Chapter 12 Organizational Structures Keane Donaldson Candice Johnson Matt Rosenthal Shirley Yin.

Chapter 12Chapter 12Organizational StructuresOrganizational Structures

Keane DonaldsonKeane Donaldson

Candice JohnsonCandice Johnson

Matt RosenthalMatt Rosenthal

Shirley YinShirley Yin

Organizational StructuresOrganizational Structures

Today’s companies, more team Today’s companies, more team orientated.orientated.

Organizational Structures, Organizational Structures, becoming more important.becoming more important.

Defines how job tasks are Defines how job tasks are coordinated.coordinated.


Many different physical layouts.Many different physical layouts.

Could be very tall, or very flat.Could be very tall, or very flat.


Could be anywhere in-between Could be anywhere in-between those extremes. those extremes.

Flat StructureFlat Structure Team orientated.Team orientated. Open atmosphere.Open atmosphere. Problems solved quickly.Problems solved quickly. More interaction between different More interaction between different

hierarchical levels.hierarchical levels.


Tall StructureTall Structure More levels of organizationMore levels of organization Limited interaction.Limited interaction. More personal responsibility.More personal responsibility. If you have a problem, you would talk to If you have a problem, you would talk to

your manager, who would talk to their your manager, who would talk to their manager, etc.manager, etc.

Often, the message that you told to Often, the message that you told to your manager, is different from the one your manager, is different from the one they portray to their managerthey portray to their manager


When deciding which When deciding which organizational structure is best for organizational structure is best for their company managers need to their company managers need to address six key elements:address six key elements:

Work SpecializationWork Specialization DepartmentalizationDepartmentalization Chain of commandChain of command Span of controlSpan of control Centralization and decentralizationCentralization and decentralization FormalizationFormalization

Six Key QuestionsSix Key Questions

Six Key ElementsSix Key Elements

1. 1. Work SpecializationWork Specialization or Division or Division of Labor:of Labor: The degree to which tasks in the The degree to which tasks in the

organization are subdivided into separate organization are subdivided into separate jobsjobs

Ex. Henry Ford, assembly lineEx. Henry Ford, assembly line Individuals specialize in doing part of an Individuals specialize in doing part of an

activity, rather than the whole thingactivity, rather than the whole thing May lead to boredom, fatigue, stress and May lead to boredom, fatigue, stress and

increased absenteeismincreased absenteeism Raises employee productivity and Raises employee productivity and

efficiency, but lowers job satisfactionefficiency, but lowers job satisfaction


2. 2. Departmentalization:Departmentalization: The basis on which jobs are grouped The basis on which jobs are grouped

togethertogether Creates competitiveness between Creates competitiveness between

departmentsdepartments Narrow vision with respect to Narrow vision with respect to

organizational goalsorganizational goals 5 different kinds of departmentalization:5 different kinds of departmentalization:

FunctionalFunctional ProductProduct GeographicGeographic ProcessProcess CustomerCustomer

Six Key Elements: Six Key Elements: Types of DepartmentalizationTypes of Departmentalization

A) FunctionalA) Functional Functional Departmentalization groups Functional Departmentalization groups

activities by functions performed.activities by functions performed. More efficient to put together people with More efficient to put together people with

common skills and orientation into a common skills and orientation into a common unit.common unit.


B) Product:B) Product: Grouping your organization Grouping your organization

depending on the type of product depending on the type of product created is product created is product departmentalization.departmentalization.

Increases accountability for product Increases accountability for product performance.performance.

Also works with services.Also works with services.


C) Geographic:C) Geographic: Departmentalized on the basis of geography, Departmentalized on the basis of geography,

or territory. or territory. Ex. International companies having different Ex. International companies having different

departments for each country.departments for each country.

D) Process:D) Process: Organizes departments by the processing Organizes departments by the processing

that occurs.that occurs. Ex. inspecting, packing, shipping…Ex. inspecting, packing, shipping…

E) Customer:E) Customer: Departmentalize by the type of customer the Departmentalize by the type of customer the

organization seeks to reach.organization seeks to reach. Ex. Corporate or individual customers.Ex. Corporate or individual customers.


3. Chain of Command:3. Chain of Command: Unbroken line of authority that extends form Unbroken line of authority that extends form

the top of the organization to the bottom.the top of the organization to the bottom. Designates where you go if you have a Designates where you go if you have a

problem.problem. Becoming less structured than it was in the Becoming less structured than it was in the

past.past.

4. Span of Control:4. Span of Control: The number of employees a manager can The number of employees a manager can

efficiently and effectively direct.efficiently and effectively direct. Generally determines the number of levels Generally determines the number of levels

an organization has.an organization has.


5. Centralization and 5. Centralization and Decentralization:Decentralization: Decentralization:Decentralization:

The decision discretion is pushed down to The decision discretion is pushed down to lower-level employees.lower-level employees.

Take action quicker.Take action quicker. More people provide input into decisions.More people provide input into decisions. Easier to address customer concerns.Easier to address customer concerns.

Centralization: Centralization: The degree to which decision making is The degree to which decision making is

concentrated at a single point in the concentrated at a single point in the organization.organization.

Top management makes all the decisions.Top management makes all the decisions.


6. Formalization6. Formalization The degree to which jobs within the The degree to which jobs within the

organization are standardized.organization are standardized. Low Formalization:Low Formalization:

Job behaviours are relatively non-Job behaviours are relatively non-programmed.programmed.

Lots of employee freedom.Lots of employee freedom. Less standardization.Less standardization.

High Formalization:High Formalization: Explicit job description.Explicit job description. Lots or organizational rules.Lots or organizational rules. Clearly defined procedures for work Clearly defined procedures for work

processes.processes.

Two Models of Two Models of OrganizationsOrganizations

Mechanistic Model:Mechanistic Model: A structure characterized by extensive A structure characterized by extensive

departmentalization, high formalization, departmentalization, high formalization, a limited information network and a limited information network and centralization.centralization.

Organic Model:Organic Model: A structure that is flat, uses cross A structure that is flat, uses cross

hierarchical and cross-functional teams, hierarchical and cross-functional teams, has low formalization, possesses a has low formalization, possesses a comprehensive information network, comprehensive information network, and relies on group decision making.and relies on group decision making.

Mechanistic vs. Organic ModelsMechanistic vs. Organic Models

Two Models of OrganizationsTwo Models of Organizations

Which model is chosen depends on Which model is chosen depends on the members of the organization’s the members of the organization’s experience, personality, the work experience, personality, the work task and their cultural background.task and their cultural background.

Mechanistic:Mechanistic: People with a high degree of bureaucratic People with a high degree of bureaucratic

orientationorientation

Organic:Organic: People with a low degree of bureaucratic People with a low degree of bureaucratic

orientationorientation

Traditional Organizational Traditional Organizational DesignsDesigns

There are three:There are three:

The Simple StructureThe Simple Structure

The BureaucracyThe Bureaucracy

The Matrix StructureThe Matrix Structure


The Simple Structure:The Simple Structure:A structure with a low degree of A structure with a low degree of departmentalization. It has wide spans of control, its departmentalization. It has wide spans of control, its power is centralized in a single person and there is power is centralized in a single person and there is little formalization.little formalization.

Characteristics:Characteristics: Flat, usually only two or three vertical levels.Flat, usually only two or three vertical levels. Widely used in small businesses, where the Widely used in small businesses, where the

manager = owner.manager = owner. The strength is in its simplicity.The strength is in its simplicity. Fast, flexible, inexpensive to maintain, direct Fast, flexible, inexpensive to maintain, direct

accountability.accountability. Risky: Everything depends on one person.Risky: Everything depends on one person.


The Bureaucracy:The Bureaucracy:An organization which uses standardization in a An organization which uses standardization in a highly efficient manor.highly efficient manor.

Characteristics:Characteristics: Routine operating tasks.Routine operating tasks. Specialization.Specialization. Clearly stated rules and regulations.Clearly stated rules and regulations. Tasks that are grouped into functional Tasks that are grouped into functional

departments.departments. Centralized authority.Centralized authority.


Advantages: Advantages:

Perform standardized activities in a highly Perform standardized activities in a highly efficient manner.efficient manner.

Can operate with lesser talented staff, which will Can operate with lesser talented staff, which will have a smaller payroll. have a smaller payroll.

Rules and regulations instead of managerial Rules and regulations instead of managerial discretion.discretion.

Centralized decision making.Centralized decision making.




Disadvantages:Disadvantages:

Each Functional Department can get a self-Each Functional Department can get a self-focus; they may forget that they are all inter-focus; they may forget that they are all inter-dependent.dependent.

Obsessive concern for following the rules.Obsessive concern for following the rules.


The Matrix Structure:The Matrix Structure:Dual lines of authority, which combine both Dual lines of authority, which combine both functional and product departmentalization.functional and product departmentalization.

Characteristics:Characteristics: Groups similar specialists – Functional.Groups similar specialists – Functional. Facilitates coordination – Product.Facilitates coordination – Product. Employees of organization have two managers.Employees of organization have two managers.


The Matrix StructureThe Matrix StructureAdvantages:Advantages:

Does not become overloaded when complexity Does not become overloaded when complexity arises.arises.

Improves communication and flexibility.Improves communication and flexibility. Eliminates the dreaded “bureau-pathologies”.Eliminates the dreaded “bureau-pathologies”. Your specialists are grouped together.Your specialists are grouped together.

Disadvantages:Disadvantages: Confusion and power struggles.Confusion and power struggles. Stress on employees.Stress on employees. Unclear expectations.Unclear expectations.

New Design OptionsNew Design Options

The Team Structure.The Team Structure.

The Modular Organization.The Modular Organization.

The Virtual Organization.The Virtual Organization.

The Boundary-less Organization.The Boundary-less Organization.


The Team Structure:The Team Structure:The use of teams as a central device to coordinate The use of teams as a central device to coordinate all work activities.all work activities.

Characteristics:Characteristics: Breaks down departmentalization.Breaks down departmentalization. Teams are given decision making power.Teams are given decision making power. Teams generally consist of 3-20 people.Teams generally consist of 3-20 people. The teams can be short or long term.The teams can be short or long term.


The Modular Organization:The Modular Organization:A small core organization that outsourcers major A small core organization that outsourcers major business functions.business functions.

Characteristics:Characteristics: Outsourcing employees and/or materials.Outsourcing employees and/or materials. Contracting allows job to be done better or Contracting allows job to be done better or

cheaper.cheaper. Organization devote their talent to their most Organization devote their talent to their most

important activities.important activities. There is an increased focus on customers and There is an increased focus on customers and

materials.materials.


The Virtual Organization:The Virtual Organization:A continually evolving network of independent A continually evolving network of independent companies linked together to share skills, costs and companies linked together to share skills, costs and access to one another’s markets.access to one another’s markets.

Characteristics:Characteristics: Different firms join together to accomplish Different firms join together to accomplish

common strategic objectives.common strategic objectives. Some firms relinquish control, and act inter-Some firms relinquish control, and act inter-

dependently.dependently. Sometimes blurred boundaries between Sometimes blurred boundaries between

companies.companies. Companies create ‘win win’ deals by stimulating Companies create ‘win win’ deals by stimulating

the market.the market.


The Boundary-less Organization:The Boundary-less Organization:An organization that seeks to eliminate the chain of An organization that seeks to eliminate the chain of command, have limitless spans of control and command, have limitless spans of control and replace departments with empowered teams.replace departments with empowered teams.

Characteristics:Characteristics: Replaces departments with ‘empowered’ teams.Replaces departments with ‘empowered’ teams. Uses a participative decision-making style.Uses a participative decision-making style. Heavy reliance on IT.Heavy reliance on IT. Can be difficult to manage.Can be difficult to manage.

Why Do Structures Differ?Why Do Structures Differ?

1. Strategy:1. Strategy: Innovation: a strategy that emphasizes the Innovation: a strategy that emphasizes the

introduction of major new products and introduction of major new products and services.services.

Cost minimization: a strategy that Cost minimization: a strategy that emphasizes tight cost controls, avoidance of emphasizes tight cost controls, avoidance of unnecessary innovation or marketing unnecessary innovation or marketing expenses and price cutting.expenses and price cutting.

Mechanistic imitation: a strategy that seeks Mechanistic imitation: a strategy that seeks to move into new products or new markets to move into new products or new markets only after their viability has already been only after their viability has already been proven.proven.


2. Organizational Size:2. Organizational Size: Size affects structure at a decreasing Size affects structure at a decreasing

rate.rate. The impact of size is less important as The impact of size is less important as

the organization expanses (after 2000 the organization expanses (after 2000 employees).employees).

3. Technology:3. Technology: The way in which an organization The way in which an organization

transfers its inputs into outputs.transfers its inputs into outputs. Degree of routine-ness.Degree of routine-ness. Related to formalization or centralization.Related to formalization or centralization.


4. Environment:4. Environment: Those institutions or forces outside the Those institutions or forces outside the

organization that potentially affect the organization that potentially affect the organization’s performance.organization’s performance.

Environmental uncertainty.Environmental uncertainty. Static environment vs. dynamic Static environment vs. dynamic

environment.environment.

3 Dimensions to the environment:3 Dimensions to the environment: Capacity: the degree to which it can support growth Capacity: the degree to which it can support growth Instability: volatility dimensionInstability: volatility dimension Complexity: the degree of heterogeneity and Complexity: the degree of heterogeneity and

concentration among environmental elementsconcentration among environmental elements

Questions?Questions?

Chapter 12 Organizational Structures Keane Donaldson Candice Johnson Matt Rosenthal Shirley Yin.

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