Organizations and Structures

Roadmap

• Organizing and organizations

• Structure of organizations

• Matrix organizations

• Networked organizations

• Learning organizations

• Challenges in organizations

What Is Organizing?

• Organizing– Arranging the

activities of the enterprise in such a way that they systematically contribute to the enterprise’s goals.

Depicting the Organization

• Organization Chart– A chart that shows the

structure of the organization including the title of each manager’s position and, by means of connecting lines, who is accountable to whom and who has authority for each area.

Organization Chart

I n f o r m a t i o n S e r v i c e s G r o u p

C a t a l o g e r

C a t a l o g e r

C u s t o m e r L i a i s o n

T a x o n o m y D e s i g n e r

K n o w l e d g e A r c h i t e c t u r e L e a d

D e v e l o p e r

D e v e l o p e r

S y s t e m s A d m i n

S e a r c h / S y s t e m s L e a d

A s s i s t a n t D e s i g n e r

D e s i g n L e a d

K n o w l e d g e A r c h i t e c t u r e M a n a g e r

Organization Design andStructure

• Organization design– A process in which managers develop or

change their organization’s structure

• Work specialization– A component of organization structure that

involves having each discrete step of a job done by a different individual rather than having one individual do the whole job

LIS580- Spring 2006 7

Economies of WorkSpecialization

Prentice Hall, 2002

Stages of OrganizationalDevelopment

• Simple structure– An organization that is low in specialization

and formalization but high in centralization

• Functional structure– An organization in which similar and related

occupational specialties are grouped together

• Divisional structure– An organization made up of self-contained

units

Stages of OrganizationalDevelopment (cont’d)

• Matrix structure– An organization in which specialists from functional

departments are assigned to work on one or more projects led by a project manager

• Team-based structure– An organization that consists entirely of work

groups or teams

• Boundaryless organization– An organization that is not defined or limited by

boundaries or categories imposed by traditional structures

Mechanistic and OrganicOrganizations

• Mechanistic organization– The bureaucracy; a structure that is high in

specialization, formalization, and centralization

• Organic organization– An adhocracy; a structure that is low in

specialization, formalization, and centralization

• Structure follows strategy

Structure Variables

• Principles– Chain of command– Span of control

– Authority

– Power– Responsibility

• Departmentalization– Functional– Divisional

• Product• Customer• Geographic• Process

Organizational Structure: Control

• Chain of command– The management principle that no person should report to

more than one boss

• Span of control– The number of subordinates a manager can direct efficiently

and effectively

• Authority– The rights inherent in a managerial position to give orders

and expect them to be obeyed

• Responsibility– An obligation to perform assigned activities

• Power– An individual’s capacity to influence decisions

Chain of Command

Tall And Flat Organizations, And The Span Of Control

• Span of Control– The number of subordinates reporting directly to a

supervisor.• Wide spans: larger number of direct reports.• Narrow spans: fewer number of direct reports.

• Tall vs. Flat Organizations– Tall organizations: more management layers and

more hierarchical controls.

– Flat organizations: fewer management layer and decision making closer to the customer.

FIGURE 6–9

Spans of Control in Country-Based Organization

Types of Organizational Authority

• Line authority– The position authority (given and defined by

the organization) that entitles a manager to direct the work of operative employees

• Staff authority– Positions that have some authority (e.g.,

organization policy enforcement) but that are created to support, assist, and advise the holders of line authority

Authority Versus Power

Types of Power

Legitimate Power based on one’s position in the formal hierarchy

Coercive Power based on fear

RewardPower based on the ability to distribute something that others value

Expert Power based on one’s expertise, special skill, or knowledge

ReferentPower based on identification with a person who has resources or traits

Departmentalization:Creating Departments

• Departmentalization– The process through which an

organization’s activities are grouped together and assigned to managers; the organizationwide division of work.

Departmentalization

• Functional– The grouping of activities by functions performed

• Product– The grouping of activities by product produced

• Customer– The grouping of activities by common customers

• Geographic– The grouping of activities by territory

• Process– The grouping of activities by work or customer flow

Organizing Departments by Function

• Functional Departmentalization– A form of organization that groups a

company’s activities around essential functions such as

manufacturing, sales, or finance.

Functional Departmentalization

FIGURE 6–1

Organizing Departments by Self-Contained Divisions/Purposes

• Product Departmentalization– Grouping departments around a firm’s

products or services, or each family of products or services; also referred to as a “divisional” organization.

• Customer Departmentalization– Self-contained departments are organized

to serve the needs of specific groups of customers.

Divisional Organizationfor a Pharmaceuticals Company

FIGURE 6–2

FIGURE 6–3

Customer Departmentalization,Grayson Steel Company

April 18, 2006

FIGURE 6–4

Marketing Channel Departmentalization

FIGURE 6–5

Divisional OrganizationsFacilitate Coordination

Checklist 6.1Functional vs. Divisional Organizations Functional Organization Advantages

1. It is simple, obvious, and logical.2. It fosters efficiency.3. It can simplify executive hiring and training.4. It can facilitate the top manager’s control.

Functional Organization Disadvantages1. It increases the workload on the executive to

whom the functional department heads report.

2. It may reduce the firm’s sensitivity to and service to the customer.

3. It produces fewer general managers.

Checklist 6.1 (cont’d)Functional vs. Divisional Organizations Divisional Organization Advantages

1. The product or service gets the single-minded attention of its own general manager and unit, and its customers may get better, more responsive service.

2. It’s easier to judge performance.3. It develops general managers.4. It reduces the burden for the

company’s CEO.

Checklist 6.1 (cont’d)Functional vs. Divisional Organizations

Divisional Organization Disadvantages1. It creates duplication of effort.2. It may diminish top management’s

control.3. It requires more managers with

general management abilities.4. It can breed compartmentalization.

Creating Matrix Organizations

• Matrix Organization– An organization structure in which

employees are permanently attached to one department but also simultaneously have ongoing assignments in which they report to project, customer, product, or geographic unit heads.

FIGURE 6–6

Matrix Organization Departmentalization

Matrix Organizations

Advantages• Access to expertise.• Stability of

permanent department assignments for employees.

• Allows for focus on specific projects, products, or customers.

Disadvantages• Confusion of

command.• Power struggles and

conflicts.• Lost time in

coordinating.• Excess overhead for

managing matrix functions.

Departmentalization in Practice: A Hybrid

• Why mix the types of departmentalization?– Hierarchical considerations

• The relationship of top level departments to their subsidiary departments.

– Efficiency• Product, customer, and territorial departments tend to

result in duplicate sales, manufacturing, and other functional departments.

– Common sense• Departmentalizing is still more an art than a science.

When Organizing:Always Keep Your Goals in Mind

• Business environments are in a constant state of change.

• An organization’s strategy must be adapted to changes in its competitive environment.

• Structure follows strategy.– Strategic change creates the need for restructuring

the organization to acquire new and different knowledge, skills and abilities.

Checklist 7.1What Determines Organization Structure

Environment. Fast-changing environments require organic structures; slowly changing environments favor mechanistic structures.

Technology. Unit and continuous production processes favor organic structures. Mass production processes favor mechanistic structures.

Goals. Ask, “What are the main goals we want to achieve via this organization?”

Pros and cons. Each approach to departmentalization has pros and cons.

Logic and common sense.

Abolishing Organizational Boundaries

• Boundaryless Organization– An organization in which management

strips away the “walls” which typically separate organizational functions and hierarchical levels, through

the widespread use of teams, networks, and similar structural mechanisms.

FIGURE 0–3

The Four Organizational Boundaries That Matter

Source: Reprinted by permission of Harvard Business Review. “The Four Organizational Boundaries that Matter,” from “The New Boundaries of the Boundaryless Company,” by Larry Hirschorn and Thomas Gilmore, May–June 1992. Copyright © 1992 by the President and Fellows of Harvard College. All rights reserved.

Centralization and Decentralization

• Centralization– A function of how much decision-making

authority is pushed down to lower levels in an organization; the more centralized an organization, the higher the level at which decisions are made

• Decentralization– The pushing down of decision-making

authority to the lowest levels of an organization

Decentralize?• Decentralized Organization

– Organizational authority for most departmental decisions is delegated to the department heads.

– Control for major companywide decisions is maintained at the headquarters office.

• Decentralization Rules:– Decentralize decisions that affect only one division

or area and that would take a long time for upper management to make.

– Centralize decisions that could adversely affect the entire firm and that upper management can fairly quickly and easily.