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Designing Organizational
Structures
15Chapter
© 2004 by Nelson, a division of Thomson Canada Limited.
2 © 2004 by Nelson, a division of Thomson Canada Limited.
Learning Goals
1. What are the five structural building blocks that managers use to design organizations?
2. What are the five types of departmentalization?
3. How can the degree of centralization/ decentralization be altered to make an organization more successful?
3 © 2004 by Nelson, a division of Thomson Canada Limited.
Learning Goals (cont’d)
4. How do mechanistic and organic organizations differ?
5. What is the difference between line positions and staff positions?
6. What is the goal of re-engineering?7. How does the informal organization
affect the performance of a company?8. What trends are influencing the way
businesses organize?
4 © 2004 by Nelson, a division of Thomson Canada Limited.
Learning Goal 1
What are the five structural building blocks that managers use to design organizations?
5 © 2004 by Nelson, a division of Thomson Canada Limited.
Organizing:
the process of coordinating and allocating a firm’s resources so that the firm can carry out its plans and achieve its goals
6 © 2004 by Nelson, a division of Thomson Canada Limited.
Structural Building Blocks
1. Division of Labour– specialization of tasks
2. Departmentalization– creating an organization chart
3. Managerial Hierarchy– chain of command– delegation of authority
7 © 2004 by Nelson, a division of Thomson Canada Limited.
Structural Building Blocks (cont’d)
4. Span of Control– narrow span– wide span
5. Centralization of Decision Making– degree of centralization vs.
decentralization
8 © 2004 by Nelson, a division of Thomson Canada Limited.
Learning Goal 2
What are the five types of departmentalization?
9 © 2004 by Nelson, a division of Thomson Canada Limited.
Departmentalization:
the process of grouping jobs together so that similar or associated tasks and activities can be coordinated
10 © 2004 by Nelson, a division of Thomson Canada Limited.
Types of Departmentalization
1. Functional
2. Product
3. Process
4. Customer
5. Geographic
11 © 2004 by Nelson, a division of Thomson Canada Limited.
Functional
12 © 2004 by Nelson, a division of Thomson Canada Limited.
Product or Service Offered
13 © 2004 by Nelson, a division of Thomson Canada Limited.
Process
14 © 2004 by Nelson, a division of Thomson Canada Limited.
Customer
15 © 2004 by Nelson, a division of Thomson Canada Limited.
Geographic
16 © 2004 by Nelson, a division of Thomson Canada Limited.
Learning Goal 3
How can the degree of centralization/ decentralization be altered to make an organization more successful?
17 © 2004 by Nelson, a division of Thomson Canada Limited.
Centralization:
the degree to which formal authority is concentrated in one area or level of an organization
18 © 2004 by Nelson, a division of Thomson Canada Limited.
Decentralization:
the process of pushing decision-making authority down the organizational hierarchy, giving lower-level workers more responsibility
19 © 2004 by Nelson, a division of Thomson Canada Limited.
Factors Affecting Decision-Making Authority
• Size of the organization
• Speed of change in its environment
• Managers willing to share power
• Employees willing and able to take more responsibility
• Organization’s geographic dispersion
20 © 2004 by Nelson, a division of Thomson Canada Limited.
Learning Goal 4
How do mechanistic and organic organizations differ?
21 © 2004 by Nelson, a division of Thomson Canada Limited.
Mechanistic Organization:
an organization characterized by a relatively high degree of work specialization, rigid departmentalization, many layers of management, narrow spans of control, centralized decision- making, and a long chain of command.
22 © 2004 by Nelson, a division of Thomson Canada Limited.
Organic organization:
an organization characterized by a relatively now degree of work specialization, loose departmentalization, few levels of management, wide spans of control, decentralized decision-making, and a short chain of command
Mechanistic vs. Organic Structure
Structural Characteristic
Mechanistic Organic
Job specialization High Low
Departmentalization Rigid Loose
Management hierarchy
Tall (many levels)
Short (few levels)
Span of control Narrow Wide
Decision-making authority
Centralized Decentralized
Chain of command Long Short
24 © 2004 by Nelson, a division of Thomson Canada Limited.
Learning Goal 5
What is the difference between line positions and staff positions?
25 © 2004 by Nelson, a division of Thomson Canada Limited.
Line Positions:
all positions in the organization directly concerned with producing goods and services and which are directly connected from top to bottom
• Typically found in areas such as:– production– marketing – finance
26 © 2004 by Nelson, a division of Thomson Canada Limited.
Staff Positions:
positions in an organization held by individuals who provide the administrative and support services that line employees need to achieve the firm’s goals
• Typically found in areas such as:– legal counseling– public relations– human resource management
27 © 2004 by Nelson, a division of Thomson Canada Limited.
Common Organizational Structures
• Line organization– clear chain of command
• Line-and-staff organization– both line and staff positions
• Committee structure– group authority and responsibility
• Matrix structure (project management)– combines functional and product
departmentalization
28 © 2004 by Nelson, a division of Thomson Canada Limited.
Matrix Structure
• Advantages– teamwork– efficient use of
resources– flexibility– ability to balance
conflicting objectives– higher performance– opportunities for
personal and professional growth
• Disadvantages– power struggles– confusion among
team members– lack of cohesiveness
29 © 2004 by Nelson, a division of Thomson Canada Limited.
Learning Goal 6
What is the goal of re-engineering?
30 © 2004 by Nelson, a division of Thomson Canada Limited.
Re-engineering:
the complete redesign of business structures and processes in order to improve operations
31 © 2004 by Nelson, a division of Thomson Canada Limited.
Goal of Re-engineering
• Redesign business processes to achieve improvements in:
–cost control–product quality–customer service–speed
32 © 2004 by Nelson, a division of Thomson Canada Limited.
Learning Goal 7
How does the informal organization affect the performance of a company?
33 © 2004 by Nelson, a division of Thomson Canada Limited.
Informal Organization:
the network of connections and channels of communication based on the informal relationships of individuals inside an organization
34 © 2004 by Nelson, a division of Thomson Canada Limited.
Informal Organizations
• Give employees more control over their work environment by delivering a continuous stream of company information, helping employees stay informed
• Informal relationships can be:– between people at the same hierarchical
level– between people at different levels and in
different departments
35 © 2004 by Nelson, a division of Thomson Canada Limited.
Functions of theInformal Organization
• Friendships and social contact
• Information and sense of control over their work environment
• Source of status and recognition
36 © 2004 by Nelson, a division of Thomson Canada Limited.
Learning Goal 8
What trends are influencing the way businesses organize?
37 © 2004 by Nelson, a division of Thomson Canada Limited.
Trends in Organizational Structure
• Virtual corporation– technology– opportunism– excellence– trust– no borders
• Structural issues for global mergers