Organizing Fundamentals

Organizational Structure and Design

Rey Lugtu

www.reylugtu.com

Management Functions

Planning Organizing Leading Controlling

Defining

goals, estab-

lishing

strategy, and

developing

subplans to

coordinate

activities

Determining

what needs

to be done,

how it will

be done,

and who is

to do it

Directing

and moti-

vating all

involved

parties and

resolving

conflicts

Monitoring

activities

to ensure

that they are

accomplished

as planned

Achieving the

organization’s

stated

purpose

Lead to

Designing organizational structures is part of

organizing, one of the four basic management

functions.

The Five Main Steps of the Organizing

Process

STEP 5

Evaluate

results of

organizing

strategy

STEP 4

Allocate

resources and

directives for

subtasks

STEP 1

Reflect on

plans and

objectives

STEP 2

Establish

major tasks

STEP 3

Divide major

tasks into

subtasks

FEEDBACK

5

Organizing

Elements

Span ofControl

(Hierarchy)

Chain of Command

(Scalar relationships)

Structure

Division of Labor

Elements of Organizing

(1) Organizational Structure

Organizational Structure

Formal system of task and reporting relationships showing how workers use resources.

Organizational design

The process by which managers make specific choices that result in a particular kind of organizational structure.

Formal and Informal Structure

Formal structure is defined as the relationships

among organizational resources as outlined by

management.

9

Informal structure is defined as the patterns of

relationships that develop because of the

informal activities of organization members.

Departmentalization & Formal Structure

Establishes work teams and

supervision structure

Creates common resources,

measures of performance, etc

Encourages informal

communication among people

and subunits

Organizes employees around skills or

other resources (marketing, production)

President

VP-Finance VP-Production VP-Marketing

Functional Organizational Structure

Product/Market Organizational Structure

Customer Departmentalization

Director

of Sales

Manager,

Retail Accounts

Manager,

Corporate Accounts

Manager,

Government Accounts

Figure 10-7

Geographic Organizational Structure

EVP

for Global Sales

VP Sales,

Asia Pacific

VP Sales

Latin American/

Caribbean

VP Sales ,

Middle East/Africa

VP Sales

Europe

Hybrid Structure:

Functional and Market Org Structure

SVP and CFO

SVP, IBM Global Financing

SVP, IBM Global Services

SVP, Personal Systems &

Integrated Supply Chain

SVP, Sales & Distribution

SVP,Server Group

SVP, Software Group

SVPStorage Systems Group

SVPTechnology

SVP, Technology and

Manufacturing Group

SVP, Human Resources

SVP,Marketing

SVP, Research

SVP, Strategy

President, CEO, Samuel Palmisano

Vice ChairmanJohn Thompson

Chairman:Louis Gerstner

PLDT Account

Globe Account

Smart Account

Services Manager

TechnicalManager

Support Functions

Employees are temporarily assigned to a specific

project team and have a permanent functional unit

Project-Based Matrix Structure

Country Manager

Core

Firm

(U.S.A.)

Product

Development

Firm

(France)

Marketing

Firm

(U.K.)

Customer

Service

Firm

(Canada)

Production

Firm

(China)

Accounting

Firm

(U.S.A.)

Network Organizational Structure

Network Organizational Structure

Pepe Jeans

(UK)

10 Independent

Agents

1500

Retailers

Sourcing Agent

(Hong Kong)

Virtual Organization

Virtual means

‘unreal, looking real’.

‘immaterial, supported by

information and

communication technology

(ICT)’.

‘potentially present’.

Used to describe different

organizational approaches

in different environmental

contexts.

Virtual Organization

Virtual Organization

Criminal Justice System

(UK)

POLICE

COURTS

PROBATION

SERVICES

WEB, XML, etc

FLEXIBILITY

TECHNOLOGY

PROVIDER &

DEVELOPER

PROGRAMMERS

CONTENT

DEVELOPERS

NETWORKING

EXPERTS

INTERNET

EXPERTS

CUSTOMER FOCUS

Factors Affecting Organizational Structure

Figure 10.1

Structure Follows Strategy

Changes in corporate strategy lead to changes in organizational structure.

Alfred Chandler argues that changes in organizational structure have been largely been driven by changes in strategy, which in turn have were caused by changes in external conditions faced by the firm

Different strategies require the use of different structures.A differentiation strategy needs a flexible structure, low cost may need a more formal structure.

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

Strategic Management Process

Environmental Analysis

Goal Setting

(Establishment of Organizational Direction)

Strategic Plan Formulation

Administration

Strategic Control

Strategic Planning

Strategy

Implementation

ORGANIZATIONAL GOALS

PLANNING

CONTROLLING

LEADING, MOTIVATING

ORGANIZING

Strategy, structure, and the environment need to be

closely aligned!

The Organizational Environment

Technology

The combination of skills, knowledge, tools, equipment,

computers and machines used in the organization.

More complex technology makes it harder for

managers to regulate the organization.

The Organizational Environment

Technology Technology can be measured by:

• Task variety: the number of new problems a manager encounters.

• Task analyzability: the availability of programmed solutions to a manager to solve problems.

High task variety and low analyzability present many unique problems to managers.

• Flexible structure works best in these conditions.

Low task variety and high analyzability allow managers to rely on established procedures.

Types of Technology

Small Batch TechnologySmall quantities of one-of-a-kind products are produced by the skills of the workers who work together in small groups.

• Appropriate structure is decentralized and flexible.

Mass Production TechnologyAutomated machines that are programmed to make high volumes of standard products.

• Formal structure is the best choice for workers who must perform repetitive tasks.

Types of Technology

Continuous Process TechnologyTotally mechanized systems of automatic machines.

• A flexible structure is necessary to allow workers to react quickly to unexpected problems.

Information Technology (IT)Knowledge management

• The sharing and integrating of expertise within and between functions and divisions through realtime, interconnected IT that allows for new kinds of tasks and job reporting relationships.

The Organizational Environment

Human Resources

Highly skilled workers whose jobs require working in

teams usually need a more flexible structure.

Higher skilled workers (e.g., CPA’s and doctors) often

have internalized professional norms.

(2) Division of Labor

Subdivision of work into

separate jobs assigned to

different people

Potentially increases work

efficiency

Necessary as company

grows and work becomes

more complex

© AFP/CORBIS

Division of Labor and Coordination

Coordination is the orderly arrangement of

group effort to provide unity of action in the

pursuit of a common purpose.

Forms of Work Coordination

Informal communicationSharing informationHigh media-richnessImportant in teams

Formal hierarchyDirect supervisionCommon in larger firms Problems -- costly, slow, less popular with young staff

StandardizationFormal instructionsClear goals/outputsTraining/skills

© AFP/CORBIS

Follett’s Guideline on Coordination

Coordination can be attained with least difficulty

through direct horizontal relationships and

personal communications.

Coordination should be a discussion topic during

the planning process

Coordination is a continuing process

Human element and communication process are

essential considerations to encourage

coordination.

(3) Span of Control

Number of people directly reporting to the next level

Assumes coordination through direct supervision

Wider span of control possible when:

with other coordinating methods

subordinates’ tasks are similar

tasks are routine

Flatter structures require wider span (if same # of people in the firm)

Assuming Span of 4

Vertical complexity

Contrasting Spans of Control

(Highest) Assuming Span of 8

1

2

3

4

5

6

7

1

4

16

64

256

1,024

4,096

1

8

64

512

4,096

Org

an

izati

on

Level

(Lowest)Span of 4:

4,096 Operatives. 1,365 ManagersSpan of 8:

4,096 Operatives. Only 585 Managers!

Which organization looks more appealing to you?

Depth/Height of Hierarchy

Top Management

Top Management

Which organization is structured for faster

organizational decision making?

Which is more flexible?

FLAT

TALL

Span of Control at Ducks Unlimited

Ducks Unlimited Canada

recently flattened its

organizational structure by

removing layers of

management. The

environmental conservation

group wanted the flatter

structure to empower

employees, and let them

make decisions quickly

without having to go up the

hierarchy.

Ducks Unlimited/Darin Langhorst

(4) Chain of Command

A plan that specifies who reports to whom

Unity of Command says everyone should report to one and only one superior

What about matrix organizations

PLDT Account

Globe Account

Smart Account

Services Manager

TechnicalManager

Support Functions

Country Manager

What about matrix organizations?

Integrating Mechanisms

Forms of Integrating Mechanisms

Figure 10.12

END