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.