Topic 14: Organizational Structure
Topic 14: Organizational Structure
Organizational design - is the process by which managers select and manage
various dimensions and components of organizational structure and culture so that an
organization can achieve its goals.
Organizational structure - is the formal system of task and reporting relationships
that controls, coordinates, and motivates employees so that they cooperate to achieve
an organization's goals.
Your task as a manager is to create an organizational structure and culture that:
1. Encourages employees to work hard and to develop supportive work attitudes
2. Allows people and groups to cooperate and work together effectively.
Structure and culture affect:
1.
2.
3.
4.
5.
Behavior
Motivation
Performance
Teamwork and cooperation
Intergroup and Interdepartmental relationships
What bearing does organizational design have on organizational behavior?
The way a structure or culture is designed or evolves over time affects the way people
and groups behave within the organization.
Once an organization decides how it wants its members to behave, what attitudes it
wants to encourage, and what it wants its members to accomplish, it can then design its
structure and encourage the development of the cultural values and norm to obtain
these desired attitudes, behaviors, and goals.
How does an organization determine which attitudes and behaviors a encourage?
An organization bases these design decisions on the contingencies it faces (a
contingency is any event that might possibly occur and thus must be taken into account
in planning).
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The three major contingencies that determine what kind of structure and culture an
organization designs:
1. Organization's environment
2. Technology an organization uses
3. Organization's strategy.
Differentiation: Grouping Organizational
Activities
Differentiation - is the grouping of people and tasks into functions and divisions to
produce goods and services.'
Function - is a set of people who work together and perform the same types of tasks
or hold similar positions in an organization.
As organizations grow and their division of labor into various functions increases, they
typically differentiate further into divisions.
As Campbell Soup started to produce different kinds of products, it created separate
product divisions, each of which had its own food research, quality, and manufacturing
functions. A division is a group of functions created to allow an organization to produce
and dispose of its goods and services to customers.
In developing an organizational structure, managers must decide how to differentiate
and group an organization's activities by function and division in a way that achieves
organizational goals effectively.'
The result of this process can be most easily seen in an organizational chart that shows
the relationship between an organization's functions and divisions.
Functional Structure
Functional structure - groups people together because they hold similar positions in
an organization, perform a similar set of tasks, or use the same kind of skills.
This division of labor and specialization allows an organization to become more
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effective.
Advantages Of A Functional Structure
Coordination Advantages
1. Easy communication among specialists - People grouped together according to
similarities in their positions can easily communicate and share information with
each other.
2. Quick decisions - People who approach problems from the same perspective can
often make decisions more quickly and effectively than can people whose
perspectives differ.
3. Learning - Makes it easier for people to learn from one another's experiences.
Thus a functional structure helps employees improve their skills and abilities and
thereby enhances individual and organizational performance.
Motivation Advantages
1. Facilitates performance evaluation for supervisor - Supervisors are in a good
position to monitor individual performance, reward high performance, and
discourage social loafing. Functional supervisors find monitoring easy because
they usually possess high levels of skill in the particular function.
2. Facilitates performance evaluation for peers - Allows group members to monitor
and control one another's behavior and performance levels.
3. Creates teamwork - Can also lead to the development of norms, values, and
group cohesiveness that promote high performance.
4. Creates a career ladder - Functional managers and supervisors are typically
workers who have been promoted because of their superior performance.
Disadvantages Of A Functional Structure
1. Serving needs of all products - When the range of products or services that a
company produces increases, the various functions can have difficulty efficiently
servicing the needs of the wide range of products. Imagine the coordination
problems that would arise, for example, if a company started to make cars, then
went into computers, and then went into clothing but used the same sales force to
sell all three products. Most salespeople would not be able to learn enough about
all three products to provide good customer service.
2. Coordination - As organizations attract customer with different needs, they may
find it hard to service these different needs by using a single set of functions.
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3. Serving needs of all regions - As companies grow, they often expand their
operations nationally, and servicing the needs of different regional customers by
using a single se of manufacturing, sales, or purchasing functions becomes very
difficult.
Divisional Structures: Product, Market, And
Geographic
A divisional structure that overlays functional groupings allows an organization to
coordinate intergroup relationships more effectively than does a functional structure.
Product Structure
Each product division contains the functions necessary to that service the specific goods
or services it produces.
What are the advantages of a product structure?
Increases the division of labor so that the number similar products can be increased
(such as a wider variety of appliances like stoves, or ovens) expand into new markets
and produce totally new kinds of products (such as when an appliance maker starts to
produce computers or ai planes).
Market Structure
Market Structure - Group functions into divisions that can be responsive to the
needs of particular types of customers.
Geographic Structure
An organization facing the problem of controlling its activities on a national or
international level is likely to use a geographic structure and group functions into
regional divisions to service customers in different geographic areas.
Each geographic division has access to a full set of the functions it needs to provide its
goods and services.
Advantages Of A Divisional Structure
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Coordination Advantages
1. Quality products and customer service - Functions are able to focus their activities
on a specific kind of good, service, or customer. This narrow focus helps a division
to create high-quality products and provide high-quality customer service.
2. Facilitates communication - between functions improve decision making, thereby
increasing performance.
3. Customized management and problem solving - A geographic structure puts
managers closer to the scene of operations than are managers at central
headquarters. Regional managers are well positioned to be responsive to local
situations such as the needs of regional customers and to fluctuations in
resources. Thus regional divisions are often able to find solutions to regionspecific problems and to use available resources more effectively than are
managers at corporate headquarters.
4. Facilitates teamwork - People are sometimes able to pool their skills and
knowledge and brainstorm new ideas for products or improved customer service.
5. Facilitates decision making - As divisions develop a common identity and
approach to solving problems, their cohesiveness in- creases, and the result is
improved decision making.
Motivation Advantages
1. Clear connection between performance and reward - A divisional structure makes
it relatively easy for organizations to evaluate and reward the performance of
individual divisions and their managers and to assign rewards in a way that is
closely linked to their performance. Corporate managers can also evaluate one
regional operation against another and thus share ideas between regions and find
ways to improve performance.
2. Customized service - regional managers and employees are close to their
customers and may develop personal relationships with them-relationships that
may give those managers and employees extra incentive to perform well.
3. Identification with division - employees' close identification with their division can
increase their commitment, loyalty, and job satisfaction.
Disadvantages Of A Divisional Structure
High operating and managing costs - because each division has its own set of functions,
operating costs- the costs associated with managing an organization-increase. The
number of managers in an organization, for example, increases, because each division
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has its own set of sales managers, manufacturing managers, and so on. There is also a
completely new level of management, the corporate level, to pay for.
Poor communication between divisions - Divisional structures normally have more
managers and more levels of management than functional structures have,
communications problems can arise as various managers at various levels in various
divisions attempt to coordinate their activities.
Conflicts among divisions - divisions may start to compete for organizational resources
and may start to pursue divisional goals and objectives at the expense of organizational
ones.
Matrix Structure
A complex form of differentiation that some organizations use to control their activities
results in the matrix structure, which simultaneously groups people in two ways- by the
function of which they are a member and by the product team on which they are
currently working.
In practice, the employee who are members of the product teams in a matrix structure
have two bosses-a functional boss and a product boss.
Coordination Advantages
Facilitates rapid product development
Maximizes communication and cooperation between team members
Facilitates innovation and creativity
Facilitates face-to-face problem solving (through teams)
Provides a work setting in which managers with different functional expertise can
cooperate to solve non-programmed decision-making problems.
6. Facilitates frequent changes of membership in product teams
1.
2.
3.
4.
5.
Motivation Advantages
The matrix structure provides a work setting in which such employees are given the
freedom and autonomy to take responsibility for their work activities.
Disadvantages of a Matrix Structure
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1. Increase role conflict and role ambiguity - Two bosses making conflicting demands
on a two-boss employee cause role conflict. Reporting relationships in the matrix
makes employees vulnerable to role ambiguity.
2. High levels of work stress - Conflict and ambiguity can increase feelings of stress.
Difficulty employees have in demonstrating their personal contributions to team
performance because they move so often from one team to another.
3. Limited opportunities for promotion - because most movement is lateral, from team
to team, not vertical to upper management positions.
The extent of these problems explains why matrix structures are used only by
companies that depend on rapid product development for their survival and that
manufacture products designed to meet specific customer needs. Matrix structures are
especially common in high-tech and biotechnology companies.
Differentiation Summary
1. Examine the way your organization groups its activities by function, and determine
whether this grouping meets the organization's current product or customer needs.
2. If the number of goods and services you are producing has increased, examine
whether you should change to a product structure.
3. If you are currently servicing the needs of a number of different groups of
customers, examine whether you should change to a market structures
4. If you are expanding nationally, examine whether you should change to a
geographic structure.
5. If your current need is to speed the development of new products, examine
whether you should choose a matrix structure.
Integration: Mechanisms for Increasing
Coordination
Tall and Flat Hierarchies
The larger and more complex an organization is, the taller is its hierarchy.
Tall organizations have many levels in the hierarchy relative to their size; flat
organizations have few.
Problems of integrating between hierarchical levels emerge when an organization's
hierarchy becomes too tall.
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More specifically, communication and decision-making problems start to occur.
As the number of management levels increases, the time it takes to send messages up
and down the hierarchy increases and decision making slows.
Information passed from person to person can be distorted or filtered as messages
become garbled and managers naturally interpret messages according to their own
interests. These problems further reduce the quality of decision making.
Decentralizing Authority
To reduce the communication and decision-making problems that accompany a
hierarchy's growth, organizations may prefer decentralization to centralization, choosing
to distribute authority to managers at all levels of the hierarchy and giving them
responsibility for making decisions.
Authority is said to be centralized when only managers at the top of an organization
can make important decisions.
Authority is decentralized when managers throughout the hierarchy are allowed to
make significant decisions.
What are the benefits of decentralization of authority?
1. Communication and decision-making problems because lower-level managers do
not have to continually consult or report up the hierarchy to their superiors.
2. At the same time, greater job responsibilities can increase motivation by making
lower-level jobs more interesting and rewarding.
Mutual Adjustment
Mutual adjustment - the ongoing informal communication among different people
and functions that is necessary for an achieve its goals.
Mutual adjustment makes an organization's structure work smoothly, and managers
must constantly make efforts to promote it and do all they can to facilitate
communication and the free flow of information among functions.
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Mutual adjustment, for example, prevents the emergence of different orientations that
can cause significant communication and decision-making problems between functions
and divisions.
An organization has to build into its structure integrating mechanism that facilitate mutual
adjustment and make it easy for managers and employees in different functions and
divisions to meet and coordinate their activities.
Direct Contact
In using direct contact, managers from different function try to establish face-to-face
working relationships that allow them to solve common problems informally, without
having to go through the formal channels of authority in the hierarchy.
Liaison Roles
Recognizing the importance of direct contact, organizations often establish liaison roles
that give specific functional managers the formal responsibility of maintaining a high
level of direct contact with managers in another function.
To facilitate communication and effective decision making, managers in liaison roles
meet regularly to exchange information, and members of one function transmit requests
to other functions through these liaison personnel. Over time, the personal working
relationships that develop among managers performing liaison roles enhance
coordination and integration throughout the organization.
Teams and Task Forces
When two or more functions are involved in decision making, organizations often create
interfunctional teams and task forces to facilitate communication and cooperation.
Standardization
The third principal tool that organizations can use to control their activities and integrate
functions and divisions is standardization-the development of routine responses to
recurring problems or opportunities that specify how individual and functions are to
coordinate their actions to accomplish organizational goals.
Standardizing Inputs
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Organizational inputs include the skills and capabilities of managers and workers, the
quality of the raw materials and component parts used to make products, and the
machinery and computers used in the production process.
Organizations can standardize the skills of their managers and workers by requiring
them to have certain qualifications and experiences.
Organizations that recruit and select workers who meet stringent criteria can be
relatively confident that their employees will respond in appropriate ways to uncertain
events.
Standardizing Throughputs
To standardize throughputs (the conversion processes that an organization uses to
convert inputs into outputs), organizations develop performance programs that specify
the behaviors they expect from their employees.
When behaviors are specified, both individuals and groups act consistently in ways that
allow an organization to achieve its goals.
The principal way in which organizations standardize behaviors is by the use of rules
and standard operating procedures (SOPS)."
Because rules and SOPs specify the series of actions or decisions that employees are
expected to perform in a given situation, they standardize employee responses to the
situation.
Formalization - is the use of rules and standard operating procedures to control an
organization's activities.
The more an organization can rely on formalization to specify required behaviors, the
less it needs to use either direct supervision from the hierarchy or mutual adjustment.
Formalization can result in lower operating costs and thus increased organizational
performance.
Once rules have been developed, they are inexpensive to use and cost little to
implement and maintain.
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All that is required is that new employees be taught the appropriate rules to follow in
certain situations.
Although some rules are necessary to the smooth running of an organization, too many
rules can give rise to a number of problems:
1. Excessive formalization can straitjacket employees and prevent them from
responding creatively and flexibly to new situations.
2. Employees' inclination to obey rules without thinking about their consequences
can reduce the quality of organizational decision making.
3. Too much emphasis on the use of existing rules and performance programs can
make it especially difficult for an organization to make changes and develop new
rules.
Standardizing Outputs - Organizations can standardize outputs, the goods and services
they produce, by specifying the level of performance they require from their employees
and setting standards by which to measure actual employee outputs.
Instead of specifying the behaviors the organization can expect from its employees (as
rules and SOPs do), the organization specifies what the outputs of its employees must
be for the organization to achieve its goals."
Organizations try to standardize an employee's output by specifying sales goals for
salespeople, such as how much they should sell each month or how many customers
they should visit each day. Specifying goals for researchers is more difficult because
their work is so long-term and complex, but an R&D function can be measured by the
number of new products it develops or the number of new patents it files.
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