Chapter Twelve Organizational Structure and Design.

Chapter TwelveChapter Twelve

Organizational Structure Organizational Structure

and Designand Design

Copyright © 2007 by Nelson, a division of Thomson Canada LimitedCopyright © 2007 by Nelson, a division of Thomson Canada Limited 22

ObjectivesObjectivesAfter reading and studying this chapter, you should be able to:After reading and studying this chapter, you should be able to:

1.1. Identify and define the foundation Identify and define the foundation concepts of organizational structure, concepts of organizational structure, including the informal organization.including the informal organization.

2.2. Specify the basic features of the Specify the basic features of the bureaucratic form of organizational bureaucratic form of organizational structure, including how it is divided into structure, including how it is divided into departments.departments.

3.3. Describe three key modifications of a Describe three key modifications of a bureaucratic structure: matrix, flat and bureaucratic structure: matrix, flat and outsourcing.outsourcing.


Objectives (cont.)Objectives (cont.)

4.4. Describe the two contemporary Describe the two contemporary organizational designs referred to as organizational designs referred to as horizontal structures and network horizontal structures and network structures.structures.

5.5. Specify the criteria for an effective Specify the criteria for an effective organizational design.organizational design.

6.6. Understand why a new type of Understand why a new type of organization chart called an organigraph organization chart called an organigraph can contribute to understanding can contribute to understanding organizational structure.organizational structure.


ConceptsConcepts

OrganizationOrganization Is a collection of people working together to Is a collection of people working together to

achieve a common purpose (or simply a big achieve a common purpose (or simply a big group).group).

Organizational structureOrganizational structure Is the arrangement of people and tasks to Is the arrangement of people and tasks to

accomplish organizational goalsaccomplish organizational goals Organizational designOrganizational design

Is the process of creating a structure that best Is the process of creating a structure that best fits a purpose, strategy, and environment.fits a purpose, strategy, and environment.


Types of Organizational Types of Organizational StructuresStructures

Mechanistic versus Organic structures:Mechanistic versus Organic structures: Mechanistic OrganizationMechanistic Organization

Hierarchical bureaucracies that emphasize Hierarchical bureaucracies that emphasize specialization and control and vertical specialization and control and vertical communications, with heavy reliance on rules, communications, with heavy reliance on rules, policies, and procedures (bureaucracy)policies, and procedures (bureaucracy)

Organic OrganizationOrganic Organization Network designed to respond to rapid changes Network designed to respond to rapid changes

in the environment by emphasizing horizontal in the environment by emphasizing horizontal specialization, personal coordination, and specialization, personal coordination, and extensive informal communications, with loose extensive informal communications, with loose rules, policies, and proceduresrules, policies, and procedures


Types of Organizational Types of Organizational Structures Structures (cont.)(cont.)

Formal versus Informal Structure:Formal versus Informal Structure: Formal organization structureFormal organization structure

Is an official statement of the reporting Is an official statement of the reporting relationships, rules, and regulations that relationships, rules, and regulations that guide and govern the conduct of business by guide and govern the conduct of business by members of the organizationmembers of the organization

Informal organization structureInformal organization structure Is a set of unofficial working relationships Is a set of unofficial working relationships

providing the flexibility to take care of providing the flexibility to take care of events and transactions not covered by the events and transactions not covered by the formal structure.formal structure.

Is revealed using social network analysis to Is revealed using social network analysis to trace informal social relationships and trace informal social relationships and communication channels.communication channels.


Degree of Formalization Degree of Formalization

Is the degree to which expectations Is the degree to which expectations regarding the methods of work are regarding the methods of work are specified, written down, and enforced.specified, written down, and enforced.

A firm with high formalization is likely to have A firm with high formalization is likely to have a high degree of specialization of labour and a high degree of specialization of labour and high delegation of authority.high delegation of authority.

Is associated with mechanistic Is associated with mechanistic (bureaucratic) organizations.(bureaucratic) organizations.


Degree of Centralization Degree of Centralization

Extent to which executives delegate Extent to which executives delegate authority to lower organizational authority to lower organizational unitsunits

Less delegation = more centralization.Less delegation = more centralization.

Strategic decisions are more likely to be Strategic decisions are more likely to be centralized than operational decisions.centralized than operational decisions.

The use of functional units will be The use of functional units will be associated with greater centralization.associated with greater centralization.


Complexity & DifferentiationComplexity & Differentiation

ComplexityComplexity refers to the number of refers to the number of different job titles and organizational units different job titles and organizational units in an organization.in an organization. Complexity increases the difficulty of Complexity increases the difficulty of

managing an organization and typically managing an organization and typically increases with the size of the organization.increases with the size of the organization.

DifferentiationDifferentiation is linked to complexity is linked to complexity A horizontally differentiated organization will A horizontally differentiated organization will

have many different job titles & many have many different job titles & many departments doing separate work.departments doing separate work.

A vertically differentiated organization will A vertically differentiated organization will have many different levels.have many different levels.


BureaucracyBureaucracy

Weber’s ideal organization, characterized by:Weber’s ideal organization, characterized by:

1.1. Rules and procedures controlling the organizational Rules and procedures controlling the organizational structurestructure

2.2. A high degree of differentiation among organizational A high degree of differentiation among organizational functionsfunctions

3.3. A high degree of job specializationA high degree of job specialization4.4. An organization of offices determined by hierarchy, with An organization of offices determined by hierarchy, with

each unit reporting to a higher uniteach unit reporting to a higher unit5.5. A heavy emphasis on rules and norms to regulate behaviorA heavy emphasis on rules and norms to regulate behavior6.6. Interpersonal relations characterized by impersonality in Interpersonal relations characterized by impersonality in

place of favoritismplace of favoritism7.7. Selection and promotion based on meritSelection and promotion based on merit8.8. All administrative actions recorded in writingAll administrative actions recorded in writing


Types of BureaucraciesTypes of Bureaucracies

Machine bureaucracyMachine bureaucracy Uses standardized work processes; is efficient.Uses standardized work processes; is efficient. Best use is in large organizations where work Best use is in large organizations where work

performed by production, technical & support performed by production, technical & support workersworkers

Professional bureaucracyProfessional bureaucracy Standardizes skills for coordination and is Standardizes skills for coordination and is

composed of a core of highly trained composed of a core of highly trained professionals.professionals.

E.g., universities, hospitals, accounting firmsE.g., universities, hospitals, accounting firms


Exhibit 12-1 The Bureaucratic Exhibit 12-1 The Bureaucratic Form of OrganizationForm of Organization


Pros & Cons of Pros & Cons of BureaucraciesBureaucracies

Contributions:Contributions: Make possible large-Make possible large-

scale accomplishmentsscale accomplishments Accountability for Accountability for

resultsresults Managers with precious Managers with precious

skills and expertiseskills and expertise Valuable organizational Valuable organizational

memorymemory Fulfill need for order & Fulfill need for order &

securitysecurity

Problems:Problems: Suppression of Suppression of

innovation and decision innovation and decision makingmaking

Lower productivityLower productivity Rigidity in handling Rigidity in handling

people & problemspeople & problems Passing the buckPassing the buck Inconvenience and Inconvenience and

inefficiencyinefficiency Slow response (red tape)Slow response (red tape) High worker frustration High worker frustration

and low satisfactionand low satisfaction


Departmentalization Departmentalization

The process of subdividing work into The process of subdividing work into specialized departments.specialized departments.

Typical forms of departmentalization:Typical forms of departmentalization: FunctionalFunctional TerritorialTerritorial Product or serviceProduct or service CustomerCustomer HybridHybrid


Functional DepartmentalizationFunctional Departmentalization

Grouping people according to their Grouping people according to their expertiseexpertise

Most common type of organizationMost common type of organization


Territorial Territorial DepartmentalizationDepartmentalization

Grouping subunits according to the Grouping subunits according to the geographic areas that they serve.geographic areas that they serve.

Common in service organizationsCommon in service organizations

Internationalization of business has Internationalization of business has increased the need for organizing subunits increased the need for organizing subunits territoriallyterritorially

May supplement functional structure (e.g., May supplement functional structure (e.g., field force is organized by territory while field force is organized by territory while headquarters is functional)headquarters is functional)


Product/Services Product/Services DepartmentalizationDepartmentalization

Is arranging units by the product or Is arranging units by the product or service they provide.service they provide.


Customer Customer DepartmentalizationDepartmentalization

Creates a structure based on customer needsCreates a structure based on customer needs e.g., groups set up to work with different customers: e.g., groups set up to work with different customers:

small businesses, large businesses, institutions, small businesses, large businesses, institutions, governmentgovernment

All departmentalization forms discussed have All departmentalization forms discussed have advantage of enhancing product growth or advantage of enhancing product growth or providing service to customers, fostering providing service to customers, fostering employee pride in unit’s specialtyemployee pride in unit’s specialty

BUT all have similar problems: expense of BUT all have similar problems: expense of duplicated effort, difficulty of controlling duplicated effort, difficulty of controlling organizational unitsorganizational units


Other StructuresOther Structures

HybridHybrid (Mixed) Structure (Mixed) Structure Combines the advantages of different forms Combines the advantages of different forms

into one structure.into one structure.

Both specialized (e.g., functions at Both specialized (e.g., functions at headquarters) and self-contained units (e.g., headquarters) and self-contained units (e.g., product or territorial units) are included within product or territorial units) are included within the organizational structure.the organizational structure.

Line versus staffLine versus staff Line groups are responsible for the primary Line groups are responsible for the primary

purposes of the firm whereas staff groups are purposes of the firm whereas staff groups are responsible for secondary purposes.responsible for secondary purposes.


Hybrid Organization Hybrid Organization StructureStructure


Span of ControlSpan of Control

How many people report to any one How many people report to any one manager in the organizationmanager in the organization Narrow spans characteristic of tall Narrow spans characteristic of tall

organizations, broad spans in flat organizationsorganizations, broad spans in flat organizations Span affected by:Span affected by:

Routineness of workRoutineness of work Experience & skill of managers & workersExperience & skill of managers & workers Requirements for coordination with other Requirements for coordination with other

departmentsdepartments Amount of nonsupervisory work for managerAmount of nonsupervisory work for manager Cost Cost


Modifying the Bureaucratic Modifying the Bureaucratic Structure: Structure: Matrix OrganizationMatrix Organization

Matrix:Matrix: A project structure superimposed on a A project structure superimposed on a functional structure to take advantage of new functional structure to take advantage of new opportunities and solve special problems.opportunities and solve special problems. Projects are temporary groups of specialists Projects are temporary groups of specialists

working under one manager to accomplish a fixed working under one manager to accomplish a fixed objective such as launching a new product.objective such as launching a new product.

Matrix structure creates a Matrix structure creates a dual reporting challengedual reporting challenge — the — the involved employees may have to report to two bosses.involved employees may have to report to two bosses.

A key advantage is its ability to implement projects A key advantage is its ability to implement projects quickly.quickly.


Exhibit 12-6 Matrix Exhibit 12-6 Matrix OrganizationOrganization


Modifying the Bureaucratic Modifying the Bureaucratic Structure: FlatStructure: Flat Organization Organization

Flat organizationFlat organization Relatively few levelsRelatively few levels Less bureaucratic because:Less bureaucratic because:

There are fewer managers available to review and approve There are fewer managers available to review and approve decisions.decisions.

The short chain-of-command creates less concern about The short chain-of-command creates less concern about authority differences among people.authority differences among people.

Most large organizations have become flatter over last 25 Most large organizations have become flatter over last 25 yearsyears

More efficient than tall organizations only about half the timeMore efficient than tall organizations only about half the time Downsizing to a flatter structure creates substantial suffering Downsizing to a flatter structure creates substantial suffering

for those laid off and has strong effects on surviving for those laid off and has strong effects on surviving employees.employees.


Modifying the Bureaucratic Modifying the Bureaucratic Structure: OutsourcingStructure: Outsourcing

Outsourcing Outsourcing is having work done for is having work done for the organization by other organizationsthe organization by other organizations

Reduces the need for employees and physical Reduces the need for employees and physical assets and reduces payroll costs.assets and reduces payroll costs.

Can create ethical dilemmas for companies Can create ethical dilemmas for companies who have no control over the actions of their who have no control over the actions of their outsourcing supplier.outsourcing supplier.

Can cause conflict over which functions are Can cause conflict over which functions are outsourcedoutsourced


Leading-Edge Organizational Leading-Edge Organizational StructuresStructures

The Horizontal StructureThe Horizontal Structure Is the arrangement of work by teams that are Is the arrangement of work by teams that are

responsible for accomplishing a process.responsible for accomplishing a process. Is a structure in which employees take collective Is a structure in which employees take collective

responsibility for customers.responsibility for customers.


Reengineering Leading to Reengineering Leading to Horizontal StructureHorizontal Structure

One approach to switching from task to One approach to switching from task to process focus in a horizontal structure is process focus in a horizontal structure is through through reengineering:reengineering: The radical redesign of work to achieve The radical redesign of work to achieve

substantial improvements in performance.substantial improvements in performance. Searches for the most efficient way to Searches for the most efficient way to

perform a task, eliminating nonessential perform a task, eliminating nonessential taskstasks

Organizes work horizontally rather than Organizes work horizontally rather than vertically.vertically.


Leading-Edge Organizational Leading-Edge Organizational StructuresStructures

The Network StructureThe Network Structure (or virtual (or virtual organization) organization) Is a temporary association of otherwise Is a temporary association of otherwise

independent firms that are linked by independent firms that are linked by technology to share resources and markets.technology to share resources and markets.

Is horizontally oriented, sacrifices hierarchy Is horizontally oriented, sacrifices hierarchy to quick decision makingto quick decision making

Requires that its members trust one Requires that its members trust one another.another.


Exhibit 12-8: Nine Criteria for Exhibit 12-8: Nine Criteria for an Effective Organizational an Effective Organizational

DesignDesign


Organigraphs: Drawing How Organigraphs: Drawing How Companies Really WorkCompanies Really Work

An An organigraphorganigraph is a map that provides an is a map that provides an overview of the company’s functions and the overview of the company’s functions and the way people organize themselves at work.way people organize themselves at work.

Helps understand organizational functioning:Helps understand organizational functioning: What parts connect to one another?What parts connect to one another?

How should processes & people be linked to one another?How should processes & people be linked to one another?

Whose ideas have to flow to which other people?Whose ideas have to flow to which other people?

Assists in identifying competitive opportunities Assists in identifying competitive opportunities in expanding into new markets and identifying in expanding into new markets and identifying opportunities.opportunities.

Chapter Twelve Organizational Structure and Design.

Documents

Transcript of Chapter Twelve Organizational Structure and Design.