Chapter 12
Organizational Structure
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
Organizational Structure
• Organizational Structure – defines how job tasks are
formally divided, grouped and coordinated
– The organization structure determines reporting relationships and
helps to clarify individuals’ responsibilities
• When designing an organization structure, managers
consider 6 elements
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Work specialization
Departmentalization
Chain of command
Span of control
Centralization/decentralization
formalization
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
Work Specialization
• Work can be performed more efficiently if employees are allowed to
specialize
• Henry Ford was the first to really explore specialization, allowing him
to turn out many new cars a day from it
• Specialization is the degree to which tasks are subdivided into separate
jobs (the task of assembling an engine)
– Allows employees to improve through repetition
• Pay scales often reflect the degree of skills required for a job.
Employees acquire new skills to earn more
• Specialization also encourages the development of specialized tools to
further drive efficiency
• Specialization can lead to boredom, fatigue, stress, and lower
productivity and quality
• Building teams of interchangeable skills can help to reduce boredom
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
Departmentalization
• Departmentalization – is a basis on which jobs re grouped to
coordinate common or linked tasks
• 5 Key Types of Departmentalization
– Functional – orienting groups by similar task (engineering dept)
– Product – operating a group oriented around a complete product
(Business Units are similar when the group owns the P&L)
– Geographic – Common in Sales organizations, organizing by
territory
– Process – Orienting around a portion of a process (most common in
a manufacturing firm, such as finishing dept, procurement dept)
– Customer – Orienting around types of customers (Corel organizes
around retail, small business, corporate, government, legal)
• You can have more than one type of departmentalization in
a business
– Sales by territory, Marketing by product, Manufacturing by process
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
Chain of Command
• Chain of command – the unbroken line of authority from
the top to the bottom of the organization
• Defines who has the right to give out orders and expect
them to be obeyed
• Currently, this element of structuring organizations is used
less
• Teams have been empowered to carry out specific tasks
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
Span of Control
• Span of Control – refers to the number of levels and
managers an organization has
• All things equal, generally, the wider or larger the span, the
more efficient. Wider spans also encourage more
employee empowerment
• However, managers cannot manage an infinite number of
employees effectively (general rule is 6 to 18 employees)
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
Centralization/decentralization
• Centralization – the degree to which decision making is
concentrated at a single point in the organization
• The more decisions made by top brass without consulting
employees, the more centralized
• Decentralization is a growing trend to leverage front line
employees’ proximity to the action.
– Increases empowerment and job satisfaction
– Improves quality of decision making
– Allows senior management to concentrate on more strategic
matters
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
Formalization
• Formalization – the degree to which jobs within the
organization are standardized
• Formalization provides structure and can build quality but
takes away control and decision making
• Formalization is used most often in the food, airline,
automotive industries
• Read the Ethical Dilemma Exercise (p 489), as a class lets
discuss the 3 questions
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
Common Organization Structures
• Now that we know the elements that are considered when
designing an organization, what are the 3 most common
structures used
• 3 Most commonly used structures are
– The Simple Structure (for small businesses)
– The Bureaucracy (for large or government organizations)
– The Matrix (for agile companies)
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
The Simple Structure
• Most commonly used in small structures, it is almost the
default structure when no specific thought is put into it
• Characterized by
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low degree of departmentalization,
wide spans of control,
authority centralized to one person (the owner),
with little formalization
• The outcome is a flat structure, fast, simple, clear, flexible
• This structure gives a small company that “small company
feel”.
– But it is very difficult to maintain once the company grows and
owners cannot directly impact every decision
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
The Bureaucracy
• Characterized by
– Standardization of tasks and processes (filling out forms, you
guessed it, paper forms!!!, aaahhh)
– Highly routine tasks, specialization with formalized rules
– Centralized authority and clear vertical communication lines
• This structure strives for efficiency, economies, minimum
duplication of tasks
• It does well when individual employees leave the
organization as it is easy to train new staff on established
processes
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
The Matrix
• A very popular organization structure in the high-tech
world
• Combines the benefits of functional and product
departmentalization forms
• Functional specialists are grouped together to forma pool
of resources (developers, testers, documentation
specialists)
• Product departments (or Business Units), responsible for
the complete product, draft individuals from their pools
onto product teams
• Employees end up with 2 bosses
• Ads: Promotes product ownership and specialization
• Disads: Confusion, power struggles, stress on employees
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
Questions
• Innovation is key to a organization’s future
– What structure works best for an innovation strategy?
• How do you think an organization’s structure might be
affected by the adoption of technology?
• Consider one of the big 3 auto-makers. What type of
organization structure to we think they have?
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
Structural Designs of the
st
21
Century
• The Team
– Usually cross-functional teams with a specific set of goals, helps to
break down barriers and decentralizes decision making to the team
level
• The Modular Organization
– A small core organization which outsources major business
functions, relying on a network at the organizational level
– Teams are assembled for a finite period, then disband
– Ex: an ad agency which outsources its printing, accounting,
purchasing to concentrate on creative design
• The Virtual Organization
– Similar to a modular organization, except that in this case, business
partners also seek to share skills, costs and tap into each others
markets
– Akin to developing alliances to provide full service solutions
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
Why do Organization Structures differ?
• Strategy – structures are a means through which
organizations try to achieve their goals
– It is also a means through which they respond to environmental
change
• Organization Size – As organizations grow, different
stresses are placed on the organization, as a result it might
respond with a reorganization of resources
• Environment – The organizational environment is made up
of institutions or forces outside the organization that affect
its ability to perform
• Chapter 13
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP
Organizational Behaviour
Dave Ludwick, P.Eng, MBA, PMP