Foundations of Organizational Structure

   

What is organizational structure, Common Organizational Design, Why do structure defer, Organizational Design and Employ Behavior.

 Organizational Structure- Key Elements-( Work specialization, Departmentalization, Chain of command, Span of control, Centralization and decentralization, Formalization), Common Organization Designs- (Simple Structure, Bureaucracy, Matrix structure, New design, Team structure, virtual organization, Net work based), Why do structure defer.
16-0

Chapter Learning Objectives

 After studying this chapter, you should be able to:
Identify the six elements of an organizations structure. Identify the characteristics of a bureaucracy. Describe a matrix organization. Identify the characteristics of a virtual organization. Show why managers want to create boundary less organizations. Demonstrate how organizational structures differ, and contrast mechanistic and organic structural models. Analyze the behavioral implications of different organizational designs. Show how globalization affects organizational structure.
2009 Prentice-Hall Inc. All rights reserved. 16-1

What Is Organizational Structure?

 Organizational Structure
How job tasks are formally divided, grouped, and coordinated The formal allocation of work, roles and administrative mechanism to control and integrate work activities including those which cross formal organizational boundaries. Need for organization structure. It facilitate management Encourage growth and diversification Optimum use of technological improvement Encourage proper use of HR Stimulate creativity
16-2

What Is Organizational Structure?

Key Elements:1. 2. 3. 4. 5. 6. Work specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization

16-3

1. Work Specialization or Division of Labor

 The degree to which tasks in the organization are subdivided into separate jobs  Division of Labor
Breaks jobs into small task which could be performed over and over again. Makes efficient use of employee skills Increases employee skills through repetition Less between-job downtime increases productivity Specialized training is more efficient Allows use of specialized equipment

 Can create greater economies and efficiencies but not always

16-4

Work Specialization Economies and Diseconomies

 Specialization can reach a point of diminishing returns (boredom, fatigue, stress, low productivity, poor quality, absenteeism high turnover)  Then job enlargement gives greater efficiencies than does specialization
16-5

2. Departmentalization
 The basis by which jobs are grouped together.  Grouping Activities by:
FunctionExample- Manufacturing plantEngineering dept., Supply specialist dept., A/c dept., Manufacturing dept., Hospital- Patient care dept, a/c, research Product Customer Geography Process(processing customer, product processing ) ProductionCasting, press, tubing, finishing inspection, packaging, shipping etc
16-6

3. Chain of Command
 Chain of Command
The unbroken line of authority that extends from the top of the organization to the lowest echelon and clarifies who reports to whom. (today it has become less important)

It has two elements 1. Authority 2. Unity of command  Authority

The rights inherent in a managerial position to give orders and to expect the orders to be obeyed It is the power of position to exercise discretion in market decisions affecting other. Existence of right given to position by their senior manager. Basic objective behind the use of authority is to influence the behavior of subordinate in terms of doing right things at right time to achieve organizational objective. It controls negative aspect of behavior. 16-7 The use of authority is determine by the personality factor of possessor and follower.

3. Chain of Command (cont.)

 Unity of Command
A subordinate should have only one superior to whom he or she is directly responsible. Today technological boom has made chain of command less important 1. Self managed and cross cultural teams and new structure design are becoming more famous. 2. Communication to anyone without formal chair. 3. Information are easily available.

16-8

3. Chain of

Command- (Difference between authority and power) Power

1. Capacity to command 2. No legitimization 3. Power emerges due to personal factor and varies with individual 4. Power reflect political realities with organization and relates pattern of action and interaction that occur 5. Organizational relationship may not be necessary 16-9

Authority
1.Right to command 2.It is legitimized by certain rules, regulation, laws and practices 3.It is institutional and originate because of structured relationship 4.It is central element of formal organization and systematic communication. 5.Authority exist in superior subordinate relationship either directly or otherwise

4. Span of Control
The number of subordinates a manager can efficiently and effectively direct. It determines no of levelsWider spans of management
increase organizational efficiency. Speedy decision making Increase flexibility Get closer to customer Empower employee

Narrow span Can maintain close control drawbacks:

Expense of additional layers of management Increased complexity of vertical communication Encouragement of overly tight supervision and discouragement of employee autonomy Isolate top mgmt. and slow down decision making

16-10

Contrasting Spans of Control

16-11

5. Centralization and Decentralization

 Centralization
The degree to which decision making is concentrated at a single point in the organization.

 Decentralization
The degree to which decision making is spread throughout the organization.

16-12

5. Centralization and Decentralization (cont.)

 Centralization1. Top management makes all decision with little or no input from lower level. 2. The concept include only formal authority.

 Decentralization 1. Decision making is push down to the mgr, who are closest to action. 2. Lower level provide input or actually given direction to make decision (motivates and development) 3. Quick to solve problem and reduce burden from top mgmt. 4. More input in decision making. 5. More flexible and responsive 6. Facilitate growth and diversification 16-13

5. Centralization and Decentralization (cont.)

Demerit of decentralization1. Without proper control it can create chaos. 2. More need for good mgr.. 3. High degree of self control and self motivation needed Factor effecting the degree of centralization 1. Size of organization 2. History of organization (amalgamation. consolidation). 3. Management philosophy 4. Availability of manager 5. Pattern of planning 6. Control technique- (high use of control - decentralization) 7. Rate of change in organization 16-14 8. Environmental influence

6. Formalization
 The degree to which jobs within the organization are standardized.  If the job is formalized then uniformity in what to be done, when to be done, how to be done will be there and it will result in consistency and uniformity in output
High formalization
Minimum worker discretion in how to get the job done Many rules and procedures to follow

Low formalization
Job behaviors are non programmed Employees have maximum discretion

16-15

6. Formalization (cont.)
 1. 2. 3. 4. 5.

There will be explicitJob description Organizational rules Clearly define procedure covering work process Programmed employees job behavior Less input the employees has into how his work is to be done. They will not consider innovation or alternative.

Formalization varies widely between organization. Some department needs to be more formalized than other. Also different job will have different degree of formalization.
16-16

Common Organization Designs: Simple Structure

   

Simple Structure Bureaucracy Functional and divisional structure Matrix structure

New design  Team structure  virtual organization  Net work based

16-17

Common Organization Designs: Simple Structure

 Simple Structure
1. A structure characterized by a low degree of departmentalization, wide spans of control, authority centralized in a single person, and little formalization 2. Flat org. 2-3 vertical level, small org with 10-15 member. 3. Big company might adopt this model when they are in survival mode. 4. Structure is flexible, inexpensive, clear accountability. But as the business increases and no. of employee increases 1. Decision making becomes difficult and slower. Owner 2. Creates information overload at top
Sales person Account person Store manager 16-18

Common Organizational Designs: Bureaucracy

 Bureaucracy
A structure of highly operating routine tasks achieved through specialization, very formalized rules and regulations, tasks that are grouped into functional departments, centralized authority, narrow spans of control, and decision making that follows the chain of command. Advantages 1. Std. activity are performed in highly efficient manner 2. Economy of scale- minimum duplication 3. Work nicely with less talented people Disadvantage 1. Fails incase of innovation and non std. decision making 2. Obsessive concern with rules and procedure 3. Cannot cope with non std problem
16-19

An Assessment of Bureaucracies Strengths

Functional economies of scale Minimum duplication of personnel and equipment Enhanced communication Centralized decision making

Weaknesses
Subunit conflicts with organizational goals Obsessive concern with rules and regulations Lack of employee discretion to deal with problems

2009 Prentice-Hall Inc. All rights reserved.

16-20

Functional and divisional structure

It is the oldest & commonly used structure. In functional structure org. is departmentalized on the basis of function performed, likeProduct VP Product, ---------------------------------------------------------------------------Process GM textile region, __________________________________________________ customer Marketing manager (customer)
Whole Retailer export sale _________________________________________________
Casting division Pressing Division Finishing Division

Fuel division

Lubricant division

Chemical division

process.
East zone

Head office (Region) Central zone West zone

16-21

Functional and divisional structure

It is the oldest & commonly used structure. In functional structure org. is departmentalized on the basis of function performed, likeProduct VP Product, ---------------------------------------------------------------------------Process GM textile region, __________________________________________________ customer Marketing manager (customer)
Whole Retailer export sale _________________________________________________
Casting division Pressing Division Finishing Division

Fuel division

Lubricant division

Chemical division

process.
East zone

Head office (Region) Central zone West zone

16-22

Functional and divisional Structure

Functional division Advantage 1. Logical and efficient (by putting specialist together). 2. Economy of scale- By placing people with common skills & orientation into common unit. 3. Delegation of authority is easy. Disadvantage 1. Too much emphasis on specialization hamper the boarding of out look of various people. 2. Co-ordination and control problem between different department

16-23

Functional and divisional Structure (cont.)

Product Advantage 1. Co-ordination 2. Facilitates product expansion and diversification. 3. Take care of product line. 4. Fixes increased accountability for product performance. 5. Evaluation/comparison of performance easier. 6. Centralized control easy to achieve. Disadvantage 1. Duplication of physical facilities and many function 2. Under utilization of departments.

16-24

Functional and divisional Structure (cont.)

Process Advantage 1. Helps when equipment used requires special operating skill. 2. Benefit of specialization 3. Suitable for manufacturing enterprises. Disadvantage 1. Co-ordination problem 2. Conflict between different manager of various level. Regional Advantage 1. Benefit of local operation. 2. Co-ordination between zone-region
16-25

Functional and divisional Structure (cont.)

Regional (cont.) Disadvantage 1. Talented and willing people are always not available to take charge of zone/region. 2. Integration of different zone difficult. Customer Advantage 1. Focused on customer demand. 2. Helps to attract customer Disadvantage 1. May discriminate between rich and poor. 2. Co-ordination problem between sales and production.

16-26

Common Organizational Designs: Matrix

 Matrix Structure
A structure that creates dual lines of authority and combines functional and product departmentalization. Each department report simultaneously to both product manager and functional manager and both manager have equal authority.

 Key Elements Advantage

1. Gains the advantages of functional and product departmentalization while avoiding their weaknesses 2. Facilitates coordination of complex and interdependent activities 3. Economy of scale due to best allocation of resources and specialist. 4. Breaks down unity-of-command concept Disadvantage 1. Power struggle 2. Ambiguity, conflict and stress on individual. 16-27

Matrix Design

New Design Options: Virtual Organization

1. A small, core organization that outsources major of its primary or secondary business functions. 2. Highly centralized with little or no departmentalization. 3. An alliance of several org. for the purpose of creating a product or servicing client. Main activities of management1.Co-ordinate outsource activities. 2.Quality checking 3.Control external relationship through computer network.
16-29

Networked Design

New Design Options: Virtual Organization (cont.)

Advantage Provides maximum flexibility while concentrating on what the organization does best. Can realign with environmental requirement. May become globally competitive. Disadvantage Reduced control over key parts of the business. Quality control difficult Exposure to market force. (other company might bid up for subcontract and may take away their outsourcer)

16-31

New Design Options: Boundaryless Organization

An organization that seeks to eliminate internal and external boundary like 1. the chain of command, (vertical boundary) 2. have limitless spans of control, (horizontal boundary) and 3. replace departments with empowered teams 4. T-form Concepts-Eliminate vertical (hierarchical) and horizontal (departmental) internal boundaries 5. Breakdown external barriers to customers and suppliers. 6. It replaces department with empowered team.

16-32

New Design Options: Boundary less Organization (cont.)

Replacing vertical boundaries by1. Flatten structure 2. Hierarchy, status and rank are minimized 3. Participative decision making. 4. 360 degree performance appraisal by senior, peer, subordinate & customer. Replacing functions, departments- vertical boundaries by1. Cross functional department or team 2. Organization activity around process. 3. Lateral transfer- rotating people. 4. This approach terns specialist into generalist. It also breaks external boundaries constituting supplier, customer, regulator etc. barrier created by geography1. Globalization and strategic alliance 2. Customer org. link 16-33 3. Wide use of network, telecommunication

Team based
Definition- A type of departmentalization with a flat hierarchy and relatively little formalization, consisting of self-directed work team responsible for various work process.
It uses teams as central device to co-ordinate work activities. It breaks down dept. barriers. Decentralized decision making, at the level of work team. Team may have responsibility for most operational issues and client services. It allows to achieve advantage of bureaucratic structure in terms of std., Specialization.  At the same time they have flexibility of team structure.  Activities are structured cross functional teams.     

 Disadvantage
1. 2. 3. 4. Costly training(ongoing) and co-ordination problem More stress to employee Loss of functional power to leaders Unclear career progression ladders
16-34

Two Extreme Models of Organizational Design

16-35

Four Reasons Structures Differ

1. 2. 3. 4. Strategy Organizational Size Technology Environment

16-36

Four Reasons Structures Differ

1. Strategy Innovation Strategy(Organic structure best) A strategy that emphasizes the introduction of major new products and services Low specialization and formalization. Cross functional team and wide span of control Decentralization and cross hierarchy teams Free flow of information Cost-minimization Strategy (Mechanistic model best) A strategy that emphasizes tight cost controls, avoidance of unnecessary innovation or marketing expenses, and price cutting Imitation Strategy (Mixture of the two types of structure) A strategy that seeks to move into new products or new markets only after their viability has already been proven
16-37

Why Structures Differ

2. Organizational Size
As organizations grow, they become more mechanistic, more specialized, with more rules and regulations How an organization transfers its inputs into outputs
The more routine the activities, the more mechanistic the structure with greater formalization Custom activities need an organic structure

3. Technology

4. Environment
Institutions or forces outside the organization that potentially affect the organizations performance Three key dimensions: capacity, volatility, and complexity
16-38

Three-Dimensional Environment Model

Volatility

Complexity
 Capacity

Capacity

The degree to which an environment can support growth

 Volatility
The degree of instability in the environment

 Complexity
The degree of heterogeneity and concentration among environmental elements

16-39

Organizational Designs and Employee Behavior

 Impossible to generalize due to individual differences in the employees  Research findings
Work specialization contributes to higher employee productivity, but it reduces job satisfaction. The benefits of specialization have decreased rapidly as employees seek more intrinsically rewarding jobs. The effect of span of control on employee performance is contingent upon individual differences and abilities, task structures, and other organizational factors. Participative decision making in decentralized organizations is positively related to job satisfaction.

 People seek and stay at organizations that match their needs.

16-40

Global Implications
 Culture and Organizational Structure
Many countries follow the U.S. model U.S. management may be too individualistic

 Culture and Employee Structure Preferences

Cultures with high-power distance may prefer mechanistic structures

 Culture and the Boundary less Organization

May be a solution to regional differences in global firms Breaks down cultural barriers, especially in strategic alliances Telecommuting also blurs organizational boundaries

16-41

Summary and Managerial Implications

 Structure impacts both the attitudes and behaviors of the people within it
Associated with

 Impact of Technology
Makes it easier to change structure to fit employee and organizational needs
16-42