TenOrganizational Structure and Design1. INTRODUCTION.Organizational structure can play an important role in an organization’s success.The process of organizing—the second management function—is how an organization’s structure is created.2. DEFINING ORGANIZATIONAL STRUCTURE.Managers are seeking structural designs that will best support and allow employees to effectively and efficiently do their work.A. Before we look at the elements of organizational structure and design,we need to define some important terms.1. Organizing is the process of creating an organization’sstructure. That process has several purposes, as shown in Exhibit10.1.2. An organizational structure is the formal arrangement of jobswithin an organization.3. Organizational design is the process of developing or changingan organization’s structure. It involves decisions about six keyelements: work specialization, departmentalization, chain ofcommand, span of control, centralization/decentralization, andformalization. We need to take a closer look at each of thesestructural elements.B. Work specialization is the degree to which tasks in an organization aredivided into separate jobs. Most managers today see work specializationas an important organizing mechanism but not as a source of ever-increasing productivity.C. Once work tasks have been defined, they must be grouped together insome way through a process called departmentalization—the basis onwhich jobs are grouped in order to accomplish organizational goals.There are five major ways to departmentalize. (Exhibit 10.2)1. Functional departmentalization is grouping jobs by functionsperformed.2. Product departmentalization is grouping jobs by product line.3. Geographical departmentalization is grouping jobs on thebasis of territory or geography.4. Process departmentalization is grouping jobs on the basis ofproduct or customer flow.5. Customer departmentalization is grouping jobs on the basis ofcommon customers.6. Two popular trends in departmentalization include:a. Customer departmentalization continues to be a highlypopular approach because it allows better monitoring ofcustomers’ needs and responding to those changes inneeds.b. Cross-functional teams, a hybrid grouping ofindividuals who are experts in various specialties (orfunctions) and who work together, are being used alongwith traditional departmental arrangements.D. The chain of command is the continuous line of authority that extendsfrom the upper organizational levels to the lowest levels and clarifies who reports to whom. Three related concepts include authority,responsibility, and unity of command.1. Authority is the right inherent in a managerial position to tellpeople what to do and to expect them to do it.2. Responsibility is the obligation or expectation to perform.3. Unity of command is the classical management principle that asubordinate should have one and only one superior to whom heor she is directly responsible; that is, a person should report toonly one manager.E. The concept of span of control refers to the number of subordinates amanager can supervise effectively and efficiently.1. The span of control concept is important because it determineshow many levels and managers an organization will have. (SeeExhibit 10.3 for an example.)2. What determines the “ideal” span of control? Contingencyfactors such as the skills and abilities of the manager and theemployees, the characteristics of the work being done, similarityof employee tasks, the complexity of those tasks, the physicalproximity of subordinates, the degree to which standardizedprocedures are in place, the sophistication of the organization’sinformation system, the strength of the organization’s culture,and the preferred style of the manager will influence the idealnumber of subordinates.3. The trend in recent years has been toward larger spans ofcontrol.F. The concepts of centralization and decentralization address who, where,and how decisions are made in organizations.1. Centralization is the degree to which decision-making isconcentrated at a single point in the organization, usually in theupper levels of the organization.2. Decentralization is the handing down of decision-makingauthority to lower levels in an organization.3. The trend is toward decentralizing decision making in order tomake organizations more flexible and responsive.4. Employee empowerment is another term for increaseddecentralization and is the increasing of the decision-makingdiscretion of employees.5. A number of factors will influence the amount of centralizationor decentralization an organization uses. (See Exhibit 10.4.) G. Formalization refers to the degree to which jobs within an organizationare standardized and the extent to which employee behavior is guided by rules and procedures.1. In a highly formalized organization, employees have littlediscretion, and there’s a high level of consistent and uniformoutput. Formalized organizations have explicit job descriptions,lots of organizational rules, and clearly defined procedures.2. In a less-formalized organization, employees have a lot offreedom and can exercise discretion in the way they do theirwork.3. Standardization not only eliminates the possibility thatemployees will engage in alternative behaviors, it even removesthe need for employees to consider alternatives.4. The degree of formalization can vary widely betweenorganizations and even within organizations.3. ORGANIZATIONAL DESIGN DECISIONS.Organizations don’t have the same structures. Even companies of similar size do not necessarily have similar structures.A. Mechanistic and Organic organizational forms. (See Exhibit 10.5.)1. A mechanistic organization is an organizational structure that’scharacterized by high specialization, rigid departmentalization,narrow spans of control, high formalization, a limitedinformation network, and little participation in decision-makingby low-level employees.2. An organic organization is a structure that’s highly adaptiveand flexible with little work specialization, minimalformalization, and little direct supervision of employees.3. When is each design favored? It “depends” on the contingencyvariables.B. Contingency factors—appropriate structure depends on four contingencyvariables:1. Strategy and structure.One of the contingency variables that influences organizationaldesign is the organization’s strategy.a. Alfred Chandler did the original work on the strategy-structure relationship. His finding that structurefollowed strategy pointed out that as organizationschanged their strategies, they had to change theirstructure to support that strategy.b. Most current strategy-structure frameworks tend tofocus on three strategy dimensions:1) Innovation—needs the flexibility and free flowof information of the organic organization2) Cost minimization—needs the efficiency,stability, and tight controls of the mechanisticorganization3) Imitation—which uses characteristics of bothmechanistic and organic2. Size and structure.There’s conside rable historical evidence that an organization’ssize significantly affects its structure. Larger organizations tendto have more specialization, departmentalization, centralization,and formalization although the size-structure relationship is notlinear.3. Technology also has been shown to affect an organization’schoice of structure.a. Every organization uses some form of technology totransform inputs into outputs.b. Joan Woodward’s study of structure and technologyfound that organizations adapted to their technology.She found that three distinct technologies had increasinglevels of complexity and sophistication.1) Unit production is the production of items inunits or small batches.2) Mass production is large-batch manufacturing.3) Process production is continuous-processproduction.c. Woodward found in her study of these three groups thatdistinct relationships existed between thesetechnologies, the subsequent structure of theorganization, and the effectiveness of the organization.Exhibit 10.6 provides a summary of these findings.4. Environmental uncertainty and structure.The final contingency factor that has been shown to affectorganizational structure is environmental uncertainty. One wayto manage environmental uncertainty is through adjustments inthe organization’s structure. The more uncertain theenvironment, the more flexible and responsive the organizationmay need to be.4. COMMON ORGANIZATIONAL DESIGNS.A. Traditional organizational designs.We now need to look at various organizational designs that you mightsee in today’s organizations. Exhibit 10.8 summarizes the strengths andweaknesses of each of these designs.1. A simple structure is an organizational design with lowdepartmentalization, wide spans of control, authority centralizedin a single person, and little formalization.a. Its strengths are its flexibility, speed, and low cost tomaintain.b. Its major drawback is that it’s most effective in smallorganizations.2. As an organization grows, the structure tends to become morespecialized and formalized. When contingency factors favor abureaucratic or mechanistic design, one of two options is likelyto be used.3. One option expands functional departmentalization into thefunctional structure,which is an organizational design thatgroups similar or related occupational specialties together.4. The other option is the divisional structure,which is anorganizational structure made up of autonomous, self-containedunits.B. Contemporary organizational designs.However, many of today’s organizations are finding that the traditionalhierarchical organizational designs aren’t appropriate for theincreasingly dynamic and complex environments they face.1. Team structures.One of the newer concepts in organizational design is the teamstructure, which is an organizational structure made up of workgroups or teams that performs the organization’s work.2. Matrix and project structures.Another variation in organizational arrangements is based on thefact that many o f today’s organizations deal with work activitiesof different time requirements and magnitude.a. One of these arrangements is the matrix organizationthat assigns specialists from different functionaldepartments to work on one or more projects being ledby project managers. (See Exhibit 10.9.)b. Another of these designs is the project structure, whichis a structure in which employees are permanentlyassigned to projects.3. The Boundaryless Organization.Another approach to organizational design is the boundarylessorganization, which describes an organization whose design isnot defined by, or limited to, the horizontal, vertical, or externalboundaries imposed by a predefined structure.4. A virtual organization is one that consists of a smallcore of full time employees and that temporarily hiresoutside specialists to work on opportunities that arise5 A network organization is a small coreorganizationthat outsources major business functions.6 A modular organization is a manufacturingorganization that uses outside suppliers to provideproduct components that are then assembled into finalproducts.7. The Learning Organization.Finally, some organizations have adopted an organizationalphilosophy of a learning organization—an organization thathas developed the continuous capacity to adapt and changebecause all members take an active role in identifying andresolving work-related issues. Exhibit 10.10 shows thecharacteristics of a learning organization.1. Can an organization’s structure be changed quickly? Why or why not?The speed of changing an organization’s structure depends on its size. A small organization could change its structure much more rapidly than a large one. But even a large organization can change its structure and often does in response to changing environmental conditions and changing strategies.2. Would you rather work in a mechanistic or an organic organization? Why?Students’ answers to this will vary. You’ll find that many students prefer the structure provided by a mechanistic organization whereas others would hate that type of rigidity. Just a reminder that the Online Self-Assessment Library Scale #39, “What Type of Organization Structure Do I Prefer?” addresses whether or not students would like to work in a bureaucracy (a mechanistic organization).You might want to use (or reuse) it in answering this question or as a follow-up to this question.3. What types of skills would a manager need to effectively work in a projectstructure? In a boundaryless organization? In a learning organization?In all of these types of organizations, flexibility and adaptability would be critical. In the project structure, conflict management skills might be particularly useful. In a boundaryless organization, the ability to deal with people at all levels and in all areas of the organization might be useful. Finally, in a learning organization, a person would need the ability to communicate both by listening and by speaking because sharing information is important.4. The boundaryless organization has the potential to create a major shift in ourliving and working patterns. Do you agree or disagree? Explain.Students’ responses to this are likely to vary. This might be an interesting question to set up as a debate. Have students break into teams and assign the teams one side or the other. Give them a chance to come up with their arguments, and then let them present their information.5. With the availability of advanced information technology that allows anorganization’s work to be done anywhere at any time, is organizing still an important managerial function? Why or why not?Although an organization’s work may be done anywhere at any t ime, organizing is still an important managerial function because the work still has to be divided, grouped, and coordinated. And that’s what organizing involves.。
