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Ten

OrganizationalStructureandDesign

INTRODUCTION.

Organizationalstructurecanplayanimportantroleinanorganization’ssuccess.Theprocessoforganizing—thesecondmanagementfunction—ishowanorganization’sstructureiscreated.

DEFININGORGANIZATIONALSTRUCTURE.

Managersareseekingstructuraldesignsthatwillbestsupportandallowemployeestoeffectivelyandefficientlydotheirwork.

Beforewelookattheelementsoforganizationalstructureanddesign,weneedtodefinesomeimportantterms.

Organizingistheprocessofcreatinganorganization’sstructure.Thatprocesshasseveralpurposes,asshowninExhibit10.1.

Anorganizationalstructureistheformalarrangementofjobswithinanorganization.

Organizationaldesignistheprocessofdevelopingorchanginganorganization’sstructure.Itinvolvesdecisionsaboutsixkeyelements:workspecialization,departmentalization,chainofcommand,spanofcontrol,centralization/decentralization,andformalization.Weneedtotakeacloserlookateachofthesestructuralelements.

Workspecializationisthedegreetowhichtasksinanorganizationaredividedintoseparatejobs.Mostmanagerstodayseeworkspecializationasanimportantorganizingmechanismbutnotasasourceofeverincreasingproductivity.

Onceworktaskshavebeendefined,theymustbegroupedtogetherinsomewaythroughaprocesscalleddepartmentalization—thebasisonwhichjobsaregroupedinordertoaccomplishorganizationalgoals.Therearefivemajorwaystodepartmentalize.(Exhibit10.2)

Functionaldepartmentalizationisgroupingjobsbyfunctionsperformed.

Productdepartmentalizationisgroupingjobsbyproductline.

Geographicaldepartmentalizationisgroupingjobsonthebasisofterritoryorgeography.

Processdepartmentalizationisgroupingjobsonthebasisofproductorcustomerflow.

Customerdepartmentalizationisgroupingjobsonthebasisofcommoncustomers.

Twopopulartrendsindepartmentalizationinclude:

Customerdepartmentalizationcontinuestobeahighlypopularapproachbecauseitallowsbettermonitoringofcustomers’needsandrespondingtothosechangesinneeds.

Cross-functionalteams,ahybridgroupingofindividualswhoareexpertsinvariousspecialties(orfunctions)andwhoworktogether,arebeingusedalongwithtraditionaldepartmentalarrangements.

Thechainofcommandisthecontinuouslineofauthoritythatextendsfromtheupperorganizationallevelstothelowestlevelsandclarifieswhoreportstowhom.Threerelatedconceptsincludeauthority,responsibility,andunityofcommand.

Authorityistherightinherentinamanagerialpositiontotellpeoplewhattodoandtoexpectthemtodoit.

Responsibilityistheobligationorexpectationtoperform.

Unityofcommandistheclassicalmanagementprinciplethatasubordinateshouldhaveoneandonlyonesuperiortowhomheorsheisdirectlyresponsible;thatis,apersonshouldreporttoonlyonemanager.

Theconceptofspanofcontrolreferstothenumberofsubordinatesamanagercansuperviseeffectivelyandefficiently.

Thespanofcontrolconceptisimportantbecauseitdetermineshowmanylevelsandmanagersanorganizationwillhave.(SeeExhibit10.3foranexample.)

Whatdeterminesthe“ideal”spanofcontrol?Contingencyfactorssuchastheskillsandabilitiesofthemanagerandtheemployees,thecharacteristicsoftheworkbeingdone,similarityofemployeetasks,thecomplexityofthosetasks,thephysicalproximityofsubordinates,thedegreetowhichstandardizedproceduresareinplace,thesophisticationoftheorganization’sinformationsystem,thestrengthoftheorganization’sculture,andthepreferredstyleofthemanagerwillinfluencetheidealnumberofsubordinates.

Thetrendinrecentyearshasbeentowardlargerspansofcontrol.

Theconceptsofcentralizationanddecentralizationaddresswho,where,andhowdecisionsaremadeinorganizations.

Centralizationisthedegreetowhichdecision-makingisconcentratedatasinglepointintheorganization,usuallyintheupperlevelsoftheorganization.

Decentralizationisthehandingdownofdecision-makingauthoritytolowerlevelsinanorganization.

Thetrendistowarddecentralizingdecisionmakinginordertomakeorganizationsmoreflexibleandresponsive.

Employeeempowermentisanothertermforincreaseddecentralizationandistheincreasingofthedecision-makingdiscretionofemployees.

Anumberoffactorswillinfluencetheamountofcentralizationordecentralizationanorganizationuses.(SeeExhibit10.4.)

Formalizationreferstothedegreetowhichjobswithinanorganizationarestandardizedandtheextenttowhichemployeebehaviorisguidedbyrulesandprocedures.

Inahighlyformalizedorganization,employeeshavelittlediscretion,andthere’sahighlevelofconsistentanduniformoutput.Formalizedorganizationshaveexplicitjobdescriptions,lotsoforganizationalrules,andclearlydefinedprocedures.

Inaless-formalizedorganization,employeeshavealotoffreedomandcanexercisediscretioninthewaytheydotheirwork.

Standardizationnotonlyeliminatesthepossibilitythatemployeeswillengageinalternativebehaviors,itevenremovestheneedforemployeestoconsideralternatives.

Thedegreeofformalizationcanvarywidelybetweenorganizationsandevenwithinorganizations.

ORGANIZATIONALDESIGNDECISIONS.

Organizationsdon’thavethesamestructures.Evencompaniesofsimilarsizedonotnecessarilyhavesimilarstructures.

MechanisticandOrganicorganizationalforms.(SeeExhibit10.5.)

Amechanisticorganizationisanorganizationalstructurethat’scharacterizedbyhighspecialization,rigiddepartmentalization,narrowspansofcontrol,highformalization,alimitedinformationnetwork,andlittleparticipationindecision-makingbylow-levelemployees.

Anorganicorganizationisastructurethat’shighlyadaptiveandflexiblewithlittleworkspecialization,minimalformalization,andlittledirectsupervisionofemployees.

Wheniseachdesignfavored?It“depends”onthecontingencyvariables.

Contingencyfactors—appropriatestructuredependsonfourcontingencyvariables:

Strategyandstructure.

Oneofthecontingencyvariablesthatinfluencesorganizationaldesignistheorganization’sstrategy.

AlfredChandlerdidtheoriginalworkonthestrategystructurerelationship.Hisfindingthatstructurefollowedstrategypointedoutthatasorganizationschangedtheirstrategies,theyhadtochangetheirstructuretosupportthatstrategy.

Mostcurrentstrategy-structureframeworkstendtofocusonthreestrategydimensions:

Innovation—needstheflexibilityandfreeflow

ofinformationoftheorganicorganization

Cost minimization—needs theefficiency,

stability,andtightcontrolsofthemechanisticorganization

Imitation—whichusescharacteristicsofboth

mechanisticandorganic

Sizeandstructure.

There’sconsiderablehistoricalevidencethatanorganization’ssizesignificantlyaffectsitsstructure.Largerorganizationstendtohavemorespecialization,departmentalization,centralization,andformalizationalthoughthesize-structurerelationshipisnotlinear.

Technologyalsohasbeenshowntoaffectanorganization’schoiceofstructure.

Everyorganizationusessomeformoftechnologytotransforminputsintooutputs.

JoanWoodward’sstudyofstructureandtechnologyfoundthatorganizationsadaptedtotheirtechnology.Shefoundthatthreedistincttechnologieshadincreasinglevelsofcomplexityandsophistication.

Unitproductionistheproductionofitemsinunitsorsmallbatches.

Massproductionislarge-batchmanufacturing.

Processproductioniscontinuous-process

production.

Woodwardfoundinherstudyofthesethreegroupsthatdistinctrelationshipsexistedbetweenthesetechnologies,thesubsequentstructureoftheorganization,andtheeffectivenessoftheorganization.Exhibit10.6providesasummaryofthesefindings.

Environmentaluncertaintyandstructure.

Thefinalcontingencyfactorthathasbeenshowntoaffectorganizationalstructureisenvironmentaluncertainty.Onewaytomanageenvironmentaluncertaintyisthroughadjustmentsintheorganization’sstructure.Themoreuncertaintheenvironment,themoreflexibleandresponsivetheorganizationmayneedtobe.

COMMONORGANIZATIONALDESIGNS.

Traditionalorganizationaldesigns.

Wenowneedtolookatvariousorganizationaldesignsthatyoumightseeintoday’sorganizations.Exhibit10.8summarizesthestrengthsandweaknessesofeachofthesedesigns.

Asimplestructureisanorganizationaldesignwithlowdepartmentalization,widespansofcontrol,authoritycentralizedinasingleperson,andlittleformalization.

Itsstrengthsareitsflexibility,speed,andlowcosttomaintain.

Itsmajordrawbackisthatit’smosteffectiveinsmallorganizations.

Asanorganizationgrows,thestructuretendstobecomemorespecializedandformalized.Whencontingencyfactorsfavorabureaucraticormechanisticdesign,oneoftwooptionsislikelytobeused.

Oneoptionexpandsfunctionaldepartmentalizationintothefunctionalstructure,whichisanorganizationaldesignthatgroupssimilarorrelatedoccupationalspecialtiestogether.

Theotheroptionisthedivisionalstructure,whichisanorganizationalstructuremadeupofautonomous,self-containedunits.

Contemporaryorganizationaldesigns.

However,manyoftoday’sorganizationsarefindingthatthetraditionalhierarchicalorganizationaldesignsaren’tappropriatefortheincreasinglydynamicandcomplexenvironmentstheyface.

Teamstructures.

Oneofthenewerconceptsinorganizationaldesignistheteamstructure,whichisanorganizationalstructuremadeupofworkgroupsorteamsthatperformstheorganization’swork.

Matrixandprojectstructures.

Anothervariationinorganizationalarrangementsisbasedonthefactthatmanyoftoday’sorganizationsdealwithworkactivitiesofdifferenttimerequirementsandmagnitude.

Oneofthesearrangementsisthematrixorganizationthatassignsspecialistsfromdifferentfunctionaldepartmentstoworkononeormoreprojectsbeingledbyprojectmanagers.(SeeExhibit10.9.)

Anotherofthesedesignsistheprojectstructure,whichisastructureinwhichemployeesarepermanentlyassignedtoprojects.

TheBoundarylessOrganization.

Anotherapproachtoorganizationaldesignistheboundarylessorganization,whichdescribesanorganizationwhosedesignisnotdefinedby,orlimitedto,thehorizontal,vertical,orexternalboundariesimposedbyapredefinedstructure.

Avirtualorganizationisonethatconsistsofasmallcoreoffulltimeemployeesandthattemporarilyhiresoutsidespecialiststoworkonopportunitiesthatarise

Anetworkorganizationisasmallcore

organization

thatoutsourcesmajorbusinessfunctions.

Amodularorganizationisamanufacturingorganizationthatusesoutsidesupplierstoprovideproductcomponentsthatarethenassembledintofinalproducts.

TheLearningOrganization.

Finally,someorganizationshaveadoptedanorganizationalphilosophyofalearningorganization—anorganizationthathasdevelopedthecontinuouscapacitytoadaptandchangebecauseallmemberstakeanactiveroleinidentifyingandresolvingwork-relatedissues.Exhibit10.10showsthecharacteristicsofalearningorganization.

Cananorganization’sstructurebechangedquickly?Whyorwhynot?

Thespeedofchanginganorganization’sstructuredependsonitssize.Asmallorganizationcouldchangeitsstructuremuchmorerapidlythanalargeone.Butevenalargeorganizationcanchangeitsstructureandoftendoesinresponsetochangingenvironmentalconditionsandchangingstrategies.

Wouldyouratherworkinamechanisticoranorganicorganization?Why?

Students’answerstothiswillvary.You’llfindthatmanystudentspreferthestructureprovidedbyamechanisticorganizationwhereasotherswouldhatethattypeofrigidity.JustareminderthattheOnlineSelf-AssessmentLibraryScale#39,“WhatTypeofOrganizationStructureDoIPrefer?”addresseswhetherornotstudentswouldliketoworkinabureaucracy(amechanisticorganization).Youmightwanttouse(orreuse)itinansweringthisquestionorasafollow-uptothisquestion.

Whattypesofskillswouldamanagerneedtoeffectivelyworkina

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