Organizational Structure and Design

Defining Organizational StructureOrganizational Structure

The formal arrangement of jobs within an organization

Organizational DesignA process involving decisions about six key

elements: Work specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization

Purposes of OrganizingDivides work to be done into specific jobs

and departmentsAssigns tasks and responsibilities

associated with individual jobsCoordinates diverse organizational tasksEstablishes relationships among

individuals, groups, and departmentsEstablishes formal lines of authorityAllocates organizational resources Cluster jobs in to units

Designing Organizational StructureWork Specialization

The degree to which tasks in the organization are divided into separate jobs with each step completed by a different person

Departmentalization by TypeFunctional

Grouping jobs by functions performed

ProductGrouping jobs by

product lineGeographical

Grouping jobs on the basis of territory or geography

Process Grouping jobs on

the basis of product or customer flow

CustomerGrouping jobs by

type of customer and needs

Functional Departmentalization

Plant Manager

Manager,Manufacturing

Manager,Human Resources

Manager,Accounting

Manager,Engineering

Manager,Purchasing

+ Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations

+ Coordination within functional area

+ In-depth specialization

– Poor communication across functional areas

– Limited view of organizational goals

Geographical Departmentalization

Vice Presidentfor Sales

Sales Director,Central Region

Sales Director,Southern Region

Sales Director,Western Region

Sales Director,Eastern Region

+ More effective and efficient handling of specific regional issues that arise

+ Serve needs of unique geographic markets better

– Duplication of functions

– Can feel isolated from other organizational areas

Product Departmentalization

+ Allows specialization in particular products and services

+ Managers can become experts in their industry

+ Closer to customers

– Duplication of functions

– Limited view of organizational goals Source: Bombardier Annual Report.

CEO.

Truck Division

Car Division

Bus Division

Process Departmentalization

+ More efficient flow of work activities

– Can only be used with certain types of products

PlantManager

Spinning

Dyeing Weaving Fininshing

Customer Departmentalization

+ Customers’ needs and problems can be met by specialists

– Duplication of functions

– Limited view of organizational goals

Directorof Sales

Manager,Wholesale Accounts

Manager,Retail Accounts

Manager,Government Accounts

Organizational Structure (cont’d)

Chain of CommandThe continuous line of authority that

extends from upper levels of an organization to the lowest levels of the organization and clarifies who reports to whom

Organizational Structure (cont’d)Authority

The rights inherent in a managerial position to tell people what to do and to expect them to do it

ResponsibilityThe obligation or expectation to perform.

Responsibility brings with it accountability (the need to report and justify work to manager’s superiors)

Unity of CommandThe concept that a person should have one boss and

should report only to that personDelegation

The assignment of authority to another person to carry out specific duties

Organizational Structure (cont’d)

Line and Staff AuthorityLine managers are responsible for the

essential activities of the organization, including production and sales. Line managers have the authority to issue orders to those in the chain of command The president, the production manager, and the

sales manager are examples of line managersStaff managers have advisory authority,

and cannot issue orders to those in the chain of command (except those in their own department)

Organizational Structure (cont’d)Span of Control

The number of employees who can be effectively and efficiently supervised by a manager

Width of span is affected by: Skills and abilities of the manager and the employees Characteristics of the work being done Similarity of tasks Complexity of tasks Physical proximity of subordinates Standardization of tasks Sophistication of the organization’s information

system Strength of the organization’s culture Preferred style of the manager

Organizational Structure (cont’d)Centralization

The degree to which decision making is concentrated at a single point in the organization Organizations in which top managers make all the

decisions and lower-level employees simply carry out those orders

DecentralizationThe degree to which lower-level employees

provide input or actually make decisionsEmployee Empowerment

Increasing the decision-making discretion of employees

Organizational Structure (cont’d)Formalization

The degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures Highly formalized jobs offer little discretion over

what is to be done Low formalization means fewer constraints on

how employees do their work

Organizational Design DecisionsMechanistic

OrganizationA rigid and tightly

controlled structure High specialization Rigid

departmentalization Narrow spans of control High formalization Limited information

network (mostly downward communication)

Low decision participation by lower-level employees

Organic OrganizationHighly flexible and

adaptable structure Nonstandardized jobs Fluid team-based

structure Little direct supervision Minimal formal rules Open communication

network Empowered employees

Mechanistic Versus Organic Organization

Mechanistic

• High Specialization

• Rigid Departmentalization

• Clear Chain of Command

• Narrow Spans of Control

• Centralization

• High Formalization

Organic

• Cross-Functional Teams

• Cross-Hierarchical Teams

• Free Flow of Information

• Wide Spans of Control

• Decentralization

• Low Formalization

Structural Contingency Factors (cont’d)

Strategy and StructureAchievement of strategic goals is

facilitated by changes in organizational structure that accommodate and support change

Size and StructureAs an organization grows larger, its

structure tends to change from organic to mechanistic with increased specialization, departmentalization, centralization, and rules and regulations

Structural Contingency Factors (cont’d)

Technology and StructureOrganizations adapt their structures to

their technologyRoutine technology = mechanistic

organizationsNon–routine technology = organic

organizations

Structural Contingency Factors (cont’d)

Environmental Uncertainty and Structure

Mechanistic organizational structures tend to be most effective in stable and simple environments

The flexibility of organic organizational structures is better suited for dynamic and complex environments

Organizational Designs

Common Organizational Designs

Traditional DesignsSimple Structure

Low departmentalization, wide spans of control, centralized authority, little formalization

Functional Structure Departmentalization by function

Operations, finance, human resources, and product research and development

Divisional Structure Composed of separate business units or divisions

with limited autonomy under the coordination and control of the parent corporation

Organizational Designs (cont’d)Contemporary Organizational Designs

Team Structures The entire organization is made up of work groups

or self-managed teams of empowered employeesMatrix Structures

Specialists for different functional departments are assigned to work on projects led by project managers

Matrix participants have two managersProject Structures

Employees work continuously on projects, moving on to another project as each project is completed

A Matrix Organization in an Aerospace Firm

DesignEngineering

Manufacturing ContractAdministration

Purchasing Accounting HumanResources (HR)

DesignGroup

AlphaProject

ManufacturingGroup

ContractGroup

PurchasingGroup

AccountingGroup

HRGroup

DesignGroup

BetaProject

ManufacturingGroup

ContractGroup

PurchasingGroup

AccountingGroup

HRGroup

DesignGroup

GammaProject

ManufacturingGroup

ContractGroup

PurchasingGroup

AccountingGroup

HRGroup

DesignGroup

OmegaProject

ManufacturingGroup

ContractGroup

PurchasingGroup

AccountingGroup

HRGroup

Organizational Designs (cont’d)Contemporary Organizational

Designs (cont’d)Boundaryless Organization

A flexible and an unstructured organizational design that is intended to break down external barriers between the organization and its customers and suppliers

Removes internal (horizontal and vertical) boundaries

Eliminates external boundaries

Organizational Designs (cont’d)Learning Organization

An organization that has developed the capacity to continuously learn, adapt, and change through the practice of knowledge management by employees

Characteristics of a learning organization: An open team-based organization design that

empowers employees Extensive and open information sharing Leadership that provides a shared vision of the

organization’s future; support; and encouragement A strong culture of shared values, trust, openness,

and a sense of community

Co-ordinationLinking of two or more organizational

members and/or work units so that they function well together

Two main types of co-ordination are:Vertical coordinationHorizontal Coordination

Vertical Coordination: Linking work units (individual, team,

departments) separated by hierarchical levelHorizontal Coordination: Linking work units (individual, team,

departments) at the same hierarchical level

Techniques for effective coordinationCoordination by chain of commandCoordination by leadershipCoordination by committeesStaff meetingsSpecial CoordinatorsSelf- coordination

DifferentiationDifferences in attitudes and working styles,

arising naturally among members of different departments, that can complicate coordination of an organization's activities.

IntegrationThe degree to which members of various

departments work together in a unified manner.

A B

Power

The ability to exert influence; that is, the ability to change the attitudes or behavior of individuals or groups . A capacity that A has to influence the behavior of B so that B acts in accordance with A’s wishes.

Dependency

B’s relationship to A when A possesses something that B requires.

Coercive PowerA power base dependent on fear.Reward PowerCompliance achieved based on the ability to distribute rewards that others view as valuable

Legitimate Power

The power a person receives as a result of his or her position in the formal hierarchy of an organization.

Expert Power

Influence based on special skills or knowledge.Referent Power

Influence based on possession by an individual of desirable resources or personal traits.

Dependency: The Key To PowerThe General Dependency Postulate

The greater B’s dependency on A, the greater the power A has over B.

Possession/control of scarce organizational resources that others need makes a manager powerful.

Access to optional resources (e.g., multiple suppliers) reduces the resource holder’s power.

What Creates DependencyImportance of the resource to the organizationScarcity of the resourceNonsubstitutability of the resource

Authority (mainly) derives from roleAuthority is “the right to make an ultimate

decision, and in an organisation it refers to the right to make decisions which are binding on others” (Obholzer, 1994).

Line & Staff AuthorityLine authority is the relationship in

which a superior exercises direct supervision over a subordinate

Staff relationship is advisory

Difference between Authority & PowerPower

Authority It is a ability to command &

influence behavior of another It rests with persons, in their

individual capacities It doesn't follow any hierarchyPower, being personalized

attribute, can not be delegated

Emerges because of personal factors

May exist between any 2 persons

It is institutional right to command

It lies in managerial position

It is hierarchical in nature It can be delegated Institutional & originates

from structural relationshipSuperior-subordinate

relationship

DelegationTransfering formal authority from one

position to another is known as delegation

Assign Tasks

Transfer task responsibility

Creation of responsibility

Acceptance

Condition

Accept

Reject

Blocks to effective delegationFactors in delegator:

Love for authorityMaintenance of tight controlFear of subordinates growthFear of exposureAttitude towards subordinatesPersonality of superior

Guides for Overcoming Weak Delegation

1. Define assignments and delegate authority in light of results expected

2. Select the person in light of the job to be done

3. Maintain open lines of communication 4. Establish proper controls 5. Reward effective delegation and

successful assumption of authority

Definition of StaffingStaffing is filling, and keeping filled, positions

in the organization structure

SITUATIONAL FACTORS AFFECTING STAFFING External factors include the level of

education, the prevailing attitudes in society (such as the attitude toward work), the many laws and regulations that directly affect staffing, the economic conditions, and the supply of and demand for managers outside the enterprise

SITUATIONAL FACTORS AFFECTING STAFFING – cont.

Internal factors that affect staffing include, for example, organizational goals, tasks, technology, organization structure, the kinds of people employed by the enterprise, the demand for and the supply of managers within the enterprise, the reward system, and various kinds of policies

Environment

Environment

Decruitment

RecruitmentHumanResourcePlanning

Selection

Orientation Training

PerformanceManagement

CareerDevelopment

CompensationandBenefits

Identification and Selectionof Competent Employees

Adapted and competentemployees with up-to-dateskills and knowledge

Competent and high-performing employees whoare capable of sustaining high performance over

the long term