Organization Design &
Organization Change
Professor Alexander Settles
The Nature of Organization
Structure

Organization


Organizational Goals


A goal-directed social entity with
deliberate processes and systems
Objectives that management seeks to
achieve in pursuing the firm’s purpose
Strategies

Specific action plans that enable the
organization to achieve its goals and
thus its purpose
2
The Nature of Organization Structure

Organization Structure



The system of task, reporting, and authority
relationships within which an organization
does its work
Purpose of structure is to order and
coordinate the actions of employees to
achieve organizational goals
“Structure follows strategy”
3
The Nature of Organization Structure

Organized Effort Premise



People can accomplish more by working
together than they can separately
Proper coordination is needed to realize the
potential gains from collective efforts
Analysis of Organizational Structures



Configuration (organization chart)
Operational characteristics
Responsibility and authority
4
Structural Configuration

Organization Chart

Describes the structure of an organization




Shows all people, positions, reporting relationships,
and lines of formal communication
Depicts reporting relationships and work group
memberships
Shows how positions and small work groups are
combined into departments which make up the
shape (configuration) of the organization
Basic Requirements of Structure


Division of labor
Coordination of divided tasks
5
Examples of Organization Charts
6
Structural Configuration

Division of Labor (Specialization)



The way the organization’s work is divided into
different jobs to be done by different people
Organizations, in order to be successful, must have
highly trained specialists who know their specific
jobs very well
Coordinating the Divided Tasks

Mechanisms to help coordinate the divided tasks



Departmentalization
Span of control
Administrative hierarchy
7
Structural Configuration

Departmentalization

The manner in which divided tasks are
combined and allocated to work groups

A consequence of the division of labor

Ways to departmentalize tasks:

Business function

Process

Product or service

Customer

Geography
8
Structural Configuration

Departmentalization

Span of control (also span of management)



The number of people who report to a
manager
The smaller the span of control the more a
manager can maintain close control over
workers and stay in contact with daily
operations
Size is inversely related to the span of control
9
Departmentalization by Business Function
and by Process
10
Departmentalization by Customer
11
Departmentalization by Customer and by Geographic Region
12
Mixed Departmentalization
13
Conditions Affecting Span of
Control
 Optimal
unit size (span of control)
depends on:
1. The coordination requirements within the unit,
including factors such as the degree of job
specialization
2. The similarity of the tasks in the unit
3. The type of information available or needed by
unit members
4. Differences in the members’ need for
autonomy
5. The extent to which members need direct
access to the supervisor
14
Structural Configuration

Departmentalization

Administrative hierarchy


System of reporting relationships in the
organization from the first level up
through the president or CEO
Organizational downsizing results in lower
overhead costs, less bureaucracy, faster
decision making, smoother
communications, and increases in
productivity
15
Span of Control and Levels in the
Administrative Hierarchy
16
Tall v. Flat Structures






Refers to the number of levels of authority in
organizations and to the width of each level
Tall structures have more levels than flat
Span of control: the number of employees who
report to a single supervisor
In lower levels, spans may be greater
Taller organizations allow for closer control of
subordinates due to their narrower span of control
When carried to extremes, flatness can be
dysfunctional
17
Unity and chain of Command





Every subordinate should have one, and only one,
supervisor
The notion is intended to improve performance by
reducing potential conflicts and ambiguities that
might arise if a subordinate dealt with several
superiors
Notion has been challenged by the matrix system
Chain of command is concerned with the flow of
information and authority within an organization
Usually refers to top-down communication
18
Structure and Operations

Structural Policies

Affect operations and prescribe or restrict how
employees behave in their organizational activities

Centralization


Decentralization


Decision-making authority is concentrated at the top of
the organizational hierarchy
Decisions are made throughout the hierarchy.
Participative Management

A total management system in which people
throughout the organization are involved in the
daily decision making and management of the
organization
19
Structure and Operations

Formalization


The degree to which rules and procedures
shape the jobs and activities of employees
Good managers use appropriate judgment in
making exceptions to rules in recognizing that:


Individuals are unique with meaningful
differences
There are commonalities among employees
20
Responsibility and Authority

Responsibility


An obligation to do something with the expectation
of achieving some act or output
Authority

Power that has been legitimized within a particular
social context
 Originates in the ownership of the organization



The relationship between responsibility and
authority must be one of parity
Can be delegated down to others
Delegation is the transfer to others of authority to
make decisions and use organizational resources
21
Responsibility and Authority

An Alternative View of Authority

Acceptance Theory of Authority


The authority of a manager depends on
their subordinates’ acceptance of the
manager’s right to give directives and to
expect compliance with them
By either accepting or rejecting the
directives of a supervisor, workers can
limit supervisory authority
22
Classic Views of Structure

Ideal Bureaucracy (Max Weber)


Is an organizational system characterized by a
hierarchy of authority and a system of rules
and procedures that create a maximally
effective system for large organizations.
Weber claimed that the bureaucratic form of
administration is superior to other forms of
management with respect to:
 Stability
 Control
 Predictability of outcomes
23
Elements of Weber’s Ideal Bureaucracy
Elements
Comments
1. RULES AND PROCEDURES
A consistent set of abstract rules and procedures
should exist to ensure uniform performance.
2. DISTINCT DIVISION OF LABOR
Each position should be filled by an expert.
3. HIERARCHY OF AUTHORITY
The chain of command should be clearly
established.
4. TECHNICAL COMPETENCE
Employment and advancement should be based on
merit.
5. SEGREGATION OF OWNERSHIP
Professional managers rather than owners should
run the organization.
6. RIGHTS AND PROPERTIES
OF THE POSITION
These should be associated with the organization,
not with the person who holds the office.
7. DOCUMENTATION
A record of actions should be kept regarding
administrative decisions, rules, and procedures.
24
Classic Views of Structure

The Classic Principles of Organizing


Management functions (Henri Fayol)

Planning

Organizing

Command

Coordination

Control
Principles of organizing provide the
framework for the organization chart and the
coordination of work
25
Fayol’s Classic Principles of Organizing
Principle
Fayol’s Comments
1. DIVISION OF WORK
Individuals and managers work on the same part or
task.
2. AUTHORITY AND
RESPONSIBILITY
Authority—right to give orders; power to exact
obedience; goes with responsibility for reward and
punishment.
3. DISCIPLINE
Obedience, application, energy, behavior. Agreement
between firm and individual.
4. UNITY OF COMMAND
Employee receives orders from one superior.
5. UNITY OF DIRECTION
One head and one plan for activities with the same
objective.
6. SUBORDINATION OF
INDIVIDUAL INTEREST
TO GENERAL INTEREST
Objectives of the organization come before objectives
of the individual.
7. REMUNERATION OF
PERSONNEL
Pay should be fair to the organization and the
individual; discussed various forms.
From General and Industrial Management, by Henri Fayol. Copyright © Lake Publishing 1984, Belmont, CA 94002. Used with permission.
26
Fayol’s Classic Principles of Organizing
Principle
Fayol’s Comments
8. CENTRALIZATION
Proportion of discretion held by the manager
compared to that allowed to subordinates.
9. SCALAR CHAIN
Line of authority from lowest to top.
10.ORDER
A place for everyone and everyone in his or her
place.
11.EQUITY
Combination of kindness and justice; equality of
treatment.
12.STABILITY OF TENURE
OF PERSONNEL
Stability of managerial personnel; time to get
used to work.
13.INITIATIVE
Power of thinking out and executing a plan.
14.ESPRIT DE CORPS
Harmony and union among personnel is strength.
From General and Industrial Management, by Henri Fayol. Copyright © Lake Publishing 1984, Belmont, CA 94002. Used with permission.
27
Classic Views of Structure

Human Organization (Rensis Likert)



Based on supportive relationships,
participation, and overlapping work groups
 The principle of “overlapping work groups”
means that work groups are linked, with
managers serving as the “linking pins”
Assumption is that people work best in highly
cohesive groups oriented toward organizational
goals
Approach consists of four systems of
organizing (management systems) and eight
organizational variables
28
Characteristics of Likert’s Four Management Systems
Reference: Adapted from Rensis Likert, New Patterns of Management (New York: McGraw-Hill, 1961), pp. 223–233;
and Rensis Likert, The Human Organization (New York: McGraw-Hill, 1967), pp. 197, 198, 201, 203, 210, and 211.
29
Characteristics of Likert’s Four Management Systems
Reference: Adapted from Rensis Likert, New Patterns of Management (New York: McGraw-Hill, 1961), pp. 223–233;
and Rensis Likert, The Human Organization (New York: McGraw-Hill, 1967), pp. 197, 198, 201, 203, 210, and 211.
30
Contingency Approaches to
Organization Design

Universal Approach


Prescriptions or propositions are
designed to work in any circumstance
Contingency Approach


Desired organization outcomes can be
achieved in several ways
Specific conditions (environment,
technology, workforce) determine the
structure
31
Universal and Contingency Approaches to Organization Design
The Universal Design Approach
(Ideal Bureaucracy, Classic Principles of
Organizing, Human Organization)
The Contingency Design Approach
(Sociotechnical Systems, Structural Imperatives,
Strategy and Strategic Choice)
32
Strategy, Structural Imperatives,
and Strategic Choice
Determinants of
Organizational Structure
Strategy
Structural
Imperatives
Strategic
Choice
33
The Structural Imperatives Approach
34
Strategy

Strategy


The plans and actions necessary to
achieve organizational goals
“Structure follows strategy” (Alfred
Chandler)

Management determines what the
organization is to do and what its goals
are before designing appropriate structure
35
Structural Imperatives
Factors of Relevance
Size
Technology
Environment
36
Structural Imperatives

Size

As measured by employee total, organization
asset value, sales total, total of clients served,
physical capacity



Large organizations have a more complex
structure
Large size is associated with greater
specialization of labor, wider spans of control,
more hierarchical levels, greater formalization
Large organizations are more efficient and
take advantage of economies of scale
37
Impact of Large Size on Organization Structure
38
Structural Imperatives

Size

Downsizing
Reducing the size of corporate staff and middle
management to reduce costs
 Downside risk




Insufficient staffing to cover essential business
functions
Loss of sales, profit margins, and operating earnings
Upside potential

Quicker decision making
39
Structural Imperatives

Technology

The mechanical and intellectual
processes that transform inputs into
outputs


Organizations have more than one
important technology that enables them
to accomplish their tasks
Global technology variations
Available technology
 Attitudes toward technology

40
Structural Imperatives

Environment

All elements that lie outside the organization
boundary
 People, other organizations, economic factors,
objects, events
 General environment


All of a broad set of dimensions and factors within
which the organization operates
 Political-legal, social, cultural, technological,
economic, international
Task environment

Specific organizations, groups, individuals who
influence the organization
41
Structural Imperatives

Environment

Managerial alternatives




Ignore the environment
Exert maximum energy in information gathering
and try to react to every environmental factor
Pay attention to specific aspects of the task
environment and respond to those that clearly
affect the organization
Uncertainty

Binding factor between environment and structure


Environmental complexity
Environmental dynamism
42
Classification of Environmental Uncertainty
Reference: Reprinted from “Characteristics of Organizational Environments and Perceived Environmental Uncertainty,” by Robert B. Duncan, published in Administrative
Science Quarterly, Sept. 1972, vol. 17, no. 3, p. 320, by permission of Administrative Science Quarterly. © Johnson Graduate School of Management, Cornell University.
43
Strategic Choice

Strategic Choice

Role of the manager



Evaluates the imperatives and
organization strategy
Designs organization structure
accordingly
Manager’s choices are affected by:

Organization strategy (purposes and
goals)

Imperatives (contextual factors)

Personal value system and experience
44
The Strategic Choice Approach to
Organization Design
45
Organizational Designs
Mechanistic and Organic
Structures
The Sociotechnical System
Perspective
Designs for
Adapting
Organizations to
Contingencies
Mintzberg’s Designs
Matrix Designs
Virtual Organizations
46
Mechanistic and Organic Designs

Mechanistic Structure





Hierarchical nature
Vertical interactions
and communications
Boss is source of
instructions

Organic Structure



Knowledge is
concentrated at the
top

Continued
membership requires
loyalty and obedience

Network nature
Lateral interactions
and communications
Knowledge resides
where it is most
useful
Membership requires
commitment to
organization tasks
Reacts faster to
environment changes
47
Mechanistic and Organic Organization Designs
48
Organizational Designs

Sociotechnical Systems Designs

Views the organization as an open system
structured to integrate two subsystems



Technical (task) subsystem: Means by which
inputs are transformed into outputs
Social subsystem: Includes the interpersonal
relationships that develop among people in
organizations
Autonomous work groups: Used to integrate
the subsystems for the benefit of the larger
system
49
Organizational Designs

Mintzberg’s Designs


Organization structure reflects how
tasks are divided and coordinated
Means of coordination

Mutual adjustment

Direct supervision

Standardization of worker (input) skills

Work processes

Outputs
50
Mintzberg’s
Five Coordinating
Mechanisms
Reference: Henry Mintzberg, The Structuring of Organizations: A Synthesis of the Research.
© 1979, p. 4. Reprinted by permission of Prentice Hall, Inc., Englewood Cliffs, NJ.
51
Organizational Designs

Mintzberg’s Designs

Structural forms are a combination of
methods of coordination and basic
components of structure

Simple structure

Machine bureaucracy

Professional bureaucracy

Divisionalized form

Adhocracy
52
Organizational Designs
 Matrix



Designs
Combines two different designs to gain the
benefits of each
Common form superimposes product/project
departmentalization on a functional structure
Matrix structure is appropriate when:
1. External pressure exists for a dual focus
2. Pressure exists for a high informationprocessing capacity
3. Pressure exists for shared focus
53
A Matrix Organization Design
54
Matrix Design




Functional and product managers
enjoy equal authority
Dual hierarchies exists
Violates unity of command
“Two-boss system” -- employees
have two bosses
55
Matrix Design


Disadvantages: frustration and confusion
for employees, inadequately trained
employees who do not understand
system, time consuming to administer
due to frequent meetings, duplication of
communications, complicates
performance evaluations
Works best when a collegial and
collaborative spirit is adopted in which
people work together
56
Organizational Designs

Virtual Organizations



A temporary alliance between two or more
organizations that have banded together to
undertake a specific venture
The underlying opportunity needs a quick
response to maximize market response
Pros
 Faster reaction time
 Fewer mistakes
 Quicker profits
57
Contemporary Organization
Design

Reengineering the Organization


Radical redesign of organizational
processes to achieve major gains in
cost, time, provision of services
Rethinking the Organization

Process for looking at the organization
design in totally different ways to
include abandoning the classic view of
organizations as a pyramid
58
Contemporary Organization Design

Global Organization Structure-Design
Issues


Between-culture Issues
 Variations in the structure and design of
companies operating in different cultures
Multinational organization
 Level of international activity and structural
choice

International division: moderate level of activity

International matrix: higher international activity

International conglomerate: advanced
international activity
59
Contemporary Organization Design
Technological/Environmental
Change Effects
Importance
of People
Dominant
Contemporary
Design Themes
The Global
Organization
Necessity of Staying in Touch
With the Customer
60
Forces for Change
Areas of Pressure
for Change
People
Technology
Information
Processing and
Communication
Competition
61
Pressures for Organization Change
62
Processes for Planned Organization
Change

Process Model

Planned organization change requires a
systematic process of movement from one
condition to another
 Unfreezing


Change


Process by which people become aware of the
need for change
Movement from the old way of doing things to a
new way
Refreezing

Process of making new behaviors relatively
permanent and resistant to further change
63
Process of Organizational Change
64
Processes for Planned Organization
Change

The Continuous Change Process Model


Incorporates the forces for change, a problemsolving process, a change agent, and transition
management
Takes a top management perspective

Perceives forces and trends that indicate
need for change

Determines alternatives for change

Selects the appropriate alternative
65
Continuous Change Process Model of Organization Change
66
Processes for Planned Organization
Change

The Continuous Change Process Model

Change agent: a person responsible for managing a
change effort






Assists management with problem
recognition/definition
Can be involved in generating/evaluating potential
action plans
Can be from inside or outside of the organization
Implements the change
Measures, evaluates, controls the desired results
Transition management

Process of systematically planning, organizing, and
implementing change
67
Organization Development

Organization Development (OD)


The process of planned change/improvement of the
organization through the application of knowledge
of the behavioral sciences
System-Wide Organizational Development

Structural Change


Is a comprehensive system-wide rearrangement of
task division, authority, reporting relationships
Affects performance appraisal and rewards,
decision-making, communication, informationprocessing systems
68
Organization Development
Contemporary Approaches
to System-Wide OD
Reengineering
Rethinking
Quality of
Work Life
69
Organization Development

Task and Technological Change

Task redesign


Changing tasks involved in doing the
work, the technology, or both
Technological change

Changing how inputs are transformed into
outputs
70
Integrated Framework for Implementation
of Task Redesign in Organizations
Reference: Ricky W. Griffin, Task Design: An Integrative Framework (Glenview, IL: Scott, Foresman, 1982), p. 208. Used by permission.
71
OD: Group and Individual Change
Training
PeopleOriented
Change
Techniques
Management
Development
Team Building
Survey Feedback
72
OD: Group and Individual Change
Team Building Goals
To set team
goals and
priorities
To analyze
and allocate
the way work
is performed
To examine
how a group
is working
To examine
relationships
among those
doing the
work
73
The Survey Feedback Process
74
Resistance to Change

The Resistance to Change Paradox




Organizations invite change when change
offers competitive advantage
Organizations resist change when change
threatens the organization’s structure and
control systems
Organizations must balance stability
(permanence) with the need to react to
external shifts (change)
Resistance can warn of the need to reexamine
the need for change
75
Resistance to Change:
Sources of Resistance to Change

Organizational
Sources






Overdetermination
Narrow focus of
change
Group inertia
Threatened
expertise
Threatened power
Resource allocation
changes

Individual
Sources

Habit

Security

Economic factors

Fear of the
unknown

Lack of awareness

Social factors
76
Organizational and Individual Sources of Resistance
77
Managing Successful Organization
Change and Development

Keys to Managing Change in
Organizations

Consider international issues

Take a holistic view

Start small

Secure top management support

Encourage participation by those affected by
the change

Foster open communication

Reward those who contribute to change
78
Keys to Managing Successful Organization Change
and Development
79