MGT 101 - Organizational Structure: Concepts and Strategic Designs

Organizing

• the process of identifying activities to be done to accomplish a goal

• grouping these activities into meaningful units

• assigning authority and responsibility to people for their accomplishments

Why is Organizing Important?

• divides work to be done into specific jobs and departments

• assigns tasks and responsibilities associated with individual jobs

• coordinates diverse organizational tasks

• clusters jobs into units

• establishes relationships among individuals, groups, and departments

• establishes formal lines of authority

• allocates and deploys organizational resources

Organizing Concepts

• Organizational Designing

• Organizational Structure

• Organizational Chart

[Organizing Concepts] Organizational Designing

determination of the most appropriate organizational structure is important here

[Organizing Concepts | Organizational Designing] 6 Elements of Organizational Design 

• Work Specialization

• Departmentalization

• Chain of Command

• Span of Control

• Centralization and Decentralization

• Formalization

[6 Elements of Organizational Design] Work Specialization

• also known as division of labor

• the degree to which the work necessary to achieve organizational goals is broken into various units

• increases efficiency but may lead to boredom, fatigue, stress, poor quality, increased absenteeism, reduced performance, and increased turnover

[6 Elements of Organizational Design | Work Specialization] Job Designing 

specification of task activities associated with a particular job

[6 Elements of Organizational Design | Work Specialization] Today’s View

most managers today continue to see work specialization as important because it helps employees be more efficient 

[6 Elements of Organizational Design] Departmentalization

• the clustering of individuals into units and units into larger units to facilitate achievement of organizational goals

• large organizations are using a combination of the different forms of departmentalization

[6 Elements of Organizational Design | Departmentalization] Today’s View

customer departmentalization has become a popular choice for better understanding of their needs and use of cross functional teams

[6 Elements of Organizational Design | Departmentalization] Cross Functional Teams

composed of members from the various functional departments

[6 Elements of Organizational Design | Traditional Organizational Design] mechanistic

traditional organizational designs tend to be more _____ in nature

[6 Elements of Organizational Design] Traditional Organizational Designs

• Simple Structure

• Functional Structure

• Divisional Structure

[6 Elements of Organizational Design | Traditional Organizational Design] Simple Structure

an organizational design with little departmentalization, wide spans of control, centralized authority, and little formalization

[6 Elements of Organizational Design | Traditional Organizational Design] Functional Structure

the grouping of positions into departments based on similar skills, expertise, and resource use

[6 Elements of Organizational Design | Traditional Organizational Design] Divisional Structure

the grouping of positions into departments based on similar organizational outputs such as product, process, and markets

[6 Elements of Organizational Design | Traditional Organizational Design] Functional Departmentalization Pros

• efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations

• coordination with functional area

• in-depth specialization

[6 Elements of Organizational Design | Traditional Organizational Design] Functional Departmentalization Cons

• poor communication across functional areas

• limited view of organizational goals

6 Elements of Organizational Design | Traditional Organizational Design] Product Departmentalization Pros

• more effective and efficient handling of specific regional issues that arise

• serve needs of unique geographic markets better

6 Elements of Organizational Design | Traditional Organizational Design] Product Departmentalization Cons

• duplication of functions

• limited view of organizational goals

6 Elements of Organizational Design | Traditional Organizational Design] Geographical Departmentalization Pros

• more effective and efficient handling of specific regional issues that arise

• serve needs of unique geographic markets better

6 Elements of Organizational Design | Traditional Organizational Design] Geographical Departmentalization Cons

• duplication of functions

• can feel isolated from other organizational areas

6 Elements of Organizational Design | Traditional Organizational Design] Process Departmentalization Pros

more efficient flow of work activities

6 Elements of Organizational Design | Traditional Organizational Design] Process Departmentalization Cons

can only be used with certain types of products

6 Elements of Organizational Design | Traditional Organizational Design] Customer Departmentalization Pros

customers needs and problems can be met by specialists

6 Elements of Organizational Design | Traditional Organizational Design] Customer Departmentalization Cons

• duplication of functions

• limited view of organizational goals

[Organizing Concepts | Organizational Structure] Definition

• formal mechanism by which an organization is managed

• way in which an organization’s activities are divided, organized, and coordinated

• formal patterns of interaction, coordination, and linking of individuals and groups

[Organizing Concepts | Organizational Structure] Advantages

• efficiency gains from specialization

• order arising from the clarity of job definitions

• reduction of unintended gaps or overlaps in the conduct of the activities of the institutions

[Organizing Concepts | Organizational Structure] Dimensions

• the bases for grouping activities together

• the type of authority relationships among organizational units

• the coordination mechanisms used

[Organizing Concepts] Organizational Chart

• a line that depicts the broad outline of an organization structure

• show positions and titles, level of reporting relationship, and formal levels of communication

[Organizing Concepts | Organizational Chart] each box

represents different work

[Organizing Concepts | Organizational Chart] titles

represent the work performed

[Organizing Concepts | Organizational Chart] solid lines

indicates reporting relationships

[Organizing Concepts | Organizational Chart] horizontal layers

indicates different levels of management

Chain of Command

• unbroken line of authority that ultimately link each individual with top organizational position through a managerial position at each successive layer in between

• line of authority extending from the top management to the lowest management to the lowest management level

• defines who reports to whom

[Chain of Command] Authority

refers to the rights inherent in a managerial position to tell people what to do and to expect them to do it

[Chain of Command | Authority] Parity of Authority and Responsibility

if a person is responsible for accomplishing a certain task in the organization, he should be given sufficient authority to accomplish the task

[Chain of Command] Responsibility

an obligation to perform any assigned duties

[Chain of Command | Responsibility] Absoluteness of Responsibility

though a superior in an organization may delegate a portion of his authority to his subordinates, he does not reduce his responsibility or accountability for the performance of the tasks under his jurisdiction

[Chain of Command] Unity of Command

a person should report to only one manager

Span of Control

• the number of employees a manager can effectively and efficiently handle

• tall structure—narrow span, many hierarchical levels

• flat structure—broader span, few hierarchical levels

[Span of Control] Narrow Span vs. Broad Span

• close supervision and directed control

• many levels of management, high cost of management staff

• less independence and decision authority for subordinates

• large distance between top management and bottom staff

• poor executive communication and visibility

[Span of Control] Narrow Span vs. Broad Span

• overloaded supervisors, loss of control

• low management overhead, better operational cost and profit margins

• encourages empowerment through delegation of authority and decision-making

• employees have better communication with the top managements

[Span of Control] Factors Influencing the Number of Employees that a Manager can Manage Effectively and Efficiently

• skills and abilities of managers and employees

• characteristics and nature of work being done

• similarity and complexity of employee tasks

• preferred style of manager

• experience level

• physical proximity of subordinates

• degree to which standardized procedures are in place

• sophistication of organization’s information system

• strength of organization’s culture

• budget constraints

• environmental stability

[Span of Control] Downsizing

process of significantly reducing the layers of middle management, expanding spans of control, and shrinking the size of the workforce

[Span of Control] Restructuring

process of making a major change in organization structure that often involves reducing management levels and possibly changing some major components of the organization through divestiture and acquisition

[Span of Control] Today’s VIew

The trend in the recent years is larger spans of control. With wider spans, the employees know their jobs well and when employees understand organizational processes.

Centralization

upper level makes decisions

Decentralization

• lower levels are also involved in decision-making

• upholds employee empowerment—giving employees more authority (power) to make decisions

More Centralization vs. More Decentralization

• environment is stable

• lower-level managers are not as capable or experienced at making decisions as upper-level managers

• lower-level managers do not want a say in decisions

• decisions are relatively minor

• organization is facing a crisis or the risk of company failure

• company is large

• effective implementation of company strategies depend on managers retaining say over what happens

More Centralization vs. More Decentralization

• environment is complex

• lower-level managers are capable and experiences at making decisions

• decisions are significant 

• corporate culture is open to allowing managers a say in what happens

• company is geographically dispersed

• effective implementation of strategies depends on managers having involvement and flexibility to make decisions

[Centralization and Decentralization] Today’s View

the trend is decentralization, wherein organizations have become more flexible and responsive to environmental trends (employee empowerment)

Formalization

• standardization of organization’s jobs

• job descriptions

• numerous organizational rules

• clearly defined procedures

[Formalization | Clearly Defined Procedures] Highly Standardized

explicit job descriptions, numerous organizational rules, and clearly defined procedures covering work processes

[Formalization | Clearly Defined Procedures] Low Standardized

employees have more discretion on how they do their work

[Formalization] Today’s View

some formalization is necessary for consistency and controls but rely less on strict rules and

[Line and Staff Position] Line Position

a position that has authority and responsibility for achieving the major goals of an organization

[Line and Staff Position] Line Authority

• authority that follows the chain of command established by formal hierarchy

• such authority includes the power to supervise, direct and evaluate the work of his subordinates

[Line and Staff Position] Line Units or Departments

subdivisions or hierarchies which are directly involved in the production or distribution of the company’s products/services

[Line and Staff Position] Staff Position

• a position where primary purpose is providing specialized expertise and assistance to line positions

• do not exercise authority and command power over other units in the organization

[Line and Staff Position] Functional Authority

authority over other units in the organization in matters related directly to the staff department’s functions

Mechanistic Organizations vs. Organic Organizations

• rigid and tightly-controlled

• high specialization

• rigid departmentalization

• clear chain of command

• narrow spans of control

• centralization

• high formalization

Mechanistic Organizations vs. Organic Organizations

• highly adaptive and flexible

• cross-functional teams

• cross-hierarchical teams

• free flow of information

• wide spans of control

• decentralization

• low formalization

Contingency Factors to Structural Choice

• strategy

• size

• technology

• environmental uncertainty

[Contingency Factors to Structural Choice | Strategy] Three Dimensions

• innovation

• cost minimization

• imitation

[Contingency Factors to Structural Choice] Strategy

• traditionally structure follows strategy but there are modern theorists who believe otherwise

• whatever the case is, structure should match strategy

[Contingency Factors to Structural Choice] Size

• an organization’s size affects its structure

• large organizations tend to have more specialization, departmentalization, centralization, and rules and regulations than small organizations

[Contingency Factors to Structural Choice] Technology

• every organization uses some form of technology to convert its inputs into outputs

• other studies also have shown that organizations adapt their structures to their technology depending on how routine their technology is for transforming inputs into outputs

[Contingency Factors to Structural Choice | Technology] Unit Production

Definition: production of items in units or small batches

Model of Organizational Design: Organic

[Contingency Factors to Structural Choice | Technology] Mass Production

Definition: large batch manufacturing

Model of Organizational Design: Mechanistic

[Contingency Factors to Structural Choice | Technology] Process Production

Definition: continuous process production

Model of Organization: Organic

[Contingency Factors to Structural Choice] Environmental Uncertainty

• some organizations face stable and simple environments with little uncertainty; others face dynamic and complex environments with a lot of uncertainty

• managers try to minimize environmental uncertainty by adjusting the organization’s structure

[Contingency Factors to Structural Choice | Environmental Uncertainty] the environment-structure relationship

• explains why so many managers today are restructuring their organizations to be lean, fast, and flexible

• this is brought about by dynamic environmental forces such as worldwide economic downturns, global competition, accelerated product innovation by competitors, and increased demands from customers for high quality and faster deliveries.

[Contingency Factors to Structural Choice | Strategy] Mechanistic 

the mechanistic organization with its efficiency, stability, and tight controls works best for companies wanting to tightly control costs

[Contingency Factors to Structural Choice | Strategy] Organic

flexibility and free-flowing information of the organic structure works well when an organization is pursuing meaningful and unique innovations

[Contingency Factors to Structural Choice | Size] Mechanistic

large organizations

[Contingency Factors to Structural Choice | Size] Organic

small organizations

[Contingency Factors to Structural Choice | Technology] Mechanistic

more routine

[Contingency Factors to Structural Choice | Technology] Organic

more nonroutine

[Contingency Factors to Structural Choice | Environmental Uncertainty] Mechanistic

stable and simple environments

[Contingency Factors to Structural Choice | Environmental Uncertainty] Organic

rapid environmental change and environmental uncertainty

Strategy and Organization Structure

Contemporary Organizational Designs

• Team Structure

• Matrix Structure

• Hybrid Structure

• Virtual Organization

• Network Organization

[Contemporary Organizational Designs] Team Structure

• an entire organization of work teams

• employee empowerment is crucial because no line of managerial authority flows from top to bottom

• employee teams design and do work in the way they think is best, but the teams are also held responsible for all work performance results in their respective areas

[Contemporary Organizational Designs] Matrix Structure

• specialists from different functional areas are assigned to a project

• functional and divisional forms overlap

• managers and staff personnel report to two bosses: a functional manager and a divisional manager

[Contemporary Organizational Designs] Hybrid Structure

• combines both functional and divisional structure but divides its activities into departments that can be either functional or divisional

• this allows the utilization of resources and knowledge in each function, while maintaining product specialization in different divisions that makes it widely adopted by many large organizations

[Contemporary Organizational Designs] Virtual Organization

• small core of full-time employees

• complementary resources existing in a number of co-parenting companies are left in place, but are integrated to support a particular product effort for as long as it is justifiable to do so

[Contemporary Organizational Designs] Network Organization

• uses its own employees to do activities and network with outside employees to provide inputs and work processes

• businesses driven by product development and customer service (i.e. electronics and software companies in particular), and often in smaller, younger organizations (where traditional boundaries are weaker) make use of this structure

[Contemporary Organizational Designs | Team Structure] Advantage/s

• employees are more involved and empowered 

• reduced barriers among functional areas

[Contemporary Organizational Designs | Team Structure] Disadvantage/s

• no clear chain of command

• pressure on teams to perform

[Contemporary Organizational Designs | Matrix Structure] Advantage/s

• fluid and flexible design that can respond to environmental changes

• faster decision-making

[Contemporary Organizational Designs | Matrix Structure] Disadvantage/s

• complexity of assigning people to projects

• task and personality conflicts

[Contemporary Organizational Designs | Hybrid Structure] Advantage/s

• highly flexible and responsive

• utilizes talent wherever it’s found

[Contemporary Organizational Designs | Hybrid Structure] Disadvantage/s

• lack of control

• communication difficulties

[Contemporary Organizational Designs | Virtual Organization] Advantage/s

• hire many part-time workers

• less expenses for office rentals, tax exemptions, facilities for your employees

[Contemporary Organizational Designs | Virtual Organization] Disadvantage/s

• communication with your workers

• physical meeting, physical location of the business

[Contemporary Organizational Designs | Network Organization] Advantage/s

strengthens linkages with other independent firms within the network

[Contemporary Organizational Designs | Network Organization] Disadvantage/s

may lead to dependence on other firms for the services being provided

Organizational Design Challenges

• keeping control—how to coordinate activities of employees who are dispersed and mobile

• building a learning organization—continuously learn, adapt, and change

• managing global structural issues—applicability or organizational designs may vary across countries