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Chapter3.FundamentalsofOrganizationStructure.pptx

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Chapter 3 Fundamentals of Organization Structure

Organization Theory and Design

Thirteenth Edition

Richard L. Daft

Chapter

Learning Objectives

Define the three key components of organization structure.

Discuss the differences you see between the vertical and horizontal information-sharing aspects of structure.

Describe how relational coordination differs from other horizontal coordination mechanisms.

Identify the strengths and weaknesses of five common departmental grouping options, including functional, divisional, matrix, virtual, and holacracy.

Describe the symptoms of structural deficiency within an organization.

Organization Structure

Key components

Designation of formal positions and reporting relationships

Identification of the grouping together of individuals into departments and of departments into the total organization

Inclusion of the design of systems to ensure effective communication, coordination, and integration of efforts across departments

Organization chart: The visual representation of a whole set of underlying activities and processes in an organization

A Sample Organization Chart

Information-Sharing Perspective on Structure

Vertical and horizontal information flow

Vertical linkages are designed primarily for control

Horizontal linkages are designed for coordination and collaboration

Hierarchy levels at which decisions are made

Centralized: Decision authority is located near the top of the organization.

Decentralized: Decision authority is pushed downward to lower organization levels

Efficiency versus Learning Outcomes

Vertical Information Sharing

Vertical linkages coordinate activities between the top and the bottom of the organization and are designed primarily for control of the organization

Hierarchical referral

Rules and plans

Vertical information systems

Horizontal Information Sharing and Collaboration

Horizontal linkages provide opportunities for communication and coordination horizontally across organizational departments

Information systems

Liaison roles

Task forces

Full-time integrator

Cross-functional teams

Project Manager Location in the Structure

Teams Used for Horizontal Coordination

Relational Coordination

Frequent, timely, problem-solving communication carried out through relationships of shared goals, shared knowledge, and mutual respect

Relational coordination is part of the fabric of the organization

Employees coordinate and collaborate directly across units

Rewards are based on team efforts and accomplishments

Managers create specific cross-functional roles that promote coordination across boundaries

Ladder of Mechanisms for Horizontal Linkage and Coordination

Organization Design Alternatives

Required work activities

Reporting relationships

Departmental grouping options

Functional

Divisional

Matrix

Virtual network

Holacracy team

Structural Design Options for Grouping Employees

Functional Structure

Activities are grouped by common function

All specific skills and knowledge are consolidated

The functional structure is a prevalent approach, but few companies can respond in today’s environment without horizontal linkages

Functional Structure: Strengths & Weaknesses

Strengths

Weaknesses

Slow response time to environmental changes

May cause decisions to pile on top; hierarchy overload

Leads to poor horizontal coordination among departments

Results in less innovation

Involves restricted view of organizational goals

Allows economies of scale within functional departments

Enables in-depth knowledge and skill development

Enables organization to accomplish functional goals

Is best with only one or a few products

Divisional Structure

Separate divisions are responsible for individual products, services, product groups, major projects or programs, divisions, businesses, or profit centers

Grouping is based on organizational outputs

Organizations tend to shift from functional to divisional structures as they become more complex

Reorganization from Functional to Divisional Structure

Divisional Structure: Strengths & Weaknesses

Strengths

Weaknesses

Eliminates economies of scale in functional departments

Leads to poor coordination across product lines

Eliminates in-depth competence and technical specialization

Makes integration and standardization across product lines difficult

Suited to fast change in unstable environment

Leads to customer satisfaction because product responsibility and contact points are clear

Involves high coordination across functions

Allows units to adapt to differences in products, regions, customers

Best in large organizations with several products

Decentralizes decision making

Geographic Structure

Groupings are based on the geographical locations of the organization’s users or customers

Many multinational corporations are organized by country

Managers and employees focus on specific geographic regions

Strengths and weaknesses are like those of a divisional structure

Horizontal coordination within a region is emphasized rather than linkages across regions or to a national office

Geographic Structure Example

Matrix Structure

A matrix is multifocused with strong horizontal linkage

Product divisions and functional structures (horizontal and vertical) are implemented simultaneously

Product managers and functional managers have equal authority within the organization, and employees report to both of them

Matrix Structure Example

Conditions for Matrix Structure

Condition 1: Pressure exists to share scarce resources across product lines

Condition 2: Environmental pressure exists for two or more critical outputs

Condition 3: The environmental domain of the organization is both complex and uncertain.

Matrix Structure: Strengths & Weaknesses

Strengths

Weaknesses

Causes participants to experience dual authority, which can be frustrating and confusing

Means participants need good interpersonal skills and extensive training

Is time consuming; involves frequent meetings and conflict-resolution sessions

Will not work unless participants understand it and adopt collegial rather than vertical-type relationships

Requires great effort to maintain power balance

Achieves coordination necessary to meet dual demands from customers

Flexible sharing of human resources across products

Suited to complex decisions and frequent changes in unstable environment

Provides opportunity for both functional and product skill development

Best in medium-sized organizations with multiple products

Virtual Network Structure and Outsourcing

Most common strategy to extend horizontal coordination beyond the boundaries of the organization is outsourcing (contracting out certain tasks/functions)

A virtual network (or modular) structure subcontracts most of its major functions to separate companies

The virtual network organization serves as a central hub with contracted experts

Virtual Network Structure Example

Virtual Network Structure: Strengths and Weaknesses

Strengths

Weaknesses

Managers do not have hands-on control over many activities and employees

Requires a great deal of time to manage relationships and potential conflicts with contract partners

There is a risk of organizational failure if a partner fails to deliver or goes out of business

Employee loyalty and corporate culture might be weak because employees feel they can be replaced by contract services

Enables even small organizations to obtain talent and resources worldwide

Gives a company immediate scale and reach without huge investments in factories, equipment, or distribution facilities

Enables the organization to be highly flexible and responsive to changing needs

Reduces administrative overhead costs

Holacracy Team Structure

The holacracy approach reflects an organizational design shift toward self-management.

“Circles” (the holacracy term for teams) are the basic unit and building block of structure

Each circle shares a common purpose and has decision-making authority over its work

Each employee performs a variety of roles, generally on 3–4 teams at the same time

A holacracy team structure typically starts with a written guideline, and employees ratify a constitution that outlines the rules by which circles are created, changed, or removed

Holacracy Team Structure Example

Holacracy Team Structure: Strengths and Weaknesses

Strengths

Weaknesses

Determining individual and team responsibilities is time consuming

Requires changes in management philosophy and culture

Traditional managers may baulk when they have to give up power and authority

Requires significant training of employees in social skills

Can limit in-depth skill development in a specific function

Promotes a focus on teamwork and collaboration

Promotes rapid, innovative responses to customer needs

Each employee has a broader view of the organization’s purpose

Decisions are made close to the work

Improves employee growth via sharing responsibility, making decisions, and being accountable for outcomes

Application of Structural Design

Most large organizations often combine characteristics of various approaches tailored to different parts of the organization

Structural alignment aligns structure with organizational goals

Symptoms of structural deficiency:

Absence of collaboration among units

Delay or lack of quality in decision making

Lack of innovative response to a changing environment

Decline in employee performance

Unmet organizational goals

Relationship of Structure to Organization’s Need for Efficiency vs. Learning

Organizational Design Essentials (slide 1 of 2)

Organization structure designates formal positions and reporting relationships, identifies the grouping of individuals into departments, and provides mechanisms for linking and coordinating organizational elements into a coherent whole.

Organization structure can be designed to provide vertical and horizontal information linkages based on the information processing required to meet the organization’s overall goal.

Functional grouping and divisional grouping are the two most common approaches to structural design.

The matrix structure attempts to achieve an equal balance between the vertical and horizontal dimensions of structure.

Organizational Design Essentials (slide 2 of 2)

A virtual network structure extends the concept of horizontal coordination and collaboration beyond the boundaries of the organization.

The most widely used model of self-management is the holacracy team structure.

Mixing structural characteristics enables the organization to take advantage of the strengths of various structures and avoid some of the weaknesses.

The organizational chart is a guideline to encourage people to work together, but management must implement the structure and carry it out.