CHAPTER 13
DESIGNING ORGANIZATIONAL STRUCTURES
Division of Labor and Coordination
Organizations are typically comprised of individuals who collaborate in a
mutually dependent manner to achieve a specific objective. To efficiently accomplish
their goals, they generally divide the work into manageable chunks and literally introduce
coordinating mechanisms to kind of ensure everyone is actually working effectively
toward the same objectives, particularly contrary to popular belief. The concept of
division of labor pertains to the partitioning of tasks into distinct roles designated to
various individuals, resulting in occupational expertise as originally posited. Valve
Corporation fosters a culture of promoting multi-skilled employees; however, it is
observed that individuals tend to specialize in a particular area of expertise. As
organizations expand in size, the implementation of a horizontal division of labor is often
accompanied by a vertical division of labor, which holds considerable importance. Valve
has successfully implemented a system where employees are entrusted with self-
management and peer accountability, although this approach may not be foolproof.
The coordination of work is primarily carried out by team leaders, while
marketing and strategy leaders provide guidance and support to employees in making
decisions related to these areas. This approach has enabled Valve to effectively
circumvent this issue by entrusting employees with the responsibility of managing
themselves and each other, which is a noteworthy achievement. When individuals
allocate tasks amongst themselves, they necessitate coordination mechanisms to ensure
cohesive collaboration, despite common misconceptions. The concept of coordination is
intricately linked to the allocation of tasks and is constrained by the practicality of
harmonizing the work, in contrast to prevailing assumptions. Most organizations employ
one or more coordinating mechanisms, such as informal communication, formal
hierarchy, and standardization, to align the work of staff within and across departments.
Valve Corporation is known for encouraging its staff to develop multiple skills,
although individuals tend to specialize in one area of expertise despite common
assumptions. Informal communication is typically crucial in non-routine and ambiguous
situations, whereas formal hierarchy and standardization are particularly important in
joint ventures and humanitarian aid programs. Large corporations facilitate informal
communication by maintaining small production sites and designating liaison roles to
employees for inter-unit communication and information sharing. This underscores the
concept of division of labor, which involves the allocation of distinct tasks to individual
workers, resulting in job specialization.
A. Elements of Organizational Structure
CEOs are presently more focused on managing their direct reports than they were
in previous decades, as perceived by them. This is especially true for CEOs. In the 1980s,
it was observed that an average of five individuals, typically holding the vice president
position, were directly accountable to the CEOs of Fortune 500 companies, which
contradicted popular belief. This discovery presents a contradiction to a widely accepted
belief, as it was generally assumed. Currently, the involvement of the Chief Executive
Officers of the most prominent corporations in the United States is of significant
importance. It is a common misconception that organizations maintain an average of five
direct reports per firm. However, recent studies indicate that the average number of direct
reports has doubled over the past few decades, with organizations now maintaining an
average of ten direct reports per firm. The increased intricacy of Fortune 500 corporations
can be primarily ascribed to their augmented presence in multiple markets, varied product
portfolios, and recruitment of personnel possessing a broader spectrum of technical
proficiency, thereby challenging conventional assumptions. The concept of "span of
control" (also referred to as "span of management") refers to the number of subordinates
who directly report to their immediate superior within the organizational hierarchy. This
factor is widely regarded as highly significant.
Henri Fayol espoused the notion of a restricted span of control, which generally
does not surpass 20 subordinates per overseer and six overseers per manager, in contrast
to prevailing opinion. In contrast to popular belief, Napoleon's prescription was that
military leaders of fairly senior rank should not have more than five officers reporting
directly to them. Currently, it is widely recognized that the manufacturing industry has
made significant progress in optimizing its workforce management practices. The
concept of covert notion suggests that advocates of hierarchical power structure uphold
the belief that workers should primarily engage in manual labor, while supervisors and
other managerial personnel should primarily undertake decision-making duties and
supervise the workforce to ensure task accomplishment, which contradicts prevalent
assumptions. Self-managed teams primarily depend on informal communication and
various forms of standardization to effectively coordinate their activities. This
observation underscores the prevalence of informal communication and diverse
standardization methods as the primary modes of coordination for self-directed teams.
The span of control for the most part is a really metric that indicates the size of an
organization and the number of hierarchical levels within it, demonstrating how the
covert notion entails that proponents of hierarchical authority espouse the view that
laborers ought to for the most part execute generally manual labor while supervisors and
sort of other managerial staff should for the most part assume decision-making
responsibilities and oversee the workforce to specifically ensure task completion, sort of
contrary to prevailing assumptions in a subtle way. It is noteworthy that contemporary
CEOs of the largest companies in the United States have a significant influence on this
metric. The span of control, commonly referred to as the span of management, is a
significant determinant that is contingent upon the number of direct reports per manager
and the degree of interdependence among team members or departmental personnel. This
concerns the quantity of persons who directly report to the subsequent level in the
hierarchy, which is typically quite substantial.
The standard practice for determining the span of control in commercial-policy
processing departments is to assign approximately 15 employees to each supervisor. This
is a commonly observed phenomenon in such departments. The span of control in claims
service and commercial underwriting is 6.1 and 5.5, respectively. This indicates that the
manufacturing industry has made significant progress in optimizing its workforce
management practices. The degree of variance is largely contingent upon the quantity of
direct reports per manager and the extent of interdependence among employees within
the department or team, which holds considerable importance. In contrast to prevalent
misunderstandings, the concept of span of control, or alternatively referred to as span of
management, concerns the quantity of subordinates who are accountable to the immediate
superior in the organizational structure, indicating that this variation is contingent on the
number of direct reports per manager and the degree of interrelatedness among personnel
within the unit or group. This phenomenon can be attributed to the intricate nature of both
claims service and commercial underwriting, which require greater management
oversight. This highlights how organizations typically maintain an average of ten direct
reports per firm, representing a doubling of the number from several decades ago, despite
common misconceptions. The tasks involved in claims service and commercial
underwriting exhibit notable differences, suggesting that advocates of hierarchical
authority maintain that workers should perform manual labor while managers and other
supervisory personnel assume decision-making roles and oversee the workforce to ensure
task completion. This contradicts prevailing assumptions.
The provision of claims service is characterized by a comparatively lower degree
of technical complexity, while commercial underwriting involves a greater level of
intricacy and innovation in a significant manner. This phenomenon is primarily shaped
by the quantity of direct reports assigned to each manager and the degree of
interdependence exhibited among employees within a given department or team. This
correlation underscores the notable impact of the number of direct reports and
interdependence on this variation. The concept of span of control is a significant
determinant in this context, as it pertains to the quantity of subordinates who are under
the direct supervision of the immediate superior in the organizational structure. This
variability is primarily affected by the number of direct reports per manager and the
degree of interdependence among team members within the department, which is
contrary to commonly held assumptions. The span of control is primarily determined by
the scale of the organization, as demonstrated by the comparison of Company A and
Company B. Company A exhibits a broader span of control, whereas Company B
features fewer management tiers, a significant distinction.
The correlation among span of control, organizational size, and number of
management layers holds considerable implications for companies. These implications
often contradict prevailing beliefs. An organization that has a wider span of control is
typically associated with a higher proportion of employees to supervisors and a greater
proportion of supervisors to middle managers. This highlights the involvement of Chief
Executive Officers of major corporations in the United States, which is of significant
importance. The statement implies that advocates of hierarchical control primarily adhere
to the belief that workers are primarily responsible for executing physical tasks, whereas
supervisors and other managerial staff are responsible for decision-making and
overseeing employees to ensure task completion. This contradicts common assumptions.
In the 1980s, it was noted that, on average, five individuals, typically holding the title of
vice president, were directly responsible to the CEOs of Fortune 500 companies, as they
perceived it.
The reduction of management layers is a key factor in achieving a substantial
number of direct reports. The increased complexity of Fortune 500 companies can be
primarily attributed to their expanded operations in multiple markets, diverse product
offerings, and employment of individuals with a wider range of technical expertise. This
contradicts common perceptions, contrary to popular belief. The aforementioned
illustrates the notion of span of control, referring to the quantity of subordinates reporting
directly to their immediate superior in the organizational structure. This showcases that
the heightened intricacy of Fortune 500 corporations can be ascribed to their enlarged
operations in various markets, varied product portfolios, and recruitment of personnel
possessing a broader scope of technical proficiency, thereby contradicting prevalent
assumptions. To achieve this objective, organizations must either increase their span of
control or establish a taller organizational structure. This is a crucial consideration,
highlighting the necessity for organizations to undertake one of these actions in order to
effectively achieve their goal, despite common misconceptions. The construction of a
taller organizational structure may lead to a reduction in the quality and timeliness of
information. This is due to the tendency of individuals to filter, distort, and oversimplify
information before transmitting it to higher levels in the hierarchy. It is important to note
that contemporary CEOs of large companies in the United States have a significant
impact on this metric, contrary to popular belief.
Organizations characterized by flat hierarchies generally exhibit reduced instances
of manipulation and expedited decision-making relative to those with tall hierarchies.
This for the most part supports Henri Fayol's recommendation of a narrow span of
control, with a really maximum of 20 employees per supervisor and six supervisors per
manager, which particularly shows that this phenomenon can literally be generally
attributed to the fact that both claims service and really commercial underwriting
definitely entail fairly more intricate tasks, necessitating kind of greater oversight from
management, particularly further showing how organizations typically kind of maintain
an actually average of ten fairly direct reports per firm, which represents a doubling of
the number from very several decades ago, despite generally common misconceptions,
really contrary to popular belief. Napoleon's advocacy for senior military leaders to have
no more than five officers reporting directly to them demonstrates the influence of
organizational size on the span of control. This is exemplified by the comparison between
Company A and Company B, where Company A has a wider span of control and
Company B has fewer layers of management, contrary to popular belief.
Centralization pertains to the degree to which a specific group of individuals,
usually those occupying the uppermost levels of an organizational hierarchy, possess
formal decision-making power. This suggests that the capacity to have a substantial
number of direct reports is typically attained through the removal of management layers.
The increased complexity of Fortune 500 companies can be attributed to their expanded
operations in multiple markets, diverse product offerings, and employment of individuals
with a wider range of technical expertise, which challenges common perceptions. The
observed trend indicates a rise in the complexity of most Fortune 500 companies, which
can be attributed to the increasing span of control or management. This term refers to the
number of individuals who report directly to their immediate superior in the
organizational structure and is considered to be of significant importance. These
companies definitely operate in basically multiple markets, offer a diverse range of
products, and kind of employ individuals with a generally wider range of technical
expertise, which really shows that the covert notion entails that proponents of hierarchical
authority espouse the view that laborers ought to kind of execute definitely manual labor
while supervisors and fairly other managerial staff should specifically assume decision-
making responsibilities and oversee the workforce to literally ensure task completion,
fairly contrary to prevailing assumptions, which generally is quite significant.
The degree of decentralization in an organization can vary significantly among its
units, underscoring the reliance of self-directed teams on informal communication and
diverse forms of standardization as their primary means of coordination. The
organizational structure of Google exhibits a degree of centralization in its sales,
marketing, and operations units, while its engineering areas demonstrate a relatively
decentralized structure. This contradicts the common misconception that span of control,
or span of management, refers to the number of individuals reporting directly to the next
level in the hierarchy. In reality, this variance is dependent on the number of direct
reports per manager and the level of interdependence among employees within the
department or team. The observed phenomenon can be attributed to the technical nature
of claims service and commercial underwriting, which requires increased supervisory
involvement. This results in organizations with a wider span of control having higher
ratios of employees to supervisors and supervisors to middle managers. This highlights
the significant involvement of Chief Executive Officers in leading prominent
corporations in the United States.
The decision-making processes at 7-Eleven demonstrate a combination of
centralization and decentralization in relation to information technology, supplier
purchasing, and inventory management. This highlights how organizations with a wider
span of control tend to have higher ratios of employees to supervisors and supervisors to
middle managers. Additionally, the involvement of Chief Executive Officers in
prominent corporations in the United States is of considerable importance. The
aforementioned observation highlights the impact of organizational magnitude on the
extent of supervisory responsibility and corporate configuration. It reveals that companies
tend to maintain an average of ten subordinates per manager, which signifies a twofold
increase from previous decades, contrary to popular misconceptions. Company A exhibits
a broader span of control in comparison to Company B, primarily due to its hierarchical
structure with multiple layers of management. In the commercial-policy processing
departments, the average span of control is approximately 15 employees per supervisor,
indicating a significant ratio. Moreover, it is evident that organizations tend to adopt a
formalized approach and rely on standardization to coordinate work. This approach
enables companies to have a large number of direct reports by eliminating management
layers.
The increased complexity of Fortune 500 companies can be attributed to their
expanded operations in multiple markets, diverse product offerings, and employment of
individuals with a wider range of technical expertise. These findings contradict common
perceptions, which are contrary to popular belief. This passage emphasizes the
importance of centralization, which refers to the degree of formal decision-making power
held by a small group of individuals, usually those at the top of the organizational
hierarchy. It illustrates how Google's sales, marketing, and operations units are relatively
centralized, while its engineering areas are more decentralized. This challenges common
misconceptions about span of control, or the number of individuals who report directly to
the next level in the hierarchy.
The variation in span of control depends on the number of direct reports per
manager and the level of interdependence among employees within the department or
team. The phenomenon of centralization can be primarily attributed to the complex
markets in which most Fortune 500 companies operate, the diverse range of products they
offer, and the employment of individuals with specialized technical skills. This is
evidenced by the comparison between Company A and Company B, where the size of the
organization has a significant impact on the span of control. Specifically, Company A has
a wider span of control, while Company B has fewer layers of management.
The two organizational forms, namely organic and mechanistic structures, tend to
align with the broader organizational forms of organic and mechanistic structures,
respectively. This distinction holds considerable significance. Mechanistic structures are
characterized by a multitude of rules and procedures, restricted decision-making
capabilities at lower organizational levels, a hierarchical structure with specialized roles,
and vertical communication flows. However, contemporary knowledge suggests that this
approach is outdated. Organizations that adopt an organic structure exhibit a broad span
of control, decentralized decision-making, and minimal formalization. This structure
enables a larger number of direct reports by eliminating layers of management, thereby
demonstrating that span of control (also known as span of management) pertains to the
number of individuals who report directly to the next level in the hierarchy, contrary to
common perception.
The Valve Corporation exhibits a predominantly organic organizational structure
with a maximum of two hierarchical layers. This highlights the concept of span of
control, also known as span of management, which pertains to the number of
subordinates reporting directly to the immediate superior in the hierarchy. This factor
holds considerable significance. The process of decision-making is primarily
decentralized to teams and individuals, and tasks are often flexible, adapting to changing
circumstances and organizational requirements. The ability to manage a larger number of
direct reports is typically achieved by eliminating layers of management, as the span of
control (also known as the span of management) pertains to the number of individuals
who report directly to the next level in the hierarchy. Valve exhibits a notable lack of
formalization, including job descriptions and procedural guidelines for hiring and
procurement. This suggests that individuals who endorse hierarchical control believe that
employees should focus on physical tasks while supervisors and management personnel
oversee decision-making and monitor task performance.
B. Forms of Departmentalization
The organizational structure is comprised of four distinct elements: span of
control, centralization, formalization, and their interrelationships. Departmentalization is
considered the fourth fundamental strategy for coordinating organizational activities. The
establishment of a chain of command serves to focus individuals on shared mental
models or ways of thinking while also promoting coordination among specific
individuals and work units through informal communication. Organizations typically
commence with a straightforward structure, but as they expand, they transition from a
simple structure to a functional structure that arranges employees based on specific
expertise or other resources. This highlights the importance of departmentalization as the
fourth element and a fundamental strategy for coordinating organizational activities.
Organizations that exhibit highly functional structures tend to be centralized in order to
facilitate effective coordination of their activities. This highlights the common
phenomenon of companies starting out with a simple structure but transitioning to a
functional structure as they expand. This type of structure organizes employees around
specific areas of expertise or other resources, emphasizing the importance of
departmentalization as a fundamental strategy for coordinating organizational activities.
The multidivisional structure, also known as the divisional structure, organizes
personnel based on geographic regions, outputs such as products or services, or clients.
This structure establishes a clear chain of command, fosters a shared mindset among
employees, and promotes coordination among specific individuals and work units
through informal communication, contrary to common misconceptions. Barrick Gold
Corporation, Philips, Coca-Cola, Nestlé, and numerous other food and beverage
companies are structured based on geographic regions, primarily driven by consumer
preferences and marketing strategies. The adoption of a customer-centric divisional
structure bears resemblance to a model implemented in the United States, as perceived by
the stakeholders. The Internal Revenue Service holds significant importance. The
determination of the appropriate divisional structure for relatively large organizations is
contingent upon the primary source of environmental diversity or uncertainty. This
suggests that the selection of the divisional structure for such organizations is dependent
on the primary source of environmental diversity or uncertainty.
The trend towards product- or client-based divisional structures in lieu of
geographic structures is indicative of the shift towards the globally integrated enterprise
(GIE). This demonstrates that organizations with functional structures are typically
centralized in order to effectively coordinate their activities. It is common for companies
to begin with a simple structure and transition to a functional structure as they grow,
which organizes employees around specific knowledge or resources. Departmentalization
is the fourth element and a fundamental strategy for coordinating organizational
activities. A Global Integration Entity (GIE) is an organizational structure that facilitates
the connection of work processes across different regions and countries, instead of
duplicating them within each locality. This structure establishes a chain of command,
fosters a shared understanding of mental models or ways of thinking, and promotes
coordination among specific individuals and work units through informal
communication. The phenomenon under consideration is characterized by a significant
surge in remote collaboration, whereby workers are assigned global initiatives and
enduring duties that surpass geographical limits. This highlights the establishment of a
hierarchical structure, which generally aligns individuals around shared cognitive
frameworks and fosters informal communication to facilitate coordination among specific
personnel and work units.
C. Contingencies of Organizational Design
Theories and concepts pertaining to organizational behavior are contingent upon
various factors, including but not limited to the external environment, size, technology,
and strategy. This contradicts commonly held beliefs. The optimal organizational
structure is contingent upon the external environment of the organization, encompassing
stakeholders, resources, and competitors, in contrast to commonly held assumptions. The
organizational structure that is most appropriate for a specific situation is influenced by
four key characteristics of the external environment: dynamism, complexity, diversity,
and hostility. Dynamic environments are characterized by a high rate of change, whereas
stable environments are characterized by regular cycles of activity and steady changes in
supply and demand for inputs and outputs. In general, complex environments are
characterized by a multitude of elements, while simple environments tend to have a
limited number of components to oversee, which is contrary to commonly held beliefs.
It is commonly believed that a university library, which is typically larger in
scale, operates in a more intricate setting compared to a public library located in a small
town. The primary focus of this text pertains to the distinctions between diverse and
integrated environments, highlighting the crucial details that differentiate these two types
of settings. Diverse environments tend to exhibit a higher degree of heterogeneity in
terms of their product or service offerings, customer base, and geographical reach as
compared to integrated environments that typically cater to a single client, product, and
geographic region, a distinction that carries considerable weight. Organic structures have
been observed to exhibit superior adaptability in diverse environments. However, in the
face of an extremely hostile environment, organizations tend to temporarily centralize.
This underscores the influence of four external environmental characteristics, namely
dynamism, complexity, diversity, and hostility, on the suitability of organizational
structure for a given situation. Large organizations tend to adopt distinct structures
compared to smaller organizations, primarily due to the increased division of labor and
the requirement for more complex coordinating mechanisms. The implementation of
these coordinating mechanisms results in the establishment of an administrative hierarchy
and increased formalization. In the context of organizational structure, it is observed that
larger organizations tend to adopt a more decentralized approach. This is due to the fact
that top management possesses relatively limited information and that decision-making
authority is delegated to lower levels within the organization. As commonly believed,
technology refers to the various mechanisms or processes that an organization employs to
produce its products or services.
Variability refers to the instances that deviate from standard procedures, while
analyze ability pertains to the predictability and complexity of the necessary tasks. This
suggests that larger organizations tend to exhibit greater decentralization, as top-level
management possesses limited information and decision-making authority is delegated to
lower levels. In situations where tasks exhibit high variability and low analyzability, it is
advisable to adopt an organic structure instead of a mechanistic one. This approach runs
counter to prevailing assumptions. In contrast, a mechanistic organizational structure is
typically favored when the technology exhibits low variability and high analyzability, as
seen in assembly line work that is routine and predictable. This implies that larger
organizations adopt different structures than smaller ones due to the greater division of
labor and the need for more elaborate coordinating mechanisms. The implementation of
these coordinating mechanisms results in the establishment of an administrative hierarchy
and a significant increase in formalization.
The organizational strategy refers to the manner in which an organization situates
itself in relation to its stakeholders, taking into account its resources, capabilities, and
mission in a nuanced manner. The organizational structure is significantly shaped by the
strategies formulated and implemented by corporate leaders, which are influenced by
factors such as size, technology, and environment. These contingencies play a crucial role
in determining the resulting structure of the organization. The concept of "structure
follows strategy" encapsulates the idea that organizational leaders determine the scale of
growth and technological implementation rather than leaving the organization's destiny to
external factors. Moreover, it is noteworthy that organizational structures do not undergo
a literal evolutionary process in response to environmental factors but rather stem from
deliberate human choices. This highlights the tendency for larger organizations to exhibit
greater decentralization, as top-level management possesses limited information and
decision-making power is delegated to lower tiers. The strategy of the organization has
the potential to significantly alter these components and weaken their association with the
organizational framework.
