Organizational Structure and

Design

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Designing Organizational Structure
• Organizing
 Arranging and structuring work to accomplish an organization’s
goals.
• Organizational Structure
 The formal arrangement of jobs/tasks within an organization.

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 Purposes of Organizing

• Divides work to be done into specific jobs and

departments.
• Assigns 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.

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Organizational Design
• When Managers create or change the structure,
they are engaged in Organizational design.

• Organizational Design is a process that involves

decisions about six key elements:

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

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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 the form of boredom,
fatigue (exhaustion), stress, poor quality, increased
absenteeism, and higher turnover.

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

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The Five Common Forms of Departmentalization

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Geographical Departmentalization

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Product Departmentalization

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 Process Departmentalization

+ More efficient flow of work activities

– Can only be used with certain types of products

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 Customer Departmentalization

+ Customers’ needs and problems can be met by specialists

- Duplication of functions
- Limited view of organizational goals

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Organizational Structure (cont’d)
• Chain of Command
 The continuous line of authority that extends from
upper levels of an organization to the lowest levels of
the organization and clarifies who reports to whom.

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Organizational Structure (cont’d)
• 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 perform.
• Unity of Command
 The concept that a person should have one boss and
should report only to that person.

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Organizational Structure (cont’d)
• Span of Control
 The number of employees who can be effectively and efficiently
supervised by a manager.
 Width of span is affected by:
 Skills and abilities of the manager
 Employee characteristics
 Characteristics of the work being done
 Similarity of tasks
 Complexity of tasks
 Physical proximity of subordinates
 Standardization of tasks
 Sophistication of the organization’s information system
 Strength of the organization’s culture
 Preferred style of the manager

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Contrasting Spans of Control

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Organizational Structure (cont’d)
• Centralization
 The degree to which decision making is concentrated
at upper levels in the organization.
 Organizations in which top managers make all the decisions
and lower-level employees simply carry out those orders.
• Decentralization
 Organizations in which decision making is pushed
down to the managers who are closest to the action.
• Employee Empowerment
 Increasing the decision-making authority (power) of
employees.

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 Factors that Influence the Amount of
Centralization and Decentralization

• More centralization
 Environment is stable.
 Lower-level managers are not as capable or experienced at
making decisions as upper-level managers.
 Lower-level managers do not want to have a say in decisions.
 Decisions are significant.
 Organization is facing a crisis or the risk of company failure.
 Company is large.
 Effective implementation of company strategies depends on
managers retaining say over what happens.

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Factors that Influence the Amount of Centralization and
Decentralization

• More Decentralization
 Environment is complex, uncertain.
 Lower-level managers are capable and experienced at making
decisions.
 Lower-level managers want a voice in decisions.
 Decisions are relatively minor.
 Corporate culture is open to allowing managers to have a say in
what happens.
 Company is geographically dispersed.
 Effective implementation of company strategies depends on
managers having involvement and flexibility to make decisions.

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 More Decentralization
More centralization

 Environment is stable.  Environment is complex, uncertain.

 Lower-level managers are not as  Lower-level managers are capable
capable or experienced at making and experienced at making decisions.
decisions as upper-level managers.  Lower-level managers want a voice in
 Lower-level managers do not want to decisions.
have a say in decisions.  Decisions are relatively minor.
 Decisions are significant.  Corporate culture is open to allowing
managers to have a say in what
 Organization is facing a crisis or the
happens.
risk of company failure.
 Company is geographically dispersed.
 Company is large.
 Effective implementation of company
 Effective implementation of company strategies depends on managers
strategies depends on managers having involvement and flexibility to
retaining say over what happens. make decisions.

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Organizational Structure (cont’d)
• Formalization
 The degree to which jobs within the organization are
standardized and the extent/degree 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.
 Mechanistic Organization: An organizational design
that is rigid and tightly controlled
 Organic Organization: An organizational design that is
highly adaptive and flexible.
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 Mechanistic Versus Organic Organization

• High specialization • Cross-functional teams

• Rigid departmentalization • Cross-hierarchical teams
• Clear chain of command • Free flow of information
• Narrow spans of control • Wide spans of control
• Centralization • Decentralization
• High formalization • Low formalization

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Contingency Factors
• Structural decisions are influenced by:
 Overall strategy of the organization
 Organizational structure follows strategy.
 Size of the organization
 Firms change from organic to mechanistic organizations as
they grow in size.
 Technology use by the organization
 Firms adapt their structure to the technology they use.
 Degree of environmental uncertainty
 Dynamic environments require organic structures;
mechanistic structures need stable environments.

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Contingency Factors (cont’d)
• Strategy and Structure
 Achievement of strategic goals is facilitated by
changes in organizational 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.

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Contingency Factors (cont’d)
• Technology and Structure
 Organizations adapt their structures to their
technology.
 Routine technology = mechanistic organizations
 Non-routine technology = organic organizations

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Contingency Factors (cont’d)
• 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.

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Common Organizational Designs
• Traditional Designs
 Simple structure
 Low departmentalization, wide spans of control, centralized
authority, little formalization
 Functional structure
 Departmentalization by function
– Operations, finance, marketing, human resources, and
product research and development
 Divisional structure
 Composed of separate business units or divisions with limited
autonomy under the coordination and control the parent
corporation.

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Strengths and Weaknesses of Traditional
Organizational Designs

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 Contemporary Organizational Designs
Team Structure
• What it is: A structure in which the entire organization is made up of
work groups or teams.
• Advantages: Employees are more involved and empowered. Reduced
barriers among functional areas.
• Disadvantages: No clear chain of command. Pressure on teams to perform.

Matrix-Project Structure
What it is: A structure that assigns specialists from different functional
areas to work on projects but who return to their areas when
the project is completed. Project is a structure in which
employees continuously work on projects. As one project is
completed, employees move on to the next project.
• Advantages: Fluid and flexible design that can respond to environmental
changes. Faster decision making.
• Disadvantages: Complexity of assigning people to projects. Task and
personality conflicts.

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 Contemporary Organizational Designs

Boundaryless Structure
What it is: A structure that is not defined by or limited to artificial
horizontal, vertical, or external boundaries; includes virtual
and network types of organizations.
• Advantages: Highly flexible and responsive. Draws on talent wherever it’s
found.
• Disadvantages: Lack of control. Communication difficulties.

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Organizational Designs (cont’d)
• Contemporary Organizational Designs
 Team structures
 The entire organization is made up of work groups or self-
managed teams of empowered employees.
 Matrix and project structures
 Specialists from different functional departments are
assigned to work on projects led by project managers.
 Matrix and project participants have two managers.
 In project structures, employees work continuously on
projects; moving on to another project as each project is
completed.

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Organizational Designs (cont’d)
• Contemporary Organizational Designs (cont’d)
 Boundaryless Organization
 An flexible and 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
structures to get closer to stakeholders.

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Removing External Boundaries
• Virtual Organization
 An organization that consists of a small core of full-time
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.

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Today’s Organizational Design
Challenges
• Keeping Employees Connected
 Widely dispersed and mobile employees
• Building a Learning Organization
• Managing Global Structural Issues
 Cultural implications of design elements

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Organizational Designs (cont’d)
• The Learning Organization
 An organization that has developed the capacity to
continuously learn, adapt, and change through the
practice of knowledge management by employees.
 Characteristics of a learning organization:
 An open team-based organization design that empowers
employees
 Extensive and open information sharing
 Leadership that provides a shared vision of the organization’s
future.
 A strong culture of shared values, trust, openness, and a
sense of community.

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 Terms to Know
• organizing • mechanistic organization
• organizational structure • organic organization
• organizational chart • unit production
• organizational design • mass production
• work specialization • process production
• departmentalization • simple structure
• cross-functional teams • functional structure
• chain of command • divisional structure
• authority • team structure
• responsibility • matrix structure
• unity of command • project structure
• span of control • boundaryless organization
• centralization • virtual organization
• decentralization • network organization
• employee empowerment • learning organization
• formalization

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