MGT100 Organization and Management

Topic XTopic X

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The Organizing Process

• ContentContent– Defining Defining oorganizational rganizational sstructure and tructure and

ddesignesign– OrganiOrganizzational ational SStructuretructure– Mechanistic versus Mechanistic versus oorganic rganic

oorganirganizzationation– Structural Structural ccontingency ontingency ffactorsactors– Organizational dOrganizational designsesigns

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Defining Organizational Structure and Design

• Organizational structureOrganizational structure– The formal arrangement of jobs The formal arrangement of jobs

within an organizationwithin an organization

• Organizational designOrganizational design– A process involving decisions about A process involving decisions about

six key elementssix key elements

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Organizational Structure

• Six key elementsSix key elements– Work specializationWork specialization– DepartmentalizationDepartmentalization– Chain of commandChain of command– Span of controlSpan of control– Centralization versus decentralizationCentralization versus decentralization– FormalizationFormalization

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Work Specialization• The degree to which tasks in the The degree to which tasks in the

organiorganizzation are divided into ation are divided into separate jobs with each step separate jobs with each step completed by a different person.completed by a different person.– Overspecialization can result in Overspecialization can result in

human diseconomies from boredom, human diseconomies from boredom, fatigue, stress, poor quality, fatigue, stress, poor quality, increased absenteeism, and higher increased absenteeism, and higher turnover.turnover.

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Departmentalization by Type

• FunctionalFunctional – Grouping jobs by Grouping jobs by

functions performedfunctions performed

• ProductProduct– Grouping jobs by Grouping jobs by

product lineproduct line

• GeographicGeographic– Grouping jobs on Grouping jobs on

the basis of territory the basis of territory or geographyor geography

• ProcessProcess – Grouping jobs on Grouping jobs on

the basis of the basis of product or product or customer flowcustomer flow

• CustomerCustomer– Grouping jobs by Grouping jobs by

type of customer type of customer and needsand needs

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Functional Departmentalization

•Advantages

•Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations

•Coordination within functional area

•In-depth specialization

•Disadvantages

•Poor communication across functional areas

•Limited view of organisational goals

Figure 9.2a

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Geographical Departmentalization

• Advantages

•More effective and efficient handling of specific regional issues that arise

•Serve needs of unique geographic markets better

• Disadvantages

•Duplication of functions

•Can feel isolated from other organisational areas

Figure 9.2b

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Product Departmentalization

+ Allows specialisation in particular products and services+ Managers can become experts in their industry+ Closer to customers– Duplication of functions– Limited view of organisational goals

Figure 9.2c

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Process Departmentalization

+More efficient flow of work activities

– Can only be used with certain types of products

Figure 9.2d

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Customer Departmentalization

+ Customers’ needs and problems can be met by specialists

- Duplication of functions

- Limited view of organisational goals

Figure 9.2e

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Organizational Structure

• Chain of commandChain of command– The continuous line of authority that The continuous line of authority that

extends from upper levels of an extends from upper levels of an organiorganizzation to the lowest levels of ation to the lowest levels of the organithe organizzation and clarifies who ation and clarifies who reports to who.reports to who.

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Organisation Structure

• AuthorityAuthority– The rights inherent in a managerial position The rights inherent in a managerial position

to tell people what to do and to expect them to tell people what to do and to expect them to do itto do it

• ResponsibilityResponsibility– The obligation or expectation to performThe obligation or expectation to perform

• Unity of commandUnity of command– The concept that a person should have one The concept that a person should have one

boss and should report only to that personboss and should report only to that person

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Organisation Structure• Span of controlSpan of control

– The number of employees who can be effectively The number of employees who can be effectively and efficiently supervised by a managerand efficiently supervised by a manager

– Width of span is affected byWidth of span is affected by• Skills and abilities of the managerSkills and abilities of the manager• Employee characteristicsEmployee characteristics• Characteristics of the work being doneCharacteristics of the work being done• Similarity of tasksSimilarity of tasks• Complexity of tasksComplexity of tasks• Physical proximity of subordinatesPhysical proximity of subordinates

• Standardization of tasksStandardization of tasks

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Contrasting Spans of Control

Figure 9.3

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Organisation Structure• CentraliCentralizzationation

– The degree to which decision-making is The degree to which decision-making is concentrated at a single point in the organizationsconcentrated at a single point in the organizations• organisations in which top managers make all the decisions organisations in which top managers make all the decisions

and lower-level employees simply carry out those ordersand lower-level employees simply carry out those orders

• DecentraliDecentralizzationation– OrganizationsOrganizations in which decision-making is pushed in which decision-making is pushed

down to the managers who are closest to the actiondown to the managers who are closest to the action

• Employee EmpowermentEmployee Empowerment– Increasing the decision-makingIncreasing the decision-making

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Factors that Influence the Amount of Centralization

• More CentralisationMore Centralisation– Environment is stableEnvironment is stable

– Lower-level managers are not as capable or experienced Lower-level managers are not as capable or experienced at making decisions as upper-level managersat making decisions as upper-level managers

– Lower-level managers do not want to have a say in Lower-level managers do not want to have a say in decisionsdecisions

– Decisions are significantDecisions are significant

– organisation is facing a crisis or the risk of company organisation is facing a crisis or the risk of company failurefailure

– Company is largeCompany is large

– Effective implementation of company strategies Effective implementation of company strategies depends on managers retaining say over what happensdepends on managers retaining say over what happens

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Factors that Influence the Amount of Decentralization

• More decentralisationMore decentralisation– Environment is complex, uncertainEnvironment is complex, uncertain

– Lower-level managers are capable and experienced at Lower-level managers are capable and experienced at making decisionsmaking decisions

– Lower-level managers want a voice in decisionsLower-level managers want a voice in decisions

– Decisions are relatively minorDecisions are relatively minor

– Corporate culture is open to allowing managers to Corporate culture is open to allowing managers to have a say in what happenshave a say in what happens

– Company is geographically dispersedCompany is geographically dispersed

– Effective implementation of company strategies Effective implementation of company strategies depends on managers having involvement and depends on managers having involvement and flexibility to make decisionsflexibility to make decisions

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Organisation Structure

• FormaliFormalizzationation– The degree to which jobs within the The degree to which jobs within the

organiorganizzation are standardized and the ation are standardized and the extent to which employee behavior is extent to which employee behavior is guided by rules and proceduresguided by rules and procedures• Highly formalized jobs offer little discretion Highly formalized jobs offer little discretion

over what is to be doneover what is to be done• Low formalization means fewer constraints Low formalization means fewer constraints

on how employees do their workon how employees do their work

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Mechanistic versus Organic Organization

Table 9.2

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Structural Contingency Factors• Structural decisions are influenced byStructural decisions are influenced by

– Overall strategy of the organiOverall strategy of the organizzationation• OrganizationalOrganizational structure follows strategy structure follows strategy

– Size of the organiSize of the organizzationation• Firms change from organic to mechanistic Firms change from organic to mechanistic

organiorganizzations as they grow in sizeations as they grow in size

– Technology use by the organiTechnology use by the organizzationation• Firms adapt their structure to the technology they Firms adapt their structure to the technology they

useuse

– Degree of environmental uncertaintyDegree of environmental uncertainty• Dynamic environments require organic Dynamic environments require organic

structures; mechanistic structures need stable structures; mechanistic structures need stable environmentsenvironments

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Structural Contingency Factors

• Strategy and structureStrategy and structure

– Achievement of strategic goals is facilitated by Achievement of strategic goals is facilitated by changes in organichanges in organizzational structure that ational structure that accommodate and support changeaccommodate and support change

• Size and structureSize and structure

– As an organiAs an organizzation grows larger, its structure ation grows larger, its structure tends to change from organic to mechanistic tends to change from organic to mechanistic with increased specialization, with increased specialization, departmentalization, centralisation, and rules departmentalization, centralisation, and rules and regulationsand regulations

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Structural Contingency Factors

• Technology and structureTechnology and structure– OrganizationsOrganizations adapt their structures to their adapt their structures to their

technologytechnology

– Woodward’s classification of firms based on the Woodward’s classification of firms based on the complexity of the technology employedcomplexity of the technology employed• Unit productionUnit production of single units or small batches of single units or small batches

• Mass productionMass production of large batches of output of large batches of output

• Process productionProcess production in continuous process of outputs in continuous process of outputs

– Routine technology = mechanistic organiRoutine technology = mechanistic organizzationsations

– Non-routine technology = organic organiNon-routine technology = organic organizzationsations

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Woodward’s findings on technology, structure, and

effectiveness

Table 9.3

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Structural Contingency Factors

• Environmental uncertainty and Environmental uncertainty and structurestructure

– Mechanistic organisational structures Mechanistic organisational structures tend to be most effective in stable and tend to be most effective in stable and simple environmentssimple environments

– The flexibility of organic organiThe flexibility of organic organizzational ational structures is better suited for dynamic structures is better suited for dynamic and complex environmentsand complex environments

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Common Organizational Designs

• Traditional designsTraditional designs– Simple structureSimple structure

• Low departmentalization, wide spans of control, Low departmentalization, wide spans of control, centralised authority, little formalizationcentralised authority, little formalization

– Functional structureFunctional structure• Departmentalization by functionDepartmentalization by function

– Operations, finance, human resources, and product Operations, finance, human resources, and product research and developmentresearch and development

– Divisional structureDivisional structure• Composed of separate business units or divisions Composed of separate business units or divisions

with limited autonomy under the coordination and with limited autonomy under the coordination and control the parent corporationcontrol the parent corporation

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Strengths and Weaknesses of Common Traditional Organizational

Designs

Figure 9.4

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Organizational Designs• Contemporary organisational designsContemporary organisational designs

– Team structuresTeam structures• The entire organiThe entire organizzation is made up of work groups ation is made up of work groups

or self-managed teams of empowered employeesor self-managed teams of empowered employees

– Matrix and project structuresMatrix and project structures• Specialists for different functional departments Specialists for different functional departments

are assigned to work on projects led by project are assigned to work on projects led by project managersmanagers

• Matrix participants have two managersMatrix participants have two managers

– Project structuresProject structures• Employees work continuously on projects; moving Employees work continuously on projects; moving

on to another project as each project is completedon to another project as each project is completed

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A Matrix Organization in an Aerospace Firm

Figure 9.6

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Organizational Designs• Contemporary organisational designsContemporary organisational designs

– Boundaryless organisationBoundaryless organisation• An flexible and unstructured organiAn flexible and unstructured organizzational design ational design

that is intended to break down external barriers that is intended to break down external barriers between the organibetween the organizzation and its customers and ation and its customers and supplierssuppliers

• Removes internal (horizontal) boundariesRemoves internal (horizontal) boundaries– Eliminates the chain of commandEliminates the chain of command– Has limitless spans of controlHas limitless spans of control– Uses empowered teams rather than departmentsUses empowered teams rather than departments

• Eliminates external boundariesEliminates external boundaries– Uses virtual, network, and modular organiUses virtual, network, and modular organizzational ational

structures to get closer to stakeholdersstructures to get closer to stakeholders

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Removing Boundaries•Virtual organiVirtual organizzationation

– An organiAn organizzation that consists of a small core of ation that consists of a small core of full-time employees and that temporarily hires full-time employees and that temporarily hires specialists to work on opportunities that arisespecialists to work on opportunities that arise

•Network organiNetwork organizzationation– A small core organiA small core organizzation that outsources its ation that outsources its

major business functions (e.g., manufacturing) major business functions (e.g., manufacturing) in order to concentrate what it does bestin order to concentrate what it does best

•Modular organiModular organizzationation– A manufacturing organisation that uses A manufacturing organisation that uses

outside suppliers to provide product outside suppliers to provide product components for its final assembly operationscomponents for its final assembly operations

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Organizational Designs• The learning organiThe learning organizzationation

– An organiAn organizzation that has developed the ation that has developed the capacity to continuously learn, adapt, and capacity to continuously learn, adapt, and change through the practice of knowledge change through the practice of knowledge management by employeesmanagement by employees

– Characteristics of a learning organizationCharacteristics of a learning organization• An open team-based organiAn open team-based organizzation design that ation design that

empowers employeesempowers employees• Extensive and open information sharingExtensive and open information sharing• Leadership that provides a shared vision of the Leadership that provides a shared vision of the

organisation’s future, support and organisation’s future, support and encouragementencouragement

• A strong culture of shared values, trust, A strong culture of shared values, trust, openness, and a sense of communityopenness, and a sense of community

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Create a Learning Organization

Organizational Design• Boundaryless

• Teams• Empowerment

Information sharing• Open

• Timely• Accurate

Leadership• Shared vision• Collaboration

Organizational Culture• Strong mutual

relationships• Sense of community

• Trust

The learning organization