HNDBM – 12. Organization Structure

Lim Sei Kee @ cK

Organization structureo How job tasks are formally divided, grouped

and coordinated

o Six key elements to design organization

structure

Key design questions and answers for designing the proper organizational structure

The key question The answer is provided by1. To what degree are activities

subdivided into separate jobs?Work Specialization

2. On what basis will jobs be grouped together?

Departmentalization

3. To whom do individuals and groups report?

Chain of Command

4. How many individuals can a manager efficiently and effectively direct?

Span of Control

5. Where does decision-making authority lie?

Centralization and decentralization

6. To what degree will there be rules and regulations to direct employees and managers?

Formalization

Work specializationThe degree to which activities in the

organization are subdivided into separate jobs.Efficient use of employees skillsEfficient use of organizational resources

Departmentalization The basis by which jobs are grouped

together.By functionsType of productBasis of geography or territoryBy process Type of customer

Chain of commandThe unbroken line of authority that extends

from the top of the organization to the lowest level and clarifies who reports to whom.Authority – the rights inherent in a

managerial position to give orders and to expect the orders to be obeyed

Unity of command – a subordinate should have only one superior to whom he or she is directly responsible

Span of controlThe number of subordinates a manager can

efficiently and effectively direct. Narrow - can maintain close supervision

Expensive, as they add levels to management Vertical communication more complex Encourage tight supervision and discourage employee

autonomy

Wider – reduce costs, cut overhead, speed up decision making, increase flexibility Investing heavily on training

Centralization and decentralizationThe degree to which decision making is

concentrated at a single point in the organization

The degree to which decision making requires multiple parties to make their own independent decisions.

FormalizationThe degree to which jobs within the

organization are standardized.High – minimum amount of discretion over

what is to be done, when it is to be done, and how he/she should do it

Low – non-programmed job, employees have a great deal of freedom to exercise discretion in their work.

Organizational designsSimple structure

Bureaucracy

Matrix structure

Simple structureA structure characterized by a low degree of

departmentalization, wide spans of control, authority decentralized in a single person, and a little formalization.Owner - Manager

Salesperson

Salesperson

Salesperson

Salesperson

Cashier

Simple structureStrength

Fast, flexible and accountability is clear

Weakness As organization grows, it become

inadequate

BureaucracyA structure with highly routine operating

tasks achieved through specialization, very formalized rules and regulations, tasks that are grouped into functional departments, centralized authority, narrow spans of control and decision making that follows the chain of command.

BureaucracyStrength

Ability to perform standardized activity in a highly efficient manner

Economies of scale, minimum duplication of personnel and equipment

Weakness Specialization creates subunit conflicts Obsessive concern with following the rules

The matrix structureA structure that creates dual lines of

authority and combines functional and product departmentalization.

The matrix structureStrength

Facilitate the efficient allocation of specialists and sharing of specialized resources across products.

Facilitate coordination when the organization has a multiplicity of complex activities                    

Weakness Creates confusion

New structural optionsTeam structure

Virtual organization

Boundaryless organization

Team structure The use of teams as the central device to

coordinate work activities.Breaks down departmental barriersDecentralizes decision makingRequire employees who are specialists

Virtual organization A small, core organization that outsources

major business functions. Highly centralized with little or no

departmentalizationDrawback – reduces management’s control

over key parts of its business

Boundaryless organizationAn organization that seeks to eliminate the

chain of command, have limitless spans of control, and replace departments with empowered teams. ideal or companies in the growing

technology industry.communicate mainly through email, phone

and other virtual methods rather than more traditional face-to-face communication

Mechanistic versus organic modelsMechanistic model Organic model

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

Why do structures differ?Strategy

Size

Technology

Environment

Strategy Innovation strategy – a strategy that emphasizes

the introduction of major new products and services.

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

Imitation strategy – a strategy that seeks to move into new products or new markets only after their viability has already been proven

Strategy – structure relationship Strategy Structural optionInnovation Organic: a loose structure, low

specialization, low formalization, decentralized

Cost minimization

Mechanistic: tight control, extensive work specialization, high formalization, high centralization

Imitation Mechanistic and organic: mix of loose and tight properties, tight controls over current activities and loose controls for new undertakings

SIZELarge – tend to have more specialization, more

departmentalization, more vertical levels and more rules and regulations

TECHNOLOGYo How an organization transfers its inputs to outputs.

ENVIRONMENTo Institutions or forces outside that potentially affect

the organization’s performance.