Startbucks
Sean Justice/Corbis
chapter 3
The Organizing Function
Chapter Goals
After completing this chapter, you should be able to • Connect the organizing function with company success. • Explain the basic principles of job design. • Employ the best form of departmentalization for a specific company. • Finalize the structure of a company. • Describe various types of organizational configuration.
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CHAPTER 3Section 3.1 Introduction
3.1 Introduction Learning Objective #1: What role does organizing play in company success?
One key part of a manager’s job is to identify the best way to organize and run a company or organization. Well-organized companies are often recognized as being the most efficient, effective, and productive within an industry group. A well-organized company is critical to success. Having a manager who can work with and implement the structures and plans of a company is vital.
Organizing is a normal process that flows naturally from the human tendency for coopera- tion. People are predisposed to cooperate with one another. Early humans used cooperation behaviors and organizational skills, familiar to us today, initially as survival techniques. As humanity progressed, cultural technologies were developed to enhance success in life.
While some cooperative human behaviors are likely instinctual, the majority are learned through various interactions with the environment, family, school, and culture. Many people learn early in life to keep their bedroom clean and orderly. They later learn to keep a school locker orderly, and eventually how to organize computer files and MP3 music files on portable music devices. The progression of organizational abilities throughout history indicates that humans have a natural understanding that everything has its place. Organizing complex structures, however, such as a large-scale manufacturing plant or a 500-guest-room resort requires sophistication beyond basic socialization.
Organizing may be defined as the process of efficiently and effectively bringing people and resources together to create products and services. Organizing establishes task and authority relationships that allow people to work together to achieve the organization’s goals. Organizing consists of three primary activities: (a) job design, (b) departmentaliza- tion, and (c) completion of the organizational structure.
In a business organization, the focus should be on creating a structure within the orga- nization as a social institution. The structure of the organization is made up of the func- tional jobs within an organization, and they represent “the skeleton of the organizational system” (Steers, Ungson, & Mowday, 1985). This structural “skeleton” holds up the entire organization and allows it to move forward to achieve its plan for success. An organiza- tional structure is a formal system of task and reporting relationships that coordinates the activities of members so that they work together to achieve organizational goals.
The organizational structure determines how an organization’s resources can be best used to create goods and services. Organizational design is the process by which managers make specific organizing choices that result in the particular kind of organizational struc- ture they will utilize.
In this chapter, we introduce the organizing function and divide it into three primary steps: job design, departmentalization, and specification. Job design creates the individual job units, departmentalization categorizes the jobs into logical groups, and specification of authority-responsibility relationships finalizes the company structure.
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CHAPTER 3Section 3.1 Introduction
The Richards Group: Organizing Creativity
The Richards Group, based in Dallas, Texas, is America’s largest independent advertising agency. The company generates billings in excess of $1 billion annually and employs over 650 marketing professionals. Its list of clients includes a variety of well-known companies, such as Orkin, Fruit of the Loom, T.G.I. Friday’s, Zales, Red Lobster, Farmer’s Insurance, and others. Graphic Design USA has listed The Richards Group as one of the six most influ- ential agencies in the United States. The firm has also received many awards, including Adweek magazine’s Agency of the Year numerous times.
Beyond these simple statistics is a story that owner-founder Stan Richards once described as “a rocket ride,” in an April 6, 2006, article printed in the Dallas Business Journal, which led to his being named as one of The Wall Street Journal’s “Giants of Our Time.” Other agencies have emulated many of the tactics employed by The Richards Group. Rich- ards notes that his company utilized them first and still utilizes them best. He has creatively employed the fundamentals of organizing to help the company achieve such dramatic success.
The Richards Group is founded on key core principles in its mission statement and its over- all strategy. In a 2010 interview with Don Baack, Richards expressed his company’s phi- losophy when he said, “Some companies push products. Some sell ads. We sell the truth.” The approach clearly works. “When we are hired by a client,” Richards notes, “it’s not just to make ads. We do so many things that are extremely important. That ad is what the consumer ultimately sees, but in order to get there, you have to have a dead-on strategy, if you’re going to be successful. You go through the strategic process, you get to the right answer, and then you can execute against that answer.”
Based on this foundation, the company's organizational structure has been built. The Richards Group carefully engaged in job design. A small advertising agency will hire gen- eralists, who take care of a variety of assignments. As the organization grows, jobs become more specialized. The Richards Groups employs highly skilled specialists in every aspect of advertising, from creating contracts with prospective clients, to purchasing media time, to making advertisements, to evaluating their success.
Departmentalization is where Stan Richards moved away from traditional models. The firm, which at one point consisted of fewer than 60 workers all located on one floor of an office building, expanded to a major office building on the North Central Expressway in Dallas, Texas. Employees in The Richards Group work in open offices with no doors or walls. More significantly, Richards notes:
What we do is co-mingle all the disciplines, so that in every cluster of spaces we will have an art director who sits next to a brand manager, who, for exam- ple, sits next to a print production manager, so that, in those interdisciplinary villages that everyone here occupies, nobody’s next door neighbor does the same thing that he or she does. What you don’t get is all the creative people sitting on this floor, then all the account management people on the next floor, and the media people on the floor above that.
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CHAPTER 3Section 3.1 Introduction
The reason I did that in the first place was that when we were 50 or 60 people, there was an extraordinary level of energy and electricity that just flowed through the place. You could just walk in and feel it. A lot of it was created by the casual contact people had with each other. When you have 50 or 60 people packed into a tight space, you see everybody every day.
What agencies have always done, is when they reach that 120 to 130 person size, they then had to move to multiple floors. And the minute they do, they take a tight-knit bunch of people who really liked each other and understood each other, because they saw each other every day, and divide them up into tribes. These tribes don’t always get along.
There are lots of occasions where a cre- ative will butt heads with a planner, because they have a different point of view. When you are packed into a tight space, and when you have a great deal
of casual contact going on all day, every day, you get over that stuff, because they are your friends. When you’re on a different floor, you seldom see them and you decide, “That’s a different tribe up there, and they drive me crazy.” By moving away from traditional forms of departmentalization, the company has avoided many of those problems. (S. Richards, personal communication, February 2010)
The organizational structure at The Richards Group consists of fairly standard authority- responsibility relationships. Individuals continue to report to supervisors who are in charge of the basic functions, such as media selection. At the same time, to continue the creative cooperative spirit built by comingling specialists, staff meetings are often held in the stairwells between floors to help maintain egalitarian and positive relationships among all of the employees.
Some of the successful campaigns initiated by The Richards Group include the long- standing Chick-fil-A cow campaign, the Motel 6 campaigns, and the company’s 2010 and 2011 Super Bowl commercials for Bridgestone. The next time you view a commercial for Corona beer that features a laid-back setting on a beach in the Caribbean where you leave the cares of the world behind you, Richards suggests, you will also be viewing another company success story. Corona has become the number one imported beer in the United States, passing Heineken—due, in part, to a successful advertising management program assisted by The Richards Group (Richards, 2010).
Stockbyte/Thinkstock
A unique organizational structure has helped The Richards Group become one of America’s top advertising agencies.
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CHAPTER 3Section 3.2 Job Design
3.2 Job Design Learning Objective #2: How does a company design jobs?
A major component of the organizational structure within a company is coming up with a job design for all levels of employees. The first step is to define the types of jobs the company will need to meet its objectives. A job is a set or series of tasks performed by an individual on behalf of an organization. A task is a single chore that is part of something larger—the job. A mechanic in a car dealership may be asked to sweep the floor (task one), change the oil in a truck (task two), and sometimes drive patrons from the shop to their work or homes (task three). Most jobs require the completion of many tasks throughout the day. Jobs may be assigned to categories, such as those displayed in Table 3.1.
TABLE 3.1: TYPES OF JOBS
Category Examples
Unskilled Blue Collar Housekeeper Trash Hauler
Semiskilled Blue Collar Assembly Line Employee Truck Driver
Skilled Blue Collar Electrician Plumber Carpenter
Front-Line White Collar Retail Clerk Bank Teller
Semiprofessional Paralegal Paramedic Dental Hygienist
Professional Doctor Attorney CPA
Specialized Professional Research Scientist
Questions for Students
1. How are jobs in advertising agencies different from jobs in other companies? 2. Do you think comingling specialists, such as is the case in The Richards Group, would
work in other companies? 3. What types of individuals should The Richards Group hire, and what types would not fit
with the company?
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CHAPTER 3Section 3.2 Job Design
Job design progresses when managers deter- mine the tasks needed to be done, who will do them, and what selection criteria will be used to choose employees and place them on the job. The standard approach to job design involves three steps: (a) job analysis, (b) job description, and (c) job specification.
Job Analysis
The process of assigning tasks to jobs, called job analysis, will be conducted by the human resource department working in conjunction with departmental managers. There are three forms of commonly employed job analysis: (a) comparison with other companies, (b) experi- mentation, and (c) reflective planning.
Comparison with other companies can result from something as simple as a phone call to a friend in another firm to ask how that company defines duties for a particular job. For exam- ple, the position of administrative assistant varies widely, depending on the industry. Some- one assigned to manage a new walk-in emergency care facility might call leaders of similar organizations for advice. Comparisons can take place more formally. This normally involves using a resource such as the Dictionary of Occupational Titles (U. S. Department of Labor, 1977).
Experimentation methods begin with simply trying various methods to learn which is most effective and efficient for performing a job. This allows managers to evaluate workload to aid the organization of workflow. For instance, if an employee cannot keep up with every- thing, tasks can be removed; if an employee is bored, additional tasks may be assigned. One more sophisticated form of experimentation is the time-and-motion study designed by Frank Gilbreth. In these cases, jobs are performed in various ways and observed using a stopwatch and sometimes even through filming of specific tasks. The goal is to eliminate wasted motion and create an efficient set of job tasks.
Reflective planning requires managers to give thought to how processes are completed. In some organizations, the public relations function will be performed by specialists trained in media relations and writing. Those jobs are clearly spelled out as more managerial in nature. In other companies, a job in the public relations department is more of a market- ing activity, with an emphasis on finding sponsorships with charities and other groups to generate positive publicity. The job title is the same, but the job itself will be quite dif- ferent. Therefore, it requires reflection on the part of managers to determine the goals of particular jobs before deciding who is most qualified to execute them.
Markus Brunner/Photolibrary
The time-and-motion study is a classic example of job design through experimentation.
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CHAPTER 3Section 3.2 Job Design
Job Description
When the manager and human resource specialist have agreed on the tasks that belong to each job, the next organizational step in job design takes place—creation of a job description. A job description is a formal list of tasks and duties that is used in two main ways. First, job descriptions are part of the recruiting process that allows appli- cants to review what exactly a job entails by reading the job description. Second, job descriptions often appear in a company manual, handbook, or on an organizational Web site. Managers and employees can then refer to the listing to see which employee is responsible for any given task. Indeed, writing clearly articulated job descriptions is an essential part of organizing a business.
Job Specification
Once job descriptions are created, organizers generate a list of requirements that appli- cants must have in order to be considered for a particular job. This list is called a job specification, and it lists the eligibility requirements or qualifications needed to per- form a job. Table 3.2 identifies the standard set of specifications. Job specifications are often posted on Web sites and in publications that are associated with the recruiting process. The usual order of operations at this level of organizational development is as follows: First, specifications are published online and in some cases, in print media, most notably newspapers and trade journals. Second, job specifications are published in particular employment markets where pools of employers and job seekers meet, such as LinkedIn, Career Finder, and Monster.com. This helps streamline the appli- cation process. Third, specifications may be published at a trade show for those in a particular industry.
TABLE 3.2: COMPONENTS OF JOB SPECIFICATIONS
Qualification Examples
Level of Education high school diploma, associate’s degree, college degree, M.B.A., Ph.D.
Amount and Types of Experience number of years, job experience
Special Skills—Physical ability to lift heavy weights, work outdoors
Special Skills—Technical ability to use software programs
Personality Characteristics outgoing, self-starter, confident, effective public speaker
Legal Requirements meet current laws for employment
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CHAPTER 3Section 3.3 Departmentalization
Summary
Jobs form the building blocks for the creation of the organization’s structure. Carefully designed jobs allow workers to succeed by being responsible for appropriate and manage- able levels of work. Precise job descriptions give workers clarity about what they are and what they are not assigned to do. Well-written job specifications enhance the odds that the proper person will be hired to complete the assigned tasks.
3.3 Departmentalization Learning Objective #3: What types of departmentalization can company leaders use?
Departmentalization is an effective organizational tool in that it involves dividing people up into different departments or divisions in which collections of tasks are placed together, such as accounting, marketing, and production. Although there are several additional ways in which departmentalization may also be utilized, Table 3.3 summarizes some of the various types and when each is most helpful to the management team.
TABLE 3.3: TYPES OF DEPARTMENTALIZATION
Departmentalization by: Found in:
Function small, single product/service firms
Product growing, few product companies
Customer firms selling the same product to diverse customers
Geographic Region branch banking, retail chains, franchise operations
Strategic Business Unit conglomerates
Matrix high-tech firms, multinational companies
Departmentalization by Function
Departmentalization by function is the most common form, because most companies are smaller and offer one main product or service. Figure 3.1 is a simplified organization chart for a firm using this approach. Functional structure allows for top-level control with expertise maintained in the individual departments. Jobs are easily matched to functional specialties (Mintzberg, 1979).
Henry Mintzberg (1983) recognized five coordinated flows linking the common parts of departmentalization:
• Authority. Authorization is needed to move the structural part forward and com- plete job tasks.
• Work material. Raw material and supplies are essential to start and complete tasks.
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CHAPTER 3Section 3.3 Departmentalization
• Information. Data is required to inform decision making at every level of the organization.
• Decision process. Timely decision making allows for the continual operation of job tasks.
• Ideology. An organization’s unique vision, theories, culture, and traditions con- tribute to its structure.
Mintzberg’s coordinated flows are essential to begin operating activity as well as to mea- sure progress. They are well served by a functional form of departmentalization.
Departmentalization by Product
Multiproduct firms use departmentalization by product, that is, placing all activities related to a product or service in one department under one executive or senior manager.
See Figure 3.2 for an example as applied to the Bic company. As shown, Bic is divided into the products sold. General Motors, Dupont, and other firms learned that growth and expansion of product lines require a form of structure that facilitates the differences in products and at the same time allows for some specialists to serve all parts of the company. Departmentaliza- tion by product meets these needs and demands (Ranson, Hinings, & Greenwood, 1980).
President Bic, Inc.
Vice President Pens
Production Sales Production Sales Production Sales
Vice President Razors
Vice President Lighters
Vice President Accounting
Figure 3.2: Departmentalization by Product
President
Vice President Sales
Vice President Production
Vice President Accounting
Vice President R & D
Figure 3.1: Departmentalization by Function
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CHAPTER 3Section 3.3 Departmentalization
Departmentalization by Customer
Many companies offer the same product to divergent customers. As depicted in Figure 3.3, departmentalization by customer allows for specialization based on customer differences. A company such as Dell Computers has three distinct groups: (a) other businesses (indus- trial sales), (b) the government, and (c) individual consumers. The most notable advantage of this form of structure is that it optimizes service to these groups, which have different purchasing needs and purchasing methods. For example, individuals buy online or at the store, whereas businesses tend to make purchases at trade shows or through a purchas- ing department, and governments must follow specific purchasing procedures. The three groups also have different servicing needs such as repair contracts and warranties.
Departmentalization by Geographic Region
When a company is divided by territories or regions, terms such as district, zone, and area are assigned to the departments. Figure 3.4 displays an example of departmentalization by geographic region. Departmentalization by location is also known as parallel depart- mentalization, because the levels in the organizational hierarchy contain managers who
President
Vice President Western Region
Vice President Eastern Region
Vice President Central Region
District Manager
Store Managers
District Manager
Store Managers
District Manager
Store Managers
Figure 3.4: Departmentalization by Geographic Region
President
Industrial Sales Division
Government Sales Division
Consumer Sales Division
Vice President Accounting
Figure 3.3: Departmentalization by Customer
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CHAPTER 3Section 3.3 Departmentalization
perform the same duties in different regions, such as at branch banks or fast food loca- tions. Geographical departmentalization makes it possible to tailor managerial efforts that address territorial differences. For example, a Sears retail store in Florida will sell different items than one in Minnesota during the winter months; however, the department names remain the same. A food chain such as Subway may offer region-specific menu items, while the basic model of operation remains the same in all locations.
Departmentalization by Strategic Business Unit
As noted in the previous chapter, strategic business units are clusters of activities typically held together by a common thread, such as a product type or type of customer served. A strategic business unit will be analyzed as a “company within the company.” Many major corporations align strategic business units by products, customers, geographic region, manufacturing methods, and other common elements, as depicted in Figure 3.5.
Departmentalization by Matrix
Matrix organizations are also called two-boss systems. As shown in Figure 3.6, each employee answers to a functional area supervisor as well as a product manager. Matrix organiza- tions create circumstances in which maximum flexibility and adaptability in operations are possible. Workers must be able to adjust to change and accept some role ambiguity as part of the daily routine. The tasks they work on tend to vary. The only constant will be the employee’s functional supervisor.
An adaptation of the matrix organization is to design the company by product and by country. Products must often be adapted when they are moved into new areas, due to differences in electrical systems (AC versus DC) and in measurements such as ounces versus grams. Product managers are asked to identify national differences and help adapt production systems, marketing programs, and other activities to the new circumstances.
Summary
The most rudimentary form of structure, by function, is also the most common. As compa- nies add products and services, as well as additional specialists and activities, the degree of complexity rises. Departmentalization by products, customers, geographic areas, and
President
Vice President SBU 1
Vice President SBU 2
Vice President SBU 3
Vice President SBU 4
Figure 3.5: Departmentalization by Strategic Business Unit
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CHAPTER 3Section 3.4 Completing the Organization’s Structure
strategic business units helps the manager adapt to increasing complexity. The matrix organization grants the manager the highest degree of flexibility and adaptability.
3.4 Completing the Organization’s Structure Learning Objective #4: What additional activities must an organization undertake to complete its structure?
Completion of an organizational structure occurs as managers identify the amount of influence and accountability for these different individuals and groups, along with other elements of organizational design. The organization charts shown in the previous section hint at the first key activity that is part of completing the organization’s structure: drawing lines of authority and responsibility. In each of the models, any vertical line from one position to the next lower (or higher) position depicts an authority-responsi- bility relationship. In essence, a president holds authority over his or her vice presidents; those VPs are responsible for carrying out the instructions and decisions of the president.
Authority, then, consists of the right to direct with permission to act. This means that authority has two key components. The right to direct means the right to give orders and oversee activities. The manager of an auto repair shop has the authority to ask a worker who is changing a tire to stop and help another employee pull the transmission from
Vice President Product 1
Vice President Product 2
Vice President Production
Vice President Accounting
Vice President SalesTop-Level
Management Team
Production Group
Product 1
Accounting Group
Product 1
Sales Group
Product 1
Production Group
Product 2
Accounting Group
Product 2
Sales Group
Product 2
Figure 3.6: Departmentalization by Matrix
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CHAPTER 3Section 3.4 Completing the Organization’s Structure
another car being repaired. Permission to act rep- resents the right to make decisions on behalf of a company. The auto repair manager may have made the decision to work on the transmission first because the tire repair can be completed later, and the customer will not return until the next day. The transmission repair is more urgent and deserves attention first.
Responsibility, or accountability, is the obliga- tion to complete tasks as assigned. Someone who is responsible follows directions and is expected to follow them correctly and completely. The mechanic who has been asked to assist in the transmission repair should do so until the job has been successfully completed.
The noted French management expert Henri Fayol was among the first to describe the con- cept of parity of authority and responsibility. The concept suggests that anyone who holds a posi- tion of authority should be held accountable for how that authority is used. Anyone who is responsible for an outcome should have suffi- cient authority to carry out the assignment.
In today’s modern organizations, three forms of authority are found. Line authority is direct for-
mal authority, the type shown on the lines of an organization chart. Staff authority consists of the right to advise or give advice. A company’s legal department provides legal advice to all levels in the company. An accountant gives tax advice to all departments. Functional authority has been described as the right to direct, but not to discipline. It is found when a person has been placed in charge of a task force or committee. The individual is charged with the responsibility of getting something done (direct), such as completing a safety committee report; however, committee members may or may not follow directions and complete the task on time. Functional authority relies on employee professionalism to accomplish goals. Due to the increasingly complex nature of work, the reliance on func- tional authority has risen as the number of teams and groups increases. When the first process in completing the structure of an organization, outlining authority-responsibility relationships, is complete, then other decisions can be made.
Centralization and Decentralization
Another key set of decisions to be completed includes those regarding the delegation of authority. Centralization and decentralization refer to the degree of delegation of decision making, authority, and power within an organization. A highly centralized organization is one in which authority is not delegated. The executive management team, for example, makes key decisions and issues orders that direct company activities. Other members of the
Wavebreak Media/Photolibrary
Outlining authority/responsibility relationships helps complete the company’s structure.
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organization must take and follow orders issued by the executive management team. In a highly decentralized firm, front-line supervisors make important organizational decisions.
Size and Decentralization Peter Blau (1970) suggests that a strong relationship exists between the size of an organi- zation and the degree of decentralization. In essence, smaller firms are likely to remain centralized, because managers are aware of all activities and know each employee. This places them in the position to make all decisions. As a firm grows, the company begins to add specialists and new departments. The sheer volume of decisions to be made rises. The top manager becomes less able to direct everything, which means delega- tion begins to take place. At the same time, the top manager wants to retain a degree of control, which leads to (a) standardization, (b) formalization, and (c) mechanization/ computerization.
Standardization is the use of a series of job titles that are exactly the same, and the workers perform the same activities. Formalization refers to the presence of rules and procedures. Mechanization/computerization measures the reliance on computers and technology to maintain operations (Blau & Schoenherr, 1971).
As an example, consider the differences between managing a “stop and shop” conve- nience store and a Walmart superstore. In the convenience store, the manager knows all the employees and every aspect of the store’s operations, so he or she can make every decision. At the Walmart superstore, the manager would not even know the names of all employees. The store employs specialists in many areas, including automotive, lawn and garden, jewelry, men and women’s clothing, and others. The Walmart store manager is best served by a classic management cliché: Let experts make decisions. The manager delegates to the specialists (decentralization). At the same time, Walmart hires many indi- viduals with titles such as “stocker” and “cashier” (standardization), the rules for rotating inventory on the shelves and for checking out customers are the same for every stocker and cashier (formalization), and the store uses computers to track sales, inventory, and other statistics (mechanization).
Strategies and Decentralization In 1962, Alfred Chandler proposed a relation- ship between company strategies and company structure. His work suggests that organizational structure may be a matter of managerial design that evolves over time and as organizational con- ditions change. Chandler’s analysis is grounded in historical research. An in-depth review of case histories of a number of major U.S. companies reveals four stages of structural development that were consistently present (see Table 3.4).
MIXA Co. Ltd./Photolibrary
Organizational structure changes when a small-sized company grows into a larger, more sophisticated company.
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TABLE 3.4: STRATEGY AND STRUCTURE
Stage 1 Most firms begin with a single product and a centralized, functional form of structure.
Stage 2 Successful firms tend to grow by adding products and services, the strategy known as product diversification.
Stage 3 The demands of the new products and services become so great that the company becomes inefficient, and eventually a crisis develops.
Stage 4 To resolve the crisis, company leaders adopt new forms of structure that are product- based and decentralized.
As Table 3.4 indicates, Stage 2 holds a strategy; Stage 4 suggests a corresponding change in structure. The historical information corresponds with the work of Blau in that firms in Stage 1 are likely to be small and centralized. Stages 2 and 3 add the complexity of added decisions and specialists. Stage 4 indicates that decentralization better serves a larger company.
Summary Centralization and decentralization change job descriptions and job specifications. In a highly centralized operation, individuals at the lowest levels must understand they will not be allowed to make decisions and will be expected to follow orders. Front-line supervi- sors in the company will experience the same situation. In highly decentralized companies, individuals who are willing to take the initiative, make key decisions, and work with others are more likely to be hired. Delegation and decentralization rely on cooperation between managers and employees to make the best decisions and take the proper course of action.
Mechanistic and Organic Structures
Another key element of organizational design regulates company flexibility and adapt- ability. Mechanistic organizations are characterized by the high use of rules and proce- dures, a greater number of levels in the organization, formal relationships between work- ers, and, as a result, a less flexible method of operation. Organization charts in mechanistic organizations tend to be tall and thin, with many ranks and fewer people at each rank.
Organic structures employ few rules and procedures, have a small number of organiza- tional levels and ranks, allow for informal relationships among workers and supervisors, and are much more flexible and adaptable as a result. Organic structures are short and squat, with few ranks and many people in each rank.
Joan Woodward (1965) and her associates engaged in a major research project in Great Britain in the 1950s. The purpose was to seek out the causes of structure in effective orga- nizations. These efforts identified a consistent pattern in which the technology of a firm could be matched to its structure, as displayed in Table 3.5.
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TABLE 3.5: TECHNOLOGY AND STRUCTURE
Type of Technology Type of Structure
unit, small batch organic
large batch, mass production mechanistic
process production organic
Unit or small batch technology occurs when units are made one-by-one (repairing a car; tai- loring a suit), or in small lots or batches, such as the amount of marinara sauce prepared for daily use in an Italian restaurant. Remaining flexible and adaptable best serves that type of operation, at least in terms of profits, growth, and other measures of company success.
Large batch assembly line operations create standardized products. Carefully following rules and procedures increases efficiency. Many production facilities are mechanistic in their structural design.
Process production includes unique circumstances such as chemical manufacturers, some utilities, and breweries and distilleries. In these organizations, problems tend to be unusual and require investigation. The more flexible and adaptable organic structure fits these circumstances.
Characteristics of Typical Organizations
German sociologist Maximilian C. Weber (1864–1920) in his work published posthu- mously in 1922, suggested organizations share certain characteristics in addition to goal orientation (Weber, 1947). The final design of the organization should account for each of these characteristics, which include the following:
1. Division of Labor (Labor Specialization). Tasks in organizations tend to be grouped to maximize productivity and are often based on some inter- or extra-organizational criteria. Typically, work specialization is broken down by specific job tasks or work skills, such as machinists, equipment operators, quality control inspectors, accountants, and salespeople. Seldom does an organization efficiently operate for long without labor specialization.
2. Span of Control. A superior cannot man- age an unlimited number of subordinates, as it is unwieldy and ineffective. Subor- dinates require feedback, direction, and often correction. Organization theory suggests limiting the number of subor- dinates, and the number depends on the nature of the work to be completed by the subordinates, and the distance from the center of control. The span should be kept as manageable as possible.
iStockphoto/Thinkstock
An organic form of structure matches a unit, or small batch technology.
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CHAPTER 3Section 3.4 Completing the Organization’s Structure
3. Formalization. Almost all organizations have rules, whether written or unwritten. Most modern organizations use the term policy or work rules, but in every case the rules are intended to guide action and decision making across the organiza- tion. The more clear, detailed, and specific the rules of the organization, the more formal the organization.
4. Number of Authority Levels. Organizations may have very few authority levels (flat) or several (tall), depending on the nature of the organization and its plan of operation. Organization theory suggests the wider the span of control (more subordinates reporting to a superior), the flatter the organization; and the nar- rower the span of control (fewer subordinates reporting to a superior), the taller the organization’s structure.
Weber suggested the coordination of these characteristics could happen only through effective communication by organizational members and through standardizing work processes. As work becomes more complex, direct supervision becomes a more important factor in maintaining standardized work outputs. Weber’s concept of formalization is a natural efficiency-improving process that happens within the organization and may occur by several means: by the job, by work, or by way of rules.
An Organization in Crisis
There are times when events in an organization’s environment threaten internal opera- tions. J. D. Thompson (1967) developed a view of organizational structure in which the core technology a company utilizes becomes the key. In an organizational system, such as the one displayed in Table 3.5, inputs are regulated by the buffers, which lead them into the technical core. Outputs are moved into the external environment through various departmental activities. In essence, management develops departments (the buffers in Figure 3.7) to protect and facilitate the core technology.
When a threat emerges in the external environment, such as a dramatic rise in prices for raw materials, a natural disaster, a terrorist action, negative publicity, or a new competing technology, company leaders tend to respond by creating a new buffer or department to defend against the threat. When mad cow disease threatened the U.S. beef industry, one response would have been to create a new layer of inspectors to make sure the disease did not infect local herds. Many information technology departments have specially assigned units to defend against virus attacks, bombs, and other malware.
Thompson's Model of Technology and Structure
Inputs
Labor Funding Materials
Buffers
HRM Finance
Purchasing
Buffers
Sales Warehouse
Shipping
Technical Core
New Buffer
THREAT
Outputs
Goods &
Services
Figure 3.7: Technology and Structure
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Summary
Organizational design consists of far more than simply drawing an organization chart. After jobs have been specified, company structure consists of the form of departmentalization to be used along with other elements of structure. Beyond authority-responsibility relation- ships, management teams dictate the degree of delegation to be used on a company-wide basis. The level of centralization or decentralization that is present influences the jobs to be performed and the people selected to perform those jobs. Mechanistic organizational structures match with more standardized operations. Organic structures are best suited to problem-solving situations in which organizations must remain flexible and adaptable. Most forms of structure are relatively standardized, specifying the level of job specializa- tion and the number and types of managers. When an environmental crisis emerges, one natural tendency is to develop a new department or buffer to defend against the threat.
3.5 Structural Configurations Learning Objective #5: What kinds of structural configurations are found in various companies?
Structural configurations constitute the final element of organizational design. The dominant part of the organization is the major factor in the structural configuration of the organization. Management theorist Henry Mintzberg (1983) suggested that there are five common parts in any organization:
• Operating core. The subordinate workers who perform the basic labor in the orga- nization that is related to the production of goods or services.
• Strategic apex. Top-level managers charged with ensuring the organization serves its mission in an effective way.
• Middle line. The managers who connect the strategic apex with the operating core. • Technostructure. The analysts who design, change, plan, or train the operating core. • Support staff. The specialists providing the direct support services for the
organization.
These core elements then dictate the design of the organizational structure. Mintzberg identified five common structures: simple structure, machine bureaucracy, professional bureaucracy, divisional structure, and adhocracy.
Simple Structure
Small entrepreneurial businesses often use a simple structure. The local dry cleaner, the corner restaurant, the auto repair shop, and many others are likely organized as simple structures. This form of organization is dominated by the “Strategic Apex,” but has less formalization and complexity. Almost everyone reports directly to the owner of the busi- ness, so the organization chart is depicted as flat with few, if any, reporting layers.
When should this structure be used? Typically, this structure is used when the organiza- tion is “small or in the formative stage of development” (Robbins, 1990).
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Machine Bureaucracy
The trademark of the machine bureaucracy is standardization. The structure features highly routine operating tasks typically grouped together into functional departments with high formalization and central authority, and the decision making flows through a chain of com- mand. Machine bureaucracies work best in large organizations such as manufacturing or service, where large volumes are produced, resulting in a routine. In machine bureaucracy, standardized production work is the norm. These structures utilize elaborate work rules, considerable numbers of middle-line managers, and distinctive line and staff manage- ment configurations. Organization charts are depicted with multiple management layers between top management and the shop floor, where production or services are delivered.
Such structures require a simple and stable operating environment, which may be the single greatest weakness of this type of organizational design. Machine bureaucracies have diffi- culty adapting to changes in the environment, such as significant product changes brought about by market demand. Business history is filled with accounts of large manufacturing firms that could not change to meet emerging environments and as a result collapsed in bankruptcy. Few people remember Nash Motors (part of Nash-Kelvinator Corporation) or Hudson Motors. While each was a technology innovator in its time and a designer/builder of beautiful automobiles, eventually, market instability forced their merger and then a later merger with Kaiser-Jeep Corporation to form American Motors Corporation (AMC). Then, in 1987, the Chrysler Corporation bought out AMC/Jeep.
When should a machine structure be used? Typically, this structure is most “efficient when matched with large size, a simple and stable environment, and a technology that contains routine work that can be standardized” (Robbins, 1990, p. 285). This is the typical structure of large manufacturing firms, large insurance firms, and even state and federal prisons systems.
Professional Bureaucracy
A professional bureaucracy may be used when an organization depends on highly skilled professionals delivering goods or services at the core of the organization. “Obvious examples include hospitals, school districts, universities, museums, libraries, engineering
design firms, social service agencies, and pub- lic accounting firms” (Robbins, 1990, p. 289). In this type of structure, professionals self-impose standardization and formalization, often in com- pliance with governing bodies (e.g., licensing agencies or professional associations or both), typically due to the complexities in the operat- ing environment. For example, certified pub- lic accounting firms are licensed in most states and have a professional organization (American Institute of Certified Public Accountants) and several governing bodies, including the Finan- cial Accounting Standards Board and the Secu- rities and Exchange Commission. Accounting professional training incorporates the standards of conduct, legal requirements, and the skills
Polka Dot Images/Thinkstock
Professional bureaucracies are best suited to professional, white collar companies.
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appropriate to the profession. As such, accountants have a degree of autonomy within the organization and in the exercise of professional judgment.
When should professional bureaucracy be used? Typically, this structure is most effective when the environment is stable and complex, and when formalization and standardiza- tion are internalized through professionalization.
Divisional Structure
The divisional structure is actually a set of autonomous units, each typically a machine bureaucracy unto itself, coordinated by a central headquarters (Robbins, 1990). The divi- sional structure is widely used across the postindustrialized business world, and exam- ples include General Motors, Microsoft, 3M Company, AT&T, General Electric Company, International Business Machines, Coca-Cola Company, United Technologies Corporation, and The Walt Disney Company. Divisions are created (or acquired) to serve a market and are given operating control to make decisions appropriate to meeting the needs of that market. This could be a category of a market such as with Chevrolet Motors. Chevrolet manufactures automobiles in the mid-priced category of a market ($25K to $40K sales price), or the luxury market category such as Cadillac ($35K to $70K sales price). Both are generally autonomous divisions of General Motors.
Among the many weaknesses of the divisional structure is the duplication of activities and the potential for counterproductive inter-market competition for customers, which is not only inefficient but can limit opportunities for cooperation across market segments and waste resources. This was a significant factor leading to GM’s 2009 bankruptcy reor- ganization and federal government bailout. Now reorganized with fewer divisions and dealers, GM may be able to rebuild its business and value.
When should the form of divisional structure be used? Typically this structure is most effective when the organization selects the diversification strategy; that is, when the orga- nization decides to become a multi-market or multi-product operation. It is important to note here that the organization’s technology must be divisible without significant deterio- ration of economies of scale gained as a machine bureaucracy.
Adhocracy
Most people working in an organization have experienced a project team, task force, or a cross-functional team. When you participated, you were part of an adhocracy. Adhocra- cies are organic and dynamic in nature and have limited formalization and standardiza- tion, and tend toward decentralized decision making. Little is routine in an adhocracy. Adhocracies live during the life of the project and are disbanded afterward. Adhocracies are largely populated by professionals with high levels of skills and abilities to contribute to the completion of the project. Adhocracies are flexible and adaptable. That is the reason they exist at all.
A commercial building construction project is an example of an adhocracy. A project man- ager takes the plans from the building’s architect and assembles a project team that includes internal (assistant superintendent, construction site managers, etc.) and external members (the trades appropriate for the work required). The work begins once a calendar is created
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and contracts are established, and continues in a planned sequence until all work is com- plete, final inspection is made, and the building is handed over to the owner/user. The project is over, and all project members move on to other projects. They may participate in a project together in the future or maybe never see any of the project team again.
A weakness of the adhocracy structure is the stresses placed on participants during the life of the project. There are limited boundaries and few vertical relationships (boss-subordi- nate) to mitigate tensions. Many participants have difficulty working in temporary work environments subject to rapid change or operating in ambiguity. As a result, adhocracy structures are difficult to establish and to dismantle once they are operating.
Typically, the adhocracy structure is most effective when used for developing nonroutine solutions and projects, and where flexibility is required. Use of this structure is best when solutions or projects have a short life cycle and high levels of professionalism are resident or available. Table 3.6 summarizes the five organizational configurations.
TABLE 3.6: SUMMARY OF THE FIVE ORGANIZATIONAL CONFIGURATIONS
CHARACTERISTIC SIMPLE STRUCTURE
MACHINE BUREAUCRACY
PROFESSIONAL BUREAUCRACY
DIVISIONAL STRUCTURE
ADHOCRACY
Specialization Low High Functional
High Social High Functional
High Social
Formalization Low High Low High within Divisions
Low
Centralization High High Low Limited Low
Environment Simple and Dynamic
Simple and Stable
Complex and Stable
Simple and Stable
Complex and Dynamic
General Structural Classification
Organic Mechanistic Mechanistic Mechanistic Organic
(Robbins, 1990, p. 305.)
The Importance of Organizational Goals in Structural Design
Organizations exist for a purpose. The purpose of the organization, or the plan, also influ- ences the structure of the organization. The purpose of a small shop operator located on Main Street in your hometown likely will be to meet small capital financing needs, design an informal mission, and employ less than 25 employees who report directly to the owner. The planning process of this small shop focuses on the needs of its community by maintaining inventory, appropriate capital availability, and a sensitivity to the com- munity’s standards. On the other hand, a multiunit retail operator with 100,000 square- foot, large-scale retail stores located in and across several states or the entire nation, may have 10,000 employees, high capital demands, a well-defined mission statement, and sophisticated marketing needs. Such a large organization likely has a long-range strate- gic plan, complex operational plans, and several levels of management, each with very specific performance expectations.
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CHAPTER 3Chapter Summary
authority the right to direct with permission to act.
centralization/decentralization the degree of delegation of decision making, authority, and power within an organization.
departmentalization organizing people into different departments or divisions in which collections of tasks are placed together, such as accounting, marketing, and production.
formalization the presence of rules and procedures.
job a set or series of tasks performed by an individual on behalf of an organization.
job analysis the process of assigning tasks to jobs.
job description a formal list of tasks and duties.
Chapter Summary Organizational design involves numerous activities. These include designing jobs, depart- mentalizing decisions, completing the company's structure, and outlining the best struc- tural configuration.. The five forms of configuration can be applied to ensure the highest possible level of success. Configurations include specialization, formalization, centraliza- tion, environmental, and general structural classification components.
Key Terms
Case Study: Starbucks’ Structure
What happens when a highly successful business formula begins to run out of steam? For more than two decades, Starbucks had reconfigured the coffee marketplace by changing the way people viewed the product. Until the company entered the market, coffee was often perceived as a rather banal item consumers purchased as needed. Price often deter- mined which brand someone would buy at the store.
Howard Schultz became convinced that he could turn coffee drinking into a cultural expe- rience. He had traveled to Italy and watched with interest as city dwellers would stop to begin the day at a coffee bar. Using the same type of model, Schultz purchased and opened his first location as Il Giornale. The company evolved into Starbucks, where multitudes of consumers began purchasing designer coffees, such as espresso, cappuccino, and cof- fee mocha. Store interiors encouraged lounging and relaxing with a newspaper, magazine, laptop, or friends. Each cafe featured enticements such as jazz music in the background, additional merchandise to examine, and comfortable seating.
The original Starbucks chain emphasized location. Cafes were placed on commuter routes and in other places where people were likely to gather and socialize. Over time, units expanded into other major traffic routes, including airports.
Starbucks employs people who enjoy coffee. They are retrained using motivation programs that include buy-in options. They are known as baristas, or bar persons, rather than serv- ers, who become experts in coffee brewing while providing friendly service to patrons. The company insists on a diverse workforce that reflects the makeup of the local commu- nity. Employees are also encouraged to pass along ideas about how to improve operations. Those who make suggestions that are adopted are rewarded. (continued)
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job design what occurs when managers determine the tasks that need to be done, who will do them, and what selection criteria will be used to choose employees and place them on the job.
job specification a list of the eligibility requirements or qualifications needed to per- form a job.
mechanistic organization characterized by high use of rules and procedures, a greater number of levels in the organization, and for- mal relationships between workers, and that is, as a result, a less flexible method of operation.
mechanization/computerization measures the reliance on computers and technology to maintain operations.
organic structures that employ few rules and procedures, have a small number of organi- zational levels and ranks, allow for informal relationships among workers and supervisors,
and are much more flexible and adaptable as a result.
organizational design the process by which managers make specific organizing choices that result in the particular kind of organiza- tional structure they will utilize.
organizational structure a formal system of task and reporting relationships that coordi- nates the activities of members so that they work together to achieve organizational goals.
organizing the process of bringing people and resources together to create products and ser- vices in an efficient and effective manner.
responsibility (or accountability) the obliga- tion to complete tasks as assigned.
standardization the use of a series of job titles that are exactly the same, and the assignment of workers to perform the same activities.
Until the 2008 recession, Starbucks had continued to grow. Some of the units in larger cit- ies experimented with selling additional products, including lunch service. Then a quickly collapsing economy, possibly coupled with other problems, including overexpansion, sent the corporation on a downhill slide. Founder Howard Schultz worried that the addition of so many locations had watered down the Starbucks experience.
Increased competition became an additional factor that led to declining sales, the closing of stores, and a loss rather than profit at the corporate level. McDonalds, Dunkin’ Donuts, and numerous smaller operations began to chip away at Starbucks’ share of the market. Many analysts believed that when Starbucks was no longer the only place to purchase high-quality coffee products, and when others were selling at least acceptable brews at lower prices, the drop in sales would became inevitable.
Schultz, who had previously stepped down as CEO, returned to try to bring Starbucks back to prominence. As the economy continues to recover, time will tell if the company will return to its previous status.
1. Complete a job description and job specification for a Starbucks employee. 2. What form of departmentalization should Starbucks use? Should the form be changed
in stores offering food products and lunch? Why or why not? 3. When the company began to experience financial problems, should the leadership
have tried to centralize power and decision making, or decentralize the operation? 4. What form of organizational configuration best fits Starbucks?
Case Study: Starbucks’ Structure (continued)
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CHAPTER 3Chapter Summary
Review Questions
1. Define organizing, organizational structure, and organizational design. 2. What is a job? 3. What are the three steps of job design? 4. Define departmentalization and name the six major forms. 5. What types of companies match with departmentalization by: a. function b. product c. customer d. geographic region e. matrix 6. Define authority and responsibility. 7. Define centralization/decentralization, standardization, formalization, and
mechanization/computerization. 8. Define mechanistic and organic forms of structure. 9. What four characteristics apply to most organizations, according to Max Weber? 10. What kinds of companies should employ the simple structure organizational
configuration? 11. What kinds of companies should use the machine bureaucracy form of structure? 12. What kinds of organizations should feature a professional bureaucracy form of
structure? 13. What kinds of firms should use the divisional form of structure? 14. What types of organizations are best suited to the adhocracy form of structure?
Analytical Exercises
1. The analogy has been made that an organization’s structure is its skeleton. If so, what part is the company’s mission? What parts are individual jobs? What parts are the departments?
2. How could a company such as FedEx or UPS utilize the time-and-motion study process in conducting its operations in the following areas: • receiving packages for delivery at designated stores • sorting packages • delivering packages to individual customers and businesses
3. Create job specifications for the following positions: • laborer at Burger King • heavy equipment operator for a construction company • salesperson for tractors and farm equipment • information technology specialist to be a web master
4. Which form of departmentalization best matches the following companies? Explain your answer. • local dry cleaner • T.G.I. Friday's • Greyhound Bus Lines • GEICO Insurance • Ford Motor Company International
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5. Marjorie is the chief accounting officer in her company. She has five junior accountants under her supervision. She serves as head of the workplace safety committee in the firm. She has expertise in the area of internal auditing, and lately the firm’s CEO has asked her numerous questions about the firm’s most recent audit. What types of authority does Marjorie hold in her current situation? Can you think of ways in which the forms of authority may be in conflict with one another? Explain your answer.
6. Explain how the following personality characteristics would fit with a central- ized and mechanistic organization, or would better match a decentralized and organic organization. • high need for autonomy • high need for continuing performance feedback • enjoys working with others • enjoys problem solving • prefers direction and role clarity
7. “Among the weaknesses of the divisional structure is the duplication of activi- ties and potential of counter-productive inter-market competition for customers, which is not only inefficient but can limit opportunities for cooperation across market segments and waste resources.” This statement applies to conglomerate organizations. Can you think of a form of structure that is better suited to multi- product, multiservice companies? Defend your answer.
8. Explain how the following somewhat match each other: • functional structure with simple structure • machine bureaucracy with centralized, mechanistic structure • professional bureaucracy with decentralized, organic structure • divisional structure with departmentalization by product
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