Introduction to Management Chapter 8 (11) Organizational Structure & Design 1 Organizing Management function that involves arranging and structuring work to accomplish the organization’s goals. Organizational Structure The formal arrangement of jobs within an organization. 2 Purposes of Organizing • Divides work to be done into specific jobs and departments. • Assigns tasks and responsibilities associated with individual jobs. • Establishes formal lines of authority. • Establishes relationships among individuals, groups, and departments. • Allocates and deploys organizational resources. 3 Organizational Design Creating or changing an organization’s structure. A process involving decisions about six key elements: Work specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization 4 Work Specialization (division of labor) The degree to which tasks in the organization are divided into separate jobs with each step completed by a different person. Examples TODAY’S VIEW Overspecialization can result in human diseconomies from boredom, fatigue, stress, poor quality, increased absenteeism, and higher turnover. 5 Departmentalization Departmentalization: How jobs are grouped together is called departmentalization. Functional Grouping jobs by functions performed Product Grouping jobs by product line Geographical Grouping jobs on the basis of territory or geography 6 Departmentalization by Type Process Grouping jobs on the basis of product flow Customer Grouping jobs by type of customer and needs 7 8 Geographical Departmentalization 9 Product Departmentalization 10 Process Departmentalization + More efficient flow of work activities – Can only be used with certain types of products 11 Customer Departmentalization + Customers’ needs and problems can be met by specialists - Duplication of functions - Limited view of organizational goals 12 13 TODAY’S VIEW • Most large organizations continue to use combinations of most or all of these types of departmentalization. • Pearson Education, publisher of this textbook, arranges its business by educational market segment (Pre K–12, higher education, and professional) and its customers (students, professors, and workplace educators), and arranges its sales function around customers and geographic regions (for example, the United States, Europe, and Asia) 14 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. To understand the chain of command, you have to understand three other important concepts: authority, responsibility, and unity of command 15 Authority The rights inherent in a managerial position to tell people what to do and to expect them to do it. Line authority: Authority that entitles a manager to direct the work of an employee Staff authority: Positions with some authority that have been created to support, assist, and advise those holding line authority 16 Unity of Command The concept that a person should have one boss and should report only to that person. 17 Today’s View? • Although early management theorists (Fayol, Weber, Taylor, Barnard, and others) believed that chain of command, authority (line and staff), responsibility, and unity of command were essential, times have changed. • Those elements are far less important today. 18 Span of Control The number of employees who can be effectively and efficiently supervised by a manager. 19 20 Today’s View? • The trend in recent years has been toward larger spans of control, which is consistent with managers’ efforts to speed up decision making, increase flexibility, get closer to customers, empower employees, and reduce costs. Managers are beginning to recognize that they can handle a wider span when employees know their jobs well and when those employees understand organizational processes 21 Centralization The degree to which decision making is concentrated at upper levels in the organization. Organizations in which top managers make all the decisions and lower-level employees simply carry out those orders. 22 Decentralization Organizations in which decision making is pushed down to the managers who are closest to the action. 23 24 Today’s View? • As organizations have become more flexible and responsive to environmental trends, there’s been a distinct shift toward decentralized decision making. 25 Employee Empowerment Increasing the decision-making authority (power) of employees. 26 Formalization The degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures. 27 Formalization Highly formalized jobs offer little discretion over what is to be done. Low formalization means fewer constraints on how employees do their work. 28 • 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 29 Contingency Factors 30 Structural decisions are influenced by: Overall strategy of the organization Organizational structure follows strategy. Size of the organization As an organization grows larger, its structure tends to change from organic to mechanistic with increased specialization, departmentalization, centralization, and rules and 31 Structural decisions are influenced by: Technology use by the organization Firms adapt their structure to the technology they use. Degree of environmental uncertainty Dynamic environments require organic structures; mechanistic structures need stable environments. 32 Technology and Structure Organizations adapt their structures to their technology. 33 Technology and Structure Woodward’s classification of firms based on the complexity of the technology employed: Unit production of single units or small batches Mass production of large batches of output Process production in continuous process of outputs 34 Technology and Structure Routine technology = mechanistic organizations Non-routine technology = organic organizations 35 Environmental Uncertainty and Structure Mechanistic organizational structures tend to be most effective in stable and simple environments. The flexibility of organic organizational structures is better suited for dynamic and complex environments. 36 Common Organizational Designs 37 Traditional Designs Simple structure Low departmentalization, wide spans of control, centralized authority, little formalization 38 Traditional Designs Functional structure Departmentalization by function Operations, finance, marketing, human resources, and product research and development 39 Traditional Designs Divisional structure Composed of separate business units or divisions with limited autonomy under the coordination and control the parent corporation. 40 Strengths and Weaknesses of Traditional Organizational Designs 41 Contemporary Organizational Designs 42 Team structures The entire organization is made up of work groups or self-managed teams of empowered employees. 43 Boundaryless Organization An flexible and unstructured organizational design that is intended to break down external barriers between the organization and its customers and suppliers. Removes internal (horizontal) boundaries: Eliminates the chain of command Has limitless spans of control Uses empowered teams rather than departments Eliminates external boundaries: Uses virtual, network, and modular organizational structures to get closer to stakeholders. 44 Virtual Organization An organization that consists of a small core of fulltime employees and that temporarily hires specialists to work on opportunities that arise. Network Organization A small core organization that outsources its major business functions (e.g., manufacturing) in order to concentrate on what it does best. Modular Organization A manufacturing organization that uses outside suppliers to provide product components for its final assembly operations. 45
