chapter 9 organizational structure and design copyright © 2005 prentice hall, inc. all rights...

•CHAPTER 9

•ORGANIZATIONAL STRUCTURE AND DESIGN

Copyright © 2005 Prentice Hall, Inc. All rights reserved. 10–1


Designing Organizational Structure

• Few topics in management have undergone as much change in the past few years as organizing and organizational structure.

• Managers are re-evaluating traditional approaches to find new structural designs that support and facilitate employees’ doing the work (mainly focussing on efficiency, effectiveness and flexibility).

• Organizational StructureThe formal arrangement of jobs within an organization.


Defining Organizational Structure

• Organizational Chart (Organogram)Visual representation of organizational structure.

• Organizational DesignA process involving decisions about six key elements:

Work specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization


Organizational Structure

• Work SpecializationThe degree to which tasks in the organization are

divided into separate jobs with each step completed by a different person.

Overspecialization can result in human diseconomies from boredom, fatigue, stress, poor quality, increased absenteeism, and higher turnover.

Most managers today see work specialization as an important organizing mechanism as it helps employees to be more efficient.

EXAMPLE OF WORK SPECIALIZATION


Departmentalization

• The way in which jobs are grouped together is called departmentalization.

• There are 5 common forms of departmentalization.

• Large organizations often combine most or all of these forms of departmentalization.

• A popular trend today is cross-functional teams, which are work teams composed of individuals from various functional specialities.


Departmentalization by Type

Product departmentalization: organized based on the goods and services a company offers.

Geographical departmentalization: organized by geographical regions within a country or, for a multinational firm, by region throughout the world.

Customer departmentalization: organized by the different types of customers the organization serves.

Functional departmentalization: organized by business functions such as finance, marketing, human resources, and production.

Process departmentalization: organized by work processes necessary to complete production of goods or services.


Figure 10.2aFigure 10.2a

Functional Departmentalization

Geographical Departmentalization

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Figure 10.2cFigure 10.2c

Product Departmentalization

Source: Bombardier Annual Report.

Process Departmentalization


Figure 10.2dFigure 10.2d

Customer Departmentalization

Different forms of Departmentalizationin a single company


Organization Structure (cont’d)

• Chain of CommandThe continuous line of authority that extends from

upper levels of an organization to the lowest levels of the organization and clarifies who reports to who.



• Authority The rights inherent in a managerial position to tell people what

to do and to expect them to do it.

• Responsibility The obligation or expectation to perform.

• Unity of Command The concept that a person should have one boss and should

report only to that person.

Early management theorists believed that chain of command, authority, responsibility and unity of command were essential, but times have changed.



• Span of Control The number of employees who can be effectively and

efficiently supervised by a manager.

Determining the span of control is important because to a large degree, it determines the number of levels and managers in an organization.

All other things being equal, the wider or larger the span, the more efficient (in terms of cost) the organization is.

But wider spans may reduce effectiveness.


Figure 10.3Figure 10.3

Contrasting Spans of Control


Width of span is affected by: Skills and abilities of the manager Employee characteristics Characteristics of the work being done Similarity of tasks Complexity of tasks Physical proximity of subordinates Standardization of tasks

The trend in recent years has been towards larger spans of control. Managers are realizing that they can handle a wider span when employees know their jobs well and understand organizational processes.



• Centralization The degree to which decision-making is concentrated

at a single point in the organizations. Organizations in which top managers make all the

decisions and lower-level employees simply carry out those orders.

• Decentralization Organizations in which decision-making is pushed

down to the managers who are closest to the action.

• Employee Empowerment Increasing the decision-making authority,



• FormalizationThe degree to which jobs within the organization are

standardized and the extent to which employee behavior is guided by rules and procedures. Highly formalized jobs offer little discretion over what is

to be done. Low formalization means fewer constraints on how

employees do their work.


Mechanistic versus Organic Organization

• Mechanistic Organization A rigid and tightly controlled

structure High specialization Rigid departmentalization Narrow spans of control High formalization Limited information

network (downward) Low decision

participation

• Organic Organization Highly flexible and

adaptable structure Non-standardized jobs Fluid team-based

structure Little direct supervision Minimal formal rules Open communication

network Empowered employees


Structural Contingency Factors

• Structural decisions are influenced by: Overall strategy of the organization

Organizational structure follows strategy.

Size of the organization Firms change from organic to mechanistic organizations as they

grow in size.

Technology used by the organization Firms adapt their structure to the technology they use. Routine technology = mechanistic organizations Non-routine technology = organic organizations

Degree of environmental uncertainty Dynamic environments require organic structures; mechanistic

structures need stable environments.


Common Organizational Designs

• Traditional DesignsSimple structure

Low departmentalization, wide spans of control, centralized authority, little formalization

Functional structure Departmentalization by function

– Operations, finance, human resources, and product research and development

Divisional structure Composed of separate business units or divisions with

limited autonomy under the coordination and control of the parent corporation.

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Organizational Designs (cont’d)

• Contemporary Organizational Designs

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