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Organizational Behaviour: Concepts, Controversies, Applications

Eighth Canadian Edition

Chapter 13

Organizational Structure

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Chapter Outline (1 of 2)

What Is Organizational Structure?

Work Specialization

Departmentalization

Chain of Command

Span of Control

Centralization and Decentralization

Formalization

Common Organizational Designs

The Simple Structure

The Bureaucracy

The Matrix Structure

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Material pertinent to this discussion is found under “SnapShot Summary” at the end of the chapter.

Chapter Outline (2 of 2)

New Design Options

The Virtual Organization

The Boundaryless Organization

The Leaner Organization: Organization Downsizing

Why Do Structures Differ?

Strategy

Organizational Size

Technology

Environment

Organizational Designs and Employee Behaviour

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Material pertinent to this discussion is found under “SnapShot Summary” at the end of the chapter.

Learning Outcomes (1 of 2)

Identify seven elements of an organization’s structure.

Describe the characteristics of a bureaucracy.

Describe the characteristics of a matrix organization.

Describe the characteristics of a virtual organization and circular structures.

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This material is found at the beginning of the chapter.

Learning Outcomes (2 of 2)

Describe the effects of downsizing on organizational structures and employees.

Contrast the reasons for mechanistic and organic structural models.

Analyze the behavioural implications of different organizational designs.

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This material is found at the beginning of the chapter.

What Is Organizational Structure?

Organizational structure defines how job tasks are formally divided, grouped, and coordinated.

Six key elements when an organization’s structure is designed:

Work specialization

Departmentalization

Chain of command

Span of control

Centralization and decentralization

Formalization

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LO1; Material pertinent to this discussion is found under “What Is Organizational Structure?”

Note: This is a very preliminary slide. Further slides provide more detail on each of the six key elements.

Six Key Questions for Organizational Structure

EXHIBIT 13-1 Seven Key Questions That Managers Need to Answer in Designing the Proper Organizational Structure

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

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LO1; Material pertinent to this discussion is found under “What Is Organizational Structure?”

Work Specialization

The degree to which tasks in the organization are subdivided into separate jobs

Also known as division of labour

Benefits:

Efficiency – less time changing tasks, putting equipment away

Easier to train employees

Downsides:

Boredom, stress, low productivity, high turnover, increased absenteeism

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LO1; Material pertinent to this discussion is found under “What Is Organizational Structure?”

Departmentalization

The basis on which jobs are grouped together

Types:

Functional

Product

Geographic

Process

Customer

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LO1; Material pertinent to this discussion is found under “What Is Organizational Structure?”

Chain of Command

Continuous line of authority that extends from upper organizational levels to the lowest level and clarifies who reports to whom.

Authority

Who has the right to give orders and expect them to be obeyed

Unity of command

Subordinates should have only one superior

Delegation

Assignment of authority to another person to carry out specific duties, allowing the employee to make some of the decisions

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LO1; Material pertinent to this discussion is found under “What Is Organizational Structure?”

Span of Control

Number of subordinates that can be efficiently and effectively managed

Small span

Expensive, more managers

Makes vertical communication more complicated

Encourages tight supervision and discourages autonomy

Larger span

Empowers workers

Speeds up decisions

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LO1; Material pertinent to this discussion is found under “What Is Organizational Structure?”

Contrasting Spans of Control

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LO1; Material pertinent to this discussion is found under “What Is Organizational Structure?”

Centralization and Decentralization

Centralization

The degree to which decision making is concentrated at a single point in the organization

Decentralization

The degree to which decision making is distributed to lower-level employees

Makes it easier to address customer concerns quickly

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LO1; Material pertinent to this discussion is found under “What Is Organizational Structure?”

There is a marked trend toward decentralization.

Formalization

Degree to which jobs within the organization are standardized

How standardized are the jobs?

High formalization means employees have little discretion

Low formalization means employees have more freedom

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LO1; Material pertinent to this discussion is found under “What Is Organizational Structure?”

The Simple Structure

Strengths:

Simplicity: fast, flexible, inexpensive

Weakness:

Works best in small organizations

Can slow down decision making in larger organizations

Can be risky as it relies on one person to make all decisions

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LO1; Material pertinent to this discussion is found under “Common Organizational Designs.”

A structure characterized by a low degree of departmentalization, wide spans of control, and authority centralized in a single person.

The Family Business

Family businesses employ 6 million people in Canada and represent more than 60 percent of the gross domestic product.

Family businesses face both family/personal relations and business/management relations.

Family businesses must manage the conflicts found within families as well as the normal business issues that arise for any business.

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LO1; Material pertinent to this discussion is found under “Common Organizational Designs.”

Some of the most prominent family businesses in Canada over the past 50 years include the Bronfman family (Seagram’s), the Eaton family (Eaton’s), the Birk family (Birks), the Irving family (Irving Paper), the Molson family (Molson Breweries) and the McCain family (McCain Foods). Not all family businesses are as large as these, however.

The Bureaucracy

Strengths:

Standardizes activities in an efficient manner

Economies of scale, minimum duplication of personnel and equipment

Lower quality employees are acceptable, which reduces employment costs

Weaknesses:

Creates subunit conflicts

There is an obsessive concern with following rules

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LO2; Material pertinent to this discussion is found under “Common Organizational Designs.”

A structure with highly routine operating tasks achieved through specialization, very formalized rules and regulations, tasks that are grouped into functional departments, centralized authority, narrow spans of control, and decision making that follows the chain of command. Bureaucracies can be very, very productive when the work is highly specialized.

The Matrix Structure

Breaks the unity of command principle

Employees have two bosses

Advantages:

Facilitates coordination when there are many activities

More communication

Efficient allocation of specialists

Disadvantages:

Power struggles, confusion, stress

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LO3; Material pertinent to this discussion is found under “Common Organizational Designs.”

A structure that creates dual lines of authority; combines functional and product departmentalization. The matrix structure has positive aspects such as flexibility. A matrix structure also has real negatives. For example, employees find themselves with more than one boss, hence with conflicting demands.

Matrix Structure for a Faculty of Business Administration

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LO3; Material pertinent to this discussion is found under “Common Organizational Designs.”

New Design Options

Breaking the boundaries externally

Virtual Organization (also called the network organization or modular organization)

Breaking the boundaries externally and internally

Boundaryless Organization

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LO4; Material pertinent to this discussion is found under “New Design Options.”

Note: This is an introductory slide. Detailed slides on these new design options follow.

The modular and virtual organizations both modify external organizational boundaries.

The boundaryless organization attempts to break down both internal and external boundaries.

Virtual Organization

A continually evolving network of independent companies—suppliers, customers, even competitors—linked together to share skills, costs, and access to one another’s markets.

Advantages:

Organizations can share costs and skills

Provides access to global markets

Increases market responsiveness

Disadvantages:

Companies give up operational and strategic control to work together

Managers need to be more flexible, acquire new skills

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LO4; Material pertinent to this discussion is found under “New Design Options.”

A Virtual Organization

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LO4; Material pertinent to this discussion is found under “New Design Options.”

The virtual organization “is a continually evolving network of independent companies—suppliers, customers, even competitors—linked together to share skills, costs, and access to one another’s markets.” In a virtual organization, units of different firms join together in an alliance to pursue common strategic objectives. While control in the modular structure remains with the core organization (such as Nike, Dell Computer, and Bauer), in the virtual organization participants relinquish some of their control and act more interdependently. Virtual organizations may not have a central office, an organizational chart, or a hierarchy.

The Boundaryless Organization

An organization that seeks to eliminate the chain of command and have limitless spans of control, replacing departments with empowered teams

It breaks down barriers internally by flattening the hierarchy, creating cross-hierarchical teams, and using participative decision-making practices and 360-degree performance appraisals.

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LO5; Material pertinent to this discussion is found under “New Design Options.”

The Leaner Organization: Organization Downsizing

Downsizing

A systematic effort to make an organization leaner by selling off business units, closing locations, or reducing staff

It has been very controversial because of its potential negative impacts on employees

Advantages:

Huge reduction in wage costs

Can see positive effects on stock prices after the announcement

Disadvantages:

Employee attitudes, sickness absences, lower concentration on the job, and lower creativity

Can lead to more voluntary turnover

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LO5; Material pertinent to this discussion is found under “New Design Options.”

Effective Strategies for Downsizing

Investment

Communication

Participation

Assistance

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LO5; Material pertinent to this discussion is found under “New Design Options.”

Why Do Structures Differ? (1 of 6)

Mechanistic Model and Organic Model

Two extreme models of organizational design

Mechanistic Model

High specialization

Rigid departmentalization

Clear chain of command

Narrow spans of control

Limited information network

Centralization

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LO6; Material pertinent to this discussion is found under “New Design Options.”

Why Do Structures Differ? (2 of 6)

Organic model

Flat

Uses cross-functional and cross-hierarchical teams

Possesses a comprehensive information network

Has wide spans of control

Has low formalization

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LO6; Material pertinent to this discussion is found under “New Design Options.”

Mechanistic vs. Organic Models

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LO6; Material pertinent to this discussion is found under “New Design Options.”

Why Do Structures Differ? (3 of 6)

Strategy

Organizational Size

Environment

Technology

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LO6; Material pertinent to this discussion is found under “Why Do Structures Differ?”

Note: This is an introductory slide to just introduce the four causes of an organization’s structure.

Why Do Structures Differ? (4 of 6)

Strategy

Innovation, cost minimization, and imitation

Three Strategy Dimensions

Innovation

Cost-minimization

Imitation

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LO6; Material pertinent to this discussion is found under “Why Do Structures Differ?”

The Strategy-Structure Relationship

EXHIBIT 13-6 The Strategy–Structure Relationship

Strategy	Structural Option
Innovation	Organic: A loose structure; low specialization, low formalization, decentralized
Cost minimization	Mechanistic: Tight control; extensive work specialization, high formalization, high centralization
Imitation	Mechanistic and organic: Mix of loose with tight properties; tight controls over current activities and looser controls for new undertakings

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LO6; Material pertinent to this discussion is found under “Why Do Structures Differ?”

Why Do Structures Differ? (5 of 6)

Organizational Size

An organization’s size significantly affects its structure

Organizations that employ 2000 or more people tend to have more specialization, more departmentalization, more vertical levels, and more rules and regulations than small organizations

The relationship isn’t linear; rather, size affects structure at a decreasing rate

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LO6; Material pertinent to this discussion is found under “Why Do Structures Differ?”

Why Do Structures Differ? (6 of 6)

Technology

Every organization has at least one technology for converting financial, human, and physical resources into products or services

The common theme that differentiates technologies is their degree of routineness

Environment

Composed of forces outside the organization and the uncertainty associated with them

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LO6; Material pertinent to this discussion is found under “Why Do Structures Differ?”

Key Dimensions of an Organization’s Environment

Capacity

Degree to which environment can support growth

Volatility

Degree of instability in an environment

Complexity

Degree of heterogeneity and concentration in environment

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LO6; Material pertinent to this discussion is found under “Why Do Structures Differ?”

The capacity of an environment refers to the degree to which it can support growth. Rich and growing environments generate excess resources, which can buffer the organization in times of relative scarcity.

The degree of instability in an environment is captured in the volatility dimension. Where there is a high degree of unpredictable change, the environment is dynamic. This makes it difficult for management to predict accurately the probabilities associated with various decision alternatives. At the other extreme is a stable environment.

Finally, the environment needs to be assessed in terms of complexity; that is, the degree of heterogeneity and concentration among environmental elements. Simple environments are homogeneous and concentrated. In contrast, environments characterized by heterogeneity and dispersion are called complex.

Three-Dimensional Model of the Environment

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LO6; Material pertinent to this discussion is found under “Why Do Structures Differ?”

Organizational Designs and Employee Behaviour

To maximize employee performance and satisfaction, managers must take into account individual differences, such as experience, personality, and the work task, as well as culture

People are attracted to, are selected by, and stay with organizations that suit their personal characteristics

Those who prefer predictability are likely to seek out and take employment in mechanistic structures

Those who want autonomy are more likely to end up in an organic structure

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LO7; Material pertinent to this discussion is found under “Organizational Designs and Employee Behaviour.”

Global Implications

Culture and Organizational Structure

Culture and Employee Structure Preferences

Culture and the Boundaryless Organization

Culture and the Impact of Downsizing

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LO7; Material pertinent to this discussion is found under “Organizational Designs and Employee Behaviour.”

Organizational Structure: Its Determinants and Outcomes

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LO7; Material pertinent to this discussion is found under “Why Do Structures Differ?”

Summary

Organizational structure determines the level of autonomy an individual has.

Organizational strategy, organizational size, technology, and environment determine an organization’s structure.

There is no one best structure, and individuals differ in their preference of organizational structure.

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Material pertinent to this discussion is found at the end of the chapter.

OB at Work: For Review (1 of 2)

What are the seven elements that define an organization’s structure?

What are the characteristics of a bureaucracy, and how does it differ from a simple structure?

What are the characteristics of a matrix organization?

What are the characteristics of a virtual organization and circular structures?

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Material pertinent to this discussion is found at the end of the chapter.

OB at Work: For Review (2 of 2)

What are the effects of downsizing on organizational structures and employees

What is the difference between a mechanistic structure and an organic structure?

What are the behavioural implications of different organizational designs?

13 - ‹#›

Material pertinent to this discussion is found at the end of the chapter.

OB at Work: For Managers (1 of 2)

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

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

Balance the advantages of virtual and boundaryless organizations against the potential pitfalls before adding flexible workplace options.

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Material pertinent to this discussion is found at the end of the chapter.

OB at Work: For Managers (2 of 2)

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

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

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Material pertinent to this discussion is found at the end of the chapter.

Breakout Group Exercises

Form small groups to discuss the following:

Describe the structure of an organization in which you worked. Was the structure appropriate for the tasks being done?

Have you ever worked in an organization with a structure that seemed inappropriate to the task? What would have improved the structure?

You are considering opening up a coffee bar with several of your friends. What kind of structure might you use? After the coffee bar becomes successful, you decide that expanding the number of branches might be a good idea. What changes to the structure might you make?

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Material pertinent to this discussion is found at the end of the chapter.

Concepts to Skills: Delegating Authority

Clarify the assignment.

Specify the employee’s range of discretion.

Allow the employee to participate.

Inform others that delegation has occurred.

Establish feedback controls.

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Material pertinent to this discussion is found at the end of the chapter.