ORGANIZATIONAL STRUCTURE The division of labor as well as the patterns of coordination, communication, workflow, and formal power that direct organizational activities. CHAPTER 3: ORGANIZATIONAL DESIGN AND STRUCTURE PROF. ROLF GIAN MARCOS, RPM 2 FUNDAMENTAL REQUIREMENTS OF ORGANIZATIONAL STRUCTURES: Division of labor Coordination DIVISION OF LABOR DIVISION OF LABOR Subdivision of work into separate jobs assigned to Less time is wasted changing from one task to another. different people. Subdivided work leads to job specialization which increases work efficiency. Job incumbents can master their tasks quickly because Training costs are reduced because employees require fewer physical and mental skills to accomplish the assigned work. Finally, job specialization makes it easier to match people work cycles are shorter. with specific aptitudes or skills to the jobs for which they are best suited. COORDINATING WORK ACTIVITIES THREE COORDINATING MECHANISMS: An organization should divide work among many people only to the extent that those people can coordinate with each other. Otherwise, individual effort is wasted due to misalignment, duplication, and mistiming of tasks. Coordination also tends to become more expensive and difficult as the division of labor increases, so companies specialize jobs only to the point where it isn’t too costly or challenging to coordinate the people in those jobs. Informal Communication Formal hierarchy Standardization COORDINATION THROUGH INFORMAL COMMUNICATION COORDINATION THROUGH INFORMAL COMMUNICATION Most flexible form of communication. Larger organizations assigns a liaison roles (example: secretary). It includes sharing information on mutual tasks as well as Where coordination is required among several work units, forming common mental models so that employees synchronize work activities using the same mental road map. Vital in nonroutine and ambiguous situations because employees can exchange a large volume of information through face-to-face communication and other media-rich channels. Easiest in small firms; difficult in larger firms partly due to difficulty remembering each other’s names. COORDINATION THROUGH INFORMAL COMMUNICATION companies create integrator roles. These people are responsible for coordinating a work process by encouraging employees in each work unit to share information and informally coordinate work activities. Integrators do not have authority over the people involved in that process, so they must rely on persuasion and commitment. COORDINATION THROUGH FORMAL COMMUNICATION Traditionally applauded as the optimal coordinating mechanism for large organizations. Coordination should occur through the chain of command; that is, Concurrent engineering: the organization of employees from several departments into a temporary team for the purpose of developing a product or service. up the hierarchy and across to the other work unit. Communicating through the chain of command is rarely as fast or accurate as direct communication between employees. Managers are able to closely supervise only a limited number of employees. Today’s workforce is less tolerant of rigid structures. COORDINATION THROUGH STANDARDIZATION Involves creating routine patterns of behavior or output. Standardized Process (Routine and simple tasks) Ex: Mass production and making pizzas. Standardized Output (Clearly defined goals and output measures) Ex: Sales targets Standardized Skill (Training and educational programs) Ex: Surgeons/ nurses 1. SPAN OF CONTROL ELEMENTS OF ORGANIZATIONAL STRUCTURE Also called span of management. Span of control Centralization The number of people directly reporting to the next level in the hierarchy. Narrow span of control: very few people report directly to a manager. For novel / complex tasks and high interdependence. Formalization Departmentalization Wide span of control: manager has many direct reports. For routinary tasks. Note: hard to closely monitor. 1. SPAN OF CONTROL A century ago, French engineer and management scholar Henri Fayol strongly recommended a relatively narrow span of control, typically no more than 20 employees per supervisor and 6 supervisors per manager. Fayol championed formal hierarchy as the primary coordinating mechanism, so he believed that supervisors should closely monitor and coach employees. 1. SPAN OF CONTROL: ORGANIZATIONAL SIZE Tall Flat -Many employees - Higher overhead costs - Low quality and less timely and accurate information - Less empowering for employees. - Few employees - Limits of cutting middle management: - Decision making issues. - Increased workload and stress. - Restricts managerial career development. 1. SPAN OF CONTROL Status at present: the best-performing manufacturing plants currently have an average of 38 production employees per supervisor. Self-directed teams with minimal supervision. 2. CENTRALIZATION Centralization: the degree to which formal decision authority is held by a small group of people, typically those at the top of the organizational hierarchy. Decentralization: they disperse decision authority and power throughout the organization. 3. FORMALIZATION The degree to which organizations standardize behavior through rules, procedures, formal training, and related mechanisms. Increase efficiency and compliance. Larger companies also tend to have more formalization because direct supervision and informal communication among employees do not operate as easily when large numbers of people are involved. External influences, such as government safety legislation and strict accounting rules, also encourage formalization. 3. FORMALIZATION Limitations: Reduces organizational flexibility. Undermine organizational learning and creativity. Source of job dissatisfaction and work stress. Too focused on rules than goals. MECHANISTIC VS. ORGANIC STRUCTURES Mechanistic - Narrow span of control - High degree of formalization and centralization. - Many rules and procedures - Limited decision making - Tall hierarchies of people - Vertical communication - Tasks are rigidly defined and altered only when sanctioned by higher authorities Organic Organic - Wide span of control - Decentralized decision making - Little formalization - Tasks are fluid, adjusting to new situations and organizational needs. 4. DEPARTMENTALIZATION Chain of command MECHANISTIC VS. ORGANIC STRUCTURES Common mental models Mechanistic - Stable environment that rely on efficiency and routine behaviors. - - Rapidly changing environments. - Fit with organizational learning, high-performance workplaces, and quality management because they emphasize information sharing. - Employees must have expertise. - Liability of newness 4. DEPARTMENTALIZATION SIX MOST COMMON PURE TYPES Simple Functional Divisional Teambased Matrix Network Coordination SIMPLE STRUCTURE SIMPLE STRUCTURE They employ only a few people and typically offer only one distinct product or service. There is minimal hierarchy—usually just employees reporting to the owners. Employees perform broadly defined roles because there are insufficient economies of scale to assign them to specialized jobs. Usually depends on the owner’s direct supervision to coordinate work activities, so it is very difficult to operate as the company grows and becomes more complex. Advantages Disadvantages Fosters better communication and Lack of opportunities for employee More autonomy and responsibility Risk of power struggles arising due More transparency due to limited Employees may have a lower sense of collaboration between team members. to employees. bureaucracy. Because the chain of command is shorter, it allows for faster decisionmaking. progression. to the lack of a formal system. accountability because they have one lead. Risk of confusion because employees don’t have a clear supervisor. FUNCTIONAL STRUCTURE Organizes employees around specific knowledge or other resources. Specifically, they considered the possibility of creating departments around the various specializations, including art, programming, audio, quality assurance, and design. FUNCTIONAL STRUCTURE Advantages: Disadvantages: Allows employees to focus on Can create silos within an their role. organization. Encourages specialization. Help teams and departments feel self-determined. Is easily scalable in any sized company. Hampers interdepartmental communication. Obscures processes and strategies for different markets or products in a company. DIVISIONAL STRUCTURE DIVISIONAL STRUCTURE (MULTIDIVISIONAL OR M-FORM STRUCTURE) (MULTIDIVISIONAL OR M-FORM STRUCTURE) Disadvantages: An organizational structure in which employees are organized around geographic areas, outputs (products or services), or clients. The geographic divisional structure organizes employees around distinct regions of the country or world. The product/service divisional structure organizes employees around distinct outputs. The client divisional structure organizes employees around specific customer groups. Advantages: Makes it much easier to assign responsibility for actions and results. Works well in markets where there is high competition as local managers can quickly respond to changes in local conditions. Tends to yield faster responses to local market conditions. Helps build a culture that contributes both to higher morale and a better knowledge of the division’s portfolio. Multiple divisions add more overhead costs to the organization When a number of functional areas are spread among many divisions, it might lead to inefficiencies. With skills being compartmentalized by division, it can be difficult to transfer skills or best practices across the organization Since each division may have its own strategic goal, it might not always align with the overall company strategy. TEAM-BASED STRUCTURE An organizational structure built around self-directed teams that complete an entire piece of work. There is a wide span of control because teams operate with minimal supervision. In extreme situations, there is no formal leader, just someone selected by other team members to help coordinate the work and liaise with top management. Team structures are highly decentralized because almost all day-to-day decisions are made by team members rather than someone further up the organizational hierarchy. Finally, many team-based structures have low formalization because teams are given relatively few rules about how to organize their work. MATRIX STRUCTURE An organizational structure that overlays two structures (such as a geographic divisional and a functional structure) in order to leverage the benefits of both. In a matrix there are usually two chains of command, one along functional lines and the other along project, product, or client lines. Other chains of command such as geographic location are also possible. MATRIX STRUCTURE Advantages: Helps eliminate traditional siloed communications barriers. Improved decision-making due to the availability of two chains of command. Allows employees to use their skills in different roles. Better use of resources which leads to increased efficiency. Disadvantages: May result in confusion regarding roles, responsibilities, and priorities. Conflict of power between the project manager and the functional manager. Blurred lines of accountability. Large overhead costs due to employing several managers. NETWORK STRUCTURE NETWORK STRUCTURE Advantages: Disadvantages: Promotes Due to teams being independent and small, external relationships between managers and top-level management. They are not only less hierarchical but are also more decentralized and more flexible than other structures. Allows organizations to adapt quickly Without Its structure relies on open communication and reliable partners; both fosters healthy competition, innovation, and collaboration. An alliance of several organizations for the purpose of creating a product or serving a client. Network organizational structure helps visualize both internal and internal and external. The network structure is viewed as agiler than other structures because it has few tires, more control, and a bottom flow of decision making. healthy competition, innovation, and collaboration. to changes in their environment. Paves way for an environment that Smaller, streamlined teams help save costs and contribute to improved efficiency. large-scale tasks may prove difficult to accomplish. immediate supervision, network organizations may struggle with control over employees. Can create an environment where employees compete in an unhealthy manner with each other to perform tasks. When work is outsourced, secret information about the organization may get breached. CONTINGENCIES OF ORGANIZATIONAL DESIGN EXTERNAL ENVIRONMENT External environment Organizational Size Technology Organizational Strategy EXTERNAL ENVIRONMENT Dynamic (for companies who are easy to adapt and experienced) vs Dynamic vs stable Complex vs simple stable (for more predictable environment; mechanistic structures) Complex (major university library- decentralized) vs simple (small public library- centralized) Diverse (variety of clients, regions/products/services) vs integrated Diverse vs integrated Hostile vs manuficent (one client, product, geographical area) divisional structure. Hostile (Competitive/Organic structures/Centralization) vs Manuficent ORGANIZATIONAL SIZE TECHNOLOGY Refers to the mechanisms or processes by which an organization turns out its Larger organizations: High job specialization; High division of labor; Greater use of standardization; Less use of informal communication; More decentralized. TECHNOLOGY product or service. Variability: The number of exceptions to standard procedure that tend to occur. In work processes with low variability, jobs are routine and follow standard operating procedures. Analyzability—the predictability or difficulty of the required work. The less analyzable the work, the more it requires experts with sufficient discretion to address the work challenges. An organic, rather than a mechanistic, structure should be introduced where employees perform tasks with high variety and low analyzability, such as in a research setting ORGANIZATIONAL STRATEGY Refers to the way the organization positions itself in its setting in A mechanistic structure is preferred where the technology has low variability and analyzability, such as an assembly line. high The work is routine and highly predictable, an ideal situation for a mechanistic structure to operate efficiently. relation to its stakeholders, given the organization’s resources, capabilities, and mission. Strategy represents the decisions and actions applied to achieve the organization’s goals. If a company’s strategy is to compete through innovation, a more organic structure would be preferred because it is easier for employees to share knowledge and be creative. If a company chooses a low-cost strategy, a mechanistic structure is preferred because it maximizes production and service efficiency. ANY QUESTIONS?
