3Learning Objectives After reading this chapter, you should be able to: Identify the vertical and horizontal dimensions of organization structure.Apply the three basic approaches-functional, divisional, and matrix-to departmentalization.Develop coordination across departments and hierarchical levels.Use organization structure and the three basic organization designs – mechanistic, organic, and boundaryless – to achieve strategic goals.Develop an awareness of strategic events that are likely to trigger a change in the structure and design of an organization.
4Daimler Shifts GearsThe new CEO of DaimlerChrysler is making quite a bit organizational changes.How do the structural changes being made at Daimler respond to the company’s new goals?Why was the former structure no longer useful for reaching strategic goals?
5OrganizingThe deployment of resources to achieve strategic goals. It is reflected in:The organization’s division of labor that forms jobs and departments.Formal lines of authority.The mechanisms used for coordinating diverse jobs and roles in the organization.Strategy indicates what needs to be done.Organizing shows how to do it.
6Organization Structure Formal system of relationships that determine:Lines of authority – who reports to whom.Tasks assigned to individuals and units – who does what tasks and with which department.Dimensions of organization structure:Vertical dimensionHorizontal dimension
7The Vertical Dimension of Organization Structure Unity of Command – a subordinate should have only one direct supervisor.A decision can be traced back from the subordinates who carry it out to the manager who made it.
8The Vertical Dimension of Organization Structure (continued) Authority – The formal right of a manager to make decisions, give orders, and expect the orders to be carried out.Line AuthorityStaff AuthorityResponsibility – the manager’s duty to perform an assigned task.Accountability – the manager (or other employee) with authority and responsibility must be able to justify results to a manager at a higher level in the organizational hierarchy.
9The Vertical Dimension of Organization Structure (continued) Line Authorityentitles a manager to directly control the work of subordinates by hiring, discharging, evaluating, and rewarding themline managers hold positions that contribute directly to the strategic goals of the organizationpart of the chain of commandStaff Authoritythe right to provide advice, recommend, and counsel line managers and others in the organizationstaff managers direct line managers
10The Vertical Dimension of Organization Structure (continued) Span of control – the feature of vertical structure that outlines:The number of subordinates who report to a manager.The number of managers.The layers of management within an organization.Smaller span – fewer employees supervised by a manager – creates a tall vertical organizational structureLarger span – greater number of employees supervised – creates a flat organizational structure
11The Vertical Dimension of Organization Structure (continued) Centralization – the location of decision authority at the top of the organization hierarchy.Decentralization – the location of decision authority at lower levels in the organization.Formalization – the degree of written documentation that is used to direct and control employees.
13The Horizontal Dimension of Organization Structure The organization structure element that is the basis for:Dividing work into specific jobs and tasks.Assigning jobs into units such as departments or teams.Departmentalization:FunctionalDivisionalMatrix
15Advantages and Disadvantages of the Functional Approach Decision authority is centralized at the top of the organization hierarchyCareer paths foster professional identity with the business functionHigh degree of efficiencyEconomies of scale help develop specialized expertise in employeesDisadvantagesCommunication barriersConflict between departmentsCoordination of products and services is difficultDiminished responsiveness to customers’ needsEmployees identify with functional department goals and not organization goals or needs of the customer
18Advantages and Disadvantages of the Divisional Approach Coordination among different business functionsImproved and speedier serviceAccountability for performanceDevelopment of general manager and executive skillsDisadvantagesDuplication of resources by two or more departmentsReduced specialization in occupational skillsCompetition among divisions
20Advantages and Disadvantages of the Matrix Approach Efficient utilization of scarce, expensive specialistsFlexibility that allows new projects to start quicklyDevelopment of cross-functional skills by employeesIncreased employee involvement in management decisions affecting project or product assignmentsDisadvantagesEmployee frustration and confusion as a result of the dual chain of commandConflict between product and functional managers over deadlines and prioritiesToo much time spent in meetings to coordinate decisions
22Organization DesignThe selection of an organization structure that best fits the strategic goals of the business.Basic organization designs:MechanisticOrganicBoundarylessThese designs incorporate vertical and horizontal structural elements.
23Organization Design (continued) As business strategy changes, so do the structural elements of organization design.Strategic factors that affect the choices of organization design:Organization capabilitiesTechnologyOrganization sizeEnvironmental turbulence
24Mechanistic, Organic, and Boundaryless Designs Emphasis on teams that also may cross organization boundariesEmphasis on teamsEmphasis on individuals working independentlyBroadly defined flexible jobsNarrowly defined specialized jobsDecentralized decision authorityCentralized decision authorityInformal communicationTop-down communicationLow formalizationHigh formalizationCollaboration (vertical, horizontal, customers, suppliers, competitors)Collaboration (both vertical and horizontal)Rigid hierarchical relationshipsBoundarylessOrganicMechanistic
26Daimler Shifts GearsChanges in structure are intended to enable company to move faster and with more flexibilityCompetitive threatsRecapture preeminent position in industryAlso intended to cut costsPrevious structure had duplication (partly due to merger/acquisition) and distanced management from core of business.Focus: back to basics
27In-class exercise Apollo 13 Write: Discuss with your neighbor what type of structure is illustrated?what type of organizational design is illustrated?Discuss with your neighbor
28Video: One Smooth Stone Write your response to first discussion question bottom of p. 384.Now exchange with your partner and compare and contrast with Apollo 13.
29Individual/Collaborative Learning 9.1 (p. 382) On a sheet of paper, respond to the first question.Work on the Collaborative Learning Exercise with two other students.On your sheet of paper, write the ONE conclusion that you found most interesting.