BADM 3740 - Week 10

Organizational Structure

The formal arrangement of how work is divided and coordinated among individuals and groups within a company

• Five Elements: Work specialization, chain of command, span of control, centralization, and formalization

Organizational Design

The process of creating or changing an organization’s structure

• Affected by business environment, company strategy, technology, and company size

Business Environment

External factors affecting an organization: customers, competitors, and suppliers.

• May be stable or constantly changing

Company Strategy

The organization’s goals and its approach to achieving them

• Competing through low costs

• Offering something different from competitors

Technology

The knowledge, equipment, procedures, and materials used to transform resources into outputs

Company Size

The total number of employees in an organization

• Larger organizations generally require more complex and can support greater work specialization

Work Specialization

The way an organization divides tasks into separate jobs

High Work Specialization

Employees focus on a narrow set of tasks rather than performing many different kinds of work

Low Work Specialization

Employees perform a wider variety of tasks

Chain of Command

The formal reporting relationships that establish who reports to whom

• Purpose: Create order, control and predictable performance by clarifying authority and reporting relationships

Span of Control

The number of employees a manger directly supervises

Narrow Span of Control

Each manager supervises relatively few employees, creating a taller organization with more management layers

• When It’s Useful: Employees needs substantial guidance and has less expertise than manager

Wide Span of Control

Each manager supervises relatively many employees, creating a flatter organization with fewer management layers

Advantages of Narrow Span of Control

Managers can provide closer supervision, more direction, and stronger mentoring relationships

Disadvantages of Narrow Span of Control

• More managers and higher labor costs

• Slower decisions and more complicated communication

• Risk of micromanagement

Advantages of Wide Span of Control

• Greater employee autonomy and responsibility; higher motivation

• Faster decisions at lower levels

Disadvantages of Wide Span of Control

Managers may not have enough time to give employees the the attention or development they need

Span of Control vs. Chain of Command

Span of Control: How many people a manager supervises

Chain of Command: Who reports to whom

Centralization

The degree to which decision-making authority is concentrated at the top of an organization

Centralized Structure (Vertical)

Decisions are concentrated in one person/small group at the top

Decentralized Structure (Lateral)

Decision-making authority is distributed among people or teams at different organizational levels

Advantages of Centralization

• Efficient direction

• Clear mission, vision, and set of objectives

Disadvantages of Centralization

Delayed decisions when top leaders must gather information and make all decisions

Advantages of Decentralization

Decisions draw on different people’s expertise and knowledge of their specific operations

Disadvantages of Decentralization

Individuals or divisions may disagree, pursue competing priorities, or struggle to coordinate decisions

Formalization

The degree to which rules and procedures standardize employee behavior and organization decisions

High Formalization

Employees follow detailed rules and procedures; less discretion over how they work

Low Formalization

Employees have fewer prescribed rules and more freedom to decide how to work

Advantages of Formalization

• More consistent quality and clearer expectations

• Less ambiguity and uncertainty

Disadvantages of Formalization

• Less autonomy and creativity

• Lower motivation and satisfaction; slower decisions

Centralization Vs. Formalization

Centralization: Who make decisions

Formalization: How much rules and procedures control behavior

Common Organizational Forms

Simple, functional, divisional, and matrix

Simple Structure

• Relatively flat structure, small business (<20 people), with one central decision-maker; little formalization/specialization

• Centralized; few management layers with one owner making most decisions

Functional Structure

A structure that groups employees according to their work function, like marketing, accounting, or production

Advantages of a Functional Structure

• Efficient specialization and centralized coordination within functions

• Grouping people with similar expertise

Disadvantages of a Functional Structure

• Employees lose sight of overall goals

• Communication across functions weakens

Divisional Structure

A structure that groups employees by product, geographic region, or client group, with each division having its own functional areas

• Done when products, markets, or goals become too diverse for a basic functional structure

Product-Based Divisional Structure

Divisions are organized around different products or product lines, with each handling functions such as development, marketing, and sales

Advantage of Product-Based Divisions

Each division’s functional areas can concentrate on a core set of products

Disadvantage of Product-Based Divisions

Communication between divisions may be limited

Geographic Divisional Structure

divisions are organized around different geographic regions

Advantages of Geographic Divisions

• Can respond to regional customer needs

• Account for different market sizes

• Support manufacturing and distribution

Disadvantages of Geographic Divisions

• Resources may be duplicated

• Divisions may develop identities that WEAKEN the company’s SHARED IDENTITY

Client-Based Divisional Structure

Division are organized around different types of client or customers

Advantage of Client-Based Divisions

Division managers gain responsibility and flexibility in serving their client groups

Disadvantage of Client-Based Division

Resources and functions may be duplicated across divisions (clients)

Functional Vs. Divisional Structure

Functional: Group people by what work they do

Divisional: Group people by the product, region, or client they serve

Matrix Structure

• A structure that combines functional and division arrangements

• Gives employees both a functional manager and a project or divisional manager

Advantages of Matrix Structure

• Flexible team, access to different sources of informations

• Ability to combine employees’ skills and experience

Disadvantages of a Matrix Structure

• Complex reporting relationships

• Potential confusion/conflict over decisions

Organizational Culture

Shared social knowledge about the rules, norms, and values that shape attitudes and behavior within an organization

Organizational Structure vs. Culture

Structure: Establishes formal work and reporting arrangements

Culture: Establishes shared expectations about how people behave

Organizational Culture Iceberg

• Some aspects are visible

• Most of the culture consists of less visible beliefs and assumptions beneath the surface

Why is Organizational Culture Difficult to Change?

Expectations and assumptions become deeply established and are reinforced over time

Three Components of Organizational Culture

Observable artifacts, espoused values, and basic underlying assumptions

Observable Artifacts

Visible aspects of culture, such as dress codes, ceremonies, and the physical workplace

Espoused Values

Beliefs, philosophies, and norms that an organization explicitly says it supports, like its mission, vision, and stated values

Basic Underlying Assumptions

Deeply ingrained beliefs that employees take for granted and follow without much conscious thought

Ex. Employees automatically respond to emails over the weekend because they think it’s expected

Espoused Values Vs. Underlying Assumptions

Espoused Values:What the organization says its believes

Underlying Assumptions: Beliefs people take for granted in everyday practice

Organization Socialization

The process through which employees learn the social knowledge needed to understand and adapt to an organization’s culture

Three Stages of Socialization

Anticipatory → Encounter → Understanding and Adaptation

Anticipatory Stage

Learning and forming expectations about an organization before starting the job

Encounter Stage

Discovering differences between expectations and the reality of working in the organization

Understanding and Adaptation Stage

Gradually learning how the organization works and adapting to its culture

Goals and Values Socialization

Learning and adopting the organization’s spoken and unspoken goals/values

Performance Proficiency Socialization

Learning the roles and tasks needed to perform the job

People Socialization

Developing successful and satisfying relationships with other organizational members

Language Socialization

Learning the organization’s unique acronyms, slang, and jargon

Politics Socialization

Learning the organization’s formal and informal relationships and power structures

History Socialization

Learning about the organization’s traditions, customs, myths, and rituals

Culture Strength

The extent to which employees agree about the organizational norms and strongly uphold them

Consensus

The degree of agreement among employees about the organization’s norms

Intensity

The degree to which employees uphold the organization’s norms

Strong Organizational Culture

High consensus and high intensity

• Employees agree about the norms and strongly follow them

Consensus Vs. Intensity

Consensus: Agreements about norms

Intensity: Strengths of commitment to those norms

Positive Outcomes Associated with Strong Cultures

• Higher job performance and satisfaction

• Higher organizational commitment and employee retention

Advantages of a Strong Organizational Culture

• Distinguishes organization and gives employees a shared identity

• Encourages desired behavior and creates stability

Disadvantages of a Strong Organizational Culture

• Makes mergers and adaptations harder

• Limits diversity of thought

• Encourages extreme behavior

Strong Culture Limits Diversity of Thought

• Attracts and retains similar kinds of employees while discouraging different perspectives

Strong Culture Makes Mergers Difficult

• Employees may strongly hold different norms and assumptions

Strong Culture Doesn’t Automatically Mean Beneficial Culture

• Employees can strongly agree on and reinforce norms that produce harmful or extreme behavior

Attraction-Selection-Attrition Model (ASA)

Model explaining how organizations develop and maintain cultures by attracting, selecting, and retaining people who are psychologically similar

Attraction

People are drawn to organizations whose members and culture seem similar to themselves

Selection

Organizations select applicants who appear to fit their organization

Attrition

People who do not fit the organization are more likely to leave

ASA Cycle

• Similar people join and stay; people who don’t fit are more likely to leave

• Reinforces existing norms and values

Disadvantage of ASA Cycle

• Makes employees increasingly similar; limits different perspectives

• Cultural change more difficult

ASA Vs. Socialization

ASA: Shapes who joins and remains in the organization

Socialization: Shapes how employees learn adapt to its culture