Chapter 10 ORGANIZATIONAL STRUCTURE AND DESIGN 10.1© 2003 Pearson Education Canada Inc.

Chapter 10

ORGANIZATIONALSTRUCTURE AND DESIGN

10.110.1© 2003 Pearson Education Canada Inc.

© 2003 Pearson Education Canada Inc.

LEARNING OBJECTIVES• You should be able to:

– Define organizational structure and organizational design

– Explain why structure and design are important to an organization

– Describe the six key elements of organizational structure

– Differentiate mechanistic and organic organizational design

– Identify the four contingency factors that influence organizational design

10.210.2


LEARNING OBJECTIVES (continued)

• You should be able to (continued):– Describe a simple structure, a functional structure, and

a divisional structure– Explain team-based structures and why organizations

are using them– Describe matrix structures, project structures,

autonomous internal units, and boundaryless organizations

– Explain the concept of a learning organization and how it influences organizational design

10.310.3


DEFINING ORGANIZATIONAL STRUCTURE

• Organizing - the process of creating an organization’s structure

• Organizational structure - the formal framework by which job tasks are divided, grouped, and coordinated

• Organizational design - process of developing or changing an organization’s structure

10.410.4


KEY ELEMENTS OF ORGANIZATIONAL DESIGN

Centralization andDecentralization

Formalization

WorkSpecialization

Chainof Command

Departmentalization

Spanof Control

10.510.5


ELEMENTS OF ORGANIZATIONAL DESIGN

• Work Specialization– The degree to which tasks in an organization

are divided into separate jobs– Too much specialization has created human

diseconomies– An important organizing mechanism, though

not a source of ever-increasing productivity

10.610.6



(continued)• Departmentalization

– The basis by which jobs are grouped together• functional - groups jobs by functions performed• geographical - groups jobs on the basis of territory

or geography• product - groups jobs by product line• process - groups jobs on the basis of product or

customer flow• customer - groups jobs on the basis of common

customers

10.710.7



(continued)• Departmentalization (continued)

– Large organizations combine most or all forms of departmentalization

– Trends• customer departmentalization is increasingly being

used– better able to monitor and respond to customer

needs– cross-functional teams are becoming popular

10.810.8

FUNCTIONAL DEPARTMENTALIZATION

(Exhibit 10.2)

Manager,

Engineering

Manager,

Manufacturing

Manager,

Human Resources

Manager,

PurchasingManager,

Accounting

© 2003 Pearson Education Canada Inc. 10.910.9

Plant Manager

GEOGRAPHICAL DEPARTMENTALIZATION

(Exhibit 10.2)

Sales Director,Western Region

Sales Director,Southern Region

Sales Director,Eastern Region

Vice Presidentfor Sales

Sales Director,Midwestern Region


PRODUCT DEPARTMENTALIZATION (Exhibit 10.2)

Mass TransitDivision

Bombardier-Rotax(Vienna)

Mass Transit Sector

Recreational ProductsDivision

Logistic EquipmentDivision

Industrial EquipmentDivision

Bombardier-Rotax(Gunskirchen)

Recreational and UtilityVehicles Sector

Rail ProductsSector

Bombardier, Ltd.



PROCESS DEPARTMENTALIZATION(Exhibit 10.2)

Assembling Department Manager

PlantSuperintendent

10.1210.12

Sawing Department Manager

Planning and Milling Department

Lacquering and Sanding Department Manager

Finishing Department Manager

Inspection and Shipping Department Manager

CUSTOMER DEPARTMENTALIZATION

(Exhibit 10.2)

Manager,Retail Accounts

DirectorOf Sales


Manager,Wholesale Accounts

Manager,Government Accounts



(continued)• Chain of Command

– Continuous line of authority that extends from upper organizational levels to the lowest levels and clarifies who reports to whom

– authority - the rights inherent in a managerial position to tell people what to do and to expect them to do it

• responsibility - the obligation to perform any assigned duties• unity of command - a person should report to only one manager

– These concepts are less relevant today due to information technology and employee empowerment

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(continued)• Span of Control

– Number of employees that a manager can efficiently and effectively manage

– Determines the number of levels and managers in an organization

– The wider the span, the more efficient the organization

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CONTRASTING SPANS OF CONTROL (Exhibit 10.3)

14

1664256

10244096

18

645124096

Org

aniz

atio

nal L

evel

Span of 4Operatives = 4,096Managers (levels 1-6) = 1,365

Assuming Span of 4Assuming Span of 8

Span of 8Operatives = 4,096Managers (levels 1-4) = 585

1234567

12345

10.1610.16



(continued)• Centralization

– The degree to which decision making is concentrated at a single point in the organization

• Decentralization

– The degree to which decisions are made by lower-level employees

– Distinct trend toward decentralized decision making

10.1710.17


FACTORS INFLUENCING DEGREE OF CENTRALIZATION OR

DECENTRALIZATION (Exhibit 10.4)

10.1810.18



(continued)• Formalization

– The degree to which jobs within the organization are standardized

– Extent to which employee behaviour is guided by rules and procedures

10.1910.19


ORGANIZATIONAL DESIGN DECISIONS

• Mechanistic Organization– Rigidly and tightly controlled structure– Tries to minimize the impact of differing human traits– Most large organizations have some mechanistic

characteristics

• Organic Organization– Highly adaptive and flexible structure– Permits organization to change when the need arises– Employees are highly trained and empowered to handle

diverse job activities– Minimal formal rules and little direct supervision

10.2010.20


MECHANISTIC VERSUSORGANIC STRUCTURES

Mechanistic Organic

• High Specialization• Rigid Departmentalization• Clear Chain of Command• Narrow Spans of Control• Centralization• High Formalization

• Cross-Hierarchical Teams• Free Flow of Information• Wide Spans of Control• Decentralization• Low Formalization

10.2110.21


ORGANIZATIONAL DESIGN DECISIONS (continued)

• Contingency Factors– Strategy and Structure - structure should

facilitate the achievement of goals– Size and Structure - size affects structure at a

decreasing rate

10.2210.22



• Contingency Factors (continued)– Technology and Structure

• unit production - production of items in units or small batches

• mass production - production of items in large batches

• process production - production of items in continuous process

– Mechanistic structure supports routine technology

– Organic structure supports non-routine technology

10.2310.23

TECHNOLOGY, STRUCTURE, AND EFFECTIVENESS (Exhibit 10.6)

MassProduction

Moderate vertical differentiationHigh horizontal differentiationHigh formalization

ProcessProduction

High vertical differentiationLow horizontal differentiationLow formalization

UnitProduction

Low vertical differentiationLow horizontal differentiationLow formalization

Str

uct

ura

lC

har

acte

rist

ics

Most effectivestructure

Organic Mechanistic Organic




• Contingency Factors (continued)– Environmental Uncertainty and Structure

• one way to reduce environmental uncertainty is to adjust the organization’s structure

– with greater stability, mechanistic structures are more effective

– the greater the uncertainty, the greater the need for an organic structure

– organizations are being designed to be more organic nowadays

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COMMON ORGANIZATIONAL DESIGNS• Traditional Organizational Designs

– Simple Structure - low departmentalization, wide spans of control, authority centralized in a single person, and little formalization

– Functional Structure - groups similar or related occupational specialties together

– Divisional Structure - composed of separate divisions

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COMPARISON OF COMMON TRADITIONAL DESIGNS (Figure 10.7)

10.2710.27


COMMON ORGANIZATIONAL DESIGNS (continued)

• Contemporary Organizational Designs

– Team-Based Structures - entire organization is made up of work teams

• employee empowerment is crucial• teams responsible for all work activity and

performance• complements functional or divisional

structures in large organizations

10.2810.28



• Contemporary Organizational Designs (continued)– Matrix Structure - assigns specialists from different

functional departments to work on projects led by project managers

• adds vertical dimension to the traditional horizontal functional departments

• creates a dual chain of command

10.2910.29



• Contemporary Organizational Designs (continued)

– Project Structure - employees work continuously on projects

• employees do not return to a functional department at the conclusion of a project

• all work performed by teams comprised of employees with appropriate skills and abilities

• tends to be very fluid and flexible

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• Contemporary Organizational Designs (continued)

– Autonomous Internal Units – independent, decentralized business units

• each has its own products, clients, competitors, and profit goals

• business units are autonomous

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• Contemporary Organizational Designs (continued)– Boundaryless Organization - design is not defined by, or

limited to, the horizontal, vertical, or external boundaries imposed by a predefined structure

• strategic alliances break down barriers between the company and its customers and suppliers

• seeks to eliminate the chain of command, to have limitless spans of control, and to replace departments with empowered teams

• flattens the hierarchy by removing vertical boundaries• horizontal boundaries removed by organizing work around processes

instead of functional departments

10.3310.33



• Contemporary Organizational Designs (continued)– Learning Organization - an organizational mind-set rather

than a specific organizational design• has developed the capacity to continuously adapt• all members take an active role in identifying and resolving

work-related issues• practice knowledge management by continually acquiring

and sharing new knowledge• environment is conducive to open communication• empowered teams are important• leadership creates a shared vision for the future• organizational culture provides sense of community

10.3410.34

CHARACTERISTICS OF A LEARNING ORGANIZATION (Exhibit 10.9)

Organizational Design• Boundaryless• Teams• Empowerment

Organizational Culture• Strong Mutual Relationships• Sense of Community• Caring• Trust

Information Sharing• Open• Timely• Accurate

Leadership• Shared Vision• Collaboration

TheLearning

Organization


Chapter 10 ORGANIZATIONAL STRUCTURE AND DESIGN 10.1© 2003 Pearson Education Canada Inc.

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