Discussion
15 Foundations of Organization Structure
In the Flat Field
Startups often struggle to move from executing small, collaborative, local projects to becoming complex, organized, global organizations. Their leaders sometimes believe a hierarchy would create a bloated class of middle managers whose work would change into recording and administrating, rather than imagining and creating. As Craig Silverstein, Google’s first hire, says, entrepreneurs often ask, “Who needs managers? They never add any value.”
Remaining a perpetually entrepreneurial organization with an organic, flat structure may be appealing, but it’s not easy to achieve. Management’s core functions are to provide direction, resolve conflicts, and realize product potential in the market. Even if everyone gets along, good ideas may never be fully realized without some form of coordinating structure and a strategic business framework.
Large organizations can always restructure their units, but growing creates an orchestra of processes that need to be brought together. Each growth strategy exponentially increases the complexity of managing workers and information flow. Innovative organizations try to strike a balance between achieving the positive coordinating functions of management and avoiding a tight bureaucratic structure.
One way to stay entrepreneurial in an organizational structure is demonstrated at the video game company Valve. The company’s handbook notes, “We don’t have any management, and nobody ‘reports to’ anybody else.” This suggests that Valve’s organizational structure is completely flat, with everyone equal in the organization. Still, team leaders are assigned to positions of authority over specific projects. The key feature appears to be that this leadership role is temporary.
From the time of its founding by David Kelley in 1993, shown in the photo, the design firm IDEO has minimized a formal organizational structure by having employees focus on different levels of project accountability. Coordination of multiple projects is done at the “portfolio” level, whereas coordination of projects across the entire organization is done at the “enterprise” level. There is no formal hierarchy, again suggesting a flat organizational structure. Responsibility for decision making remains with the individual and his or her area of concentration.
Another approach is the use of virtual management that completely separates administration from core work tasks. For example, small biotech companies outsource lab work, financial management, and marketing so the scientist-entrepreneur can focus on what he or she does best. Some very small biotech firms share office space, allowing scientists working on very different projects to swap ideas while another set of individuals takes care of the management side of the business. Although multiple functions are being fulfilled, the formal organizational chart might just consist of one or two individuals at the top, and a loose, rather undefined network of collaborators who are accountable for the scope of work they are assigned to complete, but are self-managing.
The approaches successful companies have taken to structuring themselves during growth provide two major lessons. First, a vision is needed of how the increasingly complex organization can coordinate people around a common strategy. Second, management must ensure that organizational structures and reporting relationships don’t become so restrictive that they undermine the creative passions that made the company successful in the first place. As you can see, organizational structures set up a company for future success.
Sources: M. Hutson, “Espousing Equality, but Embracing a Hierarchy,” New York Times, June 22, 2014, http://www.nytimes.com/2014/06/22/business/espousing-equality-but-embracing-a-hierarchy.html?_r=0 ; J. Whalen, “Virtual Biotechs: No Lab Space, Few Employees,” Wall Street Journal, June 4, 2014, http://www.wsj.com/articles/virtual-biotechs-no-lab-space-few-employees-1401816867 ; and C. Huston, “He Failed on ‘Shark Tank’—But So What?” Wall Street Journal, March 10, 2014, http://www.wsj.com/articles/SB10001424052702303942404579361040224777748 .
Even for a startup with only a few employees, choosing an organizational structure requires far more than simply deciding who’s the boss and how many employees are needed. The organization’s structure will determine what relationships form, the formality of those relationships, and many work outcomes. The structure may also change as organizations grow and shrink, as management trends dictate, and as research uncovers better ways of maximizing productivity.
Structural decisions are arguably the most fundamental ones a leader has to make toward sustaining organizational growth. 1 In this chapter, we’ll explore how structure affects employee behavior and the organization as a whole.
What Is Organizational Structure?
1. 1 Identify seven elements of an organization’s structure.
An organizational structure defines how job tasks are formally divided, grouped, and coordinated. Managers should address seven key elements when they design their organization’s structure: work specialization, departmentalization, chain of command, span of control, centralization and decentralization, formalization, and boundary spanning. 2 Exhibit 15-1 presents each element as the answer to an important structural question, and the following sections describe them.
Exhibit 1
Key Design Questions and Answers for Designing the Proper Organizational Structure
Work Specialization
Early in the twentieth century, Henry Ford became rich by building automobiles on an assembly line. Every worker was assigned a specific, repetitive task such as putting on the right front wheel or installing the right front door. By dividing jobs into small standardized tasks that could be performed over and over, Ford was able to produce a car every 10 seconds, using employees with relatively limited skills. Work specialization , or division of labor, describes the degree to which activities in the organization are divided into separate jobs. The essence of work specialization is to divide a job into a number of steps, each completed by a separate individual. Individuals specialize in doing part of an activity rather than the entirety. Specialization is a means of making the most efficient use of employees’ skills and even successfully improving them through repetition. Less time is spent changing tasks, putting away tools and equipment from a prior step, and getting ready for another.
By the 1960s, it increasingly seemed that the good news of specialization could be carried too far. Human diseconomies began to surface in the form of boredom, fatigue, stress, low productivity, poor quality, increased absenteeism, and high turnover, which more than offset the economic advantages (see Exhibit 15-2 ). Managers could increase productivity now by enlarging, rather than narrowing, the scope of job activities. Giving employees a variety of activities to do, allowing them to do a whole and complete job, and putting them into teams with interchangeable skills often achieved significantly higher output, with increased employee satisfaction.
Exhibit 2
Economies and Diseconomies of Work Specialization
Ford demonstrated work can be performed more efficiently if employees are allowed to specialize, and the practice still has applications in many industries. For example, could you build a car by yourself? Not likely! Equally important, it’s easier and less costly to find and train workers to do specific tasks, especially in highly sophisticated and complex operations. Finally, work specialization increases efficiency and productivity by encouraging the creation of customized inventions and machinery.
Most managers today recognize the economies specialization provides in certain jobs and the problems when it’s carried too far. High work specialization helps McDonald’s make and sell hamburgers and fries efficiently and aids medical specialists in most health maintenance organizations. Wherever job roles can be broken down into specific tasks or projects, specialization is possible. Specialization may still confer advantages outside manufacturing, particularly where job sharing and part-time work are prevalent. 3 Amazon’s Mechanical Turk program, TopCoder, and others like it have facilitated a new trend in microspecialization in which extremely small pieces of programming, data processing, or evaluation tasks are delegated to a global network of individuals by a program manager who then assembles the results. 4
This opens the way for employers to use online platforms to assign multiple workers to tasks in a broader functional role like marketing. 5 Thus, whereas specialization of yesteryear focused on breaking manufacturing tasks into specific duties within the same plant, today’s specialization judiciously breaks complex tasks into specific elements by technology, expertise, and region. Yet the core principle is the same.
Departmentalization
Once jobs have been divided through work specialization, they must be grouped so common tasks can be coordinated. The basis by which jobs are grouped is called departmentalization .
One of the most popular ways to group activities is by the functions performed. A manufacturing manager might organize a plant into engineering, accounting, manufacturing, human resources (HR), and supply chain departments. A hospital might have departments for research, surgery, intensive care, accounting, and so forth. A professional football franchise might have departments for player personnel, ticket sales, and travel and accommodations. The major advantage of this type of functional departmentalization is efficiencies gained from putting like specialists together.
A global firm that operates on a local scale in more than 200 countries, The Coca-Cola Company is organized into six geographic segments: North America, Latin America, Europe, Eurasia, Africa, and Asia Pacific. The structure enables it to tailor its strategy to markets in different stages of economic development and with differing consumer tastes and buying behavior.
Source: Kim Kyung-Hoon/Reuters
We can also departmentalize jobs by the type of product or service the organization produces. Procter & Gamble places each major product—such as Tide, Pampers, Charmin, and Pringles—under an executive who has complete global responsibility for it. The major advantage here is increased accountability for performance because all activities related to a specific product or service are under the direction of a single manager.
When a firm is departmentalized on the basis of geography, or territory, the sales function, for instance, may have western, southern, midwestern, and eastern regions each, in effect, a department organized around geography. This form is valuable when an organization’s customers are scattered over a large geographic area and have similar needs within their locations. For this reason, Toyota changed its management structure into geographic regions “so that they may develop and deliver ever better products,” said CEO Akio Toyoda. 6
Process departmentalization works for processing customers as well as products. If you’ve ever been to a state motor vehicle office to get a driver’s license, you probably went through several departments before receiving your license. In one typical state, applicants go through three steps, each handled by a separate department: (1) validation by the motor vehicles division, (2) processing by the licensing department, and (3) payment collection by the treasury department. A final category of departmentalization uses the particular type of customer the organization seeks to reach.
Interestingly, organizations do not always stay with the basis of departmentalization they first adopt. Microsoft, for instance, used customer departmentalization for years, organizing around its customer bases: consumers, large corporations, software developers, and small businesses. However, in a June 2013 letter from CEO Steve Ballmer to all employees, he announced a restructuring to functional departmentalization, citing a need to foster continuing innovation. The new departments grouped jobs by traditional functions including engineering, marketing, business development, strategy and research, finance, HR, and legal. 7
Ballmer expected the change in Microsoft’s organizational structure would “reshape how we interact with our customers, developers, and key innovation partners, delivering a more coherent message and family of product offerings.” 8 As we see throughout this text, whenever changes are deliberately made in organizations to align practices with organizational goals, particularly the goals of strong leaders, a good execution of the changes creates a much higher probability for improvement. In Microsoft’s case, the results are not yet determined—Ballmer, who is a strong leader, announced his retirement 2 months later (he officially left Microsoft in 2014), and further changes ensued. Microsoft continued to struggle with the reorganization, announcing further changes in its leadership personnel and team structure less than a year later. 9
Chain of Command
While the chain of command was once a basic cornerstone in the design of organizations, it has far less importance today. But managers should still consider its implications, particularly in industries that deal with potential life-or-death situations when people need to quickly rely on decision makers. 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.
We can’t discuss the chain of command without also discussing authority and unity of command. Authority refers to the rights inherent in a managerial position to give orders and expect them to be obeyed. To facilitate coordination, each managerial position is given a place in the chain of command, and each manager is given a degree of authority in order to meet his or her responsibilities. The principle of unity of command helps preserve the concept of an unbroken line of authority. It says a person should have one and only one superior to whom he or she is directly responsible. If the unity of command is broken, an employee might have to cope with conflicting demands or priorities from several superiors, as is often the case in organization charts’ dotted-line reporting relationships depicting an employee’s accountability to multiple managers.
Times change, however, and so do the basic tenets of organizational design. A low-level employee today can access information in seconds that was available only to top managers a generation ago, and many employees are empowered to make decisions previously reserved for management. Add the popularity of self-managed and cross-functional teams as well as structural designs that include multiple bosses, and you can see why authority and unity of command may appear to hold less relevance. Yet many organizations still find they can be most productive by enforcing the chain of command. Indeed, one survey of more than 1,000 managers found that 59 percent 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.” 10 However, this same survey found that lower-level employees’ buy-in (agreement and active support) to the organization’s overall, big picture strategy was inhibited by their reliance on the hierarchy for decision making.
Span of Control
How many employees can a manager efficiently and effectively direct? The span of control describes the number of levels and managers an organization has. All things being equal, the wider or larger the span, the fewer levels, the more employees at each level, and the more efficient the organization.
Assume two organizations each have about 4,100 operative-level employees. One has a uniform span of 4 and the other a span of 8. As Exhibit 15-3 illustrates, the wider span of 8 will have two fewer levels and approximately 800 fewer managers. If the average manager makes $50,000 a year, the wider span will save $40 million a year in management salaries! Obviously, wider spans are more efficient in terms of cost. However, at some point when supervisors no longer have time to provide subordinates with the necessary leadership and support, effectiveness declines and employee performance suffers.
Exhibit 3
Contrasting Spans of Control
Narrow or small spans have their advocates. By keeping the span of control to five or six employees, a manager can maintain close control. 11 But narrow spans have three major drawbacks. First, they’re expensive because they add levels of management. Second, they make vertical communication in the organization more complex. The added levels of hierarchy slow down decision making and can isolate upper management. Third, narrow spans encourage overly tight supervision and discourage employee autonomy.
The trend in recent years has been toward wider spans of control. They’re consistent with firms’ efforts to reduce costs, cut overhead, speed decision making, increase flexibility, get closer to customers, and empower employees. However, to ensure performance doesn’t suffer because of these wider spans, organizations have been investing heavily in employee training. Managers recognize they can handle a wider span best when employees know their jobs inside and out or can turn to coworkers with questions.
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 or to workgroups. The concept of centralization includes only formal authority—that is, the rights inherent to a position.
With more than 7,000 neighborhood and airport locations throughout North America and Europe, Enterprise Rent-A-Car empowers employees at the local level to make decisions that affect their work. Decentralization gives Enterprise a competitive advantage by enabling employees to provide personalized service that results in high customer satisfaction.
Source: David Carson/MCT/Landov
An organization characterized by centralization is 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. The effects of centralization and decentralization can be predicted: Centralized organizations are better for avoiding commission errors (bad choices), while decentralized organizations are better for avoiding omission errors (lost opportunities). 12
Management efforts to make organizations more flexible and responsive have produced a 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. Sears and JCPenney have given their store managers considerably more discretion in choosing what merchandise to stock in individual stores. This allows the stores to compete more effectively against local merchants. Similarly, when Procter & Gamble empowered small groups of employees to make decisions about new-product development independent of the usual hierarchy, it was able to rapidly increase the proportion of new products ready for market. 13 Concerning creativity, research investigating a large number of Finnish organizations demonstrated that companies with decentralized research and development (R&D) offices in multiple locations were better at producing innovation than companies that centralized all R&D in a single office. 14
Decentralization is often necessary for companies with offshore sites because localized decision making is needed to respond to each region’s profit opportunities, client base, and specific laws, while centralized oversight is needed to hold regional managers accountable. Failure to successfully balance these priorities can harm not only the organization, but also its relationships with foreign governments. 15
Formalization
Formalization refers to the degree to which jobs within the organization are standardized. If a job is highly formalized, the employee has a minimal amount of discretion over what to do and when and how to do it, resulting in consistent and uniform output. There are explicit job descriptions, lots of organizational rules, and clearly defined procedures covering work processes. Formalization not only eliminates the possibility of employees engaging in alternative behaviors; it removes the need for them to consider alternatives. Conversely, where formalization is low, job behaviors are relatively unprogrammed and employees have a great deal of freedom to exercise discretion in their work.
The degree of formalization can vary widely between and within organizations. In general, research from 94 high-technology Chinese firms indicated that formalization is a detriment to team flexibility in decentralized organization structures, suggesting that formalization does not work as well where duties are inherently interactive, or where there is a need to be flexible and innovative. 16 For example, publishing representatives who call on college professors to inform them of their company’s new publications have a great deal of freedom in their jobs. They have only a general sales pitch, which they tailor as needed, and rules and procedures governing their behavior may be little more than suggestions on what to emphasize about forthcoming titles and the requirement to submit a weekly sales report. At the other extreme, clerical and editorial employees in the same publishing houses may need to be at their desks by 8:00 a.m. and follow a set of precise procedures dictated by management.
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. An HR executive who frequently engages with the IT group is engaged in boundary spanning, as is a member of an R&D team who implements ideas from a production team. These activities help prevent formal structures from becoming too rigid and, not surprisingly, enhance organization and team creativity. 17
Boundary-spanning activities occur not only within but also between organizations. Gathering information from external knowledge sources is especially advantageous in highly innovative industries where keeping up with the competition is challenging. 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. 18
Organizations can use formal mechanisms to facilitate boundary-spanning activities through their structures. 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. 19 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.
BMW encourages all employees, including this production worker at its plant in Jakarta, Indonesia, to build relationships throughout the global company. Boundary spanning at BMW links R&D, design, production, and marketing individuals to speed problem solving and innovation and to adapt to market fluctuations.
Source: Dadang Tri/Bloomberg/Getty Images
You probably have personal experience with at least some of the results of decisions leaders have made in your school or workplace that related to the elements of organizational structure. The organizational framework, which can be depicted by a drawing of an organizational chart, can help you clarify leadership intentions. We’ll discuss them next.
Common Organizational Frameworks and Structures
1. 2 Identify the characteristics of the functional structure, the divisional structure, and the matrix structure.
Organizational designs are known by many names and are constantly evolving in response to changes in the way work is done. We will start with three of the more common organizational frameworks: the simple structure, the bureaucracy, and the matrix structure.
The Simple Structure
What do a small retail store, an electronics firm run by a hard-driving entrepreneur, and an airline’s “war room” in the midst of a pilot’s strike have in common? They probably all use the simple structure .
The simple structure has a low degree of departmentalization, wide spans of control, authority centralized in a single person, and little formalization. It is a flat organization; it usually has only two or three vertical levels, a loose body of employees, and one individual with decision-making authority. Most companies start as a simple structure, and many innovative technology-based firms with short lifespans, like cell phone app development firms, remain compact by design. 20
Exhibit 15-4 is an organization chart for a retail men’s store owned and managed by Jack Gold. Jack employs five full-time salespeople, a cashier, and extra workers for weekends and holidays, but he runs the show. Though this is typical for a small business, in times of crisis large companies often simplify their structures (though not to this degree) as a means of focusing their resources.
Exhibit 4
A Simple Structure (Jack Gold’s Men’s Store)
The strength of the simple structure lies in its simplicity. It’s fast, flexible, and inexpensive to operate, and accountability is clear. One major weakness is that it becomes increasingly inadequate as an organization grows because its low formalization and high centralization tend to create information overload at the top. Decision making typically becomes slower as the single executive tries to continue doing it all. This proves the undoing of many small businesses. If the structure isn’t changed and made more elaborate, the firm often loses momentum and can eventually fail. The simple structure’s other weakness is that it’s risky—everything depends on one person. An illness at the top can literally halt the organization’s information and decision-making capabilities.
The Bureaucracy
Standardization! That’s the key concept that underlies all bureaucracies. Consider the bank where you keep your checking account, the store where you buy clothes, or the government offices that collect your taxes, enforce health regulations, or provide local fire protection. They all rely on standardized work processes for coordination and control.
The bureaucracy is characterized by highly routine operating tasks achieved through specialization, strictly formalized rules and regulations, tasks grouped into units, centralized authority, narrow spans of control, and decision making that follows the chain of command. Bureaucracy incorporates all the strongest degrees of departmentalization described earlier.
Bureaucracy is a dirty word in many people’s minds. However, it does have advantages, primarily the ability to perform standardized activities in a highly efficient manner. Putting like specialties together in units results in economies of scale, minimum duplication of people and equipment, and a common language employees all share. Bureaucracies can get by with less talented—and hence less costly—middle- and lower-level managers because rules and regulations substitute for managerial discretion. There is little need for innovative and experienced decision makers below the level of senior executives.
Listen in on a dialogue among four executives in one company: “You know, nothing happens in this place until we produce something,” said the production executive. “Wrong,” commented the R&D manager, “Nothing happens until we design something!” “What are you talking about?” asked the marketing executive, “Nothing happens until we sell something!” The exasperated accounting manager responded, “It doesn’t matter what you produce, design, or sell. No one knows what happens until we tally up the results!” This conversation highlights that bureaucratic specialization can create conflicts in which the unit perspectives override the overall goals of the organization.
Hospitals benefit from standardized work processes and procedures common to a bureaucratic structure because they help employees perform their jobs efficiently. At Christchurch Women’s Hospital in New Zealand, registered nurse Megan Coleman (right) and midwife Sally Strathdee follow formal rules and regulations in caring for mothers and newborns.
Source: Greg Wood/AFP/Getty Images
The other major weakness of a bureaucracy is something we’ve all witnessed: obsessive concern with following the rules. When cases don’t precisely fit the rules, there is no room for modification. The bureaucracy is efficient only as long as employees confront familiar problems with programmed decision rules. There are two aspects of bureaucracies we should explore: functional and divisional structures.
THE FUNCTIONAL STRUCTURE The functional structure groups employees by their similar specialties, roles, or tasks. 21 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 functional structure works well if the organization is focused on one product or service. Unfortunately it creates rigid, formal communications because the hierarchy dictates the communication protocol. Coordination among many units is a problem, and infighting in units and between units can lead to reduced motivation.
THE DIVISIONAL STRUCTURE The divisional structure groups employees into units by product, service, customer, or geographical market area. 22 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). 23
The divisional structure has the opposite benefits and disadvantages of the functional structure. It facilitates coordination in units to achieve on-time completion, budget targets, and development and introduction of new products to market, while addressing the specific concerns of each unit. It provides clear responsibility for all activities related to a product, but with duplication of functions and costs. Sometimes this is helpful, say when the organization has a unit in Spain and another in China, very different markets, and a marketing strategy is needed for a new product. Marketing experts in both places can incorporate the appropriate cultural perspectives into their region’s marketing campaign. However, the organization’s marketing function employees in two places may represent an increased cost, in doing basically the same task in two different countries.
The Matrix Structure
The matrix structure combines the functional and product structures, and we find it in advertising agencies, aerospace firms, R&D laboratories, construction companies, hospitals, government agencies, universities, management consulting firms, and entertainment companies. 24 Companies that use matrix-like structures include ABB, Boeing, BMW, IBM, and P&G.
The most obvious structural characteristic of the matrix is that it breaks the unity-of-command concept. Employees in the matrix have two bosses: their functional department managers and their product managers. Exhibit 15-5 shows the matrix for a college of business administration. The academic departments of accounting, decision and information systems, marketing, and so forth are functional units. Overlaid on them are specific programs (that is, products). Thus, members in a matrix structure have a dual chain of command: to their functional department and to their product groups. A professor of accounting teaching an undergraduate course may report to the director of undergraduate programs as well as to the chairperson of the accounting department.
Exhibit 5
Matrix Structure for a College of Business Administration
The strength of the matrix is its ability to facilitate coordination when the organization has a number of complex and interdependent activities. Direct and frequent contacts between different specialties in the matrix can let information permeate the organization and more quickly reach the people who need it. The matrix reduces “bureaupathologies”—its dual lines of authority limit people’s tendency to protect their territories at the expense of the organization’s goals. 25 A matrix also achieves economies of scale and facilitates the allocation of specialists by both providing the best resources and ensuring they are efficiently used.
The major disadvantages of the matrix lie in the confusion it creates, its tendency to foster power struggles, and the stress it places on individuals. 26 For individuals who desire security and absence from ambiguity, this work climate can be stressful. Reporting to more than one boss introduces role conflict, and unclear expectations introduce role ambiguity. Without the unity-of-command concept, ambiguity about who reports to whom is significantly increased and often leads to conflict and power struggles between functional and product managers.
Alternate Design Options
1. 3 Identify the characteristics of the virtual structure, the team structure, and the circular structure.
In the ever-increasing trend toward flatter structures, many organizations have been developing new options with fewer layers of hierarchy and more emphasis on opening the boundaries of the organization. 27 In this section, we describe three such designs: the virtual structure, the team structure, and the circular structure.
The Virtual Structure
Why own when you can rent? That question captures the essence of the virtual structure (also sometimes called the network, or modular, structure), typically a small, core organization that outsources its major business functions. 28 The virtual structure is highly centralized, with little or no departmentalization.
The prototype of the virtual structure is today’s film-making organization. In Hollywood’s golden era, movies were made by huge, vertically integrated corporations. Studios such as MGM, Warner Brothers, and 20th Century Fox owned large movie lots and employed thousands of full-time specialists—set designers, camera people, film editors, directors, and even actors. Today, most movies are made by a collection of individuals and small companies who come together and make films project by project. This structural form allows each project to be staffed with the talent best suited to its demands, rather than just with the people employed by the studio. It minimizes bureaucratic overhead because there is no lasting organization to maintain. And it lessens long-term risks and their costs because there is no long term—a team is assembled for a finite period and then disbanded.
Exhibit 15-6 shows a virtual structure in which management outsources all the primary functions of the business. The core of the organization is a small group of executives whose job is to oversee directly any activities done in-house and to coordinate relationships with organizations that manufacture, distribute, and perform other crucial functions. The dotted lines represent the relationships typically maintained under contracts. In essence, managers in virtual structures spend most of their time coordinating and controlling external relations.
The major advantage of the virtual structure is its flexibility, which allows individuals with an innovative idea and little money to successfully compete against larger, more established organizations. The structure also saves a great deal of money by eliminating permanent offices and hierarchical roles. 29
The drawbacks have become increasingly clear as popularity has grown. 30 Virtual organizations 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. Sometimes—as with Lululemon’s shipments of unintentionally see-through yoga pants, where the deficiencies weren’t noticed until many had been sold—the consequences of having geographically remote managers can be embarrassing and even financially harmful to the company. 31 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.
Exhibit 6
A Virtual Structure
The Team Structure
The team structure seeks to eliminate the chain of command and replace departments with empowered teams. 32 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. For example, at the Danish firm Oticon A/S, the world’s largest hearing aid manufacturer, all traces of hierarchy have disappeared. Everyone works at uniform mobile workstations, and project teams, not functions or departments, coordinate work.
As previously discussed, functional departments create horizontal boundaries between functions, product lines, and units. The way to reduce them is to replace functional departments with cross-functional teams and organize activities around processes. Xerox, for instance, develops new products through multidisciplinary teams that work on a single process instead of on narrow functional tasks.
Career OBjectives
What structure should I choose?
I’m running a small but growing business and need help figuring out how to keep positions flexible as we expand. What advice can you give me about designing job structures that will help combine my success today with growth for tomorrow?
— Anika
Dear Anika:
A surprising number of small businesses fail right at the point where they begin to grow. There are many reasons, including financing deficits and competitors that copy their good ideas. However, a common problem is that the structure the company began with is simply not right for a larger firm.
There are ways to meet the challenge. Start by looking at individual jobs and their responsibilities. Make a list for each job. When job roles and responsibilities aren’t defined, you do pick up a great deal of flexibility, assigning employees to tasks exactly when needed. Unfortunately, this flexibility also means it’s hard to determine which skills are available, or to identify gaps between planned strategy and available human resources.
Second, you may want to now define roles based on broad sets of competencies that span multiple levels of organizational functioning. In this strategic competency model, job roles and incentives are defined based on a clear structure. Here are the steps:
· Look at the top level and think about the future. In the competency model, you should use the mission statement and overall organizational strategies to evaluate your organization’s future needs.
· Once you’ve identified the organization’s future needs, figure out a smart way to assign responsibilities to individuals. You’ll obviously need some specialization, but at the same time, consider general skills that will be useful for both growth and long-term sustainability.
· As your business grows, identify applicants with the potential to meet future needs, and develop employee incentives to encourage broad skills profiles. You’ll want to structure your plan so employees increase in competency as they move up the organization chart.
The most important thing to remember is that you aren’t creating a job structure just for today—make sure it’s ready to grow and change with your business.
Grow well!
Sources: G. W. Stevens, “A Critical Review of the Science and Practice of Competency Modeling,” Human Resource Development Review 12 (March 2013): 86–107; P. Capelli and J. R. Keller, “Talent Management: Conceptual Approaches and Practical Challenges,” Annual Review of Organizational Psychology and Organizational Behavior 1 (March 2014): 305–31; and C. Fernández-Aráoz, “21st Century Talent Spotting,” Harvard Business Review, June 2014, https://hbr.org/2014/06/21st-century-talent-spotting .
The opinions provided here are of the managers and authors only and do not necessarily reflect those of their organizations. The authors or managers are not responsible for any errors or omissions, or for the results obtained from the use of this information. In no event will the authors or managers, or their related partnerships or corporations thereof, be liable to you or anyone else for any decision made or action taken in reliance on the opinions provided here.
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, like 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. In other cases, the team approach is need-based. Such is the case with Chinese companies, which made 93 acquisitions in the oil and gas industry in five years—incorporating each acquisition as a new team unit—to meet forecasted demand their resources in China could not meet. 33 The team structure provides a solution because it considers geography as more of a tactical, logistical issue than a structural one. In short, the goal may be to break down cultural barriers and open opportunities.
Some organizations create teams incorporating their employees and their customers or suppliers. For example, to ensure important product parts are reliably made to exacting specifications by its suppliers, Honeywell International partners some of its engineers with managers at those suppliers.
An Ethical Choice
Flexible Structures, Deskless Workplaces
Once upon a time, students fresh from business schools couldn’t wait for that first cubicle to call home, mid-level managers aspired to an office of their own, and executives coveted the corner office. These days, the walls are coming down. As organizational structures change, so do their physical environments. Many organizations have been trying to make the physical environment reflect the organizational structures they adopt.
At online retailer Zappos, not even the CEO wants an office, and all 1,500 employees are welcome throughout the open spaces. Firms like Google have workplace designs of public rooms with lounge areas and large, multiperson tables. According to Edward Danyo, manager of workplace strategy at pharmaceuticals firm GlaxoSmithKline, shared environments create great work gains, including what he estimates is a 45 percent increase in the speed of decision making. But there are ethical concerns for the dismantling of the physical and mental organizational structure:
· Where will confidential discussions take place? In some contemporary workplace designs, ad hoc conference rooms address the need for separate gatherings. This may not be optimal if the walls are made of glass, if employees will feel stigmatized when called into a meeting room, or if they become reluctant to approach human resources staff with issues because of privacy concerns.
· How can differences in personality traits be overcome? Employees high in extraversion will be more comfortable building collaborative relationships without assigned workspaces, while introverted individuals may be uncomfortable without an established office structure where they can get to know others over time.
· How can personal privacy be maintained? Zappos gives employees personal lockers, asks employees to angle laptop screens away from neighbors, and tries to make open spaces more private by encouraging ear buds to create a sound barrier between working employees.
· How can you assure your clients of confidentiality? Even walled, soundproof rooms for virtual or live meetings may not provide the desired level of security for clients who need to know their business will stay on a need-to-know basis.
· How will expectations and accountabilities be enforced? In an environment without offices and sometimes without job titles, there is an even greater need for clearly assigned goals, roles, and expectations. Otherwise, open, collaborative structures may foster diffusion of responsibility and confusion.
Sources: S. Henn, “‘Serendipitous Interaction’ Key to Tech Firm’s Workplace Design,” NPR, March 13, 2013, www.npr.org/blogs/alltech considered/2013/03/13/174195695/ serendipitous-interaction-key-to-tech-firms-workplace-design ; H. El Nasser, “What Office? Laptops Are Workspace,” USA Today, June 6, 2012, 1B–2B; R. W. Huppke, “Thinking Outside the Cubicle,” Chicago Tribune, October 29, 2012, 2-1, 2-3; “Inside the New Deskless Office,” Forbes, July 16, 2012, 34; and E. Maltby, “My Space Is Our Space,” The Wall Street Journal, May 21, 2012, R9.
The Circular Structure
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 . 34 Does it seem like organizational anarchy? Actually, there is still a hierarchy, but top management is at the very heart of the organization, with its vision spreading outward.
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), for instance.
The Leaner Organization: Downsizing
1. 4 Describe the effects of downsizing on organizational structures and employees.
The goal of some organizational structures 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 closing locations, reducing staff, or selling off business units that don’t add value. Downsizing doesn’t necessarily mean physically shrinking the size of your office, although that’s been happening, too (see OB Poll).
OB Poll The Incredible Shrinking Office
Source: Based on February 28, 2012, press release “Office Space per Worker Will Drop to 100 Square Feet or Below.” http://www.corenetglobal.org/files/home/info_center/global_press_releases/pdf/pr120227_officespace.pdf.
The radical shrinking of Motorola Mobility in 2012 and 2013 is a case of downsizing to survive after its 2011 $12.5 billion acquisition by Google. In response to declining demand for its smartphones, Motorola cut its workforce by 20 percent in August 2012. When the company posted a $350 million fourth-quarter loss in 2012, with a 40 percent revenue decline, it cut the workforce again, by 10 percent. Google called this “rightsizing.” 35 Motorola Mobility was then sold to China’s Lenovo in 2014 for $2.91 billion.
Other firms downsize to direct all their efforts toward their core competencies. American Express claims to have been doing this in a series of layoffs over more than a decade: 7,700 jobs in 2001; 6,500 jobs in 2002; 7,000 jobs (10 percent of its workforce) in 2008; 4,000 jobs in 2009. The 2013 cut of 5,400 jobs (8.5 percent of the remaining workforce) represented “its biggest retrenchment in a decade.” An additional layoff of 4,000 jobs was slated for 2015. Each layoff has been accompanied by a restructuring to reflect changing customer preferences, away from personal customer service and toward online customer service. According to CEO Ken Chennault, “Our business and industry continue to become transformed by technology. As a result of these changes, we have the need and the opportunity to evolve our organization and cost structure.” 36
Some companies focus on lean management techniques to reduce bureaucracy and speed decision making. Starbucks adopted lean initiatives in 2009, which encompassed all levels of management and also focused on faster barista techniques and manufacturing processes. Customers generally applauded the shortened wait times and improved product consistency. Starbucks continues to reap returns from its lean initiatives, posting notable revenue gains each quarter. 37
Despite the advantages of being a lean organization, the impact of downsizing on organizational performance is not without controversy. Reducing the size of the workforce has an immediately positive outcome in the form of lower wage costs, and companies downsizing to improve strategic focus often see positive effects on stock prices after the announcement. An example is Russia’s Gorky Automobile Factory (GAZ), which realized a profit for the first time in many years after President Bo Andersson fired 50,000 workers, half the workforce. 38 On the other hand, among companies that only cut employees but don’t restructure, profits and stock prices usually decline. Part of the problem is the effect of downsizing on employee attitudes. Employees who remain often feel worried about future layoffs and may be less committed to the organization. Stress reactions can lead to increased sickness absences, lower concentration on the job, and lower creativity. Downsizing can also lead to more voluntary turnover, so vital human capital is lost. The result is a company that is more anemic than lean.
Companies can reduce negative impacts by preparing in advance, thus alleviating some employee stress and strengthening support for the new direction. Here are some effective strategies for downsizing:
· Invest. Companies that downsize to focus on core competencies are more effective when they invest in high-involvement work practices afterward.
· Communicate. 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.
· Participate. Employees worry less if they can participate in the process in some way. Voluntary early-retirement programs or severance packages can help achieve leanness without layoffs.
· Assist. Severance, extended health care benefits, and job search assistance demonstrate a company cares about its employees and honors their contributions.
In short, 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.
Why Do Structures Differ?
1. 5 Contrast the reasons for mechanistic and organic structural models.
We’ve described many organization design options. Exhibit 15-7 recaps our discussions by presenting two extreme models of organizational design. One we’ll call the mechanistic model . It’s generally synonymous with the bureaucracy in that it has highly standardized processes for work, high formalization, and more managerial hierarchy. The other extreme is the organic model . It’s flat, has fewer formal procedures for making decisions, has multiple decision makers, and favors flexible practices. 39
With these two models in mind, let’s ask a few questions: Why are some organizations structured along more mechanistic lines whereas others follow organic characteristics? What forces influence the choice of design? In this section, we present major causes or determinants of an organization’s structure. 40
Organizational Strategies
Because structure is a means to achieve objectives, and objectives derive from the organization’s overall strategy, it’s only logical that structure should follow strategy. If management significantly changes the organization’s strategy or its values, the structure must change to accommodate. For example, recent research indicates that aspects of organizational culture may influence the success of corporate social responsibility (CSR) initiatives. 41 If the culture is supported by the structure, the initiatives are more likely to have clear paths toward application. Most current strategy frameworks focus on three strategy dimensions—innovation, cost minimization, and imitation—and the structural design that works best with each. 42
Exhibit 7
Mechanistic versus Organic Models
To what degree does an organization introduce major new products or services? An innovation strategy strives to achieve meaningful and unique innovations. Obviously, not all firms pursue innovation. Apple and 3M do, but conservative retailer Marks & Spencer doesn’t. Innovative firms use competitive pay and benefits to attract top candidates and motivate employees to take risks. Some degree of the mechanistic structure can actually benefit innovation. Well-developed communication channels, policies for enhancing long-term commitment, and clear channels of authority all may make it easier for rapid changes to occur smoothly.
An organization pursuing a cost-minimization strategy tightly controls costs, refrains from incurring unnecessary expenses, and cuts prices in selling a basic product. This describes the strategy pursued by Walmart and the makers of generic or store-label grocery products. Cost-minimizing organizations usually pursue fewer policies meant to develop commitment among their workforce.
Organizations following an imitation strategy try to both minimize risk and maximize opportunity for profit, moving new products or entering new markets only after innovators have proven their viability. Mass-market fashion manufacturers that copy designer styles follow this strategy, as do firms such as Hewlett-Packard and Caterpillar. They follow smaller and more innovative competitors with superior products, but only after competitors have demonstrated the market is there. Italy’s Moleskine SpA, a small maker of fashionable notebooks, is another example of imitation strategy but in a different way: looking to open more retail shops around the world, it imitates the expansion strategies of larger, successful fashion companies Salvatore Ferragamo SpA and Brunello Cucinelli. 43
Exhibit 15-8 describes the structural option that best matches each strategy. Innovators need the flexibility of the organic structure (although, as we noted, they may use some elements of the mechanistic structure as well), 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.
Organization Size
An organization’s size significantly affects its structure. Organizations that employ 2,000 or more people tend to have more specialization, more departmentalization, more vertical levels, and more rules and regulations than do small organizations. However, size becomes less important as an organization expands. Why? At around 2,000 employees, an organization is already fairly mechanistic; 500 more employees won’t have much impact. But adding 500 employees to an organization of only 300 is likely to significantly shift it toward a more mechanistic structure.
Exhibit 8
The Strategy–Structure Relationship
Technology
Technology describes the way an organization transfers inputs into outputs. Every organization has at least one technology for converting financial, human, and physical resources into products or services. For example, the Chinese consumer electronics company Haier uses an assembly-line process for mass-produced products, which is complemented by more flexible and innovative structures to respond to customers and design new products. 44 Also, colleges may use a number of instructional technologies—the ever-popular lecture, case analysis, experiential exercise, programmed learning, online instruction, and distance learning. Regardless, organizational structures adapt to their technology.
Environment
An organization’s environment includes outside institutions or forces that can affect its structure, such as suppliers, customers, competitors, and public pressure groups. Dynamic environments create significantly more uncertainty for managers than do static ones. To minimize uncertainty in key market arenas, managers may broaden their structure to sense and respond to threats. Most companies, for example Pepsi and Southwest Airlines, have added social networking departments to counter negative information posted on blogs. Or companies may form strategic alliances.
Any organization’s environment has three dimensions: capacity, volatility, and complexity. 45 Capacity refers to the degree to which the environment can support growth. Rich and growing environments generate excess resources, which can buffer the organization in times of relative scarcity.
Volatility describes the degree of instability in the environment. A dynamic environment with a high degree of unpredictable change makes it difficult for management to make accurate predictions. Because information technology changes at such a rapid place, more organizations’ environments are becoming volatile.
Finally, complexity is the degree of heterogeneity and concentration among environmental elements. Simple environments—like the tobacco industry where the methods of production, competitive and regulatory pressures, and the like haven’t changed in quite some time—are homogeneous and concentrated. Environments characterized by heterogeneity and dispersion—like the broadband industry—are complex and diverse, with numerous competitors.
Exhibit 9
Three-Dimensional Model of the Environment
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.
Institutions
Another factor that shapes organizational structure is institutions . These are cultural factors that act as guidelines for appropriate behavior. 46 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. In fact, many institutional theorists try to highlight the ways corporate behaviors sometimes seem to be performance oriented but are actually guided by unquestioned social norms and conformity.
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. Organizations can try to copy other successful companies just to look good to investors, and not because they need that structure to perform better. 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.
Organizational Designs and Employee Behavior
1. 6 Analyze the behavioral implications of different organizational designs.
We opened this chapter by implying an organization’s structure can have significant effects on its members. What might those effects be?
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 (organizational justice) is a very important predictor of satisfaction. In more personal, individually adaptive organic organizations, employees value interpersonal justice more. 47 Some people are most productive and satisfied when work tasks are standardized and ambiguity is minimized—that is, in mechanistic structures. So, any discussion of the effect of organizational design on employee behavior has to address individual differences. To do so, let’s consider employee preferences for work specialization, span of control, and centralization. 48
MYTH OR SCIENCE?
Employees Can Work Just as Well from Home
This statement is true, but not unequivocally. Employees who work from home even part of the time report they are happier, and as we saw in Chapter 3 , happier employees are likely to be more productive than dissatisfied counterparts. From an organization’s perspective, companies are realizing gains of 5 to 7 extra work hours a week for each employee working from home. There are also cost savings, from reduced overhead for office space and utilities to elimination of unproductive social time. Employers of a home-based workforce can establish work teams and organizational reporting relationships with little attention to office politics, making it possible to more objectively assign roles and responsibilities. These may be some of the reasons organizations have increasingly endorsed the concept of telecommuting, to the point where 3.1 million U.S. payrolled employees work from home.
Although we can all think of jobs that may never be conducive to working from home (such as many in the service industry), not all positions that could be based from home should be. Research indicates the success of a work-from-home position depends on the job’s structure even more than on its tasks. The amount of interdependence needed between employees within a team or in a reporting relationship sometimes requires epistemic interdependence, which is each employee’s ability to predict what other employees will do. Organization consultants pay attention to how employee roles relate in the architecture of the organization chart, realizing that intentional relationship building is key. Thus, while an employee may complete the tasks of a job well by working alone from home, the benefits of teamwork can be lost. We don’t yet fully understand the impact of working at a physical distance without sharing time or space with others, but it is perhaps the reason that Yahoo!, Best Buy, and other corporations have brought their employees back into the office.
The success of a work-from-home program depends on the individual, job, and culture of the organization. Work from home can be satisfying for employees and efficient for organizations, but we are learning that there are limits.
Sources: M. Mercer, “Shirk Work? Working at Home Can Mean Longer Hours,” TriCities.com, March 4, 2013, www.tricities.com/news/opinion_columns/article_d04355b8-83cb-11e2-bc31-0019bb30f31a.html ; P. Puranam, M. Raveendran, and T. Knudsen, “Organization Design: The Epistemic Interdependence Perspective,” Academy of Management Review 37, no. 3 (2012): 419–40; N. Shah, “More Americans Working Remotely,” The Wall Street Journal, March 6, 2013, A3; and R. E. Silverman and Q. Fottrell, “The Home Office in the Spotlight,” The Wall Street Journal, February 27, 2013, B6.
The evidence generally indicates that work specialization contributes to higher employee productivity—but at the price of job satisfaction. However, work specialization is not an unending source of higher productivity. Problems start to surface, and productivity begins to suffer, when the human diseconomies of doing repetitive and narrow tasks overtake the economies of specialization. As the workforce has become more highly educated and desirous of jobs that are intrinsically rewarding, we seem to reach the point at which productivity begins to decline as a function of specialization more quickly than in the past. While decreased productivity often prompts companies to add oversight and inspection roles, the better answer may be to reorganize work functions and accountability. 49
There is still a segment of the workforce that prefers the routine and repetitiveness of highly specialized jobs. Some individuals want work that makes minimal intellectual demands and provides the security of routine; for them, high work specialization is a source of job satisfaction. The question is whether they represent 2 percent of the workforce or 52 percent. Given that some self-selection operates in the choice of careers, we might conclude that negative behavioral outcomes from high specialization are most likely to surface in professional jobs occupied by individuals with high needs for personal growth and diversity.
It is probably safe to say no evidence supports a relationship between span of control and employee satisfaction or performance. Although it is intuitively attractive that large spans might lead to higher employee performance because they provide more distant supervision and more opportunity for personal initiative, research fails to support this notion. Some people like to be left alone; others prefer the security of a boss who is quickly available at all times. Consistent with several of the contingency theories of leadership discussed in Chapter 12 , we would expect factors such as employees’ experiences and abilities, and the degree of structure in their tasks, to explain when wide or narrow spans of control are likely to contribute to performance and job satisfaction. However, some evidence indicates that a manager’s job satisfaction increases as the number of employees supervised increases.
We find fairly strong evidence linking centralization and job satisfaction. In general, less centralized organizations have a greater amount of autonomy. And autonomy appears positively related to job satisfaction. But, again, while one employee may value freedom, another may find autonomous environments frustratingly ambiguous.
We can draw one obvious insight: people don’t select employers randomly. They are attracted to, are selected by, and stay with organizations that suit their personal characteristics. 50 Job candidates who prefer predictability are likely to seek out and take employment in mechanistic structures, and those who want autonomy are more likely to end up in organic structures. Thus, the effect of structure on employee behavior is undoubtedly reduced when the selection process facilitates proper matching of individual characteristics with organizational characteristics. Furthermore, companies should strive to establish, promote, and maintain the unique identity of their structures since skilled employees may quit as a result of dramatic changes. 51
Research suggests national culture influences the preference for structure. 52 Organizations that operate with people from high power-distance cultures, such as Greece, France, and most of Latin America, often 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
Finally, the changing landscape of organizational structure designs has implications for the individual progressing on a career path. Research with managers in Japan, the United Kingdom, and the United States indicated that employees who weathered downsizing and resulting hybrid organizational structures considered their future career prospects diminished. While this may or may not have been correct, their thinking shows that organizational structure does affect the employee and thus must be carefully designed. 53
Exhibit 10
Organizational Structure: Its Determinants and Outcomes
Summary
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 have 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 such as “What am I supposed to do?”, “How am I supposed to do it?”, “To whom do I report?”, and “To whom do I go if I have a problem?” it shapes their attitudes and facilitates and motivates them to higher levels of performance. Exhibit 15-10 summarizes what we’ve discussed.