2.2 Organizational Structure

Chapter 11

Why are organizational structures changing?

Employees are better qualified and more knowledgeable

Multinational organizations can take local factors into account

Communication is quicker and faster Today’s organizations need leaders

and team efforts

What is an organizational structure?

The internal, formal framework of a business that shows the way in which management is organized and how authority is passed through the organization.

Formal Structure

Indicates who has OVERALL responsibility of decision-making

Relationships between people working for an organization

How authority is passed down (chain of command) The number of subordinates reporting to managers

(span of control) Channels of communication Identify workers’ supervisors

or managers

Advantages

Power starts at the top and works down or maybe authority maybe passed down

Divisions can be based on departments, geographic regions, or product category

The levels of promotion are clear for employees

The role of each employee is clear. Clear chain of command.

Disadvantages

Top to bottom communication is typical and not usually efficient

Horizontal communication is usually limited creating tunnel vision

Is often inflexible and leads to resistance of change – managers defend their “turf” and position in the hierarchy

Tall Organizations

Communication tends to be slow Span of Control is narrow Sense of remoteness at lower levels

President

VP Sales VP Finance VP Mfg

Manager Manager Manager Manager Manager Manager

Sales Rep Sales Rep Accountant Accountant Plant Supervisor Plant Supervisor

Flat Organizations

Few hierarchical levels Wider span of control

President

Plant Mgr Plant Mgr VP Sales VP Finance VP Mfg Plant Mgr

Factors of Structure

Size of business Style of leadership Reducing overhead costs leads to

flattening of organizational structure Corporate objectives – expanding to

new markets New technologies can make current

employee types obsolete

HL – Delegation

Passing Authority on to others

Advantages Disadvantages

Senior mgmnt can focus on strategic issues

If task is not well-defined, delegation will not succeed

Shows trusts and can create motivation

Delegation will be unsuccessful if sufficient power is not also given

Develops and trains staff for higher level work

Managers delegate only the boring jobs.

Helps staff become fulfilled through their work

Encourages staff to be accountable

HL - Delayering

Removal of one or more of the hierarchy from an organizational structure

Advantages Disadvantages

Reduces business costs One-off costs-

Redundancy payments (severance pay)

Shortens the chain of command and should improve communication

Increased workloads for those that remain

Increases span of control & opportunities for delegation

Fear of redundancy used to cut costs threatens security of workforce

May increase motivation by less remoteness from top layers & more quality work to perform

HL – Centralized / Decentralized

Centralized – Keeping all important decision-making at the head office

Decentralized- Decision making passed down to local or regional managers

HL – Centralized/Decentralized

Advantages - Centralized Advantages - DecentralizedA fixed set of rules and procedures; there is little room for discussion.

Local decisions reflect local conditions and customer needs.

Consistent policies. Prevents conflicts between divisions and avoids confusion.

Junior managers develop skills for more senior positions.

Senior management considers the whole business not just one division.

Empowerment at lower levels will have positive motivation effects.

Central buying should allow for economies of scale.

Decision-making is quicker and more flexible.

Senior managers will be experienced decision-makers.

HL – Matrix Structure (Tom Peters)

An organizational structure that creates project teams that cut across functional departments. This method is usually task or project focused.

Finance

Dept

Production

Dept

Marketing

Dept

Human

Resources

Research &

Development

Project

Team 1

Project

Team 2

Project

Team 3

HL – Matrix StructureAdvantages Disadvantages

Communication between all departments on a project or task.

Less control from the top.

Less chance of focusing on what is good for “my” department.

Junior managers may have authority that is difficult for more senior managers to handle.

Increase chance of focusing on what is good for the project or task.

Faster reaction to new situations may be resisted by senior managers.

More successful solutions created by cross-over ideas from many people who are specialists in their fields.

Team members may have 2 leaders – the team/project leader and the original hierarchy leader.

New project teams can be created quickly to address changing markets or business needs.

HL – Henry Mintzberg

Theory that companies select management structures based upon “pull factors”.

The better the fit of the structure to its business environment, the more likely it will be successful.

HL – Henry Mintzberg

1. Entrepreneurial OrganizationFlat and informal; lacks standardized procedures; very flexible

2. Bureaucracy OrganizationStandardization and formalized work. Tight, inflexible, vertical structure

3. Professional OrganizationHigh degree of specialization by experts that control their own work.

HL – Henry Mintzberg

4. Divisional OrganizationDifferent product lines and business units.

5. Innovative OrganizationNew and creative industries; companies use teams of experts to form creative, flexible, functional teams

HL – The Seven-S Model (Tom Peters)

Seven ElementsPurpose: Increase managers awareness of less tangible but critical factors for an organization to be successful.

3 Hard “S” – Practical elementsStructure, Strategy, Systems

4 Soft “S” – Less tangible elements – always changing & based upon

people who work for the businessSkills, Staff, Style, Shared Values

HL – The Seven-S Model

Structure

Shared Values

Staff

Systems

Style

Strategy

Skills

HL – Informal Organizations

The network of personal and social relationships developed between people within an organization.

How can informal networks help companies?

How can they hurt companies?

HL- Outsourcing HR FunctionsBenefits Limitations

Reduces costs Local knowledge of labor market may be lost.

Increases efficiency by using HR specialists.

Cost savings may not be significant

Provides greater expertise in areas like employment law.

The process of outsourcing may give employees a sense of being controlled by outside agency.

Aids corporate growth – HR can be a constraining factor.

Outsourcing can never remove the responsibility of management to form good working relationships with their employees.Remaining internal HR staff can focus on

strategy and policy

In small business allows owners to focus on growing company, increasing profits, and gaining market share.