organizational structure and design
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McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
16-1
Organizational Structure and DesignOrganizational Structure and Design
McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
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Organization structureOrganization structure – – the pattern the pattern of jobs and groups of jobs in an of jobs and groups of jobs in an organization.organization.
It is an important cause of It is an important cause of individual and group behavior.individual and group behavior.
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16-3The Concept of Organization Structure
The Concept of Organization Structure
Structure as an Structure as an influence on influence on
behaviorbehavior
Structure as Structure as recurring recurring activitiesactivities
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Organization designOrganization design – – management management
decisions and actions that result in decisions and actions that result in
a specific organization structure.a specific organization structure.
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16-5Organizational Design Decisions
Organizational Design Decisions
1. Managers decide how to divide the overall task into successively smaller jobs
2. Managers decide the bases by which to group the jobs
3. Managers decide the appropriate size of the group reporting to each superior
4. Managers distribute authority among the jobs
1. Managers decide how to divide the overall task into successively smaller jobs
2. Managers decide the bases by which to group the jobs
3. Managers decide the appropriate size of the group reporting to each superior
4. Managers distribute authority among the jobs
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Division of Labor:
Departmentalization:
Span of Control:
HighHigh LowLow
HomogeneousHomogeneous HeterogeneousHeterogeneous
Many FewFew
Authority: LowLowHighHigh
SpecializationSpecialization
BasisBasis
NumberNumber
DelegationDelegation
The Four Key Design DecisionsThe Four Key Design Decisions
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Division of LaborDivision of Labor
• Division of labor – concerns the extent to which jobs are specialized
• It is the process of dividing work into relatively specialized jobs to achieve advantages of specialization
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16-8Division of Labor Occurs in Three Different Ways:Division of Labor Occurs in Three Different Ways:
1. Personal specialties• e.g., accountants, software engineers, graphic
designers, scientists, etc.
2. Natural sequence of work• e.g., dividing work in a manufacturing plant into
fabricating and assembly (horizontal specialization)
3. Vertical plane• e.g., hierarchy of authority from lowest-level manager
to highest-level manager
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Delegation of AuthorityDelegation of Authority
• Managers decide how much authority should be delegated to each job and to each jobholder
• Delegation of authority – process of distributing authority downward in an organization
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16-10Reasons to Decentralize Authority
Reasons to Decentralize Authority
1. Relatively high delegation of authority encourages the development of professional managers
2. High delegation of authority can lead to a competitive climate within the organization
3. Managers who have relatively high authority can exercise more autonomy, and thus satisfy their desires to participate in problem solving
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16-11Reasons to Centralize Authority (1 of 2)
Reasons to Centralize Authority (1 of 2)
1. Managers must be trained to make the decisions that go with delegated authority
2. Many managers are accustomed to making decisions and resist delegating authority to their subordinates
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16-12Reasons to Centralize Authority (2 of 2)
Reasons to Centralize Authority (2 of 2)
3. Administrative costs are incurred because new control systems must be developed to provide top management with information about the effects of subordinates’ decisions
4. Decentralization means duplication of functions
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16-13Delegation Decision Guidelines (1 of 2)
Delegation Decision Guidelines (1 of 2)
• How routine and straightforward are the job’s or unit’s required decisions?• The authority for routine decisions can be centralized
• Are individuals competent to make the decision?• Even if the decision is non-routine, if the local
manager is not capable, then the decision should be centralized
• Delegation of authority can differ among individuals depending upon each one’s ability to make the decision
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16-14Delegation Decision Guidelines (2 of 2)
Delegation Decision Guidelines (2 of 2)
• Are individuals motivated to make the decision?• Capable individuals are not always motivated
individuals• Motivation must accompany competency to create
conducive conditions for decentralization• Do the benefits of decentralization outweigh its
costs?
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16-15
Departmentalization Departmentalization –– process in process in which an organization is which an organization is structurally divided by combining structurally divided by combining jobs in departments according to jobs in departments according to some shared characteristic or some shared characteristic or basis.basis.
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16-16
Functional Geographic
Product Customer
Departmentalization BasesDepartmentalization Bases
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16-17Departmental Bases:Functional DepartmentalizationDepartmental Bases:Functional Departmentalization
• Jobs are combined according to the functions of the organization
• The principal advantage is efficiency• By having departments of specialists,
management creates efficient units
• A major disadvantage is that organizational goals may be sacrificed in favor of departmental goals
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EngineeringEngineeringEngineeringEngineering ReliabilityReliabilityReliabilityReliability FinanceFinanceFinanceFinance
ManufacturingManufacturingManufacturingManufacturing DistributionDistributionDistributionDistribution HumanHumanResourcesResources
HumanHumanResourcesResources
PublicPublicRelationsRelations
PublicPublicRelationsRelations
PurchasingPurchasingPurchasingPurchasing
OBM CompanyOBM CompanyOBM CompanyOBM Company
Functional Departmentalization Structure
Functional Departmentalization Structure
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16-19Departmental Bases:Geographic DepartmentalizationDepartmental Bases:Geographic Departmentalization
• Establish groups according to geographic area
• The logic is that all activities in a given region should be assigned to a manager
• Advantageous in large organizations because physical separation of activities makes centralized coordination difficult
• Provides a training ground for managerial personnel
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16-20
Northeast Midwest Southeast Pacific
OBMCompany
Southwest
Geographic Departmentalization Structure
Geographic Departmentalization Structure
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16-21Departmental Bases:Product DepartmentalizationDepartmental Bases:Product Departmentalization
• All jobs associated with producing and selling a product or product line will be placed under the direction of one manager
• Product becomes the preferred basis as a firm grows by increasing the number of products it markets
• Concentrating authority, responsibility, and accountability in a specific product department allows top management to coordinate actions
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OBM CompanyOBM CompanyOBM CompanyOBM Company
SmallSmallHouseholdHouseholdAppliancesAppliances
SmallSmallHouseholdHouseholdAppliancesAppliances
LargeLargeHouseholdHouseholdAppliancesAppliances
LargeLargeHouseholdHouseholdAppliancesAppliances
CommercialCommercialAppliancesAppliancesCommercialCommercialAppliancesAppliances
BuildingBuildingMaterials andMaterials and
ProductsProducts
BuildingBuildingMaterials andMaterials and
ProductsProducts
Lawn andLawn andGardenGarden
ProductsProducts
Lawn andLawn andGardenGarden
ProductsProducts
AutomotiveAutomotiveProductsProducts
AutomotiveAutomotiveProductsProducts
Product Departmentalization Structure
Product Departmentalization Structure
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16-23Departmental Bases:Customer DepartmentalizationDepartmental Bases:Customer Departmentalization
• The importance of customer satisfaction has stimulated firms to search for creative ways to serve people better
• Organizations with customer-based departments are better able to satisfy customer-identified needs than organizations that base departments on non-customer factors
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RetailStores
Mail OrderOn-Line
SalesGovernment
Contracts
OBMCompany
InstitutionalSales
Customer Departmentalization Structure
Customer Departmentalization Structure
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Span of Control (1 of 2)Span of Control (1 of 2)
• Number of individuals who report to a specific manager• Narrow span• Wide span
• The frequency and intensity of actual relationships is the critical consideration in determining the manager’s span of control
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Span of Control (2 of 2)Span of Control (2 of 2)
• If we shift our attention from potential to actual relationships as the bases for determining optimum span of control, three factors appear to be important:
• If we shift our attention from potential to actual relationships as the bases for determining optimum span of control, three factors appear to be important:
Key FactorsKey Factors
Required ContactRequired Contact
Degree of Degree of SpecializationSpecialization
Ability to Ability to CommunicateCommunicate
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Dimensions of StructureDimensions of Structure
• Formalization – the extent to which expectations regarding the means and ends of work are specified, written, and enforced
• Centralization – the location of decision-making authority in the hierarchy
• Complexity – the direct outgrowth of dividing work and creating departments
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16-28
Organization Design ModelsOrganization Design Models
The Mechanistic Model• Emphasizes importance
of achieving high levels of production and efficiency through:• Extensive use of rules and
procedures• Centralized authority• High specialization of
labor
The Mechanistic Model• Emphasizes importance
of achieving high levels of production and efficiency through:• Extensive use of rules and
procedures• Centralized authority• High specialization of
labor
The Organic Model• Emphasizes importance
of achieving high levels of production and efficiency through:• Limited use of rules and
procedures• Decentralized authority• Relatively low degrees of
specialization
The Organic Model• Emphasizes importance
of achieving high levels of production and efficiency through:• Limited use of rules and
procedures• Decentralized authority• Relatively low degrees of
specialization
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16-29Comparison of Mechanistic and Organic Structures (1 of 3)
Comparison of Mechanistic and Organic Structures (1 of 3)
Process Mechanistic Structure Organic Structure
1. Leadership Includes no perceived confidence and trust between superiors and subordinates.
Includes perceived confidence and trust between superiors and subordinates.
2. Motivation Taps only physical, security, and economic motives, through use of fear and sanctions.
Taps a full range of motives through participatory methods.
3. Communication Information flows downward and tends to be distorted, inaccurate, and viewed with suspicion by subordinates.
Information flows freely: upward, downward, and laterally. The information is accurate and undistorted.
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16-30Comparison of Mechanistic and Organic Structures (2 of 3)
Comparison of Mechanistic and Organic Structures (2 of 3)
Process Mechanistic Structure Organic Structure
4. Interaction Closed and restricted. Subordinates have little effect on departmental goals, methods, and activities.
Open and extensive. Both superiors and subordinates are able to affect departmental goals, methods, and activities.
5. Decision Relatively centralized. Occurs only at the top of the organization.
Relatively decentralized. Occurs at all levels through group processes.
6. Goal setting Located at the top of the organization, discouraging group participation.
Encourages group participation in setting high, realistic objectives.
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16-31Comparison of Mechanistic and Organic Structures (3 of 3)
Comparison of Mechanistic and Organic Structures (3 of 3)
Process Mechanistic Structure Organic Structure
7. Control Centralized. Emphasizes fixing blame for mistakes.
Dispersed throughout the organization. Emphasizes self-control and problem solving.
8. Performance goals
Low and passively sought by managers, who make no commitment to developing the organization’s human resources.
High and actively sought by superiors, who recognize the need for full commitment to developing, through training, the organization’s human resources.
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16-32Organization Design Models:The Matrix ModelOrganization Design Models:The Matrix Model
• Matrix organization – attempts to maximize the strengths and minimize the weaknesses of both the functional and product bases
• Superimpose a horizontal structure of authority, influence, and communication on the vertical structure
• Facilitates the utilization of highly specialized staff and equipment
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Project or product AProject or product A
Project or product BProject or product B
Project or product CProject or product C
Project or product DProject or product D
Project or product EProject or product E
ManufacturingManufacturing MarketingMarketing EngineeringEngineering FinanceFinance
FunctionsFunctions
Projects, productsProjects, products
Example of the Matrix Organization Model
Example of the Matrix Organization Model
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16-34Advantages of Matrix Organization
Advantages of Matrix Organization
• Efficient use of resources• Flexibility in conditions of change and uncertainty• Technical excellence• Freeing top management for long-range planning• Improving motivation and commitment• Providing opportunities for personal development
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Task Force
Teams
ProductManagers
ProductManagement Depts.
(1)
(2)
(3)
(4)
Evolutionary Steps to the Matrix Model
Evolutionary Steps to the Matrix Model
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16-36Multinational Structure and Design
Multinational Structure and Design
• Multinational corporation – consists of a group of geographically dispersed organizations with different national subsidiaries
• Multinational corporations frequently exist in very divergent environments
• The most prevalent departmental basis is geographic
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16-37Multinational Corporations: Implications for Organizational Design (1 of 2)
Multinational Corporations: Implications for Organizational Design (1 of 2)
1. National boundaries are an important force in defining organizational environments
2. Subsidiaries or affiliates of multinational corporations can act as conduits that introduce changes into the host country’s environment
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16-38Multinational Corporations: Implications for Organizational Design (2 of 2)
Multinational Corporations: Implications for Organizational Design (2 of 2)
3. Subsidiaries of multinational corporations can act as conduits through which features of the host country culture are introduced throughout the multinational organization
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Virtual OrganizationsVirtual Organizations
• Virtual organization – a collection of geographically distributed, functionally and/or culturally diverse aggregations of individuals that is linked by electronic forms of communication
• Assembled and disassembled according to needs
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16-40Virtual Organizations:Factors in Design ConsiderationsVirtual Organizations:Factors in Design Considerations
• Personnel distributed geographically• Electronically connected• Differences in expertise and function• Culturally diverse• Work schedule differences• Horizontally arranged with little emphasis on
command and control authority
• Personnel distributed geographically• Electronically connected• Differences in expertise and function• Culturally diverse• Work schedule differences• Horizontally arranged with little emphasis on
command and control authority
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16-41Virtual Organizations:Design ImplicationsVirtual Organizations:Design Implications
• Contractual relationships• Constant change and reconfiguration• No rigid boundaries• Flexible• Little or personal and social contact
• Contractual relationships• Constant change and reconfiguration• No rigid boundaries• Flexible• Little or personal and social contact
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16-42Virtual Organizations:ConsequencesVirtual Organizations:Consequences
• Increase in overall communication and messages• Relationships are tenuous• Continual surety of roles, tasks, and assignments• Caution needed in managing feedback,
discussion, performance review, and reward systems
• Greater equity of participation
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Boundaryless OrganizationsBoundaryless Organizations
• Organizations in which:• the hierarchy and chain of command are
minimized• rigidly structured departments are
eliminated
• Implemented to reduce barriers between people and constituencies