Chapter 10 Foundations of Organizational Design

Designing Organizational Structure

Purposes of Organizing
1. Divides work to be done into specific jobs and departments
2. Assigns tasks and responsibilities associated with individual jobs
3. Coordinates diverse organizational tasks
4. Clusters jobs into units
5. Establishes relationships among individuals, groups, and departments
6. Establishes formal lines of authority
7. Allocates and deploys organizational resources
Organizing-arranging and structuring work to accomplish the organizations goals
Organizational structure-the formal arrangement of jobs within an organization
Organizational chart-the visual representation of an organizations structure
Organizational design-creating or changing an organizations structure
6 key elements of organizational design:
1. Work specialization
2. Departmentalization
3. Chain of command
4. Span of control
5. Centralization and decentralization
6. formalization

Work specialization/division of labor-dividing work activities into separate job tasks

Human diseconomies from division of labor: boredom, fatigue, stress, low productivity, poor
quality, increased absenteeism and high turnover
Departmentalization-the basis by which jobs are grouped together
Cross-functional team-a work team composed of individuals from various functional
specialities
1. Functional Departmentalization-groups jobs according to function
+ Efficiencies from putting together similar specialities 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
2. Geographical Departmentalization-groups jobs according to geographic 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
3. Product Departmentalization-groups job by product line
+ 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
4. Process Departmentalization-groups jobs on the basis of product or customer flow
+ more efficient flow of work activities
- can only be used with certain types of products
5. Customer Departmentalization-groups jobs on the basis of specific and unique
customers who have common needs
+ customers needs and problems can be met specialists
- duplication of functions
- limited view of organizational goals
Chain of Command-the line of authority extending from upper organizational levels to the
lowest levels, which clarifies who reports to whom
1. Authority-the rights inherent in a managerial position to tell people what to do and to
expect them to do it
Subordinates will accept orders only if the following conditions are satisfied:
1. They understand the order
2. They feel the order is consistent with the organizations purpose
3. The order does not conflict with their personal beliefs
4. They are able to perform the task as direct
Acceptance theory of authority-the view that authority comes from the willingness of
subordinates to accept it
Line authority-authority that entitles a manager to direct the work of an employee
Line-refers to managers whose organizational function contributes directly to the
achievement of organizational objectives
Staff authority-positions with some authority that have been created to support, assist and
advise those holding line authority
2. Responsibility-the obligation or expectation to perform any assigned duties
3. Unity of command-the management principle that each person should report to only
one management
Span of Control-the number of employees a manager can efficiently and effectively manage
Tradition view: managers could not and should not directly supervise more than 5 or 6
subordinates
*wider spans may reduce effectiveness if employee performance worsens because managers
no longer have the time to lead effectively
*factors influence the number of employees that a manager can efficiently and effectively
manage:
1. Skills and abilities of the manager and the employees
2. The characteristics of the work being done
3. Similarity and complexity of employee tasks
4. Physical proximity of subordinates
5. The degree to which standardized procedures are in place
6. The sophistication of the organizations information system
7. Strength of the organizations culture
8. Preferred style of the manager
Centralization and Decentralization
Centralization-the degree to which decision making is concentrated at upper levels of the
organization
Decentralization-the degree to which lower-level employees provide input or actually make
decisions
*centralization-decentralization is not an either-or concept
*the decision is relative, not absolute---that is an organization is never completely centralized or
decentralized
*what works in one organization, however, wont necessarily work in another, so managers must
determine the appropriate amount of decentralization for each organization and work units
within it
Employee empowerment-giving employees more authority (power) to make decisions

More Centralization
1. Environment is stable
2. Lower-level managers are not as capable or experienced at making decisions as upper-
level managers
3. Lower-level managers do not want a say in decisions
4. Decisions are relatively minor
5. Organization is facing a crisis or the risk of company failure
6. Company is large
7. Effective implementation of company strategies depends on managers retaining say
over what happens
More Decentralization
1. Environment is complex, uncertain
2. Lower-level managers are capable and experienced at making decisions
3. Lower--level managers want a voice in decisions
4. Decisions are significant
5. Corporate culture is open to allowing managers a say in what happens
6. Company is geographically dispersed
7. Effective implementation of company strategies depends on managers having
involvement and flexibility to make decisions

Formalization-how standardized an organizations jobs are and the extent to which employee
behavior is guided by rules and procedures

Mechanistic VS Organic Organizations

Mechanistic organization/bureaucracy-the natural result of combining the 6 elements of
structure
-an organizational design thats rigid and tightly controlled
1. High specialization
2. Rigid departmentalization
3. Clear chain of command
4. Narrow spans of control
 5. Centralization
6. High formalization
Organic organization-an organizational design thats highly adaptive and flexible
1. Cross-functional teams
2. Cross-hierarchical teams
3. Free flow of information
4. Wide spans of control
5. Decentralization
6. Low formalization

Contingency Factors Affecting Structural Choice

1. Strategy and Structure
*Large organizations typically considered to be those with more than 2000 employees tend to
have more specialization, departmentalization, centralization, and rules and regulations than do
small organizations
*essentially once there are around 2000 employees its already fairly mechanistic
2. Technology and Structure
Unit production-the production of items in units or small batches
Low vertical differentiation
Low horizontal differentiation
Low formalization
Most effective structure: organic
Mass production-the production of items in large batches
Moderate vertical differentiation
High horizontal differentiation
High formalization
Most effective structure: mechanistic
Process production-the production of items in continuous processes
High vertical differentiation
Low horizontal differentiation
Low formalization
Most effective structure: organic
3. Technology
4. Degree of environmental uncertainty
*Mechanistic organizations are not equipped to respond to rapid environmental change and
environmental uncertainty

Traditional Organizational Design

1. Simple structure-an organizational design with low departmentalization, wide spans of
control, centralized authority and little formalization
Strengths: Fast, flexible, inexpensive to maintain, clear accountability
Weaknesses: not appropriate as organizations grows; reliance on one person is risky
2. Functional Structure-an organizational design that groups together similar or related
occupational specialties
Strengths: Cost saving advantages from specialization (economies of scale, minimal duplication
of people and equipment); employees are grouped with others who have similar tasks
Weaknesses: Pursuit of functional goals can cause managers to lose sight of whats best for the
overall organization; functional specialists become insulated and have little understanding of
what other units are doing
3. Divisional Structure-an organizational structure made up of separate, semiautonomous
units or divisions
-each division has limited autonomy
Strengths:focuses on results---division managers are responsible for what happens to their
products and services
Weaknesses:duplication of activities and resources increases costs and reduces efficiency