Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Organizational Structure and Design Chapter 16

16-2 Learning Objectives ■ Identify the choices that must be made in designing an organizational structure ■ Define what is meant by division of labor ■ Discuss the role of delegation of authority in design decisions ■ Describe several forms of departmentalization ■ Identify the major advantages of matrix organizational design

16-3 Learning Objectives ■ Explain the importance of span of control ■ Define three important dimensions of structure ■ Compare mechanistic and organic organizational design ■ Discuss multinational organizational structure and design issues ■ Explain the meaning of virtual organization

16-4 Introduction Many structural possibilities exist Today’s global business environment makes structure and design consideration critical Structure helps achieve coordinated effort Task and authority relationships are set Primary purpose is to regulate behavior and achieve goals

16-5 Designing an Organizational Structure Establishing structure requires decisions about ■ Jobs ■ Work projects ■ Departments Process may be explicit or implicit ■ May be one-shot or developmental ■ Can be done by a single manager or by a team of managers

16-6 Designing an Organizational Structure

16-7 Division of Labor Personal specialties Sequence of work Vertical plane

16-8 Delegation of Authority Managers decide how much authority is delegated to each job and jobholder ■ The amount and type of authority can vary Authority refers to making decisions, not doing work

16-9 Reasons to Decentralize Authority High Delegation of Authority Encourages development of professional managers Can lead to competitive climate within the organization Allows more autonomy; satisfies needs for participation and problem solving

16-10 Reasons to Centralize Authority Cost of training managers to handle authority can outweigh the benefits Managers may perform less effectively; they equate delegating authority with losing control Lower administrative and supervisory costs Avoids duplication of efforts

16-11 Decision Guidelines Whether to centralize or decentralize authority can only be guided by general questions ■ How routine and straightforward are the required decisions? ■ Are individuals competent to make the decisions? ■ Are individuals motivated to make the decisions? ■ Do the benefits of decentralization outweigh the costs?

16-12 Departmental Bases Functional Geographic Product Customer

16-13 Functional Departmentalization Structure

16-14 Geographic Departmentalization Structure

16-15 Product Departmentalization Structure

16-16 Customer Departmentalization Structure

16-17 Matrix Organizations

16-18 Span of Control The number of subordinates who report to a superior ■ Affects shape & height of organization structure ■ Depends on how many people and relationships a manager can oversee Key factors ■ Required contact ■ Degree of specialization ■ Ability to communicate

16-19 Dimensions of Structure Formalization Centralization Complexity

16-20 Organizational Dimensions and Decisions

16-21 Organizational Design Models Mechanistic Model ■ Specialization ■ Unity of Direction ■ Authority and Responsibility ■ Scalar Chain ■ Bureaucracy Max Webber coined the term “bureaucracy”

16-22 Bureaucracy In laymen’s terms… ■ The negative consequences of large organizations According to Max Weber… ■ A particular way to organize collective activities ■ Superior to any other form in precision, stability, and the stringency of its discipline and reliability

16-23 Bureaucracy Weber’s organization characteristics… ■ All tasks divided into highly specialized jobs ■ Each task performed according to a system of rules to ensure uniformity and coordination ■ Each member or office is accountable for job performance to only one manager ■ Each employee relates to other employees and clients in an impersonal, formal manner ■ Employment is based on technical qualifications and is protected against arbitrary dismissal

16-24 Bureaucracy Fayol and Weber describe mechanistic organizations with high production and efficiency as… ■ Highly complex ■ Highly centralized ■ Highly formalized

16-25 The Organic Model SatisfactionFlexibilityDevelopment The organic model seeks to maximize

16-26 The Organic Model Flexible to environmental demands Greater utilization of the human potential Decision making, control, and goal setting are decentralized and shared at all levels Communication flows throughout the organization, not just up and down

16-27 Characteristics of Organic Organizations Simple Decentralized Informal

16-28 Multinational Structure and Design Structural design considerations ■ Division of labor ■ Delegation of authority ■ Departmentalization ■ Span of control Organizational designs also shaped by ■ Social, political, cultural, legal, and economic environments ■ Geographic location

16-29 Multinational Structure and Design Product Geographic Function

16-30 Virtual Organizations Collection of geographically distributed, functionally and/or culturally diverse individuals linked by electronic communication ■ One of the fastest developing business practices ■ Enables reliance on smaller, closer-to-market partners ■ Relies on blurred boundaries to forge relationships that are often governed by contract ■ Is assembled and disassembled according to needs

16-31 Virtual Organizations Design considerations ■ Personnel distributed geographically ■ Electronically connected ■ Differences in expertise and function ■ Cultural diversity ■ Work schedule differences ■ Horizontally arrangement with little command and control

16-32 Virtual Organizations Design implications ■ Contractual relationships ■ Constant change and reconfiguration ■ No rigid boundaries ■ Flexible ■ Little or no personal/social contact

16-33 Virtual Organizations Consequences ■ Increased communication and messages ■ Relationships are tenuous ■ Continual surety of roles, tasks, assignments ■ Greater equity of participation ■ Cautions needed in managing feedback, discussion, performance reviews, and rewards

16-34 Virtual Organizations Viable if there is fit between ■ The work ■ Expertise ■ Goals ■ Business requirements Design approach centers on ■ Economic gains from using specialized firms ■ Computers and telecommunications networks reducing costs of coordination

16-35 Virtual Organizations Exact form of virtual organizations varies ■ Develop relationships only with key suppliers ■ Develop relationships with marketers and distributors ■ The parent organization acts as a broker, dealing independently with product designers, producers, suppliers, and markets

16-36 Boundaryless Organizations Chains of command are eliminated Spans of control are unlimited A firm in which… Empowered teams replace rigid departments Rigid structure and specificity create barriers

16-37 Boundaryless Organizations Flatter hierarchy ■ Less distance between layers ■ Less separation between top-level managers and other employees More emphasis on ■ Participative decision making ■ Multiple-hierarchy teams ■ Team building ■ Coordination

16-38 Boundaryless Organizations The boundaryless organization involves the breaking down of… ■ Structure ■ Hierarchy ■ Specific roles ■ Distance