Dimensions of Organization Structure
1. Complexity2. Formalization3. Centralization
ComplexityThe degree of differentiation that exists
within an organizationHorizontal Differentiation:
Considers the degree of horizontal separation between units
Vertical Differentiation:Refers to the degree of depth
Spatial Differentiation:The degree to which the location of an organization’s facilities and personnel are dispersed geographically
Horizontal DifferentiationRefers to the degree of differentiation
between units based on the orientation of members, the nature of task they perform, their education and training
The larger number of different occupations with an organization that require specialized knowledge and skills, the more complex the organization
Why?
Horizontal DifferentiationDiverse orientations make it more difficult
for organizational members to communicate and more difficult for management to coordinate their activities
Diversity increases the likelihood that they will have different goal emphasis, time orientations, different work vocabulary
The most visible evidence in organizations of horizontal differentiation is specialization and departmentation
Potential conflicting objectives and priorities
President
Marketing Finance and accounting Manufacturing
Responsibilities
Distribution ChannelsCustomer ServiceInventory obsolescence
Communications and data processingCarrying inventory
Production and supply alternativesWare housing
Objectives More inventory Less inventory
Frequent short runs Lower production runs
Fast order processing
Cheap order processing
Fast Delivery Lowest cost routing
Field warehousing
Less warehousing
Plant warehousing
Horizontal Differentiation
Specialization:Particular grouping of activities performed by an individualIt can be achieved through:
1. Functional Specialization or division of laborJob is broken down into simple repetitive task
2. Social specialization:Individual is specialized rather than their work (professionals)
Horizontal Differentiation Reasons for division of labor:1. Physical limitations
In highly sophisticated and complex jobs, no one can perform all the task
2. Knowledge and skill limitations3. Represent proper usage resources and
skills level4. Efficiencya. Time savingb. Training
Horizontal Differentiation Departmentation:
The way the specialists are grouped togetherDepartmentation is the way in which organizations typically coordinate activities that have been horizontally differentiatedDepartments could be created on the basis of:
a. Simple numbersb. Functionsc. Product or serviced. Cliente. Geographyf. processes
Functional Departmentalization
Manager,
Engineering
Manager,
Manufacturing
Manager,
Human Resources
Manager,
Purchasing
Plant Manager
Manager,Accounting
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Product Departmentalization
Mass TransitDivision
Bombardier-Rotax(Vienna)
Manager,Retail Accounts
Recreational ProductsDivision
Logistic EquipmentDivision
Industrial EquipmentDivision
Bombadier-Rotax(Gunskirchen)
Recreational and UtilityVehicles Sector
Rail ProductsSector
Bombardier, Ltd.
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Geographical Departmentalization
Sales Director,Western Region
Sales Director,Southern Region
Sales Director,Eastern Region
Vice Presidentfor Sales
Sales Director,Midwestern Region
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Process Departmentalization
SawingDepartment
Manager
Planing andMilling
DepartmentManager
AssemblingDepartment
Manager
Lacquering andSanding
DepartmentManager
FinishingDepartment
Manager
Plant Superintendent
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Inspection and
Shipping Department
Manager
Customer Departmentalization
Manager,Retail Accounts
Directorof Sales
Manager,Government Accounts
Manager,Wholesale Accounts
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Discussion QuestionIs it possible for an organization to use all
the six methods of departmentation.
Vertical DifferentiationRefers to the depth in structureHow does vertical differentiation increases
complexity?The more levels that exist between top management and operatives, the greater the potential of communication distortion, the more difficult it is to coordinate the decisions of managerial personnel, the more difficult for top management to oversee the actions of operatives
Vertical DifferentiationCan horizontal differentiation and vertical
differentiation be construed as independent of each other?
Vertical differentiation should be understood as a response to horizontal differentiation
Reason:As specialization expands, it becomes increasingly necessary to coordinate tasks. Since, high differentiation that members will have a diverse training and background, it may be difficult for individual units to see how their task fits into greater whole. The result is a need for increased coordination, which shows itself in development of vertical integration
Vertical differentiation Do organizations with same number of employees need
to have same degree of vertical differentiation? The determining factor is span of control Span of control:
Defines the number of subordinates that a manager can direct effectively
a. Wide span:managers would have large number of subordinates reporting to them
b. Narrow span:managers would have less number of subordinates reporting to themWider span of control leads to flat organization structure whereas narrow span would lead to taller organization
Contrasting Spans Of Control
1
2
3
4
5
6
7
Org
aniz
ati
onal Le
vel
Members at Each Level
Span of 4Operatives = 4,096Managers (levels 1-6) = 1,365
Span of 8Operatives = 4,096Managers (levels 1-4) = 585
1
4
16
64
256
1,024
4,096
1
8
64
512
4,096
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Vertical Differentiation
Advantages of tall organizations:1. Tighter controls2. Better psychological career paths, better
promotion opportunities Disadvantages:1. Coordination and communications become
complicated Advantages of Flat Organizations1. Shorter and simpler communication chain Disadvantages1. Loose controls2. Reduced promotion chances
Spatial DifferentiationThe degree to which the location of an
organization’s offices, plants, and personnel are dispersed geographically
Spatial differentiation can be thought as as extended dimensions to horizontal and vertical differentiation
Spatial differentiation tells that even if horizontal and vertical differentiation were to remain the across spatially separated units, the physical separation itself would increase complexity
Discussion QuestionAre three complexity measures inter-
correlated?
Why is complexity ImportantThe more complex an organization, the greater the
need for effective communication, coordination and control devices
The higher the complexity, the greater amount of attention they must pay to dealing with problems of communication, coordination, and control
Paradox In the analysis of Organization analysisManagement’s decision to increase differentiation is made in the interest of economy and efficiency. These decisions create cross pressure to add managerial personnel to facilitate control, coordination, and conflict reduction. So the economies that complexity creates may be counterbalanced by the increased burden of keeping the organization together
Discussion QuestionHow might a manager’s job differ in an
organization in low complexity compared with his or her counterpart managing a highly complex organization?
Formalization The degree to which jobs within the organization are standardized In highly formalized jobs, the job incumbent has minimum amount
of discretion over what is to be done, and how he should do it. Employees can be expected always handle the same input in exactly the same way, resulting in consistent and uniform output
In jobs with low formalization, employees behavior would be relatively non-programmed by the organization. Such jobs would offer employees a great deal of freedom to exercise discretion in their work
Since employees behavior is inversely related to the behavior that is preprogrammed by the organization, the greater the standardization, the less input the employee has into how his/ her work is to done.
Standardization not only eliminates employees engaging in alternative behaviors but also removes the need for employees to consider alternatives
Range of Formalization
Unskilled jobs versus professional jobsKind of work being performed ( production
versus sales)Level in the hierarchy of organization
Why is formalization ImportantStandardized behavior reduces variabilityStandardization promotes coordination Standardization offer economies/ cost
effective
The “Make or Buy” Decision Formalization can take place on the job or off the job
1. On the job , the term externalized behavior is used. It means that formalization is external to the employee; that is, the rules, procedures, and regulations governing the individual’s work activity are specifically defined, codified and enforced through direct management supervision. This characterized unskilled workers. It is also what is typically meant by formalization
2. Off the job, creation of internalized behavior through social specialization. Individual learn the values, norms, and expected behavior patterns for the job and the organization of which they will be a part. This true in hiring professions
Management has two decisions to make
a. What degree of standardization of behavior is desire
b. Will the standardization be made “ in house” or “bought” out side
The “ Make or Buy” DecisionIn house variety is emphasized with unskilled
workersFor professionals fine tuning will be requiredDirect on the job formalization and
professionalization are basically substitutes for each other
The organization can either control employee behavior either directly or it can achieve indirect control by hiring duly trained professionals
As the level of professionalization increases in an organization, the level of formalization decreases
Formalization TechniquesSelectionRole RequirementsRules, procedures and policiesTrainingRituals
The Relationship Between Formalization and Complexity
High horizontal differentiation when achieved through division of labor, typically means hiring unskilled personnel to perform routine and repetitive task tends to be associated with high degree of formalization to facilitate coordination and control. Where high horizontal differentiation is achieved by hiring professionals, formalization tends to be low
The key to understanding the complexity – formalization relationship is to focus on the degree of horizontal differentiation and the way it is achieved
Discussion Question1. Employee would prefer high formalization
do you agree or disagree2. An organization that is high in complexity
will be high in formalization. Do you agree or disagree
CentralizationThe degree to which decision making is
concentrated at a single point in the organization
A high concentration implies high centralization where as a low concentration indicates low centralization or decentralization
Centralization is concerned with dispersion of authority to make decisions within the organization, not geographic dispersion
Centralization
Issues in Centralization:1. Do we look only at formal authority2. Can policies override decentralization3. What does “ concentration at a single
point mean?4. Does information processing system that
closely monitors decentralized decisions maintain centralized control
5. Does the control of information by lower level members result in decentralization of what appears to be centralized
Centralization Centralization can be described as the degree
to which the formal authority to make discretionary choices is concentrated in an individual, unit, or level (usually high in organization), thus permitting employees ( usually) low in the organization minimum input into their work
1. Centralization is concerned only with formal structure, not the informal structure
2. Looks at decision discretion. Where decisions are delegated downward but extensive policies exist to constrain the discretion of lower members, there is increased centralization
Centralization3. Concentration at a single point can refer to
an individual, unit, or level, but the single point implies at high level
4. An information processing system that closely monitors decentralized decisions does not maintain centralized decisions
5. The control of information input is a form of de facto decentralization
Situation
Information input
What can be done
Interpretation and advice
What should be done
choice
What is intended to be done
Authorization
What is authorized to be done
Action
Execution
What is actually done
Organizational Decision Making Process
Why is centralization ImportantReasons for DecentralizationAvoidance of information overloadFast response to changing conditionsDetailed input into decision making processEmployee motivationTraining opportunity Reasons for CentralizationChoosing action consistent with the best interest
of the organizationSome activities are done more effectively
Relationship of centralization, complexity and formalization
Centralization and complexity: Inverse relationship with centralization and
complexity Increase in number of occupational specialties
means an increase in the expertise and ability to make decisions. The more employees have undergone professional training the more likely they would participate in decision making
The greater the centralization of decision making, the less professional training is likely to be exhibited by employees
Centralization and Formalization
Relationship is ambiguousHigh formalization can be found coupled with
either centralized or decentralized structure If employees are predominantly unskilled one
can expect high formalization and centralized authority
With professional employees one might predict low formalization and decentralization
Discussion QuestionYou are evaluating an organization’s
structure. You find production activities are highly formalized, whereas level of formalization of research-design is low. Similarly, legal decisions are highly centralized, but marketing decisions are decentralized. How do you arrive at organization wide measures of organization structure if units within the organization are not homogenous?