1. Basic Organization Designs
PART III: Organizing 5
Chapter 5
Basic Organization Designs
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2. Learning Outcomes After reading this chapter, I will be able to:
Identify and define the six elements of organization structure.
Describe the advantages and disadvantages of work specialization.
Contrast authority and power.
Identify the five different ways by which management can departmentalize.
Contrast mechanistic and organic organizations.
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3. Learning Outcomes (cont’d) After reading this chapter, I will be able to:
Summarize the effect of strategy, size, technology, and environment on organization structures.
Contrast the divisional and functional structures.
Explain the strengths of the matrix structure.
Describe the boundaryless organization and what elements have contributed to its development.
Explain what is meant by the term learning organization.
Describe what is meant by the term organization culture.
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4. The Elements of Structure
Organization design
A process in which managers develop or change their organization’s structure.
Work specialization
A component of organization structure that involves having each discrete step of a job done by a different individual rather than having one individual do the whole job.
Organizational design is the process by which managers alter the structure of their organization to meet the implementation demands of its chosen strategy.
Division of labor, or work specialization, describes the degree to which organizational tasks are subdivided into separate jobs. An entire job is not done by one person. Instead, it is divided into discrete steps, each one completed by a different person.
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5. Economies and Diseconomies of Work Specialization
Early proponents believed that work specialization could lead to indefinitely increasing productivity. Since specialization was not widely practiced at the turn of the twentieth century, their belief was reasonable.
By the late 1940s, work specialization enabled manufacturing firms to make the most effective use of their employees’ skills. So, managers believed that division of labor offered an unending source of increased productivity.
By the 1960s, however, the human diseconomies resulting from work specialization began to offset the economic advantages. Managers today realize that while division of labor is appropriate for some jobs, productivity in other jobs can be increased through enlarging, not narrowing, job activities.
Exhibit 5.1
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6. Organizational Structure: Control
Chain of command
The continuous line of authority that extends from upper organizational levels to the lowest levels and clarifies who reports to whom.
Unity of Command
The management principle that no person should report to more than one boss.
Span of control
The number of subordinates a manager can direct efficiently and effectively.
How many employees can a manager efficiently and effectively direct?
Some advocate small spans of control because they help managers maintain close control; but, there are several drawbacks: they require more managers and are more costly, they retard vertical communication, and they foster tight controls and limited employee autonomy.
In contrast, wide spans of control reduce costs, cut overhead, expedite decision making, increase flexibility, empower employees, and promote customer contact.
All things being equal, the broader the span of control, the more efficient the organization.
Organizational variables that influence how a company will determine an appropriate span of control: similarity and complexity of employee tasks, the proximity of employees, the presence of standardized procedures, the capabilities of the information management system, the strength of the firm’s value system, and the preferred style of management.
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7. Chain of Command
As a link in the chain of command, a manager with line authority has the right to direct the work of employees and to make certain decisions without consulting anyone. Of course, in the chain of command, every manager is also subject to the direction of his or her superior.
Exhibit 5.2
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8. Organizational Structure: Control (cont’d)
Authority
The rights inherent in a managerial position to give orders and expect them to be obeyed.
Power
An individual’s capacity to influence decisions.
Responsibility
An obligation to perform assigned activities.
Authority refers to the rights inherent in a managerial position, such as giving orders and expecting that the orders will be obeyed. Authority, therefore, is related to one’s position within an organization and ignores the personal characteristics of the individual manager. When managers delegate authority, they must allocate commensurate responsibility to perform.
How does the contemporary view of authority and responsibility differ from the historical view? Early management scholars assumed that the authority and rights inherent in one’s formal position were the sole source of influence; so, managers were all powerful.
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9. Types of Organizational Authority
Line authority
The position authority (given and defined by the organization) that entitles a manager to direct the work of operative employees.
Staff authority
Positions that have some authority (e.g., organization policy enforcement) but that are created to support, assist, and advise the holders of line authority.
Early management writers distinguished between two forms of authority: line and staff.
Line authority entitles a manager to direct the work of an employee. It is the employer-employee relationship that extends from the top of the organization to the lowest echelon, according to the chain-of-command (see the following chart).
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10. Line Versus Staff Authority
If the term line is used to differentiate between levels of management, line managers contribute directly to the achievement of organizational objectives. Managers with staff authority support, assist, and advise those who hold line authority. The chart above illustrates line and staff authority.
Early organizations were simpler; staff was less important, and management was only minimally dependent on technical specialists. Modern theorists now realize that nonmanagers can have power and that power is not perfectly correlated with one’s job.
Exhibit 5.3
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11. Authority Versus Power: Authority
Authority is a right based on one’s position in an organization. It goes with the job. Power, on the other hand, refers to an individual’s capacity to influence decisions. Authority, therefore, is a part of the larger concept of power. Authority and power are compared in this slide and the one that follows.
As the slide above illustrates, authority is a two-dimensional concept: that is, the higher one is in an organization, the more authority he or she has.
Exhibit 5.4a
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12. Authority Versus Power: Power
Unlike authority (two-dimensional), power is a three-dimensional concept: that is, it includes not only the functional and hierarchical dimensions, but also a third dimension called centrality or one’s distance from the center, the core of power.
The cone analogy above acknowledges two facts: (1) the higher one moves in an organization, the closer he or she is to the power core; and (2) even those without authority can wield power because one can move horizontally inward toward the power core without moving up.
This analogy asserts that power can be based on five sources: coercive, reward, legitimate, expert, and referent. These five sources are presented in the next slide.
Exhibit 5.4b
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13. Types of Power Coercive power Power based on fear.
Reward power Power based on the ability to distribute something that others value.
Legitimate power Power based on one’s position in the formal hierarchy.
Expert power Power based on one’s expertise, special skill, or knowledge.
Referent power Power based on identification with a person who has desirable resources or personal traits.
French and Raven have identified five sources, or bases, of power:
Coercive power is based on fear.
Reward power is based on the ability to distribute something that others value.
Legitimate power is based on one’s position in the formal hierarchy.
Expert power is based on one’s expertise, special skill, or knowledge.
Referent power is based on identification with a person who has desirable resources or personal traits.
Exhibit 5.5
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14. Centralization And Decentralization
A function of how much decision-making authority is pushed down to lower levels in an organization; the more centralized an organization, the higher the level at which decisions are made
Decentralization
The pushing down of decision-making authority to the lowest levels of an organization
The term centralization refers to the degree to which decision making is concentrated at a single point in the organization. The term decentralization means that significant input is provided by lower-level personnel.
Traditional organizations were structured in a pyramid, with power and authority centralized at the top. In order to respond to the dynamics of the contemporary marketplace, organizations today are more decentralized to solve problems more quickly and to obtain increased employee input and commitment to organizational goals.
However, while many production decisions are pushed down to lower levels in the organization, or even outside to some suppliers, financial and product distribution decisions still remain in the hands of senior management
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15. Types of Departmentalization
Functional
Product
Customer
Geographic
Process
Specialists are placed in a department under the direction of a manager. The department is based on work functions, the product or service, the target customer or client, the geographic territory, or the production process.
Exhibit 5.6
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16. Departmentalization Functional departmentalization
The grouping of activities by functions performed
Product departmentalization
The grouping of activities by product produced
Customer departmentalization
The grouping of activities by common customers
Geographic departmentalization
The grouping of activities by territory
Process departmentalization
The grouping of activities by work or customer flow
Activities can be grouped according to function to pursue economies of scale by placing employees with shared skills and knowledge into work-groups.
Tasks can also be grouped according to a specific product, thus placing all activities related to the product under one manager.
Jobs may be grouped according to the type of customer served by the organization.
If an organization’s customers are geographically dispersed, it can group jobs based on geography.
If each process requires different skills, process departmentalization allows homogenous activities to be categorized.
How does the contemporary view of departmentalization differ from the historical view? While most large organizations still use most of the traditional departmental groupings, rigid departmentalization is being complemented by the use of interdepartmental teams. Intense competition has refocused the attention of managers on monitoring the needs of customers and responding to them.
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17. Contingency Variables Affecting Structure
Mechanistic organization
The bureaucracy; a structure that is high in specialization, formalization, and centralization
Organic organization
An adhocracy; a structure that is low in specialization, formalization, and centralization
Structure follows strategy
The structure that an organization selects to achieve its objectives is based on strategy. After studying nearly 100 large companies, Alfred Chandler concluded that changes in corporate strategy foster changes in an organization’s structure. Specifically, he found that organizations usually begin with a single product or line. The simplicity of the strategy requires only a simple form of structure. As organizations grow, their strategies become more elaborate and ambitious. To exemplify this structure-strategy relationship, consider that organizations pursuing a differentiation strategy must innovate to survive; so, because it is flexible and adaptable, an organic structure complements this strategy. A cost-leadership strategy, on the other hand, seeks stability and efficiency. A mechanistic structure would be best for this type of strategy.
While the size of an organization significantly influences its structure, the relationship is non-linear. Large organizations (2,000+ employees) have more specialization, departmentalization, vertical levels, rules, and regulations than do smaller organizations. However, size affects the organization at a decreasing rate and becomes less important as an organization expands.
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18. Mechanistic versus Organic Organizations
Rigid hierarchical relationships
Fixed duties
Many rules
Formalized communication channels
Centralized decision authority
Taller structures
Collaboration (both vertical and horizontal)
Adaptable duties
Few rules
Informal communication
Decentralized decision authority
Flatter structures
Rigid and tightly controlled, the mechanistic organization is characterized by high specialization, extensive departmentalization, narrow spans of control, high formalization, downward communication, high centralization, and little participation by low-level members in decision making. Jobs are standardized, simple, and routine. There is also strict adherence to the chain of command. In its ideal form, the mechanistic organization is an “efficiency machine,” well lubricated by rules, regulations, and routines.
The organic organization is a direct contrast to the mechanistic form. It is characterized by a flat structure, flexibility, use of cross-functional teams, adaptability, comprehensive information networking, and decentralization. Rather than having standardized jobs and regulations, the organic structure’s flexibility allows it to change rapidly as needs require. While there is a division of labor, jobs are not standardized, and employees are well-trained and empowered to make job-related decisions. The net effect is that workers need a minimal degree of formal rules and little direct supervision.
With these two models in mind, we are now prepared to address the question: Why are some organizations structured along more mechanistic lines while others lean toward organic characteristics?
Exhibit 5.7
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19. Technology and Structure
Unit production
Production in terms of units or small batches
Mass production
Production in terms of large batch manufacturing
Process production
Production in terms of continuous processing
Organizations use technology to transform inputs into outputs. The British scholar, Joan Woodward, studied small manufacturing firms in England and categorized them based on the sizes of their production runs.
She reached two conclusions: (1) distinct relationships exist between a firm’s technology classification and its structure; (2) organizational effectiveness is contingent upon “fit” between technology and structure.
Her study, like many others, focused on the processes or methods that companies can use to transform inputs into outputs and how they differ according to degree of routineness.
Organic organizations are most effective in dynamic, uncertain environments. Mechanistic organizations are ill-equipped to function in such environments and are most effective in stable environments. To compete in the global village, many managers have redesigned their organizations to make them more organic.
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20. Organization Design Applications
Simple structure
An organization that is low in specialization and formalization but high in centralization
Functional structure
An organization in which similar and related occupational specialties are grouped together
Divisional structure
An organization made up of self-contained units
Placing organizations into only two categories—mechanistic and organic—does not capture the nuances and realities of modern organizations. The following slides present a number of practical organization design options. We will start with the simple structure—the form that almost all new organizations begin with and that continues to be used by managers of small businesses.
Popular in small businesses owned and managed by same person, the simple structure has several characteristics: a low degree of departmentalization, wide spans of control, centralized authority, little formalization, and a flat structure. This fast, flexible structure is inexpensive to maintain and promotes clear accountability. However, as the organization grows, low formalization and high centralization can cause information over-load at the top. And, this structure is risky because everything depends on one person.
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21. Functional Structure
The oft-used early paradigm of business structures, a bureaucracy has the following characteristics: highly specialized operating tasks, formalized rules and regulations, tasks grouped into functional departments, centralized authority, narrow spans of control, and chain-of-command decision making.
This bureaucratic/functional structure expedites the efficient performance of standardized activities. Furthermore, rules and regulations allow bureaucracies to substitute less-talented (less-costly) managers for creative, experienced decision makers.
This structure does have several drawbacks. Specialization can create jurisdictional disputes or “turf-wars” as functional unit goals override the goals of the organization. Plus, bureaucrats resist change and avoid outcome accountability.
Given environmental volatility, however, many bureaucracies have become less rigid and more entrepreneurial through decentralizing decision making, designing work around teams, and developing strategic alliances.
Exhibit 5.8
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22. Divisional Structure Exhibit 5.9
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23. Other Organizational Structures
Matrix structure
An organization in which specialists from functional departments are assigned to work on one or more projects led by a project manager
Team-based structure
An organization that consists entirely of work groups or teams
Boundaryless organization
An organization that is not defined or limited by boundaries or categories imposed by traditional structures
The matrix structure assigns functional specialists to interdisciplinary teams that are supervised by project leaders. This structure combines product departmentalization and functional departmentalization.
In smaller companies, the team structure can define the entire organization. More often, especially in larger organizations, the team structure complements what is typically a bureaucracy. Such an arrangement allows the organization to achieve the efficiency of standardization while gaining flexibility.
The boundaryless organization is made possible by networked computers that expedite communication across intra-organizational and inter-organizational boundaries. The elimination of boundaries in contemporary organizations is being driven by global markets and competitors, innovative technology, and volatile business environments. This method minimizes the chain of command, limits spans of control, and replaces departments with empowered teams. Cross-hierarchical teams, participative decision making, and 360 degree performance appraisals dismantle vertical boundaries. Cross-functional teams, project-driven activities, lateral transfers, and job rotation minimize horizontal boundaries. Globalization, strategic alliances, customer-organization linkages, and telecommuting overcome external boundaries.
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24. Sample Matrix Structure
Because workers in the matrix have two bosses—their functional department managers and their product managers—the matrix breaks the unity-of-command concept.
The matrix has strong points: it facilitates coordination between multiple projects that are complex and interdependent, and it efficiently allocates specialists.
The matrix also has several weaknesses: it can create confusion, foster power struggles, and increase employee stress. So, the matrix has met with mixed success.
Exhibit 5.10
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25. Virtual Organization
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26. Learning Organization
An organization that has developed the capacity to continuously adapt and change because all members take an active role in identifying and resolving work-related issues.
Organization design
Information sharing
Leadership
Organizational culture
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27. Characteristics of a Learning Organization
Source: Based on P. M. Senge, The Fifth Discipline: The Art and Practice of Learning Organizations (New York: Doubleday, 1990); and R. M. Hodgetts, F. Luthans, and S. M. Lee, “New Paradigm Organizations: From Total Quality to Learning to World Class.” Organizational Dynamics (Winter 1994), pp. 4–19.
Exhibit 5.11
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28. Organization Culture Organization culture
A system of shared meaning within an organization that determines, to a large degree, how employees act
Shared values are shown in cultural elements:
Stories, rituals, material symbols, and language unique to the organization
Results from the interaction between:
The founders’ biases and assumptions
What the first employees learn subsequently from their own experiences.
The term organization culture refers to a system of meaning that members share and that distinguishes the organization from others. This system strongly influences how employees will behave while they are at work. The culture of an organization can be analyzed based on how it rates on ten characteristics, which are relatively stable and predictable over time.
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29. 10 Characteristics of Organization Culture
Member identity
Group emphasis
People focus
Unit integration
Control
Risk tolerance
Reward criteria
Conflict tolerance
Means-end orientation
Open-systems focus
Member identify is the degree to which employees identify with the organization as a whole rather than with their type of job or professional expertise.
Group emphasis is the degree to which work activities are organized around groups rather than individuals.
People focus is the degree to which the decisions of management take into consideration the effect of outcomes on people.
Unit integration is the degree to which organizational units work in a cooperative or independent manner.
Control is the degree to which regulations, rules, and direct supervision are used. Risk tolerance is the degree to which employees are encouraged to be aggressive and innovative.
Reward criteria is the degree to which rewards are allocated on employee performance rather than seniority or favoritism.
Conflict tolerance is the degree to which employees are encouraged to air conflicts and criticisms openly.
Means-end orientation is the degree to which management focuses on results rather than the techniques used to achieve them.
Open-systems focus is the degree to which the organization monitors and responds to changes in the external environment.
Exhibit 5.12
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30. Web Links Visit the Robbins/DeCenzo companion Website
At for this chapter’s Internet resources, including chapter quiz and student PowerPoints.
Diversity Perspectives
Log onto to enhance your skill in managing a diverse workforce.
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31. Video Case Application SAS Institute
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