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ORGANIZATION

STRUCTURE & DESIGNS STRUCTURE & DESIGNS

Organization Design and Structure

• Organization design

�A process in which managers develop or change their

organization’s structure

• Work specialization

�A component of organization structure that involves �A component of organization structure that involves

having each discrete step of a job done by a different

individual rather than having one individual do the

whole job

Key Concepts

• Organizing

�Deciding how to best group organizational activities and

resources

• Organization Structure

�Set of building blocks that can be used to configure an

organization

Organizational Structure

• Chain of command

�The management principle that no person should

report to more than one boss

• Span of control

�The number of subordinates a manager can direct �The number of subordinates a manager can direct

efficiently and effectively

Organizational Structure

• Authority

�The rights inherent in a managerial position to give

orders and expect them to be obeyed

• Power• Power

�An individual’s capacity to influence decisions

• Responsibility

�An obligation to perform assigned activities

Types of Organizational Authority

• Line authority

�The position authority (given and defined by the

organization) that entitles a manager to direct the

work of operative employees

• Staff authority• Staff authority

�Positions that have some authority (e.g., organization

policy enforcement) but that are created to support,

assist, and advise the holders of line authority

Chain of Command

Line Versus Staff Authority

Centralization And Decentralization

• Centralization

�A function of how much decision-making authority is

pushed down to lower levels in an organization; the

more centralized an organization, the higher the level

at which decisions are made

• Decentralization

�The pushing down of decision-making authority to the

lowest levels of an organization

6 Basic Building Blocks

1. Designing Jobs (Job Specialization)

2. Grouping Jobs (Departmentalization)

3. Establishing Reporting Relationships

4. Distributing Authority4. Distributing Authority

5. Coordinating Activities

6. Differentiating Between Positions

1. Job Design

• The determination of an individual’s work-related

responsibilities.

Job Specialization

• Degree to which the overall task of the organization is

broken down into smaller components

� Benefits

1. Workers can become proficient at a task

2. Transfer time between tasks decrease

3. Specialized equipment can be developed3. Specialized equipment can be developed

4. Employee replacement becomes easier

� Limitations

1. Employee boredom and dissatisfaction

2. Anticipated benefits do not always occur

2. Grouping Jobs: Departmentalization

• The process of grouping jobs according to some logical

arrangement.

• Rationale for Departmentalization

�Organizational growth exceeds the owner-manager’s

capacity to personally supervise all of the organization.

�Additional managers are employed and assigned specific

employees to supervise.

Departmentalization

• 4 Basic Types:

�Functional

�Product

�Customer

�Location

Functional Departmentalization

President

Manufacturing Finance Marketing

Computers

Functional Departmentalization Form

Advantages

�Department can be staffed by

experts

�Supervision is facilitated

Disadvantages

�Decision making

becomes slow and

bureaucratic�Supervision is facilitated

�Coordination within

department is easier

�Lose sight of

organizational

goals/issues

�Accountability and

performance are difficult

to monitor

Product Departmentalization

President

Computers

Manufacturing Finance Marketing

Printers Software

Product Departmentalization

Advantages

�Activities with one product

can be integrated

�Speed and effective-ness

of decision making

Disadvantages

�Focus on product at the

exclusion of the rest of

the organization

�Administrative costs may of decision making

�Performance of these

individual products can be

assessed

�Administrative costs may

increase

Customer Departmentalization Form

Computers

President

Dallas Phoenix

Manufacturing Finance

Industrial

Sales

Consumer

Sales

Marketing

Computers

Customer Departmentalization

Advantage

�Skilled specialists can

deal with unique

Disadvantage

�Large administrative staff

needed to integrate

activities of various customer needs activities of various

departments

Location Departmentalization Form

Computers Software

President

Manufacturing Marketing Marketing

Chicago St. Louis

Design

Location Departmentalization

• Advantage

�The organization can

respond to unique

customer and regional/

• Disadvantage

�Large administrative

staff may be needed

customer and regional/

environmental

characteristics

3. Establishing Reporting Relationships

• Chain of Command: a clear and distinct line of

authority among the positions in an organization.

1. Unity of Command

� Each person within an organization must have a clear � Each person within an organization must have a clear

reporting relationship to one and only one boss.

2. Scalar Principle

� A clear and unbroken line of authority must extend from

the bottom to the top of the organization.

Establishing Reporting Relationships (cont.)

• Span of Management (Span of Control)�The number of people who report to a particular

manager.

�Narrow versus wide�Narrow versus wide

Establishing Reporting Relationships:Tall versus Flat Organizations

• Tall Organizations

�More expensive

�Communication can be

• Flat Organizations

�higher levels of employee

morale and productivity�Communication can be

difficult because of the

number of channels through

which it must pass

morale and productivity

�More administrative

responsibility for managers

Tall Versus Flat Organizations

PresidentTall Organization

PresidentFlat Organization

Factors Influencing the Span of Management

• Competence of the supervisor or subordinates

• Physical dispersion of subordinates

• Extent of non supervisory work in manager’s job

Degree of required interaction• Degree of required interaction

• Extent of standardized procedures

• Similarity of tasks being supervised

• Frequency of new problems

• Preferences of supervisors and subordinates

4. Distributing Authority

• Authority

� Power that has been legitimized by the organization.

• Delegation

� The process by which managers assign a portion of their total workload to others.

• Reasons for Delegation• Reasons for Delegation

� To enable the manager to get more work done by utilizing the skills and talents of subordinates.

� To foster the development of subordinates by having them participate in decision making and problem solving that allows them to learn about overall operations and improve their managerial skills.

Parts of the Delegation ProcessParts of the Delegation Process

Part 2:Part 2:Granting Granting authorityauthority

Part 3:Part 3:Creating Creating

accountabilityaccountability

Part 1:Part 1:Assigning Assigning

responsibilityresponsibility

ManagerManager ManagerManager ManagerManager

SubordinateSubordinate SubordinateSubordinate SubordinateSubordinate

ManagerManager ManagerManager ManagerManager

DelegationProblems in the Delegation Process

Superior

�Reluctance

�Disorganization

�Subordinate’s success

Subordinate

�Reluctance

�No rewards for the

acceptance of delegated �Subordinate’s success

threatens superior’s

advancement

�Trust

acceptance of delegated

tasks

�Risk avoidance

5. Coordinating Activities

• Coordination

�The process of linking the activities of the various

departments of the organization.

• The Need for Coordination

�Departments and work groups are interdependent; the

greater the interdependence, the greater the need for

coordination.

Structural Coordination Techniques

1. The Managerial Hierarchy

2. Rules and Procedures

3. Task Forces

4. Integrating Departments

6. Differentiating Between Positions

• Line Positions�Positions in the direct chain of command that are

responsible for the achievement of an organization’s goals

• Staff Positions• Staff Positions� Intended to provide expertise, advice, and

support to line positions

• Administrative Intensity

�The degree to which managerial positions are concentrated in staff positions

Differentiating Between PositionsLine and Staff Structure at Toys “R” Us

CEOCEO

PresidentPresident

Corporate StaffCorporate StaffFinance and AdministrationFinance and Administration

Real EstateReal Estate

MISMIS

Architecture and ConstructionArchitecture and Construction

TreasurerTreasurer

PresidentPresident

IndiaIndia

TreasurerTreasurer

ControllerController

AttorneyAttorney

Senior VicePresident StoreMerchandising

Senior VicePresident Marketing

Vice President Planning

Vice President Physical

Distribution

Vice President Divisional

Merchandising

Vice President Divisional

Merchandising

Organization Design Applications

Organization Design Applications

• Simple structure

�An organization that is low in specialization and

formalization but high in centralization

• Functional structure

�An organization in which similar and related �An organization in which similar and related

occupational specialties are grouped together

• SBU Type Structure

�An organization made up of self-contained units

Functional Structure

Functional Organizational Structures: Strategic

Advantages/Disadvantages

Strategic Advantages• Permits centralized control of strategic

results

• Very well-suited for structuring a single business

• Promotes in-depth functional expertise

• Well suited to developing a functional-

Strategic Disadvantages

• Poses problems of functional coordination

• Can lead to inter functional rivalry, conflict, and empire-building

• May promote overspecialization and narrow management viewpoints• Well suited to developing a functional-

based distinctive competence

• Enhances operating efficiency where tasks are routine and repetitive

narrow management viewpoints

• Hinders development of managers with cross-functional experience because the ladder of advancement is up the ranks within the same functional area

SBU Type of Organization Structure

Chief Executive OfficerChief Executive Officer

Corporate Staff Services/FunctionsCorporate Staff Services/Functions

R & DR & D

Finance and Corporate AccountingFinance and Corporate Accounting

Marketing ServicesMarketing Services

PlanningPlanning

PersonnelPersonnel

Legal AffairsLegal Affairs

Group Vice PresidentGroup Vice President

SBU ISBU I

Legal AffairsLegal Affairs

Public Relations and CommunicationsPublic Relations and Communications


SBU IIISBU III


SBU IISBU II

Business Business

Units/DivisionsUnits/Divisions

Business Business


Business Business


SBU Type Organization Structure: Strategic


Strategic Advantages

• Provides a strategically relevant way to organize large numbers of different business units

• Improves coordination between the role and authority of the business with similar strategies, markets, and growth opportunities

• Helps allocate corporate resources to


• It is easy for the definition and grouping of businesses into SBUs to be so arbitrary that the SBU serves no other purpose than administrative convenience. If the criteria for defining SBUs are rationalizations and have little to do with the nitty-gritty of strategy coordination, then the groupings lose real strategic significance.

• Helps allocate corporate resources to areas with greatest growth opportunities

• Facilitates the coordination of related activities within an SBU, thus helping to capture the benefits of strategic fits in the SBU.

strategic significance.

• Unless the SBU head is strong willed, very little strategy coordination is likely to occur across business units in the SBU.

Other Organizational Structures

• Matrix structure

�An organization in which specialists from functional

departments are assigned to work on one or more

projects led by a project manager

• Team-based structure• Team-based structure

�An organization that consists entirely of work groups

or teams

• Boundaryless organization

�An organization that is not defined or limited by

boundaries or categories imposed by traditional

structures

Sample Matrix Structure

Matrix Organization Structures: Strategic


Strategic Advantages

• Gives formal attention to each dimension of strategic priority

• Facilitates capture of


• Very complex to manage

• Hard to maintain “balance” between the two lines of authority• Facilitates capture of

functionality based strategic fits in diversified companies

• Promotes making trade-off decisions on the basis of “what’s best for the organization as a whole”

• Encourages cooperation, consensus-building, conflict resolution, and coordination of related activities

authority

• So much shared authority can result in a transaction logjam and disproportionate amounts of time being spent on communications