Chapter 5: Basic Organization Designs
Section 5.2 - Contingency Variables Affecting Structure
Key Terms
 Mechanistic organization
 Organic organization
 Unit production
 Mass production
 Process production
 Simple structure
 Functional structure
 Divisional structure
 Matrix structure
 Team-based structure
 Boundaryless organization
Summary
Contingency factors dictate the appropriate structure of an organization. Two generic
organization structure models – mechanistic and organic – are affected by strategy, size,
technology, and environment.
Mechanistic organizations are high in specialization, formulization, and centralization
combining the six elements of structure. They adhere to chain of command, a formal
hierarchy of authority exists, span of control is small, tall and impersonal structures exist,
and rules and regulations ensure the use of standard practices.
Organic organizations are highly adaptive and flexible. They can change rapidly since
jobs are not standardized, few formal rules exist, little direct supervision is required, and
training has instilled standards of professional conduct in the employees.
An organization’s structure is a means to help management achieve its objectives.
Therefore, structure should follow management’s corporate strategy. An organization
pursuing differentiation strategy must innovate to survive so a flexible and adaptable
organic structure will suit it best. However, a cost-leadership strategy seeking stability,
efficiency, and low cost goods and services will best be achieved with a mechanistic
organization. Size will significantly impact the structure – the larger and faster it grows,
the more likely a mechanistic organization will be utilized.
Technology is used by most organizations to convert inputs into outputs. Three
categories, representing three distinct technologies, have increasing levels of complexity
and sophistication. Unit production, the first category, produces items in small batches or
units. Mass production, the second category, utilizes large-batch production. The third
category, process production, includes continuous-process production and is the most
technically complex. Each differ by the degree of their routineness – the more routine the
technology the more standardized and mechanistic the structure. Environmental stability
is the final determining factor in organization structure. The more stable the environment
the more mechanistic the structure. Organic structures are well suited for dynamic and
uncertain environments.
There are various organization designs visible in contemporary organizations. Simple
structures have low work specialization, few rules governing the operations and authority
is centralized in the owner of the company. Simple structures are mostly used in smaller
businesses because it offers speed, flexibility, and clear accountability and is inexpensive
to maintain. As the size of the company increases, decision-making becomes slower and
risk increases in this type of structure since everything depends on the owner-manager.
As the production or sales increase significantly more formal rules are required,
departments are created and regulations are implemented, and management levels are
added – a bureaucracy is formed. Two of the most popular bureaucratic design options
are called functional and divisional structures.
A functional structure groups together similar and related occupational specialties to gain
advantage through work specialization. Positive results in economies of scale, minimized
duplication of personnel and equipment, employee comfortability and satisfaction will be
realized. Divisional structures are made up of self-contained units or divisions. The
divisions are autonomous with a division manager responsible for performance and
holding complete strategic and operational decision-making authority. Central
headquarters provides support and acts as an overseer to coordinate and control the
various divisions. While this type of structure focus on results, duplication of activities
and resources are common within divisions.
Matrix structures combine the advantages of functional specialization with the focus and
accountability that product departmentalization provides. Unique to this structure is the
need for employees to report to at least two bosses – functional department manager and
product or project manager. Its strength lies in the ability to coordinate multiple and
interdependent projects while retaining the economies resulting from keeping functional
specialists grouped together.
Team-based structures consist of work groups or teams that perform the organization’s
work. Team members have the authority to make decisions and there is no rigid chain of
command.
Boundaryless organizations are not defined or limited by boundaries or categories
imposed by the traditional structures. They attempt to eliminate vertical, horizontal, and
interorganizational barriers. Organizations needing to adapt to complex and dynamic
environments are best served by boundaryless organizations.
Section Outline
I.
Contingency Variables Affecting Structure
A. How is a mechanistic organization different from an organic organization?
B. How does strategy affect structure?
C. How does size affect structure?
D. How does technology affect structure?
E. How does environment affect structure?
II.
Organization Design Applications
A. What is a simple structure?
B. What do we mean by a bureaucracy?
1. Why do companies implement functional structures?
2. What is the divisional structure?
C. Can an organization design capture the advantages of bureaucracies while
eliminating their disadvantages?
D. What are team-based structures?
E. Why is there movement toward a boundaryless organization?