Chapter 14: Organizational Structure and Design

Organizational design

Organizational design

The process of selecting and managing aspects of organizational structure and culture to enable the organization to achieve its goals.

Organizational structure

The formal system of task, power, and reporting relationships

Organizational chart

Diagram of the chain of command and reporting relationships in a company

Division of labor

The degree to which employees specialize

Span of control

The number of people reporting directly to an individual

Hierarchy

The degree to which some employees have formal authority over others

Formalization

Reflects the extent to which organizational rules, procedures, and communications are written down

Centralized organizations

Concentrate power and decision-making authority at higher levels of the organization

Decentralized organizations

The authority for making decisions affecting an organization is distributed

Mechanistic organizations

• Rigid, traditional bureaucracies with centralized power

• and hierarchical communications

Organic organizations

Flexible, decentralized structures with less clear lines of authority, decentralized power, open communication channels, and a focus on adaptability in helping employees accomplish goals

Determinants of Organizational Structure

• Business Strategy

• External Environment

• Organizational Talent

• Organizational Size

• Behavioral Expectations

• Production Technology

• Organizational Change

Unit production

Producing in small batches or making one-of a-kind custom products

Mass production

Producing large volumes of identical products

Continuous production

Machines constantly make the product

Prebureaucratic structure

Smaller organizations with low standardization, total centralization, and mostly one-on-one communication

Bureaucratic structure

• An organizational structure with formal division of labor,

• hierarchy, and standardization of work procedures

Six common bases for grouping employees

• employee knowledge and skills

• business function

• work process

• output

• client

• location

Employee knowledge and skills

Employees are grouped by what they know; for example, pharmaceutical organizations have departments like oncology and genetics.

Business function

Employees are grouped by this; for example, many organizations have departments of human resources, marketing, and research and development.

Work process

• Employees are grouped based on the activities they do; for

• example, a retailer may have different retail store and online departments reflecting two different sales processes.

Output

Employees are grouped based on the products or services they work on

Client

Employees are grouped based on the type of clients they serve

Location

Employees are grouped based on the geographical areas they serve

Functional structure

• An organizational structure that groups people with the same skills, or who use similar tools or work processes,

• together into departments

Division

A collection of functions organized around a particular geographic area, product or service, or market

Matrix structure

Employees report to both a project or product team and to a functional manager

Team-based structure

Horizontal or vertical teams define part or all of the organization

Lattice structure

Cross-functional and cross-level subteams are formed and dissolved as necessary to complete specific projects and

tasks

Network organization

• A collection of autonomous units or firms that act as a single

• larger entity, using social mechanisms for coordination and control

2 ways a network organization control participants

Joint Payoffs

Restricted Access

Joint payoffs

Because networks are organized around specific products or projects, payments are arranged based on the final product, so that if the product does not make it, no firm makes a profit. This motivates everyone to do his or her best.

Restricted access

• By restricting their exchanges to just a few long-term

• partners, networked organizations are more dependent on each other.

• By increasing their chances for future business, long-term relationships decrease the incentive for one organization to take advantage of another because they will get kicked out of the network and lose the opportunity to have future work.

Four emerging issues that relate to organizational structure

• Virtual Organizations

• Integrating Employees

• Communities of Practice

• Effects of Restructuring on Performance

Virtual organization

An organization that contracts out almost all of its functions except for the company name and managing the coordination among the contractors

Direct contact

Managers from different units informally work together to coordinate or to identify and solve shared problems

Liaison role

A manager or team member is held formally accountable for communicating and coordinating with other groups

Task force

A temporary committee formed to address a specific project or problem

Cross-functional team

A permanent task force created to address specific problems or recurring needs

Communities of practice

Groups of people whose shared expertise and interest in a joint enterprise informally bind them together