Chp 13: Organizational Structure

What Is Organizational Structure?

Organizational Structure - How job tasks are formally divided, grouped, and coordinated
Pyramidal Structure vs. Flat Structure
Restructuring - Changing structures from time to time, often involving layoffs
Six Key Elements of Designing Organizational Structure:
1. Work Specialization - The degree to which tasks in the organization are subdivided into separate
jobs
Individuals specialize in doing part of an activity rather than entire activity
Specialization can be efficient as skills improve through repetition
Less costly to find and train workers for specific tasks
Specialization can lead to boredom, low productivity, poor quality, higher turnover, etc.
Induces higher productivity at the price of lower job satisfaction
2. Departmentalization - The basis on which jobs are grouped together
Functional Departmentalization: Efficiencies from putting people with common skills
and orientations together in common units
Product Departmentalization: Increased accountability for product performance
Geographic Departmentalization: Valuable if organization's customers are scattered
everywhere and have similar needs based on location
Process Departmentalization: Specialization in one specific phase of production,
offering homogeneous categorizing of activities
Customer Departmentalization: Specialization on the basis that customers of each
department have a common set of problems and needs
Two trends of departmentalization:
1. Greater emphasis on customer departmentalization
2. Rigid, functional departmentalization increasingly complemented by teams that cross
over traditional departmental lines
Chain of Command - The continuous line of authority that extends from upper organizational
levels to the lowest level and clarifies who reports to whom
Delegation - Assignment of authority to another person to carry out specific duties,
allowing the employee to make some of the decisions
Managers ensure right people are taking part in decision making, while
employees are being empowered
Self-managed and cross-functional teams have decreased relevance of chain of
command
Span of Control - The number of employees that report to a manager
The wider or larger the span, the more efficient an organization (in terms of cost)
When it becomes too large, managers cannot allocate time to provide
necessary leadership and support
Investments in employee training to reduce negative effects on performance
Narrow spans have three major drawbacks:
Expensive with extra levels
Vertical communication more complex
Encourage tight supervision and discourage autonomy
No evidence to support correlation between span of control and employee
performance
Centralization and Decentralization
Centralization - The degree to which decision making is concentrated at a single point in
the organization
Decentralization - The degree to which decision making is distributed to lower-level
employees
Action is taken more quickly, more people provide input, employees feel less
alienation
Lower-level managers have more detailed knowledge about problems
Less centralization allows for participative decision making, that causes job
satisfaction
Formalization - The degree to which jobs within the organization are standardized
High formalization means explicit job descriptions, organizational rules, defined
procedures, resulting in consistent output
Standardization removes need for employees to consider alternatives
Mechanistic Model - A structure characterized by high specialization, rigid departmentalization, a
clear chain of command, narrow spans of control, a limited information network, and centralization
Organic Model - A structure that is flat, uses cross-functional and cross-hierarchical teams,
possesses a comprehensive information network, has wide spans of control, and has low
formalization
Traditional Organizational Designs
Simple Structure - An organizational design characterized by:
a. a low degree of departmentalization
b. wide spans of control
c. authority centralized in a single person
d. little formalization
Widely practised in small businesses
Strengths
Fast, flexible, inexpensive to maintain, accountability is clear
Weaknesses
Difficult to maintain in anything larger than small organizations
Risky as everything depends on one person
Bureaucracy - An organizational design with highly routine operating tasks achieved through:
a. Specialization
b. Formalized rules and regulations,
c. Tasks that are grouped into functional departments
d. Centralized authority
e. Narrow spans of control
f. Decision making that follows the chain of command
Strengths
Ability to perform standardized activities in a highly efficient manner
Less cost for managerial positions, as it is substituted by rules and regulations
Ensures consistent application of policies and practices and ensures accountability
Weaknesses
Create subunit conflict as functional unit goals override overall goals of organization
Can lead to power in the hands of a few
Obsessive concern with following the rules
Matrix Structure - An organizational design that combines functional and product departmentalization;
it has a dual chain of command
Strengths
Ability to foster coordination when organization carries out complex and
interdependent activities
Reduces tendencies of departmental members to protect themselves
Facilitates the efficient allocation of specialists
Weaknesses
Confusion
Tendency to foster power struggles
Places stress on individuals
New Design Options
Team Structure - The use of teams as the central device to coordinate work activities
Breaks down departmental barriers and decentralizes decision making to work team
Employees are generalists and not specialists
Modular Organization - A small core organization that outsources major business functions
Organizations can devote talent to more critical activities
Allows for quicker responses to changes with increased focus on customers
Reduces management's control over key parts of its business
Often criticized for low-cost production strategies
Virtual Organization - A continually evolving network of independent companies - supplies, customers,
even competitors - linked together to share skills, costs, and access to one another's markets
Units of different firms join together to pursue common goals
Allows for shared costs and skills, provides access to global markets, and increases market
responsiveness
Boundaries between companies are blurred
Requires new managerial skills as they must build relations
Boundaryless Organization - An organization that seeks to eliminate the chain of command, have
limitless spans of control, and replace departments with empowered teams
Also called T-form organization
Breaks down internal barriers by creating cross-hierarchical teams and using participative
decision-making
Breaks down external barriers with globalization, strategic alliances, supplier-organization, etc.
Difficult to manage and overcome boundaries inherent in organizations
What Major Forces Shape an Organization's Structure?
Strategy
Three Strategy Dimensions:
1. Innovation Strategy - A strategy that emphasizes the introduction of major new products and
services
2. Cost-Minimization Strategy - A strategy that emphasizes tight cost controls, avoidance of
unnecessary innovation or marketing expenses, and price cutting
3. Imitation Strategy - A strategy of moving into new products or new markets only after their
viability has already been proven
Minimize risk and maximize opportunity for profit
The Strategy-Structure Relationship
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
Organizational Size
Impact of size becomes less important as organization expands because it will be fairly
mechanistic
Technology
Technology - The way in which an organization transfers its inputs into outputs
Degree of Routineness: Automated and standardized operations vs. Customization
Routine tasks associated with taller and more departmentalized structures, and
formalization
Centralization is moderated by degree of formalization as one can substitute for the
other
Environment
Environment - Those institutions or forces outside the organization that potentially affect the
organization's performance
Environment creates uncertainty which management tries to minimize by making
adjustments to structure
Three Environmental Dimensions:
Capacity - The degree to which it can support growth
Excess resources buffer organization in times of relative scarcity
Volatility - The degree of instability in the environment
Affects management's ability to predict he probabilities associated with decision
alternatives
A change to a stable environment would catch companies by surprise
Complexity - The degree of heterogeneity and concentration among environmental elements
The more scare, dynamic, and complex the environment, the more organic it should be
The more abundant, stable, and simple the environment, the more mechanic it should be