HNDBM – 12. Organization Structure

Lim Sei Kee @ cK

Organization structureo How job tasks are formally divided, grouped

and coordinated

o Six key elements to design organization

structure

Key design questions and answers for designing the proper organizational structure

The key question The answer is provided by

1. To what degree are activities subdivided into separate jobs?

Work Specialization

2. On what basis will jobs be grouped together?

Departmentalization

3. To whom do individuals and groups report?

Chain of Command

4. How many individuals can a manager efficiently and effectively direct?

Span of Control

5. Where does decision-making authority lie?

Centralization and decentralization

6. To what degree will there be rules and regulations to direct employees and managers?

Formalization

Work specializationThe degree to which activities in the

organization are subdivided into separate

jobs.

Efficient use of employees skills

Efficient use of organizational resources

Departmentalization The basis by which jobs are grouped

together.

By functions

Type of product

Basis of geography or territory

By process

Type of customer

Chain of commandThe unbroken line of authority that extends

from the top of the organization to the

lowest level and clarifies who reports to

whom.

Authority – the rights inherent in a

managerial position to give orders and to

expect the orders to be obeyed

Unity of command – a subordinate should

have only one superior to whom he or she is

directly responsible

Span of controlThe number of subordinates a manager can

efficiently and effectively direct.

Narrow - can maintain close supervision

Expensive, as they add levels to management

Vertical communication more complex

Encourage tight supervision and discourage

employee autonomy

Wider – reduce costs, cut overhead, speed up

decision making, increase flexibility

Investing heavily on training

Centralization and decentralizationThe degree to which decision making is

concentrated at a single point in the

organization

The degree to which decision making

requires multiple parties to make their own

independent decisions.

FormalizationThe degree to which jobs within the

organization are standardized.

High – minimum amount of discretion over

what is to be done, when it is to be done, and

how he/she should do it

Low – non-programmed job, employees have

a great deal of freedom to exercise discretion

in their work.

Organizational designsSimple structure

Bureaucracy

Matrix structure

Simple structureA structure characterized by a low degree of

departmentalization, wide spans of control,

authority decentralized in a single person,

and a little formalization.Owner - Manager

Salesperson

Salesperson

Salesperson

Salesperson

Cashier

Simple structureStrength

Fast, flexible and accountability is clear

Weakness

As organization grows, it become

inadequate

BureaucracyA structure with highly routine operating

tasks achieved through specialization, very

formalized rules and regulations, tasks that

are grouped into functional departments,

centralized authority, narrow spans of

control and decision making that follows the

chain of command.

BureaucracyStrength

Ability to perform standardized activity in

a highly efficient manner

Economies of scale, minimum duplication

of personnel and equipment

Weakness

Specialization creates subunit conflicts

Obsessive concern with following the rules

The matrix structureA structure that creates dual lines of

authority and combines functional and

product departmentalization.

The matrix structureStrength

Facilitate the efficient allocation of specialists and sharing of specialized resources across products.

Facilitate coordination when the organization has a multiplicity of complex activities                    

Weakness

Creates confusion

New structural optionsTeam structure

Virtual organization

Boundaryless organization

Team structure The use of teams as the central device to

coordinate work activities.

Breaks down departmental barriers

Decentralizes decision making

Require employees who are specialists

Virtual organization A small, core organization that outsources

major business functions.

Highly centralized with little or no

departmentalization

Drawback – reduces management’s control

over key parts of its business

Boundaryless organizationAn organization that seeks to eliminate the

chain of command, have limitless spans of

control, and replace departments with

empowered teams.

ideal or companies in the growing

technology industry.

communicate mainly through email, phone

and other virtual methods rather than more

traditional face-to-face communication

Mechanistic versus organic modelsMechanistic model Organic model

High specialization Cross-functional teams

Rigid departmentalization Cross-hierarchical teams

Clear chain of command Free flow of information

Narrow spans of control Wide spans of control

Centralization Decentralization

High formalization Low formalization

Why do structures differ?Strategy

Size

Technology

Environment

Strategy Innovation strategy – a strategy that emphasizes

the introduction of major new products and services.

Cost-minimization strategy – a strategy that

emphasizes tight cost controls, avoidance of

unnecessary innovation or marketing expenses and

price cutting.

Imitation strategy – a strategy that seeks to move

into new products or new markets only after their

viability has already been proven

Strategy – structure relationship Strategy Structural option

Innovation Organic: a loose structure, low specialization, low formalization, decentralized

Cost minimization

Mechanistic: tight control, extensive work specialization, high formalization, high centralization

Imitation Mechanistic and organic: mix of loose and tight properties, tight controls over current activities and loose controls for new undertakings

SIZE

Large – tend to have more specialization, more

departmentalization, more vertical levels and

more rules and regulations

TECHNOLOGY

o How an organization transfers its inputs to

outputs.

ENVIRONMENT

o Institutions or forces outside that potentially

affect the organization’s performance.