Ch 8 - Organizational Structure

8/4/2019 Ch 8 - Organizational Structure

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McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

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Chapter

8 OrganizationStructure




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Fundamentals Of Organizing

Organization chart

depicts the positions in the firm and how they are arranged

provides a picture of the reporting structure

conveys the following information the boxes represent different work

the titles in the boxes represent the work performed by each unit

reporting and authority relationships indicated by solid lines

showing superior-subordinate connections

levels of management indicated by the number of horizontal

layers in the chart

all persons or units that are on the same rank and report to the

same person are on one level




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Personnel Finance

Manufacturing Sales

Personnel Finance

Manufacturing Sales

Finance R&D Marketing Personnel

Chemical

Products

Metal

Products

President

Conventional Organization Chart




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Fundamentals Of Organizing (cont.)

Differentiation

means that the organization is comprised of many different

units that work on different kinds of tasks

aspect of the organization’s internal environment division of labor - assignment of different tasks to different

people or groups

specialization - process in which different individuals and units

perform different tasks

differentiation is high when there are many subunits and many

kinds of specialists who think differently


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Fundamentals Of Organizing (cont.)

Integration

degree to which differentiated units work together and

coordinate their efforts

all the specialized tasks in an organization cannot be performed

completely independently

coordination - procedures that link the various parts of the

organization to achieve the organization’s overall mission

any job activity that links different work units performs an

integrative function

the more a firm is differentiated, the greater the need for

integration among the units



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The Vertical Structure

Corporate governance

role of a corporation’s executive staff and board of directors in

ensuring that the firm’s activities meet the goals of the firm’s

stakeholders

Authority in organizations

authority - the legitimate right to make decisions and to tell

other people what to do

resides in positions rather than people in private business enterprises, owners have ultimate authority

traditionally authority has been the primary means of running an

organization



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Authority in organizations (cont.)

board of directors - elected by the stockholders to run the

organization

led by a chair

performs three functions

selecting, assessing, rewarding, and perhaps replacing the CEO

determining the firm’s strategic direction and reviewing financial

performance

assuring ethical, socially responsible, and legal conduct inside directors - the firm’s top managers who sit on the board

outside directors - are likely run other companies

successful boards tend to be active, critical participants in

determining company strategies

The Vertical Structure (cont.)



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Authority in organizations (cont.)

chief executive officer (CEO) - occupies the top of the

organizational pyramid

authority officially vested in the board of directors is assigned to

the CEO

CEO personally accountable to the board and owners

top management team - typically comprised of the CEO,

president, chief operating officer, chief financial officer, and

other key executives

frequently meet with the CEO to make important decisions



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Hierarchical levels

hierarchy - the authority levels of the organizational

pyramid

top management - strategic managers in charge of the entire

organization

middle management - in charge of plants or departments

lowest levels - made up of lower management and workers

called the operational level of the organization

trend in the U.S. is to reduce the number of hierarchicallayers

subunits - subdivisions of an organization

subunits with fewer layers have higher operating efficiency



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Span of control

the number of subordinates who report directly to a manager

narrow spans produce tall organizations

wide spans produce flat organizations



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Delegation assignment of authority and responsibility to a subordinate

can occur between any two individuals in any type of

structure with regard to any task

responsibility - assignment of a task that an employee is

supposed to carry out

should delegate enough authority to complete the task

accountability - expectation that employees perform a job,

take corrective action when necessary, and report upward on

the status and quality of their performance

managers remain responsible and accountable for their own

actions and those of their subordinates

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Delegation (cont.)

advantages of delegation

permits getting work done through others

manager saves time

manager frees herself/himself to devote energy to other

important, higher-level activities

provides subordinates with more important jobs

provides subordinates with the opportunity to develop new skills

and to demonstrate potential

from the organization’s perspective, jobs are done more

efficiently and cost-effectively

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Schedule checkpoints for

reviewing progress

Follow through by discussing

progress at appropriate intervals

Give the subordinate the authority, time, and resources

(people, money,equipment) to perform the assignment

Define the goal succinctly

Select the person for the task

Solicit the subordinate’s view about suggested approaches

Steps In Effective Delegation

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Decentralization

result of the delegation of responsibility and authority

centralized organization - high-level executives make most

decisions and pass them down to lower levels for implementation

decentralized organization - lower-level managers make

important decisions

ideally, decision making should occur at the level of the

people who are most directly affected and have the most

intimate knowledge about the problem

most U.S. executives understand the importance of decentralizing

decision making to the point of the action

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The Horizontal Structure

Basic concepts

departmentalization - subdividing the organization into

smaller subunits

line departments - have responsibility for the principle activities

of the firm

deal directly with the organization’s primary goods and services

line managers typically have:

substantial authority and power

ultimate responsibility for major operating decisions accountability for “bottom-line” results

staff departments - provide specialized support for line units

moving toward a role focused on strategic support and expert advice

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The Horizontal Structure (cont.)

Functional organization

jobs (and departments) are specialized and grouped according

to business functions and the skills they require

e.g., production, marketing, R&D, human resources, and finance

at the most basic level, functional structure is organized

around the company’s value chain

value chain - sequence of activities that flow from raw materials

to the delivery of a product or service

common in both large and small organizations

may be most appropriate in rather simple, stable environments

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Functional organization (cont.)

advantages of functional structure include:

economies of scale can be realized

effective environmental monitoring

performance standards are better maintained

greater opportunity for specialized training and in-depth skill

development

technical specialists are relatively free of administrative work

decision making and lines of communication are simple and

clearly understood


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Functional organization (cont.) disadvantages of functional structure

people may care more about their own function than about the

company as a whole

may lose focus on overall product quality and customersatisfaction

managers do not develop knowledge of the other areas of the

business

become specialists, not generalists conflicts arise among functions and communications suffer

accordingly

high differentiation may create barriers to coordination across

functions

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Inbound

logisticsOperations

Outbound

logistics

Marketing

and salesService

President

Line departments

Staff departments

Functional Structure

ProcurementHuman

resources

Informationtechnology

services

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Divisional organization

units grouped around products, customers, or geographic

regions

groups all functions into a single division

duplicates each function across all of the divisions

separate divisions may act almost as separate businesses

work autonomously to achieve the goals of the organization

several ways to create divisional structure

8 - 21 Examples Of Functional And




Examples Of Functional And

Divisional Organizations

A central purchasing department

Separate companywide marketing,

production, design, and

engineering departments

A central-city health department

Plantwide inspection, maintenance,

and supply departments

A university statistics department

teaches statistics for the entire

university

Each division has its own purchasing unit

Each product group has experts in

marketing, design, production, and

engineering

The school district and the prison have

their own health units

Production Team Y does its own

inspection, maintenance, and supply

Each department hires statisticians to

teach its own students

Functional organization Divisional organization

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Th H i l S ( )




Divisional organization (cont.) product divisions - all functions that contribute to a given

product are organized under one manager

advantages

information needs are managed more easily

people have full-time commitment to a particular product line

task responsibilities are clear

people receive broader training

flexibility of structure better suits it for unstable environments disadvantages

difficult to coordinate across product lines

managers may not acquire depth of functional knowledge

duplication of effort is expensive


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Th H i l S ( )



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The Horizontal Structure (cont.) Divisional organization (cont.)

customer and geographical divisions

build divisions around customer or geographical distinctions

advantages

can focus on customer needs

can provide faster and better service

disadvantage

duplication of activities across many customer groups and

geographic areas is expensive

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G hi l O i i




Generalmanagers for:

New York

Philadelphia

Boston


Cleveland

Chicago

St. Louis


Raleigh

Atlanta

Orlando


Seattle

San Francisco

Los Angeles


Dallas

Houston

Albuquerque

Northeast

regionalmanager

Midwest

regionalmanager

Southeast

regionalmanager

Pacific

regionalmanager

ChairmanCEO

Southwest

regionalmanager

Geographical Organization

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Th H i t l St t ( t )





Matrix organization

hybrid form of organization in which functional and divisional

forms overlap

have dual reporting relationships in which some managers

report to two superiors rather than a single line of command

advantages

higher degree of flexibility and adaptability

disadvantages violation of the unity of command principle

reporting to two superiors can create confusion

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M t i O i ti l St t




Production

group

Two-boss

manager

Engineering

group

Two-boss

manager

Personnel

group

Two-boss

manager

Accounting

group

Two-boss

manager

Matrix Organizational Structure

Production

group

Two-boss

manager

Engineering

group

Two-boss

manager

Personnel

group

Two-boss

manager

Accounting

group

Two-boss

manager

Accounting

Project

Manager

A

Project

Manager

B

Project

management Production

ChairmanCEO

Engineering PersonnelFunctional

managers

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Th H i t l St t ( t )





Matrix organization (cont.)

matrix survival skills

problems can be avoided if behavioral skills are learned

particular skills needed depend on position in the matrix

the matrix diamond illustrates needed skills

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The Horizontal Structure (cont )





Matrix organization (cont.)

matrix form today - resurgence based on:

pressures to consolidate costs and be faster to market

need for better coordination across functions in the business

need for coordination across countries in global business

understanding of the matrix has increased

matrix is not a structure, but a process

relationships allow information to flow through the organization

norms, values, and attitudes shape how people think

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Williamson’s Structures

Functional or U-form (Unitary) Design

Organizational members and units are grouped into

functional departments such as marketing and production

Coordination is required across all departments

Design approach resembles functional departmentalization in

its advantages and disadvantages

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Williamson’s StructuresU-Form

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Conglomerate or H-form (Holding) Design

Organization consists of a set of unrelated businesses with a

general manager for each business

Holding-company design is similar to product

departmentalization

Coordination is based on the allocation of resources across

companies in the portfolio

Design has produced only average to weak financial

performance; has been abandoned for other approaches

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Willi ’ S




Williamson’s StructuresH-Form

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Divisional or M-form (Multidivisional) Design An organizational arrangement based on multiple businesses in

related areas operating within a larger organizational framework

The design results from a strategy of related diversification

Some activities are extremely decentralized down to the divisionallevel; others are centralized at the corporate level

The largest advantages of the M-form design are the opportunities

for coordination and sharing of resources

Successful M-form organizations can out perform U-form and H-form organizations

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Willi ’ St t




Williamson’s StructuresM-Form

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Davis and Lawrence

Matrix Design An organizational arrangement based on two overlapping bases of

departmentalization (e.g., functional departments and productcategories)

A set of product groups or temporary departments aresuperimposed across the functional departments

Employees in the resulting matrix are members of both theirdepartments and a project team under a project manager

The matrix creates a multiple command structure in which an

employee reports to both departmental and project managers A matrix design is useful when

There is strong environmental pressure

There are large amounts of information to be processed

There is pressure for shared resources

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D i d L




Davis and LawrenceMatrix Design

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Davis and Lawrence

Matrix Design Advantages

Enhances organizational flexibility

Involvement creates high motivation and increased

organizational commitment

Team members have the opportunity to learn new skills

Provides an efficient way for the organization to use its

human resources

Team members serve as bridges to their departments for theteam

Useful as a vehicle for decentralization

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Davis and Lawrence

Matrix Design Disadvantages Employees are uncertain about reporting relationships

Managers may view design as an anarchy in which they have

unlimited freedom

The dynamics of group behavior may lead to slower decision

making, one-person domination, compromise decisions, or a

loss of focus

More time may be required for coordinating task-related

activities

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Hammer and Stanton

Hybrid Designs An organizational arrangement based on two or more

common forms of organization design

An organization may have a mixture of related divisions and

a single unrelated division

Most organizations use a modified form of organization

design that permits it to have sufficient flexibility to make

adjustments for strategic purposes

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Mintzberg’s Structures

According to Henry Mintzberg the structural configurationof an organization can be differentiated by

Prime Coordinating Mechanism

Key Part of OrganizationType of Decentralization

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Prime Coordinating Mechanism Direct Supervision

One individual is responsible for the work of others

Standardization of work processes

The content of the work is specified or programmed

Standardization of skills

Explicitly specifies the kind of training necessary to do the work

Standardization of outputs

Specifies the results, or output, of the work

Mutual adjustmentCoordinates activities through informal communications

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i b ’ S





Key Part of Organization Strategic apex- Top management and its support staff

Technostructure- Analysts such as industrial engineers,

accountants, planners, and human resource managers

Operating core- Workers who actually carry out the organization’stasks

Middle line- Middle and lower-level management

Support staff- Units that provide support to the organization outside

of the operating workflow (for example, legal counsel, executivedining room staff, and consultants)

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Mi b ’ S





Types of Decentralization Vertical and horizontal centralization

Limited horizontal decentralization

Vertical and horizontal decentralization Limited vertical decentralization

Selective decentralization

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Mi b ’ S





The Simple Structure The simple structure uses direct supervision as its primary coordinating

mechanism, has as its most important part its strategic apex, and employs

vertical and horizontal centralization. Relatively small corporations controlled

by aggressive entrepreneurs, new government departments, and medium-sized

retail stores are all likely to exhibit a simple structure. These organizations tendto be relatively young. The CEO (often the owner) retains much of the

decision-making power. The organization is relatively flat and does not

emphasize specialization. Many smaller U-form organizations are structured in

this fashion. Trilogy Software would be an example of a firm using this

approach.

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Mi t b ’ St t





The Machine Bureaucracy The machine bureaucracy uses standardization of work processes as its prime

coordinating mechanism; the technostructure is its most important part; and

limited horizontal decentralization is established. The machine bureaucracy is

quite similar to Burns and Stalker’s mechanistic design discussed in Chapter 12

of Griffin’s Management , Seventh Edition. Examples include McDonald’s andmost large branches of the U.S. government. This kind of organization is

generally mature in age, and its environment is usually stable and predictable.

A high level of task specialization and a rigid pattern of authority are also

typical. Spans of management are likely to be narrow, and the organization is

usually tall. Large U-form organizations are also likely to fall into thiscategory.

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Mi t b ’ St t





The Professional Bureaucracy The third form of organization design suggested by Mintzberg is the professional

bureaucracy. Examples of this form of organization include universities,

general hospitals, and public accounting firms. The professional bureaucracy

uses standardization of skills as its prime coordinating mechanism, has the

operating core as its most important part, and practices both vertical andhorizontal decentralization. It has relatively few middle managers. Further, like

some staff managers, its members tend to identify more with their professions

than with the organization. Coordination problems are common.

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Mi t b ’ St t





The Divisionalized Form The divisionalized form, Mintzberg’s fourth design, exhibits standardization of

output as its prime coordinating mechanism, the middle line as its most

important part, and limited vertical decentralization. This design is the same as

both the H-form and the M-form described earlier. Limited and Disney are

illustrative of this approach. Power is generally decentralized down to middlemanagement — but no further. Hence each division itself is relatively

centralized and tends to structure itself as a machine bureaucracy. As might be

expected, the primary reason for an organization to adopt this kind of design is

market diversity.

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Mi t b ’ St t





The Adhocracy The adhocracy uses mutual adjustment as a means of coordination, has at its most important

part the support staff, and maintains selective patterns of decentralization. Most

organizations that use a fully-developed matrix design are adhocracies. An adhocracy

avoids specialization, formality, and unit of command. Even the term itself, derived from

“ad hoc,” suggests a lack of formality. Sun Microsystems is an excellent example of an

adhocracy.

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Organizational Integration




Coordination by standardization standardization - establishing common rules and procedures

that apply uniformly to everyone

constrains actions

integrates various units by regulating what people do

formalization - reliance on rules and regulations to govern

how people interact

should apply to most (if not all) situations

most appropriate in relatively stable and unchanging situations

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Organization Integration (cont.)




Coordination by plan interdependent units are required to meet deadlines and

objectives that contribute to a common goal

does not require a high degree of stability and routinization

units free to modify their actions as long as they are able to meet

deadlines and targets required for working with others

Coordination by mutual adjustment

involves feedback and discussion to jointly determine how to

approach problems and devise mutually agreeable solutions

allows for flexible coordination to deal with novel problems

costly from the standpoint of time

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Coordination and communication substantial information flows to and from the environment

organizations need to develop structures for processing

information

option one: reducing the need for information

slack resources - extra resources that can be used “in a pinch”

e.g., inventory reduces the need for information about sales demand

creating self-contained tasks - change from a functional

organization to a product or project organization each unit has the resources needed to perform its task

communications flow within each team rather than among a complex

array of interdependent groups

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Coordination and communication option two: increasing information processing capability

invest in information systems - e.g., employing or expanding

computer systems

create horizontal relationships - foster coordination acrossdifferent units

horizontal processes include:

direct contact

liaison roles

task forces

teams

product, program, or project managers

matrix organization

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Managing High Information-Processing

Demands




Highinformation

processing

demands

Createslack

resources

Create

self-contained

tasks

Invest in

information

systems

Create

horizontal

relationships

Reduce the

need for

information

Process

more

information

Demands

Documents

Ch 8 - Organizational Structure