McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-1

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-2

Chapter

Organizational Structure and Design

16

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-3

Organization structureOrganization structure – – the pattern the pattern of jobs and groups of jobs in an of jobs and groups of jobs in an organization.organization.It is an important cause of It is an important cause of individual and group behavior.individual and group behavior.

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-4The Concept of Organization Structure

Structure as an Structure as an influence on influence on

behaviorbehavior

Structure as Structure as recurring recurring activitiesactivities

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-5

Organization designOrganization design – – management management decisions and actions that result in decisions and actions that result in a specific organization structure.a specific organization structure.

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-6Organizational Design Decisions

1. Managers decide how to divide the overall task into successively smaller jobs

2. Managers decide the bases by which to group the jobs

3. Managers decide the appropriate size of the group reporting to each superior

4. Managers distribute authority among the jobs

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-7

Division of Labor:

Departmentalization:

Span of Control:

HighHigh LowLow

HomogeneousHomogeneous HeterogeneousHeterogeneous

Many FewFew

Authority: LowLowHighHigh

SpecializationSpecialization

BasisBasis

NumberNumber

DelegationDelegation

The Four Key Design Decisions

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-8

Division of Labor• Division of labor – concerns the extent

to which jobs are specialized

• It is the process of dividing work into relatively specialized jobs to achieve advantages of specialization

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-9Division of Labor Occurs in Three Different Ways:1. Personal specialties

• e.g., accountants, software engineers, graphic designers, scientists, etc.

2. Natural sequence of work• e.g., dividing work in a manufacturing plant into

fabricating and assembly (horizontal specialization)

3. Vertical plane• e.g., hierarchy of authority from lowest-level manager

to highest-level manager

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-10

Delegation of Authority• Managers decide how much authority

should be delegated to each job and to each jobholder

• Delegation of authority – process of distributing authority downward in an organization

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-11Reasons to Decentralize Authority

1. Relatively high delegation of authority encourages the development of professional managers

2. High delegation of authority can lead to a competitive climate within the organization

3. Managers who have relatively high authority can exercise more autonomy, and thus satisfy their desires to participate in problem solving

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-12Reasons to Centralize Authority (1 of 2)

1. Managers must be trained to make the decisions that go with delegated authority

2. Many managers are accustomed to making decisions and resist delegating authority to their subordinates

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-13Reasons to Centralize Authority (2 of 2)

3. Administrative costs are incurred because new control systems must be developed to provide top management with information about the effects of subordinates’ decisions

4. Decentralization means duplication of functions

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-14Delegation Decision Guidelines (1 of 2)

• How routine and straightforward are the job’s or unit’s required decisions?• The authority for routine decisions can be centralized

• Are individuals competent to make the decision?• Even if the decision is non-routine, if the local

manager is not capable, then the decision should be centralized

• Delegation of authority can differ among individuals depending upon each one’s ability to make the decision

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-15Delegation Decision Guidelines (2 of 2)

• Are individuals motivated to make the decision?• Capable individuals are not always motivated

individuals• Motivation must accompany competency to create

conducive conditions for decentralization• Do the benefits of decentralization outweigh its

costs?

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-16

Departmentalization Departmentalization –– process in process in which an organization is which an organization is structurally divided by combining structurally divided by combining jobs in departments according to jobs in departments according to some shared characteristic or some shared characteristic or basis.basis.

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-17

Functional Geographic

Product Customer

Departmentalization Bases

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-18Departmental Bases:Functional Departmentalization

• Jobs are combined according to the functions of the organization

• The principal advantage is efficiency• By having departments of specialists,

management creates efficient units• A major disadvantage is that organizational

goals may be sacrificed in favor of departmental goals

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-19

EngineeringEngineering ReliabilityReliability FinanceFinance

ManufacturingManufacturing DistributionDistribution HumanHumanResourcesResources

PublicPublicRelationsRelations

PurchasingPurchasing

OBM CompanyOBM Company

Functional Departmentalization Structure

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-20Departmental Bases:Geographic Departmentalization

• Establish groups according to geographic area

• The logic is that all activities in a given region should be assigned to a manager

• Advantageous in large organizations because physical separation of activities makes centralized coordination difficult

• Provides a training ground for managerial personnel

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-21

Northeast Midwest Southeast Pacific

OBMCompany

Southwest

Geographic Departmentalization Structure

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-22Departmental Bases:Product Departmentalization

• All jobs associated with producing and selling a product or product line will be placed under the direction of one manager

• Product becomes the preferred basis as a firm grows by increasing the number of products it markets

• Concentrating authority, responsibility, and accountability in a specific product department allows top management to coordinate actions

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-23

OBM CompanyOBM Company

SmallSmallHouseholdHouseholdAppliancesAppliances

LargeLargeHouseholdHouseholdAppliancesAppliances

CommercialCommercialAppliancesAppliances

BuildingBuildingMaterials andMaterials and

ProductsProducts

Lawn andLawn andGardenGarden

ProductsProducts

AutomotiveAutomotiveProductsProducts

Product Departmentalization Structure

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-24Departmental Bases:Customer Departmentalization

• The importance of customer satisfaction has stimulated firms to search for creative ways to serve people better

• Organizations with customer-based departments are better able to satisfy customer-identified needs than organizations that base departments on non-customer factors

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-25

RetailStores Mail Order On-Line

SalesGovernment

Contracts

OBMCompany

InstitutionalSales

Customer Departmentalization Structure

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-26

Span of Control (1 of 2)

• Number of individuals who report to a specific manager• Narrow span• Wide span

• The frequency and intensity of actual relationships is the critical consideration in determining the manager’s span of control

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-27

Span of Control (2 of 2)

• If we shift our attention from potential to actual relationships as the bases for determining optimum span of control, three factors appear to be important:

Key FactorsKey Factors

Required ContactRequired Contact

Degree of Degree of SpecializationSpecialization

Ability to Ability to CommunicateCommunicate

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-28

Dimensions of Structure• Formalization – the extent to which

expectations regarding the means and ends of work are specified, written, and enforced

• Centralization – the location of decision-making authority in the hierarchy

• Complexity – the direct outgrowth of dividing work and creating departments

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-29

Organization Design ModelsThe Mechanistic Model

• Emphasizes importance of achieving high levels of production and efficiency through:• Extensive use of rules and

procedures• Centralized authority• High specialization of

labor

The Organic Model• Emphasizes importance

of achieving high levels of production and efficiency through:• Limited use of rules and

procedures• Decentralized authority• Relatively low degrees of

specialization

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-30Comparison of Mechanistic and Organic Structures (1 of 3)

Process Mechanistic Structure Organic Structure

1. Leadership Includes no perceived confidence and trust between superiors and subordinates.

Includes perceived confidence and trust between superiors and subordinates.

2. Motivation Taps only physical, security, and economic motives, through use of fear and sanctions.

Taps a full range of motives through participatory methods.

3. Communication Information flows downward and tends to be distorted, inaccurate, and viewed with suspicion by subordinates.

Information flows freely: upward, downward, and laterally. The information is accurate and undistorted.

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-31Comparison of Mechanistic and Organic Structures (2 of 3)

Process Mechanistic Structure Organic Structure

4. Interaction Closed and restricted. Subordinates have little effect on departmental goals, methods, and activities.

Open and extensive. Both superiors and subordinates are able to affect departmental goals, methods, and activities.

5. Decision Relatively centralized. Occurs only at the top of the organization.

Relatively decentralized. Occurs at all levels through group processes.

6. Goal setting Located at the top of the organization, discouraging group participation.

Encourages group participation in setting high, realistic objectives.

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-32Comparison of Mechanistic and Organic Structures (3 of 3)

Process Mechanistic Structure Organic Structure

7. Control Centralized. Emphasizes fixing blame for mistakes.

Dispersed throughout the organization. Emphasizes self-control and problem solving.

8. Performance goals

Low and passively sought by managers, who make no commitment to developing the organization’s human resources.

High and actively sought by superiors, who recognize the need for full commitment to developing, through training, the organization’s human resources.

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-33Organization Design Models:The Matrix Model

• Matrix organization – attempts to maximize the strengths and minimize the weaknesses of both the functional and product bases

• Superimpose a horizontal structure of authority, influence, and communication on the vertical structure

• Facilitates the utilization of highly specialized staff and equipment

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-34

Project or product AProject or product A

Project or product BProject or product B

Project or product CProject or product C

Project or product DProject or product D

Project or product EProject or product E

ManufacturingManufacturing MarketingMarketing EngineeringEngineering FinanceFinance

FunctionsFunctions

Projects, productsProjects, products

Example of the Matrix Organization Model

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-35Advantages of Matrix Organization

• Efficient use of resources• Flexibility in conditions of change and uncertainty• Technical excellence• Freeing top management for long-range planning• Improving motivation and commitment• Providing opportunities for personal development

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-36

Task Force

Teams

ProductManagers

ProductManagement Depts.

(1)

(2)

(3)

(4)

Evolutionary Steps to the Matrix Model

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-37Multinational Structure and Design

• Multinational corporation – consists of a group of geographically dispersed organizations with different national subsidiaries

• Multinational corporations frequently exist in very divergent environments

• The most prevalent departmental basis is geographic

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-38Multinational Corporations: Implications for Organizational Design (1 of 2)

1. National boundaries are an important force in defining organizational environments

2. Subsidiaries or affiliates of multinational corporations can act as conduits that introduce changes into the host country’s environment

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-39Multinational Corporations: Implications for Organizational Design (2 of 2)

3. Subsidiaries of multinational corporations can act as conduits through which features of the host country culture are introduced throughout the multinational organization

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-40

Virtual Organizations• Virtual organization – a collection of

geographically distributed, functionally and/or culturally diverse aggregations of individuals that is linked by electronic forms of communication

• Assembled and disassembled according to needs

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-41Virtual Organizations:Factors in Design Considerations

• Personnel distributed geographically• Electronically connected• Differences in expertise and function• Culturally diverse• Work schedule differences• Horizontally arranged with little emphasis on

command and control authority

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-42Virtual Organizations:Design Implications

• Contractual relationships• Constant change and reconfiguration• No rigid boundaries• Flexible• Little or personal and social contact

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-43Virtual Organizations:Consequences• Increase in overall communication and messages• Relationships are tenuous• Continual surety of roles, tasks, and assignments• Caution needed in managing feedback,

discussion, performance review, and reward systems

• Greater equity of participation

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-44

Boundaryless Organizations• Organizations in which:

• the hierarchy and chain of command are minimized

• rigidly structured departments are eliminated

• Implemented to reduce barriers between people and constituencies