to Toronto tobecome chair of Maple Leaf Foods. Meanwhile, Harrison fired his nephew Michael,and ordered the locks changed on his office door. Michael joined his father at MapleLeaf, where he is now president and CEO. The brothers received a leadership awardin 2001, but Harrison was too ill to attend the ceremony in Toronto. Wallace, how-ever, indicated at the ceremony that troubles continued between the brothers: “I’mnot going to candy-coat that situation,” said Wallace. “It was a very hard thing for meto endure, to watch such a successful partnership go down the drain the way it did.”

Harrison passed away in 2004, with no signs of a public reconciliation. However,Frank McKenna, the former premier of New Brunswick and friends with both McCainbrothers, said that the relationship had improved prior to Harrison’s death. “It’s notcommonly understood, but I think it’s important now on Harrison’s death to knowthat Wallace and Harrison had become very close,” McKenna said.

So what makes family businesses unique? Founders of family business seek to “buildbusinesses that are also family institutions.”15 As a result, there is added pressure onthe business, which needs to balance business needs and family needs. Family busi-nesses may have different goals than nonfamily businesses as well, emphasizing theimportance of family values in maintaining and growing the business rather than wealthmaximization.

The BureaucracyStandardization! That’s the key concept underlying all bureaucracies. Take a look at thebank where you keep your chequing account, the department store where you buy your

O B I N T H E S T R E E T


McCain Foodswww.mccain.com

Maple Leaf Foodswww.mapleleaf.com

http://www.mccain.com

http://www.mapleleaf.com

clothes, or the government offices that collect your taxes, enforce health regulations,or provide local fire protection. They all rely on standardized work processes for coor-dination and control.

A bureaucracy is characterized by highly routine operating tasks achieved throughspecialization; formalized rules and regulations; tasks that are grouped into functionaldepartments; centralized authority; narrow spans of control; and decision making thatfollows the chain of command.

Strengths of BureaucracyGerman sociologist Max Weber, writing in the early 1900s, described bureaucracy as analternative to the traditional administrative form. In the traditional model, leaders couldbe quite arbitrary, with authority based on personal relations. There were no generalrules, and no separation between the leader’s “private” and “public” business. Bureaucracysolved some of the problems of leaders who took advantage of their situation.

The primary strength of the bureaucracy lies in its ability to perform standardized activ-ities in a highly efficient manner. Putting together similar specialties in functionaldepartments results in economies of scale, minimum duplication of staff and equip-ment, and employees who have the opportunity to talk “the same language” with theirpeers. Furthermore, bureaucracies can get by nicely with less talented—and, hence, lesscostly—middle- and lower-level managers. The pervasiveness of rules and regulations sub-stitutes for managerial discretion. Standardized operations, coupled with high formal-ization, allow decision making to be centralized. There is little need, therefore, forinnovative and experienced decision makers below the level of senior executives. Inshort, bureaucracy is an effective structure for ensuring consistent application of policiesand practices and for ensuring accountability.

Weaknesses of BureaucracyBureaucracy is not without its problems. One of its major weaknesses is that it can cre-ate subunit conflict. For instance, the production department believes that it has themost important role in the organization because nothing happens until something is pro-duced. Meanwhile, the research and development department may believe that designprovides added value to a product, while producing it is no big deal. At the same time,the marketing department views selling the product as the most important task in theorganization. Finally, the accounting department sees itself in the central role of tally-ing up the results and making sure everything stays on budget. Thus, each department actslike a silo, focusing more on what it perceives as its own value and contribution to theorganization. Each silo fails to understand that departments are really interdependenton each other, with each having to perform well for the company as a whole to sur-vive. The conflict that can happen among functional units means that sometimes func-tional unit goals can override the overall goals of the organization.

Bureaucracy can sometimes lead to power being concentrated in the hands of just afew people, with others expected to follow their orders unquestioningly. This chapter’sEthical Dilemma Exercise on page 506 illustrates what can happen when someone higherin the authority chain pressures someone below them to perform unethical tasks.

In thinking about the possible conflicts that can arise in a bureaucracy, you might wantto refer to Chapter 8, which discussed the relationship of dependency to power. Thatchapter pointed out that importance, scarcity, and nonsubstitutability will all affect thedegree of power an individual or unit has.

The other major weakness of a bureaucracy is something we have all experienced atone time or another when dealing with people who work in these organizations: obses-sive concern with following the rules. When cases arise that don’t precisely fit the rules,there is no room for modification. The bureaucracy is efficient only as long as employ-ees confront problems that they have previously encountered and for which programmed


bureaucracy An organizationaldesign with highly routine operatingtasks achieved through specializa-tion; formalized rules and regula-tions; tasks that are grouped intofunctional departments; centralizedauthority; narrow spans of control;and decision making that followsthe chain of command.

decision rules have already been established. This chapter’s Case Incident—“I DetestBureaucracy” on page 508 lets you consider alternatives to bureaucracy and how youmight feel about these alternatives.

The Matrix StructureAnother popular organizational design option is the matrix structure. You will find itbeing used in advertising agencies, aerospace firms, research and development labora-tories, construction companies, hospitals, government agencies, universities, managementconsulting firms, and entertainment companies.16 Ideally, the matrix combines thebenefits of two forms of departmentalization—functional and product—without theirdrawbacks. Specifically, functional departmentalization groups similar specialists, whichminimizes the number necessary, while it allows the pooling and sharing of special-ized resources across products. Product departmentalization facilitates coordinationamong specialties to achieve on-time completion and meet budget targets. Furthermore,it provides clear responsibility for all activities related to a product, but with duplicationof activities and costs.

The most obvious structural characteristic of the matrix is that it breaks the unity-of-command concept. Employees in the matrix have two bosses—their functional depart-ment managers and their product managers. Therefore, the matrix has a dual chain ofcommand.

Exhibit 13-11 shows the matrix form as used in a faculty of business administration.The academic departments of accounting, administrative studies, finance, and so forthare functional units. Additionally, specific programs (that is, products) are overlaid onthe functions. In this way, members in a matrix structure have a dual assignment—to theirfunctional department, and to their product groups. For instance, a professor of account-ing who is teaching an undergraduate course reports to the director of undergraduate pro-grams, as well as to the chair of the accounting department.

Advantages of a Matrix StructureThe strength of the matrix lies in its ability to foster coordination when the organizationcarries out many complex and interdependent activities. As an organization becomeslarger, its information-processing capacity can become overloaded. In a bureaucracy,


matrix structure An organizationaldesign that combines functional andproduct departmentalization; it has adual chain of command.

Accounting

Administrativestudies

Finance

Information anddecision sciences

Marketing

OrganizationalbehaviourQuantitativemethods

Programs

Undergraduate Master’s PhD Research Community serviceExecutivedevelopmentAcademic

departments

EXHIBIT 13-11 Matrix Structure for a Faculty of Business Administration

complexity results in increased formalization. The direct and frequent contact betweendifferent specialties in the matrix can result in improved communication and moreflexibility. Information permeates the organization and more quickly reaches thosepeople who need to take account of it. Furthermore, the matrix reduces “bureau-pathologies.” The dual lines of authority reduce tendencies of departmental membersto become so busy protecting their little worlds that the organization’s overall goalsbecome secondary.

The matrix offers another fundamental advantage: It facilitates the efficient allocationof specialists. When individuals with highly specialized skills are lodged in one functionaldepartment or product group, their talents are monopolized and underused. The matrixachieves the advantages of economies of scale by providing the organization with boththe best resources and an effective way of ensuring their efficient deployment.

Disadvantages of a Matrix StructureThe major disadvantages of the matrix lie in the confusion itcreates, its tendency to foster power struggles, and the stressit places on individuals.17 For example, it’s frequently unclearwho reports to whom, and it’s not unusual for product man-agers to fight over getting the best specialists assigned to theirproducts. Confusion and ambiguity also create the seeds ofpower struggles. Bureaucracy reduces the potential for powergrabs by defining the rules of the game. When those rules

are “up for grabs,” power struggles between functional and product managers result.For individuals who desire security and absence from ambiguity, this work climate canproduce stress. Reporting to more than one manager introduces role conflict, and unclearexpectations introduce role ambiguity. The comfort of bureaucracy’s predictability isabsent, replaced by insecurity and stress.

NEW DESIGN OPTIONS

Vancouver’s film industry structure does not resemble the traditional corporate structure of largemanufacturing organizations.18 Single-purpose companies may start up, do several million dol-lars in business, and close down in a matter of months. This flexibility reflects the creative natureof the movie business, and allows people to move from project to project rather fluidly. Most peo-ple expect that companies will only operate for three or four months.

This corporate “structure” means there are few permanent jobs, but many people in the indus-try have long, productive careers. About 35 000 British Columbians have jobs in this industry.David Murphy, who recently studied the industry for his PhD from the University of British Columbia,called the structure “a network model of industrial organization.” Small companies and supplierswork together on a project, and when it’s finished, move on to another project. Ironically, thestrong union presence in Vancouver helps the industry thrive. “The unions run training programsfor many jobs in the industry and refer qualified members to producers when needed,” accordingto Professor Mark Thompson of the Sauder School of Business at UBC. Essentially, the unions pro-vide a corporate structure. Union representative Mark Adair finds the structure positive: “We haveno history and no baggage. We adapt better.” Can new forms of organization lead to better waysof getting things done?

Organizational theorists Jay Galbraith and Edward Lawler have argued that there is a “newlogic of organizing” for organizations.19 They suggest that new-style organizations areconsiderably more flexible than older-style organizations. Exhibit 13-12 compares char-acteristics of new-style and old-style organizations.

The new structural options for organizations involve breaking down boundaries insome fashion, either internally, externally, or a combination of the two. In this section,


4 What do newerorganizationalstructures look like?

What happens when you report to two bosses?

we describe four such designs: the team structure, which modifies internal boundaries;the modular and virtual organizations, both of which modify external organizationalboundaries; and the boundaryless organization, which attempts to break down both inter-nal and external boundaries.20

The Team StructureAs described in Chapter 6, teams have become an extremely popular means aroundwhich to organize work activities. When management uses teams as its central coordi-nation device, you have a team structure. The primary characteristics of the team struc-ture are that it breaks down departmental barriers and decentralizes decision making tothe level of the work team. Team structures also require employees to be generalists aswell as specialists.21

In smaller companies, the team structure can define the entire organization. Forinstance, Toyota Canada’s parts distribution centre in Toronto reorganized its workforceinto work teams in 1995. Workers have a team-focused mission statement, and the staffare split into six work teams, each with its own leader. Among larger organizations, suchas Xerox Canada and GM Canada, the team structure often complements what is typicallya bureaucratic structure. This allows the organization to achieve the efficiency of bureau-cracy’s standardization, while gaining the flexibility that teams provide.

The Modular OrganizationWhy do it all when sometimes someone else can do some of it better? That question cap-tures the essence of the modular organization, which is typically a small core organ-ization that outsources major business functions.22

Nike, Reebok, Liz Claiborne, Vancouver-based Mountain Equipment Co-op, and DellCanada are just a few of the thousands of companies that have found that they can dohundreds of millions of dollars in business without owning manufacturing facilities.


team structure The use of teamsas the central device to coordinatework activities.

Toyota Canadawww.toyota.ca

GM Canadawww.gmcanada.com

modular organization A smallcore organization that outsourcesmajor business functions.

EXHIBIT 13-12 New-Style vs. Old-Style Organizations

New Old

Dynamic, learning Stable

Information rich Information is scarce

Global Local

Small and large Large

Product/customer oriented Functional oriented

Skills oriented Job oriented

Team oriented Individual oriented

Involvement oriented Command/control oriented

Lateral/networked Hierarchical

Customer oriented Job requirements oriented

Source: J. R. Galbraith and E. E. Lawler III, “Effective Organizations: Using the New Logic of Organizing,”in Organizing for the Future: The New Logic for Managing Complex Organizations, ed. J. R. Galbraith, E. E. Lawler III, and associates (San Francisco: Jossey-Bass, 1993). Copyright © 1993 Jossey-Bass Inc.Publishers. Reprinted with permission of John Wiley & Sons, Inc.

http://www.toyota.ca

http://www.gmcanada.com

These organizations have created networks of relationships thatallow them to contract out manufacturing, distribution, marketing,or any other business function where management believes thatothers can do it better or more cheaply. The modular organization,however, outsources many functions and concentrates on what itdoes best. For many Canadian firms, that means focusing on designor marketing rather than production.

Exhibit 13-13 shows a modular structure in which managementoutsources the marketing, sales, and service functions of the business.Top management directly oversees the activities that are done in-house and coordinates relationships with the other organizationsthat perform the sales, marketing, and service functions for themodular organization. Managers in modular structures spend someof their time coordinating and controlling external relations, typi-cally by way of computer network links.

There are several advantages to modular organizations.Organizations can devote their technical and managerial talent totheir most critical activities. They can respond more quickly to envi-ronmental changes, and there is increased focus on customers andmarkets. The primary drawback to this structure is that it reducesmanagement’s control over key parts of its business. The organiza-tion is forced to rely on outsiders, which decreases operational con-trol. Additionally, Nike and several other companies have comeunder attack for relying on low-paid, exploited labourers, many ofwhom are children, in less-developed countries. These organiza-tions are having to make decisions about the trade-offs betweenlow-cost production strategies and criticisms from potential cus-tomers who are concerned about human rights.

The Virtual OrganizationThe virtual organization “is a continually evolving network of independent compa-nies—suppliers, customers, even competitors—linked together to share skills, costs,and access to one another’s markets.”23 Vancouver’s film industry, described in thischapter’s vignette, succeeds because of virtual organizations. In a virtual organization,units of different firms join together in an alliance to pursue common strategic objec-tives. While control in the modular structure remains with the core organization, in


virtual organization A continuallyevolving network of independentcompanies—suppliers, customers,even competitors—linked togetherto share skills, costs, and access toone another’s markets.

Bruce Brown (wearing hat) operates a virtual organization.He publishes an online newsletter, BugNet, that providessubscribers with solutions for fixing computer bugs. Brownand employees are shown here at the firm’s headquartersin Sumas, Washington. But most functions are outsourcedto people throughout the country and as far away asLondon, England. They are managed through an intranetthat contains editorial guidelines, deadlines, contact infor-mation, and photos. Brown has never met most of hisemployees, including a senior editor in Cleveland whomhe has worked with for five years.

Human ResourceManagement

TechnologyDevelopment

Marketingand SalesProcurement Operations Service

OUTSOURCED

Organizational Infrastructure

EXHIBIT 13-13 Modular Structure

the virtual organization participants give up some of their control and act more inter-dependently. Virtual organizations may not have a central office, an organizationalchart, or a hierarchy. Typically, the organizations come together to exploit specific oppor-tunities or attain specific strategic objectives.

About one in nine Canadian companies engages in some sort of alliance. Thesealliances take many forms, ranging from precompetitive consortia to coproduction,cross-equity arrangements, and equity joint ventures with separate legal entities.24

Exhibit 13-14 illustrates a possible virtual structure where the reference firm is respon-sible for technology development, and then works together with the alliance partners tocomplete the other functions. Another example of a virtual structure is Amazon.ca,which partners with Canada Post. Orders placed on Amazon.ca’s Canadian website arefulfilled and shipped by Assured Logistics, which is part of Canada Post. Assured Logisticsoperates a Toronto-area warehouse that stores books, music, and movies so that they canbe shipped when ordered, thus eliminating the need for Amazon.com to set up its ownwarehouse facility in Canada.

There are several advantages to virtual organizations. They allow organizations toshare costs and skills, provide access to global markets, and increase market respon-siveness. However, there are also distinct disadvantages. The boundaries between com-panies become blurred due to interdependence. In order to work together, companiesmust relinquish operational and strategic control. This form of organization also requiresnew managerial skills. Managers must build relations with other companies, negotiate“win-win” deals, find compatible partners in terms of values and goals, and then developappropriate communication systems to keep everyone informed.25

The Boundaryless OrganizationBoth the modular organization and the virtual organization break down external bound-aries of the organization without generally affecting the internal workings of each ofthe cooperating organizations. Some organizations, however, strive to break down boththe internal and external boundaries. Former General Electric (GE) chairman Jack Welchcoined the term boundaryless organization to describe his idea of what he wanted GEto become. The boundaryless organization seeks to eliminate the chain of command,have limitless spans of control, and replace departments with empowered teams. Becauseit relies so heavily on information technology, some have turned to calling this structurethe T-form (or technology-based) organization.26

Although GE has not yet achieved this boundaryless state—and probably never will—it has made significant progress toward this end. So have other companies such asHewlett-Packard, AT&T, and Motorola. Let’s explore what a boundaryless organizationwould look like and what some firms are doing to make it a reality.27


Amazon.cawww.amazon.ca

Canada Postwww.canadapost.ca

General Electric Canadawww.ge.com/ca

Hewlett-Packard Canadahttp://welcome.hp.com/country/ca/en/welcome.html

boundaryless organizationAn organization that seeks to eliminate the chain of command,have limitless spans of control,and replace departments withempowered teams.

Human ResourceManagement

TechnologyDevelopment

Marketingand Sales

Procurement Operations Service

AlliancePartner A

AlliancePartner B

AlliancePartner C

AlliancePartner D

AlliancePartner E

Organizational Infrastructure

EXHIBIT 13-14 Virtual Structure

http://www.amazon.ca

http://www.canadapost.ca

http://www.ge.com/ca

http://welcome.hp.com/country/ca/en/welcome.html

The boundaryless organization breaks down barriers inter-nally by flattening the hierarchy, creating cross-hierarchicalteams (which include top executives, middle managers, super-visors, and operative employees), and using participativedecision-making practices and 360-degree performanceappraisals (where peers and others above and below theemployee evaluate his or her performance). The boundaryless

organization also breaks down barriers to external constituencies (suppliers, customers,regulators, etc.) and barriers created by geography. Globalization, strategic alliances,supplier-organization and customer-organization linkages, and telecommuting are allexamples of practices that reduce external boundaries.

The one common technological thread that makes the boundaryless organizationpossible is networked computers. They allow people to communicate across intraor-ganizational and interorganizational boundaries.28 Additionally, many large compa-nies, including the City of Richmond (BC), Procter & Gamble Canada, FedEx, AT&T,and 3M, have intranets to help with internal communication. Interorganizational net-works now make it possible for Wal-Mart suppliers such as Procter & Gamble (P&G) tomonitor inventory levels of laundry soap, because P&G’s company computer system isnetworked to Wal-Mart’s system.

One of the drawbacks of boundaryless organizations is that they are difficult to man-age. It’s difficult to overcome the political and authority boundaries inherent in manyorganizations. It can also be time-consuming and difficult to manage the coordinationnecessary with so many different stakeholders. That said, the well-managed boundary-less organization offers the best talents of employees across several different organiza-tions; enhances cooperation across functions, divisions, and external groups; andpotentially offers much quicker response time to the environment.

WHAT MAJOR FORCES SHAPE AN

ORGANIZATION’S STRUCTURE?With an understanding of the various structures possible, we are now prepared to addressthe following questions: What are the forces that influence the design that is chosen? Whyare some organizations structured along more mechanistic lines while others followorganic characteristics? In the following pages, we present the major forces that havebeen identified as causes, or determinants, of an organization’s structure: strategy, orga-nizational size, technology, and environment.29

StrategyAn organization’s structure is a means to help management achieve its objectives. Sinceobjectives are derived from the organization’s overall strategy, it’s only logical that thestructure should support the strategy.30

Most current strategy frameworks focus on three strategy dimensions—innova-tion, cost minimization, and imitation—and the structural design that works bestwith each.31

Innovation StrategyTo what degree does an organization introduce major new products or services? Aninnovation strategy does not mean a strategy merely for simple or cosmetic changesfrom previous offerings, but rather one for meaningful and unique innovations.Obviously, not all firms pursue innovation. This strategy may appropriately character-ize 3M, but it certainly is not a strategy pursued by McDonald’s.


Procter & Gamble Canadawww.pg.com/en_CA

Wal-Mart Canadawww.walmartcanada.ca

5 Why do organizationalstructures differ?

Can an organization really have no

boundaries?

innovation strategy A strategythat emphasizes the introduction ofmajor new products and services.

http://www.pg.com/en_CA

http://www.walmartcanada.ca

Cost-Minimization StrategyAn organization that is pursuing a cost-minimization strategy tightly controls costs,refrains from incurring unnecessary innovation or marketing expenses, and cuts pricesin selling a basic product. This would describe the strategy pursued by Wal-Mart or thesellers of generic grocery products.

Imitation StrategyOrganizations following an imitation strategy try to capitalize on the best of both ofthe previous strategies. They seek to minimize risk and maximize opportunity for profit.Their strategy is to move into new products or new markets only after viability has beenproven by innovators. They take the successful ideas of innovators and copy them.Manufacturers of mass-marketed fashion goods that are “rip-offs” of designer stylesfollow the imitation strategy. This label also probably characterizes such well-knownfirms as IBM and Caterpillar. They essentially follow their smaller and more innova-tive competitors with superior products, but only after their competitors have demon-strated that the market is there.

Exhibit 13-15 describes the structural option that best matches each strategy.Innovators need the flexibility of the organic structure, while cost minimizers seek theefficiency and stability of the mechanistic structure. Imitators combine the two structures.They use a mechanistic structure in order to maintain tight controls and low costs in theircurrent activities, while at the same time they create organic subunits in which to pur-sue new undertakings.

Organizational SizeThere is considerable evidence to support the idea that an organization’s size significantlyaffects its structure.32 For instance, large organizations—those typically employing 2000or more people—tend to have more specialization, more departmentalization, morevertical levels, and more rules and regulations than do small organizations. However, therelationship is not linear. Rather, size affects structure at a decreasing rate. The impact ofsize becomes less important as an organization expands. Why is this? Essentially, oncean organization has around 2000 employees, it’s already fairly mechanistic. An additional500 employees will not have much impact. On the other hand, adding 500 employeesto an organization that has only 300 members is likely to result in a shift toward amore mechanistic structure.

TechnologyThe term technology refers to the way in which an organization transfers its inputsinto outputs. Every organization has at least one technology for converting financial,


cost-minimization strategy Astrategy that emphasizes tight costcontrols, avoidance of unnecessaryinnovation or marketing expenses,and price cutting.

IBM Canadawww.ibm.com/ca/en/

Caterpillarwww.cat.com

imitation strategy A strategy ofmoving into new products or newmarkets only after their viability hasalready been proven.

technology The way in which anorganization transfers its inputs intooutputs.

EXHIBIT 13-15 The Strategy-Structure Thesis

Strategy Structural Option

Innovation Organic: A loose structure; low specialization, low formalization, decentralized

Cost minimization Mechanistic: Tight control; extensive work specialization, high formalization, high centralization

Imitation Mechanistic and organic: Mix of loose with tight properties; tight controls over current activities and looser controls for new undertakings

http://www.ibm.com/ca/en/

http://www.cat.com

human, and physical resources into products or services. The Ford Motor Company,for instance, predominantly uses an assembly-line process to make its products. Onthe other hand, universities may use a number of instruction technologies to developcoursework for students—the ever-popular formal lecture method, the case-analysismethod, the experiential exercise method, the programmed learning method, and soforth. In this section, we show that organizational structures adapt to their technology.

Variations in TechnologyThe common theme that differentiates technologies is theirdegree of routineness. By this we mean that technologies tendtoward either routine or nonroutine activities. The formerare characterized by automated and standardized operations,such as an assembly line, where one might affix a car door toa car at set intervals. Nonroutine activities are customized.They include such varied operations as furniture restoring,custom shoemaking, and genetic research.

The Relationship Between Technology and StructureWhat relationship has been found between technology and structure? Although therelationship is not overwhelmingly strong, we find that routine tasks are associatedwith taller and more departmentalized structures. The relationship between technol-ogy and formalization, however, is stronger. Studies consistently show routineness to beassociated with the presence of rule manuals, job descriptions, and other formalizeddocumentation.

An interesting relationship has been found between technology and centralization.It seems logical that routine technologies would be associated with a centralized struc-ture, whereas nonroutine technologies, which rely more heavily on the knowledge of spe-cialists, would be characterized by delegated decision authority. This position hasreceived some support. However, a more generalizable conclusion is that the technol-ogy-centralization relationship is moderated by the degree of formalization. Both for-mal regulations and centralized decision making are control mechanisms, andmanagement can substitute one for the other. Routine technologies should be associatedwith centralized control if there is a minimum of rules and regulations. However, ifformalization is high, routine technology can be accompanied by decentralization. Sowe would predict that routine technology would lead to centralization, but only if for-malization is low.

The chapter’s Point/Counterpoint on page 502 discusses whether technology drivesrapid organizational change.

EnvironmentAn organization’s environment is composed of those institutions or forces outside theorganization that potentially affect the organization’s performance. These typicallyinclude suppliers, customers, competitors, government regulatory agencies, public pres-sure groups, and the like.

Why should an organization’s structure be affected by its environment? The answeris environmental uncertainty. Some organizations face relatively static environments—few forces in their environment are changing. There is, for example, no new competition,no new technological breakthroughs by current competitors, or little activity by publicpressure groups to influence the organization. Other organizations face dynamic envi-ronments—rapidly changing government regulations affecting their business, new com-petitors, difficulties in acquiring raw materials, continually changing product preferencesby customers, and so on. Static environments create significantly less uncertainty for


So what doestechnology

mean?

environment Those institutions orforces outside the organization thatpotentially affect the organization’sperformance.

managers than do dynamic ones. Since uncertainty is a threat to an organization’s effec-tiveness, management will try to minimize it. One way to reduce environmental uncer-tainty is through adjustments in the organization’s structure.33

Recent research has helped clarify what is meant by environmental uncertainty. It’sbeen found that there are three key dimensions to any organization’s environment:capacity, volatility, and complexity.34

CapacityThe capacity of an environment refers to the degree to which it can support growth.Rich and growing environments generate excess resources, which can buffer the organ-ization in times of relative scarcity. Abundant capacity, for example, leaves room for anorganization to make mistakes, while scarce capacity does not. In 2000, firms operatingin the multimedia software business had relatively abundant environments, whereasthose in the full-service brokerage business faced relative scarcity.

VolatilityThe degree of instability in an environment is captured in the volatility dimension.Where there is a high degree of unpredictable change, the environment is dynamic.This makes it difficult for management to predict accurately the probabilities associ-ated with various decision alternatives. At the other extreme is a stable environment.Turmoil in Asian financial markets caught many by surprise and created a lot of insta-bility in the late 1990s, particularly in resource industries. Canada’s resource exportssuffered as demand shrank in Asia. This led to widespread layoffs in the BC lumberindustry, for example, and Japan’s steel producers demanded a cut in the price theypaid for Canadian coal. The instability was not limited to the resource sector, however.Small manufacturers were also hit. The Asian crisis was a valuable reminder to all organ-izations that they are operating in a global environment.

ComplexityFinally, the environment needs to be assessed in terms of complexity; that is, the degreeof heterogeneity and concentration among environmental elements. Simple environ-ments are homogeneous and concentrated. This might describe the tobacco industry,since there are relatively few players. It’s easy for firms in this industry to keep a close eyeon the competition. In contrast, environments characterized by heterogeneity and dis-persion are called complex. This term sums up the current environment for firms com-peting in the cellular connection business. Every day, there seemsto be another “new kid on the block” with whom current cell-phone providers must deal.

Exhibit 13-16 summarizes our definition of the environmentalong its three dimensions. The arrows in this figure are meant toindicate movement toward higher uncertainty. Organizations thatoperate in environments characterized as scarce, dynamic, andcomplex face the greatest degree of uncertainty. Why? They havehigh unpredictability, little room for error, and a diverse set of ele-ments in the environment to monitor constantly.

Given this three-dimensional definition of environment, we canoffer some general conclusions. There is evidence that relates thedegrees of environmental uncertainty to different structural arrange-ments. Specifically, the more scarce, dynamic, and complex theenvironment, the more organic a structure should be. The moreabundant, stable, and simple the environment, the more mecha-nistic a structure should be.


Stable

ComplexSimple

Abundant

Scarce

Dynamic

EXHIBIT 13-16 Three-Dimensional Model

of the Environment

SUMMARY AND IMPLICATIONS

1 What are the key elements of organizational structure? An organizationalstructure defines how job tasks are formally divided, grouped, and coordinated.There are six key elements that managers need to address when they design theirorganization’s structure: work specialization, departmentalization, chain of com-mand, span of control, centralization and decentralization, and formalization.Organizations structured around high levels of formalization and specialization,strict adherence to the chain of command, limited delegation of authority, andnarrow spans of control give employees little autonomy. Organizations that arestructured around limited specialization, low formalization, wide spans of con-trol, and the like give employees greater autonomy.

2 How flexible can organizational structures be? For simplicity’s sake, we canclassify the extent to which organizations are flexible around one of two models:mechanistic or organic. A mechanistic organization has extensive departmental-ization, high formalization, a limited information network (mostly downwardcommunication), and little participation by lower-level members in decision mak-ing. Historically, government bureaucracies have tended to operate at a more mech-anistic level. At the other extreme is the organic organization, which is flat, usescross-hierarchical and cross-functional teams, has low formalization, possesses acomprehensive information network (utilizing lateral and upward communica-tion, as well as downward), and involves high participation in decision making.High-tech firms, particularly those in their early years, operate in a more organicfashion, with individuals collaborating on many of the tasks.

3 What are some examples of traditional organizational designs? Some of themore common organizational designs found in use are the simple structure, thebureaucracy, and the matrix structure. The simple structure has a low degree of depart-mentalization, wide spans of control, authority centralized in a single person, lit-tle formalization, and one individual in whom the decision-making authority iscentralized. Bureaucracy is characterized by highly routine operating tasks achievedthrough specialization; formalized rules and regulations; tasks that are groupedinto functional departments; centralized authority; narrow spans of control; anddecision making that follows the chain of command. The most obvious structuralcharacteristic of the matrix is that it breaks the unity-of-command concept.Employees in the matrix have two bosses—their functional department managersand their product managers. Therefore, the matrix has a dual chain of command.

4 What do newer organizational structures look like? The new structural optionsfor organizations involve breaking down the boundaries in some fashion, eitherinternally, externally, or a combination of the two. We have illustrated four suchstructural designs: the team structure, which modifies internal boundaries; the mod-ular and virtual organizations, which modify external organizational boundaries;and the boundaryless organization, which attempts to break down both internal andexternal boundaries.

5 Why do organizational structures differ? Strategy, organizational size, technol-ogy, and environment determine the type of structure an organization will have.


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For Review1. Why isn’t work specialization an unending source of increased productivity?

2. What are the different forms of departmentalization?

3. All things being equal, which is more efficient, a wide or narrow span of control? Why?

4. What is a matrix structure? When would management use it?

5. How does a family business differ from other organizational structures?

6. Contrast the virtual organization with the boundaryless organization.

7. What type of structure works best with an innovation strategy? A cost-minimization strategy? An imitation strategy?

8. Summarize the size-structure relationship.

9. Define and give an example of what is meant by the term technology.

10. Summarize the environment-structure relationship.

For Critical Thinking1. How is the typical large corporation of today organized, in contrast with how that same organization was probably

organized in the 1960s?

2. Do you think most employees prefer high formalization? Support your position.

3. If you were an employee in a matrix structure, what pluses do you think the structure would provide? What aboutminuses?

4. What could management do to make a bureaucracy more like a boundaryless organization?

5. What behavioural predictions would you make about people who worked in a “pure” boundaryless organization (ifsuch a structure were ever to exist)?

OB for You■ Think about the type of organizational structure that suits you best when you look for a job. You may prefer a

structured workplace, like that of a mechanistic organization. Or you may prefer a much less structured workplace,like that of an organic organization.

■ If you decide to start your own company, know the different structural considerations so that you can create an organization that meets your needs as both a business person and a person with additional interests.

■ As a manager or as an entrepreneur, consider how much responsibility (centralization/decentralization) you want totake for yourself compared with how much you are willing to share with others in the organization.

Technology Only BringsGradual ChangeThere’s a saying that every generation thinks it has discov-ered sex. This seems to be the case with technology andhow it’s going to change the world completely.

Technology will transform the structure of organiza-tions at a much slower rate than many believe.36 Forinstance, it’s useful to go back and ask if the railroadschanged the world. There were definitely changes in howcommerce and industry were arranged. But life remainedthe same, and the way people related to each otherremained the same.

There are changes occurring that will influence theway businesses organize. But the changes have been, andwill continue to be, gradual. They may accelerate some,but we are not going to see a revolution in the design oforganizations. Take the case of globalization. It’s signifi-cant, but it’s also evolutionary. Has the formation of theEuropean Union abolished national borders in the largestcontinental society in the Western world? No. France isstill France, and Germany is still Germany. Things havechanged, but things have not changed.

The emphasis on speed has its limits. Brains don’tspeed up. The exchange of ideas does not really speed up,only the overhead that slowed down the exchange. Whenit comes down to the bulk of knowledge work, thetwenty-first century works the same as the twentieth cen-tury: You can reach people around the clock, but theywon’t think any better or faster just because you havereached them faster. The give and take remains a limitingfactor.

The virtual organization also has its limitations. Whenyou outsource your data processing, manufacturing, andother functions, you make your capabilities available toyour competitors. So virtualization of work diminishescompetitive advantages. It leads to everything becoming acommodity. Any function that an organization uses toachieve a competitive advantage cannot be outsourced.

Look back over the past 40 years. People have notchanged. Our fundamental organizations have notchanged. On the fringes, there is more looseness in theorganization. But a lot more has not changed than has.The changes we have seen have been slow and gradual.That pace is likely to continue into the future.

Technology Is ReshapingOrganizationsIn today’s chaotic, uncertain, and high-tech world, there isessentially only one type of design that is going to survive. This is the electronically configured organic organization.35

We are undergoing a second Industrial Revolution, andit will change every aspect of people’s lives. The changesthe large corporations used to take a decade to imple-ment now occur in one to two years. Companies that aresuccessful will be designed to thrive on change, and thestructure of those organizations will have common char-acteristics.

Ten years from now, there will be nothing but elec-tronic organizations. Brick-and-mortar organizationswon’t go away, but bricks-and-clicks will become the onlymeans to survival. In addition, every organization will needto keep its finger on the pulse of its customers. Customerpriorities will change rapidly. Those who lose touch withtheir customers will be candidates for extinction.Consumers are gaining the ability to compare the pricesof hundreds of competitors rather than just two or three.This is going to dramatically drive down prices. If firmsdon’t improve their productivity to match these drops inprices, they will be out of business.

Technology allows firms to stay closer to the customer,to move jobs to where costs are lowest, and to makedecisions much more rapidly. For instance, executives atCisco Systems can monitor expenses, gross margins, thesupply chain, and profitability in real time. Surprises neednot exist. Every employee can make decisions that mighthave had to come from the top management ranks a fewyears ago. At the end of a quarter, an individual productmanager at Cisco can see exactly what the gross marginsare on his or her products, whether they are below expec-tations, and determine the cause of any discrepancy.Quicker decision making at lower levels will translate intohigher profit margins. So instead of the CEO or chieffinancial officer making 50 to 100 different decisions in aquarter, managers throughout the organization can makemillions of decisions. Companies that don’t adjust to cre-ate this capability will be noncompetitive.

COUNTERPOINTPOINT

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Nearly every day, it seems, companies throughout theworld announce that they are “restructuring” and layingoff employees. In January 2005, Toronto-based Celesticaannounced that it would cut 5500 jobs in North Americaand Western Europe by mid-2006, and Montreal-basedBombardier announced job cuts of 2200.37 In June 2005,General Motors announced that it was cutting 25 000 USjobs, raising concerns that the General Motors parts plantin St. Catharines, Ontario, would be closed as a result.38

Brampton, Ontario-based Nortel Networks laid off 48 500employees (half its workforce) in 2001. Restructuringoften goes by various names, including downsizing, right-sizing, and delayering, but all these terms are reallyeuphemisms for layoffs.

Restructuring happens in a variety of ways. Sometimesorganizations decide to engage in work redesign. Wholedivisions or business units might be combined, or disag-gregated, or even spun off. Sometimes business functions,such as engineering, operations, and distribution, mightbe joined together. Or some of these functions might becontracted out. Delayering is another restructuring tech-nique, which means that the organization reduces thenumber of layers, or hierarchical levels. Finally, restructur-ing can also involve downsizing, or layoffs.

While structural changes and work redesign may be amore planned approach to workforce change, generallythe intent behind layoffs is not some planned approach toa new organizational structure. Rather it serves as anattempt to increase shareholder well-being.39 Forinstance, when Longueuil, Quebec-based BCE Emergis, asubsidiary of BCE, announced in April 2002 it was cutting550 jobs, including 440 in Canada, and eliminating 40 percent of its business operations, its shares climbed15 percent.40 These results are only short-term, however.A recent study found that organizations that cut 10 per-cent or more employees significantly underperformorganizations that cut fewer employees.41

Canadians are concerned about the impact of layoffsand the responsibilities of corporations. When aMaclean’s/CBC News poll asked respondents about the

acceptability of profitable corporations laying off workers,58 percent did not find this acceptable.42 Negative reac-tions to downsizing were even higher in the regions expe-riencing the most difficult economic times, with Quebec(64 percent) and the Atlantic provinces (66 percent) givingthe most unfavourable views. In Alberta, where the econ-omy had been booming, fewer people were reluctant tocriticize companies for layoffs (49 percent).

There are several options that the human resourcedepartment can recommend to senior executives asalternatives to downsizing.43 A number of Canadiancorporations have developed options such as job-sharing, voluntarily reduced work time, and phased-inretirement as ways to avoid downsizing. These compa-nies have chosen these options as a way to preserveemployee morale.

Professor Ronald Burke of the Schulich School ofBusiness at York University and his co-author, DebraNelson, proposed a three-stage guide for managing revi-talization efforts:44

• Initiation—planning and preparing for the transi-tion. During this stage, develop concrete goals,communicate the strategy clearly, look for alterna-tives to and criteria for downsizing, and developtimetables.

• Implementation—moving toward change. Duringthis stage, involve the employees, communicateextensively, give support, and watch for stress.

• Institutionalization—healing and refocusing.During this stage, focus on why changes areneeded, celebrate accomplishments, retrainemployees as needed, and maintain individualand organizational health.

Burke and Nelson note that how managers treatemployees during downsizing and restructuring makes alarge difference in the results. For instance, tellingemployees that they are lucky to have survived the cutsdoes not necessarily instill goodwill.

The Effects of Restructuring on Employees

H R I M P L I C AT I O N S


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Bureaucratic Orientation TestFor each statement, check the response (either “Mostly Agree” or “Mostly Disagree”) that best represents your feelings.

Mostly MostlyAgree Disagree

1. I value stability in my job. ______ ______

2. I like a predictable organization. ______ ______

3. The best job for me would be one in which the future is uncertain. ______ ______

4. The federal government would be a nice place to work. ______ ______

5. Rules, policies, and procedures tend to frustrate me. ______ ______

6. I would enjoy working for a company that employs 85 000 people worldwide. ______ ______

7. Being self-employed would involve more risk than I am willing to take. ______ ______

8. Before accepting a job, I would like to see an exact job description. ______ ______

9. I would prefer a job as a freelance house painter to one as a clerk for the Motor Vehicles Branch. ______ ______

10. Seniority should be as important as performance in determining pay increases and promotion. ______ ______

11. It would give me a feeling of pride to work for the largest and most successful company in its field. ______ ______

12. Given a choice, I would prefer to make $70 000 per year as a vice-president in a small company than $85 000 as a staff specialist in a large company. ______ ______

13. I would regard wearing an employee badge with a number on it as a degrading experience. ______ ______

14. Parking spaces in a company lot should be assigned on the basis of job level. ______ ______

15. If an accountant works for a large organization, he or she cannot be a true professional. ______ ______

16. Before accepting a job (given a choice), I would want to make sure that the company had a very fine program of employee benefits. ______ ______

17. A company will probably not be successful unless it establishes a clear set of rules and procedures. ______ ______

18. Regular working hours and vacations are more important to me than finding thrills on the job. ______ ______

19. You should respect people according to their rank. ______ ______

20. Rules are meant to be broken. ______ ______

Scoring Key:Give yourself 1 point for each statement for which you responded in the bureaucratic direction:

Mostly agree: 1, 2, 4, 7, 8, 10, 11, 14, 16, 18, 19

Mostly disagree: 3, 5, 6, 9, 12, 13, 15, 17, 20

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A very high score (15 or over) suggests that you would enjoy working in a bureaucracy. A very low score (5 or lower) sug-gests that you would be frustrated by working in a bureaucracy, especially a large one.

Source: Adapted from A. J. DuBrin, Human Relations: A Job Oriented Approach, 5th ed., 1992. Reprinted with permission of Prentice Hall, Inc.,Upper Saddle River, NJ.

Form small groups to discuss the following topics, as assigned by your instructor:

1. Describe the structure of an organization in which you worked. Was the structure appropriate for the tasks beingdone?

2. Have you ever worked in an organization with a structure that seemed inappropriate to the task? What wouldhave improved the structure?

3. You are considering opening up a coffee bar with several of your friends. What kind of structure might you use?After the coffee bar becomes successful, you decide that expanding the number of branches might be a goodidea. What changes to the structure might you make?

Words-in-Sentences CompanyOverview: You are a small company that

1. manufactures words; and

2. packages them into meaningful English-language sentences.45

Market research has established that sentences of at least 3 words but not more than 6 words are indemand. Therefore, packaging, distribution, and sales should be set up for 3- to 6-word sentences.

Time: Approximately 30 minutes. (Note: A production run takes 10 minutes. While the game is more effec-tive if 2 [or more] production runs are completed, even 1 production run will generate effective dis-cussion about how organizational structure affects performance.)

Group Task: Your group must design and participate in running a W-I-S company. You will be competing with othercompanies in your industry. The success of your company will depend on (a) your objectives, (b)planning, (c) organizational structure, and (d) quality control. You should design your organization tobe as efficient as possible during each 10-minute production run. After the first production run, youwill have an opportunity to reorganize your company if you want.

Raw Materials: For each production run, you will be given a “raw material phrase.” The letters found in the phraseserve as the raw materials available to produce new words in sentences. For example, if the rawmaterial phrase is “organizational behaviour is fun,” you could produce the words and sentence“Nat ran to a zoo.” One way to think of your raw material phrase is to take all the letters appearingin the phrase and write them down as many times as they appear in the phrase. Thus, for the phrase“organizational behaviour is fun” you have: a-4; b-1; c-0; d-0; e-1; f-1; g-1; h-1; i-4; j-0; k-0; l-1; m-0; n-3; o-3; p-0; q-0; r-2; s-1; t-1; u-2; v-1; w-0; x-0; y-0; z-1 for a total of 28 raw material letters.

Production There are several rules that have to be followed in producing “words-in-sentences.” If these rulesStandards: are not followed, your output will not meet production specifications and will not pass

quality-control inspection.

B R E A K O U T G R O U P E X E R C I S E S

W O R K I N G W I T H O T H E R S E X E R C I S E


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1. A letter may appear only as often in a manufactured word as it appears in the raw materialphrase; for example, “organizational behaviour is fun” has 1 letter l and 1 letter e. Thus “steal”is legitimate, but not “teller.” It has too many l’s and e’s.

2. Raw material letters can be used again in different manufactured words.

3. A manufactured word may be used only once during a production run; once a word—forexample, “the”—is used in a sentence, it is out of stock for the rest of the production run. Noother sentence may use the word “the.”

4. A new word may not be made by adding s to form the plural of an already used manufacturedword.

5. Sentences must make grammatical and logical sense.

6. All words must be in the English language.

7. Names and places are acceptable.

8. Slang is not acceptable.

9. Writing must be legible. Any illegible sentence will be disqualified.

10. Only sentences that have a minimum of 3 words and a maximum of 6 words will be considered.

Directions:Step 1 Production Run 1. The instructor will place a raw material phrase on the board or overhead. When the

instructor announces, “Begin production,” you are to manufacture as many words as possible andpackage them in sentences for delivery to the Quality Control Review Board. You will have 10 minutes.

Step 2 When the instructor announces, “Stop production,” you will have 30 seconds to deliver your output tothe Quality Control Review Board. Output received after 30 seconds does not meet the delivery sched-ule and will not be counted. You may use up to 2 sheets of paper and each sheet of paper must iden-tify your group.

Step 3 Your output should be delivered by your quality-control representative, who will work with the otherrepresentatives to evaluate the performance of each of the groups.

Measuring Performance: The output of your W-I-S company is measured by the total number ofacceptable words that are packaged in sentences of 3 to 6 words only.

Quality Control: If any word in a sentence does not meet the standards set forth above, all thewords in the sentence will be rejected. The Quality Control Review Board (composed of 1 member fromeach company) is the final arbiter of acceptability. In the event of a tie vote on the Review Board, a cointoss will determine the outcome.

Step 4 While the output is being evaluated, you should make plans for organizing the 2nd production run.

Step 5 Production Run 2.

Step 6 The results are presented.

Step 7 Discussion.

Just Following OrdersIn 1996, Betty Vinson took a job as a mid-level accountant for$50 000 a year with a small long-distance company inJackson, Mississippi. Within five years, that long-distancecompany had grown up to become telecom giant WorldCom.

Hard-working and diligent, within two years Ms. Vinsonwas promoted to a senior manager in WorldCom’s corpo-

rate accounting division. In her new job, she helped compilequarterly results, along with 10 employees who reported toher. Soon after taking the new position, her bosses askedher to make false accounting entries. At first, she said “no.”But continued pressure led to her finally caving in. Her deci-sion to make the false entries came after the company’s

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chief financial officer assured her that he would assume allresponsibility.

Over the course of six quarters, Ms. Vinson made illegalentries to bolster WorldCom’s profits at the request of hersuperiors. At the end of 18 months, she had helped falsify atleast $3.7 billion in profits. Of course, the whole schemeunravelled in 2002, in what became the largest fraud case incorporate history.

Ms. Vinson pleaded guilty to two criminal counts of con-spiracy and securities fraud, charges that carry a maximumsentence of 15 years in prison. In the summer of 2005, shewas sentenced to five months in prison and five months ofhouse arrest.

What would you have done had you been in Ms. Vinson’sjob? Is “just following orders” an acceptable excuse for break-ing the law? If your livelihood is on the line, do you say no toa powerful boss? What can organizations do to lessen thechance that employees might capitulate to unethical pres-sures imposed by their boss?

Sources: Based on S. Pulliam, “A Staffer Ordered to Commit FraudBalked, Then Caved,” Wall Street Journal, June 23, 2003, p. A1; and E.McClam, “Ex-WorldCom Exec Gets 5-Month Term, House Arrest,”Clarion-Ledger, August 5, 2005, www.clarionledger.com/apps/pbcs.dll/article?AID=/20050805/NEWS0108/50805011/1002/NEWS01 (accessed September 29, 2005).

C A S E I N C I D E N T S

Ajax University Needs a New StructureAjax University has recently been in the news for scandalswithin its athletics department. The athletics departmentadmits to doctoring athletes’ transcripts so these athletescan gain admission or maintain eligibility; coaches havebeen charged with recruiting violations; and alumni havebeen found to be providing athletes with cars and illegalcash payments.

Despite widespread criticism of these practices, littleseems to be done to implement changes to deal with theseabuses. Why? There’s a lot of money and prestige involved,and university administrators seem willing to look the otherway so as not to upset the system.

Within the current structure of the university, the ath-letics department is responsible for all sports programs.The head of the department, the athletics director, reports tothe president of the university, at least on paper. In prac-tice, because the department brings so much money intothe university, the athletics director is given free rein todo whatever he wants within his department. The separateand special status given to the athletics department makesabuse rather easy.

Gordon Gee, the chancellor at Vanderbilt University, inreflecting on the problems at Ajax University, believes thatthe problems are structural: “For too long, athletics has beensegregated from the core mission of the university. As aresult, we have created a culture, both on campus and nation-ally, that is disconnected from students, faculty and otherconstituents, where responsibility is diffused, the potentialabuse considerable, and the costs—both financial and aca-demic—unsustainable.”

Ajax University needs a new organizational structure forits athletics department that would help eliminate much ofthe abuse that has happened. The department currently over-

sees 14 varsity sports, 37 club sports, and various intramu-ral sports.

Varsity sports are elite programs; the significant amountof revenue they bring in not only covers the costs of all cluband intramural sports, but also contributes to the generaloperating budget of the university. One of the problems fac-ing varsity sports is how to recruit students who fit the pro-file of the university. Ajax athletes are typically admittedwith a grade point average of 60 percent. The overall studentaverage for those admitted to Ajax is 70 percent.

Intramural sports provide opportunities to students, fac-ulty, and staff to participate in sports on a league basis withpost-secondary schools in the region. Rules for intramuralsports are determined by representatives of league teams.Club sports provide a co-ed, competitive, recreational pro-gram for students, faculty, and staff. Students coordinateand administer the programs and find coaches to participateon a volunteer basis.

Questions

1. How would you classify Ajax University’s structure withrespect to the athletics department? Defend yourchoice.

2. Is Ajax University’s problem one of poor leadership orinadequate structural design? Explain.

3. If you were a consultant advising Ajax University, whatwould you suggest to fix the problems noted?

Sources: Based on “Major Changes for Vanderbilt Athletics,” New YorkTimes, September 10, 2003, p. C19; M. Cass, “Vanderbilt RealignsManagement,” USA Today, September 10, 2003, p. 7C; and “VanderbiltUniversity Is Not Getting Rid of Sports,” Chronicle of Higher Education,September 19, 2003, p. A35.

http://www.clarionledger.com/apps/pbcs.dll/article?AID=/20050805/NEWS0108/50805011/1002/NEWS01




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Managers get things done through other people. Becausethere are limits to any manager’s time and knowledge,effective managers need to understand how to delegate.Delegation is the assignment of authority to another per-son to carry out specific duties. It allows an employee tomake decisions. Delegation should not be confused withparticipation. In participative decision making, there is asharing of authority. In delegation, employees make deci-sions on their own.

A number of actions differentiate the effective delegatorfrom the ineffective delegator. There are five behavioursthat effective delegators will use:46

1. Clarify the assignment. The place to begin is todetermine what is to be delegated and to whom.You need to identify the person most capable of

doing the task, then determine if he or she hasthe time and motivation to do the job.

Assuming you have a willing and ableemployee, it is your responsibility to provide clearinformation on what is being delegated, theresults you expect, and any time or performanceexpectations you hold.

Unless there is an overriding need to adhereto specific methods, you should delegate onlythe end results. That is, get agreement on whatis to be done and the end results expected, butlet the employee decide on the means.

2. Specify the employee’s range of discretion. Everyact of delegation comes with constraints. You aredelegating authority to act, but not unlimitedauthority. What you are delegating is authority to

Delegating Authority

From Conceptsto Skills

“I Detest Bureaucracy”

Greg Strakosch, founder and CEO of interactive media com-pany TechTarget, hates bureaucracy. So he has created aworkplace where his 210 employees are free to come and goas they please. There are no set policies mandating workinghours or detailing sick, personal, or vacation days. Employeesare free to take as much vacation as they want and to workthe hours when they are most productive—even if it’sbetween midnight and 4 a.m. And if you need a day off totake your kid to camp? No problem. Strakosch says ideas likesetting a specific number of sick days “strike me as arbitraryand dumb.” He trusts his employees to act responsibly.

Strakosch is quick to state that “this isn’t a country club.”A painstaking hiring process is designed to weed out all butthe most autonomous. Managers set ambitious quarterlygoals, and employees are given plenty of independence toachieve them. But there is little tolerance for failure. In themost recent 12 months, for instance, Strakosch had fired 7 percent of his workforce for underachieving.

And while hours are flexible, employees frequently putin at least 50 hours a week. In addition, regardless of hours

worked, employees are required to remain accessible viaemail, cellphones, instant messaging, or laptops.

Strakosch’s approach seems to be working. Started in1999, sales in 2003 were expected to hit $35 million—upnearly 30 percent from 2002.

Questions

1. What type of organization is this?

2. Why does this type of structure work at TechTarget?

3. How transferable is this structure to other organizations?

4. Would you want to work at TechTarget? Why or whynot?

Source: Based on P. J. Sauer, “Open-Door Management,” Inc., June2003, p. 44.


OB AT WORK

act on certain issues and, on those issues, withincertain parameters. You need to specify whatthose parameters are so employees know, in nouncertain terms, the range of their discretion.

3. Allow the employee to participate. One of thebest sources for determining how much authoritywill be necessary to accomplish a task is theemployee who will be held accountable for thattask. If you allow employees to participate indetermining what is delegated, how muchauthority is needed to get the job done, and thestandards by which they will be judged, youincrease employee motivation, satisfaction, andaccountability for performance.

4. Inform others that delegation has occurred.Delegation should not occur in a vacuum. Notonly do you and the employee need to knowspecifically what has been delegated and howmuch authority has been granted, but anyoneelse who may be affected by the delegation actalso needs to be informed.

5. Establish feedback controls. The establishment ofcontrols to monitor the employee’s progressincreases the likelihood that important problemswill be identified early and that the task will becompleted on time and to the desired specifica-tions. For instance, agree on a specific time forcompletion of the task, and then set progressdates when the employee will report back onhow well he or she is doing and any major prob-lems that have surfaced. This can be supple-mented with periodic spot checks to ensure thatauthority guidelines are not being abused, organi-zation policies are being followed, and properprocedures are being met.

Assessing SkillsAfter you’ve read this chapter, take the following Self-Assessment on your enclosed CD-ROM:

41. What Type of Organization Structure Do I Prefer?

42. How Willing Am I to Delegate?

Practising SkillsYou are the director of research and development for alarge pharmaceutical manufacturer. You have six peoplewho report directly to you: Sue (your secretary), Dale (labo-ratory manager), Todd (quality standards manager), Linda(patent coordination manager), Ruben (market coordina-

tion manager), and Marjorie (senior projects manager). Daleis the most senior of the five managers and is generallyacknowledged as the chief candidate to replace you if youare promoted or leave.

You have received your annual instructions from theCEO to develop next year’s budget for your area. The task isrelatively routine but takes quite a bit of time. In the past,you have always done the annual budget yourself. But thisyear, because your workload is exceptionally heavy, youhave decided to try something different. You are going toassign budget preparation to one of your subordinate man-agers. The obvious choice is Dale. Dale has been with thecompany longest, is highly dependable, and, as your prob-able successor, is most likely to gain from the experience.The budget is due on your boss’s desk in eight weeks. Lastyear it took you about 30 to 35 hours to complete.However, you have done a budget many times before. For anovice, it might take double that amount of time.

The budget process is generally straightforward. Youstart with last year’s budget and modify it to reflect inflationand changes in departmental objectives. All the data thatDale will need are in your files, online, or can be obtainedfrom your other managers.

You have just walked over to Dale’s office and informedhim of your decision. He seemed enthusiastic about doingthe budget, but he also has a heavy workload. He told you,“I’m regularly coming in around 7 a.m. and it’s unusual forme to leave before 7 p.m. For the past five weekends, I‘veeven come in on Saturday mornings to get my work done.I can do my best to try to find time to do the budget.”Specify exactly what you would say to Dale and the actionsyou would take if Dale agrees to do the budget.

Reinforcing Skills

1. When watching a video of a classic movie thathas examples of “managers” delegating assign-ments, pay explicit attention to the incidence ofdelegation. Was delegating done effectively?What was good about the practice? How might ithave been improved? Examples of movies withdelegation examples include The Godfather, TheFirm, Star Trek, Nine-to-Five, and Working Girl.

2. The next time you have to do a group project fora class, pay explicit attention to how tasks aredelegated. Does someone assume a leadershiprole? If so, note how closely the delegationprocess is followed. Is delegation different in proj-ect or study groups than in typical work groups?

Organizational Structure

Documents

continually

pay explicit

comprehensive

raw material

obvious structural

separate profit

limited information

public pressure