PART III: ORGANIZING

CHAPTER 5 – Basic organization design

LEARNING OUTCOMES
After reading this chapter students should be able to:
1. Describe 6 key elements in organizational design.
2. Describe the advantages and disadvantages of work specialization
3. Contrast authority and power
4. Contrast mechanistic and organic organizations
5. Explain the strengths of the matrix structure

I. INTRODUCTION
A. What Is Work Specialization?
1. Work specialization is dividing work activities into separate jobs tasks.
a) Individuals specialize in doing part of an activity.
b) Work specialization makes efficient use of the diversity of skills that workers hold.
2. Some tasks require highly developed skills; others lower skill levels.
3. Excessive work specialization or human diseconomies, can lead to boredom, fatigue,
stress, low productivity, poor quality, increased absenteeism, and high turnover. (See
Exhibit 5-1.)
4. Today's view is that specialization is an important organizing mechanism for employee
efficiency, but it is important to recognize the economies work specialization can provide
as well as its limitations.
B. What are Authority and Responsibility?
1. The chain of command is the continuous line of authority that extends from upper
organizational levels to the lowest and clarifies who reports to whom.
2. An employee who has to report to two or more bosses might have to cope with conflicting
demands or priorities.
3. Authority refers to the rights inherent in a managerial position to give orders and expect
the orders to be obeyed.
4. Each management position has specific inherent rights that incumbents acquire from the
position’s rank or title.
a) Authority is related to one’s position and ignores personal characteristics.
5. When managers delegate authority, they must allocate commensurate responsibility.
a) When employees are given rights, they assume a corresponding obligation to perform
and should be held accountable for that performance!
b) Allocating authority without responsibility creates opportunities for abuse.
c) No one should be held responsible for something over which he or she has no
authority.

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6. What are the different types of authority relationships?

a) The early management writers distinguished between two forms of authority.
(1) Line authority entitles a manager to direct the work of an employee.
(a) It is the employer-employee authority relationship that extends from top to
bottom.
(b) See Exhibit 5-3.
(c) A line manager has the right to direct the work of employees and make
certain decisions without consulting anyone.
(2) Sometimes the term “line” is used to differentiate line managers from staff managers.
(a) Line emphasizes managers whose organizational function contributes
directly to the achievement of organizational objectives (e.g., production and
sales).
(b) Staff managers have staff authority (e.g., human resources and payroll).
(3) A manager’s function is classified as line or staff based on the organization’s
objectives.
b) As organizations get larger and more complex, line managers find that they do not
have the time, expertise, or resources to get their jobs done effectively.
(1) They create staff authority functions to support, assist, advise, and generally reduce
some of their informational burdens.
(2) Exhibit 5-4 illustrates line and staff authority.
C. What is the chain d?
1. The chain of command is the continuous line of authority that extends from upper
organizational levels to the lowest and clarifies who reports to whom.
2. An employee who has to report to two or more bosses might have to cope with conflicting
demands or priorities.
3. Therefore, the early management writers argued that an employee should have only one
superior (Unity of command)
4. If the chain of command had to be violated, early management writers always explicitly
designated that there be a clear separation of activities and a supervisor responsible for
each.
5. The unity of command concept was logical when organizations were comparatively
simple.
6. There are instances today when strict adherence to the unity of command creates a degree
of inflexibility that hinders an organization’s performance.
7. How does the contemporary view of authority and responsibility differ from the historical
view?
a) The early management writers assumed that the rights inherent in one’s formal
position in an organization were the sole source of influence.
b) This might have been true 30 or 60 years ago.
c) It is now recognized that you do not have to be a manager to have power, and that
power is not perfectly correlated with one’s level in the organization.
d) Authority is but one element in the larger concept of power.
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8. How do authority and power differ?

a) Authority and power are frequently confused.
b) Authority is a right, the legitimacy of which is based on the authority figure’s position
in the organization.
(1) Authority goes with the job.
c) Power refers to an individual’s capacity to influence decisions.
(1) Authority is part of the larger concept of power.
(2) Exhibit 5-5 visually depicts the difference.
d) Power is a three-dimensional concept.
(1) It includes not only the functional and hierarchical dimensions but also centrality.
(2) While authority is defined by one’s vertical position in the hierarchy, power is made
up of both one’s vertical position and one’s distance from the organization’s power
core, or center.
e) Think of the cone in Exhibit 5-5 as an organization.
(1) The closer you are to the power core, the more influence you have on decisions.
(2) The existence of a power core is the only difference between A and B in Exhibit 5-5.
f) The cone analogy explicitly acknowledges two facts:
(1) The higher one moves in an organization (an increase in authority), the closer one
moves to the power core.
(2) It is not necessary to have authority in order to wield power because one can move
horizontally inward toward the power core without moving up.
(a) Example, administrative assistants, “powerful” as gatekeepers with little
authority.
(3) Low-ranking employees with contacts in high places might be close to the power
core.
(4) So, too, are employees with scarce and important skills.
(a) The lowly production engineer with twenty years of experience might be the
only one in the firm who knows the inner workings of all the old production
machinery.
g) Power can come from different areas.
(1) John French and Bertram Raven have identified five sources, or bases, of power.
(a) See Exhibit 5-6.
(b) Coercive power -based on fear; Reward power - based on the ability to
distribute something that others value; Legitimate power - based on one’s
position in the formal hierarchy; Expert power - based on one’s expertise,
special skill, or knowledge; Referent power -based on identification with a
person who has desirable resources.
D. What is Span of Control?
1. How many employees can a manager efficiently and effectively direct?
2. This question received a great deal of attention from early management writers.

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3. There was no consensus on a specific number but early writers favored small spans of less
than six to maintain close control.
4. Level in the organization is a contingency variable.
a) Top managers need a smaller span than do middle managers, and middle managers
require a smaller span than do supervisors.
5. There is some change in theories about effective spans of control.
6. Many organizations are increasing their spans of control.
7. The span of control is increasingly being determined by contingency variables.
a) The more training and experience employees have, the less direct supervision needed.
8. Other contingency variables should also be considered; similarity of employee tasks, the
task complexity, the physical proximity of employees, the degree of standardization, the
sophistication of the organization’s management information system, the strength of the
organization’s value system, the preferred managing style of the manager, etc.
E. How Do Centralization and Decentralization Differ?
1. Centralization is a function of how much decision-making authority is pushed down to
lower levels in the organization.
2. Centralization-decentralization is a degree phenomenon.
3. By that, we mean that no organization is completely centralized or completely
decentralized.
4. Early management writers felt that centralization in an organization depended on the
situation.
a) Their objective was the optimum and efficient use of employees.
b) Traditional organizations were structured in a pyramid, with power and authority
concentrated near the top of the organization.
c) Given this structure, historically, centralized decisions were the most prominent.
5. Organizations today are more complex and are responding to dynamic changes.
a) Many managers believe that decisions need to be made by those closest to the
problem.
6. Today, managers often choose the amount of centralization or decentralization that will
allow them to best implement their decisions and achieve organizational goals.
7. One of the central themes of empowering employees was to delegate to them the authority
to make decisions on those things that affect their work.
a) That’s the issue of decentralization at work.
b) It doesn’t imply that senior management no longer makes decisions!

II. CONTINGENCY VARIABLES AFFECTING STRUCTURE?

A. Introduction
1. The most appropriate structure to use will depend on contingency factors.
2. The more popular contingency variables are strategy, size, technology, and environment.

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B. How Is a Mechanistic Organization Different from an Organic Organization?

1. Exhibit 5-7 describes two organizational forms.
2. The mechanistic organization (or bureaucracy) was the natural result of combining the six
elements of structure.
a) The chain-of-command principle ensured the existence of a formal hierarchy of
authority.
b) Keeping the span of control small created tall, impersonal structures.
(1) Top management increasingly imposed rules and regulations.
c) The high degree of work specialization created simple, routine, and standardized jobs.
d) Departmentalization increased impersonality and the need for multiple layers of
management.
3. The organic form is a highly adaptive form that is a direct contrast to the mechanistic one.
a) The organic organization’s loose structure allows it to change rapidly as needs require.
(1) Employees tend to be professionals who are technically proficient and trained to
handle diverse problems.
(2) They need very few formal rules and little direct supervision.
b) The organic organization is low in centralization.
4. When each of these two models is appropriate depends on several contingency variables.
C. How Does Strategy Affect Structure?
1. An organization’s structure should facilitate goal achievement.
a) Strategy and structure should be closely linked.
b) Example, if the organization focuses on providing certain services—police protection
in a community—its structure will be one that promotes standardized and efficient
services.
c) Example, if an organization is attempting to employ a growth strategy by entering into
global markets, it will need a structure that is flexible, fluid, and readily adaptable to
the environment.
2. Accordingly, organizational structure should follow strategy. If management makes a
significant change in strategy, it needs to modify its structure as well.
3. The first important research on the strategy-structure relationship was Alfred Chandler’s
study of close to 100 large U.S. companies.
4. After tracing the development of these organizations over fifty years and compiling
extensive case histories, Chandler concluded that changes in corporate strategy precede
and lead to changes in an organization’s structure.
a) Organizations usually begin with a single product or line.
b) The simplicity of the strategy requires only a simple form of structure to execute it.
c) Decisions can be centralized and complexity and formalization will be low.
d) As organizations grow, their strategies become more ambitious and elaborate.
5. Research has generally confirmed the strategy-structure relationship.
a) Organizations pursuing a differentiation strategy must innovate to survive.
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(1) An organic organization matches best with this strategy because it is flexible and
maximizes adaptability.
b) A cost-leadership strategy seeks stability and efficiency.
(1) Stability and efficiency help to produce low-cost goods and services and can best be
achieved with a mechanistic organization.
D. How Does Size Affect Structure?
1. There is historical evidence that an organization’s size significantly affects its structure.
2. Large organizations—employing 2,000 or more employees—tend to have more work
specialization, horizontal and vertical differentiation, and rules and regulations than do
small organizations.
3. The relationship is not linear; the impact of size becomes less important as an organization
expands.
a) Example, once an organization has around 2,000 employees, it is already fairly
mechanistic—an additional 500 employees will not have much effect.
b) Adding 500 employees to an organization that has only 300 members is likely to result
in a shift toward a more mechanistic structure.
E. How Does Technology Affect Structure?
1. Every organization uses some form of technology to convert its inputs into outputs.
2. To attain its objectives, the organization uses equipment, materials, knowledge, and
experienced individuals and puts them together into certain types and patterns of activities.
a) Example, workers at Whirlpool build washers, dryers, and other home appliances on a
standardized assembly line.
b) Example, employees at Kinko’s produce custom jobs for individual customers.
c) Example, employees at Bayer AG in Pakistan work on a continuous flow production
line for manufacturing its pharmaceuticals.

F. How Does Environment Affect Structure?

1. Mechanistic organizations are most effective in stable environments.
2. Organic organizations are best matched with dynamic and uncertain environments.
3. The environment-structure relationship is why so many managers have restructured their
organizations to be lean, fast, and flexible.
4. Global competition, accelerated product innovation, knowledge management, and
increased demands from customers for higher quality and faster deliveries are examples of
dynamic environmental forces.
5. Mechanistic organizations tend to be ill-equipped to respond to rapid environmental
change.
III. ORGANIZATION DESIGNS APPLICATIONS?
A. What Is a Simple Structure?
1. Most organizations start as an entrepreneurial venture with a simple structure.
2. There is low departmentalization, wide spans of control, authority centralized in a single
person, and little formalization.

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3. The simple structure is most widely used in smaller businesses.

4. The strengths of the simple structure are that it is fast, flexible, and inexpensive to
maintain, and accountability is clear.
5. Major weaknesses.
a) It is effective only in small organizations.
b) It becomes increasingly inadequate as an organization grows; its few policies or rules
to guide operations and its high centralization result in information overload at the top.
c) As size increases, decision making becomes slower and can eventually stop.
d) It is risky since everything depends on one person.
B. Why do companies implement functional structure?
1. Many organizations do not remain simple structures because structural contingency factors
dictate it.
2. As the number of employees rises, informal work rules of the simple structure give way to
more formal rules.
3. Rules and regulations are implemented; departments are created, and levels of
management are added to coordinate the activities of departmental people.
4. At this point, a bureaucracy is formed.
5. Two of the most popular bureaucratic design options are called the functional and
divisional structures.
6. Why do companies implement functional structures?
a) The functional structure merely expands the functional orientation.
b) The strength of the functional structure lies in work specialization.
(1) Economies of scale, minimizes duplication of personnel and equipment, makes
employees comfortable and satisfied.
c) The weakness of the functional structure is that the organization frequently loses sight
of its best interests in the pursuit of functional goals.
7. What is the divisional structure?
a) An organization design made up of self-contained units or divisions.
b) Health care giant Johnson & Johnson, for example, has three divisions:
pharmaceuticals, medical devices and diagnostics, and consumer products.
c) The chief advantage of the divisional structure is that it focuses on results.
(1) Division managers have full responsibility for a product or service.
(2) It also frees the headquarters from concern with day-to-day operating details.
d) The major disadvantage is duplication of activities and resources.
(1) The duplication of functions increases the organization’s costs and reduces
efficiency.

C. What is a Boundaryless Organization?

1. A boundaryless organization, coined by former GE CEO, Jack Welch, is not defined or
limited by boundaries or categories imposed by traditional structures,.
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2. It blurs the historical boundaries surrounding an organization by increasing its

interdependence with its environment.
3. There are two types of boundaries: (1) internal—the horizontal ones imposed by work
specialization and departmentalization and the vertical ones that separate employees into
organizational levels and hierarchies; and (2) external—the boundaries that separate the
organization from its customers, suppliers, and other stakeholders.
4. A virtual organization consists of a small core of full-time employees and outside
specialists temporarily hired as needed to work on projects.
5. A network organization - is one that uses its own employees to do some work activities
and networks of outside suppliers to provide other needed product components or work
processes. Also called a modular organization by manufacturing firms.
IV. WHAT IS ORGANIZATION CULTURE AND WHY IS IT IMPORTANT?
A. What Is an Organization Culture?
1. An organization's personality or system of shared meaning.
2. Organizations have cultures that govern how their members should behave.
3. In every organization, stories, rituals, material symbols, and language evolve over time
and are "the way things are done around here".
4. Culture is perception, descriptive and shared.
B. How Can Culture Be Assessed?
1. Currently there is no definitive method for measuring an organization's culture.
2. Cultures can be analyzed by assessing how an organization rates on ten characteristics.
a) See Exhibit 5-13.
b) These seven characteristics are relatively stable and permanent over time.
C. Where Does an Organization’s Culture Come from?
1. An organization’s culture usually reflects the vision or mission of the organization’s
founders.
a) The founders also have biases on how to carry out the idea.
b) They are unconstrained by previous customs or ideologies.
c) The small size of most new organizations also helps the founders impose their vision.
2. An organization’s culture results from the interaction between:
a) the founders’ biases and assumptions, and
b) what the first employees learn subsequently from their own experiences.
c) Example, the founder of IBM, Thomas Watson, established a culture based on
“pursuing excellence, providing the best customer service, and respect for
employees.”
d) Some 75 years later, in an effort to revitalize the ailing IBM, CEO Louis Gerstner
enhanced that culture with his strong “customer-oriented sensibility” recognizing the
urgency the marketplace places on having their expectations met.
3. Corporate rituals are repetitive sequences of activities that express and reinforce the
important values and goals of the organization.

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4. Material symbols or artifacts also help in creating an organization’s personality.

5. Language is used as a way to identify and unite members of a culture.
D. How Does Culture Influence Structure?
1. An organization’s culture may have an effect on an organization’s structure, depending on
how strong, or weak, the culture is.
2. In organizations that have a strong culture, the organization’s culture actually can
substitute for the rules and regulations.
a) Strong cultures can create predictability, orderliness, and consistency without the need
for written documentation.
b) The stronger an organization’s culture, the less need for concern with formal rules and
regulations.

UNDERSTANDING THE CHAPTER

1. Describe what is meant by the term organizational design.
Answer: Once decisions regarding corporate strategies are made, an effective structure must be
implemented to facilitate the attainment of those goals. When managers develop or change the
organization’s structure, they are engaging in organization design. Organization design decisions are
typically made by senior managers. Organization design applies to any type of organization.

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