15

Organizational
Structure
McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Nitro’s Structural Advantage

Courtesy of Nitro Group

Boutique advertising firm Nitro relies on an organizational

structure that keeps it nimble and responsive to customer
needs. Founded in Shanghai, Nitro is a virtual global
agency in which each local office has account service staff,
but a global creative swat team is parachuted in as
required.

McShane/Von Glinow OB4e Slide 15-2 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Division of Labor

Courtesy of Nitro Group

 Subdivision of work into separate jobs assigned

to different people
 Potentially increases work efficiency
 Necessary as company grows and work
becomes more complex

McShane/Von Glinow OB4e Slide 15-3 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Forms of Work Coordination
• Informal communication
– Sharing information
– High media-richness
– Important in teams
– Integrator roles in larger firms

• Formal hierarchy
– Direct supervision
– Common in larger firms
– Problems -- costly, slow, less popular today with workforce

• Standardization
– Processes -- formal instructions
– Outputs -- clear goals/output measures
– Skills -- training, learn precise role behaviors

McShane/Von Glinow OB4e Slide 15-4 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Elements of Organizational Structure

Department- Span of
alization Control

Organizational
Structure
Elements

Formalization Centralization

McShane/Von Glinow OB4e Slide 15-5 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Span of Control
• Number of people
directly reporting to the
next level
– Assumes coordination
through direct supervision
• Wider span of control
possible with other
coordinating
mechanisms present

McShane/Von Glinow OB4e Slide 15-6 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Trend Toward Flatter Structures
• Firms moving toward
flatter structures
– Cuts costs
– Puts decision makers closer
to front-line information
– Supports empowerment

• Problem: risk of cutting too

much middle management

McShane/Von Glinow OB4e Slide 15-7 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Centralization and Decentralization

Centralization
Formal decision making authority is held
by a few people, usually at the top

Decision making authority is

dispersed throughout the organization
Decentralization

McShane/Von Glinow OB4e Slide 15-8 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Formalization

• The degree to which organizations standardize

behavior through rules, procedures, formal training,
and related mechanisms.
• Formalization increases as firms get older, larger, and
more regulated
• Problems
– Reduces organizational flexibility
– Work rules can undermine productivity
– Employees feel disempowered
– Rules become focus of attention

McShane/Von Glinow OB4e Slide 15-9 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Mechanistic vs. Organic Structures

Mechanistic Organic

• Narrow span of control • Wide span of control

• High formalization • Little formalization

• High centralization • Decentralized decisions

McShane/Von Glinow OB4e Slide 15-10 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Effects of Departmentalization

1. Establishes chain of command (supervision

structure)
2. Creates common mental models, measures
of performance, etc
3. Encourages staff to coordinate through
informal communication

McShane/Von Glinow OB4e Slide 15-11 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Features of Simple Structures

• Minimal hierarchy -- staff reports directly to

owner
• Roles are fairly loosely defined for flexibility
• Informal communication for coordination
• Centralized structure -- owner makes most
decisions

McShane/Von Glinow OB4e Slide 15-12 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Functional Organizational Structure
Organizes employees around specific
knowledge or other resources
(marketing, production)

CEO

Finance Production Marketing

McShane/Von Glinow OB4e Slide 15-13 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Evaluating Functional Structures

• Benefits
– Supports professional identity and career paths
– Permits greater specialization
– Easier supervision --similar issues
– Creates an economy of scale --common pool of talent

• Limitations
– More emphasis on subunit than organizational goals
– Higher dysfunctional conflict
– Poorer coordination -- requires more controls

McShane/Von Glinow OB4e Slide 15-14 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Divisional Structure

Organizes employees around outputs,

clients, or geographic areas

CEO

Consumer Lighting Medical

Products Products Systems

McShane/Von Glinow OB4e Slide 15-15 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Evaluating Divisional Structures

• Benefits
– Building block structure -- accommodates growth
– Better coordination in diverse markets

• Limitations
– Duplication, inefficient use of resources
– Specializations are dispersed, creating silos of knowledge
– Difficult to determine which divisional structure should have
priority

McShane/Von Glinow OB4e Slide 15-16 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Bioware’s Matrix Structure

Ray Muzyka (left) and Greg

Zeschuk (right) adopted a
matrix organizational structure
for their electronic games
company, Bioware, because it
balances the need for
teamwork and information
sharing.

Ed Kaiser/Edmonton Journal

McShane/Von Glinow OB4e Slide 15-17 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Matrix Structure (Project-based)
Employees ( ) are temporarily assigned to a specific
project team and have a permanent functional unit

CEO

Engineering Marketing Design

Project A
Manager

Project B
Manager

Project C
Manager

McShane/Von Glinow OB4e Slide 15-18 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Evaluating Matrix Structures
• Benefits
– Uses resources and expertise effectively
– Improves communication,flexibility, innovation
– Focuses specialists on clients and products
– Supports knowledge sharing within specialty across
groups
– Solution when two divisions have equal importance
• Limitations
– Increases goal conflict and ambiguity
– Two bosses dilutes accountability
– More conflict, organizational politics, and stress

McShane/Von Glinow OB4e Slide 15-19 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 W. L. Gore’s Team-Based Structure

W. L. Gore & Associates Inc.

has an extreme team-based
organizational structure that
eliminates the traditional
hierarchy. Associates are
organized around self-directed
teams at dozens of
manufacturing and sales
offices around the world.
© Bill Kramer/ Bill Kramer Photography Inc.

McShane/Von Glinow OB4e Slide 15-20 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Team-Based Structure Features

• Self-directed work teams

• Teams organized around work
processes
• Very flat hierarchy, few
management levels
• Very little formalization
• Usually found within
divisionalized structure

© Bill Kramer/ Bill Kramer Photography Inc.

McShane/Von Glinow OB4e Slide 15-21 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Evaluating Team-Based Structures

• Benefits
– Responsive, flexible
– Lower admin costs
– More informed decisions

• Limitations
– Interpersonal training costs
– Slower during team development
– Stress due to ambiguous roles
– Problems with supervisor role
changes

© Bill Kramer/ Bill Kramer Photography Inc.

McShane/Von Glinow OB4e Slide 15-22 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Network Organizational Structure

Product Call center

developmen partner
t partner (India)
(U.S.A.)

Core
Firm
Package
Accounting
design
partner
partner
(Canada)
(UK)
Assembly
partner
(Mexico)

McShane/Von Glinow OB4e Slide 15-23 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Network Structure v. Virtual Corp.

• Network structure
– An alliance of several organizations for the purpose of
creating a product or serving a client

• Virtual corporation
– Several independent companies that form unique
partnership teams to provide customized products or
services, usually to specific clients, for a limited time

McShane/Von Glinow OB4e Slide 15-24 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Evaluating Network Structures

• Benefits
– Highly organic -- flexible design
– Efficiencies from acquiring and discarding
resources as needed from partnerships

• Limitations
– Exposes core firm to market forces -- shortages of
facilities and talent
– Less control over non-core work processes

McShane/Von Glinow OB4e Slide 15-25 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 External Environment & Structure

Dynamic Stable
• High rate of change • Steady conditions,
• Use team-based, network, or predictable change
other organic structure • Use mechanistic structure

Complex Simple
• Many elements (such as
• Few environmental elements
stakeholders)
• Less need to decentralize
• Decentralize

McShane/Von Glinow OB4e Slide 15-26 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 External Environment & Structure (con’t)

Diverse Integrated
• Several products, clients,
• Single product, client, place
regions
• Use functional structure, or
• Use divisional form aligned
geographic division if global
with the diversity

Hostile Munificent
• Competition and resource • Plenty of resources and
scarcity product demand
• Use organic structure for • Less need for organic
responsiveness structure

McShane/Von Glinow OB4e Slide 15-27 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Effects of Organizational Size

• As organizations grow, they have:

– More division of labor (job specialization)
– Greater use of standardization
– More hierarchy and formalization
– More decentralization

McShane/Von Glinow OB4e Slide 15-28 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Technology and Structure

• Technology
– Mechanisms or processes by which an organization
turns out its product or service
• Variability
– The number of exceptions to standard procedure that
tend to occur.
• Analyzability
– The predictability or difficulty of the required work

McShane/Von Glinow OB4e Slide 15-29 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Technology and Structure

High
Analyzability Assembly Engineering
Line Projects

Low
Analyzability Skilled Scientific
Trades Research

Low High
Variety Variety

McShane/Von Glinow OB4e Slide 15-30 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 Organizational Strategy

• Structure follows strategy

• Differentiation strategy
– Providing unique products or attracting clients who
want customization
• Cost leadership strategy
– Maximize productivity in order to offer competitive
pricing

McShane/Von Glinow OB4e Slide 15-31 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 15

Organizational
Structure
McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
 15

Chapter 15 Extras

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

 General Motors’ IT Matrix Structure

McShane/Von Glinow OB4e Slide 15-34 © 2008 The McGraw-Hill Companies, Inc. All rights reserved.