Org structure

Managing Organizational Structure and Culture

McGraw-Hill/IrwinContemporary Management, 5/e

Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

chapter ten

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Organizational Structure

• Organizational Architecture– The organizational structure, control

systems, culture, and human resource management systems that together determine how efficiently and effectively organizational resources are used.

10-4

Designing Organizational Structure

• Organizing– The process by which managers establish

working relationships among employees to achieve goals.

• Organizational Structure– Formal system of task and reporting

relationships showing how workers use resources.

10-5

Designing Organizational Structure

• Organizational design– The process by which managers create a

specific type of organizational structure and culture so that a company can operate in the most efficient and effective way

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Factors Affecting Organizational Structure

Figure 10.1

10-7

The Organizational Environment

The Organizational Environment– The quicker the environment changes, the

more problems face managers.– Structure must be more flexible (i.e.,

decentralized authority) when environmental change is rapid.

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Strategy– 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.

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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.

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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.

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Human Resources– Highly skilled workers whose jobs require

working in teams usually need a more flexible structure.

– Higher skilled workers often have internalized professional norms and values.

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• Human Resources– Managers must take into account all four

factors (environment, strategy, technology and human resources) when designing the structure of the organization.

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The way an organization’s structure works depends on the choices managers make about:

1. How to group tasks into individual jobs

2. How to group jobs into functions and divisions

3. How to allocate authority and coordinate functions and divisions

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Grouping Jobs into Functions

• Function– Group of people, working together, who

possess similar skills or use the same kind of knowledge, tools, or techniques to perform their jobs

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Grouping Jobs into Functions

• Functional Structure– An organizational structure composed of all

the departments that an organization requires to produce its goods or services.

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Functional Structure

• Advantages– Encourages learning from others doing

similar jobs.– Easy for managers to monitor and evaluate

workers.– Allows managers to create the set of

functions they need in order to scan and monitor the competitive environment

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Functional Structure

• Disadvantages– Difficult for departments to communicate

with others.– Preoccupation with own department and

losing sight of organizational goals.

10-18Figure10.3

The Functional

Structure of Pier 1

Imports

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Divisional Structures

• Divisional Structure– Managers create a series of business units

to produce a specific kind of product for a specific kind of customer

10-20Figure 10.4

Product, Market, and Geographic Structures

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Types of Divisional Structures

• Product Structure– Managers place each distinct product line or

business in its own self-contained division– Divisional managers have the responsibility

for devising an appropriate business-level strategy to allow the division to compete effectively in its industry

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Product Structure

• Allows functional managers to specialize in one product area

• Division managers become experts in their area

• Removes need for direct supervision of division by corporate managers

• Divisional management improves the use of resources

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• Geographic Structure– Divisions are broken down by geographic

location

• Global geographic structure– Managers locate different divisions in each of

the world regions where the organization operates.

– Generally, occurs when managers are pursuing a multi-domestic strategy

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• Global Product Structure– Each product division takes responsibility

for deciding where to manufacture its products and how to market them in foreign countries worldwide

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Global Geographic and Global Product Structures

Figure 10.5

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• Market Structure– Groups divisions according to the particular

kinds of customers they serve– Allows managers to be responsive to the

needs of their customers and act flexibly in making decisions in response to customers’ changing needs

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Matrix Design Structure

• Matrix Structure– An organizational structure that

simultaneously groups people and resources by function and product.

• Results in a complex network of superior-subordinate reporting relationships.

• The structure is very flexible and can respond rapidly to the need for change.

• Each employee has two bosses (functional manager and product manager) and possibly cannot satisfy both.

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Matrix Structure

Figure 10.6

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Product Team Design Structure

• Product Team Structure– Does away with dual reporting relationships

and two-boss managers– Functional employees are permanently

assigned to a cross-functional team that is empowered to bring a new or redesigned product to work

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Product Team Design Structure

• Product Team Structure– Cross-functional team is composed of a

group of managers from different departments working together to perform organizational tasks.

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Product Team Structure

Figure 10.6

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Hybrid Structures

• Hybrid Structure– The structure of a large organization that

has many divisions and simultaneously uses many different organizational structures

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Federated’s Hybrid Structure

Figure 10.7

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Coordinating Functions:Allocating Authority

• Authority– The power vested in a manager to make

decisions and use resources to achieve organizational goals by virtue of his position in an organization

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Coordinating Functions:Allocating Authority

• Hierarchy of Authority– An organization’s chain of command,

specifying the relative authority of each manager.• Span of Control: the number of

subordinates who report directly to a manager

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Allocating Authority

• Line Manager– Someone in the direct line or chain of

command who has formal authority over people and resources

• Staff Manager– Managers who are functional-area

specialists that give advice to line managers.

10-37Figure 10.8

The Hierarchy of Authority and Span of Control at McDonald’s Corporation

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Tall and Flat Organizations

• Tall structures have many levels of authority and narrow spans of control.– As hierarchy levels increase,

communication gets difficult creating delays in the time being taken to implement decisions.

– Communications can also become distorted as it is repeated through the firm.

– Can become expensive

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Tall Organizations

Figure 10.9

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Tall and Flat Organizations

• Flat structures have fewer levels and wide spans of control.– Structure results in quick communications

but can lead to overworked managers.

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Flat Organizations

Figure 10.9

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Minimum Chain of Command

• Minimum Chain of Command– Top managers should always construct a

hierarchy with the fewest levels of authority necessary to efficiently and effectively use organizational resources

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Centralization and Decentralization of Authority

• Decentralizing authority – giving lower-level managers and non-

managerial employees the right to make important decisions about how to use organizational resources

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Decentralizing Authority

• Disadvantages– Teams may begin to pursue their own goals

at the expense of organizational goals– Can result in a lack of communication

among divisions

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Integrating Mechanisms

Figure 10.10

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Organizational Culture

• Organizational culture – shared set of beliefs, expectations, values,

and norms that influence how members of an organization relate to one another and cooperate to achieve organizational goals

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Sources of an Organization’s Culture

Figure 10.11

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Organizational Ethics

• Organizational Ethics – moral values, beliefs, and rules that

establish the appropriate way for an organization and its members to deal with each other and people outside the organization

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• In a centralized organization:– people have little autonomy – norms that focus on being cautious, obeying

authority, and respecting traditions emerge– predictability and stability are desired goals

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• In a flat, decentralized structure: – people have more freedom to choose and

control their own activities– norms that focus on being creative and

courageous and taking risks appear – gives rise to a culture in which innovation

and flexibility are desired goals.

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Strong, Adaptive Cultures Versus Weak, Inert Cultures

• Adaptive cultures – values and norms help an organization to

build momentum and to grow and change as needed to achieve its goals and be effective

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Strong, Adaptive Cultures Versus Weak, Inert Cultures

• Inert cultures – Those that lead to values and norms that

fail to motivate or inspire employees– Lead to stagnation and often failure over

time

Business

Org structure