Chapter 15Chapter 15Organizational Organizational

StructureStructure

By: Jennifer AguirreBy: Jennifer Aguirre

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Ashley MettilleAshley Mettille

What is Organizational What is Organizational Structure?Structure?

• Organizational structure is the division of labor and the Organizational structure is the division of labor and the patterns of coordination, communication, work flow, and patterns of coordination, communication, work flow, and formal power that direct organizational activities.formal power that direct organizational activities.

• Two fundamental processes in organizational structure Two fundamental processes in organizational structure areare

Division of labor and CoordinationDivision of labor and CoordinationDivision of LaborDivision of Labor refers to the subdivision of work into refers to the subdivision of work into

separate jobs assigned to different people. *Subdivided separate jobs assigned to different people. *Subdivided work leads to job specialization because each job now work leads to job specialization because each job now

includes a narrow subset of. the tasks necessary to includes a narrow subset of. the tasks necessary to complete the product or servicecomplete the product or service

• Coordinating:Coordinating: As soon as people divide work among As soon as people divide work among themselves, coordinating mechanisms are needed to themselves, coordinating mechanisms are needed to ensure that everyone works in concert. Every ensure that everyone works in concert. Every organization uses one or more of the following organization uses one or more of the following coordinating mechanisms: 1)informal communication coordinating mechanisms: 1)informal communication 2)formal hierarchy 3) standardization2)formal hierarchy 3) standardization

Coordinating Mechanisms Coordinating Mechanisms in Organizationin Organization

1) Informal communication: This coordinating 1) Informal communication: This coordinating mechanism is used in all organizations! It is the mechanism is used in all organizations! It is the sharing of information about mutual tasks as sharing of information about mutual tasks as well as forming common mental models to well as forming common mental models to synchronize work activities. For large companies synchronize work activities. For large companies this type of communication is important, since this type of communication is important, since employees can exchange a large volume of employees can exchange a large volume of information through face-to-face and other information through face-to-face and other media-rich channels. Large organizations are media-rich channels. Large organizations are encouraged to create an integrator roles. These encouraged to create an integrator roles. These people are responsible for coordinating a work people are responsible for coordinating a work process by encouraging employees in each work process by encouraging employees in each work unit to share information and informally unit to share information and informally coordinate work activities. coordinate work activities.

ContinuedContinued

• Coordination through Formal Coordination through Formal Hierarchy:Hierarchy:

Informal communication is the most flexible Informal communication is the most flexible form of coordination, but it can be time-form of coordination, but it can be time-consuming. As an organization grows consuming. As an organization grows Formal Hierarchy must be used. This type Formal Hierarchy must be used. This type of coordination is when Hierarchy assigns of coordination is when Hierarchy assigns legitimate power to individuals, who then legitimate power to individuals, who then use this power to direct work processes and use this power to direct work processes and allocate resources. allocate resources. In other words, work is In other words, work is coordinate through direct supervision.coordinate through direct supervision.

Coordination through Coordination through StandardizationStandardization

• It involves creating routine patterns of behavior or It involves creating routine patterns of behavior or output. This mechanism takes three distinct forms:output. This mechanism takes three distinct forms:

1)Standardized processes:1)Standardized processes: Quality and consistency of a Quality and consistency of a product or service can often be improved by standardizing product or service can often be improved by standardizing work activities through job descriptions and procedures.work activities through job descriptions and procedures.

2)Standardized outputs:2)Standardized outputs: This form involves ensuring that This form involves ensuring that individuals and work units have clearly defined goals and individuals and work units have clearly defined goals and output measures.output measures.

3)Standardized skills:3)Standardized skills: When work activities are too complex When work activities are too complex to standardize through processes or goals, companies often to standardize through processes or goals, companies often coordinate work efforts by extensively training employees or coordinate work efforts by extensively training employees or hiring people who have learned precise role behaviors from hiring people who have learned precise role behaviors from educational programs.educational programs.

Elements of Organizational Elements of Organizational StructureStructure

Every company is configured in terms of four basic Every company is configured in terms of four basic elements of organizational structure. Three are elements of organizational structure. Three are introduced in this chapter and the fourth is in the next introduced in this chapter and the fourth is in the next section.section.

Span of control:Span of control: The number of people directly reporting The number of people directly reporting to the next level in the organizational hierarchy. Some to the next level in the organizational hierarchy. Some of the best performing manufacturing plants currently of the best performing manufacturing plants currently have an average of 38 employees per supervisor. have an average of 38 employees per supervisor.

• The best span of control depends on the nature of the The best span of control depends on the nature of the task. A wider span of control is possible when task. A wider span of control is possible when employees perform routine tasks, whereas a narrower employees perform routine tasks, whereas a narrower span of control is required when employees perform span of control is required when employees perform novel or complex tasks. A third influence is the degree novel or complex tasks. A third influence is the degree of interdependence among employees within the of interdependence among employees within the department of team. department of team.

Tall and Flat StructuresTall and Flat Structures

Mechanisms vs. Organic Mechanisms vs. Organic StructuresStructures

• We have discussed span of control, We have discussed span of control, centralization, and formalization together centralization, and formalization together because they usually cluster into two forms: because they usually cluster into two forms: mechanism and organic structures.mechanism and organic structures.

• Mechanism structure:Mechanism structure: is characterized by a is characterized by a narrow span of control an high degree of narrow span of control an high degree of formalization and centralization.formalization and centralization.

• Organic structureOrganic structure have the opposite have the opposite characteristics. It has a wide span of control, characteristics. It has a wide span of control, with little formalization, and decentralized with little formalization, and decentralized decision making.decision making.

Continued Continued

Centralization:Centralization: The degree to which formal The degree to which formal decision authority is held by a small group of decision authority is held by a small group of people, typically those at the top of the people, typically those at the top of the organizational hierarchy. Most organizations organizational hierarchy. Most organizations begin with centralized structures because the begin with centralized structures because the founder makes most decisions and tries to founder makes most decisions and tries to direct the business toward his or her vision. direct the business toward his or her vision. DecentralizedDecentralized disperse decision authority disperse decision authority and power throughout the organization. and power throughout the organization.

Formalization:Formalization: The degree to which The degree to which organizations standardize behavior though organizations standardize behavior though rules, procedures and relate mechanism.rules, procedures and relate mechanism.

DepartmentalizationDepartmentalization

Establishes the chain of command-the Establishes the chain of command-the system of common supervision among system of common supervision among positions and units with the positions and units with the organization.organization.

Focuses people around common mental Focuses people around common mental models or ways particular skill set.models or ways particular skill set.

Encourages coordination through Encourages coordination through informal communication around people informal communication around people and subunitsand subunits

5 Pure Types of 5 Pure Types of DepartmentalizationDepartmentalization

• Simple StructureSimple Structure• Functional StructureFunctional Structure• Divisional StructureDivisional Structure• Matrix StructureMatrix Structure• Team-Based StructureTeam-Based Structure

Simple StructureSimple Structure• Employs only a few people and typically offer Employs only a few people and typically offer

only one distinct product for service.only one distinct product for service.• Minimal hierarchy-usually just employees Minimal hierarchy-usually just employees

reporting to the owners.reporting to the owners.• Highly flexible and minimizes the walls that Highly flexible and minimizes the walls that

form between employees in other structures.form between employees in other structures.

Functional StructureFunctional Structure• Organizes employees around specific Organizes employees around specific

knowledge or other resources.knowledge or other resources.• Improves direct supervision, but increasing Improves direct supervision, but increasing

conflict in serving clients or developing conflict in serving clients or developing products.products.

Divisional StructureDivisional Structure• Groups employees around geographic Groups employees around geographic

areas, clients, or outputs.areas, clients, or outputs.• Accommodates growth and focuses Accommodates growth and focuses

employee attention on products or employee attention on products or customers rather than on tasks.customers rather than on tasks.

Three variationsThree variations StrategicStrategic businessbusiness-Creates minibusinesses -Creates minibusinesses

that may operate as subsidiaries rather than that may operate as subsidiaries rather than departmentsdepartments

GeographicGeographic structurestructure-Organizes employees -Organizes employees around distinct regions of the countryaround distinct regions of the country

Product/serviceProduct/service structurestructure-organizes work -organizes work between distinct outputsbetween distinct outputs

Matrix StructureMatrix Structure• Having employees belong to departments by Having employees belong to departments by

adding to specific teams based on needs.adding to specific teams based on needs.• Combines two structures to leverage the Combines two structures to leverage the

benefits of both types of structure.benefits of both types of structure.

Evaluating the Matrix StructureEvaluating the Matrix Structure• Optimizes the use of resources and expertise, Optimizes the use of resources and expertise,

making it ideal fro project-based organizations making it ideal fro project-based organizations with fluctuating workloads.with fluctuating workloads.

• Improves communication efficient, project Improves communication efficient, project flexibility, and innovation.flexibility, and innovation.

• Increases goal conflict and ambiguity.Increases goal conflict and ambiguity.

Team-Based StructureTeam-Based Structure• Flat with low formalization and organize self-Flat with low formalization and organize self-

directed teams around work process rather directed teams around work process rather than functional specialties.than functional specialties.

FeaturesFeatures Built around self-directed work teams rather Built around self-directed work teams rather

than traditional teams or departments.than traditional teams or departments. Typically organized around work processes, Typically organized around work processes,

such as making a specific product or serving a such as making a specific product or serving a specific group.specific group.

Has a very flat hierarchy, usually with no Has a very flat hierarchy, usually with no more than two or three management levels.more than two or three management levels.

ContinuedContinuedEvaluating The Team-based StructureEvaluating The Team-based Structure• More responsive and flexible than traditional More responsive and flexible than traditional

functional or divisionalized structures.functional or divisionalized structures.• Reduces costs because teams have less Reduces costs because teams have less

reliance on formal hierarchy.reliance on formal hierarchy.• Quicker more informed decision making.Quicker more informed decision making.• Employees may experience stress due to Employees may experience stress due to

increased ambiguity and conflict.increased ambiguity and conflict.

Network StructureNetwork Structure• An alliance of several organizations for the An alliance of several organizations for the

purpose of creating a product or serving a client.purpose of creating a product or serving a client.• One of the main forces pushing toward a One of the main forces pushing toward a

network structure is the recognition that an network structure is the recognition that an organization has only a few core competencies.organization has only a few core competencies.

• Virtual corporationsVirtual corporations are network structures are network structures that can quickly reorganize themselves to suit that can quickly reorganize themselves to suit the clients requirements. They exist temporarily the clients requirements. They exist temporarily and reshape themselves quickly to fit immediate and reshape themselves quickly to fit immediate needs.needs.

Evaluating the Network StructureEvaluating the Network Structure• Offer flexibility to realign their structures with Offer flexibility to realign their structures with

changing environmental requirements.changing environmental requirements.• A disadvantage is that they expose the core firm A disadvantage is that they expose the core firm

to market forces.to market forces.

Contingencies of Contingencies of Organizational DesignOrganizational Design

External EnvironmentExternal Environment• Dynamic versus stable environments-Dynamic versus stable environments- have have

a high rate of change, leading to novel situations a high rate of change, leading to novel situations and a lack of identifiable patterns.and a lack of identifiable patterns.

• Complex versus simple environments-Complex versus simple environments- have many elements whereas simple environments have many elements whereas simple environments have few things to monitor.have few things to monitor.

• Diverse versus integrated environmentsDiverse versus integrated environments--organizations located in diverse environments have organizations located in diverse environments have a greater variety of products or services, clients, a greater variety of products or services, clients, and regionsand regions

• Hostile versus munificent Hostile versus munificent environmentsenvironments--Firms located in hostile environments face resource Firms located in hostile environments face resource scarcity and more competition in the marketplace. scarcity and more competition in the marketplace. Reduce the predictability of access to resources Reduce the predictability of access to resources and demand for outputsand demand for outputs

Organizational SizeOrganizational Size• As organizations increase in size, they become more As organizations increase in size, they become more

decentralized and more formalized, with greater job decentralized and more formalized, with greater job specialization and more elaborate coordinating specialization and more elaborate coordinating mechanisms.mechanisms.

TechnologyTechnology• Variability-Variability- The number of expectations to standard The number of expectations to standard

procedure that tend to occur.procedure that tend to occur.• AnalyzabilityAnalyzability-the predictability or difficulty of the -the predictability or difficulty of the

required work.required work.• The work units technology-including variety of work and The work units technology-including variety of work and

analyzability of problems influences whether to adopt an analyzability of problems influences whether to adopt an organic or mechanistic structure.organic or mechanistic structure.

Organizational StrategyOrganizational Strategy..• Represents the decisions and actions applied to achieve Represents the decisions and actions applied to achieve

the organizations goals.the organizations goals.• ‘‘Structure follows strategy” has become the dominant Structure follows strategy” has become the dominant

perspective of business policy and strategic management.perspective of business policy and strategic management.

Questions/AnswersQuestions/Answers• 1)1)List the three coordinating Mechanisms in an List the three coordinating Mechanisms in an

organization: organization: Informal communication, formal Informal communication, formal hierarchy, and standardization.hierarchy, and standardization.

• 2)2) List three mechanisms involved in coordination List three mechanisms involved in coordination through standardization: through standardization: Standardized process, Standardized process, standardized outputs, and standardized skills.standardized outputs, and standardized skills.

• 3)3)True or False: Tall structures use narrow span of True or False: Tall structures use narrow span of control and Flat structures use wide span of control.control and Flat structures use wide span of control. TRUETRUE

• 44)What are the two of the 5 forms of )What are the two of the 5 forms of departmentalization? departmentalization? Simple Structure, Functional Simple Structure, Functional Structure, Divisional Structure, Matrix Structure, Divisional Structure, Matrix Structure, and Team based Structure.Structure, and Team based Structure.

• 55)True or False: The best organization structure )True or False: The best organization structure depends on the firms external environment, size, depends on the firms external environment, size, technology and strategy.technology and strategy.TRUETRUE