MGT 321: Organizational Behavior
TASNUVA CHAUDHURY ( TCY)
C H A P T E R 1 5 : F O U N D AT I O N S O F
O R G A N I ZAT I O N A L S T R U C T U R E
What Is Organizational Structure?
Organizational Structure
Defines how job tasks are
formally divided, grouped,
and coordinated.
There are six key elements
that managers need to
address when they design
their org.’s structure.
Key Elements:
1. Work specialization
2. Departmentalization
3. Chain of command
4. Span of control
5. Centralization and
decentralization
6. Formalization
Work Specialization
The degree to which tasks in the organization are
subdivided into separate jobs.
Division of labor:
• Makes efficient use of employee skills
• Increases employee skills through repetition
• Less between-job downtime increases productivity
• Specialized training is more efficient.
• Allows use of specialized equipment.
Economies and Diseconomies of
Work Specialization
Productivity
High
Impact from
economies
of specialization
Impact from
human
diseconomies
Low
Low
Work Specialization
High
2- Departmentalization by Type
 The basis by which jobs are
grouped together is called….
 Functional
– Grouping jobs by
functions performed
 Product
– Grouping jobs by
product line
 Geographical
– Grouping jobs on the
basis of territory or
geography
 Process
– Grouping jobs on the
basis of product or
customer flow
 Customer
– Grouping jobs by type
of customer and
needs
Functional Departmentalization
• Advantages
• Efficiencies from putting together similar specialties and
people with common skills, knowledge, and orientations
• Coordination within functional area
• In-depth specialization
• Disadvantages
• Poor communication across functional areas
• Limited view of organizational goals
Geographical Departmentalization
• Advantages
• More effective and efficient handling of specific
regional issues that arise
• Serve needs of unique geographic markets better
• Disadvantages
• Duplication of functions
• Can feel isolated from other organizational areas
Product Departmentalization
+
+
+
–
–
Allows specialization in particular products and services
Managers can become experts in their industry
Closer to customers
Duplication of functions
Limited view of organizational goals
Process Departmentalization
+ More efficient flow of work activities
– Can only be used with certain types of products
Customer Departmentalization
+ Customers’ needs and problems can be met by specialists
- Duplication of functions
- Limited view of organizational goals
3 - Chain of Command
– The continuous line of authority that extends from
upper levels of an organization to the lowest levels of
the organization and clarifies who reports to whom.
Chain of Command involves three
other concepts:
•Authority
•Responsibility
•Unity of Command
3 - Chain of Command……continued
 Authority
– Refers to the rights inherent in a managerial position to tell
people what to do and to expect them to do it.
 Responsibility
– The obligation or expectation to perform any assigned
duties.
 Unity of Command
– The concept that a person should have one boss and should
report only to that person (Fayol, Weber, Taylor)
4 - Span of Control
The number of subordinates a manager can efficiently
and effectively direct.
Concept:
Wider spans of management increase organizational
efficiency.
Narrow Span Drawbacks:
• Expense of additional layers of management.
• Increased complexity of vertical communication.
• Encouragement of overly tight supervision and
discouragement of employee autonomy.
Contrasting Spans of Control
5 - Centralization & Decentralization
 Centralization
– The degree to which decision-making is concentrated
at a single point in the organizations.
• Organizations in which top managers make all the
decisions and lower-level employees simply carry out
those orders.
 Decentralization
– Organizations in which decision-making is pushed
down to the managers who are closest to the action.
 Employee Empowerment
– Increasing the decision-making authority (power) of
employees.
6 - Formalization
– The degree to which jobs within the organization are
standardized and the extent to which employee
behavior is guided by rules and procedures.
• Highly formalized jobs offer little discretion over what is
to be done.
• Low formalization means fewer constraints on how
employees do their work.
Common Organizational Designs
Three of the more common org. designs in use: the simple
structure, the bureaucracy, and the matrix
Simple Structure
A structure characterized by a low degree of departmentalization, wide
spans of control, authority centralized in a single person, and little
formalization.
This structure is most widely practiced in small businesses in which the
manager & the owner are one & the same.
Strength: simplicity. It is fast, flexible, & inexpensive to maintain, and
accountability is clear.
Weakness: it’s difficult to maintain in any other than small orgs. As org.
grows due to its low formalization & high centralization creates information
overload at the top.
Common Organization Designs (cont’d)
Max Weber’s Bureaucracy Model
Standardization is the key concept that underlies all
bureaucracies.
•highly operating routine tasks achieved through specialization,
•formalized rules and regulations,
• tasks are grouped into functional departments,
•centralized authority
•narrow spans of control
• decision making that follows the chain of command.
The Bureaucracy
 Strengths
– Functional
economies of scale
– Minimum duplication
of personnel and
equipment
– Enhanced
communication
– Centralized decision
making
 Weaknesses
– Subunit conflicts with
organizational goals
– Obsessive concern
with rules and
regulations
– Lack of employee
discretion to deal
with problems
Common Organization Designs (cont’d)
Matrix Structure
A structure that creates dual lines of authority and
combines functional and product departmentalization.
Key Elements:
+ Gains the advantages of functional and product
departmentalization while avoiding their weaknesses.
+ Facilitates coordination of complex and
interdependent activities.
– Breaks down unity-of-command concept.
Matrix Structure (College of Business Administration)
(Director)
(Dean)
Employee
New Design Options (cont’d)
Virtual Organization
A small, core organization that outsources its major
business functions.
A virtual organization consists of detached and
disseminated entities (from employees to entire
enterprises) and requires information technology to
support their work and communication
Highly centralized with little or no departmentalization.
Virtual Organiztion
Concepts:
Advantage: Provides maximum flexibility while
concentrating on what the organization does best.
Disadvantage: Reduced control over key parts of
the business.
New Design Options (cont’d)
Boundaryless Organization
•The boundary-less organization seeks to eliminate the chain of
command, have limitless spans of control, and replace
departments with empowered teams.
•Fully operational boundaryless organization breaks down
geographic barriers
Concepts:
Advantage: By removing vertical boundaries, management flattens the
hierarchy and minimizes status and rank
Boundaryless organization lowers horizontal boundaries by creating
cross functional teams or rotate people through different functional
areas . This approach turns specialists into generalists
Why Do Structures Differ? – Strategy
• High specialization
• Cross-functional teams
• Rigid departmentalization
• Cross-hierarchical teams
• Clear chain of command
• Free flow of information
• Narrow spans of control
• Wide spans of control
• Centralization
• Decentralization
• High formalization
• Low formalization
Why Do Structures Differ? – Strategy
Innovation Strategy
A strategy that emphasizes the introduction of major
new products and services.
Cost-minimization Strategy
A strategy that emphasizes tight cost controls,
avoidance of unnecessary innovation or marketing
expenses, and price cutting.
Imitation Strategy
A strategy that seeks to move into new products or
new markets only after their viability has already
been proven.
Why Do Structures Differ? – Size
Size
How the size of an organization affects its structure.
As an organization grows larger, it becomes more
mechanistic.
Technology
How an organization transfers its inputs into outputs.
Environment
Institutions or forces outside the organization that
potentially affect the organization’s performance.