Organizational Behavior

ORGB 302 / PSYCH 342 / MAVA 342

Fall 2024

Chapter 14:

Foundations of
Organization Structure
Organizational Design

Strategic Intent

Arie Y. Lewin and Carroll U. Stephens, “CEO Attributes as Determinants of Organization Design: An Integrated Model,”
Organization Studies 15, no. 2 (1994), 183–212.
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Elements of an Organization’s Structure

The Key Question The Answer Is Provided by

1. To what degree are activities subdivided into Work specialization
separate jobs?
2. On what basis will jobs be grouped together? Departmentalization
3. To whom do individuals and groups report? Chain of command
4. How many individuals can a manager efficiently Span of control
and effectively direct?
5. Where does decision-making authority lie? Centralization and
decentralization
6. To what degree will there be rules and Formalization
regulations to direct employees and managers?
7. Do individuals from different areas need to Boundary spanning
regularly interact?

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 Work Specialization

▪ The division of labor into separate activities.

– Repetition of work.
– Training for specialization.
Craftmanship
– Increasing efficiency through invention.
– Industrial revolution, Henry Ford & assembly line production, utilization of economies
of scale
▪ requires no large-scale knowledge, no vision, no concept of the whole
▪ Decreased self-sufficiency and increased interdependency of workers

Henry Ford's assembly

line turns 100 Industrial production line
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 Human Diseconomies of Specialization

▪ Boredom, fatigue, stress, low productivity, poor quality, increased absenteeism, and high
turnover
‒ Can offset the economic advantages of specialization
‒ Managers should then increase productivity now by enlarging, rather than narrowing,
the scope of job activities.
▪ Job characteristics model (Hackman & Oldham)

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Economies and Diseconomies of Work Specialization

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 Departmentalization

▪ Grouping jobs together so common tasks can be coordinated.

‒ By functions performed: separating engineering, accounting, manufacturing, personnel,
and purchasing specialists into common departments
‒ By type of product or service the organization produces.
‒ By geography or territory.
‒ By process differences.
‒ By type of customer.

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 Chain of Command

▪ An unbroken line of authority that extends from the top of the organization to the lowest
echelon and clarifies who reports to whom.
‒ Once a basic cornerstone in organization design, but it is far less important today
‒ Two complementary concepts:
▪ Unity of command: subordinate to have only one superior to whom he or she is
directly responsible
▪ Authority: right to give orders and to expect the orders to be obeyed.

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 Chain of Command & Trends

▪ The chain of command is less relevant today because of technology and the trend of
empowering people.
‒ Operating employees make decisions once reserved for management.
‒ Use of technology has liberalized the access to information that is needed for making
decisions
‒ Increased popularity of self-managed and cross-functional teams.
‒ new structural designs that include multiple bosses
▪ Many organizations still find that enforcing the chain of command is productive.

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 Span of Control

▪ The number of subordinates a manager can efficiently and effectively direct.

‒ the wider or larger the span, the fewer levels, the more employees at each level, and
the more efficient the organization.
‒ Cost efficient: saves money on management salaries!
‒ However, at some point when supervisors no longer have time to provide subordinates
with the necessary leadership and support, effectiveness declines and employee
performance suffers.
‒ Narrow span of control is becoming out of fashion. Why?
▪ Expensive; makes vertical communication and decision making slow

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Contrasting Spans of Control

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 Centralization and Decentralization

▪ Centralization: the degree to which decision making is concentrated at a single point in

the organization.
▪ Advantages of a decentralized organization:
‒ Can act more quickly to solve problems.
‒ More people provide input into decisions.
‒ Employees are less likely to feel alienated from those who make decisions that affect
their work lives.
‒ Needs to be accompanied with employee empowerment programs.
▪ Research investigating a large number of Finnish organizations found that companies
with decentralized research and development offices in multiple locations were better at
producing innovation than companies that centralized all research and development in a
single office.
Leiponen and C. E. Helfat, “Location,Decentralization, and Knowledge
Sources for Innovation,” Organization Science 22, no. 3 (2011): 641–58. 12
 Formalization

▪ The degree to which jobs within the organization are standardized.

‒ A highly formalized job means a minimum amount of discretion over what is to be done,
when it is to be done, and how he or she should do it.
‒ Low formalization – job behaviors are relatively non-programmed, and employees have
a great deal of freedom to exercise discretion in their work.

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 Boundary Spanning

▪ If there is too much division within an organization, attempts to coordinate across groups
can be disastrous
‒ A solution is to encourage or create boundary-spanning roles
▪ Boundary-spanning occurs when individuals form relationships with people outside their
formally assigned groups.
‒ Positive results are especially strong in organizations that encourage extensive internal
communication; in other words, external boundary spanning is most effective when it is
followed up with internal boundary spanning.
‒ formal mechanisms to facilitate boundary-spanning
▪ assign formal liaison roles or develop committees of individuals from different areas of
the organization
▪ job rotation programs to increase employees’ experience in multiple functions
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 Organizational Design

▪ The process of creating, selecting, or changing the structure of an organization

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 Mechanistic vs. Organic Structural Models

When considered
in combination, the
five dimensions of
organizational
structure create at
least two types of
firms:

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The Contrast of Organic and Mechanistic Designs

M echanistic Desi gn Organic Desi gn

(Eff ciency) (Learni ng)

Centralized
Centralized Decentralized
Decentralized
Structure
Structure Structure
Structure

Strict Strict
Hierarchy
Hierarchy Specialized
Specialized Collaborative
Collaborative Empowered
Empowered
of Authorit
of Authorit
y y TasksTasks Teamwork
Teamwork RolesRoles

Vertical
Vertical M anyMRules,
any Rules, Horizontal
Horizontal Few Rules,
Few Rules,
Communication
Communication Formalized
Formalized Communication
Communication Informal
Informal

Typical Conti ngency Factors: Typical Conti ngency Factors:

Large Size Small Size
Eff ciency Strategy Innovation Strategy
Stable Environment Changing Environment
Rigid Culture Adaptive Culture
Service Technology 17
 A Simple Organizational Structure

▪ Often utilized in small businesses

▪ a low degree of departmentalization, wide spans of control, authority centralized in a
single person, and little formalization.
▪ Extremely flat

▪ E.g., Jack Gold’s Men’s Store

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 Simple Structure

▪ The manager and the owner are one and the same.
‒ Strengths:
▪ Simple, fast, and flexible.
▪ Inexpensive to maintain.
▪ Accountability is clear.
‒ Weaknesses:
▪ Difficult to maintain in anything other than small organizations.
• creates information overload at the top
▪ Risky—everything depends on one person.

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 Bureaucracy

▪ Characterized by standardization.
‒ Highly routine operating tasks.
‒ Very formalized rules and regulations.
‒ Tasks grouped into functional departments.
‒ Centralized authority.
‒ Narrow spans of control.
‒ Decision making that follows the chain of command.

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 Strengths and Weaknesses of Bureaucracy

Strengths Weaknesses

• ability to perform standardized activities • subunit conflicts

in a highly efficient manner
• economies of scale • unit goals dominate: functional unit
goals can override the organization’s
goals
• minimum duplication of personnel and • obsessive obsessive concern with
equipment following the rules can develop
• works well with less talented and less • covering weak management
costly middle- and lower-level managers

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 Functional Structure

▪ Grouping individuals by skill, knowledge, and action yields.

‒ Marketing, finance, production, and personnel etc.
‒ Long-term effects: an emphasis on quality from a technical standpoint, rigidity to
change, and difficulty in coordinating the actions of different functional areas

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 Advantages and Disadvantages of Functional Structure

Strengths Weaknesses
• Yields very clear task assignments; consistent • May reinforce narrow training of employees.
with individual’s training.
• Individuals within a department can easily build • May yield narrow, boring, and routine jobs.
on one another’s knowledge, training and
experience.
• Provides and excellent training ground for new • Communication across technical area is
managers. complex and difficult.
• It is easy to explain. • “Top management overload” with too much
attention to cross-functional problems.

• Takes advantage of employees’ technical • Individuals may look up to the organizational

quality. hierarchy for direction and reinforcement
rather than focus on products, services, or
clients.
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 Divisional Structure

▪ Groups individuals
and resources by
products,
territories, services,
clients, or legal
entities.

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 Matrix Structure

▪ combination of functional and

divisional patterns wherein an
individual is assigned to more than
one type of unit.

Matrix Organization

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 The Virtual Organization

▪ a lead organization that creates alliances with groups and individuals from different
organizations who possess the highest competencies to build a specific product or
service in a short period of time.
▪ Also referred to as a modular or network
organization.
‒ It is highly centralized, with little or no
departmentalization.
▪ Flexible & cost minimizing

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 The Team Structure:

▪ Eliminates the chain of command and replaces departments with empowered teams.
‒ Removes vertical and horizontal boundaries.
‒ Breaks down external barriers.
▪ Flattens the hierarchy and minimizes status and rank.
‒ When fully operational, the team structure may break down geographic barriers.

Microdivisionalization

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 Circular Structure

▪ In the center are the executives, and radiating outward in rings grouped by function are
the managers, then the specialists, then the workers.
▪ Has intuitive appeal for creative entrepreneur.
▪ However, employees may be unclear about whom they report to and who is running
the show.
▪ We are still likely to see the popularity of the circular structure spread.

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 The Leaner Organization: Downsizing

▪ Downsizing: a systematic effort to make an organization leaner by closing locations,

reducing staff, or selling off business units that don’t add value.
▪ The goal of the new organizational forms we’ve described is to improve agility by creating
a lean, focused, and flexible organization.
▪ Downsizing is a systematic effort to make an organization leaner by selling off business
units, closing locations, or reducing staff.

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 Effects of Downsizing on Organizations and Employees

▪ Laying off employees without restructuring the organization can cause profits and stock
prices to decline.
‒ Remaining employees may have attitudinal problems.
▪ Strategies for downsizing include:
‒ Investment
‒ Communication
‒ Participation
‒ Assistance
▪ Make cuts carefully and help employees through the process.

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Agile Strategy?

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 Strategy

▪ An organization’s structure is a means to help management achieve its objectives.

▪ Most current strategy frameworks focus on three dimensions:
‒ Innovation strategy: emphasizes the introduction of major new products and services
‒ Cost minimization strategy: emphasizes tight cost controls, avoidance of unnecessary
innovation or marketing expenses, and price cutting.
‒ Imitation strategy: seeks to move into new products or new markets only after their
viability has already been proven

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The Strategy–Structure Relationship

Strategy Structural Option

Innovation Organic: A loose structure; low specialization, low
formalization, decentralized
Cost minimization Mechanistic: Tight control; extensive work
specialization, high formalization, high
centralization
Imitation Mechanistic and organic: Mix of loose with tight
properties; tight controls over current activities and
looser controls for new undertakings

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Lost Between Levels: Valve
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 Organizational Size

▪ Large organizations—employing 2,000 or more people—tend to have more

specialization, more departmentalization, more vertical levels, and more rules and
regulations than do small organizations.
‒ The impact of size becomes less important as an organization expands.

More People Work in Large

Companies than Ever Before

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 Conglomerates (or “Holding”)

▪ firms that own several different unrelated

businesses.
▪ On the surface, these firms look like
divisionalized firms, but when the various
businesses of the divisions are unrelated,
the term conglomerate is applied.

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 Technology

▪ The way an organization transfers its inputs into outputs.

▪ Every organization has at least one technology for converting financial, human, and
physical resources into products or services.
‒ Numerous studies have examined the technology-structure relationship.
‒ Organizational structures adapt to their technology.

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 Environment

▪ Includes outside institutions or forces

that can affect an organization’s
performance.
‒ Dynamic environments create
significantly more uncertainty for
managers than do static ones.
‒ To minimize uncertainty:
▪ Broaden structure to sense and
respond to threats.
▪ Form strategic alliances.

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 Three-Dimensional Model of the Environment

▪ Capacity: the degree to which the

environment can support growth.
▪ Volatility: the degree of instability in the
environment.
▪ Complexity: the degree of heterogeneity
and concentration among environmental
elements.

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 Institutions

▪ Regulatory pressures.
▪ Simple inertia.
▪ Culture.
▪ Fads or trends.
▪ Institutional pressures are often difficult to see specifically because we take them for
granted, but that doesn’t mean they aren’t powerful.

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 Behavioral Implications of Different Organizational Designs

▪ An organization’s structure can have significant effects on its members.

▪ It’s impossible to generalize!
‒ Not everyone prefers the freedom and flexibility of organic structures.
‒ Some people are most productive and satisfied when work tasks are standardized and
ambiguity minimized.

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 Organizational Designs and Employee Behavior

▪ The evidence generally indicates that work specialization contributes to higher employee
productivity—but at the price of reduced job satisfaction. However, work specialization is
not an unending source of higher productivity.
▪ No evidence supports a relationship between span of control and employee satisfaction
or performance.
▪ Fairly strong evidence links centralization and job satisfaction, meaning that less
centralization is associated with higher satisfaction.
▪ National culture influences the preference for structure.
‒ Organizations that operate with people from high-power-distance cultures, such as
Greece, France, and most of Latin America, find their employees are much more
accepting of mechanistic structures than are employees from low-power-distance
countries

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 Implications for Managers

▪ Specialization can make operations more efficient, but remember that excessive
specialization can create dissatisfaction and reduced motivation.
▪ Avoid designing rigid hierarchies that overly limit employees’ empowerment and
autonomy.
▪ Balance the advantages of remote work against the potential pitfalls before adding
flexible workplace options into the organization’s structure.
▪ Downsize your organization to realize major cost savings, and focus the company around
core competencies - but only if necessary, because downsizing can have a significant
negative impact on employee affect.
▪ Consider the scarcity, dynamism, and complexity of the environment, and balance
organic and mechanistic elements when designing an organizational structure.

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