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Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson Education Australia

Chapter 10

Organisational Structure and Design

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Defining organisational structure and design

Organisational structureThe formal arrangement of jobs within an organisation.

Organisational designA process involving decisions about six key elements:

Work specializationDepartmentalizationChain of commandSpan of controlcentralisation and decentralisationFormalization

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Organisational structure

Work specialisationThe degree to which tasks in the organisation are divided into separate jobs with each step completed by a different person.

Overspecialization can result in human diseconomies from boredom, fatigue, stress, poor quality, increased absenteeism, and higher turnover.

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Departmentalisation by type

Functional Grouping jobs by functions performed

ProductGrouping jobs by product line

GeographicGrouping jobs on the basis of territory or geography

Process Grouping jobs on the basis of product or customer flow

CustomerGrouping jobs by type of customer and needs

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Functional departmentalisation

• Advantages• Efficiencies from putting together similar specialties and people

with common skills, knowledge, and orientations• Coordination within functional area• In-depth specialization

• Disadvantages• Poor communication across functional areas• Limited view of organisational goals

Figure 10.2a Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson Education Australia 6

Geographical departmentalisation

• Advantages• More effective and efficient handling of specific

regional issues that arise• Serve needs of unique geographic markets better

• Disadvantages• Duplication of functions• Can feel isolated from other organisational areas

Figure 10.2b

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Product departmentalisation

+ Allows specialisation in particular products and services+ Managers can become experts in their industry+ Closer to customers– Duplication of functions– Limited view of organisational goalsSource: Bombardier Annual Report.

Figure 10.2c Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson Education Australia 8

Process departmentalisation

+ More efficient flow of work activities– Can only be used with certain types of products

Figure 10.2d

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Customer departmentalisation

+ Customers’ needs and problems can be met by specialists- Duplication of functions- Limited view of organisational goals

Figure 10.2e Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson Education Australia 10

Organisation structure (cont’d)

Chain of commandThe continuous line of authority that extends from upper levels of an organisation to the lowest levels of the organisation and clarifies who reports to who.

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Organisation structure (cont’d)

AuthorityThe rights inherent in a managerial position to tell people what to do and to expect them to do it.

ResponsibilityThe obligation or expectation to perform.

Unity of commandThe concept that a person should have one boss and should report only to that person.

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Organisation structure (cont’d)

Span of controlThe number of employees who can be effectively and efficiently supervised by a manager.Width of span is affected by:

Skills and abilities of the managerEmployee characteristicsCharacteristics of the work being doneSimilarity of tasksComplexity of tasksPhysical proximity of subordinatesStandardization of tasks

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Contrasting spans of control

Figure 10.3 Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson Education Australia 14

Organisation structure (cont’d)

CentralisationThe degree to which decision-making is concentrated at a single point in the organisations.

organisations in which top managers make all the decisions and lower-level employees simply carry out those orders.

Decentralisationorganisations in which decision-making is pushed down to the managers who are closest to the action.

Employee EmpowermentIncreasing the decision-making,

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Factors that influence the amount of centralisation

More CentralisationEnvironment is stable.

Lower-level managers are not as capable or experienced at making decisions as upper-level managers.

Lower-level managers do not want to have a say in decisions.

Decisions are significant.

organisation is facing a crisis or the risk of company failure.

Company is large.

Effective implementation of company strategies depends on managers retaining say over what happens.

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Factors that influence the amount of decentralisation

More decentralisationEnvironment is complex, uncertain.Lower-level managers are capable and experienced at making decisions.Lower-level managers want a voice in decisions.Decisions are relatively minor.Corporate culture is open to allowing managers to have a say in what happens.Company is geographically dispersed.Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions.

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Organisation structure (cont’d)

FormalisationThe degree to which jobs within the organisation are standardized and the extent to which employee behavior is guided by rules and procedures.

Highly formalized jobs offer little discretion over what is to be done.Low formalization means fewer constraints on how employees do their work.

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Mechanistic versus organic organisation

Table 10.2

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Structural contingency factors

Structural decisions are influenced by:Overall strategy of the organisation

organisational structure follows strategy.Size of the organisation

Firms change from organic to mechanistic organisations as they grow in size.

Technology use by the organisationFirms adapt their structure to the technology they use.

Degree of environmental uncertaintyDynamic environments require organic structures; mechanistic structures need stable environments.

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Structural contingency factors (cont’d)

Strategy and structureAchievement of strategic goals is facilitated by changes in organisational structure that accommodate and support change.

Size and structureAs an organisation grows larger, its structure tends to change from organic to mechanistic with increased specialization, departmentalization, centralisation, and rules and regulations.

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Structural contingency factors (cont’d)

Technology and structureorganisations adapt their structures to their technology.Woodward’s classification of firms based on the complexity of the technology employed:

Unit production of single units or small batchesMass production of large batches of outputProcess production in continuous process of outputs

Routine technology = mechanistic organisationsNon-routine technology = organic organisations

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Woodward’s findings on technology, structure, and effectiveness

Table 10.3

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Structural contingency factors (cont’d)

Environmental uncertainty and structure

Mechanistic organisational structures tend to be most effective in stable and simple environments.

The flexibility of organic organisational structures is better suited for dynamic and complex environments.

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Common organisational designs

Traditional designsSimple structure

Low departmentalization, wide spans of control, centralised authority, little formalization

Functional structureDepartmentalization by function

Operations, finance, human resources, and product research and development

Divisional structureComposed of separate business units or divisions with limited autonomy under the coordination and control the parent corporation.

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Strengths and weaknesses of common traditional organisational designs

Figure 10.4 Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson Education Australia 26

Organisational designs (cont’d)

Contemporary organisational designsTeam structures

The entire organisation is made up of work groups or self-managed teams of empowered employees.

Matrix and project structuresSpecialists for different functional departments are assigned to work on projects led by project managers.Matrix participants have two managers.

Project structuresEmployees work continuously on projects; moving on to another project as each project is completed.

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A Matrix organisation in an aerospace firm

Figure 10.6 Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson Education Australia 28

Organisational designs (cont’d)

Contemporary organisational designs (cont’d)

Boundaryless organisationAn flexible and unstructured organisational design that is intended to break down external barriers between the organisation and its customers and suppliers.Removes internal (horizontal) boundaries:

Eliminates the chain of commandHas limitless spans of controlUses empowered teams rather than departments

Eliminates external boundaries:Uses virtual, network, and modular organisational structures to get closer to stakeholders.

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Removing boundaries

Virtual organisationAn organisation that consists of a small core of full-time employees and that temporarily hires specialists to work on opportunities that arise.

Network organisationA small core organisation that outsources its major business functions (e.g., manufacturing) in order to concentrate what it does best.

Modular organisationA manufacturing organisation that uses outside suppliers to provide product components for its final assembly operations.

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Organisational designs (cont’d)

The learning organisationAn organisation that has developed the capacity to continuously learn, adapt, and change through the practice of knowledge management by employees.Characteristics of a learning organisation:

An open team-based organisation design that empowers employeesExtensive and open information sharingLeadership that provides a shared vision of the organisation’s future, support and encouragementA strong culture of shared values, trust, openness, and a sense of community.

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Characteristics of a learning organisation

Figure 10.7