Chapter SIXTEEN

Foundations of
Organizational
Structure

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 What
What Is
Is Organizational
Organizational Structure?
Structure?

Organizational Structure
How job tasks are formally Key
KeyElements
Elements
divided, grouped, and •• Work
Workspecialization
specialization
coordinated
•• Departmentalization
Departmentalization
•• Chain
Chainofofcommand
command
•• Span
Spanofofcontrol
control
•• Centralization
Centralizationand
and
decentralization
decentralization
•• Formalization
Formalization

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 Key
Key Design
Design Questions
Questions and
and Answers
Answers for
for
Designing
Designing the
the Proper
Proper Organization
Organization Structure
Structure
The Key Question The Answer Is Provided by
1. To what degree are articles Work specialization
subdivided into separate jobs?
2. On what basis will jobs be grouped Departmentalization
together?
3. To whom do individuals and groups Chain of command
report?
4. How many individuals can a manager Span of control
efficiently and effectively direct?
5. Where does decision-making Centralization
authority lie? and decentralization
6. To what degree will there be rules Formalization
and regulations to direct employees
and managers?
E X H I B I T 16–1
E X H I B I T 16–1

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 What
What Is
Is Organizational
Organizational Structure?
Structure? (cont’d)
(cont’d)
Work Specialization
The degree to which tasks in the organization are
subdivided into separate jobs

Division
DivisionofofLabor
Labor
•• Makes
Makesefficient
efficientuse
useofofemployee
employeeskills
skills
•• Increases
Increasesemployee
employeeskills
skillsthrough
throughrepetition
repetition
•• Less
Lessbetween-job
between-jobdowntime
downtimeincreases
increasesproductivity
productivity
•• Specialized
Specializedtraining
trainingisismore
moreefficient
efficient
•• Allows
Allowsuse
useofofspecialized
specializedequipment
equipment

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 Economies
Economies andand Diseconomies
Diseconomies of
of Work
Work
Specialization
Specialization

E X H I B I T 16–2
E X H I B I T 16–2

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 What
What Is
Is Organizational
Organizational Structure?
Structure? (cont’d)
(cont’d)
Departmentalization
The basis by which jobs are grouped together

Grouping
GroupingActivities
Activitiesby:
by:
•• Function
Function
•• Product
Product
•• Geography
Geography
•• Process
Process
•• Customer
Customer

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 What
What Is
Is Organizational
Organizational Structure?
Structure? (cont’d)
(cont’d)
Authority
The rights inherent in a managerial position to give orders
and to expect the orders to be obeyed

Chain of Command
The unbroken line of authority that extends from the top
of the organization to the lowest echelon and clarifies
who reports to whom

Unity of Command
A subordinate should have only one superior to whom he
or she is directly responsible
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 What
What Is
Is Organizational
Organizational Structure?
Structure? (cont’d)
(cont’d)
Span of Control
The number of subordinates a manager can efficiently and
effectively direct
Concept
Concept
Wider
Widerspans
spansofofmanagement
managementincrease
increase
organizational
organizationalefficiency
efficiency

Narrow
NarrowSpan
SpanDrawbacks
Drawbacks
••Expense
Expenseofofadditional
additionallayers
layersofofmanagement
management
••Increased
Increasedcomplexity
complexityofofvertical
verticalcommunication
communication
••Encouragement
Encouragementofofoverly
overlytight
tightsupervision
supervisionand
and
discouragement
discouragementofofemployee
employeeautonomy
autonomy
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 Contrasting
Contrasting Spans
Spans of
of Control
Control

E X H I B I T 16–3
E X H I B I T 16–3

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 What
What Is
Is Organizational
Organizational Structure?
Structure? (cont’d)
(cont’d)
Centralization
The degree to which decision making is concentrated at a
single point in the organization.

Decentralization
The degree to which decision making is spread
throughout the organization.

Formalization
The degree to which jobs within the
organization are standardized.

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Source: S. Adams, Dogbert’s Big Book of Business, DILBERT E X H I B I T 16–4
E X H I B I T 16–4
reprinted by permission of United Features Syndicate, Inc.
© 2007 Prentice Hall Inc. All rights reserved.
 Common
Common Organization
Organization Designs
Designs
Simple Structure
A structure characterized by a low degree of
departmentalization, wide spans of control, authority
centralized in a single person, and little formalization

AASimple
SimpleStructure:
Structure:
Jack
JackGold’s
Gold’sMen’s
Men’s
Store
Store

E X H I B I T 16–5
E X H I B I T 16–5

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 Common
Common Organization
Organization Designs
Designs (cont’d)
(cont’d)

Bureaucracy
A structure of highly operating
routine tasks achieved through
specialization, very formalized
rules and regulations, tasks that
are grouped into functional
departments, centralized authority,
narrow spans of control, and
decision making that follows the
chain of command

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 The
The Bureaucracy
Bureaucracy
 Strengths  Weaknesses
– Functional economies – Subunit conflicts with
of scale organizational goals
– Minimum duplication of – Obsessive concern
personnel and with rules and
equipment regulations
– Enhanced – Lack of employee
communication discretion to deal with
– Centralized decision problems
making

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 Common
Common Organization
Organization Designs
Designs (cont’d)
(cont’d)
Matrix Structure
A structure that creates dual lines of authority and
combines functional and product departmentalization

Key
KeyElements
Elements
++Gains
Gainsthe
theadvantages
advantagesofoffunctional
functionaland
andproduct
product
departmentalization
departmentalizationwhile
whileavoiding
avoidingtheir
theirweaknesses
weaknesses
++Facilitates
Facilitatescoordination
coordinationofofcomplex
complexand
and
interdependent
interdependentactivities
activities
––Breaks
Breaksdown
downunity-of-command
unity-of-commandconcept
concept

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 Matrix
Matrix Structure
Structure (College
(College of
of Business
Business
Administration)
Administration)

(Director)

(Dean) Employee

E X H I B I T 16–6
E X H I B I T 16–6
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 New
New Design
Design Options
Options
Team Structure
The use of teams as the central device to coordinate
work activities

Characteristics
Characteristics
• •Breaks
Breaksdown
downdepartmental
departmentalbarriers
barriers
• •Decentralizes
Decentralizesdecision
decisionmaking
makingtotothe
theteam
teamlevel
level
• •Requires
Requiresemployees
employeestotobebegeneralists
generalistsasaswell
wellas
as
specialists
specialists
• •Creates
Createsaa“flexible
“flexiblebureaucracy”
bureaucracy”

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 New
New Design
Design Options
Options (cont’d)
(cont’d)
Virtual Organization
A small, core organization that outsources its major
business functions
Highly centralized with little or no departmentalization

Concepts
Concepts
Advantage:
Advantage:Provides
Providesmaximum
maximumflexibility
flexibilitywhile
while
concentrating
concentratingon
onwhat
whatthe
theorganization
organizationdoes
doesbest
best
Disadvantage:
Disadvantage:Reduced
Reducedcontrol
controlover
overkey
keyparts
partsofof
the
thebusiness
business

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 AA Virtual
Virtual Organization
Organization

E X H I B I T 16–7
E X H I B I T 16–7

© 2007 Prentice Hall Inc. All rights reserved.

 New
New Design
Design Options
Options (cont’d)
(cont’d)
Boundaryless Organization
An organization that seeks to eliminate the chain of
command, have limitless spans of control, and replace
departments with empowered teams

T-form
T-formConcepts
Concepts
Eliminate
Eliminatevertical
vertical(hierarchical)
(hierarchical)and
andhorizontal
horizontal
(departmental)
(departmental)internal
internalboundaries
boundaries
Breakdown
Breakdownexternal
externalbarriers
barrierstotocustomers
customersand
and
suppliers
suppliers

© 2007 Prentice Hall Inc. All rights reserved.

 Why
Why Do
Do Structures
Structures Differ?
Differ?
Mechanistic Model
A structure characterized by extensive
departmentalization, high formalization, a
limited information network, and
centralization

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 Why
Why Do
Do Structures
Structures Differ?
Differ?
Organic Model
A structure that is flat, uses cross-hierarchical and cross-
functional teams, has low formalization, possesses a
comprehensive information network, and relies on
participative decision making

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Mechanistic
Mechanistic versus
versus Organic
Organic Models
Models

E X H I B I T 16–8
E X H I B I T 16–8

© 2007 Prentice Hall Inc. All rights reserved.

 Why
Why Do
Do Structures
Structures Differ?
Differ? —Strategy
—Strategy
Innovation Strategy
A strategy that emphasizes the introduction of major new
products and services

Cost-minimization Strategy
A strategy that emphasizes tight cost controls, avoidance
of unnecessary innovation or marketing expenses, and
price cutting

Imitation Strategy
A strategy that seeks to move into new products or new
markets only after their viability has already been proven

© 2007 Prentice Hall Inc. All rights reserved.

 The
The Strategy-Structure
Strategy-Structure Relationship
Relationship
Strategy Structural Option

Innovation Organic: A loose structure; low

specialization, low formalization,
decentralized

Cost minimization Mechanistic: Tight control; extensive

work specialization, high formalization,
high centralization

Imitation Mechanistic and organic: Mix of

loose with tight properties; tight
controls over current activities and
looser controls for new undertakings

E X H I B I T 16–9
E X H I B I T 16–9

© 2007 Prentice Hall Inc. All rights reserved.

 Why
Why Do
Do Structures
Structures Differ?
Differ? —Size
—Size
Size
How the size of an organization affects its structure. As an
organization grows larger, it becomes more mechanistic.

Characteristics
Characteristicsofoflarge
largeorganizations:
organizations:
••More
Morespecialization
specialization
••More
Morevertical
verticallevels
levels
••More
Morerules
rulesand
andregulations
regulations

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 Why
Why Do
Do Structures
Structures Differ?
Differ? —Technology
—Technology
Technology
How an organization transfers its
inputs into outputs

Characteristics
Characteristicsofofroutineness
routineness(standardized
(standardized
or
orcustomized)
customized)ininactivities:
activities:
••Routine
Routinetechnologies
technologiesare
areassociated
associatedwith
withtall,
tall,
departmentalized
departmentalizedstructures
structuresand
andformalization
formalization
ininorganizations.
organizations.
••Routine
Routinetechnologies
technologieslead
leadtotocentralization
centralization
when
whenformalization
formalizationisislow.
low.
••Nonroutine
Nonroutinetechnologies
technologiesare
areassociated
associatedwith
with
delegated
delegateddecision
decisionauthority.
authority.
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 Why
Why Do
Do Structures
Structures Differ?
Differ? —Environment
—Environment
Environment
Institutions or forces outside the organization that
potentially affect the organization’s performance

Key
KeyDimensions
Dimensions
•• Capacity:
Capacity:The
Thedegree
degreetotowhich
whichan
anenvironment
environmentcan
can
support
supportgrowth
growth
•• Volatility:
Volatility:The
Thedegree
degreeofofinstability
instabilityininthe
theenvironment
environment
•• Complexity:
Complexity:The
Thedegree
degreeofofheterogeneity
heterogeneityand
and
concentration
concentrationamong
amongenvironmental
environmentalelements
elements

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 The
The Three-Dimensional
Three-Dimensional Model
Model of
of the
the
Environment
Environment
Volatility

Capacity

Complexity

E X H I B I T 16–10
E X H I B I T 16–10

© 2007 Prentice Hall Inc. All rights reserved.

 “Bureaucracy
“Bureaucracy Is
Is Dead”
Dead”
 Characteristics of  Why Bureaucracy
Bureaucracies Survives
– Specialization – Large size prevails
– Formalization – Environmental
– Departmentalization turbulence can be
– largely managed
Centralization
– Standardization
– Narrow spans of
control achieved through
hiring people who
– Adherence to a chain have undergone
of command extensive educational
training
– Technology maintains
control

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 Organizational
Organizational Designs
Designs and
and Employee
Employee
Behavior
Behavior
Research
ResearchFindings
Findings
•• Work
Workspecialization
specializationcontributes
contributestotohigher
higheremployee
employee
productivity,
productivity,but
butititreduces
reducesjob
jobsatisfaction.
satisfaction.
•• The
Thebenefits
benefitsofofspecialization
specializationhave
havedecreased
decreasedrapidly
rapidlyas
as
employees
employeesseek
seekmore
moreintrinsically
intrinsicallyrewarding
rewardingjobs.
jobs.
•• The
Theeffect
effectofofspan
spanofofcontrol
controlon
onemployee
employeeperformance
performanceisis
contingent
contingentupon
uponindividual
individualdifferences
differencesand
andabilities,
abilities,task
task
structures,
structures,and
andother
otherorganizational
organizationalfactors.
factors.
•• Participative
Participativedecision
decisionmaking
makinginindecentralized
decentralized
organizations
organizationsisispositively
positivelyrelated
relatedtotojob
jobsatisfaction.
satisfaction.

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 Organization
Organization Structure:
Structure: Its
Its Determinants
Determinants
and
and Outcomes
Outcomes

Associated
with

Implicit Models of
Organizational Structure
Perceptions that people hold
regarding structural variables
formed by observing things
around them in an unscientific
fashion E X H I B I T 16–11
E X H I B I T 16–11

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Chapter
Chapter Check-up:
Check-up: Structure
Structure

What kind of structure might someone who

has a low tolerance for ambiguity feel most
comfortable in?

Bureaucratic
Organic
Matrix
Virtual

Discuss
Discusswith
withyour
yourneighbor
neighbor why
whyaavirtual
virtualorganization
organization
would
wouldnot
notmake
makethis
thissame
sameperson
personfeel
feelcomfortable.
comfortable.
© 2007 Prentice Hall Inc. All rights reserved.
Chapter
Chapter Check-up:
Check-up: Structure
Structure

If someone has a high need for

affiliation, would a virtual organization be
a good fit for him or her? Why or why
not?

Discuss
Discusswith
withaaclassmate
classmatewhether
whether or or not
not an
anorganic
organic
organization
organization would
wouldbebe aagood
goodfit
fit for
forthis
thissame
sameperson.
person.

© 2007 Prentice Hall Inc. All rights reserved.

Chapter
Chapter Check-up:
Check-up: Structure
Structure

With
Withwhich
whichtypetypeof ofstructure
structuredo
do
you
youthink
think trust
trust isismost
most
necessary?
necessary?Why?
Why?AreArethe the
“substitutes
“substitutesfor
fortrust”
trust” that
that are
are
potentially
potentiallybuilt
built into
intosome
some
structures?
structures?IfIfso,
so, which
whichones?
ones?

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