16-1

Organizational Structure
and Design

McGraw-Hill/Irwin

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

16-2

Organization structure the pattern

of jobs and groups of jobs in an
organization.
It is an important cause of
individual and group behavior.

McGraw-Hill/Irwin

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

The Concept of Organization

Structure

Structure as an
influence on
behavior

McGraw-Hill/Irwin

16-3

Structure as
recurring
activities

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

16-4

Organization design management

decisions and actions that result in
a specific organization structure.

McGraw-Hill/Irwin

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

Organizational Design
Decisions

16-5

1. Managers decide how to divide the overall

task into successively smaller jobs
2. Managers decide the bases by which to group
the jobs
3. Managers decide the appropriate size of the
group reporting to each superior
4. Managers distribute authority among the jobs
McGraw-Hill/Irwin

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

16-6

The Four Key Design Decisions

Specialization

Division of Labor:

Low

High

Departmentalization:

Basis

Homogeneous

Heterogeneous
Number

Span of Control:

Many

Few
Delegation

Authority:
High
McGraw-Hill/Irwin

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

Division of Labor

16-7

Division of labor concerns the extent

to which jobs are specialized
It is the process of dividing work into
relatively specialized jobs to achieve
advantages of specialization

McGraw-Hill/Irwin

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

Division of Labor Occurs in Three

Different Ways:

16-8

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

Delegation of Authority

16-9

Managers decide how much authority

should be delegated to each job and to
each jobholder
Delegation of authority process of
distributing authority downward in an
organization

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

Reasons to Decentralize
Authority

16-10

1. Relatively high delegation of authority

encourages the development of professional
managers
2. High delegation of authority can lead to a
competitive 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
McGraw-Hill/Irwin

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

Reasons to Centralize Authority

16-11

(1 of 2)

1. Managers must be trained to make the

decisions that go with delegated authority
2. Many managers are accustomed to making
decisions and resist delegating authority to
their subordinates

McGraw-Hill/Irwin

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

Reasons to Centralize Authority

16-12

(2 of 2)

3. Administrative costs are incurred because new

control systems must be developed to provide
top management with information about the
effects of subordinates decisions
4. Decentralization means duplication of
functions

McGraw-Hill/Irwin

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

Delegation Decision Guidelines

16-13

(1 of 2)

How routine and straightforward are the jobs or

units required decisions?
The authority for routine decisions can be centralized

Are individuals competent to make the decision?

Even if the decision is non-routine, if the local
manager is not capable, then the decision should be
centralized
Delegation of authority can differ among individuals
depending upon each ones ability to make the
decision
McGraw-Hill/Irwin

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

Delegation Decision Guidelines

16-14

(2 of 2)

Are individuals motivated to make the decision?

Capable individuals are not always motivated
individuals
Motivation must accompany competency to create
conducive conditions for decentralization

Do the benefits of decentralization outweigh its

costs?

McGraw-Hill/Irwin

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

16-15

Departmentalization process in
which an organization is
structurally divided by combining
jobs in departments according to
some shared characteristic or
basis.

McGraw-Hill/Irwin

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

Departmentalization Bases

McGraw-Hill/Irwin

Functional

Geographic

Product

Customer

16-16

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

Departmental Bases:
Functional Departmentalization

16-17

Jobs are combined according to the functions

of 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

McGraw-Hill/Irwin

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

Functional Departmentalization 16-18

Structure
OBM
OBM Company

Engineering
Engineering

Manufacturing

McGraw-Hill/Irwin

Finance
Finance

Reliability

Distribution
Distribution

Public
Public
Relations
Relations

Human
Human
Resources
Resources

Purchasing

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

Departmental Bases:
Geographic Departmentalization

16-19

Establish groups according to geographic

area
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
McGraw-Hill/Irwin

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

Geographic Departmentalization
Structure

16-20

OBM
Company

Northeast

McGraw-Hill/Irwin

Midwest

Southeast

Southwest

Pacific

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

Departmental Bases:
Product Departmentalization

16-21

All jobs associated with producing and selling a

product or product line will be placed under the
direction of one manager
Product becomes the preferred basis as a firm
grows by increasing the number of products it
markets
Concentrating authority, responsibility, and
accountability in a specific product department
allows top management to coordinate actions
McGraw-Hill/Irwin

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

Product Departmentalization
Structure

16-22

OBM
OBM Company
Company

Small
Small
Household
Household
Appliances
Appliances

McGraw-Hill/Irwin

Large
Large
Household
Household
Appliances
Appliances

Commercial
Commercial
Appliances
Appliances

Building
Building
Materials
Materials and
and
Products
Products

Lawn
Lawn and
and
Garden
Garden
Products
Products

Automotive
Automotive
Products
Products

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

Departmental Bases:
Customer Departmentalization

16-23

The importance of customer satisfaction has

stimulated 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
McGraw-Hill/Irwin

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

Customer Departmentalization
Structure

16-24

OBM
Company

Retail
Stores

McGraw-Hill/Irwin

Mail Order

On-Line
Sales

Institutional
Sales

Government
Contracts

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

Span of Control

16-25

(1 of 2)

Number of individuals who report to a

specific manager
Narrow span
Wide span

The frequency and intensity of actual

relationships is the critical consideration
in determining the managers span of
control
McGraw-Hill/Irwin

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

Span of Control
If we shift our attention
from potential to actual
relationships as the bases
for determining optimum
span of control, three
factors appear to be
important:

McGraw-Hill/Irwin

16-26

(2 of 2)

Key Factors
Required Contact
Degree of
Specialization
Ability to
Communicate

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

Dimensions of Structure

16-27

Formalization the extent to which

expectations regarding the means and ends of
work are specified, written, and enforced
Centralization the location of decision-making
authority in the hierarchy
Complexity the direct outgrowth of dividing
work and creating departments
McGraw-Hill/Irwin

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

Organization Design Models

16-28

The Mechanistic Model

The Organic Model
Emphasizes importance
Emphasizes importance
of achieving high levels of
of achieving high levels of
production and efficiency
production and efficiency
through:
through:
Extensive use of rules and
procedures
Centralized authority
High specialization of
labor
McGraw-Hill/Irwin

Limited use of rules and

procedures
Decentralized authority
Relatively low degrees of
specialization

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

Comparison of Mechanistic and

Organic Structures (1 of 3)

16-29

Process

Mechanistic Structure

1. Leadership

Includes no perceived
Includes perceived confidence
confidence and trust between and trust between superiors
superiors and subordinates. 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 downward

and tends to be distorted,
inaccurate, and viewed with
suspicion by subordinates.

Information flows freely:

upward, downward, and
laterally. The information is
accurate and undistorted.

McGraw-Hill/Irwin

Organic Structure

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

Comparison of Mechanistic and

Organic Structures (2 of 3)

16-30

Process

Mechanistic Structure

Organic Structure

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.
Relatively decentralized.
Occurs only at the top of the Occurs at all levels through
organization.
group processes.

6. Goal setting

Located at the top of the

organization, discouraging
group participation.

McGraw-Hill/Irwin

Encourages group
participation in setting high,
realistic objectives.

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

Comparison of Mechanistic and

Organic Structures (3 of 3)

16-31

Process

Mechanistic Structure

Organic Structure

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 human
resources.

High and actively sought by

superiors, who recognize the
need for full commitment to
developing, through training,
the organizations human
resources.

McGraw-Hill/Irwin

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

Organization Design Models:

The Matrix Model

16-32

Matrix organization attempts to maximize

the 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

McGraw-Hill/Irwin

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

Example of the Matrix

Organization Model

16-33

Functions
Projects, products

Manufacturing

Marketing

Engineering

Finance

Project or product A
Project or product B
Project or product C
Project or product D
Project or product E

McGraw-Hill/Irwin

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

Advantages of Matrix
Organization

16-34

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 personal development
McGraw-Hill/Irwin

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

Evolutionary Steps to the Matrix16-35

Model
Task Force

(1)

Teams

(2)

Product
Managers

(3)

Product
(4)
Management Depts.

McGraw-Hill/Irwin

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

Multinational Structure and

Design

16-36

Multinational corporation consists of a

group of geographically dispersed
organizations with different national
subsidiaries
Multinational corporations frequently exist in
very divergent environments
The most prevalent departmental basis is
geographic

McGraw-Hill/Irwin

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

Multinational Corporations:
Implications for Organizational
Design (1 of 2)

16-37

1. National boundaries are an important force in

defining organizational environments
2. Subsidiaries or affiliates of multinational
corporations can act as conduits that introduce
changes into the host countrys environment

McGraw-Hill/Irwin

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

Multinational Corporations:
Implications for Organizational
Design (2 of 2)

16-38

3. Subsidiaries of multinational corporations can

act as conduits through which features of the
host country culture are introduced throughout
the multinational organization

McGraw-Hill/Irwin

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

Virtual Organizations

16-39

Virtual organization a collection of

geographically distributed, functionally
and/or culturally diverse aggregations of
individuals that is linked by electronic
forms of communication
Assembled and disassembled according
to needs
McGraw-Hill/Irwin

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

Virtual Organizations:
Factors in Design Considerations

16-40

Personnel
Personnel distributed
distributed geographically
geographically
Electronically
Electronically connected
connected
Differences
Differences inin expertise
expertise and
and function
function
Culturally
Culturally diverse
diverse
Work
Work schedule
schedule differences
differences
Horizontally
Horizontally arranged
arranged with
with little
little emphasis
emphasis on
on
command
command and
and control
control authority
authority
McGraw-Hill/Irwin

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

Virtual Organizations:
Design Implications

16-41

Contractual
Contractual relationships
relationships
Constant
Constant change
change and
and reconfiguration
reconfiguration
No
No rigid
rigid boundaries
boundaries
Flexible
Flexible
Little
Little or
or personal
personal and
and social
social contact
contact

McGraw-Hill/Irwin

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

Virtual Organizations:
Consequences

16-42

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
McGraw-Hill/Irwin

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

Boundaryless Organizations

16-43

Organizations in which:
the hierarchy and chain of command are
minimized
rigidly structured departments are
eliminated

Implemented to reduce barriers between

people and constituencies
McGraw-Hill/Irwin

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