Part 4: Chapter 17

Foundations of Organisation Structure

Learning Objectives

• Identify the six key elements that define an

organisation’s structure.
• Explain the characteristics of a bureaucracy.
• Describe a matrix organisation.
• Explain the characteristics of a virtual
organisation.
• Summarise why managers want to create
boundaryless organisations.
• Explain the behavioural implications of
different organisational designs.
What is organisational structure

An organisational structure defines how job tasks are formally

divided, grouped and coordinated.

There are 6 key elements managers need to address when they design
their organisation’s structure (pg.'s 402 – 405);
1. Work Specialisation – this is the degree to which tasks in the
organisation are subdivided into separate jobs. Rather than an entire
job being done by one individual, it is broken down into a number of
steps, each step being completed by a different employee.
What is organisational structure, cont.

2. Departmentalisation – Once jobs are divided through work

specialisation, these jobs need to be grouped so that common tasks
can be coordinated. There are a few ways to group activities; by
functions performed, by product type an organisation produces, by
territory, by process, etc.
3. Chain of Command – this is an unbroken line of authority that
answers questions like “To whom do I go if I have a problem?” and
“To whom am I responsible?”.
What is organisational structure, cont.

4. Span of Control – This determines the number of levels and

managers an organisation has. All things being equal, the wider or
larger the span, the more efficient the organisation.
5. Centralisation and Decentralisation – Centralisation is when
top management makes the organisation’s key decisions with little
or no input from senior or middle management. Decentralisation
is when middle or senior management are given the discretion to
make decisions and accept accountability for the outcome.
What is organisational structure, cont.

6. Formalisation – this is the degree to which jobs within an

organisation is standardised. If a job is highly formalised, then the
job incumbent has a minimum amount of discretion over what is to
be done, when it is to be done, and how he or she should do it.
Common organisational designs

There are three of the most common organisational designs (pg 406 – 407);
1. The simple structure – the simple structure is a “flat” organisation. It
usually has only two or three vertical levels, a loose body of employees and
one individual in whom the decision-making authority is centralised.
2. The bureaucracy – this is characterised by highly routine operating
tasks achieved through specialisation, strictly formalised rules and
regulations, tasks that are grouped into functional departments,
centralised authority, narrow spans of control and decision making that
follows the chain of command. Bureaucracy’s rely on standardised work
processes for coordination, efficiency and control.
Common organisational designs, cont.

3. The matrix structure – The structural characteristics of the

matrix is that it breaks the unity-of-command concept. Employees
in the matrix report to two line managers, in other words, the
matrix combines two forms of departmentalisation; functional
departmentalisation and product departmentalisation.
New design options

New structural options have been designed over the years to assist
firms in competing effectively;
1. The team structure – this is when management uses teams as its
central coordination device. The primary characteristics of the
team structure are that it breaks down departmental barriers and
decentralises decision making to the level of the work team.
Employees need to be generalists as well as specialists within the
organisation.
New design options, cont.

2. The virtual organisation – an organisation that outsources

noncore business functions and concentrates on what it does best,
i.e its core business.
3. The boundaryless organisation – the boundaryless
organisation seeks to eliminate the chain-of-command, have
limitless spans of control, and replace departments with
empowered teams.
Why do structures differ?

Further to what was discussed earlier, there are two extreme models of
organisational design;
1. Mechanistic model – this has extensive departmentalisation,
high formalisation, a limited information network and little
participation by lower-level employees in decision making.
2. Organic model – this model is flat, uses cross-hierarchical and
cross-functional teams, has low formalisation, possesses a
comprehensive information network and involves high
participation in decision making.
Why do structures differ, cont.?

The following are major forces that have been identified as causes or determinants of
an organisation’s structure (pg’s 411 – 413);
1. Strategy – if an organisation’s strategy has changed, the structure will need to be
modified to accommodate and support this change.
2. Organisation size – the correct structure can be determined by the size of an
organisation.
3. Technology – this refers to how an organisation transfers its inputs into outputs.
4. Environment – this is composed of forces that are outside the organisation and
potentially affect the organisation’s performance. The structure could be affected
because of environmental uncertainty.
Organisational designs and employee behaviour

An organisation’s structure can have significant effects on its

employees. Some employees like to be left alone, while others prefer the
security of a manager who is quickly available at all times. Different
employees react to different structures or structure changes, however,
the effect of structure on employee behaviour is undoubtedly reduced
where the selection process facilitates proper matching of individual
characteristics with organisational characteristics.