MQM 221

1. MQM 221 Chapter 11 Organizational Structure

2. Learning Objectives • After reading this chapter, you should be able to answer the following questions: • Define organizational structure and understand what it consists of. • Describe the major elements of an organizational structure. • Understand what organizational design is and what the organizational design process depends on. • Describe some of the more common organizational forms that an organization might adopt for its structure. • Describe the steps organizations can take to reduce the negative effects of restructuring. • Understand how restructuring affects job performance and organizational commitment. 11-2

3. Organizational Structure Organizational structure formally dictates how jobs and tasks are divided and coordinated between individuals and groups within the company. An organizational chart is a drawing that represents every job in the organization and the formal reporting relationships between those jobs. 11-3

4. Two Sample Organizational Structures Figure 11-1 11-4

5. Elements of Organizational Structure Table 11-1 11-5

6. Elements of Organizational Structure • Work specialization is the way in which tasks in an organization are divided into separate jobs. • Also known as division of labor. • Assembly line worker. • Chain of command within an organization essentially answers the question “Who reports to whom?” • Specific flow of authority down through the levels of an organization’s structure. • Span of control represents how many employees the manager is responsible for in the organization. • Narrow spans of control allow managers to be much more hands-on with employees. • Centralization reflects where decisions are formally made in organizations. • Formalization reflects the amount of specific rules and procedures used to standardize behaviors and decisions. • Necessary coordination mechanism that organizations rely on to get a standardized product or deliver a standardized service. 11-6

7. The Relationship between Span of Control and Organizational Performance Figure 11-2 11-7

8. Elements in Combination • Mechanistic organizations are efficient, rigid, predictable, and standardized organizations that thrive in stable environments. • Rigid and hierarchical chain of command, high degrees of work specialization, centralization of decision making, and narrow spans of control. • Organic organizations are flexible, adaptive, outward-focused organizations that thrive in dynamic environments. • Low levels of formalization, weak or multiple chains of command, low levels of work specialization, and wide spans of control. 11-8

9. Organizational Design • Organizational design is the process of creating, selecting, or changing the structure of an organization. • An organizations business environment consists of its customers, competitors, suppliers, distributors, and other factors external to the firm, all of which have an impact on organizational design. • Stable environments do not change frequently, and any changes that do occur happen very slowly. • Dynamic environments change on a frequent basis and require organizations to have structures that are more adaptive. 11-9

10. Organizational Design • A company strategy describes an organization’s objectives and goals and how it tries to capitalize on its assets to make money. • Low-cost product strategy rely on selling products at the lowest possible cost. • Differentiation strategy believes that people will pay more for a product that is unique in some way. • An organization’s technology is the method by which it transforms inputs into outputs. • Company size refers to the total number of employees, and structure. 11-10

11. Common Organizational Forms • Simple structures are perhaps the most common form of organizational design, primarily because there are more small organizations than large ones. • OB in Sports • A bureaucratic structure is an organizational form that exhibits many of the facets of the mechanistic organization. • Designed for efficiency and rely on high levels of work specialization, formalization, centralization of authority, rigid and well-defined chains of command, and relatively narrow spans of control. 11-11

12. An Organizational Structure for a Small Restaurant Figure 11-3 11-12

13. Bureaucratic Structures Functional structure is an organizational form in which employees are grouped by the functions they perform for the organization. 11-13

14. Multi-Divisional Structures • Multi-divisional structuresare bureaucratic organizational forms in which employees are grouped into divisions around products, geographic regions, or clients. • Product structuresgroup business units around different products that the company produces. 11-14

15. Multi-Divisional Structures, Cont’d • Geographic structuresare generally based around the different locations where the company does business. 11-15

16. Multi-Divisional Structures, Cont’d • Client structure is an organizational form in which employees are organized around serving customers. 11-16

17. Matrix Structures • Matrix structures are a more complex form of organizational design that tries to take advantage of two types of structures at the same time. • The matrix represents a combination of a functional structure and a product structure. 11-17

18. Matrix Organization

19. Restructuring • The process of changing an organization’s structure is called restructuring. • Steps in restructuring • Recognize the need to change • Restructure • Helping restructuring to succeed • Manage layoff survivors (employees that remain with the company following a layoff) • One of the best ways to help layoff survivors adjust is to do things that give them a stronger sense of control. 11-19

20. How Important is Structure? Restructuring has a small negative effect on task performance, likely because changes in specialization, centralization, or formalization may lead to confusion about how exactly employees are supposed to do their jobs, which hinders learning and decision making. Restructuring has a more significant negative effect on organizational commitment however. Restructuring efforts can increase stress and jeopardize employees’ trust in the organization. 11-20

21. Effects of Organizational Structure on Performance and Commitment Figure 11-6 11-21

22. Takeaways An organization’s structure formally dictates how jobs and tasks are divided and coordinated between individuals and groups within the organization. This structure, provides the foundation for organizing jobs, controlling employee behavior, shaping communication channels, and providing a lens through which employees view their work environment. There are five major elements to an organization’s structure that can be organized in such a way as to make an organization more mechanistic in nature, which allows it to be highly efficient in stable environments, or more organic in nature, which allows it to be flexible and adaptive in changing environments. 11-22

23. Takeaways, Cont’d Organizational design is the process of creating, selecting, or changing the structure of an organization. Factors to be considered in organizational design include a company’s business environment, its strategy, its technology, and its size. There are literally thousands of organizational forms. The most common is the simple structure, which is used by most small companies. Larger companies adopt a more bureaucratic structure. This structure may be functional in nature, such that employees are grouped by job tasks, or multidivisional, such that employees are grouped by product, geography, or client. Organizations may also adopt a matrix structure that combines functional and multidivisional grouping. 11-23

24. Takeaways, Cont’d To reduce the negative effects of restructuring, organizations should focus on managing the stress levels of the employees who remain after the restructuring. Providing employees with a sense of control can help them learn to navigate their new work environment. Organizational restructuring efforts have a weak negative effect on job performance. They have a more significant negative effect on organizational commitment, because employees tend to feel less emotional attachment to organizations that are restructuring. 11-24