1. Organizational Structure McGraw-Hill/Irwin McShane/Von Glinow OB 5e Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

2. 13-2 Choosing an Organizational Structure at BioWare Ray Muzyka (left) and Greg Zeschuk (right) designed an organizational structure for their electronic games company, Bioware, that balances the need for teamwork and information sharing.

3. 13-3 Organizational Structure Defined Division of labor and patterns of coordination, communication, workflow, and formal power that direct organizational activities. Relates to many OB topics e.g. job design, teams, power, org culture, org change

4. 13-4 Division of Labor  Subdividing work into separate jobs assigned to different people  Division of labor is limited by ability to coordinate work  Potentially increases work efficiency  Necessary as company grows and work becomes more complex

5. 13-5 Coordinating Work Activities 1. Informal communication Sharing information, forming common mental models Allows flexibility Vital in nonroutine and ambiguous situations Easiest in small firms Applied in team-based structures Includes integrator roles

6. 13-6 Coordinating Work Activities 2. Formal hierarchy Direct supervision Assigns formal (legitimate) power to manage others Coordination strategy for departmentalization 3. Standardization a) Standardized processes (e.g., job descriptions) b) Standardized outputs (e.g., sales targets) c) Standardized skills (e.g., training)

7. 13-7 Elements of Organizational Structure Span of Control Centralization Department- alization Formalization Elements of Organizational Structure

8. 13-8 Span of Control Number of people directly reporting to the next level Assumes coordination through direct supervision Wider span of control possible when: Other coordinating mechanisms present Routine tasks Low employee interdependence

9. 13-9 Tall vs Flat Structures As companies grow, they: Build taller hierarchy Widen span, or both Problems with tall hierarchies Overhead costs Worse upward information Focus power around managers, so staff less empowered

10. 13-10 Issues with Tall vs Flatter Structures  Firms moving toward flatter structures (delayering) because taller hierarchies have: Higher mgt overhead costs Less information flow Less staff empowerment  But also problems with flatter hierarchies Undermines management functions Increases workload and stress Restricts management career development

11. 13-11 Formal decision making authority is held by a few people, usually at the top Centralization Decision making authority is dispersed throughout the organization Decentralization Centralization and Decentralization

12. 13-12 Formalization  The degree to which organizations standardize behavior through rules, procedures, formal training, and related mechanisms.  Formalization increases as firms get older, larger, and more regulated  Problems with formalization Reduces organizational flexibility Discourages organizational learning/creativity Reduces work efficiency Increases job dissatisfaction and work stress

13. 13-13 Growing an Organic Taxi Award-winning TAXI relies on an organic structure to maintain its creative advantage. TAXI cofounder Paul Lavoie (bottom right in this New York City office photo) says that most firms are “so layered that a great idea was easily crushed…We needed a flexible infrastructure, able to move with the pace of change. TAXI started lean and nimble, and remains so today.”

14. 13-14 Mechanistic vs. Organic Structures  Organic Structure Wide span of control Little formalization Decentralized decisions  Mechanistic Structure Narrow span of control High formalization High centralization

15. 13-15 Departmentalization Specifies how employees and their activities are grouped together Three functions of departmentalization 1. Establishes chain of command 2. Creates common mental models, measures of performance, etc 3. Encourages coordination through informal communication

16. 13-16 Organizes employees around specific knowledge or other resources (e.g., marketing, production) CEO FinanceProduction Marketing Functional Organizational Structure

17. 13-17 Evaluating Functional Structures  Benefits Economy of scale Supports professional identity and career paths Easier supervision  Limitations More emphasis on subunit than organizational goals Higher dysfunctional conflict Poorer coordination -- requires more controls

18. 13-18 Organizes employees around outputs, clients, or geographic areas Divisional Structure CEO HealthcareLightingProducts Consumer Lifestyle

19. 13-19 Divisional Structure  Different forms of divisional structure Geographic structure Product structure Client structure  Best form depends on environmental diversity or uncertainty  Movement away from geographic form Less need for local representation Reduced geographic variation More global clients

20. 13-20 Evaluating Divisional Structures  Benefits Building block structure -- accommodates growth Focuses on markets/products/clients  Limitations Duplication, inefficient use of resources Specializations are dispersed--silos of knowledge Politics/conflict when two forms of equal value

21. 13-21 Team-Based Structure  Self-directed work teams  Teams organized around work processes  Typically organic structure Wide span of control – many employees work without close supervision Decentralized with moderate/little formalization  Usually found within divisionalized structure

22. 13-22 Evaluating Team-Based Structures  Benefits Responsive, flexible Lower admin costs Quicker, more informed decisions  Limitations Interpersonal training costs Slower during team development Role ambiguity increases stress Problems with supervisor role changes Duplication of resources

23. 13-23 Bioware’s Matrix Structure Ray Muzyka (left) and Greg Zeschuk (right) adopted a matrix organizational structure for their electronic games company, Bioware, because it balances the need for teamwork and information sharing.

24. 13-24 Audio Dept Leader Software Dept Leader Art Dept Leader Game1 Project Leader Game2 Game3 Matrix Structure (Project-based) CEO Employees ( ) are temporarily assigned to a specific project team and have a permanent functional unit

25. 13-25 Evaluating Matrix Structures  Benefits Uses resources and expertise effectively Improves communication, flexibility, innovation Focuses specialists on clients and products Supports knowledge sharing within specialty Solution when two divisions have equal importance  Limitations Increases goal conflict and ambiguity Two bosses dilutes accountability More conflict, organizational politics, and stress

26. 13-26 Core Firm Product development partner (U.S.A.) Callcenter partner (Philippines) Accounting partner (U.S.A.) Package design partner (UK) Assembly partner (Mexico) Network Organizational Structure Alliance of firms creating a product or service Supporting firms beehived around a “hub” or “core” firm

27. 13-27 Evaluating Network Structures  Benefits Highly flexible Potentially better use of skills and technology Not saddled with same resources for all products  Limitations Exposed to market forces Less control over subcontractors than in-house

28. 13-28 External Environment & Structure Dynamic High rate of change Use team-based, network, or other organic structure Stable Steady conditions, predictable change Use mechanistic structure Complex Many elements (such as stakeholders) Decentralize Simple Few environmental elements Less need to decentralize

29. 13-29 Diverse Several products, clients, regions Use divisional form aligned with the diversity Hostile Competition and resource scarcity Use organic structure for responsiveness Integrated Single product, client, place Use functional structure, or geographic division if global Munificent Plenty of resources and product demand Less need for organic structure External Environment & Structure (con’t)

30. 13-30 Effects of Organizational Size As organizations grow, they have:  More division of labor (job specialization)  Greater use of standardization  More hierarchy and formalization  More decentralization

31. 13-31 Technology and Structure  Technology refers to mechanisms or processes by which an organization turns out its product or service  Two contingencies: Variability -- the number of exceptions to standard procedure that tend to occur. Analyzability -- the predictability or difficulty of the required work

32. 13-32 Organizational Strategy  Structure follows strategy Strategy points to the environments in which the organization will operate Leaders decide which structure to apply  Differentiation strategy Providing unique products or attracting clients who want customization  Cost leadership strategy Maximize productivity in order to offer competitive pricing

33. Organizational Structure 13-33 McGraw-Hill/Irwin McShane/Von Glinow OB 5e Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.