Business Administration Organizational Structures and Organizational Environment Source: Richard L. Daft, Jonathan Marphy, Hugh Willmott Organization Theory and Design 2014, 2nd edition, Cengage Learning ISBN 978-1-4080-7237-0

A Sample Organization Chart

Functional vs. Divisional Structure - Example

Functional Structure Strengths Weaknesses Functional Structure Strengths Weaknesses Slow response time to environmental changes May cause decisions to pile on top, hierarchy overload Leads to poor horizontal coordination Results in less innovation Involves restricted view of goals Allows economies of scale within functional departments Enables in-depth knowledge and skill development Enables organizations to accomplish functional goals Is best with only one or a few products Horizontal coordination: Coordination between (functional) departments

Divisional Structure Strengths Weaknesses Divisional Structure Strengths Weaknesses Suited to fast change in unstable environment Leads to customer satisfaction Involves high coordination Allows units to adapt to differences Best in large organizations with several products Decentralizes decision making Eliminates economies of scale in functional departments Leads to poor coordination Eliminates in-depth competence and technical specialization Makes integration and standardization across product lines difficult Decentralized decision making: Decisions take place at lower levels of the organizations, so not only at top level.

Geographic Structure Organized to meet needs of users/customers by geography Particularly common in large non-profit organizations Many multinational corporations are organized by country Focuses managers and employees on specific geographic regions Strengths and weaknesses similar to divisional organization

Sample Geographic Structure

Hybrid Structure Organizations often use hybrid structure, combining characteristics of various approaches. Common type: combination of functional and divisional structures Often used in rapidly changing environments Greater flexibility

An Organization’s Environment

Dimensions of the Environment Dimensions of the Environment Simple-Complex dimension: Environmental complexity/heterogeneity  number and dissimilarity of relevant external elements Stable-Unstable dimension: Are external elements dynamic? Combined into a framework for assessing uncertainty This is about the external environment, so not about the environment inside the organization. Simple: little and/or similar external elements Complex: many and/or diverse external elements Stable: few changes Unstable: many changes

Framework for Assessing Environmental Uncertainty

Adapting to Environmental Uncertainty Organizations need the right fit between internal structure and the external environment: Positions and Departments  An employee/department for every sector Buffering and Boundary Spanning - Buffering: absorbing external effects on technical core - Boundary-spanning: keep in touch with environment Buffering: traditional approach but static and defensive  for example: Purchasing department buffers organizational core by means of stocks, HR department buffers organizational core by finding/hiring/training employees. Boundary-spanning: Get info about changes in (external) environment Send info into environment presenting the organization in a favourable light

Adapting to Environmental Uncertainty Differentiation and Integration - Differentiation: Establishing various departments, differing in terms of managers and formal structures - Integration: Quality of collaboration among departments Organic vs. Mechanistic Management Processes - Mechanistic system: formalized and centralized - Organic system: not formalized and decentralized Planning, Forecasting, and Responsiveness With increasing environmental uncertainty, these become more important, but also more difficult. Formalized: Many rules, procedures, descriptions, etc. Not formalized: Few rules, procedures, descriptions, etc. Centralized: Decisions are mainly taken in the top levels of the organization Decentralized: Decisions are taken in different levels of the organization, so also in the lower levels Responsiveness: Acting fast in response to changes in the environment

Framework for Organizational Responses to Uncertainty