Organisational Structure and Design

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Organizational Structureand Design


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Defining Organizational Structurey Organizational Structure

y The formal arrangement of jobs within an organization

y

Organizational Designy A process involving decisions about six key elements:

y Work specialization

y Departmentalization

y Chain of command

y Span of control

y Centralization and decentralization

y Formalization


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Purposes of Organizing

y Divides work to be done into specific jobs anddepartments

y

Assigns tasks and responsibilities associated withindividual jobs

y Coordinates diverse organizational tasks

y Establishes relationships among individuals,groups, and departments

y Establishes formal lines of authority

y Allocates organizational resources


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Designing Organizational Structure

yWork Specialization

y The degree to which tasks in the organization are

divided into separate jobs with each stepcompleted by a different person


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Departmentalization by Type

y Functional

y Grouping jobs by

functions performedy Product

y Grouping jobs byproduct line

yGeographicaly Grouping jobs on the

basis of territory orgeography

y Process

y Grouping jobs on the

basis of product orcustomer flow

y Customer

y Grouping jobs by type

of customer and needs


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Functional Departmentalization

Plant Manager

Manager,

Manufacturing

Manager,

Human Resources

Manager,

Accounting

Manager,

Engineering

Manager,

Purchasing

+ Efficiencies from putting together similar specialties and

people with common skills, knowledge, and orientations

+ Coordination within functional area

+ In-depth specialization

Poor communication across functional areas

Limited view of organizational goals


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Geographical

Departmentalization

Vice President

for Sales

Sales Director,Central Region

Sales Director,Southern Region

Sales Director,Western Region

Sales Director,Eastern Region

+ More effective and efficient handling of specific

regional issues that arise

+ Serve needs of unique geographic markets better

Duplication of functions

Can feel isolated from other organizational areas


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Product Departmentalization

+ Allows specialization in particular products and services

+ Managers can become experts in their industry

+ Closer to customers


Limited view of organizational goals Source: Bombardier Annual Report.

CEO.

Truck

Division

Car

Division

Bus

Division


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Process Departmentalization

+ More efficient flow of work activities

Can only be used with certain types of products

Plant

Manager

Spinning Dyeing Weaving Fininshing


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Customer Departmentalization

+ Customers needs and problems can be met by specialists


Limited view of organizational goals

Director

of Sales

Manager,

Wholesale Accounts

Manager,

Retail Accounts

Manager,

Government Accounts


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Organizational Structure (contd)

yChain of Command

y The continuous line of authority that extendsfrom upper levels of an organization to thelowest levels of the organization and clarifieswho reports to whom


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Organizational Structure (contd)y Authority

y The rights inherent in a managerial position to tell people whatto do and to expect them to do it

y

Responsibilityy The obligation or expectation to perform. Responsibility brings

with it accountability (the need to report and justify work tomanagers superiors)

y Unity of Commandy The concept that a person should have one boss and should

report only to that person

y Delegationy The assignment of authority to another person to carry out

specific duties


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y Line and Staff Authorityy Line managers are responsible for the essential

activities of the organization, includingproduction and sales. Line managers have theauthority to issue orders to those in the chainof commandy

The president, the production manager, and the salesmanager are examples of line managers

y Staff managers have advisory authority, andcannot issue orders to those in the chain ofcommand (except those in their own

department)


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y Span of Controly The number of employees who can be effectively and

efficiently supervised by a managery Width of span is affected by:

y Skills and abilities of the manager and the employeesy Characteristics of the work being doney Similarity of tasksy Complexity of tasks

y Physical proximity of subordinatesy Standardization of tasksy Sophistication of the organizations information systemy Strength of the organizations culturey Preferred style of the manager


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y Centralization

y The degree to which decision making is

concentrated at a single point in the organizationy Organizations in which top managers make all the

decisions and lower-level employees simply carry outthose orders

y Decentralization

y The degree to which lower-level employees provideinput or actually make decisions

y Employee Empowermenty Increasing the decision-making discretion of employees


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Factors that Influence the Amount of

Centralization

y More Centralizationy Environment is stable

y Lower-level managers are not as capable or experiencedat making decisions as upper-level managersy Lower-level managers do not want to have a say in

decisionsy Decisions are significanty

Organization is facing a crisis or the risk of companyfailurey Company is largey Effective implementation of company strategies

depends on managers retaining say over what happens


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Factors that Influence the Amount of

Decentralization

y More Decentralizationy Environment is complex, uncertainy

Lower-level managers are capable and experienced atmaking decisionsy Lower-level managers want a voice in decisionsy Decisions are relatively minory Corporate culture is open to allowing managers to have

a say in what happensy Company is geographically dispersedy Effective implementation of company strategies

depends on managers having involvement andflexibility to make decisions


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y Formalizationy The degree to which jobs within the organization

are standardized and the extent to whichemployee behaviour is guided by rules andproceduresy Highly formalized jobs offer little discretion over what is to

be done

y Low formalization means fewer constraints on howemployees do their work


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Organizational Design Decisionsy Mechanistic Organization

y A rigid and tightlycontrolled structurey

High specializationy Rigid departmentalizationy Narrow spans of controly High formalizationy Limited information network

(mostly downwardcommunication)

y Low decision participation bylower-level employees

y Organic Organizationy Highly flexible and

adaptable structurey

Nonstandardized jobsy Fluid team-based structurey Little direct supervisiony Minimal formal rulesy Open communication

networky Empowered employees


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Mechanistic Versus Organic

Organization

Mechanistic

High Specialization

Rigid Departmentalization

Clear Chain of Command

Narrow Spans of Control Centralization

High Formalization

Organic

Cross-Functional Teams

Cross-Hierarchical Teams

Free Flow of Information

Wide Spans of Control Decentralization

Low Formalization


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Structural Contingency Factors (contd)

y Strategy Frameworks:y Innovation

y Pursuing competitive advantage through meaningfuland unique innovations favours an organic structuring

y Cost minimizationy Focusing on tightly controlling costs requires a

mechanistic structure for the organization

y Imitationy Minimizing risks and maximizing profitability by

copying market leaders requires both organic andmechanistic elements in the organizations structure


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y Strategy and StructureyAchievement of strategic goals is facilitated by

changes in organizational structure thataccommodate and support change

y Size and StructureyAs an organization grows larger, its structure

tends to change from organic to mechanisticwith increased specialization,departmentalization, centralization, and rulesand regulations


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y Technology and Structurey Organizations adapt their structures to their

technologyyWoodwards classification of firms based on the

complexity of the technology employed:y Unit production of single units or small batches

y Mass production of large batches of output

y Process production in continuous process of outputs

y Routine technology = mechanistic organizations

y Nonroutine technology = organic organizations


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y

Environmental Uncertainty and StructureyMechanistic organizational structures tend to

be most effective in stable and simpleenvironments

y The flexibility of organic organizationalstructures is better suited for dynamic andcomplex environments


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Common Organizational Designs

y Traditional Designsy Simple Structure

y Low departmentalization, wide spans of control, centralizedauthority, little formalization

y Functional Structurey Departmentalization by function

y Operations, finance, human resources, and product research anddevelopment

y Divisional Structurey Composed of separate business units or divisions with

limited autonomy under the coordination and control of theparent corporation


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Organizational Designs (contd)

yContemporary Organizational Designsy Team Structures

y The entire organization is made up of work groups orself-managed teams of empowered employees

yMatrix Structuresy Specialists for different functional departments are

assigned to work on projects led by project managers

y Matrix participants have two managers

y Project Structuresy Employees work continuously on projects, moving on

to another project as each project is completed


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A Matrix Organization in an

Aerospace Firm

DesignEngineering Manufacturing

ContractAdministration Purchasing Accounting

HumanResources (HR)

DesignGroup

AlphaProject

ManufacturingGroup

ContractGroup

PurchasingGroup

AccountingGroup

HRGroup

DesignGroup

BetaProject

ManufacturingGroup

ContractGroup

PurchasingGroup

AccountingGroup

HRGroup

Design

Group

Gamma

Project

Manufacturing

Group

Contract

Group

Purchasing

Group

Accounting

Group

HR

Group

DesignGroup

OmegaProject

ManufacturingGroup

ContractGroup

PurchasingGroup

AccountingGroup

HRGroup


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Organizational Designs (contd)y Contemporary Organizational Designs (contd)

y Boundaryless Organizationy A flexible and an unstructured organizational design that is

intended to break down external barriers between theorganization and its customers and suppliers

y Removes internal (horizontal) boundaries:y Eliminates the chain of command

y Has limitless spans of control

y Uses empowered teams rather than departmentsy Eliminates external boundaries:

y Uses virtual, network, and modular organizational structuresto get closer to stakeholders


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Removing Boundariesy Virtual Organization

yAn organization that consists of a small core offull-time employees and that temporarily hires

specialists to work on opportunities that arisey Network Organization

yA small core organization that outsources its majorbusiness functions (e.g., manufacturing) in orderto concentrate on what it does best

y Modular OrganizationyA manufacturing organization that uses outside

suppliers to provide product components for itsfinal assembly operations


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Outsourcing Issues

y Problems in Outsourcing

y Choosing the wrong activities to outsource

y Choosing the wrong vendory Writing a poor contract

y Failing to consider personnel issues

y Losing control over the activity

y Ignoring the hidden costsy Failing to develop an exit strategy (for either moving to

another vendor, or deciding to bring the activity backin-house)


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Organizational Designs (contd)

y Learning Organizationy An organization that has developed the capacity to

continuously learn, adapt, and change through thepractice of knowledge management by employees

y Characteristics of a learning organization:y An open team-based organization design that empowers

employees

y Extensive and open information sharing

y Leadership that provides a shared vision of the organizationsfuture; support; and encouragement

y A strong culture of shared values, trust, openness, and asense of community


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Characteristics of a Learning

Organization

Organisational Structure and Design

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