Organizational StructureFaisal AlSager

Week 8

MGT 101 - Principles of Management and Business

Objectives

✤ Describe six key elements in organizational design

✤ Identify the contingency factors that favor the mechanistic model or the organic model

✤ Compare and contrast traditional and contemporary organizational designs

Organizational Design

Organizing

The function management that creates the organization’s structure

Organizational Design

When managers develop or change the organization’s structure

Elements of the Organizational Structure

✤ The six basic elements of organizational structure are:

1. work specialization,

2. departmentalization,

3. authority and responsibility,

4. span of control,

5. centralization versus decentralization, and

6. formalization

Work Specialization

✤ Definition

dividing work activities into separate job tasks.

✤ Also known as division of labor

Economies and Diseconomies of Work Specialization

Low

Low

High

High

PRODUCTIVITY

WORK SPECIALIZATION

Impact fromeconomies

of specialization

Impact fromhuman

diseconomies

Departmentalization

Departmentalization: how jobs are grouped together

DepartmentalizatioDepartmentalization Typen Type DefinitionDefinition ExamplesExamples

Functional Departmentalizati

on

Grouping activities by functions performed

•Engineering Department•Human Resources Department

Product Departmentalizati

on

Grouping activities by major product area

•Women’s Footwear•Accessories

Customer Departmentalizati

onGrouping activities by customer

•Wholesale Department•Government

Geographic Departmentalizati

on

Grouping activities on the basis of geography

•North•Middle East

Process Departmentalizati

on

Grouping activities on the basis of work or customer flow

•Testing•Payment

Cross-Functional Teams

Definition

Teams made up of individuals from various departments and that cross traditional departmental lines

Authority and Responsibility

Chain of Command

The line of authority extending from upper organizational levels to lower levels, which clarifies who report to whom

Authority

The rights inherent in a managerial position to give orders and respect the orders to be obeyed

Responsibility

An obligation to perform assigned duties

Types of Authority Relationships

1. Line Authority: authority that entitles a manager to direct the work of an employee

2. Staff Authority: positions with some authority that have been created to support, assist, and advise those holding of authority

Power

Power: an individual’s capacity to influence decisions

Coercive Power

Power based on fear

Reward Power Power based on the ability to distribute something that others value

Legitimate Power

Power based on one’s position in the formal hierarchy

Expert Power Power based on one’s expertise, special skill, or knowledge

Reference Power

Power based on identification with a person who has desirable resources or personal traits

Span of Control

✤ Span of Control

The number of employees a manager can efficiently and effectively supervise

✤ Most managerial authors favored a small number; no more than 6

✤ Organizational level is a contingency variable (top managers less than middle managers and so on)

✤ Training and experience of employees is important

Centralization Versus Decentralization

✤ Centralization: the degree to which decision making takes place at upper levels of the organization

✤ Decentralization: the degree to which lower-level managers provide input or actually make decisions

Formalization

✤ Formalization

How standardized an organization’s jobs are and the extent to which employee behavior is guided by rules and procedures

✤ Today’s companies rely less on rules and standards especially if these rules and standards put obstacles in achieving goals and higher profits

Organization Structure Models

✤ There are two generic organization structure models:

1. Mechanistic Organization: a bureaucratic organization; a structure that’s high in specialization, formalization, and centralization

2. Organic Organization: a structure that’s low in specialization, formalization, and centralization

Mechanistic Versus Organic

MECHANISTIC

ORGANIC

•Rigid hierarchical relationships•Fixed duties•Many rules•Formalized communication channels•Centralized decision authority•Taller structures

•Collaboration (both vertical and horizontal)•Adaptable duties•Few rules•Informal communication•Decentralized decision authority•Flatter structures

Contingency Variables Affecting the Organization Structure✤ Strategy

✤ Single-Line Product: high centralization and low formalization

✤ Bigger Organizations: less centralization and higher formalization

✤ Meaningful and Unique Innovations: flexibility and free-flowing information

✤ Size✤ Small-Size Organizations: more organic

✤ Bigger Organization: more mechanistic

✤ Technology✤ Technology used to convert inputs into outputs

✤ Environment✤ Stable Environments: Mechanistic organizations are more effective here

✤ Dynamic and uncertain environment: organic organizations are more effective here

Technology(Woodward’s Findings)

✤ Unit Production: the production of items in units or small batches

✤ Mass Production: large production manufacturing

✤ Process Production: continues flow of products being produced

UNIT PRODUCTIONUNIT PRODUCTION MASS MASS PRODUCTIONPRODUCTION

PROCESS PROCESS PRODUCTIONPRODUCTION

Structural Characteristics

Low vertical differentiation

Moderate vertical differentiation

High vertical differentiation

Low horizontal differentiation

High horizontal differentiation

Low horizontal differentiation

Low formalization High formalization Low formalization

Most Effective Structure

Organic Mechanistic Organic

Common Organizational Designs

✤ Traditional Organizational Designs (more mechanistic):

✤ Simple Structure, Functional Structure, Divisional Structure

✤ More Contemporary Designs (more organic):

✤ Team Structure, Matrix-Project Structure, Boundaryless Structure

Traditional Organizational Designs

✤ Simple Structure: an organizational design with low departmentalization, wide spans of control, authority centralized in a single person and little formalization

✤ Functional Structure: an organizational design that groups similar or related occupational specialities together

✤ Divisional Structure: an organizational structure made up of separate business units or divisions

More Contemporary Designs

✤ Team Structure: a structure in which the entire organization is made up of work teams

✤ Matrix Structure: a structure in which specialities from different functional departments are assigned to work on projects led by a project manager

✤ Project Structure: a structure in which employees continuous work on projects

✤ Boundaryless Structure: an organization whose design is not defined by, or limited to, boundaries imposed by a predefined structure

Boundaryless Organizations

✤ Virtual Organization: an organization that consists of a small core of full-time employees and outside specialists temporarily hired as needed to work on projects

✤ Network Organization: an organization that uses its own employees to do some work activities and networks of outside suppliers to provide other needed product components or work processes

Today’s Organizational Design Challenges

✤ How do we keep employees connected?

✤ How do global differences affect organizational structure?

Learning Outcomes

✤ There are six elements that affect the organizational design

✤ There are two generic organization structure models: mechanistic and organic

✤ The organization structure model choice is affected by strategy, size, technology, and environment

✤ The two common organizational designs are: the traditional and more contemporary