Organizational structure

Contemporary Organizational
designs
Organizational structure and Organizational
Chart
• Organization structure: The formal configuration between the
individuals and groups with respect to allocation of task,
responsibilities and authorities with in organizations
• Organizational chart: A diagram representing the connections
between the various departments with in an organization, a graphic
representation of organizational design
6 elements in organizational design
• When managers create or change the structure, they’re engaged in
organizational design, a process that involves decisions about six key
elements:
• Work specialization
• Departmentalization
• Authority and responsibility
• Span of control
• Centralization vs. decentralization
• formalization
Elements in organizational design
• Work specification: dividing activities into different jobs
• At the Wilson Sporting Goods factory in Ada, Ohio, 150 workers (with
an average tenure exceeding 20 years) make every football used in
the National Football League and most of those used in college and
high school football games. To meet daily output goals, the workers
specialize in job tasks such as molding, stitching and sewing, lacing,
and so forth.
Economies and diseconomies of work
specialization
Elements in organizational design
• Departmentalization : the basis on which a job is grouped together
• One specific type of team that more organizations are using is a cross-functional team,
which is a work team composed of individuals from various functional specialties.
• The chain of command is the line of authority extending from upper organizational
levels to lower levels, which clarifies who reports to whom.
• Span of control The number of employees a manager can efficiently and effectively
manage
Example
• Exhibit 10-6 shows, if one organization has a span of four and the other a span of
eight, the organization with the wider span will have two fewer levels and
approximately 800 fewer managers.
Elements in organizational design
• Centralization :The degree to which decision making is concentrated
at upper levels of the organization
• Decentralization The degree to which lower-level employees provide
input or actually make decisions
• How standardized an organization’s jobs are and the extent to which
employee behavior is guided by rules and procedure is called
formalization
Contemporary organizational design
• Team structure:
• A structure in which the entire organization is made up of work groups or teams
• Advantages :
• Employees are more involved and empowered
• Reduce barriers among functional areas
• Disadvantages:
• no clear chain of command
• Pressure on the teams to perform
• In large organizations, the team structure complements what is typically a functional or
divisional structure and allows the organization to have the efficiency of a bureaucracy and
the flexibility that teams provide.
• Companies such as Amazon, Boeing, Hewlett-Packard, Louis Vuitton, Motorola, and Xerox, for
instance, extensively use employee teams to improve productivity.
Types of organizational structures

• Hierarchical org structure

• Functional org structure
• Horizontal or flat org structure
• Divisional org structures (market-based, product-based, geographic)
• Matrix org structure
• Team-based org structure
• Network org structure
Hierarchical Organization Structure
• The pyramid-shaped organizational chart we referred to earlier is
known as a hierarchical org chart. It’s the most common type of
organizational structure––the chain of command goes from the top
(e.g., the CEO or manager) down (e.g., entry-level and low-level
employees) and each employee has a supervisor. 
PROS
• Better defines levels of authority and responsibility
• Shows who each person reports to or who to talk to about specific
projects
• Motivates employees with clear career paths and chances for
promotion     
• Gives each employee a specialty     
• Creates camaraderie between employees within the same
department
CONS
• Can slow down innovation or important changes due to increased
bureaucracy
• Can cause employees to act in interest of the department instead of
the company as a whole
• Can make lower-level employees feel like they have less ownership
and can’t express their ideas for the company
Functional organization structure
• Similar to a hierarchical organizational structure, a functional org
structure starts with positions with the highest levels of responsibility
at the top and goes down from there. Primarily, though, employees
are organized according to their specific skills and their corresponding
function in the company. Each separate department is managed
independently. 
Pros and Cons
• Pros
• Allows employees to focus on their role
• Encourages specialization
• Help teams and departments feel self-determined
• Is easily scalable in any sized company
• Cons
• Can create silos within an organization
• Hampers interdepartmental communication
• Obscures processes and strategies for different markets or products in a
company
Horizontal or flat organizational strcuture
• A horizontal or flat organizational structure fits companies with few
levels between upper management and staff-level employees. Many
start-up businesses use a horizontal org structure before they grow
large enough to build out different departments, but some
organizations maintain this structure since it encourages less
supervision and more involvement from all employees.
Pros or cons
• PROS
• Gives employees more responsibility
• Fosters more open communication    
• Improves coordination and speed of implementing new ideas    
• Cons
• Can create confusion since employees do not have a clear supervisor to
report to
• Can produce employees with more generalized skills and knowledge
• Can be difficult to maintain once the company grows beyond start-up status
Division organizational structure
• divisional organizational structures, a company’s divisions have
control over their own resources, essentially operating like their own
company within the larger organization. Each division can have its
own marketing team, sales team, IT team, etc. This structure works
well for large companies as it empowers the various divisions to make
decisions without everyone having to report to just a few executives. 
Market-based divisional org structure

• Divisions are separated by market, industry, or customer type. A large

consumer goods company, like Target or Walmart, might separate its
durable goods (clothing, electronics, furniture, etc.) from its food or
logistics divisions. 
Product-based divisional org structure

• Divisions are separated by product line. For example, a tech company

might have a division dedicated to its cloud offerings, while the rest of
the divisions focus on the different software offerings––e.g., Adobe
and its creative suite of Illustrator, Photoshop, InDesign, etc.
Geographic divisional org structure
• Divisions are separated by region, territories, or districts, offering
more effective localization and logistics. Companies might establish
satellite offices across the country country or the globe in order to
stay close to their customers.
PROS AND CONS
• Pros
• Helps large companies stay flexible 
• Allows for a quicker response to industry changes or customer needs
• Promotes independence, autonomy, and a customized approach
• Cons
• Can easily lead to duplicate resources
• Can mean muddled or insufficient communication between the
headquarters and its divisions
• Can result in a company competing with itself
Matrix organizational strcuture
• A matrix organizational chart looks like a grid, and it shows cross-
functional teams that form for special projects. For example, an
engineer may regularly belong to the engineering department (led by
an engineering director) but work on a temporary project (led by a
project manager). The matrix org chart accounts for both of these
roles and reporting relationships.
Matrix –project structure
• Matrix is a structure that assigns specialists from different functional areas to work on projects who then return to
their areas when the project is completed.
• Project is a structure in which employees continuously work on projects.
• As one project is completed, employees move on to the next project.
• One unique aspect of this design is that it creates a dual chain of command because employees in a matrix
organization have two managers
• “violates” the unity of command principle
• Unlike the matrix structure, a project structure has no formal departments where employees return at the
completion of a project.
• Advantages:
• Fluid and flexible design that can respond to environmental changes.
• Faster decision making.
• Disadvantages:
• Complexity of assigning people to projects
• Task and personality conflicts.
Example For instance, at design firm IDEO, project teams form, disband, and form again as the work requires. Employees “join” project teams because they bring
needed skills and abilities to that project. Once a project is completed, however, they move on to the next one.5
PROS AND CONS
• Pros
• Allows supervisors to easily choose individuals by the needs of a project
• Gives a more dynamic view of the organization
• Encourages employees to use their skills in various capacities aside from
their original roles
• Cons
• Presents a conflict between department managers and project managers
• Can change more frequently than other organizational chart types
Team-based org structure

• It’ll come as no surprise that a team-based organizational structure

groups employees according to (what else?) teams––think 
scrum teams or tiger teams. A team organizational structure is meant
to disrupt the traditional hierarchy, focusing more on problem solving,
cooperation, and giving employees more control.
Team based strcuture
• Pros
• Increases productivity, performance, and transparency by breaking down silos
• Promotes a growth mindset
• Changes the traditional career models by getting people to move laterally
• Values experience rather than seniority
• Requires minimal management
• Fits well with agile companies with scrum or tiger teams
• Cons
• Goes against many companies’ natural inclination of a purely hierarchical structure
• Might make promotional paths less clear for employees
Boundaryless Structure
• A structure that is not defined by or limited to artificial horizontal, vertical, or
external boundaries; includes virtual and network types of organizations.
• There are two types boundaries
• (1) internal—the horizontal ones imposed by work specialization and
departmentalization and the vertical ones that separate employees into
organizational levels and hierarchies
• (2) external—the boundaries that separate the organization from its
customers, suppliers, and other stakeholders.
• Advantages: Highly flexible and responsive. Utilizes talent wherever it’s found.
• Disadvantages: Lack of control. Communication difficulties.
Virtual organization
• A virtual organization typically consists of a small core of full-time
employees and outside specialists temporarily hired as needed to
work on projects.
• An example is Strawberry Frog, a global advertising agency with
offices in Amsterdam, New York, Sa ~o Paulo, and Mumbai. It does its
work with a relatively small administrative staff but has a global
network of virtual freelance employees who are hired to work as
needed on client projects. By relying on these virtual employees, the
company enjoys a network of talent without all the unnecessary
overhead and structural complexity.11
Network Organizations
• An organization that uses its own employees to do some work activities
and networks of outside suppliers to provide other needed product
components and work processes
• Food marketer Smart Balance Inc. with only 67 employees, the
company outsources almost every other organizational function
including manufacturing, product distribution, and sales. Smart
Balance’s structural approach is one that also eliminates organizational
boundaries and can be described as a network organization
• This organizational form is sometimes called a modular organization by
manufacturing firms
Learning structure
• A structure in which employees continually acquire and share new
knowledge and apply that knowledge.
• Advantages:
• Sharing of knowledge throughout organization.
• Sustainable source of competitive advantage.
• Disadvantages:
• Reluctance on part of employees to share knowledge for fear of losing their power
• Large numbers of experienced employees on the verge of retiring