Basic

Organizational
Design

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-1
Inc. Publishing as Prentice Hall
Describe six key elements in organizational
design.
Contrast mechanistic and organic structures.
Discuss the contingency factors that favour
either the mechanistic model or the
organic model of organizational design.
Describe traditional organizational designs.

Copyright
Copyright © 2014 © Education,
Pearson 2012 PearsonInc.Education,
publishingInc.
as Prentice Hall 11-2
Publishing as Prentice Hall
 Designing Organizational Structure

• Organizing - arranging and structuring

work to accomplish an organization’s
goals.
• Organizational Structure - the formal
arrangement of jobs within an
organization.

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-3
Inc. Publishing as Prentice Hall
 Designing Organizational Structure

• Organizational chart - the visual representation of an

organization’s structure.
• Organizational Design - a process involving decisions
about six key elements:
• Work specialization
• Departmentalization
• Chain of command
• Span of control
• Centralization and decentralization
• Formalization

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-4
Inc. Publishing as Prentice Hall
 Exhibit 11-1
Purposes of Organizing

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-5
Inc. Publishing as Prentice Hall
 Organizational Structure

• Work specialization - dividing work

activities into separate job tasks
• Early proponents of work specialization
believed it could lead to great increases in
productivity
• Overspecialization can result in human
diseconomies such as boredom, fatigue,
stress, poor quality, increased
absenteeism, and higher turnover.
Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-6
Inc. Publishing as Prentice Hall
Exhibit 11-2 Economies and Diseconomies
of Work Specializationsxzs

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-7
Inc. Publishing as Prentice Hall
 Departmentalization

• Departmentalization - the basis by which jobs are

grouped together

• Functional • Process
– Grouping jobs by functions – Grouping jobs on the basis
performed of product or customer flow
• Product • Customer
– Grouping jobs by product – Grouping jobs by type of
line customer and needs
• Geographical
– Grouping jobs on the basis
of territory or geography

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-8
Inc. Publishing as Prentice Hall
Exhibit 11-3 The Five Common
Forms of Departmentalization

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-9
Inc. Publishing as Prentice Hall
 Exhibit 11-3 (cont.)

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-10
Inc. Publishing as Prentice Hall
 Exhibit 11-3 (cont.)

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-11
Inc. Publishing as Prentice Hall
 Departmentalization Trends

• Increasing use of customer

departmentalization
• Cross-functional team - a work team
composed of individuals from various
functional specialties

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-12
Inc. Publishing as Prentice Hall
 Chain of Command

• Chain of Command - the continuous line

of authority that extends from upper levels
of an organization to the lowest levels of
the organization—clarifies who reports to
whom

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-13
Inc. Publishing as Prentice Hall
 Authority

• Authority - the rights inherent in a

managerial position to tell people what to
do and to expect them to do it.
• Acceptance theory of authority - the
view that authority comes from the
willingness of subordinates to accept it.

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-14
Inc. Publishing as Prentice Hall
 Authority (cont.)

• Line authority - authority that entitles a

manager to direct the work of an employee
• Staff authority - positions with some
authority that have been created to
support, assist, and advise those holding
line authority

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-15
Inc. Publishing as Prentice Hall
Exhibit 11-4 Chain of Command and
Line Authority

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-16
Inc. Publishing as Prentice Hall
 Exhibit 11-5
Line Versus Staff Authority

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-17
Inc. Publishing as Prentice Hall
 Responsibility and Unity of Command

• Responsibility - the obligation or

expectation to perform.
• Unity of command - the management
principle that each person should report to
only one manager

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-18
Inc. Publishing as Prentice Hall
 Span of Control

• Span of Control - the number of

employees who can be effectively and
efficiently supervised by a manager.

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-19
Inc. Publishing as Prentice Hall
 Exhibit 11-6
Contrasting Spans of Control

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-20
Inc. Publishing as Prentice Hall
 Centralization and Decentralization

• Centralization - the degree to which decision

making is concentrated at upper levels of the
organization
• Decentralization - the degree to which lower-
level employees provide input or actually make
decisions
• Employee empowerment - giving
employees more authority (power) to
make decisions

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-21
Inc. Publishing as Prentice Hall
 Exhibit 11-7
Centralization or Decentralization

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-22
Inc. Publishing as Prentice Hall
 Formalization

• Formalization - the degree to which jobs

within the organization are standardized
and the extent to which employee
behavior is guided by rules and
procedures.
– Highly formalized jobs offer little discretion
over what is to be done.
– Low formalization means fewer constraints on
how employees do their work.

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-23
Inc. Publishing as Prentice Hall
 Mechanistic and Organic Structures

• Mechanistic organization - an organizational

design that’s rigid and tightly controlled
• Organic organization - an organizational
design that’s highly adaptive and flexible

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-24
Inc. Publishing as Prentice Hall
Exhibit 11-8 Mechanistic Versus
Organic Organizations

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-25
Inc. Publishing as Prentice Hall
 Contingency Factors Affecting
Structural Choice

• Strategy and Structure

– Changes in corporate strategy should lead to
changes in an organization’s structure that
support the strategy.
– Certain structural designs work best with
different organizational strategies
• The organic structure works well for organizations
pursuing meaningful and unique innovations
• The mechanistic organization works best for
companies wanting to tightly control costs

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-26
Inc. Publishing as Prentice Hall
 Contingency Factors (cont.)

• Size and Structure - as an organization

grows larger, its structure tends to change
from organic to mechanistic with increased
specialization, departmentalization,
centralization, and rules/regulations.

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-27
Inc. Publishing as Prentice Hall
 Contingency Factors (cont.)

• Technology and Structure

– Organizations adapt their structures to their
technology.
– Woodward’s classification of firms based on
the complexity of the technology employed:
• Unit production of single units or small batches
• Mass production of large batches of output
• Process production in continuous process of
outputs

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-28
Inc. Publishing as Prentice Hall
Exhibit 11-9 Woodward’s Findings on
Technology and Structure

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-29
Inc. Publishing as Prentice Hall
 Contingency Factors (cont.)

• Environmental Uncertainty and Structure

– Mechanistic organizational structures tend to
be most effective in stable and simple
environments.
– The flexibility of organic organizational
structures is better suited for dynamic and
complex environments.

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-30
Inc. Publishing as Prentice Hall
 Traditional Organizational Designs

• Simple structure - an organizational design

with low departmentalization, wide spans of
control, centralized authority, and little
formalization
• Functional structure - an organizational
design that groups together similar or related
occupational specialties
• Divisional structure - an organizational
structure made up of separate, semiautonomous
units or divisions
Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-31
Inc. Publishing as Prentice Hall
 Exhibit 11-10
Traditional Organizational Designs

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-32
Inc. Publishing as Prentice Hall
 Review Learning Outcome 11.1

• Describe six key elements in organizational

design.
– The key elements in organizational design
are:
• Work specialization
• Chain of command
• Span of control
• Departmentalization
• Centralization-decentralization
• Formalization
Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-33
Inc. Publishing as Prentice Hall
 Review Learning Outcome 11.2

• Contrast mechanistic and organic

structures.
– Mechanistic organization - a rigid and
tightly controlled structure
– Organic organization - highly adaptive
and flexible

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-34
Inc. Publishing as Prentice Hall
 Review Learning Outcome 11.3

• Discuss the contingency factors that favor either

the mechanistic model or the organic model of
organizational design.
– Structural decisions are influenced by:
• Overall strategy of the organization
• Size of the organization
• Technology use employed by the
organization
• Degree of environmental uncertainty

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-35
Inc. Publishing as Prentice Hall
 Review Learning Outcome 11.4

• Describe traditional organizational designs.

– Simple structure - low departmentalization,
wide spans of control, authority centralized in
a single person, and little formalization.
– Functional structure - groups similar or
related occupational specialties together.
– Divisional structure is made up of separate
business units or divisions.

Copyright
Copyright © 2014 Pearson©Education,
2012 Pearson Education,
Inc. publishing as Prentice Hall 11-36
Inc. Publishing as Prentice Hall
 Copyright
Copyright © 2014 © Education,
Pearson 2012 PearsonInc.Education,
publishingInc.
as Prentice Hall 11-37
Publishing as Prentice Hall