Organizational Structure and Design

Phillips & Gully (2012)

Organizational design The process of selecting and managing aspects of

organizational structure and culture to enable the organization to achieve its goals

Organizational structure The formal system of task, power, and reporting

relationships

Organizational chart Diagram of the chain of command and reporting

relationships in a company

Effective managers use organizational structure to coordinate, control, and motivate employees.

Organizational Chart—Narrow Span of Control

Characteristics of Organizational Structure

Division of Labor Span of Control

Hierarchy Formalization Centralization

Division of labor: the extent to which employees specialize or generalize

Span of control: the number of people reporting directly to an individual

Hierarchy: the degree to which some employees have formal authority over others

Centralization: the degree to which power and decision making authority are concentrated at higher levels of the organization rather than distributed

Although employing generalists can reduce costs, specialists can make environmental changes, make faster decisions and better respond to.

Organizational Chart—Wide Span of Control

Organizational Structure Mechanistic and Organic Structure

MechanisticOrganic

What Influences Organizational Structure?Business strategyExternal environmentOrganizational sizeBehavioral expectationsProduction technologyOrganizational change

Source: Nordstrom’s Employee Handbook.

What Influences Organizational Structure?

Influence ExampleBusiness strategy Being a low-cost producer would

require a more hierarchical, rigid structure than would pursuing an innovation strategy.

External environment A rapidly changing environment requires a more flexible structure than a more stable environment.

Nature of the organization’s talent

If workers have professional skills (e.g., lawyers, scientists, etc.) and need to work together than a team-based, flatter structure would be more appropriate than a taller, bureaucratic structure.

Organizational size Larger organizations tend to have greater specialization, greater hierarchy, and more rules than do smaller firms.

Influence ExampleExpectations of how employees should behave

If employees are expected to follow explicit rules and procedures, a more hierarchical, centralized structure would be called for.

The organization’s production technology

If the firm uses unit production and makes custom products, a flatter structure with a low managerial span of control is most appropriate.

Organizational change

As the environment and business strategies change, organizational structures change too.

Creating smaller units within a larger organization can increase flexibility, adaptability, and decision-making speed.

Types of Organizational Structures:

Functional structure—An organizational structure that groups people with the same skills, or who use similar tools or work processes, together into departments

Divisional structure—A collection of functions organized around a particular geographic area, product or service, or market

Matrix structure—Employees report to both a project or product team and to a functional manager

Types of Organizational Structures (cont.): Team-based structure—Horizontal or vertical teams

define part or all of the organization

Lattice structure—Cross-functional and cross-level subteams are formed and dissolved as necessary to complete specific projects and tasks

Organizational Chart—Matrix Structure

Network OrganizationsA collection of autonomous units or firms that act as a single larger entity, using social mechanisms for coordination and control

Joint payoffs

Restricted access

Virtual organizationAn organization that contracts out almost all of its functions except for the company name and managing the coordination among the contractors

Virtual organizations often use virtual teams linked by technology, although employees may still meet face-to-face

 Virtual organizations tend to be very complex

Integrating Employees Segmenting employees into divisions,

functional areas, or groups requires additional integrating mechanisms that facilitate coordination and communication among employees and groups.

Direct contact Liaison role Task force Cross-functional teams

When employees are segmented in any way, it is important to establish integrating

mechanisms to facilitate communication and coordination.

Communities of Practice Groups of people whose shared expertise and

interest in a joint enterprise informally binds them together.

Successful managers build communities of practice by bringing the right people

together, building trust, and providing an appropriate infrastructure.

Communities of Practice Tips:

Start with a clear area of business need Start small Recruit management involvement Use technology that supports the community’s needs

and that community members are able to use and are comfortable using

Respect and build on informal employee initiatives already under way

Celebrate contributions and build on small successes

Communities of practice facilitate knowledge transfer across employees,

facilitating employee transitions.

The Effects of Restructuring on Performance The Effects of Restructuring on Performance The restructuring process can be stressful and can

decrease employee motivation if the changes are poorly communicated.

High performers often leave if the change is chaotic or if their future with the firm is ambiguous.

When the new structure requires fewer employees, the survivors of the resulting downsizing can also suffer stress, decreased commitment, and higher turnover intentions.

Restructure organizations as infrequently as possible to enhance performance and

minimize employee stress and confusion.