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ORGANIZATION
STRUCTURE & DESIGNS STRUCTURE & DESIGNS
Organization Design and Structure
• Organization design
�A process in which managers develop or change their
organization’s structure
• Work specialization
�A component of organization structure that involves �A component of organization structure that involves
having each discrete step of a job done by a different
individual rather than having one individual do the
whole job
Key Concepts
• Organizing
�Deciding how to best group organizational activities and
resources
• Organization Structure
�Set of building blocks that can be used to configure an
organization
Organizational Structure
• Chain of command
�The management principle that no person should
report to more than one boss
• Span of control
�The number of subordinates a manager can direct �The number of subordinates a manager can direct
efficiently and effectively
Organizational Structure
• Authority
�The rights inherent in a managerial position to give
orders and expect them to be obeyed
• Power• Power
�An individual’s capacity to influence decisions
• Responsibility
�An obligation to perform assigned activities
Types of Organizational Authority
• Line authority
�The position authority (given and defined by the
organization) that entitles a manager to direct the
work of operative employees
• Staff authority• Staff authority
�Positions that have some authority (e.g., organization
policy enforcement) but that are created to support,
assist, and advise the holders of line authority
Chain of Command
Line Versus Staff Authority
Centralization And Decentralization
• Centralization
�A function of how much decision-making authority is
pushed down to lower levels in an organization; the
more centralized an organization, the higher the level
at which decisions are made
• Decentralization
�The pushing down of decision-making authority to the
lowest levels of an organization
6 Basic Building Blocks
1. Designing Jobs (Job Specialization)
2. Grouping Jobs (Departmentalization)
3. Establishing Reporting Relationships
4. Distributing Authority4. Distributing Authority
5. Coordinating Activities
6. Differentiating Between Positions
1. Job Design
• The determination of an individual’s work-related
responsibilities.
Job Specialization
• Degree to which the overall task of the organization is
broken down into smaller components
� Benefits
1. Workers can become proficient at a task
2. Transfer time between tasks decrease
3. Specialized equipment can be developed3. Specialized equipment can be developed
4. Employee replacement becomes easier
� Limitations
1. Employee boredom and dissatisfaction
2. Anticipated benefits do not always occur
2. Grouping Jobs: Departmentalization
• The process of grouping jobs according to some logical
arrangement.
• Rationale for Departmentalization
�Organizational growth exceeds the owner-manager’s
capacity to personally supervise all of the organization.
�Additional managers are employed and assigned specific
employees to supervise.
Departmentalization
• 4 Basic Types:
�Functional
�Product
�Customer
�Location
Functional Departmentalization
President
Manufacturing Finance Marketing
Computers
Functional Departmentalization Form
Advantages
�Department can be staffed by
experts
�Supervision is facilitated
Disadvantages
�Decision making
becomes slow and
bureaucratic�Supervision is facilitated
�Coordination within
department is easier
�Lose sight of
organizational
goals/issues
�Accountability and
performance are difficult
to monitor
Product Departmentalization
President
Computers
Manufacturing Finance Marketing
Printers Software
Product Departmentalization
Advantages
�Activities with one product
can be integrated
�Speed and effective-ness
of decision making
Disadvantages
�Focus on product at the
exclusion of the rest of
the organization
�Administrative costs may of decision making
�Performance of these
individual products can be
assessed
�Administrative costs may
increase
Customer Departmentalization Form
Computers
President
Dallas Phoenix
Manufacturing Finance
Industrial
Sales
Consumer
Sales
Marketing
Computers
Customer Departmentalization
Advantage
�Skilled specialists can
deal with unique
Disadvantage
�Large administrative staff
needed to integrate
activities of various customer needs activities of various
departments
Location Departmentalization Form
Computers Software
President
Manufacturing Marketing Marketing
Chicago St. Louis
Design
Location Departmentalization
• Advantage
�The organization can
respond to unique
customer and regional/
• Disadvantage
�Large administrative
staff may be needed
customer and regional/
environmental
characteristics
3. Establishing Reporting Relationships
• Chain of Command: a clear and distinct line of
authority among the positions in an organization.
1. Unity of Command
� Each person within an organization must have a clear � Each person within an organization must have a clear
reporting relationship to one and only one boss.
2. Scalar Principle
� A clear and unbroken line of authority must extend from
the bottom to the top of the organization.
Establishing Reporting Relationships (cont.)
• Span of Management (Span of Control)�The number of people who report to a particular
manager.
�Narrow versus wide�Narrow versus wide
Establishing Reporting Relationships:Tall versus Flat Organizations
• Tall Organizations
�More expensive
�Communication can be
• Flat Organizations
�higher levels of employee
morale and productivity�Communication can be
difficult because of the
number of channels through
which it must pass
morale and productivity
�More administrative
responsibility for managers
Tall Versus Flat Organizations
PresidentTall Organization
PresidentFlat Organization
Factors Influencing the Span of Management
• Competence of the supervisor or subordinates
• Physical dispersion of subordinates
• Extent of non supervisory work in manager’s job
Degree of required interaction• Degree of required interaction
• Extent of standardized procedures
• Similarity of tasks being supervised
• Frequency of new problems
• Preferences of supervisors and subordinates
4. Distributing Authority
• Authority
� Power that has been legitimized by the organization.
• Delegation
� The process by which managers assign a portion of their total workload to others.
• Reasons for Delegation• Reasons for Delegation
� To enable the manager to get more work done by utilizing the skills and talents of subordinates.
� To foster the development of subordinates by having them participate in decision making and problem solving that allows them to learn about overall operations and improve their managerial skills.
Parts of the Delegation ProcessParts of the Delegation Process
Part 2:Part 2:Granting Granting authorityauthority
Part 3:Part 3:Creating Creating
accountabilityaccountability
Part 1:Part 1:Assigning Assigning
responsibilityresponsibility
ManagerManager ManagerManager ManagerManager
SubordinateSubordinate SubordinateSubordinate SubordinateSubordinate
ManagerManager ManagerManager ManagerManager
DelegationProblems in the Delegation Process
Superior
�Reluctance
�Disorganization
�Subordinate’s success
Subordinate
�Reluctance
�No rewards for the
acceptance of delegated �Subordinate’s success
threatens superior’s
advancement
�Trust
acceptance of delegated
tasks
�Risk avoidance
5. Coordinating Activities
• Coordination
�The process of linking the activities of the various
departments of the organization.
• The Need for Coordination
�Departments and work groups are interdependent; the
greater the interdependence, the greater the need for
coordination.
Structural Coordination Techniques
1. The Managerial Hierarchy
2. Rules and Procedures
3. Task Forces
4. Integrating Departments
6. Differentiating Between Positions
• Line Positions�Positions in the direct chain of command that are
responsible for the achievement of an organization’s goals
• Staff Positions• Staff Positions� Intended to provide expertise, advice, and
support to line positions
• Administrative Intensity
�The degree to which managerial positions are concentrated in staff positions
Differentiating Between PositionsLine and Staff Structure at Toys “R” Us
CEOCEO
PresidentPresident
Corporate StaffCorporate StaffFinance and AdministrationFinance and Administration
Real EstateReal Estate
MISMIS
Architecture and ConstructionArchitecture and Construction
TreasurerTreasurer
PresidentPresident
IndiaIndia
TreasurerTreasurer
ControllerController
AttorneyAttorney
Senior VicePresident StoreMerchandising
Senior VicePresident Marketing
Vice President Planning
Vice President Physical
Distribution
Vice President Divisional
Merchandising
Vice President Divisional
Merchandising
Organization Design Applications
Organization Design Applications
• Simple structure
�An organization that is low in specialization and
formalization but high in centralization
• Functional structure
�An organization in which similar and related �An organization in which similar and related
occupational specialties are grouped together
• SBU Type Structure
�An organization made up of self-contained units
Functional Structure
Functional Organizational Structures: Strategic
Advantages/Disadvantages
Strategic Advantages• Permits centralized control of strategic
results
• Very well-suited for structuring a single business
• Promotes in-depth functional expertise
• Well suited to developing a functional-
Strategic Disadvantages
• Poses problems of functional coordination
• Can lead to inter functional rivalry, conflict, and empire-building
• May promote overspecialization and narrow management viewpoints• Well suited to developing a functional-
based distinctive competence
• Enhances operating efficiency where tasks are routine and repetitive
narrow management viewpoints
• Hinders development of managers with cross-functional experience because the ladder of advancement is up the ranks within the same functional area
SBU Type of Organization Structure
Chief Executive OfficerChief Executive Officer
Corporate Staff Services/FunctionsCorporate Staff Services/Functions
R & DR & D
Finance and Corporate AccountingFinance and Corporate Accounting
Marketing ServicesMarketing Services
PlanningPlanning
PersonnelPersonnel
Legal AffairsLegal Affairs
Group Vice PresidentGroup Vice President
SBU ISBU I
Legal AffairsLegal Affairs
Public Relations and CommunicationsPublic Relations and Communications
Group Vice PresidentGroup Vice President
SBU IIISBU III
Group Vice PresidentGroup Vice President
SBU IISBU II
Business Business
Units/DivisionsUnits/Divisions
Business Business
Units/DivisionsUnits/Divisions
Business Business
Units/DivisionsUnits/Divisions
SBU Type Organization Structure: Strategic
Advantages/Disadvantages
Strategic Advantages
• Provides a strategically relevant way to organize large numbers of different business units
• Improves coordination between the role and authority of the business with similar strategies, markets, and growth opportunities
• Helps allocate corporate resources to
Strategic Disadvantages
• It is easy for the definition and grouping of businesses into SBUs to be so arbitrary that the SBU serves no other purpose than administrative convenience. If the criteria for defining SBUs are rationalizations and have little to do with the nitty-gritty of strategy coordination, then the groupings lose real strategic significance.
• Helps allocate corporate resources to areas with greatest growth opportunities
• Facilitates the coordination of related activities within an SBU, thus helping to capture the benefits of strategic fits in the SBU.
strategic significance.
• Unless the SBU head is strong willed, very little strategy coordination is likely to occur across business units in the SBU.
Other Organizational Structures
• Matrix structure
�An organization in which specialists from functional
departments are assigned to work on one or more
projects led by a project manager
• Team-based structure• Team-based structure
�An organization that consists entirely of work groups
or teams
• Boundaryless organization
�An organization that is not defined or limited by
boundaries or categories imposed by traditional
structures
Sample Matrix Structure
Matrix Organization Structures: Strategic
Advantages/Disadvantages
Strategic Advantages
• Gives formal attention to each dimension of strategic priority
• Facilitates capture of
Strategic Disadvantages
• Very complex to manage
• Hard to maintain “balance” between the two lines of authority• Facilitates capture of
functionality based strategic fits in diversified companies
• Promotes making trade-off decisions on the basis of “what’s best for the organization as a whole”
• Encourages cooperation, consensus-building, conflict resolution, and coordination of related activities
authority
• So much shared authority can result in a transaction logjam and disproportionate amounts of time being spent on communications