Organizational behaviour - Chapter 13: Organizational structure

Organizational structure

 How job tasks are formally divided, grouped, and coordinated

The seven key elements managers should address seven key elements when they design their organization's structure

• Work specialization

• Departmentalization

• Chain of command

• Span of control

• Centralization and decentralization

• Formalization

• Boundary spanning

Work specialization/ division of labour

The degree to which tasks in the organization are subdivided into separate jobs.

Work specialization/ division of labour (con’t)

Rather than an entire job being completed by one individual, it's broken down into several steps completed by different people

Benefits of specialization

It can be efficient, easier, and cheaper, especially for highly sophisticated and complex operations.

Benefits of specialization (con’t)

Giving employees a variety of activities to do, allowing them to do a whole and complete job, and putting them into teams with interchangeable skills can result in significantly higher output and increased employee satisfaction.

Drawbacks of specialization

It can lead to boredom, fatigue, stress, low productivity, poor quality, increased absenteeism, and high turnover rates

Departmentalization

How jobs are grouped for ease of coordination

Functional departmentalization

Grouping activities by the functions performed for increased efficiency by putting people with common skills and orientations together into common units.

Product departmentalization

Grouping activities by the product(s) produced by the firm for  increased accountability for product performance, since all activities related to a specific product line are under the direction of a single manager

Geographical departmentalization

Grouping activities by their location based on whether the needs of customers in different areas are similar

Process departmentalization

Grouping departments by the processing that occurs.

e.g., an aluminum tubing manufacturer might have the following departments: casting, pressing, tubing, finishing, inspection, packing, and shipping.

Customer departmentalization

Grouping activities by the basis of the particular type of customer the organization seeks to reach

e.g. Microsoft’s organized around four customer markets: consumers, large corporations, software developers, and small businesses.

Chain of command

The unbroken line of authority that extends from upper organizational levels to the lowest level and clarifies who reports to whom.

Authority

Refers to the rights inherent in a managerial position to give orders and expect them to be obeyed

Authority (con’t)

Each manager is given a degree of authority to meet his or her responsibilities to facilitate coordination

Unity of command

Helps preserve the concept of an unbroken line of authority.

i.e. A person should have one and only one superior to whom he or she is directly responsible.

Unity of command (con’t)

If broken, an employee might have to cope with conflicting demands or priorities from several superiors, as is often the case in organization charts' dotted-line reporting relationships depicting an employee's accountability to multiple managers.

Delegation

The assignment of authority to another person to carry out specific duties, allowing the employee to make some of the decisions

Span of control

The number of employees who report to a manager.

Span of control (con’t)

This number will vary by organization, and by unit within an organization and is determined by the number of employees a manager can efficiently and effectively direct.

e.g. A sales manager, by contrast, might have to give one-on-one supervision to individual sales reps, and while an  assembly-line factory manager may be able to direct numerous employees,

Centralization

The degree to which decision-making is concentrated at a single point in the organization

e.g.  In centralized organizations, top managers make all the decisions, and lower-level managers merely carry out their directives, but in organizations at the other extreme, decentralized decision making is pushed down to the managers closest to the action or to work groups

Centralization (con’t)

It’s better for avoiding communication errors

Decentralization

The degree to which decision-making is given to lower-level employees

Decentralization (con’t)

Employees can act more quickly to solve problems, and more people provide input into decisions, and employees are less likely to feel alienated from those who make decisions that affect their work lives

Benefits of decentralization

It can make it easier to address concerns

Formalization

The degree to which jobs within the organization are standardized

Formalization (con’t)

If a job is highly formalized, the employee has a minimal amount of discretion over what to do and when and how to do it, resulting in consistent and uniform output. 

Formalization example

At McDonald’s, where employees are instructed in such things as how to greet the customer (smile, be sincere, make eye contact), ask for and receive payment (state the amount of the order clearly and loudly, announce the amount of money the customer gives to the employee, count change out loud and efficiently), and thank the customer (give a sincere thank you, make eye contact, ask the customer to come again)

Boundary spanning

When individuals form relationships with people outside their formally assigned groups.

e.g. An HR executive who frequently engages with the IT group is engaged in boundary spanning

The simple structure

An organizational design defined by low degree of departmentalization wide spans of control, authority centralized in a single person, and little formalization

The simple structure (con’t)

It’s a flat organization, usually with only 2 or 3 vertical levels, and is seen in companies which are just starting out

The simple structure (III)

It's fast, flexible, and inexpensive to maintain, and accountability is clear, but it's difficult to maintain in anything other than small organizations.

Bureaucracy

Highly routine operating tasks are achieved through:

• Specialization

• Strictly formalized rules and regulations

• Tasks that are grouped into units

• Centralized authority

• Narrow spans of control

• Decision-making that follows the chain of command.

Strengths of bureaucracy

It can perform standardized activities in a highly efficient manner with little need for experience

Weaknesses of bureaucracy

Bureaucratic specialization can create conflicts in which unit perspectives override the overall goals of the organization, and obsessive rule following can leave no room for modifications

The functional structure

Groups employees by their similar specialties, roles, or tasks

e.g. An organization organized into production, marketing, human resources, and accounting departments 

Benefits of the functional structure

• It allows specialists to become experts more easily than if they worked in diversified units

• Employees can also be motivated by a clear career path to the top of the organization chart, specific to their specialties.

Drawbacks of the functional structure

• It creates rigid, formal communications because the hierarchy dictates the communication protocol.

• Coordination among many units is a problem, and infighting in units and between units can lead to reduced motivation.

Divisional structure

Groups employees into units by product, service, customer, or geographical market area in a highly departmentalized manner

Divisional structure (con’t)

Sometimes this structure is known by the type of division structure it uses:

e.g.

• Product/service organizational structure (like units for cat food, dog food, and bird food that report to an animal food producer)

• Customer organizational structure (like units for outpatient care, inpatient care, and pharmacy that report to hospital administration)

• Geographic organizational structure (like units for Europe, Asia, and South America that report to corporate headquarters)

Benefits of the divisional structure

The organization's marketing function employees in two places may represent an increased cost, in doing basically the same task in two different countries.

Drawbacks of the divisional structure

 It facilitates coordination in units to achieve on-time completion, budget targets, and the development and introduction of new products to market, while addressing the specific concerns of each unit. It provides clear responsibility for all activities related to a product, but with duplication of functions and costs.

The matrix structure

Combines functional and product departmentalization with a dual chain of command that breaks the unity-of-command concept.

Benefits of the matrix structure

• It can foster coordination when the organization has several complex and interdependent activities.

• Information permeates the organization and more quickly reaches those people who need it.

• It achieves economies of scale and facilitates the allocation of specialists by both providing the best resources and ensuring they are efficiently used.

Drawbacks of the matrix structure

It can create confusion and power struggles, as well as placing stress on individuals

The virtual structure

A small core organization that outsources its major business functions

Benefits of virtual structures

They’re flexible and allow for individuals with an innovative idea and little money to successfully compete against more established organizations.

Drawbacks of virtual structures

• They’re  in a state of perpetual flux and reorganization, which means roles, goals, and responsibilities are unclear, setting the stage for political behaviour

• Cultural alignment and shared goals can be lost because of the low degree of interaction among members.

• Team members who are geographically dispersed and communicate infrequently find it difficult to share information and knowledge, which can limit innovation

and slow response time.

The team structure

Seeks to eliminate the chain of command and replace departments with empowered teams

The team structure (con’t)

Removes vertical and horizontal boundaries as well as breaking down external barriers between the company and its customers and suppliers.

Circular structure

Executives are in the centre and radiating outward in rings grouped by function are the managers, then the specialists, then the workers. 

Circular structure benefits

Has intuitive appeal for creative entrepreneurs, 

Circular structure drawbacks

Employees are apt to be unclear about whom they report to and who is running the show.

Downsizing

A systematic effort to make an organization leaner by closing locations, reducing staff, or selling off business units that do not add value. 

Why might a company downsize?

• To direct efforts toward their core competencies

• To create a leaner organization

• To reduce bureaucracy and speed decision-making.

Mechanistic model

Defined by:

• High specialization

• Rigid departmentalization

• Clear chain of command

• Narrow control spaces

• Limited information network

• Centralization

Mechanistic model (con’t)

Is usually synonymous with bureaucracy

The organic model

It's flat, has fewer formal procedures for making decisions, has multiple decision makers, and favours flexible practices

The organic model (con’t)

Also contains:

• Cross-functional/hierarchical teams

• Free flow of information

• Wide spans of control

• Decentralization

• Low formalization

Innovation strategy

Advocates for the introduction of major new offerings

Cost-minimization strategy

Emphasizes tight cost controls as well as the avoidance of unnecessary innovation, expenses, or price cuts

Imitation strategy

Moving into new products/markets only after their viability has been proven

e.g.

Technology

The way an organization transfers its inputs into outputs

Technology (con’t)

Every organization has at least one technology for converting financial, human, and physical resources into offerings

e.g. The Chinese consumer electronics company Haier uses an assembly-line process for mass-produced products, which is complemented by more flexible and innovative structures to respond to customers and design new products

Environment

Outside institutions or forces that can affect the organization's structure and performance

e.g. Suppliers, customers, competitors, and public pressure groups.

Dynamic environments

Rapidly changing government regulations affecting their business, new competitors, difficulties in acquiring raw materials, continually changing product preferences by customers, etc

Dynamic environments (con’t)

Creates more challenges and uncertainty for managers

Static environments

 Few forces in their environment are changing

Static environments (con’t)

Creates less challenges and uncertainty for managers

Capacity of an environment

The degree to which the environment can support growth.

e.g. Rich and growing environments generate excess resources, which can buffer the organization in times of relative scarcity.

Volatility

The degree of instability in an environment

e.g. A dynamic environment with a high degree of unpredictable change, makes it difficult for management to make accurate predictions.

Complexity

The degree of heterogeneity and concentration among environmental elements

e.g., Simple environments like the tobacco industry, where the methods of production, competitive and regulatory pressures, and the like haven’t changed in quite some time, are homogeneous and concentrated. Heterogeneous and dispersed envelopes like the broadband industry are complex and diverse, with numerous competitors.

Institutions

Cultural factors that act as guidelines for appropriate behaviour.

Institutional theory

Describes some of the forces that lead many organizations to have similar structures and focuses on pressures that aren't necessarily adaptive.