IIUI
Lecture Notes
International Islamic University
Islamabad
Introduction to Management
Lecture Notes
Organizational Structure & Design
Contributed By: Muhammad Adnan Khan
E.mail: adnan_comsats@yahoo.com
Contact: 0300-9568964
Introduction to Management
BS(CS)--IIUI
IIUI
Lecture Notes
Lecture out Line.
Introduction
Defining Organizational Structure
Work Specialization
Departmentalization
Chain of Command
Span of Control
Centralization and Decentralization
Formalization
Organizational Design Decisions
Mechanistic and Organic Organizations
Contingency Factors
Strategy and Structure
Size and Structure
Technology and Structure
Environmental Uncertainty and Structure
Common Organizational Designs
Traditional Organizational Designs
Simple Structure
Functional Structure
Divisional Structure
Contemporary Organizational Designs
Team-Based Structures
Project and Matrix Structures
Autonomous Internal Units
The Boundaryless Organization
The Learning Organization
Introduction to Management
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1.
Lecture Notes
INTRODUCTION.
Organizational structure can play an important role in an organization’s success. The process of
organizing—the second management function—is how an organization’s structure is created.
2.
DEFINING ORGANIZATIONAL STRUCTURE.
Managers are seeking structural designs that will best support and allow employees to effectively
and efficiently do their work.
A.
B.
Before we look at the elements of organizational structure and design, we need to define
some important terms.
1.
Organizing is the process of creating an organization’s structure.
2.
An organizational structure is the formal framework by which job tasks are
divided, grouped, and coordinated.
3.
Organizational design is the process of developing or changing an
organization’s structure. It involves decisions about six key elements: work
specialization, departmentalization, chain of command, span of control,
centralization/decentralization, and formalization. We need to take a closer look
at each of these structural elements.
Work specialization is the degree to which tasks in an organization are divided into
separate jobs. Another term for this is division of labor.
1.
2.
3.
4.
5.
C.
Work specialization can be traced back to the writings of Adam Smith.
Work specialization was seen as a way to make the most efficient use of
workers’ skills because workers would be placed in jobs according to their skills
and paid accordingly.
Other advantages of work specialization included improvement in employees’
skills at performing a task, more efficient employee training, and encouragement
of special inventions and machinery to perform work tasks.
Work specialization was viewed as a source of unending productivity
improvements. And it was—up to a certain point.
The human diseconomies from work specialization included boredom, fatigue,
stress, lowered productivity, poor quality of work, increased absenteeism, and
higher job turnover.
Once work tasks have been defined, they must be grouped together in some way through
a process called departmentalization—the basis on which jobs are grouped in order to
accomplish organizational goals. There are five major ways to departmentalize.
1.
Functional departmentalization is grouping jobs by functions performed.
2.
Product departmentalization is grouping jobs by product line.
3.
Geographical departmentalization is grouping jobs on the basis of territory or
geography.
4.
Process departmentalization is grouping jobs on the basis of product or
customer flow.
Introduction to Management
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Lecture Notes
D.
5.
Customer departmentalization is grouping jobs on the basis of common
customers.
6.
Two current trends in departmentalization include:
a.
Customer departmentalization continues to be a highly popular
approach because it allows better monitoring of customers’ needs and
responding to those changes in needs.
b.
Cross-functional teams, a hybrid grouping of individuals who are
experts in various specialties (or functions) and who work together, are
being used along with traditional departmental arrangements.
The chain of command is the continuous line of authority that extends from the upper
organizational levels to the lowest levels and clarifies who reports to whom. Three
related concepts include authority, responsibility, and unity of command.
1.
2.
E.
3.
Unity of command is the classical management principle that a subordinate
should have one and only one superior to whom he or she is directly responsible;
that is, a person should report to only one manager.
4.
As organizations empower employees and as technology breaks down the
barriers between organizational levels, these concepts (chain of command,
authority, responsibility, and unity of command) don’t carry as much weight as
they used to.
The concept of span of control refers to the number of subordinates a manager can
supervise effectively and efficiently.
1.
The span of control concept is important because it determines how many levels
and managers an organization will have.
2.
What determines the “ideal” span of control? Contingency factors such as the
skills and abilities of the manager and the employees, the characteristics of the
work being done, similarity of employee tasks, the complexity of those tasks, the
physical proximity of subordinates, the degree to which standardized procedures
are in place, the sophistication of the organization’s information system, the
strength of the organization’s culture, and the preferred style of the manager will
influence the ideal number of subordinates.
The trend in recent years has been toward larger spans of control.
3.
F.
Authority is the right inherent in a managerial position to tell people what to do
and to expect them to do it.
Responsibility is the obligation or expectation to perform.
The concepts of centralization and decentralization address who, where, and how
decisions are made in organizations.
Introduction to Management
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Lecture Notes
1.
2.
3.
4.
G.
Formalization refers to the degree to which jobs within an organization are standardized
and the extent to which employee behavior is guided by rules and procedures.
1.
2.
3.
4.
3.
Centralization is the degree to which decision making is concentrated at a
single point in the organization, usually in the upper levels of the organization.
Decentralization is the handing down of decision-making authority to lower
levels in an organization.
The trend is toward decentralizing decision making in order to make
organizations more flexible and responsive.
A number of factors will influence the amount of centralization or
decentralization an organization uses.
In a highly formalized organization, employees have little discretion, and there’s
a high level of consistent and uniform output. Formalized organizations have
explicit job descriptions, lots of organizational rules, and clearly defined
procedures.
In a less-formalized organization, employees have a lot of freedom and can
exercise discretion in the way they do their work.
Standardization not only eliminates the possibility that employees will engage in
alternative behaviors, it even removes the need for employees to consider
alternatives.
The degree of formalization can vary widely between organizations and even
within organizations.
ORGANIZATIONAL DESIGN DECISIONS.
Organizations aren’t structured the same way. Top managers put a lot of thought into how best to
design the organization’s structure. That “best” design depends on four contingency variables:
the organization’s strategy, size, technology, and degree of environmental uncertainty.
A.
There are two generic models of organizational design.
1.
2.
3.
B.
A mechanistic organization is an organizational structure that’s characterized
by high specialization, rigid departmentalization, narrow spans of control, high
formalization, a limited information network, and little participation in decision
making by low-level employees.
An organic organization is a structure that’s highly adaptive and flexible with
little work specialization, minimal formalization, and little direct supervision of
employees.
When is each design favored? It “depends” on the contingency variables.
Contingency factors—appropriate structure depends on four contingency variables:
Introduction to Management
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Lecture Notes
1.
Strategy and structure.
One of the contingency variables that influences organizational design is the
organization’s strategy.
a.
b.
4.
Alfred Chandler did the original work on the strategy-structure
relationship. His finding that structure followed strategy pointed out that
as organizations changed their strategies, they had to change their
structure to support that strategy.
Most current strategy-structure frameworks tend to focus on three
strategy dimensions:
1)
Innovation—needs the flexibility and free flow of information of
the organic organization
2)
Cost minimization—needs the efficiency, stability, and tight
controls of the mechanistic organization
3)
Imitation—which uses characteristics of both mechanistic and
organic
2.
Size and structure.
There’s considerable historical evidence that an organization’s size significantly
affects its structure. Larger organizations tend to have more specialization,
departmentalization, centralization, and formalization although the size-structure
relationship is not linear.
3.
Technology also has been shown to affect an organization’s choice of
structure.
a.
Every organization uses some form of technology to transform inputs
into outputs.
b.
Joan Woodward’s study of structure and technology found that
organizations adapted to their technology. She found that three distinct
technologies had increasing levels of complexity and sophistication.
1)
Unit production is the production of items in units or small
batches.
2)
Mass production is large-batch manufacturing.
3)
Process production is continuous-process production.
c.
Woodward found in her study of these three groups that distinct
relationships existed between these technologies, the subsequent
structure of the organization, and the effectiveness of the organization.
4.
Environmental uncertainty and structure.
The final contingency factor that has been shown to affect organizational
structure is environmental uncertainty. One way to manage environmental
uncertainty is through adjustments in the organization’s structure. The more
uncertain the environment, the more flexible and responsive the organization
may need to be.
COMMON ORGANIZATIONAL DESIGNS.
A.
Traditional organizational designs.
Introduction to Management
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Lecture Notes
We now need to look at various organizational designs that you might see in today’s
organizations.
1.
2.
3.
B.
A simple structure is an organizational design with low departmentalization,
wide spans of control, authority centralized in a single person, and little
formalization.
a.
Its strengths are its flexibility, speed, and low cost to maintain.
b.
Its major drawback is that it’s most effective in small organizations.
As an organization grows, the structure tends to become more specialized and
formalized. When contingency factors favor a bureaucratic or mechanistic
design, one of two options is likely to be used.
One option expands functional departmentalization into the functional
structure, which is an organizational design that groups similar or related
occupational specialties together.
The other option is the divisional structure, which is an organizational structure
made up of autonomous, self-contained units.
Contemporary organizational designs.
However, many of today’s organizations are finding that the traditional hierarchical
organizational designs aren’t appropriate for the increasingly dynamic and complex
environments they face.
1.
Team-based structures.
One of the newer concepts in organizational design is the team-based structure,
which is an organizational structure made up of work groups or teams that
perform the organization’s work.
2.
Project and matrix structures.
Another variation in organizational arrangements is based on the fact that many
of today’s organizations deal with work activities of different time requirements
and magnitude.
a.
One of these arrangements is the matrix organization that assigns
specialists from different functional departments to work on one or more
projects being led by project managers.
b.
Another of these designs is the project structure, which is a structure in
which employees are permanently assigned to projects.
3.
Autonomous Internal Units.
Some large organizations have adopted a structure that’s described as
autonomous internal units, a design in which there are independent,
autonomous decentralized business units, each with its own products, clients,
competitors, and profit goals.
4.
The Boundaryless Organization.
Another approach to organizational design is the boundaryless organization,
which describes an organization whose design is not defined by, or limited to,
Introduction to Management
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Lecture Notes
the horizontal, vertical, or external boundaries imposed by a predefined
structure.
5.
The Learning Organization.
Finally, some organizations have adopted an organizational philosophy of a
learning organization—an organization that has developed the continuous
capacity to adapt and change because all members take an active role in
identifying and resolving work-related issues. Exhibit 10.9 on p. 272 shows the
characteristics of a learning organization.
Some Important Short Questions.
1.
Why is organizing important?
Organizing, or the process of creating an organization’s structure, is important for managers
because an appropriate structure allows employees to effectively and efficiently do their work
while accomplishing organizational goals and objectives.
2.
What are the advantages and drawbacks of work specialization?
The advantages of work specialization are that employees’ performance skills improve and
increase through repetition, less time is spent in changing tasks, and employee training is more
efficient when tasks are specific, repetitive, and limited. The drawbacks are employee
boredom, fatigue, stress, low productivity, poor quality of work, increased absenteeism, and
higher job turnover.
3.
Describe the ways that managers can departmentalize work activities.
Managers can departmentalize work activities by function, product, geographic area, process,
or customer.
4.
How is the chain-of-command concept used in organizing?
The chain of command is an unbroken line of authority that extends from the upper levels of
the organization to the lowest levels and clarifies who reports to whom.
5.
Why is span of control important to organizing decisions?
The span of control is important because it determines the number of levels and managers an
organization has. The wider or larger the span of control, the more efficient the organization
design.
6.
Describe the factors that influence more centralization and those factors that
influence more decentralization.
Factors that influence more centralization include when the environment is stable, when lowerlevel managers are not as capable or experienced at making decisions as upper-level
managers, when lower-level managers do not want to have a say in decisions, when decisions
are significant, when the organization is facing a crisis or the risk of company failure, when the
Introduction to Management
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Lecture Notes
company is large, and when effective implementation of company strategies depends on
managers’ retaining say over what happens. Factors that influence more decentralization
include when the environment is complex and uncertain, when lower-level managers are
capable and experienced at making decisions and want a voice in decisions, when decisions are
relatively minor, when corporate culture is open to allowing managers to have a say in what
happens, when the company is geographically dispersed, and when effective implementation of
company strategies depends on managers’ having involvement and flexibility to make
decisions.
7.
Describe the differences between mechanistic and organic organizations.
The mechanistic organization is a rigid and tightly controlled structure, whereas the organic
organization is highly adaptive and flexible.
8.
Summarize the strategy-structure relationship.
The relationship between strategy and structure can be summarized by the rule that structure
should follow strategy.
9.
How does the size of an organization influence its structure?
Organization size influences structure in that large organizations tend to have more
specialization, departmentalization, centralization, and rules and regulations than do small
organizations.
10.
How does technology affect an organization’s structure?
In general, the more routine the technology, the more standardized the structure can be.
Organizations with more nonroutine technology are more likely to have organic structures.
11.
What role does environmental uncertainty play in organizational design?
The more scarce, dynamic, and complex the environment—that is, the greater the
uncertainty—the greater the need for the flexibility offered by an organic design. On the other
hand, in abundant, stable, and simple environments, mechanistic designs tend to be most
effective.
13.
When would the simple structure be the preferred organizational design?
The simple structure is most widely used by small businesses in which the owner and the
manager are one and the same.
14.
Contrast functional structures and divisional structures.
Under a functional structure, management designs an organization based on grouping together
similar or related occupational specialties. The divisional structure is one made up of separate
units or divisions.
15.
What are the strengths and weaknesses of the traditional organizational designs?
The strengths of the simple structure are its flexibility, speed, and low cost to maintain. Its
major drawback is that it’s most effective in small organizations. The strength of the functional
structure lies in the cost-saving advantages that accrue from specialization. The biggest
weakness is that the organization can lose sight of its best overall interests in the pursuit of
Introduction to Management
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Lecture Notes
functional goals. Also, functional specialists tend to become insulated and have little
understanding of what others in the organization are doing. The strength of the divisional
structure is that it focuses on results. The major disadvantage is the duplication of activities
and resources. Exhibit 10.7 outlines the strengths and weaknesses of each of these traditional
organizational designs.
16.
Describe a team-based structure.
In a team-based structure, the entire organization is made up of work groups or teams that
perform the organization’s work.
17.
Compare and contrast a matrix structure and a project structure.
A matrix structure is a design that assigns specialists from different functional departments to
work on one or more projects being led by a project manager. A project structure is one in
which employees and the work they do are permanently assigned to projects. Unlike the matrix
structure, it has no formal departments that employees return to at the completion of a
project; instead, they take their specific skills and capabilities to other work projects.
18.
When might an organization design its structure around autonomous internal
units?
Some large organizations with numerous business units or divisions have adopted autonomous
internal units, which are separate decentralized business units each with its own products,
clients, competitors, and profit goals.
19.
What is a boundaryless organization?
A boundaryless organization is one whose design is not defined by, or limited to, the
horizontal, vertical, or external boundaries imposed by a predefined structure.
20.
Describe the types of organizational boundaries that are minimized or eliminated
in boundaryless organizations.
Horizontal boundaries imposed by work specialization and departmentalization, vertical
boundaries that separate employees into organizational levels and hierarchies, and the external
boundaries that separate the organization from its customers, suppliers, and other
stakeholders are types of organizational boundaries that are minimized or eliminated in
boundaryless organizations.
21.
Describe the characteristics of a learning organization.
A learning organization is one that has developed the continuous capacity to adapt and change
because all its members take an active role in identifying and resolving work-related issues.
Answers to Thinking About Management Issues.
1.
Can an organization’s structure be changed quickly? Why or why not?
Introduction to Management
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Lecture Notes
The speed of changing an organization’s structure depends on its size. A small organization
could change its structure much more rapidly than a large one. But even a large organization can
change its structure and often does in response to changing environmental conditions and
changing strategies.
2.
What types of skills would a manager need to effectively work in a project structure? In a
boundaryless organization? In a learning organization?
In all of these types of organizations, flexibility and adaptability would be critical. In the project
structure, conflict management skills might be particularly useful. In a boundaryless
organization, the ability to deal with people at all levels and in all areas of the organization might
be useful. Finally, in a learning organization, a person would need the ability to communicate
both by listening and by speaking because sharing information is important.
4.
The boundaryless organization has the potential to create a major shift in our living and
working patterns. Do you agree or disagree? Explain.
Students’ responses to this are likely to vary. This might be an interesting question to set up as a
debate. Have students break into teams and assign the teams one side or the other. Give them a
chance to come up with their arguments, and then let them present their information.
5.
With the availability of advanced information technology that allows an organization’s work
to be done anywhere at any time, is organizing still an important managerial function? Why
or why not?
Although an organization’s work may be done anywhere at any time, organizing is still an
important managerial function because the work still has to be divided, grouped, and
coordinated. And that’s what organizing involves.
Introduction to Management
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