Fund of Management Answers

PART FOUR

C H A P T E R T E N

Organizational Structure

and Design 10Lecture Outline

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IntroductionDefining Organizational Structure

Work SpecializationDepartmentalizationChain of CommandSpan of ControlCentralization and DecentralizationFormalization

Organizational Design DecisionsMechanistic and Organic

OrganizationsContingency Factors

Strategy and StructureSize and StructureTechnology and StructureEnvironmental Uncertainty and

StructureCommon Organizational Designs

Traditional Organizational DesignsSimple StructureFunctional StructureDivisional Structure

Contemporary Organizational Designs

Team StructuresMatrix and Project StructuresThe Boundaryless Organization

Today’s Organizational Design Challenges

Keeping Employees ConnectedBuilding a Learning OrganizationManaging Global Structural

Issues

How can we design an organizational structure that will help us accomplish our company’s goals? Should our structure be tall or flat? Traditional or contemporary? Will our chosen design enhance our capacity to continuously learn, adapt, and change in a dynamic global environment? As tomorrow’s managers, many of your students will soon face these questions. In Chapter Ten, students learn about various elements of organizational structure, the contingency factors that influence organizational design, and traditional and contemporary design. In addition, they will study design challenges encountered by managers who work in a variety of organizational structures.

“A Manager’s Dilemma” tells of Penny Baker’s predicament as CEO and founder of National BankCard Systems. In the early years of his company, Penny was successful in using a management style and structure that encouraged friendliness between his employees and management, including frequent socializing outside of the workplace. As BankCard Systems prospered and the number of employees increased, some workers became too complacent in the less-than-formal atmosphere at work. Penny had to fire two employees and realized that changes must be made in his management style. Students are asked to put themselves in Penny’s shoes. How should this CEO restructure his company to promote an atmosphere in which employees have fun but maintain a respectful, businesslike working relationship with management?

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Many PowerPoint Slides, including both original text art and newly created images,

have been developed and are available for you to coordinate with Chapter Ten

materials presentation.

ANNOTATED OUTLINE

1. INTRODUCTIONDesigning organizational structure involves the process of organizing (the second management function) and plays an important role in the success of a company.

Ø NOTES Materials I Plan to Use:

2. DEFINING ORGANIZATIONAL STRUCTUREManagers need to establish structural designs that will best support and allow employees to do their work effectively and efficiently.A. Several important terms must be defined in order to

understand the elements of organizational structure and design:1. Organizing is arranging and structuring work to

accomplish the organization’s goals. This process has several purposes, as shown in Exhibit 10-1 and PowerPoint slide 10-6.


Q & A 10.1 If I’m a lower-level manager, what kinds of organizing will I be doing?

2. Organizational structure is the formal arrangement of jobs within an organization.


3. Organizational design is developing or changing an organization’s structure. This process involves

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decisions about six key elements: work specialization, departmentalization, chain of command, span of control, centralization/ decentralization, and formalization. Chapter Ten examines each of these structural elements.


B. Work specialization is dividing work activities into separate job tasks. Most of today’s managers regard work specialization as an important organizing mechanism, but not as a source of ever-increasing productivity.


Q & A 10.2 Do teams undermine work specialization?

? Thinking Critically About Ethics

Workplace Values and Workplace Skills

This critical thinking exercise asks students to ponder an organization’s responsibility to its workers whose skills have become obsolete. Considering the rapid pace of technological change, workers’ jobs will (and must) grow and change. What ethical implications does this fact bring to organizational reality?

This critical thinking exercise provides an excellent opportunity for debate about personal versus organizational responsibility. Divide students into teams and have one team assume the perspective that it is the individual’s responsibility to ensure that his/her skills grow with the changing nature of the workplace. The other team should take the perspective that it is the organization’s responsibility to develop workers so that their skills will be current. Ask each team to present its arguments.

A factor that might be considered in this class discussion could be workers’ ages. Many baby boomers in the workforce have different skills and methods of working than do younger Generation Xers. These generational differences can cause tension and friction in the workplace. Should age discrimination legislation be a consideration when an organization requires its workers to take responsibility for keeping their skills up to date?

C. When work tasks have been defined, they must be arranged in order to accomplish organizational goals. This process, known as departmentalization, is the basis by

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which jobs are grouped. There are five major ways to departmentalize (see Exhibit 10-2 and PowerPoint slide 10-8):1. Functional departmentalization groups jobs by

functions performed. 2. Product departmentalization groups jobs by

product line. 3. Geographical departmentalization groups jobs

on the basis of geographical region. 4. Process departmentalization groups jobs on the

basis of product or customer flow. 5. Customer departmentalization groups jobs on

the basis of specific and unique customers who have common needs.

6. Popular trends in departmentalization include the following:a. Customer departmentalization continues to

be a highly popular approach because it allows better monitoring of customers’ needs and responds to changes in the needs of customers.

b. Cross-functional teams, which are work teams composed of individuals from various functional specialties, are being used along with traditional departmental arrangements.


D. The chain of command is the line of authority extending from upper organizational levels to the lowest levels, which clarifies who reports to whom. Three concepts related to chain of command are authority, responsibility, and unity of command.1. Authority is the rights inherent in a managerial

position to tell people what to do and to expect them to do it.


Q & A 10.3 Are authority and power the same thing?

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2. Responsibility is the obligation to perform any assigned duties.

3. Unity of command is the management principle that each person should report to only one manager.


E. Span of control is the number of employees a manager can efficiently and effectively manage.


Q & A 10.4 What’s the most effective span of control?

1. The span of control concept is important because it determines how many levels and managers an organization will have. (See Exhibit 10-3 and PowerPoint slide 10-17 for an example.)

2. What determines the “ideal” span of control? Contingency factors such as the skills and abilities of the manager and the employees, the characteristics of the work being done, similarity and complexity of employee tasks, the physical proximity of subordinates, the degree to which standardized procedures are in place, the sophistication of the organization’s information system, the strength of the organization’s culture, and the preferred style of the manager influence the ideal number of subordinates.

3. The trend in recent years has been toward wider (larger) spans of control.


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F. The concepts of centralization and decentralization address who, where, and how decisions are made in organizations.1. Centralization is the degree to which decision

making is concentrated at upper levels of the organization.

2. Decentralization is the degree to which lower-level employees provide input or actually make decisions.


? Focus on Leadership When There’s No One There: The Challenges of Online

Leadership

A number of your students have likely taken or are presently enrolled in a class that is delivered online. Classes taught on the Internet serve many positive purposes, including meeting the needs of students who are unable to take some classes in a traditional classroom setting. However, the nature of teaching and learning online poses particular challenges—challenges that are similar to those faced by corporate leaders who must sometimes lead online.

Ask students who have participated in an Internet class to share with the class their impressions of the effectiveness of this type of course offering. Students’ descriptions might include their reactions to questions such as the following:

Was the online course delivered in a way that enabled you to learn the necessary skills and knowledge about the subject you were studying?

If so, what role did effective communication play in the success of this course?

What communication methods used by your online instructor added to the value of the course?

What would you have changed regarding the delivery of the course?

What particular challenges did you encounter in communicating online that you do not face in a traditional classroom setting?

How do you think your experience in taking Internet classes may help to prepare you for online leadership as a manager in the future?

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Q & A 10.5 Do specialization, formalization, and narrow spans of control encourage or discourage organizational politics?

Practical Interactive Skills Modules PRISM #10 Ask students to go to the Web to complete PRISM #10 on

delegating.

3. The current trend is toward decentralizing decision making in order to make organizations more flexible and responsive.

4. Employee empowerment is giving employees more authority (power) to make decisions.

5. A number of factors influence the degree of centralization or decentralization in an organization (see Exhibit 10-4 and PowerPoint slides 10-19 and 10-20).


Self-Assessment Library Exercise in Delegation

As organizations become more decentralized, managers must be able to delegate more freely. Employee empowerment increases the decision-making discretion of employees at lower levels in the organization. Students should complete the SAL #III.B.2 “How Willing Am I to Delegate?” in the context of organization design. Students should consider the following:

n What did you learn about yourself in doing this exercise? Did anything surprise you about your assessment?

n What implications does your score have for working in an employee empowered organization?

n How could this information help you as a manager?

G. Formalization refers to the degree to which jobs within an organization are standardized and the extent to which employee behavior is guided by rules and procedures. 1. In a highly formalized organization, employees

have little discretion, and a high level of consistent and uniform output exists. Formalized organizations have explicit job descriptions, many organizational rules, and clearly defined procedures.

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Q & A 10.6 What are the pros and cons of high formalization?

Passport Passport Part 4 Scenario 1

Have students complete Passport Part 4 Scenario 1 on delegating

2. In a less-formalized organization, employees have much freedom and can exercise discretion in the way they do their work.

3. Formalization not only fosters relatively unstructured job behaviors, but also eliminates the need for employees to consider alternatives.

4. The degree of formalization can vary widely between organizations and even within organizations.


3. ORGANIZATIONAL DESIGN DECISIONSOrganizations do not have identical structures. Even companies of comparable size do not necessarily have similar structures.A. Mechanistic and Organic Organizational Forms (See

Exhibit 10-5 and PowerPoint slide 10-23.)1. A mechanistic organization is an organizational

design that is rigid and tightly controlled. It is characterized by high specialization, rigid departmentalization, narrow spans of control, high formalization, a limited information network, and little participation in decision making by lower-level employees.


Q & A 10.7 When is an organic structure best? When is a mechanistic structure best?

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2. An organic organization is an organizational design that is highly adaptive and flexible. It is characterized by little work specialization, minimal formalization, and little direct supervision of employees.

3. Under what circumstances is each design favored? It “depends” on contingency variables.


B. Contingency FactorsAppropriate organizational structure depends upon four contingency variables:1. Strategy and structure

The organization’s strategy is of the contingency variables that influences organizational design. a. Alfred Chandler originated the strategy-

structure relationship. His finding that structure follows strategy indicates that as organizations change their strategies, they must change their structure to support that strategy.

b. Most current strategy-structure frameworks focus on three strategy dimensions:1) Innovation needs the flexibility and

free flow of information present in the organic organization.

2) Cost minimization needs the efficiency, stability, and tight controls of the mechanistic organization.

3) Imitation uses some of the characteristics of both mechanistic and organic organizations.


Q & A 10.8 What’s the contingency approach to organization design?

2. Size and structureConsiderable historical evidence indicates that an organization’s size significantly affects its structure. Larger organizations tend to have more specialization, departmentalization, centralization,

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and formalization, although the size-structure relationship is not linear.


3. Technology has been shown to affect an organization’s choice of structure.a. Every organization uses some form of

technology to transform inputs into outputs. b. Joan Woodward’s study of structure and

technology shows that organizations adapt to their technology. She found that three distinct technologies have increasing levels of complexity and sophistication. 1) Unit production is the production of

items in units or small batches.2) Mass production is the production of

items in large batches. 3) Process production is the

production of items in continuous processes.

c. Woodward found in her study of these three groups that distinct relationships exist among these technologies, the subsequent structure of the organization, and the effectiveness of the organization. Exhibit 10-6 and PowerPoint slide 10-28 provide a summary of these findings.


4. Environmental uncertainty and structureEnvironmental uncertainty is the final contingency factor that has been shown to affect organizational structure. Environmental uncertainty may be managed by making adjustments in the organization’s structure. The more uncertain the environment, the more flexible and responsive the organization needs to be.


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Q & A 10.9 How is information technology changing organization structure?

Q & A 10.10 Has the bureaucracy become obsolete?

4. COMMON ORGANIZATIONAL DESIGNSA. Traditional Organizational Designs

A number of different organizational designs can be found in today’s organizations. Exhibit 10-8 summarizes the strengths and weaknesses of each of these designs.1. A simple structure is an organizational design

with low departmentalization, wide spans of control, authority centralized in a single person, and little formalization.a. Strengths of the simple structure are its

flexibility, speed, and low maintenance costs.

b. The major limitation of a simple structure is that it is most effective when used in small organizations.


2. As an organization grows, its structure tends to become more specialized and formalized. When contingency factors favor a bureaucratic or mechanistic design, one of the following two options is likely to be used:a. A functional structure is an organizational

design that groups similar or related occupational specialties together.

b. A divisional structure is an organizational structure made up of separate, semiautonomous units or divisions.


B. Contemporary Organizational Designs

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Many of today’s organizations are finding that traditional hierarchical organizational designs are not appropriate for their increasingly dynamic and complex business environments.1. Team structures

One of the newer concepts in organizational design is team structure, an organizational structure in which the entire organization is made up of work groups or teams.


Q & A 10.11 Would a team-based structure still have departments?

2. Matrix and project structuresOther variations in organizational arrangements are based on the fact that many of today’s organizations deal with work activities of different time requirements and magnitude. a. One of these arrangements is the matrix

structure, an organizational structure that assigns specialists from different functional departments to work on one or more projects. (See Exhibit 10-9 and PowerPoint slide 10-35.)

b. Another of these designs is the project structure, an organizational structure in which employees continuously work on projects.


Q & A 10.12 Doesn’t a matrix structure cause more problems than it solves?

3. The Boundaryless OrganizationAnother approach to organizational design is the boundaryless organization, an organization whose design is not defined by, or limited to, the horizontal, vertical, or external boundaries imposed by a predefined structure.

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Q & A 10.13 Doesn’t the boundaryless organization undermine everything positive about formal structures?

4. The Virtual OrganizationA virtual organization operates with a small core of full-time employees, while hiring outside specialists to work on projects temporarily as needed.


5. The Network OrganizationA network organization uses its own employees to do some work activities, while using networks of outside suppliers to provide other needed product components or work processes.


C. Today’s Organizational Design ChallengesMany of today’s organizations are finding that traditional hierarchical organizational designs are not appropriate for their increasingly dynamic and complex business environments.1. Keeping employees connected

Today’s managers face the major challenge of keeping their employees connected to the organization, since these employees are often situated in widely dispersed locations and are constantly moving.

2. Building a learning organizationMany organizations have adopted the organizational philosophy of a learning organization, which is an organization that has developed the capacity to continuously learn, adapt, and change.

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? Managing IT IT’s Impact on Organizational Design: The

Good and the Bad

Many of your students will be knowledgeable about some of the fascinating technologies that are currently changing the way work is accomplished in today’s business environment. The following activity should enhance students’ understanding of these technological capabilities and give them an opportunity to enhance their communication and presentation skills.

After discussing “Managing IT—IT’s Impact on Organizational Design: The Good and the Bad” in class, ask your students to do research on the latest technologies used in the business world. Each student should locate information (including a photograph when applicable) describing one new technological innovation used by businesspersons to accomplish work more effectively and efficiently. The student should make one PowerPoint slide illustrating the nature and purpose of this new technological innovation. Students can present their slides to the class along with a brief description of the product or technology.

A number of Internet sites could serve as a valuable resource when students conduct their research. One such site is [http://www.businessweek.com/technology/reviews/].

3. Managing global structural issuesa. Researchers have concluded that although

structures of organizations around the globe are similar, cultural uniqueness is maintained because of differences in behavior within companies in different areas of the world.

b. These differences imply that managers must be aware and respectful of the values and practices of different cultures in today’s worldwide business environment.


Q & A 10.14 What would a learning organization do differently from other organizations?

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Q & A 10.15 What’s a learning organization really like in practice?

Self-Assessment Library Organizational Structure

The design of organizational structure facilitates different forms of managing and decision making. From the Self-Assessment Library, ask your students to complete SAL #III.A.1 “What Type of Organization Structure Do I Prefer?

Students may consider the following questions:

n What did you discover about yourself in doing this exercise? Did anything surprise you about your assessment?

n In what type of organizational structure do you think you would be most comfortable? Why?

n How do you think this awareness could help you in the future as a manager or employee in another level of an organization?

Answers to Thinking About Management Issues

1. Can an organization’s structure be changed quickly? Why or why not?The speed with which structural changes can be implemented depends partly upon an organization’s size. A small organization is usually able to change its structure more rapidly than a larger one because a smaller company has fewer employees who are involved in the restructuring process. However, a large organization can change its structure and often does in response to changing environmental conditions and changing strategies.

2. Would you rather work in a mechanistic or an organic organization? Why?Students’ answers to this question will vary. Many students prefer the structure provided by a mechanistic organization, whereas others would be less productive in an organization with structural rigidity. Note that SAL #III.A.1 “What Type of Organization Structure Do I Prefer?” addresses whether each of your students would like to work in a bureaucracy (a mechanistic organization). Students might want to revisit this assessment in answering this question.

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3. What types of skills would a manager need to effectively work in a project structure? In a boundaryless organization? In a learning organization?In all of these types of organizations, flexibility and adaptability are critical. In the project structure, conflict management skills are particularly useful. In a boundaryless organization, the ability to interact effectively with people at all levels and in all areas of the organization is crucial to success. In a learning organization, a manager needs the ability to communicate both by listening and by speaking because of the frequency and importance of sharing information in this type of organization.

4. The boundaryless organization has the potential to create a major shift in our living and working patterns. Do you agree or disagree? Explain.Students’ responses to this will vary. This question could serve as an interesting springboard for a class debate. Students could break into teams, with each team taking the opposite position in the debate. Give students an opportunity to discuss their strategy as a team before presenting their viewpoints to the class.

5. With the availability of advanced information technology that allows an organization’s work to be done anywhere at any time, is organizing still an important managerial function? Why or why not?Although an organization’s work may be done anywhere at any time, organizing remains a vital managerial function because the work that must be accomplished still must be divided, grouped, and coordinated.

WORKING TOGETHER—Team-Based Exercise

Form groups of three to four students and give several groups the designation “effective delegating” and other groups the designation “ineffective delegating.” After reading the Skills Module on Delegating, each group should develop a role-play situation demonstrating delegation according to their designation (effective or ineffective delegating). Have each group present their role-play scenario to the class.

In lieu of this role-play activity, you might encourage students to describe situations of effective or ineffective delegating they have experienced in work situations or other group situations.

Answers to Case Application Questions

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Fixing What’s Broken: HP’s Structural Challenge

1. Describe the structural problems HP had.When Mark Hurd assumed his new role as CEO of HP, he soon realized that many of the company’s structural problems were related to the fact that eleven layers of management separated him from HP’s customers. Top corporate customers of the company told him that they did not know whom to contact at HP to respond to their questions. HP’s head of corporate technology said that she had to wait three months to secure approval to hire 100 sales specialists. Moreover, HP’s salespeople were able to spend only about one-third of the time with customers; the remainder of their workday was spent in negotiating the bureaucracy inside of HP.

2. How did Mark Hurd decide to address his company’s structural problems? What do you think of his changes? How do you think the company’s customers responded to these changes? How about the company’s executives and sales force?In attempting to remedy the structural problems at his company, Mark Hurd first terminated the employment of underperformers and eliminated three layers of sales management. He also eliminated one sales group and merged those sales representatives into the remaining sales groups. Company executives and members of the sales force are likely pleased that the increased efficiency in the organization enables them to make decisions more quickly and to spend more time interacting with customers. Customers must be more satisfied to see that their needs and concerns are being met more effectively and efficiently.

3. Would a more mechanistic or a more organic structure be appropriate for HP? Why?Considering the rapidly changing nature of the products, and particularly the services, offered by HP, the appropriate structure for this company would have many characteristics of an organic structure. Changing times and intense competition within its industry require that HP be quickly responsive and proactive in its corporate strategy; an organic structure would be more conducive to this type of strategy.

4. What role do you think organizational structure plays in an organization’s efficiency and effectiveness? Explain.Organizational structure plays a key role in enabling a company to function smoothly, to remain responsive to its internal and external stakeholders, and to adapt to changes in the marketplace. Innovation is facilitated by fewer layers of management, and students have already learned that the survival and success of a company is usually dependent upon its

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ability to function as a learning organization that promotes innovation.

ADDITIONAL CHAPTER INFORMATION

You may want to visit the following URL:[http://www.peoplesoft.com/media/zh/pdf/oct02_story1.pdf].

Here you will find an article entitled “FedEx Delivers Employee Empowerment and Process: Improvement in Real Time with PeopleSoft 8 HRMS.” Read how globally distributed firms can utilize technology in creating learning organizations and in empowering employees.

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Fund of Management Answers

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