Designing Organizational Structures

Coordinating Through Informal Communication Sharing information, forming shared mental models Allows flexibility Vital in nonroutine and ambiguous situations Easiest in small firms Applied in team-based structures Includes integrator roles

Coordinating Through Hierarchy and Standardization Formal hierarchy Direct supervision Assigns formal (legitimate) power to manage others Coordination strategy for departmentalization Standardization Standardized processes (e.g., job descriptions) Standardized outputs (e.g., sales targets) Standardized skills (e.g., training)

Elements of Organizational Structure Department-alization Span of Control Elements of Organizational Structure Formalization Centralization

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

Centralization and Decentralization Information Systems Centralization -- Formal decision making authority is held by a few people, usually at the top Decentralization increases as companies grow Varying degrees of centralization in different areas of the company Example: sales decentralized; info systems centralized Production Sales Upper Mgt Middle Mgt Front line Supervisory Upper Mgt Upper Mgt Middle Mgt Middle Mgt Supervisory Supervisory Front line Front line = locus of decision making authority

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

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

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

Evaluating Divisional Structures Benefits Building block structure -- accommodates growth Focuses on markets/products/clients Limitations Duplication, inefficient use of resources Expertise is dispersed Reduced ability and motivation to cooperate – creates silos of knowledge Difficulty determining best divisional form

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

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 conflict and ambiguity Two bosses dilutes accountability More conflict, organizational politics, and stress

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

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

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