HBH110 Lecture 7

Chapter 7

Fundamentals of organising

Lecture overview

• Organising the vertical structure• Departmentalisation• Factors shaping structure• Organising for sustainable

development

Organising the vertical structure

1. Set of formal tasks assigned to individuals and departments.

2. Formal reporting relationships.3. Design of systems to ensure effective

coordination of employees across departments.

Organisational structure: The framework in which the organisation defines how tasks are divided, resources are deployed and departments are coordinated.


• Organisational chart• Work specialisation– The degree to which organisational tasks are

subdivided into individual jobs, also called division of labour.

– e.g. Automobile assembly line.– Specialisation results in efficiency.– However, specialisation reduces motivation.


• Chain of command– An unbroken line of authority that links all

individuals in the organisation and specifies who reports to whom.

– Unity of command.• Each employee has one supervisor.

– Scalar principle.• Line of authority includes all employees from

bottom to top of the organisation.


• Authority, responsibility and delegation– The formal and legitimate right of a

manager to make decisions, issue orders and allocate resources to achieve organisationally desired outcomes.

1 Authority is vested in organisational positions, not people.

2 Authority is accepted by employees.3 Authority flows down the vertical hierarchy.


• Responsibility• Accountability• Delegation• Line and staff authority

– Line authority: Management positions have the formal power to direct and control immediate employees.

– Staff authority: Granted to staff specialists in their areas of expertise.


• Span of management:– The number of employees who report to a

supervisor; also called the span of control.– Traditional: Seven employees per manager.– Lean organisations: As high as 30 to 40.


• Factors that influence larger span of management:

1. Employees’ work is stable and routine.2. Employees perform similar work tasks.3. Employees are concentrated in a single

location.4. Employees are highly trained (need

little direction).


5. Rules and procedures defining task activities are available.

6. Little time is required in non-supervisory activities (e.g. coordination across other departments or planning).

7. Managers’ personal preferences and styles favour a larger span.


Tall versus flat structures:• Tall structures – Narrow spans– More hierarchical levels

• Flat structures– Wide span– Horizontally dispersed

• Trend towards wider spans to delegate


• Centralisation– The location of decision authority near top

organisational levels.• Decentralisation

– The location of decision authority near lower organisational levels.

• Trend toward greater decentralisation– Lowers burden on top managers.– Utilises skills and ability of workers.– Allows rapid responses to external change.


• Two factors influencing centralisation and decentralisation1 Greater change and uncertainty in the

environment• Decentralisation

2 The firm’s strategy• Should fit with need for centralisation or

decentralisation


• Formalisation– The written documentation used to

direct and control employees.– Bureaucratic form of organisation

(Weber).• Advantages in rationality and logical

operation.• However, ‘Red tape’ can cause problems.

Departmentalisation

1 Vertical functional approach2 Divisional approach3 Horizontal matrix approach4 Team-based approach5 Network approach

- The basis on which individuals are grouped into department and departments into total organisations.

Departmentalisation1 Vertical functional approach:– An organisation structure in which

positions are grouped into departments based on similar skills, expertise and resource use.

– Advantages:• Economies of scale and efficient

resource use• Expertise (in-depth skills)

Vertical functional approachAdvantages• Economies of scale and

efficient resource use• Expertise (in-depth skills)• Internal career progress • Centralised chain of

command– Top manager direction

and control– Excellent coordination

within functions• High-quality technical

problem solving

Disadvantages• Poor communication across

functional departments• Slow response to external

changes• Decisions concentrated at top

leading to delay• Responsibility for problems

difficult to pinpoint• Limited view of organisational

goals by employees• Limited general management

training for employees

Departmentalisation2 Divisional approach:– An organisational structure in which

departments are grouped based on similar organisational outputs.

– Sometimes called a product structure, program structure or self-contained unit structure.

– Encourages decentralisation (to divisions).

– Can group by geography.

Departmentalisation

Departmentalisation: divisionalAdvantages• Fast response, flexible

in uncertain environments

• Focus on customer• Excellent coordination

across functional departments

• Easy to pinpoint responsibility for product problems

• Emphasis on overall product and division goals

• Develops general management skills

Disadvantages• Duplication of

resources across divisions

• Less technical depth and specialisation

• Poor coordination across divisions

• Less top management control

• Competition for corporate resources (among divisions)

Departmentalisation3 Matrix approach:– An organisation structure that utilises

functional and divisional chains of command simultaneously in the same part of the organisation.

– Balances traditional control of functional departments with horizontal coordination across departments.

– Problem for two-boss employee.

Departmentalisation

Departmentalisation: MatrixAdvantages• More efficient use of

resources than single hierarchy

• Flexible, adaptable to changing environment

• Develop generalists and specialists

• Interdisciplinary cooperation, expertise available to all divisions

• Enlarged tasks for employees

Disadvantages• Frustration and

confusion from dual chain of command

• High conflict between two sides of matrix

• Many meetings, more discussion than action

• Human relations training needed

• Power dominance by one side of matrix

Departmentalisation

4 Team-based approach:• Cross-functional team

– Group of employees (from various functional departments) that report to both team and functional departments that meet as a team to resolve mutual problems.

• Permanent team– Participants from several functions who are

permanently assigned to solve ongoing problems of common interest.

Departmentalisation

4 Team-based approach:• Re-engineering: Radical redesign of business

processes to achieve dramatic improvements in cost, quality, service and speed.

Departmentalisation:Team-based

Advantages• Some advantages of functional structure• Reduced barriers among departments• Quicker decisions• Involvement increases morale and enthusiasm• Reduced administrative overhead

Disadvantages• Dual loyalties and conflicts• Time and resources spent on meetings• Unplanned decentralisation

Departmentalisation5 Network approach:– An organisation structure that

disaggregates major functions into separate organisations that are brokered by a small headquarters organisation.

– Can subcontract major functions to separate organisations and control from a central hub.

– Focus on what they do best, outsource the rest.

Departmentalisation

Departmentalisation: Network

Advantages• Global competitiveness• Workforce flexibility/challenge• Reduced administrative overhead

Disadvantages• No hands-on control• Can lose organisational part• Employee weakened (no cohesive corporate

culture)

Departmentalisation• Task forces, teams and project management– Task forces are temporary teams designed to solve

short term problems that involve several departments. The sharing of information enables coordination.

– Cross functional teams however work on continuing problems.

– Project managers work on several project at a time and have authority over the project but not the people assigned to it.

Factors shaping structure

• Structure follows strategy• Structure reflects the environment• Structure fits the technology

Structure follows strategy• Different structural approaches are

required for different strategies.– e.g. A cost leadership strategy (Porter) requires

an organisation to strive for internal efficiency within their structure.

• Structural approaches are associated with strategic goals.– e.g. Functional structures are appropriate for

achieving efficiency goals.

Structure follows strategy

Structure reflects the environment

• Environmental uncertainty causes three things to occur in an organisation:- Increased differences among departments.- Increased coordination to keep departments

working together.- Adaptation to change.

Structure reflects the environment

• Mechanistic structures:– Used in stable environments.– Has rigid, vertical, centralised structures with most

decisions made at the top.– Highly specialised, many rules and a clear

hierarchy.• Organic structures:

– Used in rapidly changing environments.– Has a looser, free flowing and adaptive structure.– Horizontal structure with decentralised decision

making.– More fluid and adaptable to change.

Organising for sustainable development

• Organising for sustainable development requires leadership from the centre and top of the organisation.

• It is suggested that a centrally appointed person or group is appointed for the formulation and implementation of sustainable development– e.g. Chief Sustainability Officer (CSO)– e.g. Coca- cola, SAP, Dow, orange and Cisco all

have appointed CSO’s to ensure sustainability principles are embedded into all activities and services or the organisation.

HBH110 Lecture 7

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