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Chapter14-.pptx

Organizational Behavior

Eighteenth Edition, Global Edition

Chapter 14

Foundations of Organization Structure

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Welcome to this Organizational Behavior course that uses the 18th edition of the textbook, Organizational Behavior by Robbins and Judge. This is considered among the most widely used OB textbooks in the world. Robbins and Judge are recognized as definitive aggregators of OB concepts, applications, and practices. The course and this book will provide you with a resource that will benefit you throughout your degree program and your professional life.

Chapter 15: Foundations of Organization Structure

Learning Objectives

14.1 Identify seven elements of an organization’s structure.

14.2 Identify the characteristics of the functional structure, the bureaucracy, and the matrix structure.

14.3 Identify the characteristics of the virtual structure, the team structure, and the circular structure.

14.4 Describe the effects of downsizing on organizational structures and employees.

14.5 Contrast the reasons for using mechanistic versus organic structural models.

14.6 Analyze the behavioral implications of different organizational designs.

After studying this chapter, you should be able to:

Identify seven elements of an organization’s structure.

Identify the characteristics of the functional structure, the bureaucracy, and the matrix structure.

Identify the characteristics of the virtual structure, the team structure, and the circular structure.

Describe the effects of downsizing on organizational structures and employees.

Contrast the reasons for using mechanistic versus organic structural models.

Analyze the behavioral implications of different organizational designs.

Identify Seven Elements of an Organization’s Structure (1 of 10)

Exhibit 14-1 Key Design Questions and Answers for Designing the Proper Organizational Structure

The Key Question	The Answer Is Provided by
1. To what degree are activities subdivided into separate jobs?	Work specialization
2. On what basis will jobs be grouped together?	Departmentalization
3. To whom do individuals and groups report?	Chain of command
4. How many individuals can a manager efficiently and effectively direct?	Span of control
5. Where does decision-making authority lie?	Centralization and decentralization
6. To what degree will there be rules and regulations to direct employees and managers?	Formalization
7. Do individuals from different areas need to regularly interact?	Boundary spanning

An organizational structure defines how job tasks are formally divided, grouped, and coordinated. There are six key elements, shown here in Exhibit 15-1. They are work specialization, departmentalization, chain of command, span of control, centralization and decentralization, and formalization.

Identify Seven Elements of an Organization’s Structure (2 of 10)

Work specialization: the division of labor into separate activities.

Repetition of work.

Training for specialization.

Increasing efficiency through invention.

Henry Ford

Let’s focus on the first of the elements, work specialization. Work specialization, or division of labor, describes the degree to which activities in the organization are subdivided into separate jobs. In essence, an entire job is broken into a number of steps, each completed by a separate individual.

By the late 1940s, most manufacturing jobs in industrialized countries were being done this way. Management saw this as a means to make the most efficient use of its employees’ skills. Managers also looked for other efficiencies that could be achieved through work specialization. For example, employee skills at performing a task successfully increase through repetition. Training for specialization is more efficient from the organization’s perspective. It increases efficiency and productivity, encouraging the creation of special inventions and machinery. For much of the first half of this century, managers viewed work specialization as an unending source of increased productivity.

Henry Ford became rich and famous by building automobiles on an assembly line, demonstrating that work can be performed more efficiently by using a work specialization strategy. Every Ford worker was assigned a specific, repetitive task. By breaking jobs up into small standardized tasks, Ford was able to produce cars at the rate of one every ten seconds, while using employees who had relatively limited skills.

Identify Seven Elements of an Organization’s Structure (3 of 10)

Exhibit 14-2 Economies and Diseconomies of Work Specialization

The fourth element in an organization’s structure is span of control. How many employees a manager can efficiently and effectively direct is an important question. All things being equal, the wider or larger the span, the more efficient the organization.

Exhibit 15-3 illustrates that reducing the number of managers leads to significant savings. Wider spans are more efficient in terms of cost. However, at some point, wider spans reduce effectiveness. Narrow or small spans have their advocates. By keeping the span of control to five or six employees, a manager can maintain close control. Narrow spans have three major drawbacks. First, as already described, they are expensive because they add levels of management. Second, they make vertical communication in the organization more complex. Third, narrow spans of control encourage overly tight supervision and discourage employee autonomy.

The trend in recent years has been toward wider spans of control. They are consistent with recent efforts by companies to reduce costs, cut overhead, speed up decision making, increase flexibility, get closer to customers, and empower employees. To ensure that performance does not suffer because of these wider spans, organizations have been investing heavily in employee training.

Identify Seven Elements of an Organization’s Structure (4 of 10)

Grouping jobs together so common tasks can be coordinated is called departmentalization.

By functions performed.

By type of product or service the organization produces.

By geography or territory.

By process differences.

By type of customer.

The second element in an organization’s structure is departmentalization, or grouping jobs together so common tasks can be coordinated. One of the most popular ways to group activities is by functions performed. For example, a manufacturing manager might organize his or her plant by separating engineering, accounting, manufacturing, personnel, and purchasing specialists into common departments. The advantage to this type of grouping is obtaining efficiencies from putting like specialists together.

Tasks can also be departmentalized by the type of product or service the organization produces. The major advantage to this type of grouping is increased accountability for product performance under a single manager. Another way to departmentalize is on the basis of geography or territory. The sales function, for instance, may have western, southern, mid-western, and eastern regions.

Process departmentalization can be used for processing customers as well as products. For example, at the state motor vehicles office you might find: validation by motor vehicles division, processing by the licensing department, and payment collection by the treasury department.

A final category of departmentalization is by type of customer. Microsoft, for instance, recently reorganized around four customer markets: consumers, large corporations, software developers, and small businesses. The assumption is that customers in each department have a common set of problems and needs that can best be met by having specialists for each.

Identify Seven Elements of an Organization’s Structure (5 of 10)

Chain of command: an unbroken line of authority that extends from the top of the organization to the lowest echelon and clarifies who reports to whom.

Once a basic cornerstone in organization design.

Two complementary concepts:

Unity of command

Authority

The third element in the organization’s structure is the chain of command. The chain of command is an unbroken line of authority that extends from the top of the organization to the lowest echelon and clarifies who reports to whom. It was once a basic cornerstone in the design of organizations, but it is far less important today. Two complementary concepts are authority and unity of command. Authority is the rights inherent to management to give orders and expect the orders to be obeyed. The principle of unity of command helps preserve the concept of an unbroken line of authority. It states that a person should have only one superior to whom he/she is directly responsible.

Identify Seven Elements of an Organization’s Structure (6 of 10)

The chain of command is less relevant today because of technology and the trend of empowering people.

Operating employees make decisions once reserved for management.

Increased popularity of self-managed and cross-functional teams.

Many organizations still find that enforcing the chain of command is productive.

Times change, and so do the basic tenets of organizational design. The concepts of chain of command have less relevance today because of technology and the trend of empowering employees. A low-level employee today can access information in seconds that a generation ago was available only to top managers. Operating employees are empowered to make decisions previously reserved for management.

Add the popularity of self-managed and cross-functional teams, and the creation of new structural designs that include multiple bosses, and you can see why authority and unity of command hold less relevance. Still, many organizations find they can be most productive by enforcing the chain of command. Indeed, one survey of more than 1,000 managers found that 59% of them agreed with the statement, “There is an imaginary line in my company’s organizational chart. Strategy is created by people above this line, while strategy is executed by people below the line.” However, this same survey found that buy-in to the organization’s strategy by lower-level employees was inhibited by too much reliance on hierarchy for decision making.

Identify Seven Elements of an Organization’s Structure (7 of 10)

Exhibit 14-3 Contrasting Spans of Control

Now that you’re familiar with the elements in an organization’s structure, let talk about the more common organizational designs: the simple structure, the bureaucracy, and the matrix.

Exhibit 15-4 shows an example of the simple structure, an organization design that is characterized most by what it is not rather than what it is: it is not elaborate. It has a low degree of departmentalization, wide spans of control, authority centralized in a single person, and little formalization. The simple structure is a “flat” organization; it usually has only two or three vertical levels. One individual has the decision-making authority.

Identify Seven Elements of an Organization’s Structure (8 of 10)

Centralization and Decentralization

Centralization refers to the degree to which decision making is concentrated at a single point in the organization.

Advantages of a decentralized organization:

Can act more quickly to solve problems.

More people provide input into decisions.

Employees are less likely to feel alienated from those who make decisions that affect their work lives.

The next element is centralization and decentralization. Centralization refers to the degree to which decision making is concentrated at a single point in the organization. In centralized organizations, top managers make all the decisions, and lower-level managers merely carry out their directives. In organizations at the other extreme, decentralized decision making is pushed down to the managers closest to the action.

The concept of centralization includes only formal authority—that is, the rights inherent in a position. An organization characterized by centralization is inherently different structurally from one that’s decentralized. A decentralized organization can act more quickly to solve problems, more people provide input into decisions, and employees are less likely to feel alienated from those who make decisions that affect their work lives.

Management efforts to make organizations more flexible and responsive have produced a recent trend toward decentralized decision making by lower-level managers, who are closer to the action and typically have more detailed knowledge about problems than top managers. When Procter & Gamble empowered small groups of employees to make many decisions about new-product development independent of the usual hierarchy, it was able to rapidly increase the proportion of new products ready for market.

Research investigating a large number of Finnish organizations demonstrates that companies with decentralized research and development offices in multiple locations were better at producing innovation than companies that centralized all research and development in a single office.

Identify Seven Elements of an Organization’s Structure (9 of 10)

Formalization: the degree to which jobs within the organization are standardized.

A highly formalized job means a minimum amount of discretion.

Low formalization – job behaviors are relatively non-programmed, and employees have a great deal of freedom to exercise discretion in their work.

The final element in the model is formalization, or the degree to which jobs within the organization are standardized. A highly formalized job gives the job incumbent a minimum amount of discretion over what is to be done, when it is to be done, and how he or she should do it. Employees can be expected to always handle the same input in exactly the same way. The greater the standardization, the less input the employee has into how the job is done. Low formalization, where job behaviors are relatively non-programmed, allows employees to have a great deal of freedom to exercise discretion in their work. The degree of formalization can vary widely between organizations and within organizations.

Identify Seven Elements of an Organization’s Structure (10 of 10)

Boundary spanning occurs when individuals form relationships with people outside their formally assigned groups.

Positive results are especially strong in organizations that encourage extensive internal communication; in other words, external boundary spanning is most effective when it is followed up with internal boundary spanning.

We’ve described ways that organizations create well-defined task structures and chains of authority.

These systems facilitate control and coordination for specific tasks, but if there is too much division within an organization, attempts to coordinate across groups can be disastrous.

One way to overcome compartmentalization and retain the positive elements of structure is to encourage or create boundary-spanning roles.

Within a single organization, boundary spanning occurs when individuals form relationships with people outside their formally assigned groups. Boundary-spanning activities occur not only within but also between organizations.

Organizations can use formal mechanisms to facilitate boundary-spanning activities. One method is to assign formal liaison roles or develop committees of individuals from different areas of the organization. Development activities can also facilitate boundary spanning. Employees with experience in multiple functions, such as accounting and marketing, are more likely to engage in boundary spanning. Many organizations try to set the stage for these sorts of positive relationships by creating job rotation programs so new hires get a better sense of different areas of the organization. A final method to encourage boundary spanning is to bring attention to overall organizational goals and shared identity concepts.

Common Organizational Frameworks and Structures (1 of 7)

Exhibit 14-4 A Simple Structure (Jack Gold’s Men’s Store)

Now that you’re familiar with the elements in an organization’s structure, let talk about the more common organizational designs: the simple structure, the bureaucracy, and the matrix.

Common Organizational Frameworks and Structures (2 of 7)

Simple structure: the manager and the owner are one and the same.

Strengths:

Simple, fast, and flexible.

Inexpensive to maintain.

Accountability is clear.

Weaknesses:

Difficult to maintain in anything other than small organizations.

Risky—everything depends on one person.

The simple structure is most widely practiced in small businesses in which the manager and the owner are one and the same.

The strength of the simple structure lies in its simplicity. It is fast, flexible, inexpensive to maintain, and accountability is clear. One major weakness is that it is difficult to maintain in anything other than small organizations. It becomes increasingly inadequate as an organization grows because its low formalization and high centralization tend to create information overload at the top. As size increases, it is very difficult for the owner-manager to make all the choices. The simple structure’s other weakness is that it is risky—everything depends on one person. Illness can literately destroy the information and decision-making center of the company.

Common Organizational Frameworks and Structures (3 of 7)

A bureaucracy is characterized by standardization.

Highly routine operating tasks.

Very formalized rules and regulations.

Tasks grouped into functional departments.

Centralized authority.

Narrow spans of control.

Decision making that follows the chain of command.

In contrast, standardization is the key concept for all bureaucracies. The bureaucracy is characterized by six traits: highly routine operating tasks achieved through specialization; very formalized rules and regulations; tasks grouped into functional departments; a strong centralized authority; there are narrow spans of control; and decision making follows the chain of command.

Common Organizational Frameworks and Structures (4 of 7)

Strengths of bureaucracy:

Ability to perform standardized activities in a highly efficient manner.

Weaknesses of bureaucracy:

Subunit conflicts.

Unit goals dominate.

Obsessive behavior.

Covering weak management.

The bureaucracy’s primary strength is in its ability to perform standardized activities in a highly efficient manner. Putting like specialties together in functional departments results in economies of scale, minimum duplication of personnel and equipment, etc. Bureaucracies get by nicely with less talented and less costly middle- and lower-level managers.

Some of bureaucracy’s weaknesses are that specialization creates subunit conflicts, and functional unit goals can override the organization’s goals. Also, an obsessive concern with following the rules can develop, and the bureaucracy is efficient only as long as employees confront familiar problems with programmed decision rules.

Common Organizational Frameworks and Structures (5 of 7)

Two aspects of bureaucracies:

Functional structure: groups employees by their similar specialties, roles, or tasks.

Divisional structure: groups employees into units by product, service, customer, or geographical market area.

There are two aspects of bureaucracies we should explore: functional and divisional structures.

The functional structure groups employees by their similar specialties, roles, or tasks. An organization organized into production, marketing, HR and accounting departments is an example. Many large organizations utilize this structure, although this is evolving to allow for quick changes in response to business opportunities. Still, there are advantages, including that the functional structure allows specialists to become experts more easily than if they worked in diversified units. Employees can also be motivated by a clear career path to the top of the organization chart specific to their specialties.

The divisional structure groups employees into units by product, service, customer, or geographical market area. It is highly departmentalized. Sometimes this structure is known by the type of division structure it uses: product/service organizational structure (like units for cat food, dog food, and bird food that report to an animal food producer), customer organizational structure (like units for outpatient care, inpatient care, and pharmacy that report to hospital administration), or geographic organizational structure (like units for Europe, Asia, and South America that report to corporate headquarters).

Common Organizational Frameworks and Structures (6 of 7)

The matrix structure combines two forms of departmentalization—functional and product:

The strength of functional is putting specialists together.

Product departmentalization facilitates coordination.

It provides clear responsibility for all activities related to a product, but with duplication of activities and costs.

The third organization design is the matrix structure. This structure is common in advertising agencies, aerospace firms, research and development laboratories, construction companies, hospitals, government agencies, universities, management consulting firms, and entertainment companies. It combines two forms of departmentalization—functional and product.

The strength of functional departmentalization is putting like specialists together and the pooling and sharing of specialized resources across products. Its major disadvantage is the difficulty of coordinating tasks. Product departmentalization facilitates coordination. It provides clear responsibility for all activities related to a product, but with duplication of activities and costs.

Common Organizational Frameworks and Structures (7 of 7)

Exhibit 14-5 Matrix Structure for a College of Business Administration

The most obvious structural characteristic of the matrix is that it breaks the unity of command concept. Exhibit 15-5 shows the matrix form as used in a college of business administration. Its strength is its ability to facilitate coordination when the organization has a multiplicity of complex and interdependent activities. The dual lines of authority reduce tendencies of departmental members to protect their worlds. It facilitates the efficient allocation of specialists.

The major disadvantages of the matrix lie in the confusion it creates, its propensity to foster power struggles, and the stress it places on individuals. Violation of the unity of command concept increases ambiguity that often leads to conflict. Confusion and ambiguity also create the seeds of power struggles. Reporting to more than one boss introduces role conflict, and unclear expectations introduce role ambiguity.

Alternate Design Options (1 of 4)

The Virtual Organization

The essence of the virtual organization is that it is typically a small, core organization that outsources major business functions.

Also referred to as a modular or network organization.

It is highly centralized, with little or no departmentalization.

The essence of the virtual organization is that it is typically a small, core organization that outsources major business functions. The virtual organization is also referred to as a modular or network organization. It’s highly centralized, with little or no departmentalization.

Alternate Design Options (2 of 4)

Exhibit 14-6 A Virtual Structure

Exhibit 15-6 shows a virtual organization in which management outsources all of the primary functions of the business. The dotted lines in this exhibit represent those relationships typically maintained under contracts. Managers in virtual structures spend most of their time coordinating and controlling external relations, typically by way of computer-network links.

Network organizations often take many forms. Some of the more “traditional” forms include the franchise form in which there are managers, systems, and other experts in the central node (i.e., executive group) whereas customer sales and services are carried out by franchise units. This popular form of network organization is very common in service business models, such as 7-Eleven, McDonald’s, Jimmy John’s, and Dunkin’ Donuts. However, in this form, franchisees do not tend to collaborate or coordinate with one another, and may actually be in direct competition for resources from the executive group. Another example is the starburst form in which a “parent” firm splits off one of its functions into a “spinoff” firm. For example, in 2012 Netflix split off its DVD function into its own separate entity, now DVD.com.

The major advantage to the virtual organization is its flexibility. The primary drawback is that it reduces management’s control over key parts of its business. Virtual organizations’ drawbacks have become increasingly clear as their popularity has grown. They are in a state of perpetual flux and reorganization, which means roles, goals, and responsibilities are unclear, setting the stage for political behavior. Cultural alignment and shared goals can be lost because of the low degree of interaction among members. Team members who are geographically dispersed and communicate infrequently find it difficult to share information and knowledge, which can limit innovation and slow response time.

Ironically, some virtual organizations are less adaptable and innovative than those with well-established communication and collaboration networks. A leadership presence that reinforces the organization’s purpose and facilitates communication is thus especially valuable.

Alternate Design Options (3 of 4)

The team structure: eliminates the chain of command and replaces departments with empowered teams.

Removes vertical and horizontal boundaries.

Breaks down external barriers.

Flattens the hierarchy and minimizes status and rank.

When fully operational, the team structure may break down geographic barriers.

The team structure seeks to eliminate the chain of command and replace departments with empowered teams. This structure removes vertical and horizontal boundaries in addition to breaking down external barriers between the company and its customers and suppliers. By removing vertical boundaries, management flattens the hierarchy and minimizes status and rank.

Cross-hierarchical teams (which include top executives, middle managers, supervisors, and operative employees), participative decision-making practices, and the use of 360-degree performance appraisals (in which peers and others evaluate performance) can be used. When fully operational, the team structure may break down geographic barriers.

Today, most large U.S. companies see themselves as team-oriented global corporations; many, such as Coca-Cola and McDonald’s, do as much business overseas as in the United States, and some struggle to incorporate geographic regions into their structure.

Alternate Design Options (4 of 4)

In the circular structure: in the center are the executives, and radiating outward in rings grouped by function are the managers, then the specialists, then the workers.

Has intuitive appeal for creative entrepreneur.

However, employees may be unclear about whom they report to and who is running the show.

We are still likely to see the popularity of the circular structure spread.

Picture the concentric rings of an archery target. In the center are the executives, and radiating outward in rings grouped by function are the managers, then the specialists, then the workers. This is the circular structure.

The circular structure has intuitive appeal for creative entrepreneurs, and some small innovative firms have claimed it. However, as in many of the current hybrid approaches, employees are apt to be unclear about whom they report to and who is running the show.

We are still likely to see the popularity of the circular structure spread. The concept may have intuitive appeal for spreading a vision of corporate social responsibility (CSR) initiatives, for instance.

Effects of Downsizing on Organizations and Employees (1 of 2)

The Leaner Organization: Downsizing

The goal of the new organizational forms we’ve described is to improve agility by creating a lean, focused, and flexible organization.

Downsizing is a systematic effort to make an organization leaner by selling off business units, closing locations, or reducing staff.

The leaner organization leads to organizational downsizing. The goal of the new organizational forms we’ve described is to improve agility by creating a lean, focused, and flexible organization. Downsizing is a systematic effort to make an organization leaner by selling off business units, closing locations, or reducing staff. It has been very controversial because of its potential negative impacts on employees.

The radical shrinking of Motorola Mobility in recent years was a case of downsizing due to loss of market share and changes in consumer demand. Some companies downsize to focus on their core competencies. Some companies focus on lean management techniques to reduce bureaucracy and speed up decision making.

Effects of Downsizing on Organizations and Employees (2 of 2)

Strategies for downsizing include:

Investment

Communication

Participation

Assistance

Make cuts carefully and help employees through the process.

There are several strategies for downsizing:

Investment. Companies that downsize to focus on core competencies are more effective when they invest in high-involvement work practices afterward.

Communication. When employers make efforts to discuss downsizing with employees early, employees are less worried about the outcomes and feel the company is taking their perspective into account.

Participation. Employees worry less if they can participate in the process in some way. In some companies, voluntary early retirement programs or severance packages can help achieve leanness without layoffs.

Assistance. Providing severance, extended health-care benefits, and job search assistance demonstrates a company does really care about its employees and honors their contributions.

Companies that make themselves lean can be more agile, efficient, and productive—but only if they make cuts carefully and help employees through the process.

Mechanistic vs. Organic Structural Models (1 of 8)

Exhibit 14-7 Mechanistic versus Organic Models

We’ve described organizational designs ranging from the highly structured bureaucracy to the amorphous boundaryless organization. There are also two extreme models of organizational design, as seen here in Exhibit 15-7.

First, the mechanistic model is synonymous with bureaucracy and has extensive departmentalization, high formalization, a limited information network (mostly downward), and little participation in decision making. The organic model uses cross-hierarchical and cross-functional teams, low formalization, a comprehensive information network, and high participation in decision making.

Why are some organizations structured along mechanistic lines while others are organic? In this section, we present the major causes or determinants of an organization’s structure.

Mechanistic vs. Organic Structural Models (2 of 8)

An organization’s structure is a means to help management achieve its objectives.

Most current strategy frameworks focus on three dimensions:

Innovation strategy

Cost Minimization strategy

Imitation strategy

An organization’s structure is a means to help management achieve its objectives. Objectives derive from the organization’s overall strategy. Structure should follow strategy. Most current strategy frameworks focus on three strategy dimensions—innovation, cost minimization, and imitation—and the structural design that works best with each.

An innovation strategy means a strategy for meaningful and unique innovations. This strategy may appropriately characterize 3M Company. A cost-minimization strategy tightly controls costs, refrains from incurring unnecessary innovation or marketing expenses, and cuts prices in selling a basic product. This describes Walmart’s strategy. An imitation strategy tries to copy successful ideas of innovators and capitalize on the best of both in order to minimize risk and maximize opportunity for profit. It moves into new products or new markets only after viability has been proven by innovators, for example, when manufactures mass-market fashion goods that are rip-offs of designer styles.

Mechanistic vs. Organic Structural Models (3 of 8)

Exhibit 14-8 The Strategy–Structure Relationship

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 15-8 describes the structural option that best matches each strategy. Innovators need the flexibility of the organic structure, whereas cost minimizers seek the efficiency and stability of the mechanistic structure. Imitators combine the two structures. They use a mechanistic structure to maintain tight controls and low costs in their current activities but create organic subunits in which to pursue new undertakings.

Mechanistic vs. Organic Structural Models (4 of 8)

Organizational Size

Large organizations—employing 2,000 or more people—tend to have more specialization, more departmentalization, more vertical levels, and more rules and regulations than do small organizations.

The impact of size becomes less important as an organization expands.

An organization’s size significantly affects its structure. Large organizations—employing 2,000 or more people—tend to have more specialization, more departmentalization, more vertical levels, and more rules and regulations than do small organizations. The impact of size becomes less important as an organization expands. Once an organization has around 2,000 employees, it’s already mechanistic. An additional 500 employees will not have much impact. However, adding 500 employees to a 300-employee firm is likely to result in a mechanistic structure.

Mechanistic vs. Organic Structural Models (5 of 8)

Technology: the way an organization transfers its inputs into outputs.

Numerous studies have examined the technology-structure relationship.

Organizational structures adapt to their technology.

Technology refers to how an organization transfers its inputs into outputs. Every organization has at least one technology for converting financial, human, and physical resources into products or services. Chinese electronics maker, Haier, uses an assembly-line process to make its products. Colleges may use a number of instruction technologies—the ever-popular formal lecture method, the case analysis method, the experiential exercise method, the programmed learning method, etc.—to educate its students.

Mechanistic vs. Organic Structural Models (6 of 8)

An organization’s environment includes outside institutions or forces that can affect its performance.

Dynamic environments create significantly more uncertainty for managers than do static ones.

To minimize uncertainty:

Broaden structure to sense and respond to threats.

Form strategic alliances.

An organization’s environment includes outside institutions or forces that can affect its performance, such as suppliers, customers, competitors, government regulatory agencies, and public pressure groups.

Dynamic environments create significantly more uncertainty for managers than do static ones. To minimize uncertainty, managers may broaden their structure to sense and respond to threats. For example, most companies, including Pepsi and Southwest Airlines, have added social networking departments to counter negative information posted on blogs. Or companies may form strategic alliances, such as when Microsoft and Yahoo! joined forces to better compete with Google.

Mechanistic vs. Organic Structural Models (7 of 8)

Exhibit 14-9 Three-Dimensional Model of the Environment

Any organization’s environment has three dimensions: capacity, volatility, and complexity. Capacity is the degree to which it can support growth. Rich and growing environments generate excess resources, which can buffer times of relative scarcity. Volatility refers to the degree of instability in an environment, characterized by a high degree of unpredictable change. The environment is dynamic, making it difficult for management to predict accurately the probabilities associated with various decision alternatives. At the other extreme is a stable environment. Complexity is the degree of heterogeneity and concentration among environmental elements. Simple environments are homogeneous and concentrated. In contrast, environments characterized by heterogeneity and dispersion are called complex.

Exhibit 15-9 summarizes our definition of the environment along its three dimensions. The arrows indicate movement toward higher uncertainty. Thus, organizations that operate in environments characterized as scarce, dynamic, and complex face the greatest degree of uncertainty because they have high unpredictability, little room for error, and a diverse set of elements in the environment to monitor constantly. Given this three-dimensional definition of environment, we can offer some general conclusions about environmental uncertainty and structural arrangements. The more scarce, dynamic, and complex the environment, the more organic a structure should be. The more abundant, stable, and simple the environment, the more the mechanistic structure will be preferred.

Mechanistic vs. Organic Structural Models (8 of 8)

Another factor that shapes organizational structure is institutions.

Regulatory pressures.

Simple inertia.

Culture.

Fads or trends.

Institutional pressures are often difficult to see specifically because we take them for granted, but that doesn’t mean they aren’t powerful.

Another factor that shapes organizational structure is institutions. These are cultural factors that act as guidelines for appropriate behavior. Institutional theory describes some of the forces that lead many organizations to have similar structures and, unlike the theories we’ve described so far, focuses on pressures that aren’t necessarily adaptive.

The most obvious institutional factors come from regulatory pressures; certain industries under government contracts, for instance, must have clear reporting relationships and strict information controls. Sometimes simple inertia determines an organizational form—companies can be structured in a particular way just because that’s the way things have always been done. Organizations in countries with high power distance might have a structural form with strict authority relationships because it’s seen as more legitimate in that culture. Some have attributed problems in adaptability in Japanese organizations to the institutional pressure to maintain authority relationships. Sometimes organizations start to have a particular structure because of fads or trends.

Many companies have recently tried to copy the organic form of a company like Google only to find that such structures are a very poor fit with their operating environment. Institutional pressures are often difficult to see specifically because we take them for granted, but that doesn’t mean they aren’t powerful.

Analyze the Behavioral Implications of Different Organizational Designs (1 of 2)

An organization’s structure can have significant effects on its members.

It’s impossible to generalize!

Not everyone prefers the freedom and flexibility of organic structures.

Some people are most productive and satisfied when work tasks are standardized and ambiguity minimized.

This chapter opened by implying that an organization’s structure can have significant effects on its members. A review of the evidence leads to a pretty clear conclusion: you can’t generalize! Not everyone prefers the freedom and flexibility of organic structures. Different factors stand out in different structures as well. In highly formalized, heavily structured, mechanistic organizations, the level of fairness in formal policies and procedures is a very important predictor of satisfaction. In more personal, individually adaptive, organic organizations, employees value interpersonal justice more. Some people are most productive and satisfied when work tasks are standardized and ambiguity minimized—that is, in mechanistic structures. So, any discussion of the effect of organizational design on employee behavior has to address individual differences.

Analyze the Behavioral Implications of Different Organizational Designs (2 of 2)

Organizational Designs and Employee Behavior

Work specialization contributes to higher employee productivity.

No evidence supports a relationship between span of control and employee satisfaction or performance.

Fairly strong evidence links centralization and job satisfaction, meaning that less centralization is associated with higher satisfaction.

National culture influences the preference for structure.

The evidence generally indicates that work specialization contributes to higher employee productivity—but at the price of reduced job satisfaction. However, work specialization is not an unending source of higher productivity.

While research fails to support a relationship between span of control and employee satisfaction or performance, we find fairly strong evidence linking centralization and job satisfaction. In general, less centralized organizations have a greater amount of autonomy, which appears positively related to job satisfaction.

Research suggests national culture influences the preference for structure. Organizations that operate with people from high-power-distance cultures, such as Greece, France, and most of Latin America, find their employees are much more accepting of mechanistic structures than are employees from low-power-distance countries. So consider cultural differences along with individual differences when predicting how structure will affect employee performance and satisfaction.

Implications for Managers (1 of 3)

Exhibit 14-10 Organizational Structure: Its Determinants and Outcomes from

The theme of this chapter is that an organization’s internal structure contributes to explaining and predicting behavior. That is, in addition to individual and group factors, the structural relationships in which people work has a bearing on employee attitudes and behavior. What’s the basis for this argument? To the degree that an organization’s structure reduces ambiguity for employees and clarifies concerns, it shapes their attitudes and facilitates and motivates them to higher levels of performance. Exhibit 15-10 summarizes what we’ve discussed.

Implications for Managers (2 of 3)

Specialization can make operations more efficient, but remember that excessive specialization can create dissatisfaction and reduced motivation.

Avoid designing rigid hierarchies that overly limit employees’ empowerment and autonomy.

Balance the advantages of remote work against the potential pitfalls before adding flexible workplace options into the organization’s structure.

Managers should:

Recognize that specialization can make operations more efficient, but remember that excessive specialization can create dissatisfaction and reduced motivation.

Avoid designing rigid hierarchies that overly limit employees’ empowerment and autonomy.

Balance the advantages of remote work against the potential pitfalls before adding flexible workplace options into the organization’s structure.

Implications for Managers (3 of 3)

Downsize your organization to realize major cost savings, and focus the company around core competencies - but only if necessary, because downsizing can have a significant negative impact on employee affect.

Consider the scarcity, dynamism, and complexity of the environment, and balance organic and mechanistic elements when designing an organizational structure.

In addition, managers should:

Downsize your organization to realize major cost savings, and focus the company around core competencies, but only if necessary, because downsizing can have a significant negative impact on employee affect.

Consider the scarcity, dynamism, and complexity of the environment, and balance the organic and mechanistic elements when designing an organizational structure.