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FOUNDATIONS OFORGANIZATIONSTRUCTURE

13Part Four u The Organization System CHAPTER OUTLINE

What Is Organizational Structure?Common Organizational DesignsNew Design OptionsWhy Do Structures Differ?Organizational Designs and Employee

Behavior

The dinosaurs eloquentlesson is that if somebigness is good, anoverabundance of bigness isnot necessarily better.

E.A. Johnston

Chapter EndChapter Start Contents* *

Quit Video Web Site 1007

Identify the six key elements that define anorganizations structureExplain the characteristics of a bureaucracyDescribe a matrix organizationExplain the characteristics of a virtualorganizationSummarize why managers want to create boundaryless organizationsContrast mechanistic and organic structuralmodelsList the factors that favor differentorganizational structuresExplain the behavioral implications of differentorganizational designs

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After studying this chapter, you should be able to

LEARNING OBJECTIVES



What will tomorrows large organization look like and what kind of peoplewill it employ? If you want a prototype, consider the structure used by theorganizing committee for the 1996 Summer Olympic Games in Atlanta.1

The Atlanta Committee for the Olympic Games (ACOG) was created in1990, shortly after Atlanta won the bid for theGames. Headed by William Porter Payne (seephoto), it began with literally half a dozen peo-ple. Yet it would grow to a peak of more than88,000 (including volunteers). And then, in amatter of months, it would be closed down andessentially go out of business. Full-timeemployees peaked at 4,500 during the Gamesin July. By August 30th, only 700 remained.And by January 1997, the ACOG employedfewer than 100 people. As one early employeedescribed the task, it was equivalent to creat-ing and dismantling a Fortune 500 company ina couple of years.

The task of putting an Olympics togetheris monumental. In Atlantas case, this includedraising money, signing up sponsors, buildingstadiums, installing security systems, creating

marketing plans, printing tickets, hiring and training translators, and supervis-ing tens-of-thousands of volunteers. To complete these tasks, the ACOG cre-



ated a top-management team heading 13 units ranging from construction tosecurity.

What kind of individuals are required to make an organization like thiswork? People who are flexible! They have to have the ability to make deci-sions on the fly, adjust to constantly changing situations, and feel comfortablein an environment where they know their workdays are numbered. But flexi-bility isnt something thats easy to teach. You cant train people to be flexible,said Doris Issacs-Stallworth, ACOGs managing director of administration.You have to hire people who are both specialists in their area of expertise,such as marketing or finance, and yet who are able to pick up the slack wher-ever else theyre needed. Issacs-Stallworth jokingly counted her three yearswith the Olympic committee in dog yearsone year with ACOG being likeseven in another organization.

Tomorrows large organizations are very likely to be much more adapt-able than ones with which weve become familiar. Theyll look more like thestructure of the ACOG than the traditional rigid bureaucracy. And the type ofpeople theyll need will have to be, like those employed by the ACOG, highlyflexible. Unfortunately, a lot of people are likely to have trouble adjusting to thisneed for flexibility. u



The theme of this chapter is that organizations havedifferent structures and that these structures have abearing on employee attitudes and behavior. Morespecifically, in the following pages, we define the key com-ponents that make up an organizations structure, presenthalf a dozen or so structural design options from whichmanagers can choose, identify the contingency factors thatmake certain structural designs preferable in varying situations, andconclude by considering the different effects that various organiza-tional designs have on employee behavior.

What Is Organizational Structure?An organizational structure defines how job tasks are formallydivided, grouped, and coordinated. There are six key elements thatmanagers need to address when they design their organizationsstructure. These are: work specialization, departmentalization,chain of command, span of control, centralization and decentral-ization, and formalization.2 Exhibit 13-1 presents each of these ele-ments as answers to an important structural question. The follow-ing sections describe these six elements of structure.



u An organization structuredefines how job tasks areformally divided, grouped,and coordinated.

organizational structureHow job tasks are formallydivided, grouped, and coor-dinated.

Work SpecializationEarly in this century, Henry Ford became rich and famous by build-ing automobiles on an assembly line. Every Ford worker wasassigned a specific, repetitive task. For instance, one person wouldjust put on the right-front wheel and someone else would installthe right-front door. By breaking jobs up into small standardizedtasks, which could be performed over and over again, Ford was ableto produce cars at the rate of one every ten seconds, while usingemployees who had relatively limited skills.

Ford demonstrated that work can be performed more efficientlyif employees are allowed to specialize. Today we use the term workspecialization or division of labor to describe the degree to whichtasks in the organization are subdivided into separate jobs.

The essence of work specialization is that, rather than an entirejob being done by one individual, it is broken down into a numberof steps, each step being completed by a separate individual. Inessence, individuals specialize in doing part of an activity ratherthan the entire activity.

By the late 1940s, most manufacturing jobs in industrializedcountries were being done with high work specialization. Manage-ment saw this as a means to make the most efficient use of itsemployees skills. In most organizations, some tasks require highlydeveloped skills; others can be performed by the untrained. If allworkers were engaged in each step of, say, an organizations manu-



work specializationThe degree to which tasks inthe organization are subdi-vided into separate jobs.

facturing process, all would have to have the skills necessary to per-form both the most demanding and the least demanding jobs. Theresult would be that, except when performing the most skilled orhighly complex tasks, employees would be working below their skilllevels. And since skilled workers are paid more than unskilled work-ers and their wages tend to reflect their highest level of skill, it rep-



The Key Question The Answer Is Provided By

1. To what degree are tasks subdivided into Work specializationseparate jobs?

2. On what basis will jobs be grouped together? Departmentalization3. To whom do individuals and groups report? Chain of command4. How many individuals can a manager Span of control

efficiently and effectively direct?5. Where does decision-making authority lie? Centralization and

decentralization6. To what degree will there be rules and Formalization

regulations to direct employees and managers?

Exhibit 13-1 Six Key Questions That Managers Need to Answerin Designing the Proper Organizational Structure

resents an inefficient usage of organizational resources to payhighly skilled workers to do easy tasks.

Managers also looked for other efficiencies that could beachieved through work specialization. Employee skills at perform-ing a task successfully increase through repetition. Less time isspent in changing tasks, in putting away ones tools and equipmentfrom a prior step in the work process, and in getting ready foranother. Equally important, training for specialization is more effi-cient from the organizations perspective. It is easier and less costlyto find and train workers to do specific and repetitive tasks. This isespecially true of highly sophisticated and complex operations. Forexample, could Cessna produce one Citation jet a year if one per-son had to build the entire plane alone? Not likely! Finally, workspecialization increases efficiency and productivity by encouragingthe creation of special inventions and machinery.

For much of the first half of this century, managers viewed workspecialization as an unending source of increased productivity. Andthey were probably right. Because specialization was not widelypracticed, its introduction almost always generated higher produc-tivity. But by the 1960s, there became increasing evidence that agood thing can be carried too far. The point had been reached insome jobs where the human diseconomies from specializationwhich surfaced as boredom, fatigue, stress, low productivity, poorquality, increased absenteeism, and high turnovermore than off-



set the economic advantages (see Exhibit 13-2). In such cases, pro-ductivity could be increased by enlarging, rather than narrowing,the scope of job activities. Additionally, a number of companiesfound that by giving employees a variety of activities to do, allow-ing them to do a whole and complete job, and by putting them into



(Hig

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(High)(Low)

human diseconomies

Impact fromof

spec

ializ

ation

Impa

ctfro

mec

onom

ies

Prod

uctiv

ity

Work specialization

Exhibit 13-2Economies and Diseconomies of Work Specialization

teams with interchangeable skills, they often achieved significantlyhigher output with increased employee satisfaction.

Most managers today see work specialization as neither obso-lete nor as an unending source of increased productivity. Rather,managers recognize the economies it provides in certain types ofjobs and the problems it creates when its carried too far. Youll find,for example, high work specialization being used by McDonalds toefficiently make and sell hamburgers and fries, and by medical spe-cialists in most health maintenance organizations. On the otherhand, companies like Saturn Corporation have had success bybroadening the scope of jobs and reducing specialization.

DepartmentalizationOnce youve divided jobs up through work specialization, you needto group these jobs together so common tasks can be coordinated.The basis by which jobs are grouped together is called depart-mentalization.

One of the most popular ways to group activities is by functionsperformed. A manufacturing manager might organize his or herplant by separating engineering, accounting, manufacturing, per-sonnel, and purchasing specialists into common departments. Ofcourse, departmentalization by function can be used in all types oforganizations. Only the functions change to reflect the organiza-



departmentalizationThe basis by which jobs aregrouped together.

tions objectives and activities. A hospital might have departmentsdevoted to research, patient care, accounting, and so forth. A pro-fessional football franchise might have departments entitled PlayerPersonnel, Ticket Sales, and Travel and Accommodations. Themajor advantage to this type of grouping is obtaining efficienciesfrom putting like specialists together. Functional departmentaliza-tion seeks to achieve economies of scale by placing people withcommon skills and orientations into common units.

Tasks can also be departmentalized by the type of product theorganization produces. At Sun Petroleum Products, for instance,each of the three major product areas in the corporation (fuels,lubricants and waxes, and chemicals) is placed under the authorityof a vice president who is a specialist in, and responsible for, every-thing having to do with his or her product line. Each, for example,would have his or her own manufacturing and marketing group.The major advantage to this type of grouping is increased account-ability for product performance, since all activities related to a spe-cific product are under the direction of a single manager. If an orga-nizations activities are service rather than product related, eachservice would be autonomously grouped. For instance, an account-ing firm could have departments for tax, management consulting,auditing, and the like. Each would offer a common array of servicesunder the direction of a product or service manager.



Another way to departmentalize is on the basis of geography orterritory. The sales function, for instance, may have western, south-ern, midwestern, and eastern regions. Each of these regions is, ineffect, a department organized around geography. If an organiza-tions customers are scattered over a large geographic area and havesimilar needs based on their location, then this form of departmen-talization can be valuable.

At a Reynolds Metals aluminum tubing plant in upstate NewYork, production is organized into five departments: casting; press;tubing; finishing; and inspecting, packing, and shipping. This is anexample of process departmentalization because each departmentspecializes in one specific phase in the production of aluminumtubing. The metal is cast in huge furnaces; sent to the press depart-ment, where it is extruded into aluminum pipe; transferred to thetube mill, where it is stretched into various sizes and shapes of tub-ing; moved to finishing, where it is cut and cleaned; and finallyarrives in the inspecting, packing, and shipping department. Sinceeach process requires different skills, this method offers a basis forthe homogeneous categorizing of activities.

Process departmentalization can be used for processing customersas well as products. If youve ever been to a state motor vehicles officeto get a drivers license, you probably went through several depart-ments before receiving your license. In one state, applicants must gothrough three steps, each handled by a separate department: (1) vali-



dation by motor vehicles division; (2) processing by the licensingdepartment; and (3) payment collection by the treasury department.

A final category of departmentalization is to use the particulartype of customer the organization seeks to reach. The sales activitiesin an office supply firm, for instance, can be broken down intothree departments to service retail, wholesale, and government cus-tomers. A large law office can segment its staff on the basis ofwhether they service corporate or individual clients. The assump-tion underlying customer departmentalization is that customers ineach department have a common set of problems and needs thatcan best be met by having specialists for each.

Large organizations may use all of the forms of departmental-ization that weve described. A major Japanese electronics firm, forinstance, organizes each of its divisions along functional lines andits manufacturing units around processes; it departmentalizes salesaround seven geographic regions, and divides each sales region intofour customer groupings. Two general trends, however, seem to begaining momentum in the 1990s. First, customer departmentaliza-tion is growing in popularity. In order to better monitor the needsof customers and to be better able to respond to changes in thoseneeds, many organizations have given greater emphasis to cus-tomer departmentalization. Xerox, for example, has eliminated itscorporate marketing staff and placed marketing specialists out inthe field.3 This allows the company to better understand who their



customers are and to respond faster to their requirements. The sec-ond trend is that rigid, functional departmentalization is beingcomplemented by teams that cross over traditional departmentallines. As we described in chapter 8, as tasks have become more com-plex and more diverse skills are needed to accomplish those tasks,management has turned to cross-functional teams.

Chain of CommandTwenty years ago, the chain-of-command concept was a basic cor-nerstone in the design of organizations. As youll see, it has far lessimportance today. But contemporary managers should still considerits implications when they decide how best to structure their orga-nizations.

The chain of command is an unbroken line of authority thatextends from the top of the organization to the lowest eschelon andclarifies who reports to whom. It answers questions for employeessuch as To whom do I go if I have a problem? and To whom amI responsible?

You cant discuss the chain of command without discussing twocomplementary concepts: authority and unity of command. Author-ity refers to the rights inherent in a managerial position to giveorders and expect the orders to be obeyed. To facilitate coordina-tion, each managerial position is given a place in the chain of com-



chain of commandThe unbroken line of author-ity that extends from the topof the organization to thelowest eschelon and clarifieswho reports to whom.

authorityThe rights inherent in amanagerial position to giveorders and to expect theorders to be obeyed.

mand, and each manager is given a degree of authority in order tomeet his or her responsibilities. The unity-of-command principlehelps preserve the concept of an unbroken line of authority. Itstates that a person should have one and only one superior towhom he or she is directly responsible. If the unity of command isbroken, a subordinate might have to cope with conflicting demandsor priorities from several superiors.

Times change and so do the basic tenets of organizationaldesign. The concepts of chain of command, authority, and unity ofcommand have substantially less relevance today becauseof advancements in computer technology and the trendtoward empowering employees. Just how different thingsare today is illustrated in the following excerpt from an arti-cle in Business Week.

Puzzled, Charles Chaser scanned the inventory reportsfrom his companys distribution centers one Wednesdaymorning in mid-March. According to the computer printouts,stocks of Rose Awakening Cutex nail polish were down tothree days supply, well below the three-and-a-half week stockChesebrough-Ponds Inc. tries to keep on hand. But Chaserknew his Jefferson City (Missouri) plant had shipped 346 dozenbottles of the polish just two days before. Rose Awakening mustbe flying off store shelves, he thought. So Chaser turned to his termi-



unity of commandA subordinate should haveonly one superior to whomhe or she is directly respon-sible.

u The concepts of chain ofcommand, authority, andunity of command havesubstantially less relevancetoday because ofadvancements in computertechnology and the trendtoward empoweringemployees.

nal next to the production line and typed in instructions to produce400 dozen more bottles on Thursday morning.

All in a days work for a scheduling manager, right? Except forone detail: Chaser isnt management. Hes a line workerofficiallya line coordinatorone of hundreds who routinely tap theplants computer network to track shipments, schedule their ownworkloads, and generally perform functions that used to be theprovince of management.4

A low-level employee today can access information in secondsthat 20 years ago was available only to top managers. Similarly,computer technology increasingly allows employees anywhere inan organization to communicate with anyone else without goingthrough formal channels. Moreover, the concepts of authority andmaintaining the chain of command are increasingly less relevant asoperating employees are being empowered to make decisions thatpreviously were reserved for management. Add to this the popular-ity of self-managed and cross-functional teams and the creation ofnew structural designs that include multiple bosses, and the unity-of-command concept takes on less relevance. There are, of course,still many organizations that find they can be most productive byenforcing the chain of command. There just seem to be fewer ofthem nowadays.



Span of ControlHow many subordinates can a manager efficiently and effectivelydirect? This question of span of control is important because, toa large degree, it determines the number of levels and managers anorganization has. All things being equal, the wider or larger thespan, the more efficient the organization. An example can illustratethe validity of this statement.

Assume that we have two organizations, both of which haveapproximately 4,100 operative-level employees. As Exhibit 13-3illustrates, if one has a uniform span of four and the other a span ofeight, the wider span would have two fewer levels and approxi-mately 800 fewer managers. If the average manager made $40,000a year, the wider span would save $32 million a year in manage-ment salaries! Obviously, wider spans are more efficient in terms ofcost. However, at some point wider spans reduce effectiveness. Thatis, when the span becomes too large, employee performance suffersbecause supervisors no longer have the time to provide the neces-sary leadership and support.

Small spans have their advocates. By keeping the span of con-trol to five or six employees, a manager can maintain close control.5But small spans have three major drawbacks. First, as alreadydescribed, theyre expensive because they add levels of manage-ment. Second, they make vertical communication in the organiza-tion more complex. The added levels of hierarchy slow down deci-



span of controlThe number of subordinatesa manager can efficiently andeffectively direct.

sion making and tend to isolate upper management. Third, smallspans of control encourage overly tight supervision and discourageemployee autonomy.

The trend in recent years has been toward larger spans of con-trol. For example, the span for managers at companies such asGeneral Electric and Reynolds Metals has expanded to ten ortwelve subordinates twice the number of 20 years ago.6 TomSmith, a regional manager with Carboline Co., oversees 27 people.His counterpart of 20 years ago would have typically managed 12employees.7



Computer technology is increasing sales managers spanof control at Owens-Corning, a building supplymanufacturer and retailer. The company has equippedits salespeople with computers loaded with software thatprovides up-to-date information about products,customers, and marketplace trends. The informationempowers salespeople to manage their territory bymaking on-the-spot decisions on their own. Regionalsales manager Charles Causey (left) expects thecomputer system to increase his span of control from 9salespeople to 15.

Wide spans of control are consistent with recent efforts by com-panies to reduce costs, cut overhead, speed up decision making,increase flexibility, get closer to customers, and empower employ-



(Highest) Assumingspan of 4

Members at each levelAssumingspan of 8

Span of 8:Operatives = 4,096Managers (Levels 14) = 585

Span of 4:Operatives = 4,096Managers (Levels 16) = 1,365

Org

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atio

nal l

evel

1234567

1416

64

256

1,024

4,096

1864

512

4,096

Exhibit 13-3Contrasting Spans of Control

ees. However, to ensure that performance doesnt suffer because ofthese wider spans, organizations have been investing heavily inemployee training. Managers recognize that they can handle awider span when employees know their jobs inside and out or canturn to their co-workers when they have questions.

Centralization and DecentralizationIn some organizations, top managers make all the decisions. Lower-level managers merely carry out top managements directives. Atthe other extreme, there are organizations where decision making ispushed down to those managers who are closest to the action. Theformer organizations are highly centralized; the latter are decen-tralized.

The term centralization refers to the degree to which deci-sion making is concentrated at a single point in the organization.The concept includes only formal authority, that is, the rightsinherent in ones position. Typically, its said that if top manage-ment makes the organizations key decisions with little or no inputfrom lower-level personnel, then the organization is centralized. Incontrast, the more that lower-level personnel provide input or areactually given the discretion to make decisions, the more decen-tralization there is.



centralizationThe degree to which decisionmaking is concentrated at asingle point in the organiza-tion.

decentralizationDecision discretion ispushed down to lower-levelemployees.

An organization characterized by centralization is an inherentlydifferent structural animal from one that is decentralized. In adecentralized organization, action can be taken more quickly tosolve problems, more people provide input into decisions, andemployees are less likely to feel alienated from those who make thedecisions that affect their work lives.

Consistent with recent management efforts to make organiza-tions more flexible and responsive, there has been a marked trendtoward decentralizing decision making. In large companies, lower-level managers are closer to the action and typically have moredetailed knowledge about problems than do top managers. Bigretailers like Sears and J. C. Penney have given their store managersconsiderably more discretion in choosing what merchandise tostock. This allows those stores to compete more effectively againstlocal merchants. Similarly, the Bank of Montreal grouped its 1,164Canadian branches into 236 communities, that is, a group ofbranches within a limited geographical area.8 Each community isled by a community area manager, who typically works within a 20-minute drive of the other branches. These area managers canrespond more quickly and more intelligently to problems in theircommunities than could some senior executive in Montreal. IBMEuropes chairperson Renato Riverso has similarly sliced theContinent into some 200 autonomous business units, each with itsown profit plan, employee incentives, and customer focus. We



used to manage from the top, like an army, said Riverso. Nowwere trying to create entities that drive themselves.9

FormalizationFormalization refers to the degree to which jobs within the orga-nization are standardized. If a job is highly formalized, then the jobincumbent has a minimum amount of discretion over what is to bedone, when it is to be done, and how he or she should do it.Employees can be expected always to handle the same input inexactly the same way, resulting in a consistent and uniform output.There are explicit job descriptions, lots of organizational rules, andclearly defined procedures covering work processes in organizationswhere there is high formalization. Where formalization is low, jobbehaviors are relatively nonprogrammed and employees have agreat deal of freedom to exercise discretion in their work. Since anindividuals discretion on the job is inversely related to the amountof behavior in that job that is preprogrammed by the organization,the greater the standardization, the less input the employee hasinto how his or her work is to be done. Standardization not onlyeliminates the possibility of employees engaging in alternativebehaviors, but it even removes the need for employees to consideralternatives.



formalizationThe degree to which jobswithin the organization arestandardized.

If youre a manager and want todelegate some of your authorityto someone else, how do you goabout it? The following summarizesthe primary steps you need to take.

1. Clarify the assignment. The place tobegin is to determine what is to bedelegated and to whom. You needto identify the person most capa-ble of doing the task, then deter-mine if he or she has the time andmotivation to do the job.

Assuming you have a willingand able subordinate, it is yourresponsibility to provide clearinformation on what is being del-egated, the results you expect,and any time or performanceexpectations you hold.

Unless there is an overridingneed to adhere to specific meth-

ods, you should delegate only theend results. That is, get agreementon what is to be done and theend results expected, but let thesubordinate decide on the means.

2. Specify the subordinates range of dis-cretion. Every act of delegationcomes with constraints. Youredelegating authority to act, butnot unlimited authority. Whatyoure delegating is authority toact on certain issues and, on thoseissues, within certain parameters.You need to specify what thoseparameters are so subordinatesknow, in no uncertain terms, therange of their discretion.

3. Allow the subordinate to participate.One of the best sources for deter-mining how much authority will

From Concepts to Skills

Delegating Authority





be necessary to accomplish a taskis the subordinate who will beheld accountable for that task. Ifyou allow employees to partici-pate in determining what is dele-gated, how much authority isneeded to get the job done, andthe standards by which theyll bejudged, you increase employeemotivation, satisfaction, andaccountability for performance.

4. Inform others that delegation hasoccurred. Delegation should nottake place in a vacuum. Not onlydo you and the subordinate needto know specifically what hasbeen delegated and how muchauthority has been granted, butanyone else who may be affectedby the delegation act also needsto be informed.

5. Establish feedback controls. Theestablishment of controls to mon-itor the subordinates progressincreases the likelihood thatimportant problems will be iden-tified early and that the task willbe completed on time and to thedesired specifications. Forinstance, agree on a specific timefor completion of the task, andthen set progress dates when thesubordinate will report back onhow well he or she is doing andany major problems that havesurfaced. This can be supple-mented with periodic spot checksto ensure that authority guide-lines are not being abused, orga-nization policies are being fol-lowed, and proper procedures arebeing met.

The degree of formalization can vary widely between organiza-tions and within organizations. Certain jobs, for instance, are wellknown to have little formalization. College book travelerstherepresentatives of publishers who call on professors to inform themof their companys new publicationshave a great deal of freedomin their jobs. They have no standard sales spiel, and the extent ofrules and procedures governing their behavior may be little morethan the requirement that they submit a weekly sales report andsome suggestions on what to emphasize for the various new titles.At the other extreme, there are clerical and editorial positions in thesame publishing houses where employees are required to clock inat their work stations by 8:00 a.m. or be docked a half-hours payand, once at that work station, to follow a set of precise proceduresdictated by management.

Common Organizational DesignsWe now turn to describing three of the more common organiza-tional designs found in use: the simple structure, the bureaucracy, andthe matrix structure.



The Simple StructureWhat do a small retail store, an electronics firm run by a hard-dri-ving entrepreneur, a new Planned Parenthood office, and an airlinein the midst of a companywide pilots strike have in common? Theyprobably all utilize the simple structure.

The simple structure is said to be characterized most by what itis not rather than what it is. The simple structure is not elabo-rated.10 It has a low degree of departmentalization, wide spans ofcontrol, authority centralized in a single person, and little formal-ization. The simple structure is a flat organization; it usually hasonly two or three vertical levels, a loose body of employees, and oneindividual in whom the decision-making authority is centralized.

The simple structure is most widely practiced in small busi-nesses in which the manager and the owner are one and the same.This, for example, is illustrated in Exhibit 13-5, an organizationchart for a retail mens store. Jack Gold owns and manages thisstore. Although Jack Gold employs five full-time salespeople, acashier, and extra personnel for weekends and holidays, he runsthe show.

The strength of the simple structure lies in its simplicity. Itsfast, flexible, inexpensive to maintain, and accountability is clear.One major weakness is that its difficult to maintain in anythingother than small organizations. It becomes increasingly inadequateas an organization grows because its low formalization and high



simple structureA structure characterized bya low degree of departmen-talization, wide spans ofcontrol, authority centralizedin a single person, and littleformalization.

centralization tend to create information overload at the top. Assize increases, decision making typically becomes slower and caneventually come to a standstill as the single executive tries to con-tinue making all the decisions. This often proves to be the undoingof many small businesses. When an organization begins to employ50 or 100 people, its very difficult for the owner-manager to make



OPEN

PUSHEXIT

Jack Gold,owner-manager

Johnny Moore,salesperson

Edna Joiner,salesperson

Bob Munson,salesperson

Norma Sloman,salesperson

Jerry Plotkin,salesperson

Helen Wright,cashier

Jack Gold's Men's Store

Store Hours10AM-8PM

Daily

Exhibit 13-5A Simple Structure (Jack Golds Mens Store)

all the choices. If the structure isnt changed and made more elab-orate, the firm often loses momentum and can eventually fail. Thesimple structures other weakness is that its riskyeverythingdepends on one person. One heart attack can literally destroy theorganizations information and decision-making center.

The simple structure isnt strictly limited to small organizations,its just harder to make it work effectively in larger firms. One largecompany that seems to have succeeded with the simple structure isNucor Corp., a $2.3 billion steel company that operates minimillsin Indiana and Arkansas.11 Its headquarters in Charlotte, NorthCarolina employs just 24 people. And there are only three levelsbetween the companys president and mill workers. This lean struc-ture has helped Nucor to become one of the most profitable steel-makers in the United States.

The BureaucracyStandardization! Thats the key concept that underlies all bureau-cracies. Take a look at the bank where you keep your checkingaccount, the department store where you buy your clothes, or thegovernment offices that collect your taxes, enforce health regula-tions, or provide local fire protection. They all rely on standardizedwork processes for coordination and control.



The bureaucracy is characterized by highly routine operatingtasks achieved through specialization, very formalized rules andregulations, tasks that are grouped into functional departments,centralized authority, narrow spans of control, and decision makingthat follows the chain of command.

The primary strength of the bureaucracy lies in its ability to per-form standardized activities in a highly efficient manner. Puttinglike specialties together in functional departments results ineconomies of scale, minimum duplication of personnel and equip-ment, and employees who have the opportunity to talk the samelanguage among their peers. Furthermore, bureaucracies can get bynicely with less talentedand, hence, less costlymiddle- andlower-level managers. The pervasiveness of rules and regulationssubstitutes for managerial discretion. Standardized operations, cou-pled with high formalization, allow decision making to be central-ized. There is little need, therefore, for innovative and experienceddecision makers below the level of senior executives.

One of the major weaknesses of a bureaucracy is illustrated inthe following dialogue between four executives in one company:Ya know, nothing happens in this place until we produce some-thing, said the production executive. Wrong, commented theresearch and development manager, nothing happens until wedesign something! What are you talking about? asked the mar-keting executive. Nothing happens here until we sell something!



bureaucracyA structure with highly rou-tine operating tasks achievedthrough specialization, veryformalized rules and regula-tions, tasks that are groupedinto functional departments,centralized authority, narrowspans of control, and deci-sion making that follows thechain of command.

Finally, the exasperated accounting manager responded, It doesntmatter what you produce, design, or sell. No one knows what hap-pens until we tally up the results! This conversation points up thefact that specialization creates subunit conflicts. Functional unitgoals can override the overall goals of the organization.

The other major weakness of a bureaucracy is something weveall experienced at one time or another when having to deal withpeople who work in these organizations: obsessive concern with fol-lowing the rules. When cases arise that dont precisely fit the rules,there is no room for modification. The bureaucracy is efficient onlyas long as employees confront problems that they have previouslyencountered and for which programmed decision rules havealready been established.

The peak of bureaucracys popularity was probably in the 1950sand 1960s. At that time, for instance, just about every major corpo-ration in the world firms such as IBM, General Electric,Volkswagen, Matsushita, and Royal Dutch Shellwas organized asa bureaucracy. Although the bureaucracy is currently out of fash-ioncritics argue that it cant respond rapidly to change and hin-ders employee initiative12the majority of large organizations stilltake on basic bureaucratic characteristics, particularly specializationand high formalization. However, spans of control have generallybeen widened, authority has become more decentralized, and func-tional departments have been supplemented with an increased use



of teams. Another trend is toward breaking bureaucracies up intosmaller, though fully functioning, minibureaucracies.13 Thesesmaller versions, with 150 to 250 people, each have their own mis-sion and profit goals. Its been estimated that about 15 percent oflarge corporations have taken this direction.14 For instance,Eastman Kodak has transformed over 100 production units intoseparate businesses. ABB Asea Brown Boveri, a $32 billion corpora-tion with 210,000 employees, has broken itself into 1,300 compa-nies divided into almost 5,000 profit centers that are located in 140different countries.

The Matrix StructureAnother popular organizational design option is the matrixstructure. Youll find it being used in advertising agencies, aero-space firms, research and development laboratories, constructioncompanies, hospitals, government agencies, universities, manage-ment consulting firms, and entertainment companies.15 Essentially,the matrix combines two forms of departmentalization: functionaland product.

The strength of functional departmentalization lies in puttinglike specialists together, which minimizes the number necessary,while it allows the pooling and sharing of specialized resourcesacross products. Its major disadvantage is the difficulty of coordi-



matrix structureA structure that creates duallines of authority; combinesfunctional and productdepartmentalization.

nating the tasks of diverse functional specialists so that their activ-ities are completed on time and within budget. Product depart-mentalization, on the other hand, has exactly the opposite benefitsand disadvantages. It facilitates coordination among specialties toachieve on-time completion and meet budget targets. Furthermore,it provides clear responsibility for all activities related to a product,but with duplication of activities and costs. The matrix attempts togain the strengths of each, while avoiding their weaknesses.

The most obvious structural characteristic of the matrix is thatit breaks the unity-of-command concept. Employees in the matrixhave two bosses their functional department managers andtheir product managers. Therefore, the matrix has a dual chain ofcommand.

Exhibit 13-6 shows the matrix form as used in a collegeof business administration. The academic departments ofaccounting, economics, marketing, and so forth are func-tional units. Additionally, specific programs (that is, prod-ucts) are overlaid on the functions. In this way, members ina matrix structure have a dual assignmentto their functionaldepartment, and to their product groups. For instance, a professorof accounting teaching an undergraduate course reports to thedirector of undergraduate programs as well as to the chairperson ofthe accounting department.



u The matrix has a dualchain of command.

Johnson & Johnson ( J&J) has developeda remarkable record for developing newproducts. In spite of its size its annualrevenues are approaching $21 billion 36percent of its current sales come from prod-ucts introduced within the previous fiveyears. How does this huge company generatesuch innovation and growth? By structuringitself more like a small entrepreneurial firm.

We dont view ourselves as a big com-pany, says its chairman, Ralph Larsen. Weview ourselves as 160 small companies.

A couple of decades ago, J&J was a con-sumer products firm. It made Band-Aids, baby

powder, shampoos, and Tylenol. Today it stillmakes those consumer products but it getstwo-thirds of its sales and most of its growthfrom pharmaceuticals and professional ser-vices. Two success stories illustrate how J&Jworks.

J&Js management decided that interven-tional cardiology would become a huge busi-ness. To become involved in it, J&J createdInterventional Systems. Starting with a gen-eral manager, a small staff, and no sales, theywere told to create a business. Looking foropportunities, the new units managers dis-covered some medical specialists who had

OB in the News Johnson & Johnson: Its Really 160 Companies!



invented a tiny stainless steel scaffold thatcould be inserted inside a blocked arteryusing a balloon. This scaffold would allowblood to flow unimpeded. After investingheavily in clinical trials and in design andmanufacturing processes, the scaffold wasapproved by the Federal Drug Administrationin 1994. The next year this device broughtJ&J some $520 million in revenues and anestimated net earnings of some $200 million.

In the early 1980s, the market for contactlenses was dominated by Bausch & Lomb. J&Jwas on the verge of closing Vistakon, its con-tact lens division, when managers decidedthat they could develop a technology for

making disposable contact lenses. The ideaseemed preposterous at the time, since regularlenses were selling for $150 a pair. It was acrazy idea, Larsen noted, but there werepeople in our company who believed it couldhappen. Vistakons managers spent five yearsand more than $200 million testing anddeveloping the idea. Introduced in 1988, dis-posables were an immediate hit. The com-pany now sells around $560 million worthevery year, making J&J the worlds leadingcontact lens maker.

Based on H. Rudnitsky, One Hundred Sixty Companiesfor the Price of One, Forbes, February 26, 1996, pp.56 62.

Take It to the Net

We invite you to visit the Robbins page on the Prentice Hall Web site at:

http://www.prenhall.com/robbinsorgbeh

for this chapters World Wide Web exercise.





The strength of the matrix lies in its ability to facilitate coordi-nation when the organization has a multiplicity of complex andinterdependent activities. As an organization gets larger, its infor-mation processing capacity can become overloaded. In a bureau-cracy, complexity results in increased formalization. The direct andfrequent contact between different specialties in the matrix canmake for better communication and more flexibility. Informationpermeates the organization and more quickly reaches those peoplewho need to take account of it. Furthermore, the matrix reducesbureaupathologies. The dual lines of authority reduce tendencies ofdepartmental members to become so busy protecting their littleworlds that the organizations overall goals become secondary.

There is also another advantage to the matrix. It facilitates theefficient allocation of specialists. When individuals with highly spe-cialized skills are lodged in one functional department or productgroup, their talents are monopolized and underutilized. The matrixachieves the advantages of economies of scale by providing theorganization with both the best resources and an effective way ofensuring their efficient deployment.

The major disadvantages of the matrix lie in the confusion itcreates, its propensity to foster power struggles, and the stress itplaces on individuals.16 When you dispense with the unity-of-com-mand concept, ambiguity is significantly increased and ambiguityoften leads to conflict. For example, its frequently unclear who



Academicdepartments

Accounting

Administrativestudies

Information anddecision sciences

Finance

Marketing

OrganizationalbehaviorQuantitativemethods

Programs Undergraduate Master's Ph. D. Research ExecutivedevelopmentCommunity service

Exhibit 13-6Matrix Structure for a College of Business Administration

reports to whom, and it is not unusual for product managers tofight over getting the best specialists assigned to their products.Confusion and ambiguity also create the seeds of power struggles.Bureaucracy reduces the potential for power grabs by defining therules of the game. When those rules are up for grabs, power strug-gles between functional and product managers result. For individu-als who desire security and absence from ambiguity, this work cli-mate can produce stress. Reporting to more than one bossintroduces role conflict, and unclear expectations introduce roleambiguity. The comfort of bureaucracys predictability is absent,replaced by insecurity and stress.

New Design OptionsSince the early 1980s, senior managers in a number of organizationshave been working to develop new structural options that can bet-ter help their firms compete effectively. In this section, welldescribe three such structural designs: the team structure, the virtualorganization, and the boundaryless organization.

The Team StructureAs described in Chapter 8, teams have become an extremely popu-lar means around which to organize work activities. When man-



agement uses teams as its central coordination device, you have ateam structure. The primary characteristics of the team structureare that it breaks down departmental barriers and decentralizesdecision making to the level of the work team. Team structures alsorequire employees to be generalists as well as specialists.17

In smaller companies, the team structure can define the entireorganization. For instance, Imedia, a 30-person marketing firm inNew Jersey, is organized completely around teams which have fullresponsibility for most operational issues and client services.18

More often, particularly among larger organizations, the teamstructure complements what is typically a bureaucracy. This allowsthe organization to achieve the efficiency of bureaucracys stan-dardization, while gaining the flexibility that teams provide. Toimprove productivity at the operating level, for instance, compa-nies like Chrysler, Saturn, Motorola, and Xerox have made exten-sive use of self-managed teams. On the other hand, when compa-nies like Boeing or Hewlett-Packard need to design new products orcoordinate major projects, theyll structure activities around cross-functional teams.

The Virtual OrganizationWhy own when you can rent? That question captures the essenceof the virtual organization (also sometimes called the network ormodular organization), typically a small, core organization that out-



team structureThe use of teams as the cen-tral device to coordinatework activities.

virtual organizationA small, core organizationthat outsources major busi-ness functions.

sources major business functions.19 In structural terms, the virtualorganization is highly centralized, with little or no departmental-ization.

The prototype of the virtual structure is todays movie-makingorganization. In Hollywoods golden era, movies were made byhuge, vertically integrated corporations.20 Studios such as MGM,Warner Brothers, and 20th-Century Fox owned large movie lots andemployed thousands of full-time specialistsset designers, camerapeople, film editors, directors, and even actors. Nowadays, mostmovies are made by a collection of individuals and small companieswho come together and make films project by project. This struc-tural form allows each project to be staffed with the talent mostsuited to its demands, rather than having to choose just from thosepeople the studio employs. It minimizes bureaucratic overheadsince there is no lasting organization to maintain. And it lessenslong-term risks and their costs because there is no long termateam is assembled for a finite period and then disbanded.

Companies like Nike, Reebok, Liz Claiborne, Emerson Radio,and Dell Computer are just a few of the thousands of companiesthat have found that they can do hundreds of millions of dollars inbusiness without owning manufacturing facilities. Dell Computer,for instance, owns no plants and merely assembles computers fromoutsourced parts. National Steel Corp. contracts out its mail-room



operations; AT&T farms out its credit card processing; and Mobil OilCorp. has turned over maintenance of its refineries to another firm.

Whats going on here? A quest for maximum flexibility. Thesevirtual organizations have created networks of relationships thatallow them to contract out manufacturing, distribution, marketing,or any other business function where management feels that otherscan do it better or more cheaply.

The virtual organization stands in sharp contrast to the typicalbureaucracy that has many vertical levels of management and



Tour promoter RZO Productions usedthe virtual organization structure inorganizing The Rolling StonesVoodoo Lounge world tour. RZOemployed 250 employees, such asstagehands, lighting and soundtechnicians, and truck drivers, on acontract basis for this specific tour.The organization was disbandedwhen the tour ended.

where control is sought through ownership. In such organizations,research and development are done in-house, production occurs incompany-owned plants, and sales and marketing are performed bythe companys own employees. To support all this, managementhas to employ extra personnel including accountants, humanresource specialists, and lawyers. The virtual organization, however,outsources many of these functions and concentrates on what itdoes best. For most U.S. firms, that means focusing on design ormarketing. Emerson Radio Corporation, for example, designs andengineers its televisions, stereos, and other consumer electronicproducts, but it contracts out its manufacture to Asian suppliers.

Exhibit 13-7 shows a virtual organization in which manage-ment outsources all of the primary functions of the business. Thecore of the organization is a small group of executives, whose job isto oversee directly any activities that are done in-house and to coor-dinate relationships with the other organizations that manufacture,distribute, and perform other crucial functions for the virtual orga-nization. The arrows in Exhibit 13-7 represent those relationshipstypically maintained under contracts. In essence, managers in vir-tual structures spend most of their time coordinating and control-ling external relations, typically by way of computer-network links.

The major advantage to the virtual organization is its flexibility.For instance, it allowed someone with an innovative idea and littlemoney, such as Michael Dell and his Dell Computer firm, to suc-





Independentresearch anddevelopmentconsulting

firm

Factoriesin

South Korea

Commissionedsales

representatives

Advertisingagency

Executivegroup

Exhibit 13-7A Vir tual Organization

cessfully compete against large companies like IBM. The primarydrawback to this structure is that it reduces managements controlover key parts of its business.

The Boundaryless OrganizationGeneral Electric chairman, Jack Welch, coined the term bound-aryless organization to describe his idea of what he wanted GEto become. Welch wanted to turn his company into a $60 billionfamily grocery store.21 That is, in spite of its monsterous size, hewanted to eliminate vertical and horizontal boundaries within GEand breakdown external barriers between the company and its cus-tomers and suppliers. The boundaryless organization seeks to elim-inate the chain of command, have limitless spans of control, andreplace departments with empowered teams.

Although GE hasnt yet achieved this boundaryless stateandprobably never willit has made significant progress toward thisend. So have other companies like Hewlett-Packard, AT&T, andMotorola. Lets take a look at what a boundaryless organizationwould look like and what some firms are doing to make it a reality.22

By removing vertical boundaries, management flattens the hier-archy. Status and rank are minimized. And the organization looksmore like a silo than a pyramid, where the grain at the top is no dif-ferent than the grain at the bottom. Cross-hierarchical teams (which



boundarylessorganizationAn organization that seeks toeliminate the chain of com-mand, have limitless spansof control, and replacedepartments with empoweredteams.

include top executives, middle managers, supervisors, and operativeemployees), participative decision-making practices, and the use of360-degree performance appraisals (where peers and others aboveand below the employee evaluate his or her performance) are exam-ples of what GE is doing to break down vertical boundaries.

Functional departments create horizontal boundaries. The way toreduce these barriers is to replace functional departments with cross-functional teams and to organize activities around processes. Forinstance, Xerox now develops new products through multidiscipli-nary teams that work in a single process instead of around narrowfunctional tasks. Similarly, some AT&T units are now doing annualbudgets based not on functions or departments but on processessuch as the maintenance of a worldwide telecommunications net-work. Another way management can cut through horizontal barriersis to use lateral transfers and rotate people into and out of differentfunctional areas. This turns specialists into generalists.

When fully operational, the boundaryless organization alsobreaks down barriers to external constituencies and barriers createdby geography. Globalization, strategic alliances, supplier organiza-tion and customerorganization linkages, and telecommuting areall examples of practices that reduce external boundaries. Coca-Cola, for instance, sees itself as a global corporation, not a U.S. orAtlanta company. Firms like NEC Corp., Boeing, and AppleComputer each have strategic alliances or joint partnerships with



dozens of companies. These alliances blur the distinction betweenone organization and another as employees work on joint projects.Many organizations are also blurring the line between themselvesand their suppliers. For instance, the CEO of Merix Corp., a 750-employee electronics firm, said, We have people who work herethat I thought were Merix employees. They have our badges, and I



A global computer network allowsTexas Instruments to communicateacross intraorganizationalboundaries in speeding newproducts to market. A company unitnamed Tiris, which produces tinycommunications devices for securityand identification purposes, ismanaged out of Bedford, England.Product designs are developed in theNetherlands and Germany and theproducts are manufactured andassembled in Japan and Malaysia.Employees at all these locations sendtext, diagrams, and designs to eachother using TIs networkedcomputers. Shown here are assemblyemployees in Malaysia.

see them every day, but it turns out that they really work for oursuppliers. Companies like AT&T and Northwest Airlines are allow-ing customers to perform functions that previously were done bymanagement. For instance, some AT&T units are receiving bonusesbased on customer evaluations of the teams that serve them.Northwest gives its frequent fliers ten $50 award certificates eachyear and tells these customers to distribute these awards toNorthwest employees when they see them do something good. Thispractice, in essence, allows Northwests customers to participate inemployee appraisals. Finally, we suggest that telecommuting is blur-ring organizational boundaries. The security analyst with MerrillLynch who does his job from his ranch in Montana or the softwaredesigner who works for a San Francisco company but does her jobin Boulder, Colorado are just two examples of the millions of work-ers who are now doing their jobs outside the physical boundaries oftheir employers premises.

The one common technological thread that makes the bound-aryless organization possible is networked computers. They allowpeople to communicate across intraorganizational and interorgani-zational boundaries.23 Electronic mail, for instance, enables hun-dreds of employees to share information simultaneously and allowsrank-and-file workers to communicate directly with senior execu-tives. And interorganizational networks now make it possible forWal-Mart suppliers like Procter & Gamble and Levi Strauss to mon-



itor inventory levels of laundry soap and jeans, respectively,because P&G and Levis computer systems are networked to Wal-Marts system.

Why Do Structures Differ?In the previous sections, we described a variety of organizationaldesigns ranging from the highly structured and standardizedbureaucracy to the loose and amorphous boundaryless organiza-tion. The other designs we discussed tend to exist somewherebetween these two extremes.

Exhibit 13-8 reconceptualizes our previous discussions by pre-senting two extreme models of organizational design. One extremewell call the mechanistic model. It is generally synonymouswith the bureaucracy in that it has extensive departmentalization,high formalization, a limited information network (mostly down-ward communication), and little participation by low-level mem-bers in decision making. At the other extreme is the organicmodel. This model looks a lot like the boundaryless organization.Its flat, uses cross-hierarchical and cross-functional teams, has lowformalization, possesses a comprehensive information network (uti-lizing lateral and upward communication as well as downward),and it involves high participation in decision making.24



mechanistic modelA structure characterized byextensive departmentaliza-tion, high formalization, alimited information network,and centralization.

organic modelA structure that is flat, usescross-hierarchical andcross-functional teams, haslow formalization, possessesa comprehensive informationnetwork, and relies on par-ticipative decision making.

With these two models in mind, were now prepared to addressthe question: Why are some organizations structured along moremechanistic lines while others follow organic characteristics? Whatare the forces that influence the design that is chosen? In the fol-lowing pages, we present the major forces that have been identifiedas causes or determinants of an organizations structure.25

StrategyAn organizations structure is a means to help management achieveits objectives. Since objectives are derived from the organizationsoverall strategy, it is only logical that strategy and structure shouldbe closely linked. More specifically, structure should follow strategy.If management makes a significant change in its organizationsstrategy, the structure will need to be modified to accommodateand support this change.26

Most current strategy frameworks focus on three strategydimensionsinnovation, cost minimization, and imitationandthe structural design that works best with each.27

To what degree does an organization introduce major newproducts or services? An innovation strategy does not mean astrategy merely for simple or cosmetic changes from previous offer-ings but rather one for meaningful and unique innovations.Obviously, not all firms pursue innovation. This strategy may



innovation strategyA strategy that emphasizesthe introduction of majornew products and services.



The Mechanistic model The Organic model

High specialization Rigid departmentalization Clear chain of command Narrow spans of control Centralization

Cross-functional teams Cross-hierarchical teams Free flow of information Wide spans of control Decentralization Low formalization High formalization

Exhibit 13-8Mechanistic vs. Organic Models

appropriately characterize 3M Co., but it certainly is not a strategypursued by Readers Digest.

An organization that is pursuing a cost-minimization strat-egy tightly controls costs, refrains from incurring unnecessaryinnovation or marketing expenses, and cuts prices in selling a basicproduct. This would describe the strategy pursued by Wal-Mart orthe sellers of generic grocery products.

Organizations following an imitation strategy try to capital-ize on the best of both of the previous strategies. They seek to min-imize risk and maximize opportunity for profit. Their strategy is tomove into new products or new markets only after viability hasbeen proven by innovators. They take the successful ideas of inno-vators and copy them. Manufacturers of mass-marketed fashiongoods that are rip-offs of designer styles follow the imitation strat-egy. This label also probably characterizes such well-known firms asIBM and Caterpillar. They essentially follow their smaller and moreinnovative competitors with superior products, but only after theircompetitors have demonstrated that the market is there.

Exhibit 13-9 describes the structural option that best matcheseach strategy. Innovators need the flexibility of the organic struc-ture, while cost minimizers seek the efficiency and stability of themechanistic structure. Imitators combine the two structures. Theyuse a mechanistic structure in order to maintain tight controls and



cost-minimizationstrategyA strategy that emphasizestight cost controls, avoid-ance of unnecessary innova-tion or marketing expenses,and price cutting.

imitation strategyA strategy that seeks tomove into new products ornew markets only after theirviability has already beenproven.

low costs in their current activities, while at the same time they cre-ate organic subunits in which to pursue new undertakings.

Organization SizeA quick glance at the organizations we deal with regularly in ourlives would lead most of us to conclude that size would have somebearing on an organizations structure. The more than 800,000employees of the United States Postal Service, for example, do notneatly fit into one building, or into several departments supervisedby a couple of managers. Its pretty hard to envision 800,000 peo-



Strategy Structural Option

Innovation Organic: A loose structure; low specialization, low formalization, decentralized

Cost minimization Mechanistic: Tight control; extensive work specialization, high formalization, high centralization

Imitation Mechanistic and organic: Mix of loose with tight properties; tight controls over current activities and looser controls for new undertakings

Exhibit 13-9 The StrategyStructure Thesis

ple being organized in any manner other than one that contains agreat deal of specialization, departmentalization, uses a large num-ber of procedures and regulations to ensure uniform practices, andfollows a high degree of decentralized decision making. On theother hand, a local messenger service that employs ten people andgenerates less than $300,000, a year in service fees is not likely toneed decentralized decision making or formalized procedures andregulations.

There is considerable evidence to support that an organizationssize significantly affects its structure.28 For instance, large organiza-tionsthose typically employing 2,000 or more peopletend tohave more specialization, more departmentalization, more verticallevels, and more rules and regulations than do small organizations.However, the relationship isnt linear. Rather, size affects structureat a decreasing rate. The impact of size becomes less important asan organization expands. Why is this? Essentially, once an organi-zation has around 2,000 employees, its already fairly mechanistic.An additional 500 employees will not have much impact. On theother hand, adding 500 employees to an organization that has only300 members is likely to result in a shift toward a more mechanis-tic structure.



TechnologyThe term technology refers to how an organization transfers itsinputs into outputs. Every organization has at least one technologyfor converting financial, human, and physical resources into prod-ucts or services. The Ford Motor Co., for instance, predominantlyuses an assembly-line process to make its products. On the otherhand, colleges may use a number of instruction technologiestheever-popular formal lecture method, the case analysis method, theexperiential exercise method, the programmed learning method,and so forth. In this section we want to show that organizationalstructures adapt to their technology.

Numerous studies have been carried out on the technologystruc-ture relationship.29 The details of those studies are quite complex,so well go straight to the bottom line and attempt to summarizewhat we know.

The common theme that differentiates technologies is theirdegree of routineness. By this we mean that technologies tend towardeither routine or nonroutine activities. The former are characterizedby automated and standardized operations. Nonroutineactivities are customized. They include such varied opera-tions as furniture restoring, custom shoemaking, andgenetic research.

What relationships have been found between technol-ogy and structure? Although the relationship is not over-



technologyHow an organization trans-fers its inputs into outputs.

u The common theme thatdifferentiates technologies istheir degree of routineness.

whelmingly strong, we find that routine tasks are associated withtaller and more departmentalized structures. The relationshipbetween technology and formalization, however, is stronger. Studiesconsistently show routineness to be associated with the presence ofrule manuals, job descriptions, and other formalized documenta-tion. Finally, there has been found to be an interesting relationshipbetween technology and centralization. It seems logical that routinetechnologies would be associated with a centralized structure,whereas nonroutine technologies, which rely more heavily on theknowledge of specialists, would be characterized by delegated deci-sion authority. This position has met with some support. However,a more generalizable conclusion is that the technologycentraliza-tion relationship is moderated by the degree of formalization.Formal regulations and centralized decision making are both controlmechanisms and management can substitute one for the other.Routine technologies should be associated with centralized controlif there is a minimum of rules and regulations. However, if formal-ization is high, routine technology can be accompanied by decen-tralization. So, we would predict that routine technology would leadto centralization, but only if formalization is low.



EnvironmentAn organizations environment is composed of those institutionsor forces that are outside the organization and potentially affect theorganizations performance. These typically include suppliers, cus-tomers, competitors, government regulatory agencies, public pres-sure groups, and the like.

Why should an organizations structure be affected by its envi-ronment? Because of environmental uncertainty. Some organiza-tions face relatively static environmentsfew forces in their envi-ronment are changing. There are, for example, no new competitors,no new technological breakthroughs by current competitors, or lit-tle activity by public pressure groups to influence the organization.Other organizations face very dynamic environmentsrapidlychanging government regulations affecting their business, newcompetitors, difficulties in acquiring raw materials, continuallychanging product preferences by customers, and so on. Static envi-ronments create significantly less uncertainty for managers than dodynamic ones. And since uncertainty is a threat to an organizationseffectiveness, management will try to minimize it. One way toreduce environmental uncertainty is through adjustments in theorganizations structure.30

Recent research has helped clarify what is meant by environ-mental uncertainty. Its been found that there are three key dimen-



environmentThose institutions or forcesoutside the organization thatpotentially affect the organi-zations performance.

sions to any organizations environment. They are labeled capacity,volatility, and complexity.31

The capacity of an environment refers to the degree to which itcan support growth. Rich and growing environments generateexcess resources, which can buffer the organization in times of rel-ative scarcity. Abundant capacity, for example, leaves room for anorganization to make mistakes, while scarce capacity does not. In1997, firms operating in the multimedia software business had rel-atively abundant environments, whereas those in the full-servicebrokerage business faced relative scarcity.

The degree of instability in an environment is captured in thevolatility dimension. Where there is a high degree of unpredictablechange, the environment is dynamic. This makes it difficult formanagement to predict accurately the probabilities associated withvarious decision alternatives. At the other extreme is a stable envi-ronment. The accelerated changes in Eastern Europe and thedemise of the Cold War had dramatic effects on the U.S. defenseindustry in the early 1990s. This moved the environment of majordefense contractors like McDonnell Douglas, Lockheed Martin,General Dynamics, and Northrop from relatively stable to dynamic.

Finally, the environment needs to be assessed in terms of com-plexity, that is, the degree of heterogeneity and concentrationamong environmental elements. Simple environments are homo-geneous and concentrated. This might describe the tobacco indus-



try, since there are relatively few players. Its easy for firms in thisindustry to keep a close eye on the competition. In contrast, envi-ronments characterized by heterogeneity and dispersion are calledcomplex. This is essentially the current environment for firms com-peting in the internet-connection business. Every day there seemsto be another new kid on the block with whom current internetaccess providers have to deal.

Exhibit 13-10 summarizes our definition of the environmentalong its three dimensions. The arrows in this figure are meant toindicate movement toward higher uncertainty. So organizationsthat operate in environments characterized as scarce, dynamic, andcomplex face the greatest degree of uncertainty. Why? Because theyhave little room for error, high unpredictability, and a diverse set ofelements in the environment to constantly monitor.

Given this three-dimensional definition of environment, wecan offer some general conclusions. There is evidence that relatesthe degrees of environmental uncertainty to different structuralarrangements. Specifically, the more scare, dynamic, and complexthe environment, the more organic a structure should be. The moreabundant, stable, and simple the environment, the more the mech-anistic structure will be preferred.



SummaryWeve shown that four variablesstrategy, size, technology, andenvironmentare the primary forces that determine whether anorganization is mechanistic or organic. Now lets use our previousanalysis to explain the evolution of structural designs throughoutthis century.



Stable

ComplexSimple

Abundant

Scarce

Dynamic

Exhibit 13-10Three-Dimensional Model of the Environment

The industrial revolution encouraged economies of scale andthe rise of the modern, large corporation. As companies grew fromtheir original simple structures, they took on mechanistic charac-teristics and became bureaucracies. The rise of bureaucracy tobecome the dominant structure in industrialized nations from the1920s through the 1970s can be largely explained by three facts.First, the environment was relatively stable and certain over thisperiod. The monopoly power of the large corporations, coupledwith little international competition, kept environmental uncer-tainty to a minimum. Second, economies of scale and minimalcompetition allowed these corporations to introduce highly routinetechnologies. And third, most of these large corporations chose topursue cost minimization or imitation strategiesleaving innova-tion to the little guys. Combine these strategies with large size, rou-tine technologies, and relatively abundant, stable, and simple envi-ronments, and you have a reasonably clear explanation for the riseand domination of the bureaucracy.

Things began to change in the 1970s, when the environmentbecame significantly more uncertain. Oil prices quadrupled literallyovernight in 1973. Inflation exploded into double digits in 1978and 1979. Advances in computer technologyespecially the avail-ability of increasingly powerful systems at dramatically fallingpricesbegan to lessen the advantage that accrued to large size.And, of course, competition moved to the global arena. To compete



effectively, top management responded by restructuring their orga-nizations. Some went to the matrix to give their companiesincreased flexibility. Some added team structures so they couldrespond more rapidly to change. Today, senior managers in mostlarge corporations are debureaucratizing their organizationsmak-ing them more organic by reducing staff, cutting vertical levels,decentralizing authority, and the likeprimarily because the envi-ronment continues to be uncertain. Managers realize that in adynamic and changing environment, inflexible organizations endup as bankruptcy statistics.

Organizational Designs and EmployeeBehaviorWe opened this chapter by implying that an organizations struc-ture can have significant effects on its members. In this section, wewant to directly assess just what those effects might be.

A review of the evidence linking organizational structures toemployee performance and satisfaction leads to a pretty clear con-clusionyou cant generalize! Not everyone prefers the freedomand flexibility of organic structures. Some people are most produc-tive and satisfied when work tasks are standardized and ambiguityis minimizedthat is, in mechanistic structures. So any discussionof the effect of organizational design on employee behavior has to



address individual differences. To illustrate this point, lets consider employee preferences for work specialization, span of control, andcentralization.32

The evidence generally indicates that work specialization con-tributes to higher employee productivity but at the price of reducedjob satisfaction. However, this statement ignores individual differ-ences and the type of job tasks people do.

As we noted previously, work specialization is not an unendingsource of higher productivity. Problems start to surface, and pro-ductivity begins to suffer, when the human diseconomies of doingrepetitive and narrow tasks overtake the economies of specializa-tion. As the work force has become more highly educated anddesirous of jobs that are intrinsically rewarding, the point whereproductivity begins to decline seems to be reached more quicklythan in decades past.

While more people today are undoubtedly turned off by overlyspecialized jobs than were their parents or grandparents, it wouldbe naive to ignore the reality that there is still a segment of the workforce that prefers the routine and repetitiveness of highly special-ized jobs. Some individuals want work that makes minimal intel-lectual demands and provides the security of routine. For these peo-ple, high work specialization is a source of job satisfaction. Theempirical question, of course, is whether this represents 2 percentof the work force or 52 percent. Given that there is some self-selec-



tion operating in the choice of careers, we might conclude that neg-ative behavioral outcomes from high specialization are most likelyto surface in professional jobs occupied by individuals with highneeds for personal growth and diversity.

A review of the research indicates that it is probably safe to saythere is no evidence to support a relationship between span of controland employee performance. While it is intuitively attractive to arguethat large spans might lead to higher employee performance becausethey provide more distant supervision and more opportunity forpersonal initiative, the research fails to support this notion. At thispoint it is impossible to state that any particular span of control isbest for producing high performance or high satisfaction amongsubordinates. The reason is, again, probably individual differences.That is, some people like to be left alone, while others prefer thesecurity of a boss who is quickly available at all times. Consistentwith several of the contingency theories of leadership discussed inChapter 10, we would expect factors such as employees experiencesand abilities and the degree of structure in their tasks to explainwhen wide or narrow spans of control are likely to contribute totheir performance and job satisfaction. However, there is some evi-dence indicating that a managers job satisfaction increases as thenumber of subordinates he or she supervises increases.

We find fairly strong evidence linking centralization and job sat-isfaction. In general, organizations that are less centralized have a



greater amount of participative decision making. And the evidencesuggests that participative decision making is positively related tojob satisfaction. But, again, individual differences surface. Thedecentralizationsatisfaction relationship is strongest with employ-ees who have low self-esteem. Because individuals with low self-esteem have less confidence in their abilities, they place a highervalue on shared decision making, which means that theyre notheld solely responsible for decision outcomes.

Our conclusion: To maximize employee performance and satis-faction, individual differences, such as experience, personality, andthe work task, should be taken into account. For simplicitys sake, itmight help to keep in mind that individuals with a high degree ofbureaucratic orientation (see Learning About Yourself Exercise atthe end of this chapter) tend to place a heavy reliance on higherauthority, prefer formalized and specific rules, and prefer formalrelationships with others on the job. These people seem bettersuited to mechanistic structures. Those individuals with a lowdegree of bureaucratic orientation would probably fit better inorganic structures. Additionally, cultural background influencespreference for structure. Organizations operating with people fromhigh power distance cultures, such as found in Greece, France, andmost of Latin America, will find employees much more accepting ofmechanistic structures than where employees come from lowpower distance countries. So you need to consider cultural differ-



ences along with individual differences when making predictionson how structure will effect employee performance and satisfaction.

Summary and Implications for ManagersThe theme of this chapter has been that an organizations internalstructure contributes to explaining and predicting behavior. That is,in addition to individual and group factors, the structural relation-ships in which people work have an important bearing onemployee attitudes and behavior.

Whats the basis for the argument that structure has an impacton both attitudes and behavior? To the degree that an organiza-tions structure reduces ambiguity for employees and clarifies suchconcerns as What am I supposed to do? How am I supposed todo it? To whom do I report? and To whom do I go if I have aproblem? it shapes their attitudes and facilitates and motivatesthem to higher levels of performance.

Of course, structure also constrains employees to the extentthat it limits and controls what they do. For example, organizationsstructured around high levels of formalization and specialization,strict adherence to the chain of command, limited delegation ofauthority, and narrow spans of control give employees little auton-omy. Controls in such organizations are tight and behavior willtend to vary within a narrow range. In contrast, organizations that



are structured around limited specialization, low formalization,wide spans of control, and the like provide employees greater free-dom and, thus, will be characterized by greater behavioral diversity.

Exhibit 13-11 visually summarizes what weve discussed in thischapter. Strategy, size, technology, and environment determine thetype of structure an organization will have. For simplicitys sake, we



Causes Strategy Size Technology Environment

determinesStructural designs Mechanistic Organic

Performanceand

satisfaction

Moderated byindividualdifferencesand cultural

norms

leads to

Exhibit 13-11Organization Structure: Its Determinants and Outcomes

can classify structural designs around one of two models: mecha-nistic or organic. The specific effect of structural designs on perfor-mance and satisfaction is moderated by employees individual pref-erences and cultural norms.

One last point: Managers need to be reminded that structuralvariables like work specialization, span of control, formalization,and centralization are objective characteristics that can be mea-sured by organizational researchers. The findings and conclusionsweve offered in this chapter, in fact, are directly a result of the workof these researchers. But employees dont objectively measure thesestructural characteristics! They observe things around them in anunscientific fashion and then form their own implicit models ofwhat the organizations structure is like. How many people did theyhave to interview with before they were offered their jobs? Howmany people work in their departments and buildings? Is there anorganization policy manual? If so, is it readily available and do peo-ple follow it closely? How is the organization and its top manage-ment described in newspapers and periodicals? Answers to ques-tions such as these, when combined with an employees pastexperiences and comments made by peers, lead members to forman overall subjective image of what their organizations structure islike. This image, though, may in no way resemble the organiza-tions acutal objective structural characteristics.



The importance of these implicit models of organizationalstructure should not be overlooked. As we noted in Chapter 3,people respond to their perceptions rather than objective reality. Theresearch, for instance, on the relationship between many structuralvariables and subsequent levels of performance or job satisfaction isfar from consistent. We explained som

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