Chapter 6
Organizational
Structure and
Design
PowerPoint Presentation by Charlie Cook
Copyright © 2005 South-Western.
All rights reserved.
Organizing and Organizational Structure
• Organizing
 The process of structuring both human and physical
resources to accomplish organizational objectives.
• Organizational structure
 The framework of jobs and departments that directs
the behavior of individuals and groups toward
achieving the organization’s objectives.
 Management’s responsibility is to develop a structure
that enhances the organization’s overall strategy.
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6–2
Determining Organizational Structure
• The four major decisions:
 Specialization of jobs
 Delegation of authority
 Departmentalization
 Span of control
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6–3
Determining Organizational Structure (cont’d)
Designing Organization Structure
Specialization of jobs
High
Low
Delegation of authority
Centralized
Decentralized
Departmentalization
Homogeneous
Heterogeneous
Span of control
Narrow
Wide
Exhibit 6 . 1
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6–4
Determining Organizational Structure (cont’d)
Scientific Management versus Craftsmanship
Management Highlight
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6–5
Determining Organizational Structure (cont’d)
• Teams and quality circles
 Problem-solving team: knowledgeable workers who gather
to solve a specific problem and then disband.
 Work team: a group of employees who work closely
together to pursue common objectives.
 Self-managed work teams: workers who become their own
managers, which increases reliance on their creative and
intellectual capabilities besides their labor.
 Quality circle: a group of fewer than ten workers who do
similar work and meet weekly to discuss their work,
identify problems, and present possible solutions.
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6–6
Determining Organizational Structure (cont’d)
• Delegation of authority
 Decentralization: the process of distributing authority
throughout the organization.
 Centralization: the process of retaining authority in the
hands of high-level managers, who make all the
decisions.
 Empowerment: giving employees who are
responsible for hands-on production or service
activities the authority to make decisions or take
action without prior approval.
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6–7
Determining Organizational Structure (cont’d)
• Delegation of authority (cont’d)
 Chain of command
 Delegation
of authority creates a formal channel that
defines the lines of authority from the top to the bottom
of an organization.
 Line position: a position in the direct chain of
command that contributes directly to achieving the
organization’s goals.
 Staff position: a position not in the direct chain of
command that facilitates or provides advice to line
positions.
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6–8
Determining Organizational Structure (cont’d)
Chain of Command
Exhibit 6 . 2
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6–9
Determining Organizational Structure (cont’d)
Differentiating between Line and Staff Positions
Line position ———
Staff position --------
Exhibit 6 . 3
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6–10
Determining Organizational Structure (cont’d)
• Departmentalization
 The process of grouping jobs according to some
logical arrangement.
 As organizations grow in size and job specialization
increases, it becomes necessary to determine how to
best to arrange and group jobs.
• Common bases for departmentalization
 Functional
 Product
 Customer
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 Geographic
 Mixed
 Matrix organization
6–11
Determining Organizational Structure (cont’d)
Functional Departmentalization
Exhibit 6 . 4
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6–12
Determining Organizational Structure (cont’d)
Product Departmentalization
Exhibit 6 . 5
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6–13
Determining Organizational Structure (cont’d)
Customer Departmentalization
Exhibit 6 . 6
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6–14
Determining Organizational Structure (cont’d)
Geographic Departmentalization
Exhibit 6 . 7
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6–15
Determining Organizational Structure (cont’d)
Mixed
Departmentalization
Exhibit 6 . 8
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6–16
Determining Organizational Structure (cont’d)
Matrix Organization
Exhibit 6 . 9
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6–17
Determining Organizational Structure (cont’d)
Wide versus Narrow Span of Control
A. Wide Span of Control
B. Narrow Span of Control
Exhibit 6 . 10
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6–18
Determining Organizational Structure (cont’d)
• Factors to consider in determining span of
control
 Competence of both the manager and the
subordinates.
 Degree of interaction required among the units to be
supervised.
 Extent to which the manager must carry out
nonmanagerial tasks.
 Relative similarity or dissimilarity of the jobs being
supervised.
 Extent of standardized procedures.
 Degree of physical dispersion of subordinates.
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6–19
Dimensions of Organizational Structure
• Formalization
 The extent to which organizational communications
and procedures are written down and filed.
• Centralization
 How much the authority to make decisions is
dispersed throughout the organization.
• Complexity
 The number of different job titles and the number of
different departments in an organization.
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6–20
Organizational Design
• Organizational design
 The process by which managers develop an
organizational structure.
• Issues affecting organizational design
 Specialization of jobs
 Centralization and delegation of authority
 Departmentalization
 Span of control
• Models of organization design
 Mechanistic model
 Organic model
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6–21
Organizational Design (cont’d)
• Mechanistic model
 Mechanistic organization: a rigid organization that
attempts to achieve production and efficiency through
rules, specialized jobs, and centralized authority.
 Max Weber’s bureaucracy: an organization based on
a formal system of legitimate authority.
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6–22
Organizational Design (cont’d)
• Characteristics of a bureaucracy
 Tasks are divided into highly specialized jobs.
 Each task is performed according to a standardized
set of rules that ensures uniformity.
 Each member of the organization is accountable to a
single manager.
 Business is conducted impersonally, and managers
maintain a social distance from workers.
 Employment and advancement are based on merit
and technical qualifications, and workers are
protected from arbitrary dismissal.
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6–23
Organizational Design (cont’d)
• Organic model
 Organic organization: an organization that is
decentralized with communication flows throughout
the organization rather than through the chain of
command.
 Seeks
to maximize flexibility and adaptability.
 Encourages
greater utilization of human potential.
 Deemphasizes
specialization of jobs, status, and rank
to encourage horizontal and lateral relationships.
 Provides
individuals with a supportive work environment
and builds a sense of personal worth and importance.
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6–24
Organizational Design (cont’d)
• Contingency approach
 Designing an organization to effectively function in the
face of the unique contingencies or circumstances of
its competitive environment.
 Contingencies that influence this decision include:
 Technology
used to produce good or service
 Environmental stability or instability
 Strategy chosen
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6–25
Organizational Design (cont’d)
• Contingencies affecting design
 Technology
 Routine
technologies = mechanistic organization
 Nonroutine technologies = organic organization
 Environment
 Stable
environment = mechanistic organization
 Unstable environment = organic organization
 Strategy
 Structure
follows strategy
 Single product/market = organic structure
 Diversification = mechanistic structure
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6–26
Other Forms of Organizational Design
• Multidivisional organization
 A high-performance organization whose operating
units or divisions are partially interdependent.
 Each division is different, but all divisions share
common technology, skill, and information.
• Network organization
 A flexible, temporary relationship between
manufacturers, buyers, suppliers, and customers.
 The design is dynamic in that the major components
can be assembled or reassembled to meet changing
competitive conditions.
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6–27
Other Forms of Design (cont’d)
• Network organization (cont’d)
 Virtual corporation
 A temporary
series of partnerships of organizations,
linked by information technology, that come together
quickly to exploit fast-changing opportunities and
terminate once an opportunity is met.
 Modular corporation
 A hub
surrounded by a network of the best suppliers in
the world.
 The hub is the center of activities, such as research and
development; the network is made up of outside
specialists.
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6–28