Chapter Thirteen Organization Design

Chapter Objectives Describe the essential elements of organization design. Explain three classical view of organization structure. Discuss the primary contingency approaches to organization design. Identify the factors and several popular approaches that determine how an organization should be designed. Copyright © Houghton Mifflin Company. All rights reserved.

Essential Elements of Organization Design A group of people working together to attain common goals. Organizational Goals Objectives that management seeks to achieve in pursuing the firm’s purpose. Strategies Specific action plans that enable the organization to achieve its goals and thus its purpose. Copyright © Houghton Mifflin Company. All rights reserved.

Organization Structure Organizational Structure The system of task, reporting, and authority relationships within the organization. Structure – the form and function of the organization’s activities and how these parts fit together Organization Chart A diagram showing all people, positions, reporting relationships, and lines of formal communication. Copyright © Houghton Mifflin Company. All rights reserved.

Figure 13.1: Examples of Organization Charts Copyright © Houghton Mifflin Company. All rights reserved.

Division of Labor Division of Labor The way the organization’s work is divided into different jobs to be done by different people. Large organizations have more division of labor than smaller ones. Copyright © Houghton Mifflin Company. All rights reserved.

Table 13.1: Advantages and Disadvantages of Division of Labor Copyright © Houghton Mifflin Company. All rights reserved.

Coordinating the Divided Tasks Three basic mechanisms are used to help coordinate the divided tasks: Departmentalization Span of control Administrative hierarchy These mechanisms focus on: Grouping tasks in some meaningful manner Creating work groups of manageable size Establishing a system of reporting relationship among supervisors and managers Copyright © Houghton Mifflin Company. All rights reserved.

Departmentalization Departmentalization The manner in which divided tasks are combined and allocated to work groups. It is a consequence of division of labor. The five groupings most often used are: Business function Process Product or service Customer Geography Copyright © Houghton Mifflin Company. All rights reserved.

Figure 13.2: Departmentalization by Business Function and Process Copyright © Houghton Mifflin Company. All rights reserved.

Figure 13.3: Departmentalization by Customer and Geographic Region Copyright © Houghton Mifflin Company. All rights reserved.

Span of Control Span of Control The number of people who report to a manager It defines the size of the organization’s work groups A manager who has a small span of control can maintain close control over workers and stay in contact with daily operations. If the span of control is large, close control is not possible. Copyright © Houghton Mifflin Company. All rights reserved.

Figure 13.4: Mixed Departmentalization Copyright © Houghton Mifflin Company. All rights reserved.

Figure 13.5: Span of Control and Levels in the Administrative Hierarchy Copyright © Houghton Mifflin Company. All rights reserved.

Administrative Hierarchy The system of reporting relationships in the organization, from the lowest to the highest managerial levels. It results from the need for supervisors and managers to coordinate the activities of employees. The size of the administrative hierarchy is inversely related to the span of control. Organizations with a small span of control have many managers in the hierarchy. Those with a large span of control have a smaller administrative hierarchy. Copyright © Houghton Mifflin Company. All rights reserved.

Authority, Responsibility, and Decision Making Power that has been legitimized within a specific social context and includes the legitimate right to use resources to accomplish expected outcomes Responsibility Obligation to do something with the expectation some act or output will result Copyright © Houghton Mifflin Company. All rights reserved.

Acceptance Theory of Authority Related Issues Delegation The transfer to others of authority to make decisions and use organizational resources. Acceptance Theory of Authority The authority of a manager depends on the subordinate’s acceptance of the manager’s right to give directives and expect compliance with them. Copyright © Houghton Mifflin Company. All rights reserved.

Related Issues (continued) Centralization Decision-making authority is concentrated at the top of the organizational hierarchy. At the opposite end of the continuum is decentralization, in which decisions are made throughout the hierarchy. Formalization The degree to which rules and procedures shape the jobs and activities of employees Purpose is to predict and control how employees behave on the job Copyright © Houghton Mifflin Company. All rights reserved.

Classic Views of Structure: The Universal Approach In the universal approach to organization design (also called the classical organization theory), prescriptions or propositions are designed to work in any circumstance. It prescribes the “one best way” to structure the jobs, authority, and reporting relationships of the organization, regardless of factors such as the organization’s external environment, the industry, and the type of work to be done. Copyright © Houghton Mifflin Company. All rights reserved.

Contingency Approaches to Organizational Design Under the contingency approach to organization design, the desired outcomes for the organization can be achieved in several ways. The contingency factors include the: Strategy of the organization Technology Environment Organization’s size Social system within which the organization operates Copyright © Houghton Mifflin Company. All rights reserved.

Structural Imperatives The structural-imperatives approach to organizational design has been the most discussed and researched contingency perspective in the last 40 years. It gradually emerged from the vast number of studies that sought to address the question “What are the compelling factors that determine how the organization must be structured to be effective?” Copyright © Houghton Mifflin Company. All rights reserved.

Figure 13.6: The Structural-Imperatives Approach Copyright © Houghton Mifflin Company. All rights reserved.

Contingency Factors Strategy Size The plans and actions necessary to achieve organizational goals. Size Generally, larger organizations have a more complex structure than smaller ones in that large size is associated with greater specialization of labor, a larger span of control, more hierarchical levels, and greater formalization. Organizational downsizing aims to reduce the size of corporate staff and middle management to reduce costs. Copyright © Houghton Mifflin Company. All rights reserved.

Contingency Factors (continued) Technology The mechanical and intellectual processes that transform inputs into outputs. Although many different ways to evaluate and measure technology are available, there is general agreement that technology is a very important determinant of organization design. Environment Everything outside the boundaries of the organization, including people, other organizations, economic factors, objects and events. Copyright © Houghton Mifflin Company. All rights reserved.

Contingency Factors (continued) General Environment Includes the broad set of dimensions and factors within which the organization operates, including the: Political-legal factor Sociocultural factor Technological factor Economic factor International factor Task Environment Includes specific organizations, groups, and individuals who influence the organization. Copyright © Houghton Mifflin Company. All rights reserved.

Aspects of the Environment Environmental Uncertainty When managers have little information about environmental events and their impact on the organization Environmental Complexity The number of environmental components that impinge on organizational decision making Environmental Dynamism The degree to which environmental components that impinge on organizational decision making change Copyright © Houghton Mifflin Company. All rights reserved.

Mechanistic and Organic Designs Mechanistic Structure Primarily hierarchical, interactions and communications typically are vertical, instructions come from the boss, knowledge is concentrated at the top, and loyalty and obedience are required to sustain membership Organic Structure Set up like a network; interactions and communications are horizontal, knowledge resides wherever it is most useful to the organization, and membership requires a commitment to the organization’s tasks Copyright © Houghton Mifflin Company. All rights reserved.

Mintzberg’s Coordinating Mechanisms Henry Mintzberg described five methods of coordinating the actions of organizational participants: Mutual adjustment Direct supervision, and standardization of Input skills Work processes Outputs Copyright © Houghton Mifflin Company. All rights reserved.

Figure 13.7: Mintzberg’s Five Coordinating Mechanisms Reference: Henry Mintzberg, The Structuring of Organizations: A Synthesis of the Research. 1979, p.4. Reprinted by permission of Prentice Hall, Inc., Englewood Cliffs, N.J. Used with permission. Copyright © Houghton Mifflin Company. All rights reserved.

Mintzberg’s Structural Forms Simple Structure Little specialization or formalization; power and decision making are concentrated in the chief executive Machine Bureaucracy Highly specialized and formalized, and decision making is usually concentrated at the top Professional Bureaucracy Characterized by horizontal specialization by professional areas of expertise, little formalization, and decentralized decision making Copyright © Houghton Mifflin Company. All rights reserved.

Mintzberg’s Structural Forms (continued) Divisional Structure Divided according to the different markets served; horizontal and vertical specialization exists between division and headquarters, decision making is divided between headquarters and divisions, and outputs are standardized Adhocracy Decision making is spread throughout the organization, power resides with the experts, horizontal and vertical specialization exists, and there is little formalization Copyright © Houghton Mifflin Company. All rights reserved.

Matrix Organization Design Matrix Design Combines two different designs to gain the benefits of each; typically combined are a product or project departmentalization scheme and a functional structure. This structure has the capacity for flexible and coordinated responses to internal and external pressures because members can be reassigned from one project to another as demands for their skills change. Copyright © Houghton Mifflin Company. All rights reserved.

Figure 13.8: A Matrix Organizational Design Copyright © Houghton Mifflin Company. All rights reserved.