ORGANIZATIONAL STRUCTURE

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Chapter
Fourteen
ORGANIZATIONAL STRUCTURE AND DESIGN
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After reading this chapter you should be able to
1. Describe organizational structure and how it
is revealed by an organizational
chart. 2. Explain the basic characteristics of
organizational structure as revealed in an
organizational chart (hierarchy of authority
division of labor span of control line versus
staff and decentralization). 3. Describe
different approaches to departmentalization
including functional organizations product
organizations matrix organizations and the
boundaryless organization. 4. Distinguish
classical from neoclassical approaches to
organizational design.
5. Distinguish mechanistic organizations from
organic organizations as described by the
contingency approach to organizational design
and describe the conditions under which each is
most appropriate. 6. Describe the five
organizational forms identified by Mintzberg
simple structure machine bureaucracy
professional bureaucracy divisional structure
and adhocracy. 7. Characterize two forms of
interorganizational design --conglomerates and
strategic alliances.
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Organizational Structure The Basic Dimensions
of Organizations (Pp. 518-524)
Organizational Structure - the formal
configuration between individuals and groups
regarding the allocation of tasks
responsibilities and authorities within
organizations Organizational chart - diagram
representing the connections between the
various departments within an organization -
provides information about the various tasks
performed within an organization and the
formal lines of authority between them
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Figure 14.1 Organization Chart
Board member
Board member
Board member
Board member
Chief Executive Officer
Legal counsel
President
V.P Sales/ Marketing
V.P Human Resources
V.P Production
V.P Research and Development
Industrial Products Director- Sales
Consumer Products Director- Sales
Industrial Products Director- Human Resources
Consumer Products Director- Human Resources
Industrial Products Director- Production
Consumer Products Director- Production
Industrial Products Director- RD
Consumer Products Director- RD
Western Region Industrial Products Sales Manager
Eastern Region Industrial Products Sales Manager
Western Region Consumer Products Sales Manager
Eastern Region Consumer Products Sales Manager
etc.
etc.
etc.
etc.
etc.
etc.
etc.
etc.
etc.
etc.
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Organizational Structure The Basic Dimensions of
Organizations (cont.)
Hierarchy of Authority - a configuration of the
reporting relationships within organizations
(i.e. who reports to whom) Tall organizations -
have many levels in the hierarchy Flat
organizations - have few levels in the
hierarchy - many organizations have been
restructuring by flattening their
hierarchy - results in job losses
particularly among middle-level managers
Division of Labor - process of dividing the many
tasks in an organization into specialized
jobs - the more tasks are divided into separate
jobs the more those jobs are specialized
i.e. the narrower the range of activities
Span of Control - the number of subordinates in
an organization who are required to report to
each manager Wide span - many subordinates
report to a manager - typical of flat
organizations Narrow span - few subordinates
report to a manager - typical of tall
organizations
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Figure 14.3
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Organizational Structure The Basic Dimensions of
Organizations (cont.)
Line and Staff Positions Line positions -
positions in which people can make decisions
related to basic work Staff positions -
positions in which people make recommendations
to others but are not involved in decisions
concerning day-to- day operations - line and
staff personnel often hold different views about
the organization - such differences may be
conflict-arousing
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Organizational Structure The Basic Dimensions of
Organizations (cont.)
Decentralization - extent to which authority and
decision making are spread throughout all levels
of an organization rather than being reserved
for top management (i.e. centralization) -
although not always ideal there has been a
recent trend toward decentralization
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Departmentalization Ways of Structuring
Organizations (Pp. 524-530)
Departmentalization - process of breaking
organizations into coherent units
Functional Organizations - departmentalization
based on the activities or functions performed
(e.g. sales finance) - structure usually
adopted when starting an organization
- advantages - takes advantage of potential
economies scale - allows individuals to
specialize and perform only those tasks at
which they are most expert
- limitations - functional units may lose
perspective about overall goals of the
organization - tends to discourage innovation
due to lack of coordination and
cross-fertilization among functional units
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Figure 14.4 Functional Organization of a Typical
Manufacturing Firm
Chief Executive Officer
President
Sales Department
Production Department
Research Development Department
Accounting Department
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Departmentalization Ways of Structuring
Organizations (cont.)
Product Organizations - departmentalization based
on the products (or product lines) produced -
separate divisions established that contain all
of the resources necessary to to develop
manufacture and sell a product - organization
is composed of separate divisions each of which
operates independently Cost centers
- advantage - managers from each division can
devote their energies to one particular business
- limitations - loss of economies of scale
because of duplication of resources - ability
to attract and retain talented employees -
problems of coordination across product lines may
arise
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Figure 14.5 An Example of Product Organization
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Departmentalization Ways of Structuring
Organizations (cont.)
Matrix Organizations - departmentalization in
which a product or project form is superimposed
on a functional form - product (project)
managers share authority with functional
managers - may be either permanent or temporary
structure Dual authority - employees report to
two bosses one functional the other product
(project)
- three major roles in matrix design Top leader
- individual with authority over both functional
and product (project) managers Matrix bosses
- people who head functional departments
or specific projects Two-boss managers -
people who must report to both product and
functional managers and attempt to balance
the demands of each
- advantages - permits flexible use of an
organizations human resources - efficient means
of responding to changed environment - enhances
communication among managers
- limitation - frustration and stress experienced
by two-boss managers
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President
Figure 14.7 Matrix Organization
Farm Machinery Division
Production department
Legal department
Accounting department
Engineering department
Project Alpha manager
Production support group
Legal support group
Engineering support group
Accounting support group
Project Beta manager
Production support group
Legal support group
Engineering support group
Accounting support group
Project Gamma manager
Production support group
Legal support group
Engineering support group
Accounting support group
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Organizational Design (Pp. 530-541)
Organizational Design - process of coordinating
the structural elements of an organization in
the most appropriate manner
Classical Organization Theory - approaches that
assume there is a single best way to design
organizations - effective organizations had a
formal hierarchy clear rules highly routine
tasks specialization of labor narrow spans of
control and impersonal working environment -
fallen into disfavor because it is insensitive to
human needs and is not suited to a changing
environment
Neoclassical organization theory - attempt to
improve on classical organization theory by
arguing that employee satisfaction as well as
economic effectiveness are the goals of
organizational structure - proposed a one best
way to structure organizations - design flat
organizations and high degree of decentralization
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Organizational Design (cont.)
Contingency Approach - recognizes that no one
approach to organizational design is best but
that the best design is the one that best fits
with the existing environmental conditions
External Environment - sum of all the forces with
which an organization must deal effectively if
it is to survive Highly stable - unchanging
environments environmental demands are
predictable Highly unstable - turbulent
environments conditions change on a daily
basis
Mechanistic organization - an internal
organizational structure in which people perform
specialized jobs rigid rules are imposed and
authority is vested in a few top-ranked
officials - appropriate for stable environments
Organic organization - an internal organizational
structure in which jobs tend to be very
general there are few rules and decisions can
be made by lower-level employees - appropriate
for unstable environments
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Figure 14.8 Matching Organizational Design and
Industry
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Organizational Design (cont.)
Mintzbergs Five Organizational Forms -
organizations are composed of five basic
elements or groups of individuals any one of
which may predominate Operating core -
employees who perform the basic work related
to the organizations product or
service Strategic apex - top-level executives
responsible for running the entire
organization Middle line - managers who transfer
information between the strategic apex and the
operating core Technostructure - specialists
responsible for standardizing various aspects
of the organizations activities Support staff -
individuals who provide indirect support services
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Table 14.4 Mintzbergs Five Organizational Forms
Design Description Dominant Group Example
Simple structure Simple informal Strategic
apex Small authority centralized entrepreneuria
l in a single person business Machine
bureaucracy Highly complex formal Technostructure
Government offices environment with
clear lines of authority Professional Complex
decision- Operating core Universities bureaucracy
making authority is vested in professionals Divi
sionalized Large formal Middle
line Multidivision structure organizations
with businesses such as several separate
divisions General Motors Adhocracy Simple
informal with Support staff Software decentraliz
ed authority development firm
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Organizational Design (cont.)
Boundaryless Organization - organization in which
chains of command are eliminated spans of
control are unlimited and rigid departments
give way to empowered teams - requires a great
deal of trust to function effectively -
traditional managerial power bases are weakened
- several variations of boundaryless
organizations that involve only the elimination
of external boundaries Modular organization -
surrounds itself with other organizations to
which it regularly outsources non-core
functions - have a central hub that is
surrounded by networks of outside specialists
who can be added or subtracted as needed
Virtual organization - highly flexible temporary
organization formed by a group of companies to
exploit a specific opportunity - each
participating company contributes only its
core competencies
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Interorganizational Designs (Pp. 542-544)
Conglomerates - organizational diversification in
which an organization (usually a very large
multinational one) adds an entirely
unrelated business or product to its
organizational design - parent company can enjoy
the benefits of diversification -
countercyclical business trends across different
industries - may provide built-in markets and
access to supplies as companies typically
support other companies in the conglomerate
Strategic Alliance - organizational design in
which two or more separate companies combine
forces to develop and operate a specific
business - goal is to provide benefits to each
individual organization that could not be
attained by operating separately - offer
opportunities for commercial development in
countries with transforming economies -
strategy to gain access to markets in foreign
countries
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Figure 14.13 A Continuum of Strategic Alliances
Joint Ventures (different companies work
together to fulfill the same opportunity
each requiring the other e.g. ATT and
TSYSs Universal Card)
Mutual Service Consortia (similar companies pool
resources to share a joint benefit e.g.
hospitals share expenses to build and operate an
MRI unit)
Value-Chain Partnerships (different
companies that rely on each other for
their unique business e.g. customer-supplier rel
ationships)