Organizational Structure & Design
Chapter 15: 455-469
Organizational Behavior 261
Gabrielle Durepos
Reminders for Today
• Attendance
• Midterm exam is on Oct 17th
– Worth 10% of your final mark
• Trudy Eagan Women in Business Speaker Series
Presents:
– Mrs. Margaret Franklin CFA, CEO and President of Kinsdale
Wealth Management
– TODAY at 2.15PM – 3.30PM Auditorium SCHW 110
Outline
• Toward an understanding of structure & design
• Why is organizational structure important?
• Dimensions of organizational structure
– Complexity
– Centralization
– Formalization
• Typologies of organizational structures
– Mechanistic
– Organic
• Traditional organizational designs
– By function
– By division
– Matrix
Toward an understanding of
Structure and Design
•
1/2
Organizational Structure:
– Stable pattern of relationships  to control & coordinate activities
– Formal division of labor & authority
•
Refers to TWO TYPES of divisions:
1. Vertical division  authority
•
•
•
Addresses issues of authority
for planning, monitoring and controlling – whom will tell whom to do what
EX: An organization has four levels of management, each manager has a
degree of control based on their level in the organization
2. Horizontal division  labor
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•
•
Addresses issues of task allocation
Specialization: How specialized are the task of workers
EX: Jeff is in charge of chicken sandwiches at the sandwich shop which
sells 10 different kinds of sandwiches  he has a specialized task
Toward an understanding of
Structure and Design
•
Organizational Design:
– Refers to the process of
creating or choosing a
structure
– that best fits an organizations
strategy, technology or
environment
•
Organizational chart
– graphical depiction of an
organizations structure
2/2
Why is organizational structure important?
• Helps managers define lines of authority
– Helps managers control, plan and execute tasks
• Good structure can lead to good performance
– Drucker (1993): “good structure may not always lead to good performance
but in the absence of structure we are almost guaranteed failure!”
• Structure affects the experience of work:
–
–
–
–
–
Job satisfaction
Commitment
Motivation
Perception about expectations
Obligations
Dimensions of organizational structure:
1 – Complexity
1/2
•
Think: DEGREE of COMPLICATION
•
The degree of differentiation that exists within an organization
•
Measured by:
1. Division of labour & authority
2. Levels of hierarchy
3. Geographical locations
1. Division of labour & authority:
–
Horizontal complexity: Labour
•
–
The more the task are divided among individuals, the more horizontally
complex the organization
Vertical complexity: Authority
•
The more layers of authority are inserted in chain of command, the more
levels exist between top managers and front line workers the more
vertically complex the organization
Dimensions of organizational structure:
1 – Complexity
2/2
2. Levels of hierarchy – Vertical Complexity
– Tall organization
•
•
many layers of managers
are more vertically complex
– Flat organization
•
•
•
few layers of managers
are less vertically complex
Increases the span of control: the number of subordinates for
which a manager is responsible
3. Geographical locations
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–
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Spatial complexity
The existence of many workplaces increases complexity
How geographically dispersed are an organizations operations?
How geographically dispersed is the workforce?
Dimensions of organizational structure:
2 - Formalization
•
Think RULES
•
Refers to the degree of standardization of work within the organization
•
Standardization of work:
– Refers to the extent that work is controlled and defined by rules
– Rules define what is done, when it is done and how it should be done
•
•
Where formalization is low, workers are given freedom to determine the
nature of their tasks
Degree of formalization depends on type of work
– Ex: creative work = low formalization
•
Ex: ISO 9000 standards for quality management systems
– Increases the formalization of an organization
Dimensions of organizational structure:
3 - Centralization
• Think POWER
• Refers to the degree to which decision making is
concentrated at one point in the organization
– Who has legitimate authority?
– Where are they in the organizational chart
• Ask: who makes decisions? Does the final say reside in
one person?
– Yes: then the organization is highly centralized
– No: then input from workers is valued and organization is
decentralized
Typologies of organizational structure
(Burns and Stalker, 1961)
•
Mechanistic (machine)
– High complexity
• Highly specialized tasks
– High formalization
• The tasks are rigidly defined –
many formal rules around what a
task entails
– High centralization
• Hierarchal authority structure –
authority resides within top
managers
• Communication flows top down;
no input from workers
– Benefit: competitive advantage
through maximizing efficiency and
productivity
– Bureaucratic
•
Organic
– Low complexity
• People have varied tasks and
are flexible in their work
– Low formalization
• no rigid rules around the nature
of someone's work
– Low centralization
• Informally coordinated
• Use of participative decision
making
– Benefit: informal and flexible
structure enables competitive
advantage through being:
• Adaptable
• flexible
Exercise:
Can you Identify the Structure?
• Listen to the explanation of the next 3 types of
traditional structures…
• In the next class you will:
–
–
–
–
Read an article I will hand out
Make notes on the article
Draw out the organizational structure
Identify the type of structure the organization has in place
Traditional organizational designs:
organizing by function
• Managers and workers are grouped around continuing functions
• Benefit: develop technical expertise; efficient use of resources
• Draw back: narrow perspectives; poor coordination / communication
among functions
CEO
Manufacturing
Human Resources
Marketing
Traditional organizational designs:
organizing by division
1/4
• Benefit:
• Groups workers in one of three
ways:
– Geographical location
– Sets of customers they serve
– By product / service
• Very decentralized
– Each division has decision
making power
– Each division is specialized to
the area they serve
– Increased coordination of
functional department
• Ex: research department of
truck division does research
specially for trucks
– Improved decision making
– Managers are more
accountable to their decisions
• Draw Back:
– Duplication of resources used
(ex: HRM, accounting,
Marketing) = not efficient
– May lead to information
hoarding
Traditional organizational designs:
organizing by division
2/4
• Divisional structure – based on geographical location
– Products are created to suit different markets based on
geography
The Body Shop
The body shop Canada
Product: Soap
Product: Crème
Product: Make up
The body shop Asia
Product: Soap
Product: Crème
Product: Make up
The body shop Europe
Product: Soap
Product: Crème
Product: Make up
Traditional organizational designs:
organizing by division
3/4
• Divisional structure – based on sets of customers served
– Managers and workers are grouped around the set of customer
served
Kimberly
Clark
Depend
Pull ups
Huggies
Little
Swimmers
Traditional organizational designs:
organizing by division
4/4
• Divisional structure – based on product / service
– Managers and workers are grouped around the product or
service they develop
Volvo Motors
Car Production
Truck Production
Sport Utility Vehicle
Production
Traditional organizational designs:
Matrix
•
There are functional managers & product managers
–
Functional managers are in charge of selecting, training, development of workers
•
–
–
–
Product / service managers are in charge of coordinating work from different functional areas
to create and sustain a product
Workers report to two managers
Benefit:
•
•
–
Example: Chair of each department (Mrkt, Mgmt, Acct, MgmtCS)
Increase efficiency
increase cooperation and coordination
President
Drawback:
• Stress caused by reporting to two managers
• Slower decision making
• Potential for conflict between
two managers
Marketing
Chair
Undergraduate
Program
MBA Program
Executive MBA
Program
PhD Program
VP Academic
Management
Chair
Accounting
Chair
Mgmt
Computer
Science Chair
Conclusions
• Which drives which…
– Design drives structure
– Structure drives design
– What about the strategy of the organization?
– What about the organizations’ environment?