Organizing is all about that!
Recall from Chapter 1 that we defined organizing as the function of
management that determines what needs to be done, how it will be done, and who is to do it; in other
words, it is the function that creates the organization's structure. When managers develop or change the
organization's structure, they're engaging in organizational desing. This process involves m aking
decisions about how specialized Jobs should be, the rules to guide employees' behaviours, and at what
level decisions are to be made. Although organizational design decisions are typically made by top-level
managers, it's important for everyone involved to understand the process. Why? Because each of us
works in som e type of organizational structure, and we need to know how and why things get done. In
addition, given the changing environment and the need for organizations to adapt, you should begin
understanding what tomorrow's structures may look like-those will be the settings you11 be worl<lng in,
Few topics in management have undergone as much change in the past fe w years as those of organizing
and organiz.~Uonal stru_c_tuR Managers are ~ uating tradttional approaches and exploring new
structural designs that best support and facilitate employees doing the organization's work- designs that
can achieve efficiency but att also fiexible.
The basic concepts of organizational design formulated by management writers such as Henri Fayol and
Max Weber offered structural principles for managers to follow. (Re,-ind to the History Module
- Supplement l A ) Over 90 years hav-., passed since many of those principles were ortginally proposed .
Given that length of lime and all the changes that have taken place, you'd think that those principles
would be mostly worthless today. Surprtsingly, they're noL They still provide valuable insights into
designing effective and efficient organizations. Of course, over the years we've also gained a great deal of
knowledge as to their limitations. In the following sections, we discuss the six ba.sic elements of
organizatwnal struchue: work specialization, departmentalization, authority and responsibility, span of
control, centralization versus decentralization, and formalization.283
Work Specialization
Adam Smith first identified division of labour and concluded that it contrtbuted to increased employee
productivity. Early in the twen tieth century, Henry Ford applied this concept in an assembly line, where
every Ford employee was assigned a specific, repetitive task.
Today we use the term ~.~~~..~P.!~~~.~.~~!.~.~~ to describe the degree to which tasks in an organization are
subdivided into separate jobs. The essence of work specialization is that an entire job is not done by one
individual b ut instead is broken down into steps, and each step is completed by a different person.
Individual employees "specializeh in doing part of an activity rather than the entire activity in order to
increase 1-vork output.
-•
Work specialization allows organizations to fifidmtly use the diversity of skills that workers have. In
most orgaruzations, some tasks require highly d eveloped skills; others can be performed by employees
with lower skill levels. If all workers were engaged in all the steps of, say, a manufacturing process, all
would need the skills necessary to perform both the most demanding and the least demanding jobs. Thus,
except whm performing the most highly skilled or highly sophisticated tasks, employees would be
working below their skill levels. In addition, skilled workers are paid more than unskilled workers, and,
because wages tend to reflect the highest level of skill, all workers would be paid at highly skilled rates to
do easy tasks - an Inefficient use of resources. This concept explains why you rarely find a cardiac
surgeon closing up a patient after surgery. Instead, surgical residents learning the skill usually stitch and
staple the patient after the surgeon has finished the surgery.
Early proponents of work specialization believed that it could lead to great lncreaS<!S In productivity. Al
the beginning of the twentieth century, that generalization was reasonable. Because specialization was not
widely practised, Its Introduction almost always generated higher productivity. But a good thing can be
carried too far. Al some point, the human d iseconomies - boredom, fatigue, stress, low productivity, poor
quality, increased absenteeism, and high turnover-outweigh the economic advantages.
Most managers today see work specialization as an important organizing mechanism but not as a source
of ever-increasing p roductivity. McDonald's uses high work specialization to get its products made and
delivered to customers efficiently. However, managers also have to recognize its limitations. That's why
companies like Bolton, Ontario-based Husky Injection )folding Systems and Hallmark use minimal work
specialization and instead give employees a broad range of tasks to do.
Does your college or university have an office o f stud ent affairs? A financial aid or student hou sing
department? Once jobs have been divided up through work specialization, they have to be grouped back
together so that common tasks can be coordinated. The basis on which jobs are grouped together is called
cl~partmentalization. Every organization will have its own specific way of classifying and grouping work
activities. Exhibit S..1 sh ow s the five common forms of departmentalization.
Exhibit 5-1
Types of Departmentalization
Groups employ ees based on work performed (e.g., engineerins;. accountins;. information sy stems,
Functional
human resources)
Groups employees based on major product areas in the corporation (e.s;., women' s fooh\.·ear, men's
Product
footwear, and apparel and accessories)
Customer Groups employ ees based on customers' problems and needs (e.s;., wholesale, retail, s;overnment)
Groups employ ees based on location senred (e.g., East Coast, Wes.tern Canada, Ontario a.nd Quebec,
Geographic
Territories)
Process Groups employees based on the basis of work or customer ftow (e .g., testing, payment)
Functional d epartmentalization groups jobs b y functions performed. This approach can be used in all
types of organizations, alth ough the functions change to reflect the organization' s p urpose and w ork.
l?r<>_d.11_c_t d.~p~rlllle.11tali~atio11 grou ps jobs b y product line. In this app roach,, each major product area is
placed und er the authority of a manager who is resp onsible for eve rything h aving to do w ith that product
line. For example, Estee Lauder sells lipstick, eyeshadow, blush, and a variety o f other cosmetics
rep resen ted b y differ ent product lines. The com pany' s lines inclu de Clinique and Origins, in addition to
Canadian-created l\/lAC Cosmetics and its o wn original line of Estee Lauder products, each of which
operates as a distinct company .
<:;e.<>gr~plli<.a.J..~epa_rlll1e.111:4_l_i_2:~t_i_°.11 groups jobs on the basis of territory or geography, such as the East
Coast, Western Canada, or Central Ontario, or maybe by Canadian, European,, Latin American, and
Asian-Pacific regions. J,".r<>c.'."'...d..eplllllll_e ntalization grou ps jobs on the basis of product or customer flow .
In this approach, work activities follo\\1 a natural processing flow of products or even of customers. For
example, many beauty salons h ave sep arate emp loyees for shamp ooing, colouring, and culling hair, all
different processes for having one' s hair styled. Finally, customer d epartmentalization groups jobs on the
basis of customers who have common needs or problems that can best be met by having specialists for
each. There are advantages to matching departmentalization to customer needs.
Large organizations often combine forms of departmentalization. For example, a major Canadian
photonics firm o rganizes each of its divisions along functional lines: its manufacturing units around
processes~ its sales units aro\Uld seven geographic regions, and its sales regions into four customer
grou pings. Two popular tren ds in departmentalization are the use of customer departmentalization and
the use o f cross-functional teams. Toronto-based Dell Canada is o rganized around four customer-oriented
business units: home and home office; small business; medium and large business; and government.,
education., and health care. Customer-o riented structures enable companies to better understand their
customers and to respond faster to their needs.
Managers use ~.~~.~~.~~~.~~~..~.~.~ ~ -teams made up of groups o f individuals who are experts in
various specialties and who ,vork together-to increase knowledge and. understanding for some
organization al tasks. Scarborough, Ontario-based Av iva Canada, a lead!ing property and casualty
insurance group, puts together cross-functional catastrophe teams, ,vi.th trained representativ es from all
rele vant departments, to more quickly help p olicyhold ers w hen a crisis occurs. During the BC wildfires of
summer 2003, the catastrophe team worked on both local and corporate issues, including managing
information technology, internal and external comm:unication., tracking.. resourcing, and vendors. This
type of o rganization made it easier to meet the n eeds of p olicyh old ers as qu ickly as p ossible.284
Chain of Command
The ~.h ain of com.man~ is the continu ous line of auth ority that extends from u pper organizational levels
to the lowest levels and clarifies wh o reports to ·w hom. It helps employees ans,ver questions such as ''\Vho
do I go to if I h ave a problem?" or "Who do I report to?"
Authortty comes from the posit ion I not th e person.
Authority refers to the rtghts inherent in a managertal position to tell people what to do and to expect
them to do it. 285 To facilitate decision making and coordination,, an organization's managers are p art of
the ch ain of command and are granted a certain degree of authority to meet their responsib ilities. Each
management position has specific inherent righ ts that incumbents acqu ire from the position's rank or title.
Auth ority, therefore, is related to one's p osition within an organization and h as nothing to do ,vi.th the
personal characteristics of an individual manager. 'When a position of authority is vacated, the person
who has left the position no longer has any auth ority. The auth ority re.mains with the position and its new
incumbent.
When managers delegate authority, they must allocate commensurate !.~.~ ponsibili!J. That is, when
employees are given rights, they also assume a corresponding obligation to perform. And they11 be h eld
accountable for their performance[ Allocating authority without responsibility and 11cc<lllllt11~il_i_ty creates
opp ortunities for abuse. Like,vise,, no one should be held responsible or accountable for something over
which he or she has no authority.
Sobeys maintains an environmental scorecard where it tracks its performance on environmental pledges
such as reducing greenhouse gas emissions by 15 percent, reducing lanclfill waste b y 30 percent, and
selling only sustainable seafood products.
The unity of command principle h elps prese rve the concept of a continu ous line of auth ority. It states that
every employee should receive orders from only one superior. Without unity of command, conflicting
d emands and priorities from m ultiple manage rs can create problems.
Because managers have limited time and knowledge, they may delegate some of the ir responsibilities to
other employees. Delegation is the assignment of authority to another person to carry out specific duties,
allowing the employee to m ake some of the decisions. Delegation is an important p art of a m anager's job,
as it can ensu re that the right people are part of the decision-making p rocess. Hey, You're the Boss Now-
Delegating 101 gives more lips on h ow to do a bette r job of delegating. These con cepts are far less
important today. For example, at the Michelin p lant in Tours, France, managers have replaced the top-
do\\111 chain of command VI.ti.th "birdhouse" meetings, in ·w hich employees meet for five minutes at regular
intervals throu ghout the d ay at a column on the shop floor to study simp le tables and charts to identify
production bottlenecks. Instead of being bosses, shop managers are enablers.286 In addition, information
technology has provided employees VI.ti.th immediate access to information instead of waiting to hear from
someone higher up in the ch ain of command.
Hey, You're the Boss Now! Delegating 101
Managers get things done through other people. Because any manager's time and knowledge is
limited, effective managers need to understand how to delegate. Delegation is the assignment of
authority to another person to carry o ut specific duties. It allow s an employee to make some of the
decisions. Delegation should not be confused with participation. In participative decision making,
au thority is shared. In delegation, employees make their own decisions.
A n umber of actions differentiate the effective delegator from the ineffective delegator. You can be
more effective at delegating if you use the following five suggestions:2117
1. Clarify the assignment Determine what is to be delegated and to whom. You need to
identify the person who is most capable of doing the task and then d etermine whether he or
she has the time and motivation to do the task. If you have a willing and able employee,
your responsibility is to provide clear information on what is being d elegated, the results
you expect, and any time or performance expectations you may have. Unless there is an
overriding need to adhere to specific methods, you should specify only the results expected.
Get agreement on what is to be done and the results expected, but let the employee decide
the best way to complete the task.
2. Specify the employee's range of discretion. Every situation of delegation comes with
constraints. Although you are delegating to an employee the authority to perform some task
or tasks, you are not delegating unlimited authority. You are d elegating authority to act on
certain issues within certain parameters. You need to specify what those parameters are so
that employees know, withou t any doubt, the range of their d iscretion.
3. Allow the employee to participate. One of the best ways to decide how much authority ,-ill
be necessary to accomplish a task ls to allow the employee who will be held acrountable for
the task to participate In that decision. Be aware, however, that allowing employees to
participate can present its own set of potential problems as a result of employees' self-
Interests and biases In evaluating their own abilities.
4. I nform others about the delegation. Delegation should not take place behind the scenes.
Not only do the manager and employee need to know specifically what has been delegated
and how much authority has been given, so does anyone else, both inside and outside the
organization. who ls likely to be affected by the employee' s decisions and actions.
Essentially, you need to communicate what has been delegated (the task and amount of
authority) and to whom.
5. Establish feedback channels. To delegate without establishing feedback controls is to invite
problems. The establishment of controls to, monitor the employee' s performance increases
the likelihood that important problems will be identified and the task will be completed on
time and to the desired specifications. Ideally, these controls should be determined at the
time of the Initial assignment. Agree on a specific time for the completion of the task, and
then set progress dates on which the employee will report back on how well he or she ls
doing and on any major problems that may have arisen These controls can be
supplemented with periodic checks to ens1Ure that authority guidelines are not being
abused, organizational policies are being followed, proper procedures are being met, and so
forth.
Line and Staff Authority
In many organizations, a distinction can be made bef¼reen line and staff authority. !::~~~. ~~g~!~ are
responsible for the essential activities of the organization, including production and sales. Line managers
have the authority to issue o rders to those in the chain of comm.and. The president, the production
manager, and the sales manager are examples of line managers. ~.t .,ff .lllllllager5. work in the supporting
activities o f the o rganizations, such as human resource s or accounting. Staff managers have advisory
authority and cannot issu e orders to those in the chain of command (except those in their O\\'ll
department). The vice-president of accounting, the human resources manager, and the marketing research
manager are examples of staff managers. Exhibit 5-2 illustrates line and staff authority.
How Do Authority and Power Differ?
Authority and power are often considered the same thing, but they're not. Authority is a right. Its
legitimacy is based on an authority figure's position in the organization. Authority goes with the job.
~.~ ~!.~, on the other hand, refers to an individ ual's capacity to influence decisions. Authority is pa.rt of the
larger concept of power. That is, the formal rights that come with an individual's position in the
organization are just one means by which an individ ual can affect the decision p rocess.
Exhibit 5.3 ,1sually depicts the diffe rence between authority and po"'-er. The two-dimensional
arrangement of boxes in p art A portrays authority. The area in w hich the authority applies is d efined by
the horizontal dimension. Each horizontal grouping represents a functional area. The influence one holds
in the organization is d efined by the vertical dimension in the structure. The higher one is in the
organization, the greater one'"s authority.
Power, on the other hind, is a thne•dimensional con~ (ttli' cone U\ put B of Exhibit S-3). ft indu d.H not
only the functioml and hierarchial dimensions but also a third dimension ailed cen trality . Although
au thority is defined by one's ~rtical position in the hierarchy, powa- is made up of both one's vertical
po5ition and one' s distance from the orgallizatton"s power core or centre.
Think of the cone in Exhibit S-3 as an organiza.tion. The centre oJ the cone is the power <Xn"e. The closer
you ue to tM power core.. the mon influence you ha\._ on decisions. The e:dst!nce ol a. p0""ff con ls, ln
lad, the only dllltrtnct bttw~tn A and 8 in Exhibit 5.J. Tht vutlcal hitra.rclly diznmsion in A is mtrtly
onr'1 l1\-.l on tha out«r Id.gt ol. lhl COJ'lt. lbt top of tha cont cor:rtspond1 to tht top of tM hil'l'archy, tht
rniddlt of tM cont to thi- rnidd!e of tlw hierarchy, ;md to on. Silniarly, the tunctio~ groups in A become
i.-.dges in I.hi C0l1i. Eich wedge r,pments • tunctio,w uu.
The cone analogy explicitly ackflO\<\,· ledges h"-o fads: (1) The higher one mens in an organiza.tion (an
increase in authority), the dos.er one moves to the p o¾cr core; and (2) it is not nece5sary to have a.uthorit}•
in order to n i.eld power because one can mo\"e horizontally in\li.-ard to,".rd the power cor e ni.thout
mo\ing up. For instU1Ce., assistants often ue powerful fn a company e,.--en though they have tittle
•uthority. As g:'-tllttpus for their bos.sH, thfft assistants ha\-e considerable l.ntluena 0\"'1' whom their
bosst1 IN and wbtn thty IN tbtm. FurthfrD'IOft, btc.au11 they're Rg\llarly nlild upon to pus
intormi!ion on to tMir bouu, they h.1,'tl tome control O'ltr whl.t thtir bo1MS Nu. Irs not unu1\Ul for a
$1~ 000-.a-yeu middle llU.nJ.gtr to trod an!ulty in order to not upset the boss-'"s $ti 000.~·)•ear
administrafu•e assi.st.nl. Why? Bea.use the assistant~ power . This indi\lidual may be low in the
authority hiaarchy but dose to the FO'"·er core.
Likew ise, }O\\·•ranking employees who ha\'e relati\•es, friends, or associates in high places might also be
d ose to the power core. So, too, are employees v.ith scarce and important skills. The lo'"iy production
englnte r with 20 yurs of expttlmce in a comp1.ny might bf, the only one ln the firm who knows the inner
worl:ings of .n u,, old production nudl!Nry. Whtn pitcu of this old tqulpmml bruk down. only this
1ngiNtr undtrtbnd.J how to fix thtm. Sudd.uUy, tht fflgin,tr'J inftutnet ii much grntt:r th&n it would
i.ppeu from hiJ or har lil\"il in th.I wrticil hitnrdty. \\"hat do fhiH f'Xmipla tell us about J)O\',-.:r? Thty
indicate that p01...--er an come from different uus. French a.nd Ri1,--en identified five sources, or buff, ot
powa: coerd\"e, re\...-.rd, l egitimate, expert, a." ld refermt.2.SS We discuss these concepts frt Chapter 10.
Span of Control
How many employees can a manager efficiently and effectively manage? This question of ~P.~~ ..~!.~~~.~.~!
received a great deal o f attention from early management ·w riters. Although they came to no consensus on
a specific number, most favoured small spans- typically no more than six wo rkers -in order to maintain
dose controt.289 However,, sever al ·w riters did acknowledge level in the organization as a contingency
variable. They argued that as a manager rises in an organization,. he or she has to deal with a greater
n umber o f unstructured problems, so top managers need a smaller span than do middle manager s, and
middle manager s require a smaller span than do su pervisors. Over the past d ecade,, ho,vever, we' ve seen
some change in theories about effective spans o f control. 290
Today's View
Many organizations are increasing their spans of control. Obviously, wider spans are more efficient in
terms of cost. However, at some point, \/\rider spans reduce effectiveness. 'When the span becomes too large,
employee performance can suffer because managers may no longer have the time to provide the necessary
lead ership and sup port. Exhibit 5-4 illustrates the contrast between a span of control of four versus eight,
leading to a need for 21 managers instead of 9. The top per forming manufacturing plants have up to forty
production workers per su pervisor.291 In a large call centre., that n umber can be as high as fifty customer
service representatives per su pervisor. The span of control is increasingly being d etermined by looking at
other contingency variables.
A Question of Ethics
How would you i ke to kn ow al the elosely held eorrc,any secrets of your employeri 293 A small but growing nu_, of
private-sector businesses are rev ealing to employees details about everything from Coffl)Bny financials to sla ff
performa nce review s and individua l pay. Adv ocates of this approach say ifs a good w ay to build trust among employees
and a good w ay to make employees a w are of how their individual contri>utions are a ffecti'lg the overall C0"1)8ny as a
w hole. And I can make them more motiv8ted in how they wor k. How ever. critics say that such open management can be
expensive and time consuming. For instance, employees may need to be •taughr how to read financial statements. A nd
employees who h av e access to al the deta ils may want to w eigh in on al th e decisions, slowing dow n the decision-
making process. As w ork becomes collabora tive and as o ffice worker s become accustomed to s h aring detaJs o f each
other's lives, m aybe the move toward grea ter wortplace openness i.s i"levitable.
Centralization and Decentralization
In some organizations, top m.anagers make all the decisions and lO\.,·er-let~l managers and employees
simply carry out their orders. At the other extreme are organizations in which decision making is pushed
down to the m.anagers v."ho are closest to the action. The former organizations are centralized, and the
latter a.re decentralized.
f!.~.~ ;.~~.?.~ describes the degree t o ·which decision makms is concentrated at a single point in the
organization If top managers make the organization' s key decisions with little or no input from below,
then the organization is centralized. 1n contrast, the more th.at lO\.,·er-let~l employees provide input or
actually make decisions, the more ~~.~~.~.~~.'?~ there is. Keep in mind that the concept of
centralization/decentralization is relative, not absolute-an organization is net~r completely centralized
or decentralized. Fe,.,· organizations could function effectively if all decisions , ..·ere made by only a select
group of top managers (centralized); nor could they function if all decisions , ..·ere delesated to employees
at the low·e stle1,,·els (decentralized). Nestle uses decentralized marketing , ..ith centralized production,.
logistics, and supply chain man.agement.l~
Today's View
Most organizations start ,.,ith a centralized model,. in which a founder makes all the decisions. As the
businesses grow and diversii}•, their en,'llonments become complex. These businesses need t o become
more flexible and respon.sh~, resulting in decentralized decision making. In large companies especiall)',
low er-le'v-el managers are "closer to the action" and typically ha,~ more detailed knowledge about
problems and how best t o solve them than do top managers. For example, the Bank of ?vlontreal' s some
tea> branches are organized into "communitie~ - a group of branches vdthin a limited geographical area..
Each community is led by a communit}• area manager, v.-ho typically works within a 20-minute drive of
the other branches. This area manager can respond faster and more intelligently to problems in his or her
community than could a senior executiv-e in Toronto.
Another term for increased decentralization is ~~.P~.?Y~.! .!~P.?~~~~!~~, which means giving more
decision-making authority to employees.
Formalization
Formalization refe,s to the degree to which jobs within the organization are standardized and the extent
to which employee behaviour is guided b y rules and procedures. If a job is highly formalized, the person
doing that Job has little freedom to choose what Is to be done. when It is to be done, and how he or she
does ii. Employees can be expected to hanclle the same inp ut in exactly the same w ay, resulting in
consistent and uniform output. Organizations with high formalization have explicit job descriptions,
numerous organizational rules, and dearly defined p rocedures covering w ork processes. On the other
hand, where formalization is low, job behaviours are relatively unstructured, and employees have a great
deal of freedom In how they do their work.
The degree of formalization varies widely among organizations and even within organizations. For
example, a t a newspaper, new s reporters often have a great deal of discretion in their jobs. They may p ick
their news topics, find their own stories, research them the way they want to, and write them up, usually
,-,ithin minimal guidelines. In contrast, employees who lay out the newspaper pages do not have that type
of freedom. They have constraints-both time and space-that stan dardize h ow they do their work.
Today's View
Although some formalization is important and necessary for consistency and control, many of today's
organizations seem to b e less reliant on strict rules and standardization to guide and regulate employee
behaviour. Consider the following situation:
It is 2:37 p..m.. and a customer at a watch repair store is trying to drop off a ,vatch for same-day repair.
Store policy states that items must be dropped off by 2:00 p.m. for this service. The clerk knows that rules
like this are supp osed to be followed. At the same time, he wants to accommodate the customer, and he
knows that the watch could, in fact, be repaired that day. H e decides to accept the watch and, by so doing,
to violate the policy. H e just h opes that his manager does not find out.296
Has this employee done something wrong? He did "break" the rule. But b y breaking the rule, he actually
brought in revenue and provided the customer good service- so good, in fact, that the customer may b e
satisfied enou gh to come back in the future.
Because such situations where rules may be too restrictive frequently arise, many organizations allow
employees some freedom to make decisions they feel are best under the circumstances. Ho\1\:-ever, this
freedom does not mean that all organizational rules are thrown ou t the window. There will b e rules that
are important for employees to follow, and these rules sh ould b e explained so employees understand the
importance of adhering to them. But for other rules, employees may be given some lee,vay in application.
297
