TOPIC: Organizing Functions and Organization Design

PEARSON FUNDAMENTALS OF MANAGEMENT (2016)

Anderson, I., Coulter, M., DeCenzo, D., & Robbins, S. (2016). Organizational structure and design.
Fundamentals of Management, Eighth Canadian Edition​ (pp. 105-127). Canada: Pearson Canada.
Note: All the information below has been taken from the book including figures and charts
unless indicated with other sources.

ORGANIZING FUNCTION OF MANAGEMENT

Organizing ​is a management function that involves determining what tasks are to be done, who
is to do them, how the tasks are to be grouped, who reports to whom, and where decisions are
to be made.

Purposes of Organizing
1. Divides work to be done into specific jobs and departments
2. Assigns tasks and responsibilities associated with individual jobs
3. Coordinates diverse organization tasks
4. Clusters jobs into units
5. Establishes relationships among individuals, groups, and departments
6. Establishes formal lines of authority
7. Allocates and deploys organizational resources

Organizing structure ​- how job tasks are formally divided, grouped, and coordinated within an
organization.
Organization design ​- the process of developing or changing an organization’s structure.

IMPORTANCE OF ORGANIZATION DESIGN

An organization’s design must be right for it to operate efficiently and effectively, there are many
potential benefits to having a design that suits the management (Mind Tools Content Team,
n.d.)

For example :
● Increased efficiency
● Faster and more effective decision making.
● Improved quality of goods and services.
● Higher profits.
● Better customer relations.
● Safer working conditions.
● A happier, healthier and more motivated workforce.
 ● Greater preparedness for future challenges

However, if there’s any flaw in its design, then it would lead to:
● Ineffective problem solving
● Wasted time.
● Lack of coordination between different parts of the business.
● Inconsistent quality of work.
● Failures of legal compliance.
● Reputational damage.
● Low morale, leading to high staff turnover.
● Below-target business levels results.

Even if that particular organization design is successful that doesn’t mean that it will remain the
same. As business develops the organization design should be able to adapt to their
environment.

SIX KEY ELEMENTS OF ORGANIZATION DESIGN

1. work specialization 4. span of control

2. departmentalization 5. centralization and decentralization
3. chain of command 6. formalization

❖ WORK SPECIALIZATION
- the degree to which tasks in an organization are subdivided into separate jobs; also
known as division of labour.

❖ DEPARTMENTALIZATION
- the basis on which jobs are grouped together.

Common forms of departmentalization​:

a. Functional departmentalization​ - grouping jobs by functions performed.
Source: Anderson, et al. (2016). Chapter 5: Organizational structure and design. ​Fundamentals of Management,
Eighth Canadian Edition​ (pp. 108). Canada: Pearson Canada
Pros
1. Efficiencies from putting together similar specialties and people with common skills,
knowledge, and orientations
2. Coordination within functional area
3. In-depth specialization
Cons
1. Poor communication across functional areas
2. Limited view of organizational goals

Example:

● NESTLE

Source: https://www.slideshare.net/samyakjain60/nestle-organisational-structure
 b. Product departmentalization​ - grouping jobs by product line.

Source: Anderson, et al. (2016). Chapter 5: Organizational structure and design. ​Fundamentals of Management,
Eighth Canadian Edition​ (pp. 108). Canada: Pearson Canada
Pros
1. Specialization in particular products and services possible
2. Managers able to become experts in their industry
3. Closer to customers
Cons
1. Duplication of functions
2. Limited view of organizational goals

Example:

● P&G
Source: https://pingboard.com/org-charts/evolution-org-charts

c. Geographic departmentalization ​- grouping jobs on the basis of territory or

geography.

Source: Anderson, et al. (2016). Chapter 5: Organizational structure and design. ​Fundamentals of Management,
Eighth Canadian Edition​ (pp. 108). Canada: Pearson Canada
Pros
1. More effective and efficient handling of specific regional issues that arise
2. Better service of needs of unique geographic markets
Cons
1. Duplication of functions
2. Feelings of isolation from other organizational areas possible
 Example:

● UNILEVER

Source: https://mohammedfikri.wordpress.com/2010/02/20/unilever’s-strategies-for-competing-in-foreign-markets/

d. Process departmentalization - grouping jobs on the basis of product or

customer flow.

Source: Anderson, et al. (2016). Chapter 5: Organizational structure and design. ​Fundamentals of Management,
Eighth Canadian Edition​ (pp. 108). Canada: Pearson Canada
Pros
1. More efficient flow of work activities
Cons
1. Use possible only with certain types of products

Example:
 e. Customer departmentalization - grouping jobs on the basis of customers
who have common needs or problems.

Source: Anderson, et al. (2016). Chapter 5: Organizational structure and design. ​Fundamentals of Management,
Eighth Canadian Edition​ (pp. 108). Canada: Pearson Canada
Pros
1. Specialists able to meet customers’ needs and problems
Cons
1. Duplication of functions
2. Limited view of organizational goals

Example:
 ● UNILEVER

Source: https://www.slideshare.net/kcmasilungan1/unilever-management-information-system

f. Cross-functional teams - work teams made up of individuals who are experts

in various functional specialties to increase knowledge and understanding for some
organizational tasks.

Example#1​: Scarborough, Ontario–based Aviva Canada, a leading property and

casualty insurance group, puts together cross-functional catastrophe teams, with
trained representatives from all relevant departments, to more quickly help
policyholders when a crisis occurs. During the BC wildfires of summer 2003, the
catastrophe team worked on both local and corporate issues, including managing
information technology, internal and external communication, tracking, resourcing, and
vendors.

​ xample#2:
E
An early pioneer of cross functional teams, the insurance company ​Northwestern
Mutual started to build such groups in the 1950s when it brought together teams from
its ​financial, actuarial, and investment departments to study how computers would
change the business world. Consequently, the company created one of the first
information systems departments. This helped give the company an edge as
computers began to pervade every industry. Given its early success with cross
 functional collaboration, today cross functional teams are “in almost every facet of its
organization.”

❖ CHAIN OF COMMAND
- the continuous line of authority that extends from the top of the organization to the
lowest level and clarifies who reports to whom.

Related concepts:
a. Authority - the rights inherent in a managerial position to tell people what to do and to
expect them to do it.

● Line authority
Line managers ​- managers responsible for the essential activities of the
organization, including production and sales.
Examples:
➢ President
➢ Production manager
➢ Sales manager

● Staff authority
Staff managers ​- managers who work in the supporting activities of the
organizations (such as human resources or accounting).
Examples:
➢ Vice president of accounting
➢ Human resources manager
➢ Marketing research manager

b. Responsibility​ - the obligation or expectation to perform any assigned duties.

c. Accountability​ - the need to report and justify work to a manager’s superiors.
d. Unity of command - the management principle that states every employee should
receive orders from only one superior.
e. Delegation - the assignment of authority to another person to carry out specific duties,
allowing the employee to make some of the decisions.

❖ SPAN OF CONTROL
- the number of employees a manager can efficiently and effectively manage.

❖ CENTRALIZATION AND DECENTRALIZATION

➢ Centralization ​- the degree to which decision making is concentrated at a single point in

the organization.
 ➢ Decentralization ​- the degree to which lower-level employees provide input or actually
make decisions.
Employee empowerment ​- means giving more decision-making authority to employees.

❖ FORMALIZATION
- the degree to which jobs within the organization are standardized and the extent to
which employee behaviour is guided by rules and procedures.

➢ High formalization - have explicit job descriptions, numerous organizational rules, and
clearly defined procedures covering work processes.
➢ Low formalization ​- job behaviours are relatively unstructured, and employees have a
great deal of freedom in how they do their work.

MECHANISTIC AND ORGANIC MODELS OF ORGANIZATIONAL

DESIGN

Mechanistic organization ​- an organization that is rigid and tightly controlled.

Contingency factors to consider a mechanistic model:

1. Strategy: the Passionate pursuit of cost control
2. Size: large organization >2000 employees
3. Technology

Source: Anderson, et al. (2016). Chapter 5: Organizational structure and design. ​Fundamentals of Management,
Eighth Canadian Edition​ (pp. 115). Canada: Pearson Canada
 4. Environment: stable

Example:

Organic organization ​- an organization that is highly adaptive and flexible.

Contingency factors to consider a mechanistic model:
1. Strategy: the Passionate pursuit of innovation
2. Size: small organization <2000 employees
3. Technology

Source: Anderson, et al. (2016). Chapter 5: Organizational structure and design. ​Fundamentals of Management,
Eighth Canadian Edition​ (pp. 115). Canada: Pearson Canada

4. Environment: dynamic/uncertain

Example:

Characteristics of mechanistic and organic model:

Source: Anderson, et al. (2016). Chapter 5: Organizational structure and design. ​Fundamentals of Management,
Eighth Canadian Edition​ (pp. 114). Canada: Pearson Canada

COMMON ORGANIZATIONAL DESIGNS

I. TRADITIONAL ORGANIZATIONAL DESIGNS

1. Simple Structure ​- an organizational structure with low departmentalization,
wide spans of control, authority centralized in a single person, and little
formalization.
Example:

SMALL BUSINESS ORGANIZATIONAL STRUCTURE

Source: Organisational Behaviour - T1 MBA - KTU Syllabus - Scientific Figure on ResearchGate.

Available from: https://www.researchgate.net/figure/Simple-Organizational-Structure_fig3_323695129
[accessed 8 Nov, 2019]
 2. Functional Structure - An organizational structure that groups similar or related
occupational specialties together.
Example: Theater Organizational Structure
THEATER ORGANIZATIONAL STRUCTURE

Source: Control Booth. Retrieved from

https://www.controlbooth.com/threads/theatre-organization-chart.3861/

3. Divisional Structure ​- An organizational structure that consists of separate

business units or divisions.
Example:

KOREAN CULTURE AND INFORMATION SERVICE ORGANIZATIONAL STRUCTURE

Source: Korean Culture and Information Service (Ministry of Culture, Sports and Tourism). Retrieved from
http://www.kocis.go.kr/eng/openOrganization.do

DEPARTMENT OF FOREIGN AFFAIRS ORGANIZATIONAL STRUCTURE

Source: Department of Foreign Affairs. Retrieved from
https://www.dfa.gov.ph/about/organizational-structure

Strengths and Weaknesses of Common Traditional Organizational Designs

Source: Anderson, et al. (2016). Chapter 5: Organizational structure and design. ​Fundamentals of Management,
Eighth Canadian Edition​ (pp. 116). Canada: Pearson Canada

II. CONTEMPORARY ORGANIZATIONAL DESIGNS

1. Team structure ​- an organizational structure in which the entire organization is made up
of work groups or teams.

For example, imagine Proctor and Gamble brings together a group of employees from
finance, marketing, and research and development—all representing different
geographic regions. This newly created team is tasked with the project of creating a
 laundry detergent that is convenient, economic, and aligned with the company’s
manufacturing capabilities. The project team might be allocated a certain number of
hours a month to devote to team objectives; however, members of the team are still
expected to work within their respective functional departments.(Source: Lumen
Learning)

Example:

Source: ​Five Approaches to Organizational Design. (n.d.). Retrieved from

https://www.cliffsnotes.com/study-guides/principles-of-management/organizational-design-and-structure/five-approaches-to-organiz
ational-design.

2. Matrix and project structures ​-

Matrix structure ​- an organizational structure that assigns specialists from different
functional departments to work on one or more projects.
Project structure ​- an organizational structure in which employees
continuously work on projects.
Example:

Source: Anderson, et al. (2016). Chapter 5: Organizational structure and design. ​Fundamentals of Management,
Eighth Canadian Edition​ (pp. 118). Canada: Pearson Canada
 3. Boundaryless organization ​- an organization that is not defined by a chain of
command, places no limits on spans of control, and replaces departments with
empowered teams.
Example:

● APPLE

Source: https://medium.com/swlh/why-you-should-kill-your-cash-cow-3025fa422711

a. Virtual organization ​- an organization that has elements of a traditional

organization, but also relies on recent developments in information technology to
get work done.
Example:
 b. Network organization ​- A small core organization that outsources major
business functions.
Example:
Source: Schermerhorn Jr. J.R. (2013) Chapter 11: Organizational Structures and Design, 12th Edition (pp. 268). John
Wiley & Sons, Inc.

Advantages and disadvantages of each contemporary organizational designs

Source: Anderson, et al. (2016). Chapter 5: Organizational structure and design. ​Fundamentals of Management,
Eighth Canadian Edition​ (pp. 117). Canada: Pearson Canada

CHALLENGES IN ORGANIZATIONAL DESIGN

1. Designing office space
- Office space has always been a battle between freeing employees to work and
maximizing space to minimize costs.
Comparison of the Major Office Styles

Source: Anderson, et al. (2016). Chapter 5: Organizational structure and design. ​Fundamentals of Management,
Eighth Canadian Edition​ (pp. 121). Canada: Pearson Canada

2. Keeping employees connected

- Finding a way to keep widely dispersed and mobile employees connected to the
organization.
3. Building a learning organization
- Employees must be able to share information and collaborate on work activities
throughout the entire organization—across different functional specialties and
even at different organizational levels.

4. Managing global structural issues

- When designing or changing structure, managers may need to think about the
cultural implications of certain design elements.

- One study showed that formalization—rules and bureaucratic mechanisms—may

be more important in less economically developed countries and less important in
more economically developed countries, where employees may have higher
levels of professional education and skills.

- Other structural design elements may be affected by cultural differences as well,

such as chain of command and span of control.
Source: National Commission for Culture and the Arts. Retrieved from
https://ncca.gov.ph/ncca-transparency/citizens-charter/
Source: National Commission for Culture and the Arts. Retrieved from
https://ncca.gov.ph/ncca-transparency/citizens-charter/
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