Organizational Structure and Design
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Organization structure refers to the pattern of jobs and groups in an organization. It is an important influence on individual and group behavior. Organization design involves management decisions that determine the structure. Key design decisions include how work is divided and specialized, how jobs are grouped, the span of control of managers, and how authority is distributed. Common structures are functional, geographic, product, and customer-based departmentalization. Mechanistic and organic models differ in their degree of centralization, formalization, and specialization. The matrix and virtual organization are alternatives that combine structural elements.
Organizational Structure and Design
- 1. 16-1 Organizational Structure and Design McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 2. 16-2 Organization structure – the pattern of jobs and groups of jobs in an organization. It is an important cause of individual and group behavior. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 3. The Concept of Organization Structure Structure as an influence on behavior McGraw-Hill/Irwin 16-3 Structure as recurring activities © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 4. 16-4 Organization design – management decisions and actions that result in a specific organization structure. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 5. Organizational Design Decisions 16-5 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 6. The Four Key Design Decisions Specialization Division of Labor: Low High Departmentalization: Basis Homogeneous Heterogeneous Number Span of Control: Many Few Delegation Authority: High McGraw-Hill/Irwin 16-6 Low © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 7. Division of Labor 16-7 • 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 8. Division of Labor Occurs in Three Different Ways: 16-8 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 9. Delegation of Authority 16-9 • 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 10. Reasons to Decentralize Authority 16-10 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 11. 16-11 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 12. 16-12 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 13. 16-13 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 14. 16-14 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? McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 15. 16-15 Departmentalization – process in which an organization is structurally divided by combining jobs in departments according to some shared characteristic or basis. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 16. Departmentalization Bases Functional McGraw-Hill/Irwin Geographic Product 16-16 Customer © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 17. Departmental Bases: Functional Departmentalization 16-17 • 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 18. 16-18 Functional Departmentalization Structure OBM Company OBM Engineering Engineering Reliability Manufacturing McGraw-Hill/Irwin Distribution Distribution Finance Finance Public Public Relations Relations Human Human Resources Resources Purchasing © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 19. Departmental Bases: Geographic Departmentalization 16-19 • 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 20. 16-20 Geographic Departmentalization Structure OBM Company Northeast McGraw-Hill/Irwin Midwest Southeast Southwest Pacific © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 21. Departmental Bases: Product Departmentalization 16-21 • 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 22. Product Departmentalization Structure 16-22 OBM Company OBM Company Small Small Household Household Appliances Appliances McGraw-Hill/Irwin Large Large Household Household Appliances Appliances Commercial Commercial Appliances Appliances Building Building Materials and Materials and Products Products Lawn and Lawn and Garden Garden Products Products Automotive Automotive Products Products © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 23. Departmental Bases: Customer Departmentalization 16-23 • 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 24. 16-24 Customer Departmentalization Structure OBM Company Retail Stores McGraw-Hill/Irwin Mail Order On-Line Sales Institutional Sales Government Contracts © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 25. Span of Control (1 of 2) 16-25 • 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 26. 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: McGraw-Hill/Irwin 16-26 Key Factors Required Contact Degree of Specialization Ability to Communicate © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 27. Dimensions of Structure 16-27 • 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 28. Organization Design Models 16-28 The Mechanistic Model The Organic Model • Emphasizes importance • Emphasizes importance of achieving high levels of of achieving high levels of production and efficiency production and efficiency through: through: • Extensive use of rules and procedures • Centralized authority • High specialization of labor McGraw-Hill/Irwin • Limited use of rules and procedures • Decentralized authority • Relatively low degrees of specialization © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 29. Comparison of Mechanistic and Organic Structures (1 of 3) 16-29 Process Mechanistic Structure 1. Leadership Includes no perceived Includes perceived confidence confidence and trust between and trust between superiors superiors and subordinates. 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. McGraw-Hill/Irwin Organic Structure © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 30. Comparison of Mechanistic and Organic Structures (2 of 3) 16-30 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. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 31. Comparison of Mechanistic and Organic Structures (3 of 3) 16-31 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. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 32. Organization Design Models: The Matrix Model 16-32 • 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 33. 16-33 Example of the Matrix Organization Model Functions Projects, products Manufacturing Marketing Engineering Finance Project or product A Project or product B Project or product C Project or product D Project or product E McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 34. Advantages of Matrix Organization 16-34 • 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 35. Evolutionary Steps to the Matrix Model Task Force 16-35 (1) Teams (2) Product Managers (3) Product (4) Management Depts. McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 36. Multinational Structure and Design 16-36 • 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 37. Multinational Corporations: Implications for Organizational Design (1 of 2) 16-37 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 38. Multinational Corporations: Implications for Organizational Design (2 of 2) 16-38 3. Subsidiaries of multinational corporations can act as conduits through which features of the host country culture are introduced throughout the multinational organization McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 39. Virtual Organizations 16-39 • 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 40. Virtual Organizations: Factors in Design Considerations 16-40 •• Personnel distributed geographically Personnel distributed geographically •• Electronically connected Electronically connected •• Differences in expertise and function Differences in expertise and function •• Culturally diverse Culturally diverse •• Work schedule differences Work schedule differences •• Horizontally arranged with little emphasis on Horizontally arranged with little emphasis on command and control authority command and control authority McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 41. Virtual Organizations: Design Implications 16-41 •• Contractual relationships Contractual relationships •• Constant change and reconfiguration Constant change and reconfiguration •• No rigid boundaries No rigid boundaries •• Flexible Flexible •• Little or personal and social contact Little or personal and social contact McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 42. Virtual Organizations: Consequences 16-42 • • • • 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 McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.
- 43. Boundaryless Organizations 16-43 • Organizations in which: • the hierarchy and chain of command are minimized • rigidly structured departments are eliminated • Implemented to reduce barriers between people and constituencies McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.