Chapter 11

ORGANIZATION
STRUCTURES
AND DESIGN
 LEARNING OBJECTIVES

Takeaway 1 Organizing as a management function

Takeaway 2 Traditional organization structures
Takeaway 3 Horizontal organization structures
Takeaway 4 Organizational designs
 Takeaway 1
Organizing as a management function

1. What is organizational structure?

2. Formal structures
3. Informal structures
 Takeaway 1
Organizing as a management function

• Organizing: the process of arranging people & resources to

work toward a goal.
• Purpose:
- create a division of labor
- coordinate results to achieve a common purpose

• Challenge for managers: choose the best organizational

form to fit the strategy & other situational demands.
 Takeaway 1
Organizing as a management function

Clarifying
rking
jobs & wo Organizing –
ips
relationsh to create structures
• Divide up the work
• Arrange resources
• Coordinate activities
Planning – Controlling –
to set the direction to ensure results
Leading –
to inspire effort

Fig 11.1 Organizing viewed in relationship with the other management

 1. What is organization structure?

• Organization structure: a system of tasks, workflows, reporting

relationships, & communication channels that link together the
work of diverse individuals & groups.

• A good structure should:

(1) allocate tasks through a division of labour
(2) provide for the coordination of performance results
 2. Formal structures

• Formal structure: the official structure of the organization which

shows how the organization is intended to function.
 2. Formal structures (cont.)

• An organization chart describes the arrangement of work

positions within an organization.
CEO

Manager Manager

Supervisor Supervisor
 2. Formal structures (cont.)

Reading an organization chart:

(1) Division of work: positions & titles show work responsibilities.

(2) Supervisory relationships: lines show who reports to whom.
(3) Communication channels: lines show formal communication
flows.
(4) Major subunits: positions reporting to a common manager.
(5) Levels of management: vertical layers of management.
 3. Informal structures

• Informal structure: the set of

unofficial (but often critical)
working relationships between
organizational members.

• The lines of the informal

structure would:
- cut across levels &
- move from side to side
Informal structures & the shadow organization
 3. Informal structures (cont.)

Advantages:
• Allow people to make contacts with others who can
help them get things done.
• Stimulate informal learning as people work & interact
together throughout the workday.
• Provide sources of emotional support & friendship that
satisfy members’ social needs.
 3. Informal structures (cont.)

Disadvantages:
• Be susceptible to rumor.
• Carry inaccurate information.
• Creed resistance to change.
• Divert work efforts from important
objectives.
• The existence of “in” & “out” groups.
 3. Informal structures (cont.)

Social network analysis identifies the informal structures &

their embedded social relationships.

• Whom they turn for help most often?

• With whom they communicate regularly?
• Who give them energy & motivation?
 Takeaway 2
Traditional Organization Structures

1. Functional structures
2. Divisional structures
3. Matrix structures
 Takeaway 2
Traditional Organization Structures

 A basic principle of organizing is that performance should

improve when tasks are divided up & people are allowed to
become experts in specific jobs.
 1. Functional structures

• Functional structure groups together people with similar skills

who perform similar tasks (share technical expertise, interests, &
responsibilities).

These structures are more popular when:

- Organizations dealing with only one or a few products or services.
- The working environments are relatively stable where problems
are predictable & the demands for change & innovation are limited.
 President
Business
firms Vice president Vice president Vice president Vice president
Marketing Finance Production Human resources

Branch manager
Branch
bank
Manager Manager Manager Manager
Loans Investments Operations Trusts

Administrator
Community
hospital
Director Director Director Director
Medical staff Nursing Clinics Patient services

Fig 11.2 Functional structures in a business, branch bank, & community hospital
 1. Functional structures (cont.)

Advantages:
• economies of scale with efficient use of resources.
• task assignments consistent with expertise & training.
• high-quality technical problem solving.
• in-depth training & skill development within function.
• clear career paths within functions.
 1. Functional structures (cont.)

Disadvantages:
• difficulties in pinpointing responsibilities for things like cost
containment, product/service quality, & innovation.
• when each department or function focuses only on its own
concerns, the “big picture” issues can easily get neglected.
 1. Functional structures (cont.)

Functional chimneys/silos problem:

a lack of communication, coordination, & problem solving across functions.
 2. Divisional structures

• A divisional structure groups together people working on the

same product, in the same area, with similar customers, or on
the same process.

These structures are common in complex organizations with

diverse operations that extend across many products,
territories, customers, & work processes.
 Type Focus Example

General manager
Good or service
Product
produced
Grocery product Drugs & toiletries

President
Geographical Location of activity
Asian division European division

Agency administrator
Customer or client
Customer
serviced
Problem youth Senior citizens

Catalog sales manager

Activities part of
Process
same process Product purchasing Order fulfillment

Fig 11.3 Divisional structures based on product, geography, customer, & process
 2. Divisional structures (cont.)

• A product structure groups together people & jobs focused

on a single product or service.
• They clearly link costs, profits, problems, & successes in a
market area with a central point of accountability.

General manager
Good or service
Product
produced
Grocery product Drugs & toiletries
 2. Divisional structures (cont.)

• A geographical structure groups together people & jobs

performed in the same location.
• They are typically used when there is a need to differentiate
products or services in various locations.

President
Geographical Location of activity
Asian division European division
 2. Divisional structures (cont.)

• A customer structure groups together people & jobs that serve

the same customers or clients.
• This is common in the consumer products industry.

Agency administrator
Customer or client
Customer
serviced
Problem youth Senior citizens
 2. Divisional structures (cont.)

• A process structure groups jobs & activities that are part

of the same processes.
• A work process is a group of related tasks that collectively
cerates something of value to a customer.

Catalog sales manager

Activities part of
Process
same process
Product purchasing Order fulfillment
 2. Divisional structures (cont.)

Advantages:
• More flexibility in responding to environmental changes.
• Improved coordination across functional department.
• Clear points of responsibility for product or service delivery.
• Expertise focused on specific customers, products, &
regions.
• Greater ease in changing size by adding or deleting
divisions.
 2. Divisional structures (cont.)

Disadvantages:
• Reduce economies of scale & increase costs through the
duplication of resources & efforts across divisions.
• Create unhealthy rivalries as divisions compete for resources
& top management attention, & as they emphasize division
needs over the goals of the organization as a whole.
 3. Matrix structures

• Matrix structure (matrix organization) combines the functional &

divisional structures.

• This is accomplished by creating permanent teams that cut

across functions to support specific products, projects, or
programs.
 General manager

Manager of Manufacturing Engineering

Sales manager
projects manager manager

Project A
manager
Project B
manager
Project C
manager

Persons assigned to both projects & functional

departments

Fig 11.4 Matrix structure in a small, multiproject business firm

 3. Matrix structures (cont.)

Advantages:
• Better communication & cooperation across function.
• Improved decision making.
• Increased flexibility in adding, removing, or changing operations to
meet changing demands.
• Better customer service.
• Better performance accountability through the program, products,
or project managers.
• Improved strategic management.
 3. Matrix structures (cont.)

Disadvantages:
• Be susceptible to power struggles if functional supervisors &
team leaders compete with one another to exercise authority.
• The two-boss system can be frustrating if it creates task
confusion & conflicting work priorities.
• “Groupitis” – strong team loyalties that cause a loss of focus
in larger organizational goals.
 Takeaway 3
Horizontal Organization Structures

1. Team structures
2. Network structures
3. Boundaryless structures
 Takeaway 3
Horizontal Organization Structures

 The two “Ts” of teams & technology are used to decrease

hierarchy, increase empowerment, & better mobilize human talents.
 1. Team structures

• A team structure uses permanent & temporary cross-functional

teams to improve lateral relations.

• A cross-functional team brings together members from

different functional departments.

• Project teams are convened for a particular task or project &

disband once it is completed.
 1. Team structures (cont.)

Fig 11.5 How a team structure uses cross-functional teams for improved lateral
 1. Team structures (cont.)

Advantages:
• break down barriers.
• mobilize talents.
• improve performance by increasing the speed & quality of decisions
in many situations.
• boost morale.
 1. Team structures (cont.)

Disadvantages:
• Conflicting loyalties for persons with both team & functional
assignment.
• Issues of time management & group process.

But all of these challenges can be mastered with the right team
talents & leadership!
 2. Network structures

• A network structure uses information technologies to link with

“networks” of outside suppliers & service contractors.

• The network structure helps lower costs & improve flexibility in

dealing with changing environments.
• The network organization employs a minimum staff & contracts
out as much work as possible.
 2. Network structures (cont.)

• Strategic alliances: cooperation agreements with other firms to

pursue business activities of mutual interest.
+ Outsourcing strategic alliances: contract to purchase
important services such as accounting or document processing
from another organization.
+ Supplier strategic alliances: link business in preferred
relationships that guarantee a smooth & timely flow of quality
supplies among the partners.
 Port-of-entry
Offshore
Information warehouse &
manufacturing &
Technology distribution
packaging firm
company
Business core
Mail-order lawn &
deck furniture

National
Furniture design accounting &
studio financial
management
firm
Other home
furnishing firms
share mail-order
catalog &
website
Fig 11.6
A network structure for a web-based retail
 2. Network structures (cont.)

Advantages:
• help organizations stay cost-competitively by reducing overhead
costs & increasing operation efficiency.
• allow organizations employ outsourcing strategies & contract out
specialized business functions.
 2. Network structures (cont.)

Disadvantages:
• if one part of the network breaks down or fails to deliver, the
entire system suffers.
• the organization may lose control over activities contracted out.
• lack of loyalty among contractors.
• outsourcing can become so aggressive as to be dangerous to
the firm.
 3. Boundaryless structures

• A boundaryless organization eliminates internal boundaries

among subsystems & external boundaries with the external
environment.

(can be viewed as a combination of the team & network structures

with added feature of “temporariness”)
Internal boundaries are eliminated
as people work together as needed External boundaries vary as alliances
change with shifting
needs/opportunities

A C
A C
Time 1
Research &
development B Time 3 E

Production Sales
C

Purchasing Distribution
B
Time 2

Fig 11.7 The boundaryless organization eliminates internal & external

 3. Boundaryless structures (cont.)

Characteristics:
• spontaneous teamwork & communication replace formal lines
of authority.
• meetings & information sharing happen continuously.
• people work together in teams that form & disband as needed.
• lots of empowerment & technology utilization.
• knowledge sharing is both a goal & an essential component.
Takeaway 4 Organizational Designs

1. Contingency in organizational design

2. Mechanistic and organic designs
3. Trends in organizational designs
 Takeaway 4 Organizational Designs

• Organizational design is the process of choosing & implementing

structures to accomplish the organization’s mission & objectives.
• No one design applies in all circumstances.
• The best design would achieve a good match between structure &
situational contingencies – including task, technology, environment
& people.
• The choices among design alternatives are broadly framed in the
distinction between mechanistic or bureaucratic designs, and
organic or adaptive designs at the other.
 1. Contingency in organizational design

• A classic bureaucracy is a (vertical) form of organization based

on logic, order, & the legitimate use of formal authority.
• A bureaucracy emphasizes formal authority, order, fairness, &
efficiency.
• Its features:
+ clear-cut division of labour
+ strict hierarchy of authority
+ formal rules & procedures
+ promotion based on competency
1. Contingency in organizational design (cont.)

• According to Max Weber, bureaucracy were supposed to be

orderly, fair, & highly sufficient.
• But the bureaucracies we know are often associated with “red
tape.” And instead of being orderly and fair, they are often seen
as cumbersome and impersonal to customer or client needs.

• Management theory asks two contingency questions:

+ When is a bureaucratic form a good choice?
+ When it is not, then what alternatives are available?
Bureaucratic organizations Adaptive
use mechanistic designs organizations use
organic designs
Predictability Goal Adaptability

Centralized Authority Decentralized

Many Rules & procedures Few

Narrow Spans of control Wide

Specialization Tasks Shared

Few Teams & task forces Many

Formal & impersonal Coordination Informal & personal

Fig 11.8 Organizational design alternatives: From bureaucratic to adaptive organizations

 2. Mechanistic & organic designs

• A mechanistic design is centralized, with many rules &

procedures, a clear-cut division of labour, narrow spans
of control, & formal coordination.

• An organic design is decentralized, with fewer rules &

procedures, open divisions of labor, wide spans of
control, & more personal coordination.
2. Mechanistic & organic designs (cont.)

• Organic designs create adaptive organizations that can

perform well in environments that demand flexibility in
dealing with changing conditions.
+ “loose” systems where a lot of work gets done through
informal structures & networking.
+ a foundation of trust that people will do the right things
on their own initiative.
=> give employees the freedom to use their ideas & expertise
to do what they can do best: get the job done!
 3. Trends in organizational designs

Fewer levels of management

More delegation & empowerment

Decentralization with centralization
Reduces use of staff

The growth of new technologies, particularly in information systems &

social media, is helping drive these trends by improving information
availability & ease of communication within organizations.
3. Trends in organizational designs (cont.)

Fewer levels of management:

• Chain of command: the line of authority that vertically links

each position with successively higher levels of management.

• Span of control: the number of persons directly reporting to

manager.
3. Trends in organizational designs (cont.)

Fewer levels of management (cont.):

Narrow spans of control => tall structures with many levels of

management.
+ more costly
+ less efficient
+ less flexible
+ less customer-sensitive
3. Trends in organizational designs (cont.)

Fewer levels of management (cont.):

Wide spans of control => flat structures with fewer levels of

management.
+ reduce overhead cost.
+ give workers more empowerment & independence.
3. Trends in organizational designs (cont.)

Fewer levels of management (cont.):

=> Trend:
• Organizations cutting unnecessary levels of management
& shifting to wider spans of control.
• Managers are taking responsibility for larger teams who
members operate with less direct supervisor.
 3. Trends in organizational designs (cont.)

More delegation & empowerment:

• Delegation: the process of entrusting work to others by giving

them the right to make decisions & take action. (not to delegate
without giving the other person sufficient authority to perform)

• The authority-and-responsibility principle states that authority

should equal responsibility when work is delegated from a
supervisor to a subordinate.
 3. Trends in organizational designs (cont.)

More delegation & empowerment (cont.):

Delegation process:
Step 1: The manager assigns responsibility by carefully explaining the work or
duties someone else is expected to do.
Step 2: The manager grants authority to act. (the right to take necessary actions)

Step 3: The manager creates accountability

 3. Trends in organizational designs (cont.)

More delegation & empowerment (cont.):

Empowerment allows others to make decisions & exercise

discretion in their work. (allow people freedom to use their talents,
contribute ideas, & do their jobs in the best possible ways)
=> Trend:
Managers are delegating more: finding ways to empower people at
all levels to make more decisions that affect themselves & their
work.
 3. Trends in organizational designs (cont.)

Decentralization with centralization:

Organizations can operate with greater decentralization without

giving up centralized control.
Decentralization
Centralization
Most decisions are dispersed
Most decisions are made at the vs
by extensive delegation
top levels of an organization
throughout all levels
 3. Trends in organizational designs (cont.)

Decentralization with centralization (cont.):

=> Trend:
• Delegation, empowerment, & horizontal structures are contributing
to more decentralization in organizations.
• At the same time, advances in information technology help top
managers maintain centralized control.
 3. Trends in organizational designs (cont.)

Reduced use of staff:

Staff positions provide expert advice & guidance to line personnel.

Ex: + line managers make daily operating decisions.
+ staff managers provide direction & support.
• There is NO one best way to divide work between line
managers & staff managers.
 3. Trends in organizational designs (cont.)

Reduced use of staff (cont.):

The organization needs cost-effective staff component that satisfies

(enough!) needs for specialized technical assistance to line
operations.

=> Trend:
Organizations are lowering costs & increasing efficiency by employing
fewer staff personnel & using smaller staff units.
Case study
chapter 11

NIKE

Spreading out to
win the race
 END OF
CHAPTER 11