Chapter
Structuring
Organizations
for Today’s
Challenges
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THE CHANGING ORGANIZATION
• Often change in organizations is due to
evolving business environments:
-
More global competition
Declining economy
Faster technological change
Pressure to protect the environment
• Customer expectations have also changed
– Consumers today want high-quality
products with fast, friendly service and all
at low cost.
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STRUCTURING an ORGANIZATION
• Determine what work needs
to be done
• Create a division of labor
• Set up teams or
departments
• Allocate resources
• Assign tasks
• Establish procedures
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Two Major
Organizational Theorists
HENRI FAYOL
MAX WEBER
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HENRI FAYOL
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Fayol’s Principles
of Organization
• Unity of
Command
• Division of Labor
• Authority
• Hierarchy of
Authority
• Subordination of
Individual Interest
• Degree of
Centralization
• Communication
Channels
• Order
• Equity – respect
& justice
• Esprit de Corps
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ORGANIZATIONS BASED on
FAYOL’S PRINCIPLES
• Organizations in
which employees
have no more than
one boss; lines of
authority are clear.
• Rigid organizations
that often don’t
respond to
customers quickly.
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MAX WEBER
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WEBER’S PRINCIPLES
• In addition to Fayol’s principles,
Weber emphasized:
- Job descriptions.
- Written rules, decision
guidelines and detailed
records.
- Consistent procedures,
regulations and policies.
- Staffing and promotion based
on qualifications.
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Management Pyramid
CEO
Top
CFO
COO
Sales Mgrs
Plant Mgrs.
Mid-Level
Front Line/Supervisory
Supervisors
Foremen
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Organizational Design
Following Fayol’s and Weber’s
concepts, organizations were designed
for managers to control workers
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Organizing
• Designing structure of the organization and
creating conditions and systems in which
everyone and everything work together to
achieve organization’s goals and objectives
• Create Corporate Hierarchy
• Generate the Organizational Chart
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Organizational Design
• Hierarchy – one person at the top and a
ranked sequential order from top down
• Chain of command – line of authority that
moves from top of hierarchy to lowest level
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BUREAUCRATIC ORGANIZATIONS
• Bureaucracy -- An organization with many layers
of managers who set rules and regulations and
oversee all decisions.
• It can take weeks or months to have
information passed down to lower-level
employees.
• Bureaucracies can annoy customers.
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Organizational Chart
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Purpose of an
Organizational Chart
• Show the activities • Provide information
of the organization about different
management levels
• Highlight
subdivisions of
• Show the lines of
the organization
authority and the
flow of
• Identify different
organizational
types of work
communications
performed
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Typical Organization Chart
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Considerations Involved in
Structuring Organizations
• Centralization/Decentralization
• Span Of Control
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Centralization vs.
Decentralization of Authority
Degree of Centralization
The degree to which an organization
allows managers at lower levels to
make decisions
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Centralized Authority
Decision-making authority is
maintained at the top level of
management at the company’s
headquarters
Example: McDonald’s
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Decentralized Authority
Decision-making authority is delegated
to lower-level managers more familiar
with local conditions than headquarters
is.
Example: J.C. Penney
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Span of Control
Boss
Subordinate
Subordinate
Subordinate
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Span of Control
• The optimal number of subordinates a
manager supervises or should
supervise effectively.
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Span of Control
I. Capabilities of Subordinates
& Manager
II. Complexity of Job
•
•
•
•
•
Geographical Closeness
Functional Similarity
Need for Coordination
Planning Demands
Subordinate
Functional Complexity
Boss
Subordinate
Subordinate
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Span of Control - Narrow
Disadvantages
Advantages
• Less Empowerment
• More Control by
Management
• Higher Costs
• More Chances for
Advancement
• Closer Supervision
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Span of Control - Broad
Advantages
• Reduced Costs
• More
Empowerment
Disadvantages
• Fewer Chances for
Advancement
• Overworked
Managers
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Organizational Structures
Tall Organizations
Structures determine the way the
company responds to employee and
customer needs
Flat Organizations
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Organizational Structures
• Tall Organization Structure -- An
organizational structure in which the
organization chart would be tall because of
the various levels of management.
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Organizational Structures
Tall Organizations
- Many Layers of
Management
- Communication
distorted
- High Cost of
Management
- Narrow Span of
Control
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Tall Organizational Structure
CEO
Division V.P.
Department A
Group 1
Subordinate I
Division V.P.
Department B
Group 2
Subordinate II
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Organizational Structures
• Flat Organization Structure -- An
organizational structure that has few layers
of management and a broad span of control.
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Organizational Structures
Flat Organizations
- More responsive
- Current Trend
- Creation of Teams
- Broad Span of Control
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Flat Organizational Structure
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Departmentalization
• Departmentalization -- Divides
organizations into separate units.
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Advantages of
Departmentalization
• Employees develop skills and progress
within a department as they master
skills.
• The company can achieve economies of
scale.
• Employees can coordinate work within
the function and top management can
easily direct activities.
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Disadvantages of
Departmentalization
• Departments may not communicate well.
• Employees may identify with their
department’s goals rather than the
organization’s.
• People may not be trained to take different
managerial responsibilities, instead they
become specialists.
• Department members may engage in
groupthink and may need outside input.
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Ways to Departmentalize
By Function
Workers are grouped by skills and expertise to
specialize their skills.
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Other Ways to Departmentalize
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Other Ways to Departmentalize
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Organization Models
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FOUR WAYS to STRUCTURE an
ORGANIZATION
1. Line Organizations
2. Line-and-Staff
Organizations
3. Matrix-Style
Organizations
4. Cross-Functional SelfManaged Teams
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Line Organizations
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Line Organizations
• Line Organization -- Has direct two-way lines of
responsibility, authority and communication
running from the top to the bottom. Everyone
reports to one supervisor.
• There are no specialists, legal, accounting,
human resources or information technology
departments.
• Line managers issue orders, enforce
discipline and adjust the organization to
changes.
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Line Organization
CEO
Division V.P.
Department A
Group 1
Subordinate I
Division V.P.
Department B
Group 2
Subordinate II
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Line Organizations
Disadvantages
Advantages
– Clear Authority
& Responsibility
– Easy to
Understand
– Each Employee
Has One
Supervisor
– Inflexible
– Few Specialists for
Advice
– Long Line of
Communication
– Difficult to Handle
Complex
Decisions
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Line/Staff Organizations
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Line/Staff Organizations
• Line Personnel -- Workers responsible for
directly achieving organizational goals, and
include production, distribution and marketing
employees.
• Line personnel have authority to make policy
decisions.
• Staff Personnel -- Employees who advise and
assist line personnel in meeting their goals, and
include marketing research, legal advising, IT and
human resource employees.
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Line-and-Staff Organization
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Line/Staff Organizations
Advantages
Disadvantages
– Same as Line Org
plus
– Same as Line
Org
– Access to expert
advice
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Matrix Organizations
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MATRIX ORGANIZATIONS
• Specialists from different parts of the
organization work together temporarily on
specific projects, but still remain part of a
line-and-staff structure.
• Emphasis is on
product
development,
creativity, special
projects,
communication and
teamwork.
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Typical Matrix Organization
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Advantages of Matrix Style
• Inter-organizational
cooperation and
teamwork is
encouraged.
• Creative solutions to
product development
problems are produced.
• Efficient use of
organizational
resources.
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DISADVANTAGES of the
MATRIX STYLE
• It’s costly and complex.
• Good interpersonal
skills and cooperative
employees are a must.
• Teams are not
permanent
• Employees may be
confused about where
their loyalty belongs.
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Typical Matrix Organization
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Fixing The Matrix Organization
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Fixing The Matrix Organization
• A way to fix the problem of matrix-style
teams is to establish long-term teams.
• Empower teams to work closely with
suppliers, customers and others to figure
out how to create better products.
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Fixing The Matrix Organization
• Cross-Functional Self-Managed Teams
Groups of employees from different
departments who work together on a longterm or permanent basis.
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Fixing The Matrix Organization
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Cross-Functional SelfManaged Teams
• Empowered
• Autonomous
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Benchmarking
and
Outsourcing
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Benchmarking and Outsourcing
Benchmarking
Comparing an organization’s
practices, processes, and products
against the world’s best
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Benchmarking and Outsourcing
If a company can’t match the
benchmark, they may try to outsource.
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Benchmarking and Outsourcing
Outsourcing
Assigning various functions, such as
accounting, production, security, billing,
maintenance, and legal work to outside
organizations
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Outsourcing
Production
Maintenance
Accounting
Firm
Advertising
Legal
Training
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Restructuring
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Restructuring
• Restructuring -- Redesigning an organization so
it can more effectively and efficiently serve its
customers.
• Inverted Organization -- An organization that
has contact people at the top and the CEO at the
bottom of the organizational chart.
• The manager’s job is
to assist and support
frontline workers, not
boss them.
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Inverted
Organization Structure
Empowered frontline workers
Support
Personnel
Top
Mgmt.
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Traditional and Inverted
Organization Structure
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The Formal and Informal
Organization
Each organization is
composed of two
organizations – the Formal
organization and the
Informal organization
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Formal Organization
• Formal Organization -- Details lines of
responsibility, authority and position.
• The formal system is often slow and
bureaucratic but it helps guide the lines of
authority.
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Formal Organization
CEO
Division V.P.
Department A
Group 1
Subordinate I
Department B
Group 2
Subordinate II
Division V.P.
Organization
Division
Department
Group
Individual
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Informal Organization
• The system of relationships that develop
spontaneously as employees meet and form
relationships.
• Informal organization helps
foster camaraderie and
teamwork among employees.
• No organization can be
effective without formal and
informal organization.
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Limitations of Informal
Organizations
• The informal system
is too unstructured
and emotional on its
own.
• Informal organization
may also be powerful
in resisting
management
directives.
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Examples of
Informal Group Norms
Do your job but don’t produce
more than the rest of the group.
Don’t tell off-color jokes or use
profane language among group
members.
Listen to the boss and use his/her
expertise but don’t trust him/her.
Everyone is to be clean/organized at
the workstation.
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Examples of
Informal Group Norms(cont’d)
Never side with managers in a
dispute involving group members.
Respect/help your fellow group
members on the job.
Criticize the organization only
among group members- never
among strangers.
Drinking is done off-the-jobNever at work!
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