DesigningDesigningOrganizational StructuresOrganizational Structures

DesigningDesigningOrganizational StructuresOrganizational Structures

Chapter 7

Chapter 7 Learning GoalsChapter 7 Learning Goals

• What are the five structural building blocks that managers use to design organizations?

• What are the five types of departmentalization?• How can the degree of centralization/-

decentralization be altered to make an organization more successful?

• How do mechanistic and organic organizations differ?

Chapter 7 Learning Goals Chapter 7 Learning Goals (cont’d.)(cont’d.)

• What is the difference between line positions and staff positions?

• What is the goal of reengineering?

• How does the informal organization affect the performance of a company?

• What trends are influencing the way businesses organize?

OrganizingOrganizing::

the process of coordinating and allocating a firm’s resources so that the firm can carry out its plans and achieve its goals

(one of the four activities of management)

Learning Goal 1Learning Goal 1

• What are the five structural building blocks that managers use to design organizations?– Division of laborDivision of labor

• Process of dividing work into separate jobs• Assigning tasks to workers

– DepartmentalizationDepartmentalization– Managerial hierarchyManagerial hierarchy

• Levels of management within the organization

– Managerial span of controlManagerial span of control• Number of employees the manager directly supervises

– Amount of centralization or decentralization in the organizationAmount of centralization or decentralization in the organization• Deciding at which level in the organization decisions should be made• Centralization is degree to which formal authority is concentrated in one area or level

of the organization

5 Structural Building Blocks5 Structural Building Blocks

1.1. Division of Labor

2. 2. Departmentalization

3. 3. Managerial Hierarchy

4. 4. Span of Control

5. 5. Centralization of Decision-Making

Division of LaborDivision of Labor::

the process of dividing work into separate jobs and assigning tasks to workers

Learning Goal 2Learning Goal 2

• What are the five types of departmentalization?– Functional Functional – based on primary functions performed within an

organizational unit

– Product Product – based on the goods or services produced or sold by the organizational unit

– ProcessProcess – based on the production process used by the organizational unit

– Customer Customer – based on the primary type of customer served by the organizational unit

– Geographic Geographic – based on geographic segmentation of organizational units

DepartmentalizationDepartmentalization::

the process of grouping jobs together so that similar or associated tasks and activities can be coordinated

Types of DepartmentalizationTypes of Departmentalization

1.1. Functional

2.2. Product

3. 3. Process

4. 4. Customer

5. 5. Geographic

Managerial HierarchyManagerial Hierarchy::

the levels of management within an organization; typically includes top, middle, and supervisory levels

Managerial PyramidManagerial Pyramid

Top Management

Middle Management

Supervisory Management

Pow

er

Num

ber of Em

ployees

Span of ControlSpan of Control::

the number of employees a manager directly supervises

Factors Determining Span of ControlFactors Determining Span of Control

1.1. Nature of the task

2. 2. Location of the workers

3. 3. Ability of manager to delegate

4. 4. Amount of interaction and feedback between manager and workers

5.5. Level of skill and motivation of the workers

Learning Goal 3Learning Goal 3

• How can the degree of centralization/decentralization be altered to make an organization more successful?– Centralization allows top managers

• To develop a broad view of operations• To exercise tight financial controls

– Highly decentralized organizations give lower-level personnel • More responsibility• Power to make and implement decisions

– Decentralization can result in• Faster decision-making• Increased innovation and responsiveness to customer preferences

CentralizationCentralization::

the degree to which formal authority is concentrated in one area or level of an organization

Decentralization:Decentralization:

pushing decision-making authority down the organizational hierarchy, giving lower-level workers more responsibility

Learning Goal 4Learning Goal 4

Mechanistic organizationMechanistic organization– Relatively high degree of work

specialization

– Rigid departmentalization

– Many layers of management

– Narrow spans of control

– Centralized decision making

– Long chain of command

– Results in a tall organizational structure

Organic organizationOrganic organization– Relatively low degree of work

specialization

– Loose departmentalization

– Few levels of management

– Wide spans of control

– Decentralized decision making

– Short chain of command

– Results in a flat organizational structure

• How do mechanistic and organic organizations differ?

Mechanistic vs. Organic StructuresMechanistic vs. Organic Structures

SSttrruuccttuurraallCChhaarraacctteerriissttiicc

MMeecchhaanniissttiicc OOrrggaanniicc

Job specialization High Low

Departmentalization Rigid Loose

Managementhierarchy

Tall (manylevels)

Short (fewlevels)

Span of control Narrow Wide

Decision-makingauthority

Centralized Decentralized

Chain of command Long Short

Chuck Knight, CEO of Emerson Electric, describes his organizational philosophy:• “We organize around issues and opportunities

-- not around an organization chart.”

• “We don’t care about structure or form -- we care about getting things done.”

• “We plan and control profits at the lowest possible level.”

Source: Neff & Citrin: Lessons from the Top, 1999, pp. 199-203.

Organic Structure ExampleOrganic Structure Example

Learning Goal 5Learning Goal 5

Line PositionsLine Positions– Directly involved in the

processes used to create goods and services

– Typically found in areas such as

• Production

• Marketing

• Finance

Staff PositionsStaff Positions– Provide the administrative and

support services that line employees need to achieve the firm’s goals

– Found in areas such as • Legal counseling

• Managerial consulting

• Public relations

• Human resource management

• What is the difference between line positions and staff positions?

Common Organizational StructuresCommon Organizational Structures

1.1. Line organizationclear chain of command

2.2. Line-and-staff organizationline positions & staff positions

3. 3. Committee structure groups

4. 4. Matrix structurecombines functional and product

departmentalization

Learning Goal 6Learning Goal 6

• What is the goal of reengineering?– Reengineering is the complete redesign of business

structures and processes in order to improve operations

• Goal of reengineering– Redesign business processes to achieve improvements in:

» Cost control

» Product quality

» Customer service

» Speed

ReengineeringReengineering::

the complete redesign of business structures and processes in order to improve operations

Learning Goal 7Learning Goal 7

• How does the informal organization affect the performance of a company?– Informal organizationsInformal organizations

• Give employees more control over their work environment by delivering a continuous stream of company information, helping employees stay informed

• Informal relationships can be:– Between people at the same hierarchical level

– Between people at different levels and in different departments

The Informal OrganizationThe Informal Organization::

the network of connections and channels of communication based on the informal relationships of individuals inside an organization

Functions of theFunctions of theInformal OrganizationInformal Organization

1.1. Friendships & social contact

2. 2. Information & sense of control over

work environment

3. 3. Source of status & recognition

Social network analysis: Social network analysis: the mapping of social relationships among individuals in an organization

• Consultants for Ernst & Young saved an automobile industry supplier an estimated $14 $14 millionmillion by applying social network analysis to improve communication

Source: Entrepreneur, Jan. 2000, p. 110.

The Informal OrganizationThe Informal Organization

Learning Goal 8Learning Goal 8

• What trends are influencing the way businesses organize?– Virtual corporationsVirtual corporations

• Network of independent companies linked by information technology to share skills, costs, and access to one another’s markets

• Allows companies to come together quickly to exploit rapidly changing opportunities

• Key attributes are technology, opportunism, excellence, trust, and no borders

– Large global mergersLarge global mergers• Raise important issues in organizational structure

Trends AffectingTrends AffectingOrganizational StructureOrganizational Structure

Increase in the Virtual Corporation

More prevalent need to structure for

global mergers

Virtual Company ExampleVirtual Company Example

General Life,General Life, a virtual life insurance company, reduces fixed costs (80% of traditional company costs) by subcontracting:

• application processing, underwriting, commission accounting, policyholder service, agent appointments, technology development, illustration design & support, policy filing and licensing, and assert management

Source: Best’s Review, May 1998: www.ambest.com