Commerce 2BA3
Organizational Structure
Week 12
Dr. T. McAteer
DeGroote School of Business
McMaster University
What is Org Structure?
• The manner in which an organization
divides its labour into specific tasks and
achieves coordination among these tasks
• To achieve its goals, an organization has
to:
– Divide labour among its members
– Coordinate what has been divided
Division of Labour
• Labour must be divided because everyone
cannot do everything
• Two dimensions: Horizontal and Vertical
Vertical Division of Labour
• Assigning authority for planning and decision
making
• “Who gets to tell whom what to do?”
• Autonomy
– Domain of authority is decreased as the number of
levels in the hierarchy increases
• Communication
– With more levels, communication and coordination
are harder to achieve
Horizontal Division of Labour
• Groups the basic tasks that must be performed into
jobs and then into departments so that the
organization can achieve its goals
• Implications for job design and degree of
coordination
• Differentiation
– As horizontal division increases, so does differentiation
– Tendency for managers in separate functions or
departments to differ in terms of goals, styles, time etc.
Departmentation
Functional departmentation
– Ees with closely related skills and responsibilities are
assigned to the same department (e.g. Marketing,
Finance)
– Works best in medium-sized firms with few product lines
– Advantages?
•
•
•
•
Efficiency
Resources can be allocated more efficiently
Enhanced communication
Easier to measure and evaluate performance
– Disadvantages?
• High degree of differentiation between departments
• Leads to poor coordination, conflict
Departmentation
Product departmentation
– Departments are formed on the basis of a particular
product, product line or service (e.g. shampoo division)
– Advantages?
•
•
•
•
Better coordination
Fewer barriers to communication
Can be evaluated as profit centres
Can serve the customer better
– Disadvantages?
• Economies of scale are threatened
Departmentation
Matrix Departmentation
– Ees remain members of a functional department while
also reporting to a product or project manager
– Attempt to capitalize on strengths of other forms
– Advantages?
• Provides a degree of balance
• Flexible
• Better communication
– Disadvantages?
• Managers may not see eye to eye
• Can create conflict
Departmentation
Other forms
– Geographic Departmentation
– Customer Departmentation
– Hybrid Departmentation
Coordinating Divided Labour
• Direct supervision
– Chain of command
• Standardization of work processes
– Routinization of tasks
– Rules and regulations
• Standardization of outputs
– Physical or economic standards
– Budgets
• Standardization of Skills
– Technicians and professionals
Other forms of coordination
• Liaison Roles
– A person in one department is assigned to achieve
coordination with another department
• Task Forces
– Temporary groups set up to solve coordination
problems across several departments
• Integrators
– Org members permanently assigned to facilitate
coordination between departments
Traditional Structural
Characteristics
• Span of control
– # of subordinates supervised by a manager
• Flat vs. Tall
– Flat (few levels)
– Tall (many levels in hierarchy)
• Formalization
– Extent to which work roles are highly defined by
an organization
Traditional Structural
Characteristics
• Centralization
– Extent to which decision making power is
localized in a particular part of an organization
– Decentralized – decision making power is
dispersed down the hierarchy and across
departments
• Complexity
– Extent to which an organization divides labour
vertically, horizontally and geographically
Organic vs Mechanistic Structure
• Mechanistic
– Org structures characterized by tallness,
specialization, centralization and formalization
• Organic
– Org structures characterized by flatness, low
specialization, low formalization and
decentralization
Organic vs Mechanistic Structure
ORGANIC
MECHANISTIC
Span of control
Wide
Narrow
# of levels
Few
Many
Centralization
Low
High
Formalization
Low
High
Range of
compensation
Narrow
Wide
Contemporary Structures
• Virtual organization
– A network of continually evolving independent
organizations that share skills, costs, and
access to one another’s markets (e.g. broker)
• Modular organization
– An organization that performs a few core
functions and outsources non-core functions
to specialists
Case
• How do McDonald’s and the Ritz Carlton
differ in their structural characteristics?
• Would each organization be organic or
mechanistic and why?
Exercise: Organizational Structure
Preference Scale