Chapter 21
Organization
Design
Objectives
Distinguish between mechanistic and
organic structures
Describe the three traditional types of
organizational structures and their
advantages and disadvantages
Describe horizontal and network
structures and their advantages and
disadvantages
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…Objectives
Distinguish between formal and informal
organizational structure
Describe the boundaryless organization
Explain the differentiation-integration
issue in organization design
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The 7-S Model
Structure
Strategy
Systems
Skills
Style
Staff
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Shared
Values/Goals
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Mechanistic Vs. Organic
Structures
Mechanistic
Specialized
Tasks
Organic
Common
Rigidly Defined
Tasks
Broadly Defined
Centralized
Authority
Decentralized
Vertical Communication Horizontal
Rigid Departmentalization
Unit
Clean Chain of Command
Hierarchy
Cross-Functional Teams
Cross-Hierarchical Teams
Narrow Span of Control Wide
High
Formalization Low
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Organizational Structure Defined
Organizational structure refers to the
pattern of roles, authority, and
communication that determines the
coordination of the technology and
people within an organization
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Functional Structure
Marketing
Manufacturing
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Accounting
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Functional Structure
Advantages
 Develop functional
expertise
 Loyalty to function and
standards of performance
 Can assign specialists
where needed reducing
duplication
 Promote standardization
 Facilitates centralized
purchasing
Organizational Behavior: An Experiential Approach 8/E
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Disadvantages
 Integration and
coordination
difficulties
 Slow decision
making
 Information sharing
and collaboration
can be problematic
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When to Use a Functional
Structure?
Size: small
Product or service: single
Number of markets: small
Cycle time: long
Organizational Behavior: An Experiential Approach 8/E
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21 -8
Divisional Structure
Marketing
Product
Product
Division 1
Division 2
Manufacturing
Accounting
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Marketing
Manufacturing Accounting
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Divisional Structure
Advantages
 Focus leads to
improvements
 Customer satisfaction
 Responsiveness to
market and
environment
 Coordination across
functions
 Decentralized decision
making
Organizational Behavior: An Experiential Approach 8/E
Joyce S. Osland, David A. Kolb, Irwin M. Rubin and Marlene E. Turner
Disadvantages
 Duplication of effort and
resources
 May require more
equipment
 Lost economies of scale
 Decreased opportunity
for technical
specialization
 Standardization is
harder
 Coordination and
collaboration problems
 Client service?
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When to Use a Divisional
Structure?
Products or services: several
Environment: rapidly changing and
unpredictable
Technology: nonroutine and depends on
several functional areas
Size: large
Strategy: adaptive, customer service
Organizational Behavior: An Experiential Approach 8/E
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21 -11
Matrix Structure
Marketing
Manufacturing
Accounting
Product Division 1
Product Division 2
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21 -12
Matrix Structures - Defined
Matrix structures have a dual focus, usually
products and functions. It is an attempt to
profit from the advantages of both functional
and product structures
However, having both a product boss and
a functional boss can cause confusion and
conflict
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When to Use a Matrix
Structure?
Pressure to share scarce resources
across product lines
Environmental pressure for two or more
critical outputs
Environment is both complex and
uncertain
Organizational Behavior: An Experiential Approach 8/E
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Horizontal Structures - Defined
Horizontal corporations are flat structures
with minimal layers of management and
self-managing multidisciplinary teams
organized around core processes
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21 -15
Horizontal Hospital Structure
Senior
Management
Nurse
Coordinators
Team
Team
Team
Patient Flow
Nurse
Coordinators
Team
Team
Team
Patient Flow
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21 -16
When to Use Horizontal
Structures?
Short product life and development cycles
Customer satisfaction is a goal
Environment is uncertain
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21 -17
Network Structure - Defined
Network organizations consist of brokers
who subcontract needed services to
designers, suppliers, producers, and
distributors linked by full-disclosure
information systems and coordinated by
market mechanisms
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Network Organization
Structure
Producers
Designers
Brokers
Suppliers
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Marketers &
Distributors
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When to Use Network
Structures?
Need to concentrate on core function and
can subcontract the rest
Can’t afford large start-up costs
Fast-paced changing industries
Environment is uncertain
Organizational Behavior: An Experiential Approach 8/E
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21 -20
Network Idealists - Defined
Networked idealists are initially nonprofit entrepreneurs who develop
organic, cellular distributed network
structures to accomplish their work
Organizational Behavior: An Experiential Approach 8/E
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Characteristics of Networked
Idealists
Guerilla infrastructures and radical architectures
– bypass traditional entry barriers
Winning by not trying – “a different game”
Value-based motivation – do good and make $
Attack strengths – attack strong incumbents
Knowledge from the people – partners and
customers add value
Organizational Behavior: An Experiential Approach 8/E
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21 -22
Networked Idealists
Inner circle
Founder
Active users
Passive users
Organizational Behavior: An Experiential Approach 8/E
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21 -23
Characteristics of
Boundaryless Organizations
Permeable internal and external
boundaries
Good ideas welcomed regardless of
their source
Cross-functional customer service
teams
Delegated authority
Shared information
Organizational Behavior: An Experiential Approach 8/E
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21 -24
Informal Structures - Defined
The informal structure refers to natural
formations, informal leadership, and
communication patterns that evolve in an
organization and run parallel to the formal
structure
Organizational Behavior: An Experiential Approach 8/E
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21 -25
Differentiation Vs. Integration Defined
Differentiation:
The differences in
cognitive and
emotional orientations
among managers in
different functional
departments, and the
difference in formal
structure among
these departments
Organizational Behavior: An Experiential Approach 8/E
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Integration:
The behaviors and
structures used by
differentiated
organizational subunits
to coordinate their work
activities
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Differentiation
Characteristic
Goals
R&D Department Manufacturing
Department
New
Efficient
developments,
production
quality
Sales
Department
Customer
satisfaction
Time horizon
Long
Short
Short
Interpersonal
orientation
Mostly task
Task
Social
Formality of
structure
Low
High
High
Organizational Behavior: An Experiential Approach 8/E
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21 -27
Contingencies That Influence
Design
Strategy
Environment
Technology
Size
National culture
People and their shared values
Organizational Behavior: An Experiential Approach 8/E
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21 -28
Environmental Rate of
Change
Environmental Characteristics
and Recommended
Organizational Designs
Stable
Unstable
Low Uncertainty
Formal, centralized mechanistic
structure with few departments
Moderate Uncertainty
Formal, centralized mechanistic
structure with many depts. and
integration roles
Moderate Uncertainty
Decentralized, organic structure
with participation and teamwork;
few departments; boundary
spanning roles
High Uncertainty
Decentralized, organic structure;
participation and teamwork;
numerous departments and
boundary spanners
Simple
Complex
Environmental Complexity
Organizational Behavior: An Experiential Approach 8/E
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21 -29
International Structures –
Strategic Alliances
Licensing – allow products to be sold for
a fee by foreign firms with access to global
markets and distribution channels
Organizational Behavior: An Experiential Approach 8/E
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…International Structures –
Strategic Alliances
Joint ventures – separate business
entities designed to enter new markets,
formed by two or more firms that share
development and production costs
Consortia – groups of independent
companies that join together to share
skills, resources, costs, and access to one
another’s markets
Organizational Behavior: An Experiential Approach 8/E
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21 -31
International Structures Integrated Network Models
1) Distributed, specialized resources and
capabilities
2) Large flows of components, products,
resources, people, and information
among interdependent units
3) Complex processes of coordination and
cooperation in an environment of shared
decision making
Organizational Behavior: An Experiential Approach 8/E
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21 -32
International Structures –
The Family Business
 Most common structure worldwide is the
family business
 Dominant values in Chinese family
businesses are: patrimonialism,
paternalism, hierarchy, mutual
obligations, responsibility, familialism,
personalism, and connections
Organizational Behavior: An Experiential Approach 8/E
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21 -33
Keiretsu and Chaebols Defined
Japanese keiretsu – complex inter-firm
networks that combine market exchange
and non-economic social relations
Korean chaebols – business group
consisting of large companies owned and
managed by family members or relatives
in many diversified business areas
Organizational Behavior: An Experiential Approach 8/E
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21 -34
When Does Culture Matter
in Design?
High power distance cultures tend toward
structures with centralized decision
making. Low PD cultures prefer
decentralization
High uncertainty avoidance generally
correlates with greater formalization and
more formal structures
Matrix structures did not fit the French
respect for hierarchy and unity of
command
Organizational Behavior: An Experiential Approach 8/E
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21 -35