Fundamentals of Organizational Structure

1. Fundamentals of Organizational Structure Munif Ahmad

2. Learning Objectives • After studying this chapter, you should be able to: • Identify the six elements of an organization’s structure. • Identify the characteristics of a bureaucracy. • Describe a matrix organization. • Identify the characteristics of a virtual organization. • Show why managers want to create boundaryless organizations. • Demonstrate how organizational structures differ, and contrast mechanistic and organic structural models. • Analyze the behavioral implications of differentorganizational designs. • Show how globalization affects organizational structure.

3. What Is Organizational Structure? • Organizational Structure • How job tasks are formally divided, grouped, and coordinated • Key Elements: • Work specialization • Departmentalization • Chain of command • Span of control • Centralization and decentralization • Formalization

4. 1. Work Specialization • The degree to which tasks in the organization are subdivided into separate jobs • Division of Labor • Makes efficient use of employee skills • Increases employee skills through repetition • Less between-job downtime increases productivity • Specialized training is more efficient • Allows use of specialized equipment • Can create greater economies and efficiencies – but not always…

5. 2. Departmentalization • The basis by which jobs are grouped together • Grouping Activities by: • Function • Product • Geography • Process • Customer

6. 3. Chain of Command • Authority • The rights inherent in a managerial position to give orders and to expect the orders to be obeyed • Chain of Command • The unbroken line of authority that extends from the top of the organization to the lowest echelon and clarifies who reports to whom • Unity of Command • A subordinate should have only one superior to whom he or she is directly responsible

7. 4. Span of Control The number of subordinates a manager can efficiently and effectively direct • Wider spans of management increase organizational efficiency • Narrow span drawbacks: • Expense of additional layers of management • Increased complexity of vertical communication • Encouragement of overly tight supervision and discouragement of employee autonomy

8. Contrasting Spans of Control

9. 5. 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 spread throughout the organization.

10. 6. Formalization • The degree to which jobs within the organization are standardized. • High formalization • Minimum worker discretion in how to get the job done • Many rules and procedures to follow • Low formalization • Job behaviors are nonprogrammed • Employees have maximum discretion

11. Common Organization Designs: Simple Structure • Simple Structure • A structure characterized by a low degree of departmentalization, wide spans of control, authority centralized in a single person, and little formalization

12. Common Organizational Designs: Bureaucracy • Bureaucracy • A structure of highly operating routine tasks achieved through specialization, very formalized rules and regulations, tasks that are grouped into functional departments, centralized authority, narrow spans of control, and decision making that follows the chain of command

13. An Assessment of Bureaucracies Strengths Weaknesses • Functional economies of scale • Minimum duplication of personnel and equipment • Enhanced communication • Centralized decision making • Subunit conflicts with organizational goals • Obsessive concern with rules and regulations • Lack of employee discretion to deal with problems

14. Common Organizational Designs: Matrix • Matrix Structure • A structure that creates dual lines of authority and combines functional and product departmentalization • Key Elements • Gains the advantages of functional and product departmentalization while avoiding their weaknesses • Facilitates coordination of complex and interdependent activities • Breaks down unity-of-command concept

15. New Design Options: Virtual Organization • A small, core organization that outsources its major business functions • Highly centralized with little or no departmentalization • Provides maximum flexibility while concentrating on what the organization does best • Reduced control over key parts of the business

16. New Design Options: Boundaryless Organization • An organization that seeks to eliminate the chain of command, have limitless spans of control, and replace departments with empowered teams • T-form Concepts • Eliminate vertical (hierarchical) and horizontal (departmental) internal boundaries • Breakdown external barriers to customers and suppliers

17. Two Extreme Models of Organizational Design

18. Four Reasons Structures Differ • Strategy • Innovation Strategy • A strategy that emphasizes the introduction of major new products and services • Organic structure best • Cost-minimization Strategy • A strategy that emphasizes tight cost controls, avoidance of unnecessary innovation or marketing expenses, and price cutting • Mechanistic model best • Imitation Strategy • A strategy that seeks to move into new products or new markets only after their viability has already been proven • Mixture of the two types of structure

19. Why Structures Differ • Organizational Size • As organizations grow, they become more mechanistic, more specialized, with more rules and regulations • Technology • How an organization transfers its inputs into outputs • The more routine the activities, the more mechanistic the structure with greater formalization • Custom activities need an organic structure • Environment • Institutions or forces outside the organization that potentially affect the organization’s performance • Three key dimensions: capacity, volatility, and complexity

20. Three-Dimensional Environment Model Volatility Capacity Complexity • Capacity • The degree to which an environment can support growth • Volatility • The degree of instability in the environment • Complexity • The degree of heterogeneity and concentration among environmental elements

21. Organizational Designs and Employee Behavior • Impossible to generalize due to individual differences in the employees • Research findings • Work specialization contributes to higher employee productivity, but it reduces job satisfaction. • The benefits of specialization have decreased rapidly as employees seek more intrinsically rewarding jobs. • The effect of span of control on employee performance is contingent upon individual differences and abilities, task structures, and other organizational factors. • Participative decision making in decentralized organizations is positively related to job satisfaction. • People seek and stay at organizations that match their needs.

22. Global Implications • Culture and Organizational Structure • Many countries follow the U.S. model • U.S. management may be too individualistic • Culture and Employee Structure Preferences • Cultures with high-power distance may prefer mechanistic structures • Culture and the Boundaryless Organization • May be a solution to regional differences in global firms • Breaks down cultural barriers, especially in strategic alliances • Telecommuting also blurs organizational boundaries

23. Summary and Managerial Implications Associated with • Structure impacts both the attitudes and behaviors of the people within it • Impact of Technology • Makes it easier to change structure to fit employee and organizational needs