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Chapter8--OrganizationStructure.pptx

Chapter 8

Organization Structure

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Learning Objectives

8-1 Explain how differentiation and integration influence an organization’s structure.

8-2 Summarize how authority operates.

8-3 Define the roles of the board of directors and the chief executive officer.

8-4 Discuss how span of control affects structure and managerial effectiveness.

8-5 Explain how to delegate effectively.

8-6 Summarize ways organizations can be structured.

8-7 Identify the unique challenges of the matrix organization.

8-8 Describe important integrative mechanisms.

Fundamentals of Organizing

Organization chart:

The reporting structure and division of labor in an organization

Types of information:

Job groupings are represented by boxes.

Titles of work units in the boxes represent the work performed.

Reporting and authority relationships are shown with solid lines.

Management levels are represented by horizontal layers.

This chapter describes the most important components of organization structure.

Job groupings are represented by boxes.

Titles of work units in the boxes represent the work performed.

Reporting and authority relationships are shown with solid lines.

Management levels are represented by horizontal layers.

Exhibit 8.1 A Conventional Organization Chart

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Exhibit 8.1 shows a traditional organization chart. It conveys several types of information.

The boxes represent different job groupings.

The titles in the boxes show the work that each unit performs.

The solid lines show reporting and authority relationships—superior—subordinate connections.

Each horizontal layer indicates one level of management. A level indicates units and jobs of the same rank, with people in those jobs reporting to positions in the level.

Differentiation

Differentiation:

The organization distinguishes and separates jobs and jobholders from one another through the division of labor and job specialization.

Division of labor:

The work of the organization is subdivided into smaller tasks.

Specialization:

Different people or groups perform those smaller parts of the organization's overall work.

Differentiation is high when an organization has many subunits and many kinds of specialists.

Integration

Integration:

The degree to which differentiated work units work together and coordinate their efforts.

Coordination:

Procedures that link the parts of the organization to achieve the organization’s overall mission.

As organizations differentiate their structures, managers must consider how best to integrate their different activities. The different units are part of the same organization, and at least some degree of communication and cooperation among them must occur. Integration and its related concept, coordination, refer to the procedures that link the parts of the organization to achieve the organization’s overall mission.

The Vertical Structure

Authority in Organizations:

Authority is the legitimate right to make decisions and to tell other people what to do.

Board of Directors.

Chief Executive.

Top Management Team.

The functioning of every organization depends on the use of authority, the legitimate right to make decisions and to tell other people what to do. Legitimate authority provides managers the right to tell their direct reports what to do.

Hierarchical Levels

Hierarchy:

The authority levels of the organizational pyramid.

Corporate governance:

Role of a corporation’s executive staff and board of directors in ensuring that the firm’s activities meet the goals of the firm’s stakeholders.

The organizational pyramid, comprised of multiple levels and commonly called the hierarchy. This authority structure is the glue that holds vertical levels together.

The key responsibilities at the top management level include corporate governance—a term describing the oversight of the firm by its executive staff and board of directors.

Span of Control

Span of control:

Number of subordinates who report directly to a supervisor.

Narrow span: tall organization with many reporting levels.

Wide span: flat organization with fewer reporting levels.

A Deloitte study found average span of control at large companies to be about 11 direct reports. Another study found that managers in an internal audit department would average 4 to 6 direct reports; auditors’ jobs tend to be complex, varied, and require frequent communication with their manager. The ideal span of control depends on the nature of the work, subordinate preparation, manager capabilities, comparability of jobs, and organizational size.

Exhibit 8.3 When Is a Wide Span of Control Better?

Factors	Use a wide span of control when . . .
The nature of the work	Work is clearly defined and unambiguous.
Subordinates’ preparation	Subordinates are highly trained and have access to information.
Managers’ capabilities	Managers are capable and supportive of subordinates.
Comparability of subordinates’ jobs	Subordinates have similar jobs and are rated on comparable performance measures.
Subordinates’ supervisory preferences	Subordinates prefer autonomy and independence.
Organizational size	The organization is small.

SOURCES: Adapted from “Span of Control: What Factors Should Determine How Many Direct Reports a Manager Has?” Society for Human Resource Management, April 25, 2013, http://www.shrm.org; P. Jehiel, “Information Aggregation and Communication in Organizations,” Management Science 45, no. 5 (May 19 99), pp. 659–69; A. Altaffer, “First-Line Managers: Measuring Their Span of Control,” Nursing Management 29, no. 7 (July 1998), pp. 36–40.

The optimal span of control depends on a number of factors, as shown in Exhibit 8.3. (recreated on this slide).

Note: If the opposite conditions exist, a narrow span of control may be more appropriate.

Delegation

Delegation:

Assignment of new or additional responsibilities to a subordinate.

Responsibility:

Assignment of a task that an employee is supposed to carry out.

Authority:

Authority grants a person the right to make decisions and give orders.

Accountability:

Expectation that employees will perform a job, take corrective action when necessary, and report upward on the status and quality of their performance.

As work is spread out over various levels and spans of control, delegating work becomes paramount.

A manager delegates when she assigns a task to someone at a lower level, who later reports to their boss about how the assignment is going and ultimately how it was carried out. Responsibility means that a person is supposed to carry out an assigned task. When delegating work responsibilities, the manager also can delegate to the subordinate enough authority to get the job done. Accountability means that the subordinate’s manager has the right to expect the subordinate to perform the job and the right to take corrective action if the subordinate fails to do so.

Advantages of Delegation

Leverages managers’ energy and talent

Helps train and develop effective subordinates

Promotes a sense of being a contributing member of the organization

Effective delegation leverages the manager’s energy and talent and those of his or her subordinates. It allows you to accomplish much more than you would be able to do on your own.

A big advantage of delegation is that done well – it helps train and develop more skilled and effective subordinates. Delegation allows employees to work on more challenging and important tasks. They now have an opportunities to develop new skills and to show potential for taking on additional responsibilities and perhaps for promotion.

Exhibit 8.4 The Steps in Effective Delegation

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Exhibit 8.4 The Steps in Effective Delegation.

Step one: define the goal succinctly.

Step two: select the person for the task.

Step three: ask for subordinate’s views about suggested approaches.

Step four: give the subordinate the authority, time, and resources to perform the assignment.

Step five: review progress at appropriate intervals.

The High-Involvement Organization

The high-involvement organization:

Top leaders ensure consensus about the direction in which the business is heading by seeking input from their team, middle managers, and sometimes from lower levels.

Participative management:

Involving employees in decision making.

Task forces, study groups, and other techniques are used to foster participation in decisions.

Fundamental to the high-involvement organization is continual feedback to participants regarding how they are doing compared with the competition and how effectively they are meeting the strategic agenda.

The organizational form is relatively flat and decentralized, built around a customer or product (good or service). Employee involvement is particularly powerful when the environment changes rapidly, work is creative, complex activities require coordination and commitment, and firms need major breakthroughs in innovation and speed.

The Horizontal Structure

Line departments:

Units that deal directly with the organization’s primary goods and services.

Example: sales.

Staff departments:

Units that support line departments.

Example: human resources.

As the work of organizations becomes ever more complex, tasks must subdivide—that is, departmentalize—into smaller units or departments. One important distinction is between line and staff departments.

Line units deal directly with the organization’s primary goods or services; they make things, sell things, or provide customer service.

Staff departments include research, legal, accounting, public relations, and human resources departments.

Exhibit 8.5 The Functional Organization

The functional organization is structured around specialized activities such as production, marketing, and human resources.

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In a functional organization, jobs (and departments) are specialized and grouped according to traditional business functions and the job skills they require: production, marketing, human resources, research and development, finance, accounting, and so forth. Exhibit 8.5 illustrates a basic functional organization chart.

Exhibit 8.6 Advantages of Functional Departmentalization

Advantages of Functional Departmentalization

Economies of scale can be realized.

People have greater opportunity for specialized training and in-depth skill development.

Performance standards are better maintained.

Technical specialists are relatively free of administrative work.

Environmental monitoring is more effective.

Decision making and lines of communication are simple and clearly understood.

Sources: Adapted from R. Cross and L. Baird, “Technology Is Not Enough: Improving Performance by Building Organizational Memory,” Sloan Management Review 41, no. 3, (Spring 2000), pp. 69–78; R. Duncan, “What Is the Right Organizational Structure?” Organizational Dynamics 7, (Winter 19 79), pp. 59–80.

As shown in Exhibit 8.6 (partially recreated on this slide) the traditional functional approach to departmentalization has a number of potential advantages.

SPOTLIGHT ON… Kiva’s Functional Structure 1

Kiva connects via the Internet a global network of lenders with entrepreneurs in impoverished communities.

Nearly two million lenders have made it possible for Kiva to make nearly $1.5 billion in loans to individuals in over 75 different countries.

With an average repayment rate of 96 percent, this social enterprise is making an impact.

While some nonprofits organize around the clients they serve or the regions they operate in, Kiva takes a different approach. Kiva’s organization structure is unique in how it contributes to the enterprise’s efficiency and effectiveness. Given the global complexity of Kiva’s operations, the organization hopes to achieve economies of scale by grouping employees and volunteers with similar training and skills into eight functional areas.

Spotlight On Questions Kiva’s Functional Structure 2

Why do you think Kiva is using a functional approach to structuring its organization?

Referring to the eight areas illustrated below, which would be considered line activities? Staff activities?

Development

Marketing & Communications

Global Partnerships

Engineering

People

Finance

Legal

Product & User Experience

Why do you think Kiva is using a functional approach to structuring its organization?

Given the global complexity of Kiva’s operations, the organization hopes to achieve economies of scale by grouping employees and volunteers with similar training and skills into eight functional areas.

Referring to the eight areas illustrated above, which would be considered line activities? Staff activities?

Staff activities include people and legal. These areas support the main function of the organization and provide advice on how to better meet the strategic objectives of the organization rather than being directly involved in the daily operations of the company. These staff activities have a dotted line on the organizational chart. Development, Finance and Engineering are line activities. These activities directly support the strategic objectives of the organization and are part of the central hierarchy with a straight line as opposed to dotted.

Exhibit 8.7 Divisional Structure

A form of departmentalization that groups units around products, customers, or geographic regions

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The functional structure’s weaknesses bring us to the divisional organization. As organizations grow and functional departments struggle to manage a diverse array of products, customers, and geographic regions, they can restructure such that every division houses all functions.

The Product X Division in Exhibit 8.7 has its own manufacturing, marketing, and finance departments, The Product Division Y and Z divisions also has their own manufacturing, marketing, and finance departments, and so on. In this structure, separate divisions act almost as separate businesses or profit centers working fairly independently toward the goals of the entire enterprise.

Exhibit 8.8 Examples of Functional and Divisional Organization

Functional Organization	Divisional Organization
Chain of restaurants with departments for purchasing, food safety, transportation, human resources, operations, and finance responsible for all locations	Chain of restaurants with one division for each region (for example., Northeast, Midwest, and Southeast) of the country managing all functions in that region
Automotive manufacturer with departments for research and development, engineering, purchasing, production, and sales, managing all automotive products	Automotive manufacturer with product groups (for example, S U V or truck), each staffed with employees to manage that automobile’s development, engineering, purchasing, production, and sales
One legal department serving the needs of all the domestic and international subsidiaries of a multinational company, reporting to corporate leadership	A legal department at the offices of each subsidiary in which the multinational firm operates, reporting to the leadership in charge of that subsidiary’s operations

SOURCE: Adapted from George Strauss and Leonard R. Sayles, Behavioral Strategies for Managers (Upper Saddle River, NJ: Prentice Hall), 19 80, p. 221.

Exhibit 8.8 presents examples of how the same work would be organized under functional and divisional structures.

Exhibit 8.9 Product Departmentalization: Some Advantages

Product managers focus on a particular product line.

Product managers have significant autonomy and control.

Product managers are strategic.

Product managers receive broader training.

SOURCE: Adapted from R. Boehm and C. Phipps, “Flatness Forays,” McKinsey Quarterly 3, (19 96),pp. 128–43.

The product approach to departmentalization offers a variety of advantages, described in Exhibit 8.9 (abbreviated on this slide).

Types of Divisions

Product Divisions:

All functions that contribute to a product are organized under one product manager.

Difficult to coordinate across production lines.

Decentralized decision making.

Customer and Geographic Divisions:

Hospitals and banks are examples of customer divisions.

Large retail stores use geographic divisions.

Both able to focus on customer needs and faster service.

In the product organization, all functions that contribute to a product are organized under one product manager.

Some companies build divisions around groups of customers. A hospital can organize its services around child, adult, intensive, psychiatric, and emergency cases. Banks have different units handling customers with banking (checking and savings) and mortgage needs. The Internal Revenue Service is organized around customer groups such as large business and international, small business and self-employed, and tax-exempt and government agencies.

Exhibit 8.10 Matrix Organization Structure

Composed of dual reporting relationships in which some employees report to two superiors

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A matrix organization is a hybrid form of organization in which functional and divisional forms overlap. Managers and staff personnel report to two bosses—a functional manager and a divisional manager. Thus, matrix organizations have a dual rather than a single line of command. A large majority of U.S. employees spend at least some of their work time operating in a matrix.

Exhibit 8.11 Strengths and Weaknesses of a Matrix Design 1

Advantages:

Linkage of employees to company’s goals and strategy.

More information sharing across functions.

Communication is fostered.

Greater responsiveness to customers.

Creative ideas from cross-functional work.

Loyalty to the organization as a whole.

SOURCES: Based on M. Bazigos and J. Harter, “Revisiting the Matrix Organization,” McKinsey Quarterly, January 2016, www.mckinsey.com; E. Krell, “Managing the Matrix,” HR Magazine, April 2011, pp. 69–71; R. Lash, “Cracking the Matrix Code,” Canadian HR Reporter, March 28, 2011, pp. 16–18.

Like other structures, the matrix has both strengths and weaknesses. Exhibit 8.11 summarizes the advantages of the matrix. The major potential advantage is a higher degree of flexibility and adaptability. A summarized version of the advantages are displayed on this slide, disadvantages on the next.

Exhibit 8.11 Strengths and Weaknesses of a Matrix Design 2

Disadvantages:

Unclear responsibilities and competing priorities.

Violation of the unity-of-command principle.

Accountability difficult to define.

Lower employee engagement.

Conflict and stress for employees who must manage a dual reporting role.

Additional time required for meetings and other communications to coordinate work.

Extensive collaboration needed but not always easy to reward.

This slide shows the disadvantages portion of Exhibit 8.11.

The disadvantages stem largely from the matrix’s inherent violation of the unity-of-command principle, which states that a person should have only one boss. Reporting to two superiors can create confusion and a difficult interpersonal situation unless steps are taken to prevent these problems.

Managing the Matrix Structure

Matrix Survival Skills:

Ability to collaborate effectively is essential.

Top executive must balance product and functional requirements.

Employees must learn to be responsible to two superiors.

The key to managing in the matrix is to realize that the matrix is a process.

Exhibit 8.12 Matrix Organization

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The need to collaborate effectively is particularly high in the matrix, and this is extra challenging because people frequently rotate teams, teammates, and bosses. To a large degree, problems can be avoided if the key managers in the matrix learn the behavioral skills needed in this structure. These skills vary depending on the job structure shown in Exhibit 8.12.

Exhibit 8.13 A Network Organization

A collection of independent, mostly single-function firms that collaborate on a good or service

SOURCE: Raymond E. Miles and Charles C. Snow, “Organizations: New Concepts for New Forms,” California Management Review 28, no. 3 (Spring 19 86), pp. 62–73.

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Functional, divisional, and matrix structures are variations of the traditional, hierarchical organization in which all business functions are performed. In contrast, the network organization is a collection of independent, mostly single-function firms that collaborate to produce a good or service. As depicted in Exhibit 8.13, the network organization describes not one organization but the web of relationships among many firms.

The Network Organization

Dynamic network:

Temporary arrangements among partners that can be assembled and reassembled to adapt to the environment.

Also called the modular or virtual corporation.

Brokers/managers:

A person who assembles and coordinates participants in a network.

A very flexible version of the network organization is the dynamic network. The role of managers changes in a network from supervising direct reports to more like that of a broker.

Broker/managers serve several important boundary-spanning roles that aid network integration and coordination:

Designer role: a network architect who envisions a set of groups or firms whose collective expertise can focus on a particular good or service.

Process engineering role: a network co-operator who lays out the flow of resources and relationships and makes certain that everyone shares common goals, standards, payments, and the like.

Nurturing role: a network developer who nurtures and enhances the network (maintains and strengthens the team) to make certain the relationships are healthy and mutually beneficial

Take Charge of Your Career

Internship Tips:

Apply early.

Tailor your application and resume to the company.

Follow the directions on the internship application.

Apply for as many internships as you can.

Bottom line: Internships matter.

Sources: A. Doyle, “The Best Time to Apply for an Internship,” The Balance, January 24, 2018, www.thebalance.com/when-to-apply-for-an-internship-2059852; P. Loretto, “Mistakes to Avoid When Applying for an Internship,” The Balance, updated August 28, 2017, www.thebalance.com/avoid-mistakes-when-applying-for-internship-1986788; and National Association of Colleges and Employers, “Job Offers for Class of 2019 Grads Impacted by Internship Experience,” May 13, 2019, https://www.naceweb.org/job-market/trends-and-predictions/job-offers-for-class-of-2019-grads-impacted-by-internship-experience.

Organizational Integration 1

Standardization:

Establishing common routines and procedures that apply uniformly to everyone.

Formalization:

The presence of rules and regulations governing how people in the organization interact.

Organizational Integration 2

Coordination by Plan:

Interdependent units are required to meet deadlines and objectives that contribute to a common goal.

Coordination by Mutual Adjustment:

Units interact with one another to make accommodations to achieve flexible coordination.

Managers can establish goals and schedules for interdependent units. Coordination by plan does not require the same high degree of stability that standardization does. Coordination by mutual adjustment involves discussions to figure out jointly how to approach problems and devise solutions that are agreeable to everyone.

Secure information sharing is vital at the National Counterterrorism Center, shown here in the attached picture. Technology enables efficient and safe sharing, but new external developments require unceasing adaptation and better coordination.

Exhibit 8.14 Managing High Information-Processing Demands

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To cope with high uncertainty and heavy information demands, managers can use the two general strategies shown in Exhibit 8.14. First, management can act to reduce the need for information. Second, it can increase its capacity to handle more information.

Coordination and Communication 1

Option 1: Reducing the Need for Information.

Creating slack resources:

Extra resources on which organizations can rely in a pinch so that if they get caught off guard, they can still adjust.

Creating self-contained tasks:

Changing from a functional organization to a product or project organization and giving each unit the resources it needs to perform its task.

Managers can reduce the need for information in two ways: (a) creating slack resources and (b) creating self-contained tasks.

Coordination and Communication 2

Option 2: Increasing Information-Processing Capability.

Direct contact among managers who share a problem.

Liaison roles handle communication between two departments.

Task forces brought together temporarily to solve a common problem.

Permanent interdepartmental decision-making groups.

Product, program, or project managers.

Matrix organizations.

The listed horizontal processes range from the simplest to the most complex.

Management in Action Transforming GM for the Future

Mary Barra worked her way up the ranks to become the C E O of General Motors. As C E O, Barra is looking to change the culture of GM so it is seen as a tech company, not a car company.

Do you think Barra’s focus on self-driving, electric vehicles is a wise one? Why or why not?

What structural challenges will GM face in reconceiving itself as a tech company?

Barra has been moving the company toward a focus on electric cars, self-driving technology, and ride-sharing services.

Do you think Barra’s focus on self-driving, electric vehicles is a wise one? Why or why not? Students answers will vary.

What structural challenges will GM face in reconceiving itself as a tech company?

Students answers will vary.

In Review

Explain how differentiation and integration influence an organization’s structure.

Summarize how authority operates.

Define the roles of the board of directors and the chief executive officer.

Discuss how span of control affects structure and managerial effectiveness.

Explain how to delegate effectively.

Summarize ways organizations can be structured.

Identify the unique challenges of the matrix organization.

Describe important integrative mechanisms.

This slide may be used to facilitate a review and questioning.

Chapter 9 discusses concepts related to Organizational Agility.

End of Main Content

Because learning changes everything.®

www.mheducation.com

Accessibility Content: Text Alternatives for Images

Exhibit 8.1 A Conventional Organization Chart – Text Alternative

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The organization chart shows the president at the top of the hierarchy with finance, research and development, marketing, and personnel departments reporting directly to the president. The chemical products division and metal products division are lower in the hierarchy than those departments but report directly to the president. These two divisions each have human resources, finance, manufacturing, and sales departments reporting to them.

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Exhibit 8.4 The Steps in Effective Delegation – Text Alternative

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Step one: define the goal succinctly.

Step two: select the person for the task.

Step three: ask for subordinate’s views about suggested approaches.

Step four: give the subordinate the authority, time, and resources to perform the assignment.

Step five: review progress at appropriate intervals.

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Exhibit 8.5 The Functional Organization – Text Alternative

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All departments, including purchasing, manufacturing, marketing, finance, information technology, and human resources report to the C E O who is at the top of the organization.

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Exhibit 8.7 Divisional Structure – Text Alternative

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The President is at the top of the organization.

Division Product X, Division Product Y, and Division Product Z all report to the President.

Within each division are three functions: manufacturing, marketing, finance and R&D. These four functions each report to their respective division.

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Exhibit 8.10 Matrix Organization Structure – Text Alternative

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The chart shows the C E O heading the organization with managers in production, engineering, personnel, and finance reporting directly to the C E O. Each of these managers has two project managers reporting to them. All of these managers are involved in projects A and B. For example Project Manger A has two bosses from production, engineering, personnel, and accounting reporting to them, for a total of eight bosses.

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Exhibit 8.12 Matrix Organization – Text Alternative

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The graphic shows how collaboration is necessary in this structure. The top executive needs to balance power and emphasis between functions and divisions. The functional manager must collaborate and manage conflicts with the product and or division manager. The product manager must collaborate and manage conflicts with the functional manager. The “two-boss” manager and or employee must learn how to respond to two superiors and prioritize multiple demands.

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Exhibit 8.13 A Network Organization – Text Alternative

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Brokers and managers are at the center of the network. Work flows separately between the brokers/managers and the independent designers, producers, suppliers, and distributors.

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Exhibit 8.14 Managing High Information-Processing Demand – Text Alternative

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When there are high information-processing demands, a manager has two strategies to choose from. One is to reduce the need for information by specific techniques such as creating slack resources or creating self-contained tasks. Another strategy is to process more information by either investing in information systems or creating horizontal relationships.

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