Week 13

Miles A. Zachary
MGT 4380
 Executives able to skillfully orchestrate structure and
control are likely to lead their firms to greater levels of
 Development of a strong structure and control system
begins with the building blocks of organizational
 Division of labor
 Organizational chart
 Vertical and Horizontal linkages
 Informal linkages
 Unity of command principle
 Division of labor is the process by which a task is split
into a series of smaller tasks, each performed by a
 The oldest record of management practices parables
the importance of the division of labor
 Jethro teaches Moses to establish a hierarchy of
authority to better manage the freed Hebrews
 A hierarchy of authority is an arrangement of
individuals based on rank (e.g., the military)
 Greek philosopher and contemporary of Socrates,
Xenophon, noted the increased efficiency of
shoemakers who divide the task of making shoes
 Later scholars such as Duhamel du Monceau (1761) and
Smith (1776) write about the benefits of the division of
labor more explicitly
 Others were much more critical of the division of labor
 Karl Marx (1844) suggested that it alienates works who
become “depressed spiritually and physically to the condition
of a machine”
 Henry David Thoreau (1854) believes that it removes a
workers sense of connectedness with society
 Adam Smith (1776), while championing its efficiency, does
discuss how it can be monotonous and lead to depressing
work environments
 While division of labor can create efficiencies, determining
how to coordinate the tasks and people who perform them
is challenging
 The solution is organizational structure—how tasks are
assigned and grouped together with formal reporting
 Adequate structure increases a firm’s likelihood of success
 A firm’s structure is often a function of environmental fit
 For example, Burns & Stalker (1961) suggested that in static
environments, a firm can gain efficiencies from having a rigid
hierarchy; however, in dynamic environments, a firm benefits
from greater flexibility
 Many firms use organizational charts to diagram
their structure: show the various vertical and
horizontal linkages
 A vertical linkage tie supervisors to subordinates and
show the lines through which supervisors delegate
authority, oversee activities, evaluate performance,
and administer feedback
 When mapping vertical linkages in an organizational
structure, most executives rely on the unity of
command principle
 Each employee should report to only one supervisor;
multiple bosses can be confusing
 A horizontal linkage is a relationship between equals
in an organizations; sometimes called committees,
teams, task forces, etc. depending on the extent of the
 Important when close coordination is needed across
the organization
 Informal linkages do not appear in the formal
organizational chart and refer to an unofficial
relationship between employees based on personal
friendships, rivalries, and politics
 The vertical and horizontal linkages among employees
forms the foundation of organizational structure
 Executives may use a variety of combinations of
vertical and horizontal linkages to design an effective
 Four (4) common types of structure
 Simple
 Functional
 Multidivisional
 Matrix
 Executives must weight the benefits and costs of
different structures because, once formed, structure
can either aid or constrain strategy
 Early strategy scholars (e.g., Chandler, 1962; Pierce,
1974) conceptualized the S-C-P model
 In a simple organizational structure, an organizational
chart is usually not needed
Most firms begin with a simple structure
When a firm is owned and operated by a single individual
or a small group of people
In organizations composed of more than a single person,
tasks are usually assigned informally rather than formally;
strategic decisions are highly centralized (owner)
The flexibility of a simple structure encourages creativity
and individualism and high responsiveness
Without a formal structure, informally-assigned duties
may not be accomplished; lack of clear guidance; confusing
when more employees are hired
 As a small organization grows, simple structure begins
to become ineffective thanks to added complexity
 Complexities need to be managed by formalized
structures with emphasis on hierarch and vertical links
 A functional structure divides employees into
departments that handle activities related to a
functional area of the business (e.g., marketing,
production, customer service, human resources, etc.)
 Each area is often headed up by a manager with all
employees reporting to their respective manager
 An important benefit of the functional structure is that
each person tends to learn much about their particular
function (specialization)
 Tends to create highly skilled specialists
 Grouping functional areas decreases costs by creating
efficiencies and employees with similar training
backgrounds tend to get along better on average
 Increased hierarchical levels can be slow to disseminate
information and execute changes
 Functional structures are often useful in situations where a
firm has limited products or services (e.g., single offerings)
 When a firm begins to offer more than a few products
or services (often across a wide geographical area),
they often require a more responsive organizational
 Naturally, firms often move from a functional form to a
multidivisional structure in which employees are
divided into departments based on product areas
and/or geographic regions
 One of the big advantages of the multidivisional form
is that it allows firms to act quickly
 This can backfire when divisions are loosely-coupled
and are generally unaware and/or unmotivated to align
with the firms overarching strategy
 Also, since multidivisional structures are basically
coupled functional structures, they do not benefit
from the efficiency of single departments across the
entire company
 Instead, they need individual departments within each
 While functional and multidivisional structures rely
primarily on vertical linkages, matrix structures rely more
on horizontal linkages
Creates cross-functional teams that work on different
Advantages include maximizing organizational
flexibilities, enhancing communication across functional
lines, and creating a spirit of teamwork and collaboration
Violates the unity of command principle potentially
creating confusion and/or conflict between managers
Good for organizations that need to maximize flexibility
such as high technology, engineering, and consulting firms
 Boundaryless organizations are ones that remove the
usual barriers between parts of the organization and
between them and other organizations
 While absolute state is improbable, moving toward
that state can help an organization become more
flexible and responsive
 E.g., W. L. Gore
 No formal titles allows leaders to emerge based on
performance, attracting followers to new innovative
 Structural boundaries can inhibit and constrain firms,
but can also provided needed order
 An organization’s structure is not a static choice, but
rather should be revisited as the organization evolves
 Managers and executives should be cognizant of
“danger signs” (e.g., slow response time, poor
 Finding structural balance is difficult but desirable
 Effective structure and strategy depends on skillful use
of organizational control systems
 Control systems allow executives to track
organizational performance, identify concern areas,
and then take action to address concerns
 Three (3) basic types of control systems
 Output control
 Behavioral control
 Clan control
 Most firms use a combination of control systems
 Output control focuses on measurable results within
an organization
 E.g., website hits per day, cars produced per week, sales
orders per month, etc.
 Executives decide what output (performance) level is
acceptable, communicate their expectations to
employees, track performance, then make changes to
either the goals or employees (feedback) as needed
 Behavioral controls focus on controlling the actions of
individuals that ultimately lead to a result
 E.g., company dress policy, firm purchase procedures,
 Reflect policies and procedures that are often
communicated to employees through a rules and
regulations handbook
 Can be difficult to implement; proper
motivation/incentives is key
 Clan control relies on traditions, expectations, values,
and norms to lead individuals to work toward the good
of the organization
 E.g. “the way we do things here…”
 An informal type of control
 Based largely on organizational culture
 While effective, it can be extremely hard to change as
culture is inertial
 Many management fads have come and gone in business
 MBO (management by objectives): goal-setting between
supervisor and subordinate to provide structure and
 Sensitivity training: group discussions leading to greater selfawareness and/or self-actualization
 Quality circles: employee groups formed to innovate new
methods or processes to improve quality
 Strong culture: interest in Japanese management systems,
firms tried to develop strong collectivist cultures
 While most fads fade away with time, they remind us to be
true to our roots; contingency theory is no fad
 Extremely important decision that determines how
organizations structure resources, assets, and
liabilities, what strategy a business should use, and
how performance can be dispersed and taxed
 Three (3) basic forms:
 Sole proprietorship
 Partnership
 Corporation
 Many derivatives exist that have specialized purposes
 A firm owned by one individual
 Legally, an individual and their sole proprietorship are
one in the same
 An advantage of this unity is that after taxes are paid,
all the profits are theirs to keep or divide at will
 However, the individual has unlimited liability and any
losses in the business transfer to the individual
 Most sole proprietors are small businesses that try to
minimize overhead and other direct costs
 Two or more individuals enter into a partnership and share
ownership of an organization
Similar to sole proprietorship in that partners are
beneficiaries of profits (and losses)
Can be beneficial when partners complement each other
However, partnerships often break up and adding or
subtracting partners requires rewriting the partnership
Many partnerships are professional organizations that
combine a group of traditionally independent contractors
(e.g., law firms, engineering firms, etc.)
 Corporations are distinct entities which are viewed as
legally separate from their owners (two tax returns—
one for the corporation and one for the owner)
Separation distinction limits liability of owners
Profits and losses are attributed to the firm and must
be dispensed by owners (double-taxation)
Book error: corporations DO NOT have to issue stock
or be professionally-managed, although many are
Are the most expensive basic legal form to start, but
have considerable benefits for many
 S-corporations: avoids double-taxation since profits
and losses flow directly to the owner(s) tax return;
however, limits on # of shareholders (<100) discourage
large firms
 Limited liability company (LLC): granted by state, not
federal, laws; owners have limited liabilities, but must
choose to be taxed as one of the basic forms; very
 http://www.inc.com/articles/2000/06/19438.html