Organizational Structure

and Design
Defining Organizational Structure
Organizational Structure
The formal arrangement of jobs within an organization
Organizational Design
A process involving decisions about six key elements:
 Work specialization
 Departmentalization

 Chain of command

 Span of control

 Centralization and decentralization

 Formalization
Purposes of Organizing
Divides work to be done into specific jobs and
departments
Assigns tasks and responsibilities associated with
individual jobs
Coordinates diverse organizational tasks
Establishes relationships among individuals,
groups, and departments
Establishes formal lines of authority
Allocates organizational resources
 Cluster jobs in to units
Designing Organizational Structure
Work Specialization
The degree to which tasks in the organization are
divided into separate jobs with each step
completed by a different person
Departmentalization by Type
Functional Process
Grouping jobs by Grouping jobs on the
functions performed basis of product or
Product customer flow
Grouping jobs by Customer
product line Grouping jobs by type
Geographical of customer and needs
Grouping jobs on the
basis of territory or
geography
Functional Departmentalization

Plant Manager

Manager, Manager, Manager, Manager, Manager,

Engineering Accounting Manufacturing Human Resources Purchasing

+ Efficiencies from putting together similar specialties and

people with common skills, knowledge, and orientations
+ Coordination within functional area
+ In-depth specialization
– Poor communication across functional areas
– Limited view of organizational goals
Geographical
Departmentalization

Vice President
for Sales

Sales Director, Sales Director, Sales Director, Sales Director,

Western Region Southern Region Central Region Eastern Region

+ More effective and efficient handling of specific

regional issues that arise
+ Serve needs of unique geographic markets better
– Duplication of functions
– Can feel isolated from other organizational areas
Product Departmentalization

CEO.

Car Truck Bus

Division Division Division

+ Allows specialization in particular products and services

+ Managers can become experts in their industry
+ Closer to customers
– Duplication of functions
– Limited view of organizational goals Source: Bombardier Annual Report.
Process Departmentalization
Manager
Plant

Spinning Dyeing Weaving Fininshin

g

+ More efficient flow of work activities

– Can only be used with certain types of products
Customer Departmentalization

Director
of Sales

Manager, Manager, Manager,

Retail Accounts Wholesale Accounts Government Accounts

+ Customers’ needs and problems can be met by specialists

– Duplication of functions
– Limited view of organizational goals
Organizational Structure (cont’d)

Chain of Command
The continuous line of authority that
extends from upper levels of an organization
to the lowest levels of the organization and
clarifies who reports to whom
Organizational Structure (cont’d)
 Authority
 The rights inherent in a managerial position to tell people
what to do and to expect them to do it
 Responsibility
 The obligation or expectation to perform. Responsibility brings
with it accountability (the need to report and justify work to
manager’s superiors)
 Unity of Command
 The concept that a person should have one boss and should
report only to that person
 Delegation
 The assignment of authority to another person to carry out
specific duties
Organizational Structure (cont’d)
Line and Staff Authority
Line managers are responsible for the
essential activities of the organization,
including production and sales. Line managers
have the authority to issue orders to those in
the chain of command
 Thepresident, the production manager, and the sales
manager are examples of line managers
Staff managers have advisory authority, and
cannot issue orders to those in the chain of
command (except those in their own
department)
Organizational Structure (cont’d)
Span of Control
The number of employees who can be effectively and
efficiently supervised by a manager
Width of span is affected by:
 Skills and abilities of the manager and the employees
 Characteristics of the work being done
 Similarity of tasks
 Complexity of tasks
 Physical proximity of subordinates
 Standardization of tasks
 Sophistication of the organization’s information system
 Strength of the organization’s culture
 Preferred style of the manager
Organizational Structure (cont’d)
Centralization
The degree to which decision making is
concentrated at a single point in the organization
 Organizations in which top managers make all the
decisions and lower-level employees simply carry out
those orders
Decentralization
The degree to which lower-level employees
provide input or actually make decisions
Employee Empowerment
 Increasing the decision-making discretion of
employees
Organizational Structure (cont’d)
Formalization
The degree to which jobs within the organization
are standardized and the extent to which
employee behavior is guided by rules and
procedures
 Highly formalized jobs offer little discretion over what is to
be done
 Low formalization means fewer constraints on how
employees do their work
Organizational Design Decisions
Mechanistic Organization
A rigid and tightly
controlled structure
 High specialization
 Rigid departmentalization
 Narrow spans of control
 High formalization
 Limited information network
(mostly downward
communication)
 Low decision participation by
lower-level employees
Organic Organization
Highly flexible and
adaptable structure
 Nonstandardized jobs
 Fluid team-based structure
 Little direct supervision
 Minimal formal rules
 Open communication
network
 Empowered employees
Mechanistic Versus Organic
Organization

Mechanistic Organic

•High Specialization •Cross-Functional Teams

Rigid
• Departmentalization •Cross-Hierarchical Teams
•Clear Chain of Command Free
• Flow of Information
•Narrow Spans of Control •Wide Spans of Control
•Centralization •Decentralization
•High Formalization •Low Formalization
Structural Contingency Factors (cont’d)
Strategy and Structure
Achievement of strategic goals is facilitated by
changes in organizational structure that
accommodate and support change
Size and Structure
As an organization grows larger, its structure
tends to change from organic to mechanistic
with increased specialization,
departmentalization, centralization, and rules
and regulations
Structural Contingency Factors (cont’d)
Technology and Structure
Organizations adapt their structures to their
technology
Routine technology = mechanistic
organizations
Non–routine technology = organic
organizations
Structural Contingency Factors (cont’d)
Environmental Uncertainty and Structure
Mechanistic organizational structures tend to
be most effective in stable and simple
environments
The flexibility of organic organizational
structures is better suited for dynamic and
complex environments
Organizational Designs
Common Organizational Designs
Traditional Designs
Simple Structure
 Low departmentalization, wide spans of control, centralized
authority, little formalization
Functional Structure
 Departmentalization by function
 Operations, finance, human resources, and product research and
development
Divisional Structure
 Composed of separate business units or divisions with
limited autonomy under the coordination and control of the
parent corporation
Organizational Designs (cont’d)
Contemporary Organizational Designs
Team Structures
 The entire organization is made up of work groups or
self-managed teams of empowered employees
Matrix Structures
 Specialists for different functional departments are
assigned to work on projects led by project managers
 Matrix participants have two managers

Project Structures
 Employees work continuously on projects, moving on
to another project as each project is completed
A Matrix Organization in an
Aerospace Firm

Design Contract Human

Manufacturing Purchasing Accounting
Engineering Administration Resources (HR)

Alpha Design Manufacturing Contract Purchasing Accounting HR

Project Group Group Group Group Group Group

Beta Design Manufacturing Contract Purchasing Accounting HR

Project Group Group Group Group Group Group

Gamma Design Manufacturing Contract Purchasing Accounting HR

Project Group Group Group Group Group Group

Omega Design Manufacturing Contract Purchasing Accounting HR

Project Group Group Group Group Group Group
Organizational Designs (cont’d)
Contemporary Organizational Designs
(cont’d)
Boundaryless Organization
 A flexible and an unstructured organizational design
that is intended to break down external barriers
between the organization and its customers and
suppliers
 Removes internal (horizontal and vertical) boundaries
 Eliminates external boundaries
Organizational Designs (cont’d)
Learning Organization
An organization that has developed the capacity to
continuously learn, adapt, and change through the
practice of knowledge management by employees
Characteristics of a learning organization:
 An open team-based organization design that empowers
employees
 Extensive and open information sharing
 Leadership that provides a shared vision of the organization’s
future; support; and encouragement
 A strong culture of shared values, trust, openness, and a sense
of community
Co-ordination
Linking of two or more organizational members
and/or work units so that they function well together
Two main types of co-ordination are:
Vertical coordination
Horizontal Coordination
Vertical Coordination:
Linking work units (individual, team, departments)
separated by hierarchical level
Horizontal Coordination:
Linking work units (individual, team, departments) at
the same hierarchical level
Techniques for effective
coordination
Coordination by chain of command
Coordination by leadership
Coordination by committees
Staff meetings
Special Coordinators
Self- coordination
Differentiation
Differences in attitudes and working styles, arising
naturally among members of different departments,
that can complicate coordination of an organization's
activities.
Integration
The degree to which members of various departments
work together in a unified manner.
Power
The ability to exert influence; that is,
the ability to change the attitudes or
behavior of individuals or groups . A B
A
capacity that A has to influence the
behavior of B so that B acts in
accordance with A’s wishes.

Dependency
B’s relationship to A when
A possesses something
that B requires.
Legitimate Power
The power a person receives as a result of his or her
position in the formal hierarchy of an organization.

Coercive Power
A power base dependent on fear.

Reward Power
Compliance achieved based on
the ability to distribute rewards
that others view as valuable
Expert Power
Influence based on special
skills or knowledge.
Referent Power
Influence based on possession
by an individual of desirable
resources or personal traits.
Dependency: The Key To Power
The General Dependency Postulate
 The greater B’s dependency on A, the greater the power A
has over B.
 Possession/control of scarce organizational resources that
others need makes a manager powerful.
 Access to optional resources (e.g., multiple suppliers)
reduces the resource holder’s power.
What Creates Dependency
 Importance of the resource to the organization
 Scarcity of the resource
 Nonsubstitutability of the resource
Authority (mainly) derives from
role
Authority is “the right to make an ultimate decision,
and in an organisation it refers to the right to make
decisions which are binding on others” (Obholzer,
1994).
Line & Staff Authority
Line authority is the relationship in which a
superior exercises direct supervision over a
subordinate
Staff relationship is advisory
 Difference between Authority &
Power
Power
 It is a ability to command &
influence behavior of another
 It rests with persons, in their
individual capacities
 It doesn't follow any hierarchy
 Power, being personalized
attribute, can not be delegated
 Emerges because of personal
factors
 May exist between any 2
persons
Authority
 It is institutional right to
command
 It lies in managerial position
 It is hierarchical in nature
 It can be delegated
 Institutional & originates from
structural relationship
 Superior-subordinate
relationship
Delegation
Transfering formal authority from one position to
another is known as delegation
 Assign Tasks

Transfer task responsibility Reject

Acceptance
Condition

Accept

Creation of responsibility
Blocks to effective delegation
Factors in delegator:
Love for authority
Maintenance of tight control
Fear of subordinates growth
Fear of exposure
Attitude towards subordinates
Personality of superior
Guides for Overcoming Weak Delegation
1. Define assignments and delegate authority in
light of results expected
2. Select the person in light of the job to be done
3. Maintain open lines of communication
4. Establish proper controls
5. Reward effective delegation and successful
assumption of authority
Definition of Staffing
Staffing is filling, and keeping filled, positions in the
organization structure
SITUATIONAL FACTORS AFFECTING
STAFFING
External factors include the level of education, the
prevailing attitudes in society (such as the attitude
toward work), the many laws and regulations that
directly affect staffing, the economic conditions, and
the supply of and demand for managers outside the
enterprise
SITUATIONAL FACTORS AFFECTING
STAFFING – cont.
Internal factors that affect staffing include, for
example, organizational goals, tasks, technology,
organization structure, the kinds of people
employed by the enterprise, the demand for and
the supply of managers within the enterprise, the
reward system, and various kinds of policies
 Environment

Human
Identification and Selection
Resource Recruitment Selection
of Competent Employees
Planning

Decruitment

Adapted and competent

Orientation Training employees with up-to-date
skills and knowledge

Compensation Competent and high-performing employees who

Performance Career are capable of sustaining high performance over
and
Management Development
Benefits the long term

Environment