PART 3 Organizing CHAPTER 6 Organization Structure and Design © 2019 Cengage. All rights reserved. Learning Objectives After studying this chapter, you should be able to: 1. Identify the basic elements of organizations. 2. Describe the bureaucratic perspective on organization design. 3. Identify and explain key situational influences on organization design. 4. Describe the basic forms of organization design that characterize many organizations. 5. Identify and describe emerging issues in organization design. © 2019 Cengage. All rights reserved. Discussion Starter (1) • Treehouse Island Inc. produces courses in web development and programming and business education, using such tools as videos and interactive code challenges to teach students a range of technology-related skills. Ryan Carson and Alan Johnson decided to make Treehouse a manager-less company. – Morningstar Farms, Sun Hydraulics, and Zappos are examples of companies that successfully operate without any managers. What do you think some benefits and drawbacks of working for such a company would be? © 2019 Cengage. All rights reserved. 6-1 The Basic Elements of Organizing • Organization structure and design – The overall set of elements that can be used to configure an organization © 2019 Cengage. All rights reserved. 6-1a Job Specialization (slide 1 of 5) • Job specialization – The degree to which the overall task of the organization is broken down and divided into smaller component parts – To watch Mary Sue Milliken of Border Grill talk about job specialization in the restaurant industry, visit YouTube (https://www.youtube.com/watch?v=TJzdIqoioZY). © 2019 Cengage. All rights reserved. 6-1a Job Specialization (slide 2 of 5) • Benefits of Specialization • Limitations of Specialization – Workers can become proficient at a task. – Transfer time between tasks is decreased. – Specialized equipment can be more easily developed. – Employee replacement becomes easier. – Workers who perform highly specialized jobs quickly become bored and dissatisfied. – Anticipated benefits of specialization do not always occur. © 2019 Cengage. All rights reserved. 6-1a Job Specialization (slide 3 of 5) • Alternatives to Specialization – Job rotation • An alternative to job specialization that involves systematically moving employees from one job to another – Job enlargement • An alternative to job specialization that increases the total number of tasks that workers perform – Job enrichment • An alternative to job specialization that attempts to increase both the number of tasks a worker does and the control the worker has over the job © 2019 Cengage. All rights reserved. 6-1a Job Specialization (slide 4 of 5) • Alternatives to Specialization – Job characteristics approach • An alternative to job specialization that suggests that jobs should be diagnosed and improved along five core dimensions, taking into account both the work system and employee preferences © 2019 Cengage. All rights reserved. Job Characteristics Approach: Core Dimensions (slide 1 of 2) Skill variety The number of things a person does in a job Task identity The extent to which the worker does a complete or identifiable portion of the total job Task significance The perceived importance of the task Autonomy The degree of control the worker has over how the work is performed Feedback The extent to which the worker knows how well the job is being performed © 2019 Cengage. All rights reserved. Job Characteristics Approach: Core Dimensions (slide 2 of 2) • Divide into small groups. Select a job you observe regularly (e.g., retail clerk, fast-food worker). Describe how much each of the five core job dimensions is likely to exist now in that job and how the job might be changed to improve the core dimensions. © 2019 Cengage. All rights reserved. FIGURE 6.1 The Job Characteristics Approach © 2019 Cengage. All rights reserved. 6-1a Job Specialization (slide 5 of 5) • Work teams – An alternative to job specialization that allows an entire group to design the work system it will use to perform an interrelated set of tasks © 2019 Cengage. All rights reserved. 6-1b Grouping Jobs: Departmentalization • Departmentalization – The process of grouping jobs according to some logical arrangement © 2019 Cengage. All rights reserved. Functional Departmentalization Grouping jobs involving the same or similar activities • Advantages • Disadvantages – Each department can be staffed by experts in that functional area. – Supervision is facilitated because an individual manager needs to be familiar only with a relatively narrow set of skills. – Coordinating activities inside each department is easier. – Decision making tends to become slower and more bureaucratic. – Employees may begin to concentrate too narrowly on their own function and lose sight of the total organizational system. – Accountability and performance become increasingly difficult to monitor. © 2019 Cengage. All rights reserved. Product Departmentalization Grouping activities around products or product groups • Disadvantages • Advantages – All activities associated with one product or product group can be easily integrated and coordinated. – The speed and effectiveness of decision making are enhanced. – The performance of individual products or product groups can be assessed more easily and objectively. – Managers in each department may focus on their own product or product group to the exclusion of the rest of the organization. – Administrative costs rise because each department must have its own functional-area specialists. © 2019 Cengage. All rights reserved. Customer Departmentalization Grouping activities to respond to and interact with specific customers or customer groups • Disadvantage • Advantage – Skilled specialists can deal with unique customers or customer groups. – A fairly large administrative staff is required to integrate activities of various departments. © 2019 Cengage. All rights reserved. Location Departmentalization Grouping jobs on the basis of defined geographic sites or areas • Disadvantage • Advantage – It enables the organization to respond easily to unique customer and environmental characteristics. – A large administrative staff may be required to keep track of units in scattered locations. © 2019 Cengage. All rights reserved. 6-1c Establishing Reporting Relationships (slide 1 of 3) • Chain of command – A clear and distinct line of authority among the positions in an organization – The chain of command has two components: 1. Unity of command – Suggests that each person within an organization must have a clear reporting relationship to one and only one boss 2. Scalar principle – Suggests that there must be a clear and unbroken line of authority that extends from the lowest to the highest position in the organization © 2019 Cengage. All rights reserved. 6-1c Establishing Reporting Relationships (slide 2 of 3) • Span of management – The number of people who report to a particular manager – There are no universal, cut-and-dried prescriptions for an ideal or optimal span of management. © 2019 Cengage. All rights reserved. 6-1c Establishing Reporting Relationships (slide 3 of 3) • Tall Organizations • Flat Organizations – Are more expensive because of the larger number of managers involved – Foster more communication problems because of the increased number of people through whom information must pass – Lead to higher levels of employee morale and productivity – Create more administrative responsibility because there are fewer managers – Create more supervisory responsibility because there are more subordinates reporting to each manager © 2019 Cengage. All rights reserved. 6-1d Distributing Authority (slide 1 of 3) • Authority – Power that has been legitimized by the organization • The Delegation Process – Delegation • The process by which a manager assigns a portion of his or her total workload to others – The delegation process involves three steps: 1. The manager assigns responsibility or gives the subordinate a job to do. 2. The individual is given the authority to do the job. 3. The manager establishes the subordinate’s accountability—that is, the subordinate accepts an obligation to carry out the task assigned by the manager. © 2019 Cengage. All rights reserved. 6-1d Distributing Authority (slide 2 of 3) • Decentralization and Centralization – Decentralization • The process of systematically delegating power and authority throughout the organization to middle- and lower-level managers – Centralization • The process of systematically retaining power and authority in the hands of higher-level managers © 2019 Cengage. All rights reserved. 6-1d Distributing Authority (slide 2 of 2) • Decentralization and Centralization – Factors that determine an organization’s position on the decentralization–centralization continuum: • The organization’s external environment – In general, the greater the complexity and uncertainty of the environment, the greater is the tendency to decentralize. • The history of the organization • The nature of the decisions – The costlier and riskier the decisions, the more pressure there is to centralize. © 2019 Cengage. All rights reserved. Discussion Starter (2) • Distinguish between centralization and decentralization. What are their relative advantages and disadvantages? © 2019 Cengage. All rights reserved. 6-1e Coordinating Activities (slide 1 of 3) • Coordination – The process of linking the activities of the various departments of the organization • The Need for Coordination – The primary reason for coordination is that departments and work groups are interdependent—they depend on one another for information and resources to perform their respective activities. • The greater the independence between departments, the more coordination the organization requires if departments are to be able to perform effectively. © 2019 Cengage. All rights reserved. 6-1e Coordinating Activities (slide 2 of 3) • The Need for Coordination – There are three major forms of interdependence: 1. Pooled interdependence – When units operate with little interaction; their output is pooled at the organizational level 2. Sequential interdependence – When the output of one unit becomes the input for another in a sequential fashion 3. Reciprocal interdependence – When activities flow both ways between units © 2019 Cengage. All rights reserved. Discussion Starter (3) • How does the organization you work for now or an organization you have worked for in the past coordinate the work of different employees? © 2019 Cengage. All rights reserved. 6-1e Coordinating Activities (slide 3 of 3) Management Hierarchy Rules and Procedures Task Forces Structural Coordination Techniques Integrating Departments Electronic Coordination Managerial Liaison Roles © 2019 Cengage. All rights reserved. 6-2 The Bureaucratic Model of Organization Design (slide 1 of 3) • Max Weber, a German sociologist, was a pioneer in organization design; at the core of his writings was what he called the bureaucratic model of organizations. • Bureaucracy – A model of organization design based on a legitimate and formal system of authority • Weber originally viewed the bureaucratic form of organizations as logical, rational, and efficient. • He offered the model as a framework to which all organizations should aspire—the “one best way” of doing things. © 2019 Cengage. All rights reserved. 6-2 The Bureaucratic Model of Organization Design (slide 2 of 3) • According to Weber, the ideal bureaucracy exhibits five basic characteristics: 1. A distinct division of labor with each position filled by an expert 2. A consistent set of rules to ensure uniformity in task performance 3. A hierarchy of positions or offices that creates a chain of command from the top of the organization to the bottom 4. Impersonal management with appropriate social distance between managers and subordinates 5. Employment and advancement based on technical expertise, and employees protected from arbitrary dismissal © 2019 Cengage. All rights reserved. 6-2 The Bureaucratic Model of Organization Design (slide 3 of 3) • Advantages • Disadvantages – Improves efficiency – Helps minimize favoritism or bias – Makes procedures and practices very clear to everyone – Results in inflexibility and rigidity – Making exceptions to or changing rules is difficult – Results in the neglect of human and social processes within the organization © 2019 Cengage. All rights reserved. 6-3 Situational Influences on Organization Design • Situational view of organization design – Based on the assumption that the optimal design for any given organization depends on a set of relevant situational factors • Situational factors include: – Technology – Environment – Organizational size and life cycle © 2019 Cengage. All rights reserved. 6-3a Core Technology (slide 1 of 3) • Technology – Conversion process used to transform inputs to outputs • Most organizations use multiple technologies, but an organization’s most important one is called its core technology. © 2019 Cengage. All rights reserved. 6-3a Core Technology (slide 2 of 3) • The link between technology and organization design was first recognized by Joan Woodward. – Three basic forms of technology were identified by Woodward: 1. Unit or small-batch technology – The product is custom-made to customer specifications or produced in small quantities. – Example: a printing shop that produces business cards 2. Large-batch or mass-production technology – The product is manufactured in assembly-line fashion by combining component parts into another part of finished product. – Example: an automobile manufacturer 3. Continuous-process technology – Raw materials are transformed to a finished product by a series of machine or process transformations. – Example: a chemical refinery © 2019 Cengage. All rights reserved. 6-3a Core Technology (slide 3 of 3) • Woodward found: – Unit or small-batch technology and continuous-process firms tend to have very little bureaucracy, whereas large-batch or mass-production firms are much more bureaucratic and also have a higher level of specialization. – Organizational success was related to the extent to which organizations followed the typical pattern appropriate to their technology. © 2019 Cengage. All rights reserved. 6-3b Environment (slide 1 of 2) • The first widely recognized analysis of environment–organization design linkages was provided by Tom Burns and G. M. Stalker. – Their research focused on identifying extreme forms of organizational environment. • Stable environments that remain constant over time • Unstable environments subject to uncertainty and rapid change – Next they studied the designs of organizations in each type of environment. • Mechanistic organizations occur most frequently in stable environments. • Organic organizations are most often found in unstable and unpredictable environments. © 2019 Cengage. All rights reserved. 6-3b Environment (slide 2 of 2) • These ideas were extended by Paul R. Lawrence and Jay W. Lorsch. – They predicted that each organizational unit has a unique environment and responds by developing unique attributes. – Lawrence and Lorsch suggested that organizations could be characterized along two primary dimensions: 1. Differentiation – Extent to which the organization is broken down into subunits 2. Integration – Degree to which the various subunits must work together in a coordinated fashion – The degree of differentiation and integration needed by an organization depends on the stability of the environments that its subunits face. © 2019 Cengage. All rights reserved. 6-3c Organizational Size and Life Cycle • Organizational size – Total number of full-time or full-time equivalent employees • Research findings: – Small firms tend to focus on their core technologies. – Large firms tend to be characterized by higher levels of job specialization, more standard operating procedures, more rules and regulations, and a greater degree of decentralization. • Organizational life cycle – Progression through which organizations evolve as they grow and mature—birth, youth, midlife, and maturity. © 2019 Cengage. All rights reserved. 6-4 Basic Forms of Organization Design • Most organization designs fall into one of four basic categories: 1. 2. 3. 4. Functional (U-form) design Conglomerate (H-form) design Divisional (M-form) design Matrix design • Others are hybrids based on two or more of the basic forms. © 2019 Cengage. All rights reserved. 6-4a Functional (U-Form) Design (slide 1 of 2) • Functional design – Based on the functional approach to departmentalization – Has been termed the “U-form” (for unitary) approach – The members and units in the organization are grouped into functional departments. • For the organization to operate efficiently in this design, there must be considerable coordination across departments. © 2019 Cengage. All rights reserved. FIGURE 6.2 Functional (U-Form) Design for a Small Manufacturing Company © 2019 Cengage. All rights reserved. 6-4a Functional (U-Form) Design (slide 2 of 2) • The basic advantages are that it allows the organization to staff all important positions with functional experts, and it facilitates coordination and integration. • On the other hand, it promotes a functional, rather than an organizational, focus and tends to promote centralization. • Functionally based designs are most commonly used in small organizations. © 2019 Cengage. All rights reserved. 6-4b Conglomerate (H-Form) Design (slide 1 of 2) • Conglomerate design – Used by an organization made up of a set of unrelated businesses – Has been termed the “H-form” (for holding, as in holding company) approach – This approach is based loosely on the product form of departmentalization. • Each business or set of businesses is operated by a general manager who is responsible for its profits or losses, and each general manager functions independently of the others. © 2019 Cengage. All rights reserved. FIGURE 6.3 Conglomerate (H-Form) Design at Samsung © 2019 Cengage. All rights reserved. 6-4b Conglomerate (H-Form) Design (slide 2 of 2) • In an H-form organization, a corporate staff usually elevates the performance of each business, allocates corporate resources across companies, and shapes decisions about buying and selling businesses. • The basic shortcoming of the H-form design is the complexity associated with holding diverse and unrelated businesses. – Managers usually find comparing and integrating activities across a large number of diverse operations difficult. • Research suggests that many organizations following this approach achieve only average-to-weak financial performance, and many firms have abandoned it for other approaches. © 2019 Cengage. All rights reserved. 6-4c Divisional (M-Form) Design (slide 1 of 2) • Divisional design – Based on multiple businesses in related areas operating within a larger organizational framework – Has been termed the “M-form” (for multidivisional) approach – This design results from a strategy of related diversification. • Some activities are decentralized down to the divisional level; others are centralized at the corporate level. © 2019 Cengage. All rights reserved. FIGURE 6.4 Multidivisional (M-Form) Design at Hilton Hotels © 2019 Cengage. All rights reserved. 6-4c Divisional (M-Form) Design (slide 2 of 2) • The opportunities for coordination and shared resources represent one of the biggest advantages of the M-form design. • The M-form design basic objective is to optimize internal competition and cooperation. – Healthy competition for resources among divisions can enhance effectiveness, but cooperation should also be promoted. © 2019 Cengage. All rights reserved. 6-4d Matrix Design (slide 1 of 4) • Matrix design – Based on two overlapping bases of departmentalization – A set of product groups, or temporary departments, is superimposed across the functional departments. – Employees in a matrix are simultaneously members of a functional department and of a project team. – The matrix creates a multiple-command structure in which an employee reports to both a functional supervisor and one or more project managers. © 2019 Cengage. All rights reserved. FIGURE 6.5 A Matrix Organization © 2019 Cengage. All rights reserved. 6-4d Matrix Design (slide 2 of 4) • The matrix form of organization design is most often used in one of three situations: 1. When there is strong pressure from the environment 2. When large amounts of information need to be processed 3. When there is pressure for shared resources © 2019 Cengage. All rights reserved. 6-4d Matrix Design (slide 3 of 3) • Advantages • – It enhances flexibility because teams can be created, redefined, and dissolved as needed. – It fosters high motivation and increased organizational commitment. – The matrix design provides considerable opportunity for employees to learn new skills. – It provides an efficient way for the organization to take full advantage of its human resources. – It allows team members to serve as bridges between their functional unit and the team. – The matrix design is a useful device for decentralization. Disadvantages – Employees may be uncertain about reporting relationships. – Some managers may view the matrix as an anarchy in which they have unlimited freedom. – The dynamics of group behavior may lead to slower decision making, one-person domination, compromised decisions, or a loss of focus. – More time may be required for coordinating task-related activities. © 2019 Cengage. All rights reserved. 6-4e Hybrid Designs • Some organizations use a design that represents a hybrid of two or more of the common forms of organizational design. • Few companies use a design in its pure form; most firms have one basic organization design as a foundation for managing the business but maintain strategic flexibility so that temporary or permanent modifications can be made for strategic purposes. © 2019 Cengage. All rights reserved. 6-5a The Team Organization • Team organization – An approach to organization design that relies almost exclusively on project-type teams, with little or no underlying hierarchy – Within such an organization, people float from project to project as necessitated by their skills and the demands of those projects. © 2019 Cengage. All rights reserved. 6-5b The Virtual Organization • Virtual organization – One that has little or no formal structure – Such an organization typically has only a handful of permanent employees and a very small staff and administrative headquarters facility. – As the needs of the organization change, its managers bring in temporary workers, lease facilities, and outsource basic support services to meet the demands of each unique situation. – Increasingly, virtual organizations are conducting most—if not all—of their businesses online. When do virtual offices work? Visit Inc. Magazine on YouTube (https://www.youtube.com/watch?v=z4WAoK-izxM). © 2019 Cengage. All rights reserved. 6-5c The Learning Organization • Learning organization – One that works to facilitate the lifelong learning and personal development of all its employees while continually transforming itself to respond to changing demands and needs – The idea is that the most consistent and logical strategy for achieving continuous improvement is by constantly upgrading employee talent, skill, and knowledge. © 2019 Cengage. All rights reserved. Discussion Starter (4) • What are the benefits of using the learning organization approach to design? Now consider that, to learn, organizations must be willing to tolerate many mistakes because it is only through the effort of understanding mistakes that learning can occur. With this statement in mind, what are some of the potential problems with the use of the learning organization approach? © 2019 Cengage. All rights reserved.
