Fundamentals of Management

Global Edition

Chapter 07
Structuring and
Designing
Organizations

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Once the organization’s goals, plans, and strategies
are in place, managers must develop a structure that
will best facilitate the attainment of those goals.

How do managers create a structured environment

where employees can work efficiently and
effectively?

This chapter can guide your thoughts.

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Learning Objectives
7.1 Describe six key elements in organizational design.
7.2 Identify the contingency factors that favor either the
mechanistic model or the organic model of
organizational design.
7.3 Compare and contrast traditional and contemporary
organizational designs.

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Learning Objective 7.1
• Describe six key elements in organizational design.

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Elements of Organizational Structure
1. Work specialization (describe how work is specialized)
Advantage: maintain efficiency
2. Departmentalization
3. Authority and responsibility
4. Span of control
5. Centralization versus decentralization
6. Formalization

Getting work done efficiently & effectively.

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1. Work Specialization
Exhibit 7-1 Economies and Diseconomies of Work

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2. Departmentalization
Exhibit 7-2 Types of Departmentalization

• Functional Groups employees based on work performed (e.g.,

engineering, accounting, information systems,
human resources)
• Product Groups employees based on major product areas
in the corporation (e.g., women’s footwear, men’s
footwear, and apparel and accessories)
• Customer Groups employees based on customers’ problems
and needs (e.g., wholesale, retail, government)
• Geographic Groups employees based on location served (e.g.,
North, South, Midwest, East)
• Process Groups employees based on the basis of work or
customer flow (e.g., testing, payment in health
clinic offices)

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 Types of Authority Relationships
Exhibit 7-3 Chain of Command and Line Authority
Authority gives an
individual the right to
The line of authority give orders according
that extends from the to the chain of
upper levels of command.
management to the
lowest levels of the
organization

e.g. Vice
President
reports to
President

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 Example:

Organisational chart | Se
curities & Futures Comm
ission of Hong Kong (sfc.
hk)

Please click for

the enlarged
chart and details

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3. Line and Staff Authority
Exhibit 7-4 Line versus Staff Authority
refers to the authority that staff
Line authority is the managers have only over
explicit right to support staff they control. E.g.,
issue orders or if a hospital administrator
direct the activities cannot effectively purchase all
of any subordinate. the supplies the hospital
needs, the administrator
creates a purchasing
department, which is a staff
department.

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How Do Authority and Power Differ?
Authority:
a right whose legitimacy is
based on an authority figure’s
position in the organization; it
goes with the job.

Power:
• an individual’s ability to
influence decisions.

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Authority
versus Power

e.g., A secretary who

controls access to the boss
wields power in his or her
ability to grant people
entrance, but he or she does
not have authority to issue
orders or assignments.
Therefore, the secretary has
power without authority.

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 Types of Power
Coercive power Power based on fear. E.g., punish or control someone

Reward power Power based on the ability to distribute something that

others value. E.g., give bonus

Legitimate power Power based on one’s position in the formal hierarchy.

Expert power Power based on one’s expertise, special skill, or

knowledge. E.g., Attorney has the power to give legal
advice.

Referent power Power based on identification with a person who has

desirable resources or personal traits. E.g., boss’s
secretary

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Example: JPMorgan Chase & Co

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4. Span of Control
Effective and efficient span depends on:
• Employee experience and training (more they have, larger
span)
• Similarity of employee tasks (more similarity, larger span)
• Complexity of those tasks (more complex, smaller span)

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Example:
Management
Consulting Firm

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5. Centralization and Decentralization
Centralization:
• decision making takes place at upper levels of the
organization.
Decentralization:
• lower-level managers provide input or actually make
decisions.

Organizations have become more

decentralized to be responsive to a
dynamic business environment.
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6. Formalization
How standardized an organization’s jobs are and the extent
to which employee behavior is guided by rules and
procedures

e.g., a highly formalized organization

Little A standardized
Explicit job way of doing
discretion
descriptions things
for
employees
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Learning Objective 7.2
• Identify the contingency factors that favor either the
mechanistic model or the organic model of organizational
design.

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 Models of Organizational Design

versus

• Collaboration (both vertical and

• Rigid hierarchical relationships horizontal)
• Fixed duties • Adaptable duties
• Many rules • Few rules
• Formalized communication • Informal communication
channels
• Decentralized decision
• Centralized decision authority authority
• Taller structures • Flatter structures
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 Tall
Structure

Flat
Structure

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What contingency factors affect
organizational design?

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• The inputs that determine an organization's
structure are called contingency variables—
strategy, size, technology, and degree of
uncertainty.

• Each of these variables can change how a

company is organized and structured.

E.g., as the size of an organization changes, its

structure also gets modified to accommodate its
new stature.

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1.Strategy and Structure
Certain structural designs work best with different
organizational strategies:

Simple strategy / Simple structure

very small company (centralized and
informal)

Elaborate strategy More complex structure

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This is a more complex structure.
Bank of China (HK)

Organisation
Chart | About us | Ba
nk of China (Hong Ko
ng) Limited (bochk.co
m)
Pls. click for the
enlarged version.

Divisional structure: An organizational

structure made up of separate business
units or divisions
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2. Size and Structure
Organic:
• less than 2,000 employees can be organic.
Mechanistic:
• more than 2,000 employees make organizations become
more mechanistic.

Larger organizations tend to have

more specialization than smaller
organizations.

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3. Technology and Structure

If the technology is
nonroutine, organic
structure works best.

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4. Environment and Structure
• Stable environment: mechanistic structure
• Dynamic environment: organic structure

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Learning Objective 7.3
• Compare and contrast traditional and contemporary
organizational designs.

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Traditional
Organizational
Designs

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Contemporary Organizational Design
1. Team Structure
A structure in which the entire organization is made up of
work teams. No clear line of managerial authority.
Team members make decisions and are accountable for
their decisions.

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2. Matrix and Project Structures
Employees are recruited from functional departments to work on a specific project
for a limited time period. Group members report to their project manager and their
department head.

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3. Boundaryless Organizations
An organization whose design is not imposed by a
predefined structure.

Try to eliminate both kinds of boundaries—vertical

boundaries that are separated by rank and horizontal
boundaries that are separated by specialization.

Flexible. Innovative.

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4. A Learning Organization
e.g., a learning organization might collectively discover innovative new
ways to improve a process or a product. Focus on "continuously learn,
adapt, and change"

Exhibit 7-12 Characteristics of a Learning Organization

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 Read Textbook:
Chapter 7
Key Takeaways
 After setting the company’s goals, plans, and strategies,
managers need to develop an organizational structure that fits
the company and enables employees to work efficiently and
effectively.

 Managers have to decide how specialized jobs should be,

determine rules for employee behavior, and the level at which
decisions are made.

 Describe six key elements in organizational design.

 Explain how the four contingency factors affect organizational

design.

 The difference between traditional and contemporary

organizational designs.
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