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Organizational Structure
• Organizational structure is the formal
arrangement of jobs within an organization
• This structure, which can be shown visually in
an organizational chart, also serves many
purposes. (See Exhibit 10-1.)

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Exhibit 10-1: Purposes of Organizing

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Designing Organizational Structure
• Organizing - arranging and structuring work to accomplish an
organization’s goals.
• Organizational Structure - the formal arrangement of jobs
within an organization.
• Organizational Design - a process involving decisions about
six key elements:
• Work specialization
• Departmentalization
• Chain of command
• Span of control
• Centralization and decentralization
• Formalization
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1. Work Specialization

–The degree to which tasks in the organization are

divided into separate jobs with each step completed
by a different person.
–Overspecialization can result in human
diseconomies such as boredom, fatigue, stress, poor
quality, increased absenteeism, and higher turnover.

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2. Departmentalization
• Functional • Process
– Grouping jobs by – Grouping jobs on the
functions performed basis of product or
• Product customer flow
– Grouping jobs by • Customer
product line – Grouping jobs by type of
• Geographical customer and needs
– Grouping jobs on the
basis of territory or
geography

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3. Chain of Command
• The continuous line of authority that extends
from upper levels of an organization to the
lowest levels of the organization
• clarifies who reports to whom.

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3. Chain of Command cont.
• Authority - the rights inherent in a managerial
position to tell people what to do and to
expect them to do it.
• Responsibility - the obligation or expectation
to perform.
• Unity of Command - the concept that a
person should have one boss and should
report only to that person.

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4. Span of Control
• Span of Control - the number of employees who can
be effectively and efficiently supervised by a
manager.

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Width of span is affected by:
• Skills and abilities of the manager
• Employee characteristics
• Characteristics of the work being done
• Similarity of tasks
• Complexity of tasks
• Physical proximity of subordinates
• Standardization of tasks
• Sophistication of the organization’s information system
• Strength of the organization’s culture
• Preferred style of the manager

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Exhibit 10-6: Contrasting Spans of Control

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5. Centralization & Decentralization

• Centralization - the degree to which decision

making is concentrated at upper levels in the
organization.
• This is common in organizations in which top managers
make all the decisions and lower-level employees
simply carry out those orders.

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5. Centralization & Decentralization cont.

• Decentralization - when an organization

relegates decision making to managers who
are closest to the action.
• Employee Empowerment
– Increasing the decision-making authority (power)
of employees

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 Exhibit 10-7: Centralization or
Decentralization

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6. Formalization
• Formalization - the degree to which jobs
within the organization are standardized and
the extent to which employee behavior is
guided by rules and procedures.
– Highly formalized jobs offer little discretion over
what is to be done.
– Low formalization means fewer constraints on
how employees do their work.

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Mechanistic Organization and Organic Organization

Mechanistic Organization
An organizational design that’s rigid and tightly
controlled.
Organic Organization
An organizational design that’s highly adaptive
and flexible

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 Exhibit 10-8: Mechanistic Versus
Organic Organizations

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Contingency Factors
• Structural decisions are influenced by:
– Overall strategy of the organization
– Size of the organization
– Technology use employed by the organization
– Degree of environmental uncertainty

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Contingency Factors (cont.)
• Strategy Frameworks:
– Innovation
• Pursuing competitive advantage through meaningful
and unique innovations favors an organic structuring
– Cost minimization
• Focusing on tightly controlling costs requires a
mechanistic structure for the organization

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Contingency Factors (cont.)
• Strategy and Structure
– Achievement of strategic goals is facilitated by
changes in organizational structure that
accommodate and support change.
• Size and Structure
– As an organization grows larger, its structure tends
to change from organic to mechanistic with
increased specialization, departmentalization,
centralization, and rules/regulations.
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Contingency Factors (cont.)
• Technology and Structure
– Organizations adapt their structures to their technology.
– Woodward’s classification of firms based on the complexity
of the technology employed:
• Unit production of single units or small batches
• Mass production of large batches of output
• Process production in continuous process of outputs
– Routine technology = mechanistic organizations
– Non-routine technology = organic organizations

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Contingency Factors (cont.)
• Environmental Uncertainty and Structure
– Mechanistic organizational structures tend to be
most effective in stable and simple environments.
– The flexibility of organic organizational structures
is better suited for dynamic and complex
environments.

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Exhibit 10-9: Woodward’s Findings on
Technology and Structure

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Traditional Designs
• Simple structure
• Low departmentalization, wide spans of control, centralized
authority, little formalization

• Functional structure
• Departmentalization by function
• Operations, finance, marketing, human resources, and product
research and development

• Divisional structure
• Composed of separate business units or divisions with limited
autonomy under the coordination and control of the parent
corporation

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 Exhibit 10-10: Traditional
Organizational Designs

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Contemporary Organizational Designs

• Team Structure - an organizational structure in

which the entire organization is made up of
work teams
• Matrix Structure - an organizational structure
that assigns specialists from different
functional departments to work on one or
more projects

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 Contemporary Organizational
Designs (cont.)
• Project Structure - an organizational structure
in which employees continuously work on
projects
• Boundaryless Organization - an organization
whose design is not defined by, or limited to,
the horizontal, vertical, or external boundaries
imposed by a predefined structure. Includes:

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 Contemporary Organizational
Designs (cont.)
a. Virtual Organization - an organization that
consists of a small core of full-time employees
and outside specialists temporarily hired as
needed to work on projects.
b. Network Organization - an organization that
uses its own employees to do some work
activities and networks of outside suppliers to
provide other needed product components or
work processes.
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 Contemporary Organizational
Designs (cont.)
• Learning Organization - an organization that
has developed the capacity to continuously
learn, adapt, and change

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 Exhibit 11-1: Contemporary
Organizational Designs (cont.)

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 Exhibit 11-1: Contemporary
Organizational Designs (cont.)

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 Exhibit 11-2: Example of a
Matrix Organization

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Internal Collaboration
• Cross-functional team - a work team
composed of individuals from various
functional specialties.
• Task force (or ad hoc committee) - a
temporary committee or team formed to
tackle a specific short-term problem affecting
several departments.

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Exhibit 11-3: Benefits and Drawbacks of
Collaborative Work

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Internal Collaboration (cont.)
• Communities of practice - groups of people
who share a concern, a set of problems, or a
passion about a topic, and who deepen their
knowledge and expertise in that area by
interacting on an ongoing basis.

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External Collaboration
• Open innovation - opening up the search for
new ideas beyond the organization’s
boundaries and allowing innovations to easily
transfer inward and outward.
• Strategic partnerships - collaborative
relationships between two or more
organizations in which they combine their
resources and capabilities for some business
purpose.
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Exhibit 11-5: Benefits and Drawbacks of
Open Innovation

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Flexible Work Arrangements
• Telecommuting - a work
arrangement in which
employees work at
home and are linked to
the workplace by
computer.

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Flexible Work Arrangements (cont.)
• Compressed workweek
- a workweek where
employees work longer
hours per day but fewer
days per week

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Flexible Work Arrangements (cont.)
• Flextime (or flexible work hours) - a
scheduling system in which employees are
required to work a specific number of hours a
week but are free to vary those hours within
certain limits.
• Job sharing - the practice of having two or
more people split a full-time job.

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Contingent Workforce
• Contingent workers -
temporary, freelance, or
contract workers whose
employment is
contingent upon
demand for their
services.

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