MGMT-I UNIT 3

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McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.

16-1

Organizational Structure And Design

Organization structurethe pattern ofjobs and groups of jobs in an

organization.

It is an important cause of individual andgroup behavior.

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The Concept of Organization Structure

Structure as an

influence on

behavior

Structure as

recurring activities

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Organization designmanagement

decisions and actions that result in a

specific organization structure.

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Division of Labor:

Departmentalization:

Span of Control:

High Low

Homogeneous Heterogeneous

ManyFew

Authority:LowHigh

Specialization

Basis

Number

Delegation

The Four Key Design Decisions

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16-5

Division of Labor

Div is ion of labo r concerns the extentto which jobs are specialized

It is the process of dividing work into

relatively specialized jobs to achieve

advantages of specialization

D f L b O Th

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16-6Division of Labor Occurs in ThreeDifferent Ways:

1. Personal specialties e.g., accountants, software engineers, graphic

designers, scientists, etc.

2. Natural sequence of work e.g., dividing work in a manufacturing plant into

fabricating and assembly (horizontal specialization)

3. Vertical plane

e.g., hierarchy of authority from lowest-level manager

to highest-level manager

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16-7

Delegation of Authority

Managers decide how much authorityshould be delegated to each job and to

each jobholder

Delegat ion o f au thor i ty process of

distributing authority downward in an

organization

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Reasons to Decentralize Authority

1. Relatively high delegation of authorityencourages the development of professional

managers

2. High delegation of authority can lead to acompetitive climate within the organization

3. Managers who have relatively high authority

can exercise more autonomy, and thus satisfy

their desires to participate in problem solving

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Reasons to Centralize Authority (1 of 2)

1. Managers must be trained to make thedecisions that go with delegated authority

2. Many managers are accustomed to makingdecisions and resist delegating authority totheir subordinates

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Reasons to Centralize Authority (2 of 2)

3. Administrative costs are incurred because newcontrol systems must be developed to providetop management with information about the

effects of subordinates decisions

4. Decentralization means duplication of

functions

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Delegation Decision Guidelines(1 of 2)

How routine and straightforward are the jobs orunits required decisions?

The authority for routine decisions can becentralized

Are individuals competent to make the decision?

Even if the decision is non-routine, if the localmanager is not capable, then the decision should be

centralized

Delegation of authority can differ among individualsdepending upon each ones ability to make the

decision

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16 13

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Departmentalizationprocess in

which an organization is

structurally divided by combiningjobs in departments according to

some shared characteristic or

basis.

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Functional Geographic

Product Customer

Departmentalization Bases

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Departmental Bases:

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16 15Departmental Bases:

Functional Departmentalization

Jobs are combined according to the functionsof the organization

The principal advantage is efficiency

By having departments of specialists,management creates efficient units

A major disadvantage is that organizational

goals may be sacrificed in favor of

departmental goals

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Departmental Bases:

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16 16Departmental Bases:

Geographic Departmentalization

Establish groups according to geographicarea

The logic is that all activities in a given

region should be assigned to a manager Advantageous in large organizations

because physical separation of activities

makes centralized coordination difficult Provides a training ground for managerial

personnel

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Northeast Midwest Southeast Pacific

OBMCompany

Southwest

Geographic Departmentalization Structure

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Departmental Bases:

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Departmental Bases:

Product Departmentalization

All jobs associated with producing and selling aproduct or product line will be placed under thedirection of one manager

Product becomes the preferred basis as a firmgrows by increasing the number of products itmarkets

Concentrating authority, responsibility, andaccountability in a specific product departmentallows top management to coordinate actions

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OBM Company

Small

HouseholdAppliances

Large

HouseholdAppliances

CommercialAppliances

Building

Materials andProducts

Lawn and

GardenProducts

AutomotiveProducts

Product Departmentalization Structure

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Departmental Bases:

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Departmental Bases:

Customer Departmentalization

The importance of customer satisfaction hasstimulated firms to search for creative ways to

serve people better

Organizations with customer-based departments

are better able to satisfy customer-identified

needs than organizations that base departments

on non-customer factors

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RetailStores

Mail Order On-LineSales

GovernmentContracts

OBMCompany

InstitutionalSales

Customer Departmentalization Structure

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S f C l

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Span of Control (1 of 2)

Number of individuals who report to aspecific manager

Narrow span

Wide span

The frequency and intensity of actual

relationships is the critical considerationin determining the managers span ofcontrol

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Di i f S

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Dimensions of Structure

Formalization the extent to which expectationsregarding the means and ends of work are

specified, written, and enforced

Centralization the location of decision-makingauthority in the hierarchy

Complexity the direct outgrowth of dividing

work and creating departments

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Comparison of Mechanistic and Organic

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Comparison of Mechanistic and OrganicStructures (1 of 3)

Process Mechanistic Structure Organic Structure

1. Leadership Includes no perceived

confidence and trust between

superiors and subordinates.

Includes perceived confidence

and trust between superiors

and subordinates.

2. Motivation Taps only physical, security,

and economic motives,

through use of fear and

sanctions.

Taps a full range of motives

through participatory methods.

3. Communication Information flows downwardand tends to be distorted,

inaccurate, and viewed with

suspicion by subordinates.

Information flows freely:upward, downward, and

laterally. The information is

accurate and undistorted.

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4. Interaction Closed and restricted.

Subordinates have little effect

on departmental goals,

methods, and activities.

Open and extensive. Both

superiors and subordinates are

able to affect departmental

goals, methods, and activities.

5. Decision Relatively centralized.

Occurs only at the top of the

organization.

Relatively decentralized.

Occurs at all levels through

group processes.

6. Goal setting Located at the top of the

organization, discouraging

group participation.

Encourages group

participation in setting high,

realistic objectives.

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7. Control Centralized. Emphasizes

fixing blame for mistakes.

Dispersed throughout the

organization. Emphasizes

self-control and problem

solving.

8. Performance

goals

Low and passively sought

by managers, who make no

commitment to developing

the organizations humanresources.

High and actively sought by

superiors, who recognize the

need for full commitment to

developing, through training,the organizations human

resources.

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Organization Design Models:

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g g

The Matrix Model

Matr ix organizat ion

attempts to maximizethe strengths and minimize the weaknesses

of both the functional and product bases

Superimpose a horizontal structure of

authority, influence, and communication on

the vertical structure

Facilitates the utilization of highly specialized

staff and equipment

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E l f th M t i O i ti M d l

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Project or product A

Project or product B

Project or product C

Project or product D

Project or product E

Manufacturing Marketing Engineering FinanceFunctions

Projects, products

Example of the Matrix Organization Model

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Advantages of Matrix Organization

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Advantages of Matrix Organization

Efficient use of resources Flexibility in conditions of change and uncertainty

Technical excellence

Freeing top management for long-range planning

Improving motivation and commitment

Providing opportunities for personaldevelopment

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Evolutionary Steps to the Matrix Model

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Task Force

Teams

Product

Managers

Product

Management Depts.

(1)

(2)

(3)

(4)

Evolutionary Steps to the Matrix Model

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Virtual Organizations

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Virtual Organizations

Virtual o rgan izat ion a collection ofgeographically distributed, functionally

and/or culturally diverse aggregations of

individuals that is linked by electronicforms of communication

Assembled and disassembled accordingto needs

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Virtual Organizations:C

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gConsequences

Increase in overall communication and messages Relationships are tenuous

Continual surety of roles, tasks, and assignments

Caution needed in managing feedback,discussion, performance review, and reward

systems

Greater equity of participation

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Boundaryless Organizations

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M G Hill/I i 2005 Th M G Hill C i I All i ht d

Boundaryless Organizations

Organizations in which: the hierarchy and chain of command are

minimized

rigidly structured departments areeliminated

Implemented to reduce barriers betweenpeople and constituencies

MGMT-I UNIT 3

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