Organizational
Structure
Chapter Twelve
Ed Kaiser/Edmonton Journal
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Organizational Structure
Division of labor and patterns of
coordination, communication,
workflow, and formal power that
direct organizational activities.
Division of labor



Subdivision of work into separate
jobs assigned to different people
Potentially increases work
efficiency
Necessary as company grows and
work becomes more complex
Ed Kaiser/Edmonton Journal
12-2
Forms of Work Coordination
Informal communication



Sharing information
High media-richness
Important in teams
Formal hierarchy



Direct supervision
Assigns formal (legitimate) power to manage others
Coordination strategy for departmentalization
Standardization



Processes -- formal instructions
Outputs -- clear goals/output measures
Skills -- training, learn precise role behaviors
12-3
Elements of Organizational Structure
Departmentalization
Span of
Control
Organizational
Structure
Elements
Formalization
Centralization
12-4
Span of Control,
Centralization, and
Formalization
Organizational Structure
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Span of Control
Number of people directly
reporting to the next level

Assumes coordination through
direct supervision
Wider span of control
possible with other
coordinating mechanisms
present
12-6
Tall vs Flat Structures
As companies grow, they:


Build taller hierarchy
Widen span, or both
Problems with tall hierarchies



Overhead costs
Poorer upward information
Focus power around managers,
so staff less empowered
12-7
Trend Toward Flatter Structures
Firms moving toward flatter
structures (delayering)



Cuts costs
Puts decision makers closer to
front-line information
Supports empowerment
Problem: risk of cutting too
much middle management
12-8
Centralization and Decentralization
Centralization
Formal decision making authority is held
by a few people, usually at the top
Decision making authority is
dispersed throughout the organization
Decentralization
12-9
Formalization
The degree to which organizations standardize
behavior through rules, procedures, formal training,
and related mechanisms.
Formalization increases as firms get older, larger,
and more regulated
Problems



Reduces organizational flexibility
May undermine work efficiency
Job dissatisfaction and work stress
12-10
Mechanistic vs. Organic Structures
Mechanistic
Organic
• Narrow span of control
• Wide span of control
• High formalization
• Little formalization
• High centralization
• Decentralized decisions
12-11
Organizational
Departmentalization
Organizational Structure
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Effects of Departmentalization
1.
Establishes chain of command (supervision
structure)
2.
Creates common mental models, measures of
performance, etc
3.
Encourages staff to coordinate through
informal communication
12-13
Functional Organizational Structure
Organizes employees around specific
knowledge or other resources
(marketing, production)
CEO
Finance
Production
Marketing
12-14
Evaluating Functional Structures
Benefits




Supports professional identity and career paths
Permits greater specialization
Easier supervision --similar issues
Creates an economy of scale --common pool of talent
Limitations



More emphasis on subunit than organizational goals
Higher dysfunctional conflict
Poorer coordination -- requires more controls
12-15
Divisional Structure
Organizes employees around outputs,
clients, or geographic areas
CEO
Consumer
Products
Lighting
Products
Medical
Systems
12-16
Divisional Structures Dynamics
Different forms of divisional structure



Geographic structure
Product structure
Client structure
Best form depends on environment
Movement away from geographic form



Less need for local representation
Reduced geographic variation
More global clients
12-17
Evaluating Divisional Structures
Benefits


Building block structure -- accommodates growth
Better coordination in diverse markets
Limitations


Duplication, inefficient use of resources
Specializations are dispersed, creating silos of
knowledge
12-18
W. L. Gore’s Team-Based Structure
W. L. Gore & Associates Inc. has
an extreme team-based
organizational structure that
eliminates the traditional
hierarchy. Associates are
organized around self-directed
teams at dozens of manufacturing
and sales offices around the
world.
© Bill Kramer/ Bill Kramer Photography Inc.
12-19
Team-Based Structure Features
Self-directed work teams
Teams organized around work
processes
Very flat hierarchy, few
management levels
Very little formalization
Usually found within
divisionalized structure
© Bill Kramer/ Bill Kramer Photography Inc.
12-20
Evaluating Team-Based Structures
Benefits



Responsive, flexible
Lower admin costs
More informed decisions
Limitations





Interpersonal training costs
Slower during team development
Stress due to ambiguous roles
Problems with supervisor role
changes
Duplication of resources
© Bill Kramer/ Bill Kramer Photography Inc.
12-21
Bioware’s Matrix Structure
Ray Muzyka (left) and Greg
Zeschuk (right) adopted a
matrix organizational
structure for their electronic
games company, Bioware,
because it balances the need
for teamwork and
information sharing.
Ed Kaiser/Edmonton Journal
12-22
Matrix Structure (Project-based)
Employees ( ) are temporarily assigned to a specific
project team and have a permanent functional unit
CEO
Engineering
Marketing
Design
Project A
Manager
Project B
Manager
Project C
Manager
12-23
Evaluating Matrix Structures
Benefits





Uses resources and expertise effectively
Improves communication,flexibility, innovation
Focuses specialists on clients and products
Supports knowledge sharing within specialty across groups
Solution when two divisions have equal importance
Limitations



Increases goal conflict and ambiguity
Two bosses dilutes accountability
More conflict, organizational politics, and stress
12-24
Contingencies of
Organizational
Structure
Organizational Structure
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
External Environment & Structure
Dynamic
• High rate of change
• Use team-based, network, or
other organic structure
Complex
• Many elements (such as
stakeholders)
• Decentralize
Stable
• Steady conditions,
predictable change
• Use mechanistic structure
Simple
• Few environmental elements
• Less need to decentralize
12-26
External Environment & Structure
Diverse
• Several products, clients,
regions
• Use divisional form aligned
with the diversity
Hostile
• Competition and resource
scarcity
• Use organic structure for
responsiveness
(con’t)
Integrated
• Single product, client, place
• Use functional structure, or
geographic division if global
Munificent
• Plenty of resources and
product demand
• Less need for organic
structure
12-27
Effects of Organizational Size
As organizations grow, they have:
More division of labor (job specialization)
Greater use of standardization
More hierarchy and formalization
More decentralization
12-28
Technology and Structure
Technology refers to mechanisms or processes by
which an organization turns out its product or
service
Two contingencies:


Variability -- the number of exceptions to standard
procedure that tend to occur.
Analyzability -- the predictability or difficulty of the
required work
12-29
Organizational Strategy
Structure follows strategy


Strategy points to the environments in which the
organization will operate
Leaders decide which structure to apply
Differentiation strategy

Providing unique products or attracting clients who want
customization
Cost leadership strategy

Maximize productivity in order to offer competitive
pricing
12-30
Organizational
Structure
Chapter Twelve
Ed Kaiser/Edmonton Journal
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
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Organizational Structure