Organizational Organizational StructureStructureand Designand Design

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Learning ObjectivesLearning Objectives

1. Describe what is meant by organizational structure and how it is revealed by an organizational chart.

2. Explain the basic characteristics of organizational structure revealed in an organizational chart.

3. Describe different approaches to departmentalization.

4. Distinguish between classical and neoclassical approaches to organizational design and between mechanistic organizations and organic organizations, as described by the contingency approach to organizational design.

5. Describe the five organizational forms identified by Mintzberg.

6. Characterize two forms of interorganizational design.

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Basic ConceptsBasic Concepts

Organizational StructureOrganizational Structure: The formal configuration between individuals and groups with respect to the allocation of tasks, responsibilities, and authorities within organizations.

Organizational ChartOrganizational Chart: A diagram representing the connections between the various departments within an organization: a graphic representation of organizational design.

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Sample Organizational Sample Organizational ChartChart

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Structure Concepts IStructure Concepts I

Hierarchy of AuthorityHierarchy of Authority: A configuration of the reporting relationships within organizations; that is, who reports to whom.Division of LaborDivision of Labor: The process of dividing the many tasks performed within an organization into specialized jobs.Span of ControlSpan of Control: The number of subordinates in an organization who are supervised by an individual manager.

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Modern Trends: Modern Trends: DelayeringDelayering

As today’s organizations restructure, the middle layers of organizational hierarchies tend to get removed. The result is a

flatter organizational structure, which puts managers closer to the issues about which they have to make decisions.

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Division of LaborDivision of Labor

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Tall vs. Flat OrganizationsTall vs. Flat Organizations

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Structure Concepts IIStructure Concepts II

Line PositionsLine Positions: Positions in organizations in which people can make decisions related to doing its basic work.Staff PositionsStaff Positions: Positions in organizations in which people make recommendations to others but who are not themselves involved in making decisions concerning the organization’s day-to-day operations.DecentralizationDecentralization: The extent to which authority and decision making are spread throughout all levels of an organization rather than being reserved exclusively for top management (centralization).

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DecentralizationDecentralization

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DepartmentalizationDepartmentalization

The process of breaking up organizations into coherent units.

Functional OrganizationFunctional Organization: The type of departmentalization based on the activities or functions performed (e.g., sales, finance).

Product OrganizationProduct Organization: The type of departmentalization based on the products (or product lines) produced.

Matrix OrganizationMatrix Organization: The type of departmentalization in which a product or project form is superimposed on a functional form.

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Functional OrganizationFunctional Organization

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Product OrganizationProduct Organization

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Matrix OrganizationMatrix Organization

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Organizational DesignOrganizational Design

The process of coordinating the structural elements of an organization in the most appropriate manner.

Approaches include– Classical and Neoclassical Approaches– The Contingency Approach–Mintzberg’s Framework– The Boundaryless Organization

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Classical vs. Neoclassical Classical vs. Neoclassical TheoryTheory

Classical Organizational TheoryClassical Organizational Theory: The approach that assumes that there is a single best way to design organizations.– This approach assumes that managers need to have close

control over their subordinates and calls for designing organizations with tall hierarchies and a narrow span of control.

Neoclassical Organizational TheoryNeoclassical Organizational Theory: An attempt to improve on the classical organizational theory that argues that not only economic effectiveness, but also employee satisfaction, should be goals of an industrial organization.– This approach assumes that managers do not have to

carefully monitor their subordinates and calls for designing organizations with flat hierarchies and a wide span of control.

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Classical vs. Neoclassical Classical vs. Neoclassical TheoryTheory

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The Contingency ApproachThe Contingency Approach

The contemporary approach that recognizes that no one approach to organizational design is best, but that the best design is the one that best fits with the existing environmental conditions.

Mechanistic OrganizationMechanistic Organization: An internal organizational structure in which people perform specialized jobs, many rigid rules are imposed, and authority is vested in a few top-ranking officials.

Organic OrganizationOrganic Organization: An internal organizational structure in which jobs tend to be very general, there are few rules, and decisions can be made by lower-level employees.

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Mechanistic vs. Organic Mechanistic vs. Organic DesignsDesigns

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Design EffectivenessDesign Effectiveness

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Mintzberg’s FrameworkMintzberg’s Framework

Mintzberg claims that organizations are composed of five basic elements, or groups of individuals, any of which may predominate in an organization.

The element that predominates will determine the most effective design in that situation.

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Mintzberg: Five Basic Mintzberg: Five Basic ElementsElements

Operating CoreOperating Core: Employees who perform the basic work related to an organization’s product or service.Strategic ApexStrategic Apex: Top-level executives responsible for running an entire organization.Middle LineMiddle Line: Managers who transfer information between higher and lower levels of the organizational hierarchy.TechnostructureTechnostructure: Organizational specialists responsible for standardizing various aspects of an organization’s activities.Support StaffSupport Staff: Individuals who provide indirect support services to an organization.

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Mintzberg: Organizational Mintzberg: Organizational Designs IDesigns I

Simple StructureSimple Structure: An organization characterized as being small and informal, with a single powerful individual, often the founding entrepreneur, who is in charge of everything.Machine BureaucracyMachine Bureaucracy: An organizational form in which work is highly specialized, decision making is concentrated at the top, and the work environment is not prone to change (e.g., a government office).Professional BureaucracyProfessional Bureaucracy: Organizations (e.g., hospitals and universities) in which there are lots of rules to follow, but employees are highly skilled and free to make decisions on their own.

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Mintzberg: Organizational Mintzberg: Organizational Designs IIDesigns II

Divisional StructureDivisional Structure: The form used by many large organizations, in which separate autonomous units are created to deal with entire product lines, freeing top management to focus on large-scale, strategic decisions.

AdhocracyAdhocracy: A highly informal, organic organization in which specialists work in teams, coordinating with each other on various projects (e.g., many software development companies).

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Mintzberg: A SummaryMintzberg: A Summary

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Boundaryless OrganizationBoundaryless Organization

An organization in which chains of command are eliminated, spans of control are unlimited, and rigid departments give way to empowered teams.

Modular OrganizationModular Organization: An organization that surrounds itself by a network of other organizations to which it regularly outsources noncore functions.

Virtual OrganizationVirtual Organization: A highly flexible, temporary organization formed by a group of companies that join forces to exploit a specific opportunity.

Affiliate NetworksAffiliate Networks: Satellite organizations affiliated with core companies that have helped them develop.

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Boundaryless OrganizationBoundaryless Organization

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Modular OrganizationModular Organization

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Virtual OrganizationVirtual Organization

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Interorganizational Interorganizational DesignsDesigns

Organizational designs in which two or more organizations come together.ConglomeratesConglomerates: A form of organizational diversification in which an organization (usually a very large, multinational one) adds an entirely unrelated business or product to its organizational design.Strategic AllianceStrategic Alliance: A type of interorganizational design in which two or more separate companies combine forces to develop and operate a specific business.

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Strategic AlliancesStrategic Alliances

Mutual Service ConsortiaMutual Service Consortia: A type of strategic alliance in which two similar companies from the same or similar industries pool their resources to receive a benefit that would be too difficult or expensive for either to obtain alone.

Value-Chain PartnershipsValue-Chain Partnerships: Strategic alliances between companies in different industries that have complementary capabilities.

Joint VenturesJoint Ventures: Strategic alliances in which several companies work together to fulfill opportunities that require the capabilities of one another.

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Continuum of AlliancesContinuum of Alliances