Organizational Structure and Design

Organizational Structure – the formal arrangement of

jobs within an organization

Organizational Design – a process involving decisions

about six key elements:

1. Work specialization
2. Departmentalization
3. Chain of command
4. Span of control
5. Centralization and Decentralization
6. Formalization

Purpose of Organizing

• Divides work to be done into specific jobs

and departments
• Assign tasks and responsibilities associated
with individual jobs
• Coordinates diverse organizational tasks
• Clusters jobs into units
• Establishes relationships among individuals,
groups, and departments
• Establishes formal lines of authority
• Allocates and deploys organizational
resources

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.

• Overspecialization can result in human

diseconomies from boredom, fatigue, stress,
poor quality, increased absenteeism, and
higher turnover

Departmentalization by Type

Functional – grouping jobs by functions performed

Product – grouping jobs by product line

Geographical – grouping jobs on the basis of territory

or geography

Process – grouping jobs on the basis of product or

customer flow

Customer- grouping jobs by type of customer and

needs
 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.

Chain of Command – the continuous line of authority -Employee Empowerment

that extends from upper levels of an organization to
the lowest levels of the organization and clarifies who
reports to whom. • Increasing the decision-making discretion of
employees
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 Factors that Influence the Amount of

perform. Responsibility brings with it accountability Centralization
(the need to report and justify work to manager’s
-More Centralization
superiors)
• Environment is stable
Unity of command – the concept that a person should
• Lower-level managers are not as capable or
have one boss and should report only to that person.
experienced at making decisions as upper-
Delegation – the assignment of authority to another level managers
person to carry out specific duties. • Lower-level managers do not want to have a
say in decisions
• Decisions are significant
• Organization is facing a crisis or the risk of
Line and Staff Authority – Line managers are
company failure
responsible for the essential activities of the
• Company is large
organization, including production and sales. Line
managers have the authority to issue orders to those • Effective implementation of company
in the chain of command strategies depends on managers retaining
say over what happens
The president, the production manager, and the sales
manager are examples of line managers

-Staff managers have advisory authority, and cannot Factors that Influence the Amount of Decentralization
issue orders to those in the chain of command (except -More Decentralization
those in their own department)
• Environment is complex, uncertain
Span of Control - The number of employees who can
• Lower-level managers are capable and
be effectively and efficiently supervised by a manager.
experienced at making decisions
-Width of span is affected by: • Lower-level managers want a voice in
decisions
• Skills and abilities of the manager and the • Decisions are relatively minor
employees • Corporate culture is open to allowing
• Characteristics of the work being done managers to have a say in what happens
• Similarity of tasks • Company is geographically dispersed
• Complexity of tasks • Effective implementation of company
• Physical proximity of subordinates strategies depends on managers having
Standardization of tasks involvement and flexibility to make decisions
• Sophistication of the organization’s
information system
• Strength of the organization’s culture Formalization - The degree to which jobs within the
• Preferred style of the manager organization are standardized and the extent to which
employee behaviour is guided by rules and -Imitation
procedures.
• Minimizing risks and maximizing profitability
by copying market leaders requires both
organic and mechanistic elements in the
Mechanistic Organization- a rigid and tightly controlled organization’s structure
structure
Strategy and Structure- Achievement of strategic
Organic Organization – highly flexible and adaptable goals is facilitated by changes in organizational
structure 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

Technology and Structure

-Organizations adapt their structures to their

Structural Contingency Factors technology
Structural decisions are influenced by: -Routine technology = mechanistic organizations -
Non–routine technology = organic organizations
- Overall strategy of the organization

• Organizational structure follows strategy

Common Organizational Designs
-Size of the organization
Traditional Designs
• Firms change from organic to mechanistic
organizations as they grow in size -Simple Structure

-Technology use by the organization • Low departmentalization, wide spans of

control, centralized authority, little
• Firms adapt their structure to the technology formalization
they use
-Functional Structure
-Degree of environmental uncertainty
• Departmentalization by function
• Dynamic environments require organic
• Operations, finance, human resources, and
structures; mechanistic structures need
product research and development
stable environments
-Divisional Structure
Strategy Frameworks:
• Composed of separate business units or
-Innovation
divisions with limited autonomy under the
• Pursuing competitive advantage through coordination and control of the parent
meaningful and unique innovations favours corporation
an organic structuring

-Cost minimization

• Focusing on tightly controlling costs requires

a mechanistic structure for the organization
-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) boundaries:

-Eliminates the chain of command

-Has limitless spans of control

-Uses empowered teams rather than departments

Eliminates external boundaries

-Uses virtual, network, and modular organizational

structure to get closer to stakeholders.

Removing Boundaries

Virtual Organization- An organization that consists of

a small core of fulltime employees and that
temporarily hires specialists to work on opportunities
that arise

Network Organization- A small core organization that

outsources its major business functions (e.g.,
manufacturing) in order to concentrate on what it does
best

Modular Organization- A manufacturing organization

that uses outside suppliers to provide product
components for its final assembly operations

Learning Organization - An organization that has

developed the capacity to continuously learn, adapt,
and change through the practice of knowledge
management by employees