Assignment 7

may2025

CH16PPT-withnotes.pptx

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Chapter 16

Organizational Structure and Design

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Introduction

Today’s global business environment makes structure and design consideration critical

Many structural possibilities exist

Structure helps achieve coordinated effort

Task and authority relationships are set

Primary purpose is to regulate behavior and achieve goals

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Organizational structure and design have always been important factors influencing the behavior of individuals and groups that comprise the organization; the new rules of operating in today’s global business environment make structure and design considerations even more critical.

Organizational structure is considered by many to be “the anatomy of the organization, providing a foundation within which the organization functions.” Thus, the structure of an organization can be viewed as a framework that “focuses on the differentiation of positions, formulation of rules and procedures, and prescriptions of authority.”

Structure refers to relatively stable relationships and processes of the organization. Therefore, the purpose of structure is to regulate, or at least reduce, uncertainty in the behavior of individual employees. Organizational design requires that managers make a conscious effort to predetermine the way employees do their work. Thoughtful managers design organizational structure in light of their purposes and goals, and how structure can contribute to organizational effectiveness. Structural decisions should also reflect company values and incorporate ethical and environmental considerations.

Organizational Design Models

Mechanistic Model

Specialization

Unity of Direction

Authority and Responsibility

Scalar Chain

Bureaucracy

Max Webber coined the term “bureaucracy”

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The two models of organizational design described in this section are important ideas in management theory and practice. Because of their importance, they receive considerable theoretical and practical attention. Although many variations on these models can be found in practice, we will focus on the basic elements of mechanistic and organic organizational designs.

Mechanistic organizational structures, like in the military and with certain religions, are formal, centralized, and complex. An early management writer, Henri Fayol, proposed a number of principles that he had found useful in managing a large coal mining company in France. Some of Fayol’s principles dealt with the management function of organizing; four of these are relevant for understanding the mechanistic model of organizational design.

Fayol stated that specialization is the best means for making use of individuals and groups. Scientific management popularized a number of methods for implementing specialization of labor. These methods, such as work standards and motion-and-time study, emphasized technical (not behavioral) dimensions of work.

Bureaucracy

In laymen’s terms…

The negative consequences of large organizations

According to Max Weber…

A particular way to organize collective activities

Superior to any other form in precision, stability, and the stringency of its discipline and reliability

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Bureaucracy has various meanings. The traditional usage is the political science concept of government by bureaus but without participation by the governed. In layman’s terms, bureaucracy refers to the negative consequences of large organizations, such as excessive red tape, procedural delays, and general frustration. But in Max Weber’s writings, bureaucracy refers to a concern for the ways society develops hierarchies of control so that one group can, in effect, dominate other groups. Organizational design involves domination in the sense that authority involves the legitimate right to exact obedience from others. His search for the forms of domination that evolve in society led him to the study of bureaucratic structure. According to Weber, the bureaucratic structure is “superior to any other form in precision, stability, discipline and reliability.

particular way to organize collective activities. Weber’s interest in bureaucracy reflected his

Bureaucracy

Weber’s organization characteristics…

All tasks divided into highly specialized jobs

Each task performed according to a system of rules to ensure uniformity and coordination

Each member or office is accountable for job performance to only one manager

Each employee relates to other employees and clients in an impersonal, formal manner

Employment is based on technical qualifications and is protected against arbitrary dismissal

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To achieve the maximum benefits of the bureaucratic design, Weber believed that an organization must have these characteristics.

Bureaucracy

Fayol and Weber describe mechanistic organizations with high production and efficiency as…

Highly complex

Highly centralized

Highly formalized

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The five characteristics of bureaucracy describe the kind of organizations Fayol believed to be most effective. Both Fayol and Weber described the same type of organization, one that functions in a machine-like manner to accomplish the organization’s goals in a highly efficient manner.

The Organic Model

The organic model seeks to maximize

Satisfaction

Flexibility

Development

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The organic model of organizational design stands in sharp contrast to the mechanistic model due to their different organizational characteristics and practices. The most distinct differences between the two models are a consequence of the different effectiveness criteria each seeks to maximize. While the mechanistic model seeks to maximize efficiency and production, the organic model seeks to maximize satisfaction, flexibility, and development.

The Organic Model

Flexible to environmental demands

Greater utilization of the human potential

Decision making, control, and goal setting

are decentralized and shared at all levels

Communication flows throughout the organization, not just up and down

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The organic organization is flexible to changing environmental demands because its design encourages greater utilization of human potential. Managers are encouraged to adopt practices that tap the full range of human motivations through job design that stresses personal growth and responsibility. Decision-making, control, and goal setting are decentralized and shared at all levels of the organization. Communications flow throughout the organization, not simply down the chain of command. These practices are intended to implement a basic assumption of the organic model, which states that an organization will be effective to the extent that its structure is “such as to ensure a maximum probability that in all interactions and in all relationships with the organization, each member, in the light of his background, values, desires, and expectations, will view the experience as supportive and one which builds and maintains a sense of personal worth and importance.

Characteristics of Organic Organizations

Simple

Informal

Decentralized

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An organizational design that provides individuals with this sense of personal worth and motivation and that facilitates satisfaction, flexibility, and development would have the following characteristics:

1. It’s relatively simple because of its de-emphasis on specialization and its emphasis on increasing job range.

2. It’s relatively decentralized because of its emphasis on delegation of authority and increasing job depth.

3. It’s relatively informal because of its emphasis on product and customer as bases for departments.

Designing an Organizational Structure

Establishing structure requires decisions about

Jobs

Work projects

Departments

Process may be explicit or implicit

May be one-shot or developmental

Can be done by a single manager or by a team of managers

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Managers who set out to design an organizational structure face difficult decisions. They must choose among a myriad of alternative frameworks of jobs, work projects, and departments. The process by which they make these choices is termed organizational design, and it means quite simply the decisions and actions that result in an organizational structure. This process may be explicit or implicit, it may be “one-shot” or developmental, it may be done by a single manager or by a team of managers.

Designing an Organizational Structure

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The first decision focuses on individual jobs, the next two decisions focus on departments or groups of jobs, and the fourth decision considers the issue of delegation of authority throughout the structure.

1. Managers decide how to divide the overall task into successively smaller jobs. Managers divide the total activities of the task into smaller sets of related activities. The effect of this decision is to define jobs in terms of specialized activities and responsibilities. Although jobs have many characteristics, the most important one is their degree of specialization.

2. Managers decide the bases by which to group the individual jobs. This decision is much like any other classification decision, and it can result in groups containing jobs that are relatively homogeneous (alike) or heterogeneous (different).

3. Managers decide the appropriate size of the group reporting to each superior. As we have already noted, this decision involves determining whether spans of control are relatively narrow or wide.

4. Managers distribute authority among the jobs. Authority is the right to make decisions without approval by a higher manager and to exact obedience from designated other people. All jobs contain some degree of the right to make decisions within prescribed limits. But not all jobs contain the right to exact obedience from others. The latter aspect of authority distinguishes managerial jobs from nonmanagerial jobs. Managers can exact obedience; nonmanagers can’t.

Division of Labor

Personal specialties

Sequence of work

Vertical plane

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Division of labor in organizations can occur in three different ways:

1. Personal specialties. Most people think of specialization in the sense of occupational and professional specialties.

2. Natural sequence of work. For example, manufacturing plants often divide work into fabricating and assembly, and individuals will be assigned to do the work of one of these two activities. This particular manifestation of the division of work is termed horizontal specialization.

3. Vertical plane .All organizations have a hierarchy of authority from the lowest-level manager to the highest-level manager.

Delegation of Authority

Managers decide how much authority is delegated to each job and jobholder

The amount and type of authority can vary

Authority refers to making decisions, not doing work

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Managers decide how much authority should be delegated to each job and each jobholder. As we have noted, authority refers to individuals’ right to make decisions without approval by higher management and to exact obedience from others. Delegation of authority refers specifically to making decisions, not to doing work.

Reasons to Decentralize Authority

Encourages development of professional managers

Can lead to competitive climate within the organization

Allows more autonomy; satisfies needs for participation and problem solving

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Relatively high delegation of authority encourages the development of professional managers.

Second, high delegation of authority can lead to a competitive climate within the organization.

Finally, managers who have relatively high authority can exercise more autonomy and thus satisfy their desires to participate in problem-solving. This autonomy can lead to managerial creativity and ingenuity, which contribute to the adaptiveness and development of the organization and managers.

Reasons to Centralize Authority

Cost of training managers to handle authority can outweigh the benefits

Managers may perform less effectively; they equate delegating authority with losing control

Lower administrative and supervisory costs

Avoids duplication of efforts

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Several reasons support centralizing authority

Decision Guidelines

Whether to centralize or decentralize authority can only be guided by general questions

How routine and straightforward are the required decisions?

Are individuals competent to make the decisions?

Are individuals motivated to make the decisions?

Do the benefits of decentralization outweigh the costs?

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Like most managerial issues, whether authority should be delegated in a high or low degree cannot be resolved simply. As usual, in managerial decision making, whether to centralize or decentralize authority can only be guided by general questions.

Departmental Bases

Functional

Product

Geographic

Customer

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The crucial managerial consideration when creating departments is determining the basis for grouping jobs. Of particular importance is the determination for the bases for departments that report to the top management position. In fact, numerous bases are used throughout the organization, but the basis used at the highest level determines critical dimensions of the organization. Some of the more widely used departmentalization bases are described on the following slides.

EXHIBIT 16.1 Functional Departmentalization Structure

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Managers can combine jobs according to the functions of the organization. Every organization must undertake certain activities to do its work. These necessary activities are the organization’s functions. The necessary functions of a manufacturing firm include production, marketing, finance, accounting, and human resources. These activities are necessary to create, produce, and sell a product. The principal advantage of the functional basis is its efficiency. That is, it seems logical to have a department that consists of experts in a particular field such as production or accounting. By having departments of specialists, management creates efficient units. An accountant is generally more efficient when working with other accountants and other individuals who have similar backgrounds and interests. They can share expertise to get the work done.

EXHIBIT 16.2 Geographic Departmentalization Structure

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Another basis for departmentalizing is to establish groups according to a geographic area. The logic is that all activities in a given region should be assigned to a manager. This individual is in charge of all operations in that particular geographic area. In large organizations, geographic arrangements are advantageous because physical separation of activities makes centralized coordination difficult.

EXHIBIT 16.3 Product Departmentalization Structure

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Managers of many large, diversified companies group jobs on the basis of product. All jobs associated with producing and selling a product or product line will be placed under the direction of one manager. The product becomes the preferred basis as a firm grows by increasing the number of products it markets. As a firm grows, it’s difficult to coordinate the various functional departments and it becomes advantageous to establish product units. This form of organization allows personnel to develop total expertise in researching, manufacturing, and distributing a product line. Concentrating authority, responsibility, and accountability in a specific product department allows top management to coordinate actions.

EXHIBIT 16.4 Customer Departmentalization Structure

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Customers and clients can be a basis for grouping jobs. Examples of customer-oriented departments are the organizational structures of educational institutions. Some institutions have regular (day and night) courses and extension divisions. In some instances, a professor will be affiliated solely with the regular division or extension division. In fact, titles of some faculty positions specifically mention the extension division. Another form of customer departmentalization is the loan department in a commercial bank. Loan officers are often associated with industrial, commercial, or agricultural loans. The customer will be served by one of these three loan officers.

EXHIBIT 16. 5 Matrix Organizations

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The matrix model of organizational design attempts to maximize the strengths and minimize the weaknesses of both the functional and product bases. In practical terms, the matrix design combines functional and product departmental bases. Matrix organizations achieve the desired balance by superimposing, or overlaying, a horizontal structure of authority, influence, and communication on the vertical structure. In the arrangement shown in Exhibit 16.5, personnel assigned in each cell belong not only to the functional department, but also to a particular product or project.

Span of Control

The number of subordinates who report to a superior

Affects shape & height of organization structure

Depends on how many people and relationships a manager can oversee

Key factors

Required contact

Degree of specialization

Ability to communicate

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The determination of appropriate bases for departmentalization establishes the kinds of jobs that will be grouped together. But that determination doesn’t establish the number of jobs to be included in a specific group, the issue of span of control. Generally, the issue comes down to the decision of how many people a manager can oversee; that is, will the organization be more effective if the span of control is relatively wide or narrow? The question is basically concerned with determining the volume of inter-personal relationships that the department’s manager is able to handle. Moreover, the span of control must be defined to include not only formally assigned subordinates, but also those who have access to the manager. Not only may a manager be placed in a position of being responsible for immediate subordinates, but she may also be chair-person of several committees and task groups.

Dimensions of Structure

Formalization

Centralization

Complexity

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Managers need to consider how the four design decisions (division of labor, delegation of authority, departmentalization, and span of control) influence the structure of their organizations. In a similar vein, there are three dimensions of organizational structure that interact with these design decisions, namely formalization, centralization, and complexity.

EXHIBIT 16.6 Organizational Dimensions and Decisions

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Relationships between dimensions of organizational structure and the four design decisions are summarized in Exhibit 16.6. It notes the causes of only high formalization, centralization, and complexity. However, the relationships are symmetrical—the causes of low formalization, centralization, and complexity are the opposite of those in the exhibit.

Multinational Structure and Design

Structural design considerations

Division of labor

Delegation of authority

Departmentalization

Span of control

Organizational designs also shaped by

Social, political, cultural, legal, and economic environments

Geographic location

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As we have seen previously, four design decisions regarding division of labor, delegation of authority, departmentalization, and span of control shape the design of organizational structures. These decisions, in turn, are affected by a variety of factors. Foremost among them are the social, political, cultural, legal, and economic environments in which the organization is operating. Because of their very nature, multinational corporations frequently exist in very divergent environments. A multinational corporation may be categorized as consisting of a group of geographically dispersed organizations with different national subsidiaries. One approach to setting up a foreign subsidiary is that of replication. That is, the same organizational structure and operating policies and procedures that exist in the existing domestic organization are used. The potential difficulty with such a practice is that it may result in the reliance upon organizational designs and management practices that are simply unsuitable for the environment of the host country. This may explain why foreign subsidiary organizational structures tend to evolve over time as the company becomes more internationalized.

Multinational Structure and Design

Geographic

Product

Function

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The most prevalent departmental basis is geographical. This arrangement has national and regional managers reporting to a headquarters in the same national or regional area. Geographic-based organizations for multinational corporations (MNCs) have the same characteristics as those for domestic organizations. Each national or regional office has all the resources necessary to produce and market the product or service. MNCs having a diversified product line may find certain advantages in the product-based organizational structure. This structure assigns worldwide responsibility for a product or product line to a single corporate office, and all foreign and domestic units associated with that product report to the corporate product office.

Virtual Organizations

Collection of geographically distributed, functionally and/or culturally diverse individuals linked by electronic communication

One of the fastest developing business practices

Enables reliance on smaller, closer-to-market partners

Relies on blurred boundaries to forge relationships that are often governed by contract

Is assembled and disassembled according to needs

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One of the fastest-developing practices in business throughout the world involves firms in cooperative relationships with their suppliers, distributors, and even competitors. These networks of relationships enable organizations to achieve both efficiency and flexibility to exploit advantages of the mechanistic and organic organizational designs. These “virtual organizations” have become so pervasive that some experts refer to them as the models for 21 st century organizations. Cooperative relationships enable the principal organization to rely upon the smaller, closer-to-the-market partner to sense impending changes in the environment and to respond at the local level, thus relieving the parent organization of that necessity.

Virtual Organizations

EXHIBIT 16.7 Characteristics of Virtual Organization and Some Consequences

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Exhibit 16.7 captures the main characteristics of virtual organizations. The characteristics are applicable to a movie production firm in which personnel are aggregated to complete a film; to an e-learning company preparing training courseware (that subject matter experts prepare) for delivery online to clients; to a manufacturing firm in which subcontractors—both domestically and globally based—provide raw materials, manufacturing processes, distribution and storage facilities, and research; and to development consortia, in which intellectual properties flow through the companies in a specific geographic region.

Exhibit 16.7 summarizes some of the factors, implications, and possible consequences of virtual organizations. These attributes can be applied to any type of virtual team, unit, organization, or consortia. Proponents of the virtual-style organization propose that the benefits of this type of arrangement are faster response time, autonomy, greater flexibility, and more efficient use of technical, behavioral, and professional expertise. The critics argue that virtual organizations mean increased conflict, decreased loyalty, a lack of any coherence in plans and strategies, information overload, and no social inter-action fulfillment.

Virtual Organizations

Exact form of virtual organizations varies

Develop relationships only with key suppliers

Develop relationships with marketers and distributors

The parent organization acts as a broker, dealing independently with product designers, producers, suppliers, and markets

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Virtual organizations have come a long way since they originated in Japan, where firms create alliances with other firms. These alliances take the form of cooperative agreements, consortia, and equity ownerships to establish networks of businesses. In Japan, this form of doing business is termed keiretsuand involves a very large financial institution, a very large industrial conglomerate, and smaller firms in a network of relationships that enable the large firm to produce the product and the smaller firms to supply components, do research and design, and perhaps distribute and market. The participating bank provides the financial requirements to support the network of cooperative relationships. This form of interorganizational network has enabled Japanese industry to grow without supply bottlenecks and damage to competition from domestic firms.

Boundaryless Organizations

In boundaryless organizations…

Chains of command are eliminated

Spans of control are unlimited

Empowered teams replace rigid departments

Rigid structure and specificity create barriers

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The command and control, top-down, mechanistic organizational design is orderly, specific, and relies on defined roles for employees, managers, and nonmanagers. Companies such as Motorola, Oticon A/S, and Coca-Cola are continuously attempting to minimize and, in some cases, eliminate vertical and horizontal structures, tightly defined work roles, and top-down control. They are working to achieve what is referred to as a boundaryless organization .The assumption these and other firms are making is that rigid structure and too much specificity create barriers within a firm and between a firm and its external suppliers and customers.

Boundaryless Organizations

Flatter hierarchy

Less distance between layers

Less separation between top-level managers and other employees

More emphasis on

Participative decision making

Multiple-hierarchy teams

Team building

Coordination

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The minimization of layers results in a flatter hierarchy. There is still a hierarchy, but there is less distance, less separation between top-level managers and other employees. The boundaryless organization also emphasizes participative decision making, multiple-hierarchy teams (executives, managers, operating employees), team building, and coordination.

Boundaryless Organizations

The boundaryless organization involves the breaking down of…

Structure

Hierarchy

Specific roles

Distance

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The effective boundaryless organization breaks down barriers with external constituents and distance. Strategic alliances and telecommunicating are examples of how to break down barriers. The Japanese keiretsu relationship is an example of a vertical alliance between large corporations and their suppliers. Typically, the large business takes a minority ownership (e.g., 10 percent) in a supplier. The two organizations become bonded in a strategic partnership for their mutual gain. There is little room for communication, decision making, and strategic choice barriers in alliances. The leveraging of resources, achievement of goals, and reduction of risks are some of the reasons Coca-Cola and Apple Computer have adopted alliances to reduce unnecessary structural barriers with external constituents.

Assignment 7

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