Chapter 10

ORGANIZATIONAL
STRUCTURE
AND DESIGN
Prentice Hall, 2002 10-1
Learning Objectives
You should learn to:
Define organizational structure and
organizational design
Explain why structure and design are
important to an organization
Describe the six key elements of
organizational structure
Differentiate mechanistic and organic
organizational design
Identify the four contingency factors that
influence organizational design
Prentice Hall, 2002 10-2
Learning Objectives
You should learn to:
Describe a simple structure, a
functional structure, and a divisional
structure
Explain team-based structures and
why organizations are using them
Describe matrix structures, project
structures, autonomous internal units,
and boundaryless organizations
Explain the concept of a learning
organization and how it influences
organizational design
Prentice Hall, 2002 10-3
Defining Organizational Structure
Nomenclature
organizing - the process of creating an
organizations structure
organizational structure - the formal
framework by which job tasks are divided,
grouped, and coordinated
organizational design - process of
developing or changing an organizations
structure
process involves six key elements
Prentice Hall, 2002 10-4
Defining Organizational Structure
(cont.)
Work Specialization
the degree to which tasks in an
organization are divided into separate
jobs
individuals specialize in doing part of
an activity rather than the entire
activity
too much specialization has created
human diseconomies
an important organizing mechanism,
though not a source of ever-increasing
productivity
Prentice Hall, 2002 10-5
Defining Organizational Structure
(cont.)
Departmentalization
the basis by which jobs are grouped together
functional - groups jobs by functions
performed
product - groups jobs by product line
geographical - groups jobs on the basis of
territory or geography
process - groups jobs on the basis of
product or customer flow
customer - groups jobs on the basis of
common customers
Prentice Hall, 2002 10-6
Defining Organization Structure
(cont.)
Departmentalization (cont.)
large organizations combine most or all forms
of departmentalization
trends
customer departmentalization is increasingly
being used
better able to monitor and respond to
customer needs
cross-functional teams are becoming
popular
ogroups of individuals who are experts in
various specialties
oinvolved in all aspects of bringing a new
product to market
Prentice Hall, 2002 10-7
Functional Departmentalization
Manager,
Engineering
Manager,
Manufacturing
Manager,
Human Resources
Manager,
Purchasing
Plant Manager
Manager,
Accounting
Prentice Hall, 2002 10-8
Product Departmentalization
Mass Transit
Division
Bombardier-Rotax
(Vienna)
Manager,
Retail Accounts
Recreational Products
Division
Logistic Equipment
Division
Industrial Equipment
Division
Bombadier-Rotax
(Gunskirchen)
Recreational and Utility
Vehicles Sector
Rail Products
Sector
Bombardier, Ltd.
Prentice Hall, 2002 10-9
Geographical
Departmentalization
Sales Director,
Western Region
Sales Director,
Southern Region
Sales Director,
Eastern Region
Vice President
for Sales
Sales Director,
Midwestern Region
Prentice Hall, 2002 10-10
Process Departmentalization
Sawing
Department
Manager
Planing and
Milling
Department
Manager
Assembling
Department
Manager
Lacquering and
Sanding
Department
Manager
Finishing
Department
Manager

Plant Superintendent

Prentice Hall, 2002 10-11
Inspection and
Shipping
Department
Manager
Customer Departmentalization
Manager,
Retail Accounts
Director
of Sales
Manager,
Government Accounts
Manager,
Wholesale Accounts
Prentice Hall, 2002 10-12
Defining Organization Structure
(cont.)
Chain of Command (cont.)
continuous line of authority that extends from upper
organizational levels to the lowest levels and clarifies who
reports to whom
authority - the rights inherent in a managerial position to tell
people what to do and to expect them to do it
responsibility - the obligation to perform any assigned
duties
unity of command - a person should report to only one
manager
these concepts are less relevant today due to information
technology and employee empowerment
Prentice Hall, 2002 10-13
Defining Organization Structure
(cont.)
Span of Control
number of employees that a manager can efficiently
and effectively manage
determines the number of levels and managers in
an organization
the wider the span, the more efficient the
organization
appropriate span influenced by:
the skills and abilities of employees
the complexity of tasks performed
availability of standardized procedures
sophistication of organizations information system
Prentice Hall, 2002 10-14
Contrasting Spans Of Control
1
2
3
4
5
6
7
O
r
g
a
n
i
z
a
t
i
o
n
a
l

L
e
v
e
l

Members at Each Level
Span of 4
Operatives = 4,096
Managers (levels 1-6) = 1,365
Span of 8
Operatives = 4,096
Managers (levels 1-4) = 585
1
4
16
64
256
1,024
4,096
1
8
64
512
4,096
Prentice Hall, 2002 10-15
Defining Organization Structure
(cont)
Centralization
the degree to which decision making is
concentrated at a single point in the
organization
top-level managers make decisions with little
input from subordinates in a centralized
organization
Decentralization
the degree to which decisions are made by
lower-level employees
distinct trend toward decentralized decision
making
Prentice Hall, 2002 10-16
Factors That Influence the Amount of Centralization and
Decentralization
Prentice Hall, 2002 10-17
Defining Organization Structure
(cont.)
Formalization
the degree to which jobs within the organization
are standardized
standardization - removes the need for
employees to consider alternatives
extent to which employee behavior is guided by
rules and procedures
employee allowed minimal discretion in highly
formalized jobs
explicit job descriptions
clearly defined procedures
Prentice Hall, 2002 10-18
Organizational Design Decisions
Mechanistic Organization
rigidly and tightly controlled structure
tries to minimize the impact of differing
human traits
most large organizations have some
mechanistic characteristics
Organic Organization
highly adaptive and flexible structure
permits organization to change when the
need arises
employees are highly trained and
empowered to handle diverse job activities
minimal formal rules and little direct
supervision
Prentice Hall, 2002 10-21
Mechanistic Versus Organic
Organization
High Specialization
Rigid Departmentalization
Clear Chain of Command
Narrow Spans of Control
Centralization
High Formalization
Cross-Hierarchical Teams
Free Flow of Information
Wide Spans of Control
Decentralization
Low Formalization
Mechanistic
Organic
Prentice Hall, 2002 10-22
Organization Contextual (
Contingency)Variables that Influence Structure
Structure
(learning vs.
efficiency)

Environment
Culture Size
Strategy,
Goals
Technology
Organizational Design Decisions (cont.)
Contingency Factors
Strategy and Structure - structure
should facilitate the achievement of goals
strategy and structure should be closely
linked
strategy focuses on:
innovation - need the flexibility and free
flow of information of the organic structure
cost minimization - seek efficiency,
stability, and tight controls of mechanistic
structure
imitation - use structural characteristics of
both mechanistic and organic structures
Prentice Hall, 2002 10-24
Organizational Design Decisions
(cont.)
Contingency Factors (cont.)
Size and Structure
Technology and Structure
technology - converts inputs into outputs
unit production - production of items in
units or small batches
mass production - large-batch
manufacturing
process production - continuous-process
production
mechanistic structure supports routine
technology
organic structure supports nonroutine
technology
Prentice Hall, 2002 10-25
Woodwards Findings On Technology,
Structure, And Effectiveness
Mass
Production

Moderate vertical
differentiation
High horizontal
differentiation
High formalization
Process
Production

High vertical
differentiation
Low horizontal
differentiation
Low formalization
Unit
Production

Low vertical
differentiation
Low horizontal
differentiation
Low formalization
S
t
r
u
c
t
u
r
a
l

C
h
a
r
a
c
t
e
r
i
s
t
i
c
s

Most effective
structure
Organic Mechanistic Organic
Prentice Hall, 2002 10-26
Perrows Departmental Technology
10-
27
Specified Two Dimensions
1. Variety: Frequency of unexpected and novel
events that occur in conversion process
When individuals encounter a large number of
unexpected situations, with frequent problems
variety is High
2.Analyzability: When conversion process is
analyzable, the work can be reduced to
mechanical steps and participants can follow
an objective, computational procedure to
follow problems to solve problems
10-
28
Analyzability
High
Low
Variety
Low
High
Craft Technology
Analyzability Low. Use
of experience, intuition,
judgment
Variety Low: Few
problems
Non Routine
Analyzability low
Variety High
Routine
Analyzability High
Variety Low
Engineering
Analyzability High
Variety High
Departmental Technologies
Departmental Technologies
10-
29
1. Routine Technologies: Little task variety use of
objective computational procedures. Tasks are
standardized and formalized
Examples: assembly line, clerical, drafting
2. Craft Technology: Little task variety but the
conversion process is not analyzable or well
understood. Tasks require training and
experience
Examples: Performing arts, Trades, University
teaching,
3. Engineering Technologies: Examples; legal,
engineering, accounting
4. Non-routine: Strategic planning, Research, top
management level




10-
30
Environmental Factors
Mechanistic Organic
Tasks are broken down into
specialized separate parts
Participants contribute to the
common tasks of the department
Tasks are rigidly defined Tasks are adjusted and redefined
through employees team work
There is strict hierarchy of
authority and control, many rules
There is less hierarchy of
authority and control, there are
few rules
Knowledge and control of tasks
are centralized at the top
Knowledge and control of tasks
are located anywhere in the
organization
Communication is vertical Communication is horizontal
Organizational Design Decisions (cont.)
Contingency Factors (cont.)
Environmental Uncertainty and Structure
one way to reduce environmental uncertainty
is to adjust the organizations structure
with greater stability, mechanistic structures
are more effective
omechanistic structures are not equipped
to respond to rapid environmental change
the greater the uncertainty, the greater the
need for an organic structure
oorganizations are being designed to be
more organic nowadays
Prentice Hall, 2002 10-31
10-
32
Environment
Change
Complexity
Simple Complex
Stable
Unstable
Frame Work for Assessing Environmental Change
Simple + stable = low
uncertainty
1. Small number of external
elements and elements
are similar
2. Elements remain same or
change slowly

Complex + stable= Low
moderate uncertainty
1.Large number of external
elements and elements are
dissimilar
2. Elements remain same
change slowly
Simple + unstable = High
moderate uncertainty
1. Small number of external
elements and elements
are similar
2. Elements change
frequently
Complex + unstable =
High uncertainty
1. Large number of
dissimilar elements
2. Elements change
frequently &
unpredictably
Contingency frame work
10-
33
1. Low uncertainty:
Mechanistic structure, formalized, centralized
Few departments
No integrating roles
Little intuition
Current operations orientation
2. Low Moderate Uncertainty
Mechanistic structure
Few integrating roles
Some imitation
Some planning
Contingency Frame work
10-
34
3. High-Moderate Uncertainty
Organic structure
Few departments much boundary spanning
Few integrating roles
Quick to imitate
Planning orientation
4. High uncertainty
Organic structure, team work, participative,
decentralized
Many departments, differentiated, extensive
boundary spanning
Many integrating roles
Extensive imitation
Extensive planning , forecasting
Common Organizational Designs
Traditional Organizational Designs
Simple Structure - low
departmentalization, wide spans of
control, authority centralized in a single
person, and little formalization
commonly used by small businesses
as organizations increase in size, the
structure tends to become more
specialized and formalized
Functional Structure - groups similar or
related occupational specialties together
Prentice Hall, 2002 10-35
Structural Design Options for
Grouping Employees into
Departments
Product
Division 1
Product
Division 2
Product
Division 3
CEO
Engineering Marketing Manufacturing
CEO
Functional
Grouping
Divisional
Grouping
Source: Adapted from David Nadler and Michael Tushman,
Strategic Organization Design (Glenview, Ill.: Scott Foresman, 1988), 68.
Strengths and Weaknesses of
Functional Organization Structure
STRENGTHS:
Allows economies of
scale within functional
departments
Enables in-depth
knowledge and skill
development
Enables organization to
accomplish functional
goals
Is best with only one or a
few products


WEAKNESSES:
Slow response time to
environmental changes
May cause decisions to pile
on top, hierarchy overload
Leads to poor horizontal
coordination among
departments
Results in less innovation
Involves restricted view of
organizational goals
Common Organizational Designs
(cont.)
Traditional Organizational Designs (cont.)
Divisional Structure - composed of
separate divisions
each division has relatively limited
autonomy
parent corporation acts as an
external overseer to coordinate and
control the divisions
provides support services
Prentice Hall, 2002 10-39
Strengths and Weaknesses of
Divisional Organization Structure
STRENGTHS:
Suited to fast change in unstable
environment
Leads to client satisfaction
because product responsibility and
contact points are clear
Involves high coordination across
functions
Allows units to adapt to differences
in products, regions, clients
Best in large organizations with
several products
Decentralizes decision-making
WEAKNESSES:
Eliminates economies of scale
in functional departments
Leads to poor coordination
across product lines
Eliminates in-depth
competence and technical
specialization
Makes integration and
standardization across product
lines difficult
Geographical Structure
for Apple Computer
CEO
Steve Jobs
Apple
Europe
Apple
Pacific
France
Apple
Products
Asia
Japan
Australia
Apple
Americas
Canada
Latin
America/
Caribbean
Sales
Service and
Marketing
to Regions
Source: www.apple.com
Common Organizational Designs
Contemporary Organizational
Designs
Team-Based Structures - entire
organization is made up of work teams
employee empowerment is crucial
teams responsible for all work activity
and performance
complements functional or divisional
structures in large organizations
allows efficiency of a bureaucracy
provides flexibility of teams
Prentice Hall, 2002 10-43
Teams Used for Horizontal
Coordination at Wizard Software
Company
Videogames
Chief Engineer
Programming Vice Pres
Customer Service
Manager
Videogames Basic Research
Supervisor
Research Vice Pres
Applications and Testing
Supervisor
Procurement
Supervisor
Videogames
Sales Manager
Marketing Vice Pres.
Memory Products
International Manager
Advertising Manager
Memory Products
Chief Programmer
Memory Products
Research Supervisor
Memory Products
Sales Manager
President
Videogames Product Team
Memory Products Team
Common Organizational Designs
(cont.)
Contemporary Organizational Designs (cont.)
Matrix Structure - assigns specialists from
different functional departments to work on projects
led by project managers
adds vertical dimension to the traditional
horizontal functional departments
creates a dual chain of command
violates unity of command
project managers have authority in areas relative
to the projects goals
functional managers retain authority over human
resource decisions (e.g., promotions)
Prentice Hall, 2002 10-45
A Matrix Organization in an
Aerospace Firm
Prentice Hall, 2002 10-46
Global Matrix Structure
International
Executive
Committee
Power
Transformers
Germany
Norway
Argentina/
Brazil
Spain/
Portugal
Transportation
Industry
Business
Areas
Country Managers
Local
Companies
STRENGTHS:
Achieves coordination
necessary to meet dual
demands from customers
Flexible sharing of human
resources across products
Suited to complex decisions
and frequent changes in
unstable environment
Provides opportunity for both
functional and product skill
development
Best in medium-sized
organizations with multiple
products

WEAKNESSES:
Causes participants to experience
dual authority, which can be
frustrating and confusing
Means participants need good
interpersonal skills and extensive
training
Is time consuming; involves
frequent meetings and conflict
resolution sessions
Will not work unless participants
understand it and adopt collegial
rather than vertical-type
relationships
Requires great effort to maintain
power balance
Strengths and Weaknesses of
Matrix Organization Structure
Common Organizational Designs
(cont.)
Contemporary Organizational Designs (cont.)
Project Structure - employees work
continuously on projects
employees do not return to a functional
department at the conclusion of a project
all work performed by teams comprised of
employees with appropriate skills and
abilities
tends to be very fluid and flexible
no rigid departmentalization or organization
hierarchy
managers serve as facilitators and mentors
Prentice Hall, 2002 10-50
Common Organizational Designs
(cont.)
Contemporary Organizational Designs
(cont.)
Autonomous Internal Units
independent, decentralized business
units
each has its own products, clients,
competitors, and profit goals
business units are autonomous
there is no centralized control or
resource allocation
Prentice Hall, 2002 10-51
Common Organizational Designs
(cont.)
Contemporary Organizational Designs
(cont.)
Boundaryless Organization - design is not defined
by, or limited to, the horizontal, vertical, or external
boundaries imposed by a predefined structure
strategic alliances break down barriers between
the company and its customers and suppliers
seeks to eliminate the chain of command, to have
limitless spans of control, and to replace
departments with empowered teams
flattens the hierarchy by removing vertical
boundaries
horizontal boundaries removed by organizing
work around processes instead of functional
departments
Prentice Hall, 2002 10-52
Network Based Structure
An inter market network
Alliances among a variety of organizations in different
markets( Keiretsu Japan)
An opportunity Network
Most advanced form of network structure.
A temporary constellation of organizations brought
together to pursue a single purpose
Once accomplished the network disbands
The Network Organization
Designer
Organizations
Supplier
Organizations
Broker
Organization
Producer
Organizations
Distributor
Organizations
Characteristics of Network Structures
Vertical Disaggregation
Breaking up of organization functions into separate organizations
performing specialized work
Brokers
managed by broker organizations that locate and assemble
member organizations
Broker may play a central role and subcontract for needed
products or services, or it may specialize in linking equal partners
into network
Coordinating Mechanisms:
Coordination falls into three categories:
1. Interpersonal relationship among individuals who have developed
partnerships. Conflicts are resolved through reciprocity
2. Formal contacts, ownership control, licensing arrangement
3. Market mechanisms such as spot payments, performance
accountability, information systems, ensure all parties are aware of
each others activities

Advantages of Network Structures
Enables highly flexible and adaptive response to
dynamic environments
Creates a best of the best organization to focus
resources on customer and market needs
Each organization can leverage a distinctive
competency
Permits rapid global response
Can produce synergistic results
Disadvantages of
Network Structures
Managing lateral relationships across
autonomous organizations is difficult
Motivating members to relinquish autonomy to
join network is difficult
Sustaining membership and benefits can be
problematic
May give partners access to proprietary
knowledge and technology
Common Organizational Designs
(cont.)
Contemporary Organizational Designs
(cont.)
Learning Organization - an organizational mind-
set rather than a specific organizational design
has developed the capacity to continuously adapt
all members take an active role in identifying and
resolving work-related issues
practice knowledge management by continually
acquiring and sharing new knowledge
environment is conducive to open communication
empowered teams are important
leadership creates a shared vision for the future
organizational culture provides sense of community
Prentice Hall, 2002 10-59
Characteristics Of A Learning Organization
Organizational Design
Boundaryless
Teams
Empowerment
Organizational Culture
Strong Mutual
Relationships
Sense of Community
Caring
Trust
Information Sharing
Open
Timely
Accurate
Leadership
Shared Vision
Collaboration
The
Learning
Organization
Prentice Hall, 2002 10-60
The Relationship of Structure to
Organizations Need for Efficiency vs.
Learning

Horizontal
Structure
Dominant
Structural
Approach
Horizontal:

Coordinati
on
Learning

Innovation
Flexibility

Vertical:
Control
Efficiency
Stability
Reliability


Matrix
Structure

Divisional
Structure
Functional with
cross-functional
teams, integrators

Functional
Structure
Modular
Structure
Symptoms of
Structural Deficiency
Decision making is delayed or
lacking in quality
The organization does not respond
innovatively to a changing
environment
Too much conflict is evident