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PowerPoint Presentation by Charlie Cook© Copyright The McGraw-Hill Companies, Inc., 2004. All rights reserved.

Organizing: Organizing: Designing Organizational Designing Organizational

StructureStructure

Organizing: Organizing: Designing Organizational Designing Organizational

StructureStructure

Essentials ofContemporary Management

© Copyright 2004 McGraw-Hill. All rights reserved. 7–2

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

• After studying the chapter, you should be able to:After studying the chapter, you should be able to:

Identify the Identify the factors that influencefactors that influence managers’ managers’ choice of an choice of an organizational structureorganizational structure..

Explain Explain how managers group tasks into how managers group tasks into jobsjobs that are motivating and satisfying for that are motivating and satisfying for employees.employees.

Describe the Describe the types of organizational types of organizational structuresstructures managers can design, and explain managers can design, and explain why they choose one structure over another.why they choose one structure over another.

Explain why there is a need to both Explain why there is a need to both centralize centralize and decentralized authorityand decentralized authority..


Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)

Explain Explain why managers must coordinate why managers must coordinate and integrateand integrate between jobs, functions, and between jobs, functions, and divisions as an organization grows.divisions as an organization grows.

Explain why managers who seek new ways to Explain why managers who seek new ways to increase efficiency and effectiveness are increase efficiency and effectiveness are using using strategic alliances and network strategic alliances and network structuresstructures..


Organizational StructureOrganizational StructureOrganizational StructureOrganizational Structure

• Organizational ArchitectureOrganizational ArchitectureThe organizational The organizational structurestructure, , controlcontrol

systems, systems, cultureculture, and , and humanhuman resource resource management systems that together management systems that together determine how efficiently and effectively determine how efficiently and effectively organizational resources are used.organizational resources are used.


Designing Organizational StructureDesigning Organizational StructureDesigning Organizational StructureDesigning Organizational Structure

• OrganizingOrganizingThe process by which managers establish The process by which managers establish

working relationshipsworking relationships among employees to among employees to achieve goals.achieve goals.

• Organizational StructureOrganizational StructureFormal system of Formal system of tasktask and and reportingreporting

relationships showing how workers use relationships showing how workers use resources.resources.

• Organizational designOrganizational designThe process by which managers make specific The process by which managers make specific

choices that result in a particular kind of choices that result in a particular kind of organizational structure.organizational structure.


Factors Affecting Organizational StructureFactors Affecting Organizational StructureFactors Affecting Organizational StructureFactors Affecting Organizational Structure

Figure 7.1


Determinants of StructureDeterminants of StructureDeterminants of StructureDeterminants of Structure

• The Organizational The Organizational EnvironmentEnvironmentThe quicker the environment changes, the The quicker the environment changes, the

more problems face managers.more problems face managers.Structure must be more flexible (i.e., Structure must be more flexible (i.e.,

decentralized authority) when environmental decentralized authority) when environmental change is rapid.change is rapid.



• StrategyStrategyDifferent strategies require the use of Different strategies require the use of

different structures.different structures.• A differentiation strategy needs a flexible structure, A differentiation strategy needs a flexible structure,

low cost may need a more formal structure.low cost may need a more formal structure.

• Increased vertical integration or diversification also Increased vertical integration or diversification also requires a more flexible structure.requires a more flexible structure.

Chandler: Structure follows strategy

工欲善其事必先利其器Corporate/Business Entities



• TechnologyTechnologyThe combination of skills, knowledge, tools, The combination of skills, knowledge, tools,

equipment, computers and machines used in equipment, computers and machines used in the organization.the organization.

More complex technology makes it harder for More complex technology makes it harder for managers to regulate the organization.managers to regulate the organization.

• Organizations utilizing Organizations utilizing complexcomplex technology require a technology require a flexible structure to be managed efficiently.flexible structure to be managed efficiently.

• Organizations utilizing Organizations utilizing routineroutine technology can be technology can be more readily managed using a formal structure.more readily managed using a formal structure.

• Organizations with high employee Organizations with high employee interactioninteraction requirements need a flexible structure.requirements need a flexible structure.


Types of TechnologyTypes of TechnologyTypes of TechnologyTypes of Technology

• Small Batch TechnologySmall Batch TechnologySmall quantities of one-of-a-kind products are Small quantities of one-of-a-kind products are

produced by the skills of the workers who produced by the skills of the workers who work together in small groups.work together in small groups.

• Appropriate structure is Appropriate structure is decentralizeddecentralized and flexible. and flexible.

• Mass Production TechnologyMass Production TechnologyAutomated machines that are programmed Automated machines that are programmed

to make high volumes of standard products.to make high volumes of standard products.• FormalFormal structure is the best choice for workers who structure is the best choice for workers who

must perform repetitive tasks.must perform repetitive tasks.

Assembly and continuous process

Workshop &

intensive interaction



• Human ResourcesHuman ResourcesHighly skilled workers whose jobs require Highly skilled workers whose jobs require

working in teams usually need a more working in teams usually need a more flexibleflexible structure. structure.

Higher skilled workers (e.g., CPA’s and Higher skilled workers (e.g., CPA’s and doctors) often have internalized professional doctors) often have internalized professional normsnorms..

• Managers must take into account all four Managers must take into account all four factors (environment, strategy, technology and factors (environment, strategy, technology and human resources) when designing the human resources) when designing the structure of the organization.structure of the organization.

Drucker: Knowledge

workers prevail


Organization Structure IssuesOrganization Structure IssuesOrganization Structure IssuesOrganization Structure Issues

• How to group How to group taskstasks into individual jobs. into individual jobs.

• How to group How to group jobsjobs into functions and divisions. into functions and divisions.

• Coordinating Coordinating functionsfunctions and divisions. and divisions.

• Allocating Allocating authorityauthority..

• Types of Types of integratingintegrating mechanisms. mechanisms.


Grouping Tasks Into Jobs: Job DesignGrouping Tasks Into Jobs: Job DesignGrouping Tasks Into Jobs: Job DesignGrouping Tasks Into Jobs: Job Design

• Job DesignJob DesignThe process by which managers decide how to divide The process by which managers decide how to divide

tasks into specific jobs.tasks into specific jobs.

• Division of LaborDivision of LaborSplitting the workSplitting the work to be performed into particularly to be performed into particularly

impersonalimpersonal taskstasks and assigning tasks to individual and assigning tasks to individual workers.workers.

The appropriate division of labor results in an effective The appropriate division of labor results in an effective and efficient workforce.and efficient workforce.

• Job SimplificationJob SimplificationReducing the tasks each worker performs: too much Reducing the tasks each worker performs: too much

simplification results in simplification results in boredomboredom..

Enhance specification andindependence

Internal cohesion and external decoupling


Job DesignJob DesignJob DesignJob Design

• Job Job EnlargementEnlargementIncreasing the number of tasks for a given Increasing the number of tasks for a given

job by changing the division of labor.job by changing the division of labor.The intention is to reduce boredom and The intention is to reduce boredom and

fatigue by increasing variety of tasks fatigue by increasing variety of tasks performed.performed.

• Job Job EnrichmentEnrichmentIncreasing the degree of responsibility a Increasing the degree of responsibility a

worker has over a job.worker has over a job.• Intended to increase worker involvement and self-Intended to increase worker involvement and self-

discretion.discretion.

• Requires a flexible organizational structure to allow Requires a flexible organizational structure to allow employees to act flexibly and creatively.employees to act flexibly and creatively.

Increase the width of task

Increase the depth of task


The Job Characteristics ModelThe Job Characteristics ModelThe Job Characteristics ModelThe Job Characteristics Model

Figure 7.2Source: Adapted from J. R. Hackman and G. R. Oldham, Work Redesign (Reading, MA: Addison-Wesley, 1980).


Job Characteristics ModelJob Characteristics ModelJob Characteristics ModelJob Characteristics Model

Job Characteristic

Skill variety Employee uses a wide range of skills.

Task identity Worker is involved in all tasks of the job from beginning to end of the production process

Task significance Worker feels the task is meaningful to organization.

Autonomy Employee has freedom to schedule tasks and carry them out.

Feedback Worker gets direct information about how well the job is done.


Grouping Jobs into FunctionsGrouping Jobs into FunctionsGrouping Jobs into FunctionsGrouping Jobs into Functions

• Functional StructureFunctional StructureAn organizational structure composed of all An organizational structure composed of all

the the departmentsdepartments that an organization that an organization requires to produce its goods or services.requires to produce its goods or services.

AdvantagesAdvantages• Encourages learning from others doing Encourages learning from others doing similarsimilar jobs. jobs.

• Easy for managers to monitor and Easy for managers to monitor and evaluateevaluate workers. workers.

DisadvantagesDisadvantages• Difficult for departments to Difficult for departments to communicatecommunicate with others. with others.

• Preoccupation with own department and losing sight Preoccupation with own department and losing sight of organizational of organizational goalsgoals.. Egoism & Arrogance


The The Functional Functional

Structure of Structure of Pier 1 Pier 1

ImportsImports

The The Functional Functional

Structure of Structure of Pier 1 Pier 1

ImportsImports

Figure 7.3


Divisional StructuresDivisional StructuresDivisional StructuresDivisional Structures

• Divisional StructureDivisional StructureAn organizational structure composed of An organizational structure composed of

separate separate business unitsbusiness units within which are the within which are the functions that work together to produce a functions that work together to produce a specific specific productproduct for a specific for a specific customercustomer..

• Divisions create smaller, manageable parts of a firm.Divisions create smaller, manageable parts of a firm.

• Divisions develop a Divisions develop a business-levelbusiness-level strategy to strategy to compete.compete.

• Divisions have marketing, finance, and other Divisions have marketing, finance, and other functions.functions.

• FunctionalFunctional managers report to managers report to divisionaldivisional managers managers who then report to who then report to corporatecorporate upper management. upper management.


Types of Divisional StructuresTypes of Divisional StructuresTypes of Divisional StructuresTypes of Divisional Structures

• ProductProduct Structure StructureCustomers are served by self-contained Customers are served by self-contained

divisions that handle a specific type of divisions that handle a specific type of product or service.product or service.

• Allows functional managers to Allows functional managers to specializespecialize in one in one product area.product area.

• Division managers become experts in their area.Division managers become experts in their area.

• Removes need for direct supervision of division by Removes need for direct supervision of division by corporate managers.corporate managers.

• Divisional management improves the use of Divisional management improves the use of resources.resources.


Types of Divisional Structures (cont’d)Types of Divisional Structures (cont’d)Types of Divisional Structures (cont’d)Types of Divisional Structures (cont’d)

• GeographicGeographic Structure StructureEach regional or a country or area with Each regional or a country or area with

customers with differing needs is served by a customers with differing needs is served by a local self-contained division producing local self-contained division producing products that best meet those needs.products that best meet those needs.

Global geographic structureGlobal geographic structure• Different divisions serve each world region when Different divisions serve each world region when

managers find different problems or demands across managers find different problems or demands across the globe.the globe.

• Generally, this structure is adopted when managers Generally, this structure is adopted when managers are pursuing a multidomestic strategy.are pursuing a multidomestic strategy.


Types of Divisional Structures (cont’d)Types of Divisional Structures (cont’d)Types of Divisional Structures (cont’d)Types of Divisional Structures (cont’d)

• Market (Customer) StructureMarket (Customer) StructureEach Each kind of customerkind of customer is served by a self- is served by a self-

contained divisioncontained divisionGlobal market (customer) structureGlobal market (customer) structure

• Customers in different regions buy Customers in different regions buy similarsimilar products so products so firms can firms can locatelocate manufacturing facilities and product manufacturing facilities and product distribution networks where they decide is best.distribution networks where they decide is best.

• Firms pursuing a Firms pursuing a global strategyglobal strategy will use this type of will use this type of structure.structure.


Product, Product, Market, and Market, and Geographic Geographic StructuresStructures

Product, Product, Market, and Market, and Geographic Geographic StructuresStructures

Figure 7.4


Viacom’s Viacom’s 2001 Product 2001 Product

StructureStructure

Viacom’s Viacom’s 2001 Product 2001 Product

StructureStructure

Figure 7.5


Global Geographic and Global Product Global Geographic and Global Product StructuresStructures

Global Geographic and Global Product Global Geographic and Global Product StructuresStructures


Matrix Design StructureMatrix Design StructureMatrix Design StructureMatrix Design Structure

• MatrixMatrix Structure StructureAn organizational structure that An organizational structure that

simultaneously groups people and resources simultaneously groups people and resources by function and product.by function and product.

• Results in a complex network of superior-subordinate Results in a complex network of superior-subordinate reporting relationships.reporting relationships.

• The structure is very flexible and can respond rapidly The structure is very flexible and can respond rapidly to the need for change.to the need for change.

• Each employee has Each employee has two bossestwo bosses (functional manager (functional manager and product manager) and possibly cannot satisfy and product manager) and possibly cannot satisfy both.both.


Matrix StructureMatrix StructureMatrix StructureMatrix Structure

Figure 7.6a


Product Team Design StructureProduct Team Design StructureProduct Team Design StructureProduct Team Design Structure

• Product Team StructureProduct Team StructureThe members are The members are permanentlypermanently assigned to assigned to

the team and empowered to bring a product the team and empowered to bring a product to market.to market.

• Avoids problems of two-way communication and the Avoids problems of two-way communication and the conflicting demands of functional and product team conflicting demands of functional and product team bosses.bosses.

Cross-functional team is composed of a Cross-functional team is composed of a group of managers from different group of managers from different departments working together to perform departments working together to perform organizational tasks. organizational tasks.


Product Team StructureProduct Team StructureProduct Team StructureProduct Team Structure

Figure 7.6b


Coordinating Functions and Divisions:Coordinating Functions and Divisions:Allocating AuthorityAllocating Authority

Coordinating Functions and Divisions:Coordinating Functions and Divisions:Allocating AuthorityAllocating Authority

• AuthorityAuthorityThe power to hold people accountable for The power to hold people accountable for

their actions and to make decisions their actions and to make decisions concerning the use of organizational concerning the use of organizational resources.resources.

• Hierarchy of AuthorityHierarchy of AuthorityAn organization’s chain of command, An organization’s chain of command,

specifying the relative authority of each specifying the relative authority of each manager.manager.

• Span of ControlSpan of Control: refers to the number of workers a : refers to the number of workers a manager manages.manager manages.Authority vs. responsibility vs. accountability


Allocating Authority (cont’d)Allocating Authority (cont’d)Allocating Authority (cont’d)Allocating Authority (cont’d)

• Span of ControlSpan of ControlThe The number of subordinatesnumber of subordinates who report directly who report directly

to a manager.to a manager.

• Line ManagerLine ManagerManagers in the direct Managers in the direct chain of commandchain of command who who

have authority over people and resources lower have authority over people and resources lower down.down.

Primarily responsible for the production of goods Primarily responsible for the production of goods or services. or services.

• Staff ManagerStaff ManagerManagers who are functional-area specialists Managers who are functional-area specialists

that give that give adviceadvice to line managers. to line managers.


The Hierarchy of The Hierarchy of Authority and Authority and

Span of Control Span of Control at McDonald’s at McDonald’s CorporationCorporation

The Hierarchy of The Hierarchy of Authority and Authority and

Span of Control Span of Control at McDonald’s at McDonald’s CorporationCorporation

Figure 7.7


Tall and Flat OrganizationsTall and Flat OrganizationsTall and Flat OrganizationsTall and Flat Organizations

• Tall structures have Tall structures have many levelsmany levels of authority of authority and narrow spans of control.and narrow spans of control.As hierarchy levels increase, communication As hierarchy levels increase, communication

gets difficult, creating delays in the time gets difficult, creating delays in the time being taken to implement decisions.being taken to implement decisions.

Communications can also become Communications can also become garbledgarbled as it is repeated through the firm.as it is repeated through the firm.

• Flat structures have Flat structures have fewer levelsfewer levels and wide and wide spans of control.spans of control.Structure results in quick communications Structure results in quick communications

but can lead to overworked managers.but can lead to overworked managers.


Flat OrganizationsFlat OrganizationsFlat OrganizationsFlat Organizations

Figure 7.8a


Tall OrganizationsTall OrganizationsTall OrganizationsTall Organizations

Figure 7.8b


The Minimum Chain of CommandThe Minimum Chain of CommandThe Minimum Chain of CommandThe Minimum Chain of Command

• Managers should carefully evaluate:Managers should carefully evaluate:Do the organization have the right number of Do the organization have the right number of

middle managers?middle managers?Can the structure be altered to Can the structure be altered to reduce levelsreduce levels??

• CentralizedCentralized and and DecentralizedDecentralized of Authority of AuthorityDecentralization puts more authority at lower Decentralization puts more authority at lower

levels and leads to flatter organizations.levels and leads to flatter organizations.• Works best in Works best in dynamicdynamic, highly competitive , highly competitive

environments.environments.

StableStable environments favor centralization of environments favor centralization of authority.authority.


Integrating MechanismsIntegrating MechanismsIntegrating MechanismsIntegrating Mechanisms

Figure 7.9

Internal coordination


Strategic Alliances and Network Strategic Alliances and Network StructuresStructures

Strategic Alliances and Network Strategic Alliances and Network StructuresStructures

• Strategic AllianceStrategic AllianceAn agreement in which managers pool or share An agreement in which managers pool or share

firm’s resources and know-how with a foreign firm’s resources and know-how with a foreign company and the two firms share in the rewards company and the two firms share in the rewards and risks of starting a new and risks of starting a new ventureventure..

• Network Structure:Network Structure:A series of strategic alliances that an organization A series of strategic alliances that an organization

creates with suppliers, manufacturers, and creates with suppliers, manufacturers, and distributors to produce and market a product.distributors to produce and market a product.

Network structures allow firms to bring resources Network structures allow firms to bring resources together in a together in a boundary-lessboundary-less organization. organization.

Externally cooperative linkage


Homework 6Homework 6Homework 6Homework 6

• Adam Smith, in his Wealth of Nations (Book 5, Adam Smith, in his Wealth of Nations (Book 5, Chapter 1, Part 3, Article 2), argued that Chapter 1, Part 3, Article 2), argued that university teachers should not be paid salaries university teachers should not be paid salaries but rather that they should have to rely on the but rather that they should have to rely on the fees they can collect from the students they fees they can collect from the students they teach. What would be the advantages of this teach. What would be the advantages of this systems? What difficulties do you see with this systems? What difficulties do you see with this proposal to pay piece rates to faculty?proposal to pay piece rates to faculty?

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