Chapter 10:
The Challenge of Finding
An Appropriate
Structure
By Muhammet Said
Dinç
Contents
Explain what is required of the
organization's structure
 Identify how environmental changes have
led to the demand for new structures
 Discuss whether bureaucracy is dead
 Discuss how traditional approaches to
organizational structure are evolving
 Describe emerging organizational forms.

Functions of Structure
Functions of Structure (cont.)
Implementation of strategy
 Strategy comprises:

• an organization's goals and the courses of action
• the allocation of resources necessary for the
organization to achieve them.
• The structure must support the
achievement of these plans; if it doesn't,
then it indicates that the structure needs to
change.
Functions of Structure (cont.)
Defining areas of responsibility
 Performance is evaluated and rewards
allocated based on the areas of
responsibility.
 This acts to powerfully direct the behavior
of managers.

Functions of Structure (cont.)
 Providing
control mechanisms
 Without control mechanisms:
• organizations would soon become
directionless,
• important tasks would be neglected,
• decision making would slow and the quality of
decisions deteriorate, and
• self-interest would be elevated over the
organization's interest.
Functions of Structure (cont.)
 Facilitating
the flow of production
 Productions must be
• produced at a cost and quality acceptable to the
consumer and
• competitive with others doing the same thing.
 By creating organizational
• promoting efficiency and
• using the latest technologies,
forms,
• Organizational competitiveness will be
facilitated.
Functions of Structure (cont.)
• Promoting coordination and
information flows.
• In organizations, most authority structures
are vertical, running from the top to the
bottom of the organization.
• But as production tends to flow from one
department to the other, it is important
that the structure facilitate the necessary
information flows which support the flow
of production.
Functions of Structure (cont.)
• Monitoring and responding to
environmental change
• All organizations need to build within their
structure the capacity
• to monitor environmental changes and
• to respond appropriately to them.
• Without this capacity, there will be dissonance
between the organization and its environment
Functions of Structure (cont.)
 Maintenance
of organizational
knowledge and learning
 Individuals
are the repository of
knowledge but their knowledge is
specialized.
 Organizational
knowledge occurs when
the design and production of a product or
service is too complex for one person to
understand.

the manufacture of motor cars and aircraft
The Origins of Organizational
Change
Businesses, and organizations, have changed
very rapidly over the past 25 years.
 Many changes created new management
challenges and altered the world of work.
 In order to identify the way in which these
changes are reconstructing organizations,
we need to be aware of

• what they are and
• how they have changed organizational
environments.
The Origins of Organizational
Change (cont.)
The Origins of Organizational
Change (cont.)
 Changes
in government policy
 Prior to 1980’s, government
• Was a major owner of companies, such as the
Commonwealth Bank and Qantas.
• A number of industries, such as banking, transport,
telecommunications and energy, were highly
regulated: that is, the government determined
• who could enter the industry,
• what was to be charged and
• what the levels of competition were to be.
The Origins of Organizational
Change (cont.)

During the 1980s these policies were
progressively abandoned. Governments in
most Western countries
• sold their trading enterprises
• deregulated industries by allowing market forces
to operate and they moved to progressively
lower tariff barriers
• As a result of this, globalization started to
accelerate
• started to question the way they managed their
own operations, such as schools, universities
The Origins of Organizational
Change (cont.)
Enhanced levels of competition
 The result of government policies is that
most organizations now experience high
levels of competition.
 No longer do businesses have a guaranteed
share of markets or the comfort of
government protection.

The Origins of Organizational
Change (cont.)
Manufacturers faced increased competition
from imported goods, leading to significant
changes in practices in the sector.
 These included

• the merger or exit of many companies,
• the sourcing of all or part of their product
overseas.
The Origins of Organizational
Change (cont.)
Globalization
 Globalization created many opportunities
for companies to expand overseas as other
countries lowered barriers to goods. But
expansion

• demanded management skills and knowledge
that companies in many cases did not possess.
• exposed companies to new risks, such as
differing cultural standards, currency variations
and unfamiliar legal systems.
The Origins of Organizational
Change (cont.)
Technological innovations
 Many innovations are obvious:

• mobile phones,
• the Internet
• e-commerce
• These innovations collectively mean that
we can communicate faster and cheaper and
• process and transmit far more information than
we could previously.
•
The Origins of Organizational
Change (cont.)
Demands for profitability
 Investors place heavy demands on
performance; they are seeking increasing
profitability and growth.
 As a result, management is under pressure
to use resources productively and show an
adequate return on assets.

The Origins of Organizational
Change (cont.)
Commodification of markets
 As a large number of product categories
reach the mature phase of their life cycle, it
is becoming increasingly difficult to
differentiate products.
 In such markets, advantage goes to the
producers with the lowest costs.
 Firms have to try to move down the cost
curve.

The Origins of Organizational
Change (cont.)
End of the public service mentality
 Government services, such as those of
administration, health and education, have
seen the environment they operate in
radically change.
 Governments have cut budgets for
education and told universities to become
more entrepreneurial in raising funds.

• Outsource or privatize
The Origins of Organizational
Change (cont.)
Social changes and expectations
 The social contract based on the male
breadwinner being given a job for life in
return for loyalty has ended, and new
employment practices are emerging.
 Downsizing, redundancies and plant and
office closures, even bankruptcies, are now
common.

The Origins of Organizational
Change (cont.)

Organizations have also had to alter
established practices in order to
accommodate legislative changes in relation
to women and the disabled.

Society also expects high ethical standards,
socially responsible attitudes and sustainable
production methods, and managers must be
prepared to provide these.
Is bureaucracy dead?


Bureau means office in French, so bureaucracy
roughly translates as rule by office.
Weber's bureaucracy
• The term, bureaucracy, was introduced by Max Weber
• One of Weber's interests was in how to manage large
industrial organizations.
• He proposed seven principles which, when applied,
would lead to rational and efficient operations.
• A number of his proposals are structural, others are
behavioural.
Is bureaucracy dead?(cont.)



He taught both before and
during the first world war at
the universities of Freiburg,
Heidelberg and Munich.
He wrote on a wide range of
topics, extending from religion
and capitalism through to
Chinese social organization.
“The Protestant Ethic and the
Spirit of Capitalism” and “The
Theory of Social and
Economic Organization”
Max Weber (1864-1920)
was a German sociologist
Is bureaucracy dead?(cont.)
1.Division of labor: division of job into simple,
routine and well-defined tasks. job
specialization
 2.Well-defined authority hierarchy: each lower
position is under the supervision and
control of a higher one.
 3.High formalization. There is dependence
on formal rules and procedures to ensure
uniformity and to regulate the behavior of
job holders.

Is bureaucracy dead?(cont.)
• 4. Impersonal nature: Sanctions are applied
uniformly and impersonally to avoid personal
preferences of members.
• 5. Employment decisions based on merit:
Selection and promotion decisions are based
on technical qualifications, competence and
performance of the candidates.
• 6. Career tracks for employees: Members are
expected to pursue a career in the
organization.
Is bureaucracy dead?(cont.)


Distinct separation of members' organizational and
personal lives. The demands and interests of personal
affairs and kinship ties are kept completely separate
from work-related activities.
Positive qualities in Weber's 'ideal type'
• the focus on merit when selecting employees;
• security of employment to protect employees
against the exercise of arbitrary authority and
changes in skill demands;
• rules and regulations to promote
impartiality(neutrality) in decision making;
• the establishment of clear lines of authority and
responsibility.
Is bureaucracy dead?(cont.)
 Weber's
bureaucracy had its structural
elements. These include:
• division of labor,
• rules and regulations to cover all
eventualities,
• a management hierarchy with clearly
defined areas of responsibility.
Is bureaucracy dead?(cont.)
Summarizing Weber's contribution
 The central theme in Weber's bureaucratic
model is standardization.
 In this we can see that many of its features
are present in the machine bureaucracy.
 The behavior of people in bureaucracies is
predetermined by standardized structures
and processes.

Is bureaucracy dead?(cont.)
 The
model itself can be divided into
three groups of characteristics:
• those that relate to the structure and
function of the organization,
• those that deal with means of rewarding
effort,
• those that deal with protection for
individual members.
The Downside of Bureaucracy
The Downside of Bureaucracy
(cont.)

Goal displacement:
• Bureaucracy is attacked most often for
encouraging goal displacement—that is, the
displacement of organizational goals by subunit
or personal goals.
• The rules and procedures become more
important than the ends they were designed to
serve, the result being goal displacement and
loss of organizational effectiveness.
The Downside of Bureaucracy
(cont.)
Another criticism of bureaucracy proposes
that high formalization bureaucracy creates
insecurities in those in authority that lead
to what has been called bureaupathic
behavior.
 Decision makers use adherence to rules to
protect themselves from making errors.

The Downside of Bureaucracy
(cont.)

Inappropriate application of rules and
regulations:
• Related closely to the problem of goal
displacement is the undesirable effect of
members' applying formalized rules and
procedures in inappropriate situations.
• Employee alienation:
•
Members perceive the impersonality of the
organization as creating distance between them
and their work.
The Downside of Bureaucracy
(cont.)
• High specialization further reinforces one's
feeling of being irrelevant: routine activities can
easily be learned by others, making employees
feel interchangeable and powerless.
• In professional bureaucracies formalization must
be lessened, otherwise the risk of employee
alienation is very high.
• Concentration of power:
•
It is a fact that bureaucracy generates an
enormous degree of power in the hands of a
very few.
The Downside of Bureaucracy
(cont.)

Inability to adapt to change:
• Bureaucracies have a well-deserved reputation for
being slow to change.
• Environments can change around them, but
bureaucracies tend to be always lagging in
introducing new ways of doing things.
• Overstaffing:
•
Because of the reluctance to reduce workforces, at
least in former years, many bureaucracies suffer
from a reputation for being overstaffed and for
those employed by them being underworked.
The Downside of Bureaucracy
(cont.)

Tendency towards large size and low
productivity:
• Until the waves of downsizing in the 1980s and 90s
bureaucracies, in both business and government,
had a reputation for being too big and costing too
much to run.
• Too many people were doing too many
unnecessary things and there was enormous
resistance to do anything about it.
• Non-member frustration:
•
The last negative consequence that we address
relates to those outside the organization who must
deal with the bureaucracy.
Freshening Up Old ApproachesBureaucracy revised
• The significant changes in environment and
technology to which organizations have had
to adapt have led to modifications to
traditional bureaucracies.
• The structural elements of Weber's
bureaucracy and the machine bureaucracy
are very similar.
• These include job specialization, high
formalization and a clear management
hierarchy.
Freshening Up Old ApproachesBureaucracy revised (cont.)
Emergent trends in organizational design
Freshening Up Old ApproachesBureaucracy revised (cont.)

Focusing management effort on key
responsibilities:
• Structural changes are emerging with the creation
of new divisions and units which are oriented
around specialized segments.
• For instance, a company producing a range of
building products.
• It would now have divisions, each with its own manager,
responsible for bricks, cement and plasterboard.
• Each of the divisional managers would then be responsible,
and accountable, for product management and satisfying
the customers of their particular division.
• Their success in doing this would be reflected in the
profitability of their division.
Freshening Up Old ApproachesBureaucracy revised (cont.)

Rethinking the centralizationdecentralization balance:
Accompanying the change identified in the
previous section, has been a rethinking of the
centralization-decentralization balance.
 There is little point in holding managers
accountable for a certain task if they have
insufficient authority to operate in their role.
 There has thus been a move to decentralize
decision making.

Freshening Up Old ApproachesBureaucracy revised (cont.)

Moving focus from internal processes to
external adaptation:

One of the dysfunctions of many organizations in fastchanging environments is that their focus is far too
firmly set on adhering to the rules rather than
responding to the needs for change.
In other words, management has an inward rather
than an outward focus.
If we structure management responsibilities in such a
way that their performance is assessed against
customer or market-focused criteria, we are likely to
find that the nature of formalization changes in order
to better achieve the organization's goals.


Freshening Up Old ApproachesBureaucracy revised (cont.)

Greater use of market controls:
• For a machine bureaucracy, we aggregate the cost
of all activities and deduct it from revenue to arrive
at profit.
• Structural changes over the past 20 years have
moved towards dividing the business into minibusinesses, each with its own financial and
performance goals.
• Managers are then made responsible for these.
• Where costs cannot be offset against revenue, such
as for a specialized department, then budgets are
set in place and managers are expected to achieve
them.
Freshening Up Old ApproachesBureaucracy revised (cont.)

Improving communication flows:

An emergent need is to improve communication flows and
promote adaptability without compromising the benefits
that bureaucracy can provide.
Most organizations have invested heavily in information
technology to increase their ability to process information.
Managers can be specifically allocated to the task of
coordination.
Their role may be broadly described as crossing functional
boundaries and integrating the work of specialists. a brand
manager, IT coordinators
open-plan offices, communication around water coolers




Freshening Up Old ApproachesBureaucracy revised (cont.)
Working back from the customer:
 While organizations cannot actually be built
around customers, responding to customer
needs can become one of the design
focuses of the organization.
 This involves monitoring customer needs
and product perceptions, then designing the
organization to respond to these.
 This is in contrast to placing the main
emphasis on production.

Freshening Up Old ApproachesBureaucracy revised (cont.)

Concentrating effort on core
competencies:
• A core competency is something that
competitors have difficulty in replicating.
• As the level of competition increases, most
businesses are finding that they can best
maximize their returns by concentrating on just
a few products where they have a comparative
advantage.
Freshening Up Old ApproachesBureaucracy revised (cont.)

Improving availability of information:
• The expanding use of IT permits information to
be more widely spread throughout the
organization.
• This facilitates the flow of goods and materials
and assists in serving customers.
Emerging Organizational
Innovations

Table shows what is likely to become less
important in the future and what is likely to
become more common.