Defining Organizational Structure

2. Defining Organizational Structure • Organizational Structure: • The formal (conforming to standards) arrangement of jobs within an organization. • Organizational Design: • Developing or changing an organization’s structure – a process that involves decisions about six key elements: • Work specialization • Departmentalization • Chain of command • Span of control • Centralization and decentralization • Formalization Page 174

3. Some Purposes of Organizing • Divides work to be done into specific jobs and departments. • Assigns tasks and responsibilities associated with individual jobs. • Coordinates diverse organizational tasks. • Clusters jobs into units. • Establishes relationships among individuals, groups, and departments. • Establishes formal lines of authority. • Allocates and deploys organizational resources. Exhibit 9–1 Page 174

4. Organizational Structure • Work Specialization • The degree to which activities in an organization are divided into separate jobs – also known as division of labor. • An entire job is broken down into steps that are completed by different people with each one specializing in doing part of the job. • Today, managers see work specialization as an important mechanism but recognize that it can result in boredom, fatigue, stress, poor quality, increased absenteeism and higher turnover. Some organizations have broadened the scope of jobs and reduced work specialization. Page 175

5. Five Common Forms of Departmentalization Functional • Groups jobs by functions performed. Product • Groups jobs by product line. Geographical • Groups jobs on the basis of territory or geography. Process • Groups jobs on the basis of product or customer flow. Customer • Groups jobs by type of customers and needs. Page 175

6. Functional Departmentalization • Advantages • Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations • Coordination within functional area • In-depth specialization • Disadvantages • Poor communication across functional areas • Limited view of organizational goals Exhibit 9–2a Page 176

7. Geographical Departmentalization • Advantages • More effective and efficient handling of specific regional issues that arise • Serve needs of unique geographic markets better • Disadvantages • Duplication of functions • Can feel isolated from other organizational areas Exhibit 9–2b Page 176

8. Product Departmentalization + Allows specialization in particular products and services + Managers can become experts in their industry + Closer to customers – Duplication of functions – Limited view of organizational goals Exhibit 9–2c Page 176 Source: Bombardier Annual Report.

9. Process Departmentalization + More efficient flow of work activities – Can only be used with certain types of products Exhibit 9–2d Page 176

10. Customer Departmentalization + Customers’ needs and problems can be met by specialists - Duplication of functions - Limited view of organizational goals Exhibit 9–2e Page 176

11. Trends in Departmentalization Two popular trends (new styles & practices) in departmentalization are the increasing use of customer departmentalization and the use of cross-functional teams. This structure allows the company to better understand its customers and to respond faster to their needs. Cross-functional teams: • Groups of individuals who are experts in various specialties and who work together as a team. E.g. Employees from finance, purchasing, engineering, quality control, representatives from outside suppliers, etc…, etc… Page 177

12. Chain of Command • Chain of Command • The continuous line of authority that extends from upper organizational levels to the lowest levels and clarifies who reports to whom. It helps employees answer the questions: “Who do I go to if I have a problem” and “To whom am I responsible?” Page 177

13. Chain of Command • Authority • The rights inherent(existing)in a managerial position to tell people what to do and to expect them to do it. Managers are part of the chain of command and are granted (given) authority to facilitate decision making and coordination in meeting their responsibilities Page 177

14. Chain of Command • Responsibility • The obligation or expectation to perform any assigned duties. As managers coordinate and integrate the work of employees, those employees assume an obligation to act in accordance with instructions. Page 177

15. Chain of Command • Unity of Command • The management principle that a person should report to only one manager. The unity of command principle helps preserve the concept of a continuous line of authority. Without it, conflicting demands and priorities from multiple bosses can create problems. Page 177

16. Chain of Command • Traditional and contemporary views: • Today, because of information technology and the use of computers, new organizational designs are implemented and the concepts of chain of command have become less relevant. With computers, employees can access information that used to be available only to top managers and communicate with anyone in the organization without going through the formal channels – the chain of command. Page 177

17. Span of Control • The number of employees a manager can efficiently and effectively manage. • It determines the number of managers in an organization. • Wider spans are more efficient in terms of cost. • A manager’s span of control is affected by: • Skills and abilities of the manager and the employees. • Characteristics of the work being done. • Standardization of tasks or their complexity. • The organization’s culture. • The manager’s own style of supervision. Page 178

18. Span of Control • Traditional and contemporary views: • The wider or larger the span of control, the more efficient the organization. • However, when the span becomes too large, performance decreases because managers no longer have the time to provide the necessary leadership and support. • Today, the trend is toward wider spans while investing heavily in employee training. • Managers recognize that they can handle a wider span when employees know their jobs well or can turn to co-workers if they have questions. Page 178

19. Contrasting Spans of Control Exhibit 9–3 Page 178

20. Organizational Structure • Centralization • The degree to which decision-making is concentrated at a single point in the organizations. • If top managers make the organization’s key decisions with little or no input from below, then the organization is centralized. • Decentralization • The degree to which lower-level employees provide input or actually make decisions. • As organizations become more flexible and responsive, there is a trend toward decentralizing decision making. The organization is decentralized. Page 179

21. Factors that Influence the Amount of Centralization • More Centralization • Environment is stable. • Lower-level managers are not as capable or experienced at making decisions as upper-level managers. • Lower-level managers do not want to have a say in decisions. • Decisions are significant. • Organization is facing a crisis or the risk of company failure. • Company is large. • Effective implementation of company strategies depends on managers retaining say over what happens. Exhibit 9–4a Page 180

22. Factors that Influence the Amount of Decentralization • More Decentralization • Environment is complex, uncertain. • Lower-level managers are capable and experienced at making decisions. • Lower-level managers want a voice in decisions. • Decisions are relatively minor. • Corporate culture is open to allowing managers to have a say in what happens. • Company is geographically dispersed. • Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions. Exhibit 9–4b Page 180

23. Organizational Structure • Formalization • The degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures. • In organizations with high formalization: • Job descriptions are explicit. • Organizational rules are numerous. • Procedures covering work processes are clearly defined. • In organizations with low formalization: • Job behaviors are relatively unstructured (not regulated). • Employees have freedom in how they do their work. Page 180

24. Mechanistic Organization A rigid and tightly controlled structure: High specialization. Rigid departmentalization. Narrow spans of control. High formalization. Limited information network (downward). Little decision participation by lower-level employees. Organic Organization A Highly flexible and adaptive structure: Non-standardized jobs. Fluid team-based structure. Little direct supervision. Minimal formal rules. Open communication network. Empowered lower-level employees. Organizational Design Decisions Page 181

25. Mechanistic versus Organic Organization Exhibit 9–5 Page 181

26. Structural Contingency Factors • Strategy and Structure • The organizational structure must support and facilitate achievement of strategic goals. • Because goals are influenced by the organization’s strategies, structure should follow strategy. • If managers change the organization’s strategy, they need to modify the structure to accommodate and support the change. Page 182

27. Structural Contingency Factors • Size and Structure • An organization’s size significantly affects its structure. • As an organization grows larger, its structure tends to change from organic to mechanistic. • Large organizations have more specialization, departmentalization, centralization, and rules and regulations than do small organizations. Page 182

28. Structural Contingency Factors • Technology and Structure • Woodward’s studies demonstrate that organizations adapt their structures to their technology. • Technologies differ by their degree of routineness (same procedures) or standardization. • The more routine the technology, the more mechanistic the structure can be. • The more non-routine the technology, the more organic the structure can be. Page 182

29. Woodward’s Findings on Technology, Structure, and Effectiveness Exhibit 9–6 Page 183

30. Structural Contingency Factors • Environmental Uncertainty and Structure • Mechanistic, rigid structures tend to be most effective in stable and simple environments. • Organic, flexible structures tend to be most effective in dynamic and uncertain environments. • Examples of dynamic environmental forces: Global competition, product innovation by competitors, increased demands from customers for high quality and faster deliveries. Page 183

31. Common Organizational Designs • Traditional Designs • Simple structure – found in small businesses. • Low departmentalization, wide spans of control, centralized authority, little formalization. • Functional structure. • Departmentalization by function. • Groups similar occupational specialties together. • Operations, finance, human resources, research and development. • Divisional structure – found in large corporations. • Composed of separate business units or divisions with limited autonomy under the coordination and control of the parent corporation. Page 184

32. Strengths and Weaknesses of Common Traditional Organizational Designs Exhibit 9–7 Page 184

33. Organizational Designs • Contemporary Organizational Designs • Team structures • The entire organization is made up of work groups or self-managed teams of empowered employees. • Matrix structures • Specialists from different functional departments are assigned to work on projects led by a project manager. • Matrix participants have two managers. • Project structures • Employees work continuously on projects; as one project is completed, they move on to the next project. Page 185

34. A Matrix Organization in an Aerospace Firm Exhibit 9–9 Page 187

35. Organizational Designs • Contemporary Organizational Designs • Boundaryless Organization • A flexible and unstructured organizational design that is intended to eliminate boundaries (limits) imposed by a predefined structure. • Removes internal boundaries: • Eliminates the chain of command • Has limitless spans of control • Uses empowered teams rather than departments • Eliminates external boundaries: • Uses virtual, network, and modular (varied and flexible) organizational structures to get closer to stakeholders. Page

36. Removing Boundaries • Virtual Organization • An organization that consists of a small core of full-time employees and that temporarily hires specialists to work on opportunities that arise. • The company enjoys a network of talents (expertise) without the overhead(cost) and structural complexity. Page 187

37. Removing Boundaries • Network Organization • A small core(central) organization that outsource (obtain services from outside suppliers) its major business functions (e.g., manufacturing). • This approach allows organizations to concentrate on what they do best and obtain services from outside companies that can do those services better (e.g. Nike, Reebok). Page 187

38. Removing Boundaries • Modular Organization • A manufacturing organization that uses outside suppliers to provide product components or modules (parts) that are then assembled into final products. • A modular organization can quickly be redesigned as needed. • Automobile manufacturers use outside suppliers to provide sections of the cars which are put together into finished automobiles by a small number of employees (e.g. GM, Ford). Page 187

39. Organizational Designs • The Learning Organization • An organization that has developed the capacity to continuously learn, adapt, and change through the practice of knowledge management by employees. • Characteristics of a learning organization: • An open team-based organization design that empowers employees. • Extensive and open information sharing. • Leadership that provides a shared vision of the organization’s future, support and encouragement. • A strong culture of shared values, trust, openness, and a sense of community. Page 188

40. Characteristics of a Learning Organization Exhibit 9–10 Page 189

41. C H A P T E R R E V I E W 1/3 Defining Organizational Structure (slides 4,5,11~16,18) • Discuss the traditional and contemporary view of work specialization. • Describe each of the five forms of departmentalization. • Explain cross-functional teams. • Differentiate chain of command, authority, responsibility, and unity of command. • Discuss the traditional and contemporary views of chain of command. • Discuss the traditional and contemporary views of span of control. Page 172

42. C H A P T E R R E V I E W 2/3 Defining Organizational Structure (Slides 20,23) • Tell what factors influence the amount of centralization and decentralization. • Explain how formalization is used in organizational design. Organizational Design Decisions (slides 24~28,30) • Contrast mechanistic and organic organizations. • Explain the relationship between strategy and structure. • Tell how organizational size affects organizational design. • Discuss Woodward’s findings on the relationship of technology and structure. • Explain how environmental uncertainty affects organizational design. Page 172

43. C H A P T E R R E V I E W 3/3 Common Organizational Designs (slides 31,33,36~39) • Contrast the three traditional organizational designs. • Explain team-based, matrix, and project structures. • Discuss the design of virtual, network, and modular organizations. • Describe the characteristics of a learning organization. Page 172