Elements of structure

Introduction to Strategy and Organization

(ECB1SO)
Presentation | Dr. J.P.C. (Coen) Rigtering

4/22/15

Topics

Assumptions
Terminology
Key elements of an organizational structure
Different types of organizational structures
Why do certain types of organizational
structures evolve?

Introduction to Strategy and Organization

4/22/15

What have we learned so far

Hiring employees is more efficient than team
production (topic 2)
Employees (agents) need to be monitored in
order to prevent shirking (topic 2)
Different types of monitoring (i.e., control) can be
used in firms (topic 3)
Social controls can sometimes be more efficient
than formalized controls (topic 3)
How can we structure a firm?
3

Introduction to Strategy and Organization

4/22/15

Structure and design: terminology

Advise and administration
(technostructure):
HR
StaffAccounting
Budgeting
Etc.

Span
Span of
of Control:
Control: 52

CEO
Hierarchical relation
Line employee

Manager

Manager

Manager

Manager

Manager

Employee

Employee

Employee

Employee

Employee

Chain of command

2
4

Tall hierarchy
4

Flat hierarchy

25

8
16

Spreker

125
625

4/22/15

When is a structure
hierarchical?
Depends on the size of the firm
Depends upon the industry / type of tasks
that are performed
Matter of choice.

Introduction to Strategy and Organization

4/22/15

Structure and design: terminology

CEO

Top management

Accounting

HR
Middle management

Purchasing

Production

Logistics

Sales

Supervisor

Supervisor

Supervisor

Supervisor

Supervisory
Supervisor
management

Employee

Employee

Employee

Employee

Employee

Workers

Marketing

Departementalization (grouping
of jobs)
Spreker
4/22/15
6
Organization by function
16

Organization by function
A production manager decides how much to
produce each week. For this decision, he needs
information on future sales from the sales manager
who has the most accurate sales forecast
information (asymmetrical information, see topic 1)
In reality most production manager make the sales
forecast themselves, because:
o Sales manager are usually too optimistic
o The sales manager has an incentive to make an
optimistic forecast, in order to reduce the probability
of a stock-out
7

Introduction to Strategy and Organization

4/22/15

Structure and design: terminology

CEO
Accounting

HR

NL

Germany

US

China

Purchasing

Sales

Marketing

Distribution

Production

Supervisor

Supervisor

Supervisor

Supervisor

Supervisor

Supervisor

Organization by geographical area

16

Spreker

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Structure and design: terminology

CEO
Accounting

HR

Business

Consumer

Production

Purchasing

Marketing

Sales

Marketing

Logistics

Sales

Supervisor

Supervisor

Supervisor

Supervisor

Supervisor

Supervisor

Organization by customer
16

Spreker

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Structure and design: terminology

CEO

TV

Video games

Decentralization

Sound

Accounting

Tablets

Marketing

HR

Production

Purchasing

Logistics

Sales

Supervisor

Supervisor

Supervisor

Supervisor

Supervisor

Supervisor

Organization by business unit / market

16

10

Spreker

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Different types of organizations,

different structures (Mintzberg, 1970)
Simple structure (used in SMEs = functional structure)
o Centralization of power (entrepreneur is in charge)

Machine bureaucracy > knowledge intensive, little mistakes

(government institutions, financial institutions)
o Limited decentralization

Machine bureaucracy (production, factories)

o Strong technostructure

Divisionalized firm (large multinationals)

o Decentralization at division (customer, business unit, or
geographical) level

Adhocracy (creative organizations, consultancy)

o Decentralization
11

Introduction to Strategy and Organization

4/22/15

Institutionalism in organizational
sociology (IT)
The basic question that is being answered by IT is:
what makes organizations so similar?
The answer: because of social (institutional)
pressures that establish isomorphism (structural
similarity) between organizations.
Three different forms of isomorphism:
o Coercive isomorphism
o Normative isomorphism
o Mimetic isomorphism
12

Introduction to Strategy and Organization

4/22/15

Different types of institutional

pressures
Form of

Regulative

Normative

Cognitive

approach

approach

Approach

Coercive

Normative

Mimetic

Compliance to

Social obligations

Taken for granted

regulative rules

or expectations

isomorphism
Basis of
compliance
Example

Banks who implement

Companies who initiate

Implementing best

new control mechanisms

sustainability programs

practices

due to stakeholder
pressures

13

Spreker

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Understanding informal groups

(Roethlisberger and Dickson, 1939)

14

Groups within the organizations are not equal to

formal work groups, work units or departments.
People collectively interpret formal structures and
procedures differently given social situations and
contexts
Groups with goals aligned with those of the
organization can facilitate work performance and
make the workplace more enjoyable for everyone.

Introduction to Strategy and Organization

4/22/15

See you next week!