What Is Organizational Structure? Key Elements: 1.Work specialization 2.Departmentalization 3.Chain of command 4.Span of control 5.Centralization and decentralization 6.Formalization Key Elements: 1.Work specialization 2.Departmentalization 3.Chain of command 4.Span of control 5.Centralization and decentralization 6.Formalization Organizational Structure Defines how job tasks are formally divided, grouped, and coordinated. There are six key elements that managers need to address when they design their org.’s structure.
Work Specialization Division of labor: Makes efficient use of employee skills Increases employee skills through repetition Less between-job downtime increases productivity Specialized training is more efficient. Allows use of specialized equipment. Division of labor: Makes efficient use of employee skills Increases employee skills through repetition Less between-job downtime increases productivity Specialized training is more efficient. Allows use of specialized equipment. The degree to which tasks in the organization are subdivided into separate jobs.
Economies and Diseconomies of Work Specialization Impact from economies of specialization Impact from humandiseconomiesHighLow Low High Productivity Work Specialization
2- Departmentalization by Type The basis by which jobs are grouped together is called…. Functional –Grouping jobs by functions performed Product –Grouping jobs by product line Geographical –Grouping jobs on the basis of territory or geography Process –Grouping jobs on the basis of product or customer flow Customer –Grouping jobs by type of customer and needs
Functional Departmentalization Advantages Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations Coordination within functional area In-depth specialization Disadvantages Poor communication across functional areas Limited view of organizational goals
Geographical Departmentalization Advantages More effective and efficient handling of specific regional issues that arise Serve needs of unique geographic markets better Disadvantages Duplication of functions Can feel isolated from other organizational areas
Product Departmentalization +Allows specialization in particular products and services +Managers can become experts in their industry +Closer to customers –Duplication of functions –Limited view of organizational goals
Process Departmentalization +More efficient flow of work activities –Can only be used with certain types of products
Customer Departmentalization + Customers’ needs and problems can be met by specialists - Duplication of functions - Limited view of organizational goals
3 - Chain of Command –The continuous line of authority that extends from upper levels of an organization to the lowest levels of the organization and clarifies who reports to whom. Chain of Command involves three other concepts: Authority Responsibility Unity of Command
3 - Chain of Command……continued Authority –Refers to 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 any assigned duties. Unity of Command –The concept that a person should have one boss and should report only to that person (Fayol, Weber, Taylor)
4 - Span of Control Narrow Span Drawbacks: Expense of additional layers of management. Increased complexity of vertical communication. Encouragement of overly tight supervision and discouragement of employee autonomy. Narrow Span Drawbacks: Expense of additional layers of management. Increased complexity of vertical communication. Encouragement of overly tight supervision and discouragement of employee autonomy. Concept: Wider spans of management increase organizational efficiency. Concept: The number of subordinates a manager can efficiently and effectively direct.
Contrasting Spans of Control
5 - Centralization & Decentralization Centralization –The degree to which decision-making is concentrated at a single point in the organizations. Organizations in which top managers make all the decisions and lower-level employees simply carry out those orders. Decentralization –Organizations in which decision-making is pushed down to the managers who are closest to the action. Employee Empowerment –Increasing the decision-making authority (power) of employees.
6 - 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.
Common Organizational Designs Three of the more common org. designs in use: the simple structure, the bureaucracy, and the matrix Simple Structure A structure characterized by a low degree of departmentalization, wide spans of control, authority centralized in a single person, and little formalization. This structure is most widely practiced in small businesses in which the manager & the owner are one & the same. Strength: simplicity. It is fast, flexible, & inexpensive to maintain, and accountability is clear. Weakness: it’s difficult to maintain in any other than small orgs. As org. grows due to its low formalization & high centralization creates information overload at the top.
Common Organization Designs (cont’d) Max Weber’s Bureaucracy Model Standardization is the key concept that underlies all bureaucracies. highly operating routine tasks achieved through specialization, formalized rules and regulations, tasks are grouped into functional departments, centralized authority narrow spans of control decision making that follows the chain of command.
The Bureaucracy Strengths –Functional economies of scale –Minimum duplication of personnel and equipment –Enhanced communication –Centralized decision making Weaknesses –Subunit conflicts with organizational goals –Obsessive concern with rules and regulations –Lack of employee discretion to deal with problems
Common Organization Designs (cont’d) Key Elements: + Gains the advantages of functional and product departmentalization while avoiding their weaknesses. + Facilitates coordination of complex and interdependent activities. – Breaks down unity-of-command concept. Key Elements: + Gains the advantages of functional and product departmentalization while avoiding their weaknesses. + Facilitates coordination of complex and interdependent activities. – Breaks down unity-of-command concept. Matrix Structure A structure that creates dual lines of authority and combines functional and product departmentalization.
Matrix Structure (College of Business Administration) (Dean) (Director) Employee
New Design Options Characteristics: Breaks down departmental barriers. Decentralizes decision making to the team level. Requires employees to be generalists as well as specialists. Creates a “flexible bureaucracy.” Characteristics: Breaks down departmental barriers. Decentralizes decision making to the team level. Requires employees to be generalists as well as specialists. Creates a “flexible bureaucracy.” Team Structure The use of teams as the central device to coordinate work activities.
New Design Options (cont’d) Concepts: Advantage: Provides maximum flexibility while concentrating on what the organization does best. Disadvantage: Reduced control over key parts of the business. Concepts: Advantage: Provides maximum flexibility while concentrating on what the organization does best. Disadvantage: Reduced control over key parts of the business. Virtual Organization A small, core organization that outsources its major business functions. Highly centralized with little or no departmentalization.
New Design Options (cont’d) Boundaryless Organization The boundary-less organization seeks to eliminate the chain of command, have limitless spans of control, and replace departments with empowered teams. Org. rely so heavily on IT, it is also sometimes called the T- form ( or technology based) org.
High specialization Rigid departmentalization Clear chain of command Narrow spans of control Centralization High formalization Cross-functional teams Cross-hierarchical teams Free flow of information Wide spans of control Decentralization Low formalization Why Do Structures Differ? – Strategy
Innovation Strategy A strategy that emphasizes the introduction of major new products and services. Imitation Strategy A strategy that seeks to move into new products or new markets only after their viability has already been proven. Cost-minimization Strategy A strategy that emphasizes tight cost controls, avoidance of unnecessary innovation or marketing expenses, and price cutting.
Why Do Structures Differ? – Size Size How the size of an organization affects its structure. As an organization grows larger, it becomes more mechanistic. Technology How an organization transfers its inputs into outputs. Environment Institutions or forces outside the organization that potentially affect the organization’s performance.