Chapter 15
Foundations of
Organization Structure
ORGANIZATIONAL BEHAVIOR
S T E P H E N P. R O B B I N S
E L E V E N T H
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E D I T I O N
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PowerPoint Presentation
by Charlie Cook
What Is Organizational Structure?
Organizational Structure
Defines how job tasks are
formally divided, grouped,
and coordinated.
There are six key elements
that managers need to
address when they design
their org.’s structure.
Key Elements:
1. Work specialization
2. Departmentalization
3. Chain of command
4. Span of control
5. Centralization and
decentralization
6. Formalization
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1-Work Specialization…..1
The degree to which tasks in the organization are
subdivided into separate jobs.
Division of labor:
• Makes efficient use of employee skills
• Increases employee skills through repetition
• Less between-job downtime increases productivity
• Specialized training is more efficient.
• Allows use of specialized equipment.
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Division of Labor
 Benefits include:
–
–
–
–
Increasing levels of skill
Less time is wasted moving from job to job
Training is less costly
Increased focus
 Adam Smith’s pin factory
– “Men are much more likely to discover easier and readier methods of
attaining any object, when the whole attention of their minds is
directed towards that single object, than when it is dissipated among
a great variety of things.” WON p. 14
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1-Work Specialization…..2
 Work Specialization
– The degree to which tasks in the organization are divided
into separate jobs with each step completed by a different
person. (Adam Smith’s-Division of Labor)
– During the 1st half of the 20th century, managers viewed
work specialization as an unending source of increased
productivity, and , for a time, it was.
– However, by 1960, it became evident that a good thing could
be carried too far.
– The point reached in some jobs where “human
diseconomies” from work overspecialization resulted boredom, fatigue, stress, poor quality, increased
absenteeism, and higher turnover – more than offset the
economic advantages.
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Economies and Diseconomies of
Work Specialization
Productivity
High
Impact from
economies
of specialization
Impact from
human
diseconomies
Low
Low
Work Specialization
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High
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1-Work Specialization……Today’s View……3
 Most managers today see work specialization as
an important org. mechanism but not as a source
of ever-increasing productivity.
 They recognize the efficiencies it creates in
certain types of jobs, but they also recognize the
problems it creates when it’s carried to extremes.
 McDonald uses high work specialization to
efficiently make & sell its products.
 However, American Express & Ford Australia
have broadened the scope of employees’ jobs &
reduced work specialization.
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2- Departmentalization
The basis by which jobs are grouped together.
Grouping Activities By:
• Function
• Product
• Geography
• Process
• Customer
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2- Departmentalization by Type
 The basis by which jobs are
grouped together is called….
 Functional
– Grouping jobs by
functions performed
 Product
– Grouping jobs by
product line
 Geographical
– Grouping jobs on the
basis of territory or
geography
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 Process
– Grouping jobs on the
basis of product or
customer flow
 Customer
– Grouping jobs by type
of customer and
needs
15–9
Departmentalization
Functional
Major
Types
of
Department
Organization
Product
Customer
Geographic
Process
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2 -Departmentalization…..continued
 Large orgs. Often combine most or all of these
forms of departmentalization.
 For example – a major Japanese electronic firm
organizes each of its divisions along functional
lines, its manufacturing units around processes,
its sales units around seven geographic regions,
and its sales regions into four customer
groupings.
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Departmentalization …..today’s view
 Two popular trends today in departmentalization are the
increasing use of customer departmentalization & the use
of cross-functional teams.
 customer departmentalization helps managers better
monitor customers’ needs & respond to changes in those
needs.
 Managers are using cross-functional teams, which are work
teams composed of individuals from various functional
specialties. For example at Ford’s material planning &
logistics division, a cross-functional team with employees
from finance, purchasing, engineering, and quality control
areas and with representatives from outside logistics
suppliers has made several work improvements.
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Functional Departmentalization
• Advantages
• Efficiencies from putting together similar specialties and
people with common skills, knowledge, and orientations
• Coordination within functional area
• In-depth specialization
• Disadvantages
• Poor communication across functional areas
• Limited view of organizational goals
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Geographical Departmentalization
• Advantages
• More effective and efficient handling of specific
regional issues that arise
• Serve needs of unique geographic markets better
• Disadvantages
• Duplication of functions
• Can feel isolated from other organizational areas
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Product Departmentalization
+
+
+
–
–
Allows specialization in particular products and services
Managers can become experts in their industry
Closer to customers
Duplication of functions
Limited view of organizational goals
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Process Departmentalization
+ More efficient flow of work activities
– Can only be used with certain types of products
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Customer Departmentalization
+ Customers’ needs and problems can be met by specialists
- Duplication of functions
- Limited view of organizational goals
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3 - Chain of Command
– The continuous line of authority that extends from
upper levels of an organization to the lowest levels of
the organization and clarifies who reports to whom.
Chain of Command involves three
other concepts:
•Authority
•Responsibility
•Unity of Command
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3 - Chain of Command……continued
 Authority
– Refers to the rights inherent in a managerial position to tell
people what to do and to expect them to do it.
– An org.’s managers, who are in the chain of command, are
granted a certain degree of authority to do their job of
coordinating & overseeing the work of others.
 Responsibility
– The obligation or expectation to perform any assigned
duties.
– As managers assign work to employees, those employees
assume an obligation to perform any assigned duty.
 Unity of Command
– The concept that a person should have one boss and should
report only to that person.( Fayol’s 14 Principles of
Management)
– Without unity of command, conflicting demands & priorities
from multiple bosses can create problems.
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3- Chain of Command….today’s view
 Early management theorists ( Fayol, Weber, Taylor, & others
) were enamored with the concepts of chain of command,
authority, responsibility, & unity of command.
 However, the above mentioned concepts are considered
less relevant today because of things like IT.
 With computers, employees communicate with anyone with
else anywhere in the org. without going through formal
channels- i.e., chain of command. Moreover, as more orgs.’
use self-managed & cross-functional teams as new org.
designs with multiple bosses are implemented, these
traditional concepts are less relevant.
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4 - Span of Control
The number of subordinates a manager can efficiently
and effectively direct.
Concept:
Wider spans of management increase organizational
efficiency.
Narrow Span Drawbacks:
• Expense of additional layers of management.
• Increased complexity of vertical communication.
• Encouragement of overly tight supervision and
discouragement of employee autonomy.
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4 - Span of Control…….cont’d
 The number of employees who can be effectively and
efficiently supervised by a manager.
– Width of span is affected by:
• Skills and abilities of the manager
• Employee characteristics
• Characteristics of the work being done
• Similarity of tasks
• Complexity of tasks
• Physical proximity of subordinates
• Standardization of tasks
• Sophistication of org.’s information system
• Strength of the org. culture & preferred style of the manager
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Contrasting Spans of Control
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4 - Span of Control …..today’s view
 The trend in recent years has been toward larger
spans of control, which are consistent with
managers’ efforts to reduce costs, speed up
decision making, increase flexibility, get closer to
customers, and empower employees.
 However, to ensure that performance doesn’t
suffer because of these wider spans, orgs. are
investing heavily in employee training.
 Managers recognize that they can handle a wider
span when employees know their jobs well or can
turn to co-workers if they have Qs.
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5 - Centralization & Decentralization
 Centralization
– The degree to which decision-making is concentrated
at a single point in the organizations.
• Organizations in which top managers make all the
decisions and lower-level employees simply carry out
those orders.
 Decentralization
– Organizations in which decision-making is pushed
down to the managers who are closest to the action.
 Employee Empowerment
– Increasing the decision-making authority (power) of
employees.
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Factors that Influence the Amount of Centralization
 More Centralization
– Environment is stable.
– Lower-level managers are not as capable or experienced at
making decisions as upper-level managers.
– Lower-level managers do not want to have a say in decisions.
– Decisions are relatively minor.
– Organization is facing a crisis or the risk of company failure.
– Company is large.
– Effective implementation of company strategies depends on
managers retaining say over what happens.
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Factors that Influence the Amount of Centralization
 More Decentralization
– Environment is complex, uncertain.
– Lower-level managers are capable and experienced at making
decisions.
– Lower-level managers want a voice in decisions.
– Decisions are significant.
– Corporate culture is open to allowing managers to have a say in
what happens.
– Company is geographically dispersed.
– Effective implementation of company strategies depends on
managers having involvement and flexibility to make decisions.
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Centralization & Decentralization……. Today’s view
 An org. have had to become more flexible & responsive,
there’s been a distinct trend toward decentralizing decision
making.
 In large companies, especially, lower-level managers are “
closer to the action” & typically have more detailed
knowledge about problems & how best to solve them than
do top managers.
 Honeywell Pacific, which moved from a hierarchical
management structure to one that is much flatter & teambased.
 Result- increased revenues & more intimate knowledge of
the company’s major customers.
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6 - Formalization
– The degree to which jobs within the organization are
standardized and the extent to which employee
behavior is guided by rules and procedures.
• Highly formalized jobs offer little discretion over what is to
be done.
• Low formalization means fewer constraints on how
employees do their work.
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Common Organizational Designs
Three of the more common org. designs in use: the simple
structure, the bureaucracy, and the matrix
Simple Structure
A structure characterized by a low degree of departmentalization, wide
spans of control, authority centralized in a single person, and little
formalization.
This structure is most widely practiced in small businesses in which the
manager & the owner are one & the same.
The strength of this structure lies in its simplicity. It is fast, flexible, &
inexpensive to maintain, and accountability is clear.
One major weakness is that it’s difficult to maintain in any other than small
orgs. As org. grows due to its low formalization & high centralization creates
information overload at the top.
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15–30
Common Organization Designs (cont’d)
Bureaucracy
Standardization! that’s the key concept that underlies all
bureaucracies.
A structure of highly operating routine tasks achieved through
specialization, very formalized rules and regulations, tasks that are
grouped into functional departments, centralized authority, narrow
spans of control, and decision making that follows the chain of
command.
The primary strength of the bureaucracy lies in its ability to perform
standardized activities in a highly efficient manner.
Putting like specialties together in functional depts. results in
economies of scale, minimum duplication of personnel & equipment,
and employees who have the opportunity to talk “ the same language”
among their peers.
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The Bureaucracy
 Strengths
– Functional
economies of scale
– Minimum duplication
of personnel and
equipment
– Enhanced
communication
– Centralized decision
making
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 Weaknesses
– Subunit conflicts with
organizational goals
– Obsessive concern
with rules and
regulations
– Lack of employee
discretion to deal
with problems
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Common Organization Designs (cont’d)
Matrix Structure
Matrix management is a technique of managing an org.( or, more
commonly, part of an org.) through a series of dual-reporting
relationships instead of a more traditional linear management structure.
In its simplest form, a matrix configuration may be known as a crossfunctional work team, which brings together individuals who report to
different parts of the company in order to complete a particular project or
task.
A structure that creates dual lines of authority and combines functional
and product departmentalization.
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Matrix Structure
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Matrix Structure……continued
 Matrix structure is used in aerospace firms, R&D
laboratories, construction companies, hospitals,
management consulting firms etc.
 Essentially, the matrix combines two forms of
departmentalization: functional & product.
 The strength of functional departmentalization
lies in putting like specialists together, which
minimizes the number necessary while allowing
the pooling & sharing of specialized resources
across products.
 Its major disadvantage is the difficulty of
coordinating the tasks of diverse functional
specialists so that their activities are completed
on time & within budget.
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Matrix Structure……continued
 Product departmentalization, on the other hand, has exactly
the opposite benefits & disadvantages.
 It facilitates coordination among specialties to achieve ontime completion & meet budget targets.
 It provides clear responsibility for all activities related to a
product, but with duplication of activities & costs.
 The matrix attempts to gain the strengths of each, while
avoiding their weaknesses.
 The most obvious structural characteristic of the matrix is
that it breaks the unity-of-command concept.
 Employees in the matrix have two bosses – their functional
dept. managers & their product managers. Therefore, the
matrix has a dual chain of command.
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Matrix Structure……continued…advantages
 The strength of the matrix lies in its ability to facilitate
coordination when the org. has a multiplicity of complex &
interdependent activities.
 As an org. gets larger, its information-processing capacity
can become over-loaded.
 In a bureaucracy, complexity results in increased
formalization.
 The direct & frequent contact b/w different specialties in the
matrix can make for better communication & more
flexibility.
 Information permeates the org. & more quickly reaches the
people who need to take account of it.
 Matrix reduces “ bureau-pathologies” - the dual lines of
authority reduce the tendencies of dept. members to
become so busy protecting their little worlds that the org’s
overall goals become secondary.
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Matrix Structure……continued…advantages
 Matrix also facilitates the efficient allocation of
specialists.
 When individuals with highly specialized skills
are stuck in one functional dept. or product
group, their talents are monopolized &
underused.
 The matrix achieves the advantages of
economies of scale by providing the org. with
both the best resources & an effective way of
ensuring their efficient deployment.
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Matrix Structure…conti…disadvantages
 The major disadvantages of the matrix lie in the confusion it
creates, its propensity to foster power struggles, & the
stress it places on individuals.
 When unity-of-command concept is ignored, ambiguity
increases & ambiguity often leads to conflict.
 Confusion & ambiguity also create the seeds of power
struggles.
 Bureaucracy reduces the potential for power grabs by
defining the rules of the game. When those rules do not
exist, power struggles b/w functional & product managers
result.
 For individuals who desire security & absence from
ambiguity, this work climate can produce stress.
 Reporting to more than one boss introduces role conflict &
unclear expectations introduce role ambiguity.
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New Design Options
Team Structure
The use of teams as the central device to coordinate
work activities.
Characteristics:
• Breaks down departmental barriers.
• Decentralizes decision making to the team level.
• Requires employees to be generalists as well as
specialists.
• Creates a “flexible bureaucracy.”
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15–40
New Design Options (cont’d)
Virtual Organization
A small, core organization that outsources its major
business functions.
Highly centralized with little or no departmentalization.
Concepts:
Advantage: Provides maximum flexibility while
concentrating on what the organization does best.
Disadvantage: Reduced control over key parts of
the business.
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New Design Options (cont’d)
Boundaryless Organization
General Electric’s former chairman, Jack Welch, wanted to
eliminate vertical & horizontal boundaries within GE & break
down external barriers b/w the company & its customers &
suppliers.
The boundary-less organization seeks to eliminate the chain of
command, have limitless spans of control, and replace
departments with empowered teams.
And because such org. rely so heavily on IT, it is also
sometimes called the T-form ( or technology based) org.
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Boundary-less Organization….continued
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T-form Concepts:
Eliminate vertical (hierarchical) and horizontal
(departmental) internal boundaries.
Breakdown external barriers to customers and
suppliers.
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Why Do Structures Differ?
Mechanistic Model
A structure characterized by extensive
departmentalization, high formalization, a limited
information network, and centralization.
Organic Model
A structure that is flat, uses cross-hierarchical and
cross-functional teams, has low formalization,
possesses a comprehensive information network, and
relies on participative decision making.
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Mechanistic versus Organic Organization
• High specialization
• Cross-functional teams
• Rigid departmentalization
• Cross-hierarchical teams
• Clear chain of command
• Free flow of information
• Narrow spans of control
• Wide spans of control
• Centralization
• Decentralization
• High formalization
• Low formalization
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Organizational Design Decisions
 Mechanistic Organization
– A rigid and tightly
controlled structure
 Organic Organization
– Highly flexible and
adaptable structure
• High specialization
• Non-standardized jobs
• Rigid
departmentalization
• Fluid team-based
structure
• Narrow spans of control
• Little direct supervision
• High formalization
• Minimal formal rules
• Limited information
network (downward)
• Open communication
network
• Low decision
participation
• Empowered employees
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Why Do Structures Differ? – Strategy
Innovation Strategy
A strategy that emphasizes the introduction of major
new products and services.
Cost-minimization Strategy
A strategy that emphasizes tight cost controls,
avoidance of unnecessary innovation or marketing
expenses, and price cutting.
Imitation Strategy
A strategy that seeks to move into new products or
new markets only after their viability has already
been proven.
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15–48
Why Do Structures Differ? – Size
Size
How the size of an organization affects its structure.
As an organization grows larger, it becomes more
mechanistic.
Characteristics of large organizations:
• More specialization
• More vertical levels
• More rules and regulations
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15–49
Why Do Structures Differ? – Technology
Technology
How an organization transfers its inputs into outputs.
Characteristics of routineness (standardized or
customized) in activities:
• Routine technologies are associated with tall,
departmentalized structures and formalization in
organizations.
• Routine technologies lead to centralization when
formalization is low.
• Nonroutine technologies are associated with delegated
decision authority.
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Why Do Structures Differ? – Environment
Environment
Institutions or forces outside the organization that
potentially affect the organization’s performance.
Key Dimensions• Capacity: the degree to which an environment can
support growth.
• Volatility: the degree of instability in the environment.
• Complexity: the degree of heterogeneity and
concentration among environmental elements.
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“Bureaucracy Is Dead”
 Characteristics of
Bureaucracies
 Why Bureaucracy
Survives
– Specialization
– Large size prevails.
– Formalization
– Environmental
turbulence can be
largely managed.
– Departmentalization
– Centralization
– Narrow spans of control
– Adherence to a chain of
command.
– Standardization
achieved through hiring
people who have
undergone extensive
educational training.
– Technology maintains
control.
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15–52
Organizational Designs and Employee
Behavior
Research Findings:
• Work specialization contributes to higher employee
productivity, but it reduces job satisfaction.
• The benefits of specialization have decreased rapidly as
employees seek more intrinsically rewarding jobs.
• The effect of span of control on employee performance is
contingent upon individual differences and abilities, task
structures, and other organizational factors.
• Participative decision making in decentralized
organizations is positively related to job satisfaction.
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Common Organizational Designs
 Traditional Designs
– Simple structure
• Low departmentalization, wide spans of control,
centralized authority, little formalization
– Functional structure
• Departmentalization by function
– Operations, finance, human resources, and product
research and development
– Divisional structure
• Composed of separate business units or divisions with
limited autonomy under the coordination and control the
parent corporation.
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Strengths and Weaknesses of Traditional Organizational Designs
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 Key Elements:
 Gains the advantages of functional and
product departmentalization while
avoiding their weaknesses.
 Facilitates coordination of complex and
interdependent activities.
 Breaks down unity-of-command
concept.
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15–56